Western Nat. Mut. Ins. Co. v. Univ. of ND

• Decision Date: 16 April 2002
• Docket Number: No. 20010118.,20010118.
• Citation: 643 N.W.2d 4,2002 ND 63
• Parties: WESTERN NATIONAL MUTUAL INSURANCE COMPANY, Plaintiff and Appellant v. UNIVERSITY OF NORTH DAKOTA, Defendant and Appellee.
• Court: North Dakota Supreme Court

643 N.W.2d 4

2002 ND 63

WESTERN NATIONAL MUTUAL INSURANCE COMPANY, Plaintiff and Appellant v. UNIVERSITY OF NORTH DAKOTA, Defendant and Appellee.

No. 20010118.

Supreme Court of North Dakota.

April 16, 2002.

Ronald H. McLean (argued) and Timothy G. Richard (appeared), Serkland Law Firm, Fargo, and James T. Martin (appeared), Gislason, Martin & Varpness, Edina, MN, for plaintiff and appellant.

Sara Gullickson McGrane, Special Assistant Attorney General, Felhaber Larson Fenlon Vogt, Minneapolis, MN, for defendant and appellee.

SANDSTROM, Justice.

[¶ 1] Western National Mutual Insurance Company ("Western National") appeals from a declaratory judgment awarding the University of North Dakota ("UND") $3,358,533.18, plus prejudgment interest, and costs and attorney fees for property damage in twenty-two buildings on UND's campus in April 1997. We hold N.D.C.C. §§ 26.1-32-01 and 26.1-32-03 codify the efficient proximate cause doctrine for determining insurance coverage for property damage where an excluded peril and a covered peril contribute to the damage. We also conclude an insurer may not contractually exclude coverage when a covered peril is the efficient proximate cause of damage, even though an excluded peril may have contributed to the damage. We affirm.

I

[¶ 2] In the spring of 1997, Grand Forks experienced record flooding of the Red River, which resulted in the river breaching protective dikes on April 18 and overflowing into the city. On April 19, the city of Grand Forks east of Interstate 29 and the UND campus were ordered evacuated. The twenty-two buildings in which UND claimed it incurred covered property damage were serviced by two sanitary sewer lift stations, lift station 12 and lift station 6, which were maintained by the city of Grand Forks. On April 20, city officials shut down lift station 12 and lift station 6. After those lift stations were shut down, water entered the UND buildings through the sewer system, causing extensive property damage to boiler and machinery equipment in the buildings. [¶ 3] In April 1997, UND had in force a Boiler and Machinery Policy issued by Western National, which provided coverage for "direct damage to Covered Property caused by a Covered Cause of Loss," but excluded coverage for "loss or damage caused directly or indirectly" by flood "regardless of any other cause or event that contributes concurrently or in any sequence to the loss." UND claimed damage to boiler and machinery equipment in its buildings was caused by sewer backup, which was not specifically excluded from coverage under the Boiler and Machinery Policy. Western National denied coverage, claiming UND's property damage was excluded from coverage because it was caused "directly or indirectly" by flood "regardless of any other cause or event that contributes concurrently or in any sequence to the loss."

[¶ 4] Western National brought this declaratory judgment action against UND, seeking resolution of the coverage issue. On cross-motions for summary judgment, the trial court decided Western National's policy excluded coverage for property damage caused by flood, but provided coverage for property damage caused by sewer backup. The court said the parties' claims raised a causation dispute and concluded N.D.C.C. §§ 26.1-32-01 and 26.1-32-03 set out the "efficient proximate cause" doctrine for resolving cases involving concurrent causes of property damage where one cause is a covered peril and the other cause is an excluded peril. The court decided there were disputed issues of material fact about whether sewer backup or the flood was the efficient proximate cause of UND's property damage. In a bifurcated trial, a jury decided the flood was not the efficient proximate cause of UND's property damage. In the second phase of trial, the jury awarded UND over $3.3 million, plus prejudgment interest from July 8, 1998, for the property damage, but found Western National had not acted in bad faith. The trial court subsequently awarded UND costs and attorney fees and denied Western National's post-trial motions for judgment as a matter of law and for a new trial.

[¶ 5] The trial court had jurisdiction under N.D. Const. art. VI, § 8, and N.D.C.C. §§ 32-23-01 and 27-05-06. Western National's appeal is timely under N.D.R.App.P. 4(a). This Court has jurisdiction under N.D. Const. art. VI, §§ 2 and 6, and N.D.C.C. §§ 32-23-07 and 28-27-01.

II

[¶ 6] Western National argues its insurance policy with UND clearly and unambiguously excluded coverage for loss or damage caused "directly or indirectly" by flood "regardless of any other cause or event that contributes concurrently or in any sequence to the loss." Western National argues, as a matter of law, the April 1997 flood was the sole and direct cause of UND's property damage, because "the flood caused the City to shut down the sanitary sewer lift stations, which caused sewer backup, which caused the damage to UND's property." Western National argues the trial court erred in applying the efficient proximate cause doctrine rather than enforcing the concurrent cause language of the policy.

[¶ 7] The interpretation of an insurance policy is a question of law, which is fully reviewable on appeal. Center Mut. Ins. Co. v. Thompson, 2000 ND 192, ¶ 14, 618 N.W.2d 505. We review a trial court's interpretation of an insurance policy by independently examining and construing the policy. DeCoteau v. Nodak Mut. Ins. Co., 2000 ND 3, 19, 603 N.W.2d 906. In Ziegelmann v. TMG Life Ins. Co., 2000 ND 55, ¶ 6, 607 N.W.2d 898 (citations omitted) we outlined rules for construing an insurance policy:

Our goal when interpreting insurance policies, as when construing other contracts, is to give effect to the mutual intention of the parties as it existed at the time of contracting. We look first to the language of the insurance contract, and if the policy language is clear on its face, there is no room for construction. "If coverage hinges on an undefined term, we apply the plain, ordinary meaning of the term in interpreting the contract." While we regard insurance policies as adhesion contracts and resolve ambiguities in favor of the insured, we will not rewrite a contract to impose liability on an insurer if the policy unambiguously precludes coverage. We will not strain the definition of an undefined term to provide coverage for the insured. We construe insurance contracts as a whole to give meaning and effect to each clause, if possible. The whole of a contract is to be taken together to give effect to every part, and each clause is to help interpret the others.

Exclusions from coverage in an insurance policy must be clear and explicit, and are strictly construed against the insurer. Fisher v. American Family Mut. Ins. Co., 1998 ND 109, ¶ 6, 579 N.W.2d 599, 602.

[¶ 8] Western National's policy with UND required Western National to pay for "direct damage to Covered Property caused by a Covered Cause of Loss," and defined "Covered Cause of Loss" as "an `accident' to an `object' shown in the Declarations." The policy defined "object" as boiler and machinery equipment in identified buildings on UND's campus and "accident" as "a sudden and accidental breakdown of the `object' or part of the `object'... [which] manifest[s] itself by physical damage to the `object' that necessitates repair or replacement." The policy excluded coverage for "loss or damage caused directly or indirectly by.... [flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not] regardless of any other cause or event that contributes concurrently or in any sequence to the loss."

[¶ 9] Western National's policy did not explicitly define flood and did not explicitly exclude coverage for sewer backup. Although Western National's policy with UND was not an all-risk policy, Western National does not dispute the policy provided coverage for sewer backup. Rather, Western National relies on the language excluding coverage for property damage caused "directly or indirectly" by flood "regardless of any other cause or event that contributes concurrently or in any sequence to the loss."

[¶ 10] The plain, ordinary meaning of "flood" is "an overflowing of water on an area normally dry." Webster's New World Dictionary 535 (2nd Coll. Ed.1980). See Black's Law Dictionary 1640 (6th ed.1990) (defining flood as inundation of water over land not usually covered by it); 5 Appleman, Insurance Law and Practice § 3145, at pp. 462-63 (1970) (defining flood waters as waters above the highest line of the ordinary flow of a stream). Other courts have defined flood in accordance with that plain, ordinary meaning, and recognized flood water has a terranean nature for water overflowing its natural banks as opposed to water below the surface. State Farm Lloyds v. Marchetti, 962 S.W.2d 58, 61 (Tex.App.1997). See also Kane v. Royal Ins. Co., 768 P.2d 678, 680-84 (Colo. 1989)

(discussing ordinary meaning of flood); State Farm Fire & Cas. Co. v. Paulson, 756 P.2d 764, 769-71 (Wyo.1988) (discussing insurance cases defining flood). Insurance law generally recognizes sewer backup as a peril that is separate and distinct from flood or surface water. See Front Row Theatre v. American Mfr's. Mut., 18 F.3d 1343, 1346-47 (6th Cir.1994); Old Dominion Ins. Co. v. Elysee, Inc., 601 So.2d 1243, 1244 (Fla.Dist.Ct.App.1992); Pakmark Corp. v. Liberty Mut. Ins. Co., 943 S.W.2d 256, 261 (Mo.Ct.App.1997); Marchetti, at 60-61. Sewage is ordinarily defined as waste matter carried off by sewers or drains, and sewer means a pipe or drain, usually underground, used to carry off water and waste matter. Webster's New World Dictionary 1305 (2nd Coll. Ed.1980).

[¶ 11] Here, Western National agrees "it is undisputed that the water that entered many of the basements of UND's buildings backed up through the sanitary sewer system, [but] it also cannot be disputed that this water entered the sanitary...