Winters v. Charter Oak Fire Ins. Co.

• Decision Date: 08 May 1998
• Docket Number: No. Civ. 97-0346 BB/LCS.,Civ. 97-0346 BB/LCS.
• Citation: 4 F.Supp.2d 1288
• Parties: Wes WINTERS and Kay Goffena Winters, f/d/b/a Wes Winters Resort Park, Plaintiffs, v. The CHARTER OAK FIRE INSURANCE COMPANY, a subsidiary of The Travelers Insurance Companies, Inc., Connecticut corporations authorized to do business in New Mexico; Insurance Solutions, Inc., d/b/a Brown, Seligman & Thomas, f/d/b/a Bundy, Seligman & Thomas, and Adjustment Services, Inc., Defendants.
• Court: U.S. District Court — District of New Mexico

4 F.Supp.2d 1288

Wes WINTERS and Kay Goffena Winters, f/d/b/a Wes Winters Resort Park, Plaintiffs, v. The CHARTER OAK FIRE INSURANCE COMPANY, a subsidiary of The Travelers Insurance Companies, Inc., Connecticut corporations authorized to do business in New Mexico; Insurance Solutions, Inc., d/b/a Brown, Seligman & Thomas, f/d/b/a Bundy, Seligman & Thomas, and Adjustment Services, Inc., Defendants.

No. Civ. 97-0346 BB/LCS.

United States District Court, D. New Mexico.

May 8, 1998.

COPYRIGHT MATERIAL OMITTED

Robert J. Maguire, Peggy A. Whitmore, James E. Burke, Albuquerque, NM, for Plaintiffs.

Lisa P. Ford, Stevan Douglas Looney, Albuquerque, NM, for Defendants.

MEMORANDUM OPINION

BLACK, District Judge.

THIS MATTER comes before the Court on the Motion of Defendant Charter Oak Fire Insurance Company for Summary Judgment (Doc. 73), filed April 17, 1998, and Plaintiffs' Motions for Summary Judgment (Docs. 75 and 79), filed April 17 and 20, 1998. Having reviewed the submissions of the parties and the relevant law, the Court finds that Defendant's Motion for Summary Judgment should be DENIED, and Plaintiffs' Motion for Summary Judgment should be DENIED, except to the extent implicit in the Court's denial of Defendant's Motion.

I. Facts and Procedural History

After Charter Oak Fire Insurance Company refused to pay a claim under an insurance policy which it had issued to plaintiffs, plaintiffs sued Charter Oak under diversity for unfair trade practices, bad faith, breach of contract, negligence, and prima facie tort. Charter Oak filed a counterclaim, seeking a declaratory judgment that it has no obligation for plaintiffs' loss.

The parties have stipulated to the following facts, for purposes of these Motions for Summary Judgment: In March 1995, a water line broke in plaintiffs' clubhouse which caused soaking and subsequent shifting of the soil beneath the building, leading to structural damage. Charter Oak does not stipulate to these facts for all purposes of the litigation but argues only that, even if the facts were as stipulated, there would be no coverage.¹ It contends that under the stipulated scenario, plaintiffs' damage is not covered due to the "earth movement" and "settling" exclusions in the insurance policy, and it has filed a Motion for Summary Judgment seeking a ruling to that effect, as well as on all counts of plaintiffs' complaint. Plaintiffs have filed their own Motion for Summary Judgment, seeking a favorable ruling on the issue of policy coverage.

II. Analysis.

A. The "earth movement" exclusion does not apply to bar coverage.

1. In New Mexico, "earth movement" includes only naturally-occurring phenomena.

The policy at issue is an "all risk" policy.² Such a policy:

creates a special type of coverage extending to risks not usually covered under other insurance, and recovery under an "all risk" policy will be allowed for all fortuitous losses not resulting from misconduct or fraud, unless the policy contains a specific provision expressly excluding the loss from coverage.

C.H. Leavell & Co. v. Fireman's Fund Ins. Co., 372 F.2d 784, 787 (9th Cir.1967). The burden is on the insurer issuing an "all risk" policy to show that the loss comes within an exclusion specified in the policy, Chase Rand Corp. v. Central Ins. Co. of Baltimore, 152 F.2d 963, 964 (2d Cir.1945); thus, Charter Oak has the burden of establishing that the "earth movement" exclusion applies, under the facts of this case. "The insurer's interpretation, especially when it concerns an exclusion to the overall coverage, must be clearly expressed in the policy ... The rules of contract construction are especially narrow when applied to the exclusionary provisions of insurance policies." Rummel v. Lexington Ins. Co., 123 N.M. 752, 759, 764, 945 P.2d 970, 977, 982 (1997). "The experienced all risk insurers should have expected the exclusions drafted by them to be construed narrowly against them and should have calculated their premiums accordingly." Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co., 505 F.2d 989, 1004 (2d Cir.1974).

The construction of an insurance policy is a matter of law which can be decided on summary judgment. Adams-Arapahoe Joint School Dist. v. Continental Ins. Co., 891 F.2d 772, 774 (10th Cir.1989); Quaker State Minit-Lube, Inc. v. Fireman's Fund Ins. Co., 868 F.Supp. 1278, 1287 (D.Utah 1994), aff'd, 52 F.3d 1522 (10th Cir.1995). In construing an insurance policy, the Court in a diversity case looks to the law of the forum state and, if the state Supreme Court has not addressed the issue, the Court's duty is to determine, as best it can, how the issue would be resolved by the state Supreme Court. Quaker State Minit-Lube, supra, 52 F.3d at 1527.

Charter Oak argues that, since the structural damage occurred as a result of soil moving, this unambiguously brings the occurrence within the earth movement exclusion. However, the New Mexico Supreme Court has construed "earth movement" to cover only naturally-occurring phenomena such as earthquake or landslide, United Nuclear Corp. v. Allendale Mut. Ins. Co., 103 N.M. 480, 709 P.2d 649 (1985), and it has been stipulated by the parties herein that any earth movement that occurred was caused by a man-made source, that is, a broken water line.

Although defendant argues that the policy provision in the United Nuclear case is "nothing whatsoever" like the provision at issue herein, this argument is not persuasive as it lacks support in the policy language. Therefore, as the provisions are similar, except that the current policy contains a different lead-in clause, the United Nuclear definition of "earth movement" should apply.

2. The lead-in clause does not change the definition of "earth movement."

Charter Oak argues that its policy contains a "lead-in" clause dealing with concurrent causation, while the Allendale policy of United Nuclear does not. The lead-in clause to which Charter Oak points reads:

We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.

The section of the policy ushered in by the lead-in clause then goes on to list earth movement as an excludable cause, defining it as "[a]ny earth movement (other than sinkhole collapse), such as an earthquake, mine subsidence, landslide, or earth sinking, rising or shifting." It is Charter Oak's position that the effect of the lead-in language is to exclude from coverage any loss from earth movement, whether natural or human. The cases cited by Charter Oak to support this argument basically hold that, where a lead-in clause states explicitly that losses due to earth movement are excluded, regardless of any other cause, the distinction disappears between earth movement caused by natural forces and that caused by man-made occurrences such as a broken water line. Charter Oak also presents the expert report of an insurance attorney from California to support this position.³ However, plaintiffs argue that the lead-in clause cannot broaden the exclusion unless the event at issue comes within the definition of "earth movement" in the first place.⁴ Defendant's argument must be rejected.

a. Cases based on State Farm policies are distinguishable.

Charter Oak relies on a number of cases based on policies written by State Farm Insurance Company. These cases are distinguishable in that State Farm uses unique language, not employed in standard all-risk insurance policies, and which differs from that used in the Charter Oak policy at issue here.

The lead-in clause of the State Farm policy is more specific than the Charter Oak lead-in, but most tellingly, State Farm's definition of "earth movement" includes "the sinking, rising, shifting or expanding or contracting of earth, all whether combined with water or not" (emphasis added). This language is obviously relevant to the present case. Plaintiffs' point, that cases involving State Farm policies do not provide precedent for the present case, is therefore well taken.

Defendant's expert confirms that State Farm adopted language peculiar to itself,⁵ and one of plaintiffs' experts describes State Farm as a "deviated company" which employs its own language and is "known in the industry as ones who try to push earth movement as broadly as they can."⁶ The State Farm approach also tends to indicate, by contrast, that Charter Oak did not intend to exclude earth movement "combined with water," because had it so intended, it could have adopted State Farm — type language.

The few non — State Farm cases cited by defendant do not clearly hold that concurrent causation language in a lead-in clause alters the definition of "earth movement," and plaintiffs cite a case, Cox v. State Farm Fire & Cas. Co., 217 Ga.App. 796, 459 S.E.2d 446 (1995), which holds that even the more emphatic and specific State Farm language does not expand the definition of "earth movement" beyond naturally-occurring events.

b. The question need not be certified to state court, as the existing New Mexico authority, provides the rationale for interpretation of the clause at issue.

Plaintiffs invite this Court to certify to the New Mexico Supreme Court the issue of the effect of the lead-in clause, arguing it is an issue of first impression which could have significant public policy implications.⁷ Certification is not necessary. In addition to being intimately familiar with the processes of the state courts, this Court will follow the lead of the District Court in Utah (as approved by the Tenth Circuit):

To date, the Utah Supreme court has not addressed this issue of Utah State law. Thus, our duty is to determine, as best we can, how this issue [i.e., interpretation of "sudden and accidental" in an insurance policy exclusionary clause] would be resolved by the Utah Supreme Court, [citation], by considering state court decisions, decisions of...