West v. Umialik Ins. Co., No. S-9070.

• Court: Supreme Court of Alaska (US)
• Writing for the Court: MATTHEWS, Chief Justice.
• Citation: 8 P.3d 1135
• Parties: James and Jane WEST, Appellants, v. UMIALIK INSURANCE COMPANY, Appellee.
• Docket Number: No. S-9070.
• Decision Date: 29 September 2000

8 P.3d 1135

James and Jane WEST, Appellants,
v.
UMIALIK INSURANCE COMPANY, Appellee

No. S-9070.

Supreme Court of Alaska.

September 29, 2000.

8 P.3d 1136

Thomas R. Manniello, Borgeson & Burns, PC, Fairbanks, for Appellants

Michael A. Budzinski, Alex K.M. Vasauskas, Stone, Jenicek & Budzinski, Anchorage, for Appellee.

Before MATTHEWS, Chief Justice, EASTAUGH, FABE, BRYNER, and CARPENETI, Justices.

OPINION

MATTHEWS, Chief Justice.

I. INTRODUCTION

This case involves coverage under a home-owners insurance policy for damage caused by the settling of a house when soil under the foundation was washed away by water from broken plumbing. The superior court entered summary judgment in favor of the insurer, applying policy exclusions for loss caused by settling, earth movement, and water damage. Because the listed exclusions only apply to external or natural phenomena such that the damage does not fall within the exclusions, we reverse and direct the superior court to enter summary judgment in favor of the homeowners.

II. FACTS AND PROCEEDINGS

This case concerns a dispute whether damage to the Fairbanks house owned by James and Jane West is covered under the their homeowners insurance policy. The facts are uncontested and set out in the parties' Stipulation of Facts. The Wests' house was insured under a homeowners insurance policy issued by Umialik Insurance Company. The water source for the house is a well. The pump for the well is located next to the house in an insulated chamber buried four or five feet below ground. The chamber is connected to the house's basement by a water pipe which runs through an insulated causeway. Ordinarily, heat from the basement also heats the causeway and prevents the system from freezing.

In late 1995 or early 1996 the temperature in the basement dropped below freezing, causing the pipe to break at the well pump and allowing water to gush out of the pump into the ground. The water infused the ground beneath the house's foundations. The Wests repaired the pipe. At the time, the house did not appear damaged.

But the northeast corner of the house later settled about three feet as a result of the leak. The parties agree that "[t]he water from the frozen broken water line had seeped under the house and undermined the dwelling's foundation, causing the settling of the house." Although the house was not breaking apart or collapsing, the house was racking, i.e., twisting, which caused sheetrock cracks, gaps in the ceiling and floor, uneven flooring, and doors that were out of plumb. In order to correct the problem, "a new basement foundation system would have to be built and the upper structure moved onto it" or "a two-story house above ground could be built on a different type of foundation to provide equivalent living space."

The relevant provisions of the Wests' homeowners insurance policy are set forth in the margin.¹ The policy is an "all risks"

8 P.3d 1137

policy. In contrast to a "specific designation of risks" policy, which provides coverage only for enumerated perils, an "all risks" policy provides coverage for all perils not specifically excluded by the policy language.²

The Wests reported this loss to Umialik, which denied coverage. In denying coverage, Umialik relied on the exclusion for settling contained in paragraph 2.e(6) of the Perils Insured Against clause. Umialik also relied on paragraphs 1(b) and (c) of the Exclusions clause, which exclude earth movement and water damage "regardless of any other cause or event contributing concurrently or in any sequence to the loss."

The policy also specifically excludes coverage for freezing or the discharge from plumbing which has burst because of freezing. But because this exclusion does not apply when the home is occupied, the parties agree that this exclusion does not apply.

On December 5, 1997, the Wests filed this action in superior court, seeking damages and a declaration that the damage was covered under the policy. The parties stipulated as to the facts and filed cross-motions for summary judgment. The court concluded that Umialik had properly denied the claim and entered summary judgment in favor of Umialik. The Wests appeal.

III. STANDARD OF REVIEW

This court reviews an order of summary judgment de novo.³ Summary judgment is appropriate where "there is no genuine issue as to any material fact and ... any party is entitled to judgment as a matter of law."⁴ Normally, we will construe all facts in favor of the non-moving party.⁵ Here, the parties agree on the material facts, and each seeks judgment as a matter of law. Therefore, we need only determine which party is entitled to judgment as a matter of law. In reviewing questions of law, this court exercises its independent judgment and adopts the rule of law that is most persuasive in light of precedent, reason, and policy.⁶

IV. DISCUSSION

Umialik denied the Wests coverage under exclusions for settling, earth movement, and water damage. The Wests contend that they

8 P.3d 1138

reasonably expected the policy to cover this loss

A. The Doctrine of Reasonable Expectations

Alaska has adopted the doctrine of reasonable expectations. We have held that "[t]he obligations of insurers are generally determined by the terms of their policies."⁷ But because insurance policies are contracts of adhesion, they are construed according to the principle of "reasonable expectations."⁸ Under the reasonable expectations doctrine, "[t]he objectively reasonable expectations of applicants ... regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations."⁹

It is a settled principle that ambiguities in an insurance policy are construed in favor of the insured.¹⁰ The court need not find the policy ambiguous, however, to construe it under the reasonable expectations doctrine.¹¹ To determine the parties' reasonable expectations, the court examines (1) the language of the disputed policy provisions; (2) the language of other provisions in the same policy; (3) extrinsic evidence; and (4) case law interpreting similar provisions.¹²

B. The Exclusion for Settling Does Not Apply.

Umialik denied coverage to the Wests under the exclusion for loss caused by settling. The Wests argue that a reasonable person could understand "settling" to refer exclusively to settling caused by natural phenomena. Umialik contends the term plainly excludes a sinking of the land by any means. The term is not defined in the policy. We agree with the Wests that the settling exclusion does not preclude coverage for their loss.

1. The language of the disputed policy provision

The reasonable expectations doctrine directs the court to look first at the language of the disputed policy provision. The policy does not insure "for loss . . . [c]aused by . . . [s]ettling, shrinking, bulging or expansion, including resultant cracking, of pavements, patios, foundations, walls, floors, roofs or ceilings." The parties agree that, descriptively speaking, the house "settled." As both the superior court and Umialik note, the Stipulation of Facts provides that, because of the water, "the home had settled about three feet." However, this is not dispositive. That the Wests describe the loss in terms of "settling" does not mean that settling was the cause of the damage.¹³

2. Other policy provisions

To determine the insureds' reasonable expectations, we also look to other provisions of the policy. Paragraph 2.e of the Umialik policy lists eight separate exclusions including the settling exclusion and an exclusion for "wear and tear, marring, deterioration." In Winters v. Charter Oak Fire Insurance Co.,¹⁴ the court ruled that "settling" is akin to normal wear and tear where the policy lists "settling" under a general heading of "wear and tear." Umialik distinguishes the case, arguing that the present policy is different because it separates "wear and tear" (paragraph 2.e(1)) from "settling" (paragraph 2.e(6)). This distinction is unpersuasive. The policy groups both "wear and tear," "settling," and six other clauses into

8 P.3d 1139

paragraph 2.e, indicating that the eight clauses are somehow related, while paragraphs 2.a though 2.d list four unrelated provisions for denying coverage

Indeed, Winters supports the view that grouping these clauses together leads a reasonable insured to infer a relationship. Winters cites with approval Holy Angels Academy v. Hartford Insurance Group for the proposition that

it is not unreasonable for an ordinary individual... to conclude that the policy language "settling, cracking" contained in a paragraph beginning, "Loss caused by: wear and tear ..." was limited in meaning to the gradual sinking of a building from the yielding of the ground under its foundation or by the natural constriction and expansion of its construction materials.¹⁵

In Holy Angels Academy, the Hartford policy was almost identical to the Umialik policy. Like the Umialik policy, the Hartford policy grouped a number of seemingly related exclusions, separated by semicolons, into one paragraph.¹⁶ All the policy exclusions in this paragraph entail natural or environmental concerns. The Umialik policy only differs in that each semicoloned exclusion is preceded by a number (one through eight). Therefore, as in Holy Angels Academy, it would be reasonable for the Wests to understand settling, when included in a paragraph that begins with "wear and tear," as "the gradual sinking of a building from the yielding of the ground under its foundation or by the natural constriction and expansion of its construction materials."¹⁷

One additional policy provision is relevant to the Wests' claim. Under paragraph 2.a, the policy excludes coverage for loss caused by plumbing which has frozen and burst if the home is unoccupied (subject to exceptions not relevant here). The parties agree that this exclusion does not apply because the home was...