Ronald J. Papa et al.,, Appellants,v.Associated Indemnity Corporation et al., Respondents.BriefN.Y.June 20, 2017DUKE HOLZMAN PHOTIADIS & GRESENS LLP VIA HAND DELIVERY State of New York Court of Appeals 20 Eagle Street Albany, New York 12207 r.regory P. Photiarlis James W. Gresens M ichaell. lom ba rdo + Howard E. Berger DeAnis P, Cle~ry Gary M. Kana Icy" Robert L Bencini Palricia Gillen GlmiP.s C. RiHer, Jr Elizabeth A. Kraengel "* Barbara ll. Sbzcmski-flaij~C John D. Cel~ni ·• Ste•1ea W. Klutkowski ++ Chrisloph~r M. Scrloth Ryan G. Ganzenm uller Joseph N. Williarn~. II April 13, 2017 Rickard.~. ~~core Ojf.cm•1i.tl ~dYtir P. Y11e~e• 11!>4-l!!'J;) E 1tanu~1 Ov~e !19!~-l&'-JI}) ",~ISCII.dmii;P.r.:q rt .. Al!?h:l:.iUP.O m .,!\ -~~~~ •\l:r·IIICCIIB ~A ~ t· .111111 .~.r.r.~il:a! ••• :n Re: Papa v. Associated Indemnitv APL-2017-00040 Dear Members of the Court: This letter is submitted in suppmt of Plaintiffs-Appellants Ronald J. Papa and Theresa M. Papa d/b/a Muir Lake Associates' ("Muir Lake" or .. Appellants") position on the merits of the above-referenced appeal as requested by the Chief Clerk's letter dated March 23, 2017. We understand that the Court, on its own motion, has selected this appeal for determination by an alternative procedure pursuant to section 500.11 of the Court of Appeals Rules ofPractice. Appellants consent to review of this appeal pursuant to said rule. This appeal is taken from the Memorandum and Order of the Appellate Division, Fourth Department, entered February 10, 2017 ("Appellate Division Order") to the extent it reversed that portion of the Order and Judgment issued by the Honorable Diane Y. Devlin, J.S.C., entered on February 23,2016 ("Trial Court Order and Judgment"), which had denied defendant Associated fudemnity Corporation's ("AIC") motion for summary judgment and granted summary judgment to Muir Lake on the issue ofliability for AIC's breach of the insurance policy. The Appellate Division erred in granting AIC summary judgment dismissing the complaint because AIC failed to establish that the water damage exclusion unambiguously excludes coverage for water that entered Muir Lake's basement through a broken electrical conduit. 701 Seneca Street, Suite 750 Buffalo, New York 14210 t 7}6.855.1111 f 716.855.0327 (i'lOTFOR SERVICE OF P.~PEiiSJ www.dhpglaw.com Plaintiffs-Appellants' Letter Brief April 13, 2017 Page 2 Factual Background A detailed recitation of the facts in this case is set forth in Muir Lake's Responding Brief to the Appellate Division at pages 3 to 8, which accompanies this letter brief. As is relevant to this appeal, Muir Lake was insured by AIC under an all-risk insurance policy. (R. 856; 641-842). The policy's water damage exclusion provides, in pertinent part, that AIC will not pay for loss or damage caused directly or indirectly by "Water under the ground surface pressing on, or flowing or seeping through: (a) Foundations, walls, floors or paved surfaces; (b) Basements, whether paved or not; or (c) Doors, windows or other openings." (R. 745-46). The water damage endorsement does not alter the entirety of the water damage exclusion, but merely states that subsections (4) and (5) of the exclusion are deleted, limits coverage to $25,000 thereunder and otherwise fails to articulate how coverage is to be construed. (R. 708). On or about May 1, 2010, D&D Power, Inc. ("D&D") replaced a utility pole adjacent to the premises owned by Muir Lake (and of which National Fire Adjustment Co,. Inc. ("NF A") was a tenant). (R. 851 ). The replacement of the utility pole involved the removal (from the pole) and reattachment of the electrical conduit that ran from the pole to the basement of the premises. (R. 851 ). About a month after D&D replaced the pole, the area received over 2 inches of rainfall (R. 853; 868-71) and a massive quantity of water gushed into the basement of the premises through the broken conduit. (R. 853). Judge Sherwood Bestry, a tenant of the premises at that time, had arrived at the premises in the early morning hours of June 6, 2010 and alerted NFA of the water infiltration. (R. 957). NF A's office manager, Angelo Puccio, observed water flowing through the hallway of the electrical room in the basement, and the water also infiltrated the adjacent storage room, Judge Bestry's office, NFA's estimator's area, and adjacent hallway towards the elevator and the HV AC room. (R. 957). Mr. Puccio highlighted the affected areas on a map of the basement (R. 957, 959) and also took a video recording the water in the basement swirling into the drain punched in the concrete floor to alleviate the water from spreading. (R. 957, 960). There is no dispute that the water infiltrated the basement through the broken conduit. Plaintiffs-Appellants' Letter Brief April 13, 2017 Page 3 A temporary sump pump was installed in the basement to keep the water under control in the event another heavy rainfall occurred before the broken conduit could be repaired. (R. 853). The broken conduit was repaired in August 2010, and a photograph of the conduit upon excavation showed two conduits in the same area, but only one was broken. (R. 853; 884). On or about September 15, 2010, AIC sent Muir Lake a check for $25,000. (R. 856, 904). On or about October 12, 2010, AIC sent Muir Lake a coverage letter (c/o NF A) stating that in its opinion the loss was covered by the water damage endorsement which has a limit of$25,000. (R. 907-10). At no time did Muir Lake ever agree with AIC that the water damage exclusion or related endorsement applied. (R. 856). Rather, Muir Lake has disputed this ever since first being advised of AIC's position. (R. 856, 911-12). AIC cannot establish that the water damage exclusion applies to bar coverage in this case because it is ambiguous and must be construed in favor of coverage. The Appellate Division erred in holding that the water damage exclusion applies in this case to bar coverage under the policy. AIC bears the heavy burden to demonstrate that the exclusion applies. See, 242-44 E. 77th St., LLC v. Greater New York Mut. Ins. Co., 31 A.D.3d 100, 103 (1st Dept. 2006). It is well-settled under New York law that an insurance policy must "be construed in favor of the insured, and ambiguities, if any, are to be resolved in the insured's favor and against the insurer." United States Fid. & Guar. Co. v. Annunziata, 67 N.Y.2d 229, 232 (1986). The rule requiring that ambiguities be resolved in favor of the insured is enforced even more strictly when the language at issue purports to limit the insurer's liability. Belt Painting Corp. v. TIG Ins. Co., 100 N.Y.2d 377 (2003). In reviewing whether an ambiguity must be construed against the insurer, the test to determine whether the policy is ambiguous focuses on the reasonable expectations of the average insured upon reading the policy. See Mostow v. State Farm Insurance Companies, 88 N.Y.2d 321 (1996). For AIC to prevail it must demonstrate not only that its interpretation is reasonable but that it is the only fair Plaintiffs-Appellants' Letter Brief April 13, 2017 Page4 interpretation. See Hudson v. Allstate Ins. Co., 25 A.D.3d 654 (2d Dept. 2006) (emphasis added). The Appellate Division Majority's analysis of this issue was stated in one sentence: "By its plain terms, the contract limits coverage to $25,000 for damage caused when ground water enters the basement through a gap, hole, or opening in the wall and the conduit clearly falls within the water damage exclusion and endorsement (see Commerce Ctr. Partnership v Cincinnati Ins. Co., 2006 WL 1236745, *3 [Mich Ct App 2006])." Appellate Division Order at p. 3. The Majority's one sentence analysis should be rejected for three reasons. First, the Majority misstates the policy language. The policy does not use the terms "gap, hole, or opening", but rather states "Doors, windows or other openings." (R. 745-46). As will be discussed below, and as analyzed in the dissent, under the circumstances of this case "other openings" is ambiguous as to whether it encompasses a broken electrical conduit and must be construed in favor of coverage. Second, the unpublished intermediate-level appellate Michigan case cited by the Majority is non-binding and should be rejected by this Court. In Commerce Ctr. Partnership v. Cincinnati Ins. Co., 2006 WL 1236745, *3 (Mich. Ct. App. 2006), unlike here, the source of the water which plaintiff claimed damaged its basement was not conclusively established. Moreover, the court there found that an electrical conduit "fell within the definition of 'other openings"' (id. at *8) (emphasis added) for purposes of excluding coverage. However, it did not quote the definition of "other openings", nor did it undertake any analysis to support such conclusion (and perhaps the court did not see it necessary to do so in light of its findings that seepage of surface water in that case also operated to exclude the loss from coverage). Third, the longstanding law of New York State in interpreting exclusions in insurance policies stands in stark juxtaposition to the holding of the Majority and the court in Commerce Ctr. Partnership, supra. This Court, in Pioneer Tower Owners Assn., 12 N.Y.3d 302, 307 (2009) reiterated the longstanding law in this state that the interpretation of exclusionary clauses in insurance policies is highly favorable to insureds: Plaintiffs-Appellants' Letter Brief April13, 2017 Page 5 [W]henever an insurer wishes to exclude certain coverage from its policy obligations, it must do so in clear and unmistakable language. Any such exclusions or exceptions from policy coverage must be specific and clear in order to be enforced. They are not to be extended by interpretation or implication, but are to be accorded a strict and narrow construction. Indeed, before an insurance company is permitted to avoid policy coverage, it must satisfy the burden which it bears of establishing that the exclusions or exemptions apply in the particular case, and that they are subject to no other reasonable interpretation ... We have enforced policy exclusions only where we found them to have a definite and precise meaning, unattended by danger of misconception ... and concerning which there is no reasonable basis for a difference of opinion. (internal citations and quotations omitted). In Pioneer Tower Owners Assn., the insured sought coverage for cracks, separation and open joints caused to their building by excavation on an adjacent lot. Akin to AIC's conduct here, the insurer disclaimed coverage under the "earth movement" exclusion. In finding that both parties' reading of the exclusion was reasonable, it held that judicial precedents require a narrowing of the exclusions in order to provide coverage where possible. The same result is required in this case. The dissent of Presiding Justice Whalen and Justice Smith in the case at hand zeroed in on the ambiguity in the water damage exclusion language, stating: "Inasmuch as 'other openings' is undefined and ambiguous, and Muir Lake's interpretation of that term is not unreasonable, we are bound to adopt Muir Lake's interpretation, inasmuch as that interpretation narrows the exclusion and results in coverage (see Pioneer Tower Owners Assn., 12 NY3d at 308)." Appellate Division Order at p. 3. The dissent further supported its conclusion by applying ejusdem generis, the rule of construction that provides that the meaning of a word in a series of words is determined by the company it keeps. As a result, it concluded "that 'other openings' should be construed as openings that are akin to doors and windows, such as a portal or a vent, not a broken electrical conduit." Id. at 4. Plaintiffs-Appellants' Letter Brief April 13, 2017 Page6 The broken electrical conduit does not unambiguously constitute an "other opening." Simply put, the water damage exclusion does not apply here and the Appellate Division erred in holding that it bars coverage in this case. Status of Related Litigation National Fire Adjustment Co., Inc., v. D&D Power, Inc., (Erie County Index No. 2012-0000023) is a related lawsuit arising from the same facts as the instant appeal. NF A suffered damage to its personal property and alleges negligence against D&D in its replacement of the utility pole. Both actions were assigned to Justice Devlin. The Note of Issue and Certificate of Readiness for Trial in both actions was filed in August, 2015. Following a court conference on April 7, 2017, a trial date has been set (for both actions) for March 8, 2018 and is anticipated to go for five days following jury selection. The parties have a report back conference with the trial court on August 22, 2017. Conclusion For the above reasons, it is respectfully requested that this Court reverse the Appellate Division Order to the extent that it erroneously held the water damage exclusion applies in this case and erroneously reversed that part of the Trial Court Order and Judgment which denied AIC's summary judgment motion and granted summary judgment against AIC in favor of Muir Lake as to liability. Respectfully submitted DUKE, HOLZMAN, PHOTIADIS & GRESENS LLP C?fi~~A-k Elizabeth A. Kraengel ekraengel@dhpglaw.com Plaintiffs-Appellants' Letter Brief April 13, 2017 Page 7 WORD COUNT CERTIFICATION I hereby certify that the total word count for the text of the body of the above submission (exclusive of the statement of status of related litigation) is 1,816 words. Said count was calculated by the word-processing system used to prepare the submission. ~ ~~- Elizabeth A. Kraengel