Ronald J. Papa et al.,, Appellants,v.Associated Indemnity Corporation et al., Respondents.BriefN.Y.June 20, 2017To be Argued by: STEVEN E. PEIPER (Time Requested: 15 Minutes) Appellate Division Docket No. CA 16-01136 Erie County Clerk’s Index No. 2012-600077 New York Supreme Court Appellate Division—Fourth Department RONALD J. PAPA and THERESA M. PAPA d/b/a Muir Lake Associates One NFA Park Amherst, NY 14228, Plaintiffs-Respondents, – against – ASSOCIATED INDEMNITY CORPORATION 777 San Marin Drive Novato, CA 94998 and D&D POWER, INC. 501 New Karner Rd., Ste. 2 Albany, NY 12205, Defendants-Appellants. –––––––––––––––––––––––––––––– (For Continuation of Caption See Inside Cover) REPLY BRIEF FOR DEFENDANT-APPELLANT ASSOCIATED INDEMNITY CORPORATION HURWITZ & FINE, P.C. Attorneys for Defendant-Appellant Associated Indemnity Corporation 1300 Liberty Building 424 Main Street Buffalo, New York 14202 (716) 849-8900 NATIONAL FIRE ADJUSTMENT CO., INC. One NFA Park Amherst, NY 14228, Plaintiff-Respondent, – against – D&D POWER, INC. 501 New Karner Rd., Ste. 2 Albany, NY 12205, Defendant-Appellant. Table of Contents ARGUMENT .......... .................................................. .................. ....... ... ... .. ............ .. ....................... 3 I. AIC ESTABLISHED AS A MATTER OF LAW THAT THE WATER DAMAGE EXCLUSION AND RELATED WATER DAMAGE ENDORSEMENT UNAMBIGUOUSLY CONTROL THE EXTENT OF COVERAGE AFFORDED BY THE POLICY FOR PLAINTIFFS' CLAIM ................. .. .............................. .. ........................ .. .... ...... 3 II. PLAINTIFFS' ATTEMPT TO CREATE AMBIGUITY IN THE WEAR AND TEAR EXCLUSION IS ALSO MERITLESS ................ ... .... .. .. .... ... ..................... ......................... ...... . 7 CONCLUSION ....................... .. .... .... ................................. ..... .. ...................... .... .. .... ...................... 8 1 Table of Authorities Cases Acorn Ponds, Inc. v. Hartford Ins. Co., 105 AD2d 723, 724 [2d Dep't 1984] ............................... 5 Album Realty Corp. v. American Home Assur. Co., 80 NY2d 1008, 1011 [1992] ..................... 5, 6 Broome Cty. v. The Travelers Indemn. Co., 125 AD3d 1241, 1242 [3d Dep't 2015] .................... 4 Comm'rs ofState Ins. Fundv. Ins. Co. ofN. Am., 80 NY2d 992,994 [1992] ............................... 3 Cragg v. Allstate Indem. Corp., 17 NY3d 118, 122 [2011 ] ............................................................ 4 Goldman & Sons, Inc. v. Hanover Ins. Co., 80 NY2d 986, 987 [1992] ...................... ...... ............ . 3 Kula v. State Farm Fire & Cas. Co., 212 AD2d 16,21 [4th Dep't 1995] ...................................... 6 Matter of Mostow v. State Farm Ins. Co., 88 NY2d 321, 326-27 [ 1996] .......... .. ........................... 4 Soundview Associates v. New Hampshire Ins. Co. , 215 AD2d 370, 371[2d Dep't 1995] .............. 3 Soundview Assocs., 215 AD2d at 3 71 .................. ........................................................................... 3 Star City Sportswear, Inc. v. Yasuda Fire & Marine Ins. Co. of Am., 1 AD3d 58, 60 [1st Dep't 2003] ....................... .. ....................... , ................................. ...................... .................. 3 Universal Am. Corp. v. Nat 'l Union Fire Ins. Co. of Pittsburgh, Pa., 25 NY3d 675,680 [2015] .......................... ...... .. ........... ................ ........... ... ........ ... ... ... ..... ..................................... 3, 7 2 ARGUMENT Contrary to Plaintiffs' arguments, the plain and unambiguous terms of the Policy limit coverage for water damage, whether resulting in whole or in part, concurrently or consecutively, from any other cause, to no more than $25,000. Inasmuch as it is undisputed that this full amount has already been tendered by AIC and accepted by Plaintiffs, AIC has fulfilled all of its obligations under the Policy for Plaintiffs' claim and is entitled to a declaration to that effect as a matter of law. I. AIC ESTABLISHED AS A MATTER OF LAW THAT THE WATER DAMAGE EXCLUSION AND RELATED WATER DAMAGE ENDORSEMENT UNAMBIGUOUSLY CONTROL THE EXTENT OF COVERAGE AFFORDED BY THE POLICY FOR PLAINTIFFS' CLAIM. As noted in AIC's principal brief, unambiguous policy provisions must be given their plain and ordinary meaning. (Universal Am. Corp. v. Nat '/ Union Fire Ins. Co. of Pittsburgh, Pa., 25 NY3d 675, 680 [2015]). Thus, although any ambiguity is resolved in favor of an insured, " [c)ourts should not strain to find an ambiguity in an insurance policy were none exists." (Star City Sportswear, Inc. v. Yasuda Fire & Marine Ins. Co. of Am. , 1 AD3d 58, 60 [1st Dep' t 2003], aff'd, 2 NY3d 789 [2004]; see Goldman & Sons, Inc. v. Hanover Ins. Co., 80 NY2d 986, 987 [1992]; Soundview Associates v. New Hampshire Ins. Co. , 215 AD2d 370, 371[2d Dep' t 1995]; see also Universal Am. Corp., 25 NY3d at 680 ["parties cannot create ambiguity from whole cloth where none exists"]). Similarly, a court may not "construe a clause in a way that drains it of its only intended meaning." (Comm 'rs of State Ins. Fund v. Ins. Co. of N. Am., 80 NY2d 992, 994 [1992]; Soundview Assocs., 215 AD2d at 371). 3 Here, despite Plaintiffs' attempts to wring ambiguity out of its plain terms, the AIC policy unambiguously limits coverage for Plaintiffs' claim for water damage to the $25,000, an amount which AIC has already acknowledged and paid. (R. 341, 856, 904-06). A. A Reasonable Insured Would Expect the Plain Language of the Water Damage Exclusion and Water Damage Endorsement to Limit Coverage for Plaintiffs Claim of Water Damage to $25,000 Ambiguity in insurance policies is determined by considering its provisions m accordance with common speech and "the reasonable expectations of the average insured upon reading the policy." (Matter ofMostow v. State Farm Ins. Co., 88 NY2d 321,326-27 [1996]; see Cragg v. Allstate Indem. Corp., 17 NY3d 118, 122 [2011]; Broome Cty. v. The Travelers Indemn. Co., 125 AD3d 1241, 1242 [3d Dep't 2015], lv denied 25 NY3d 908 [2015]). Here, the Water Damage Exclusion in the AIC policy excludes coverage, and the Water Damage Endorsement restores coverage up to a $25,000 limitation, for loss or damage caused directly or indirectly by: ( 4) Water that backs up from a sewer or drain; or (5) 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. 708, 745-46, 772, 776). Plaintiffs concede that: "[i]t is undisputed that the broken Conduit allowed water to infiltrate the basement Premises and damaged [Plaintiffs'] property;" "the loss was occasioned by water;" and "[t]here is no question in this case that Muir Lake suffered water damage." (Resp Br 12, 13, 16; seeR. 74, 367-68, 404, 420-21, 436, 494). There is also no dispute that it was groundwater that flowed into the basement. (R. 404, 510-11, 538, 886, 890-91, 911-12). 4 Plaintiffs nonetheless attempt to manufacture an ambiguity regarding the amount of coverage afforded under the Policy by focusing on the compromised electrical conduit as the source of the water's entry into the basement. Specifically, Plaintiffs ask this Court to find that a reasonable insured could interpret the Policy language as providing more than the $25,000 in coverage provided by the Water Damage Endorsement in a situation where underground water flowed through a wall via an electrical conduit into a basement and caused water damage. Such an interpretation is unreasonable as a matter of law, as adoption of Plaintiffs' argument would require disregarding the plain language of the Policy. (See Acorn Ponds, Inc. v. Hartford Ins. Co., 105 AD2d 723, 724 [2d Dep't 1984]). The above cited policy provisions make clear that the Water Damage Exclusion and Endorsement apply to groundwater "flowing" through "[f]oundations," "[b]asements," "walls," and any "other openings." (R. 708, 745-46, 772, 776). The use of "other openings" clearly signals to a reasonable insured reading the Policy that the specified ways in which groundwater might enter a basement (i.e. seeping through a foundation or flowing through a leaking window) represent only a non-exhaustive list of possible entry points. Thus, the manner in which the groundwater infiltrated the basement is of no moment, and no ambiguity is created by the fact that the groundwater flowed through a compromised electrical conduit that entered the building on the lower level. (R. 417, 890-91). "A reasonable business person would conclude in this case that plaintiffs loss was caused by water damage and would look no further for alternate causes." (Album Realty Corp. v. American Home As sur. Co. , 80 NY2d 1008, 1010 [ 1992]). Plaintiffs attempt to avoid this conclusion by arguing that "the term 'other openings' remains ambiguous as to whether coverage applies in this case because the Conduit is not an 'opening' , but rather part ofthe electrical system at the Premises." (Resp Br 14). This argument 5 ignores the plain and ordinary meaning of 'opening,' which is defined as "something that is open: as [in] breach, aperture." (Webster's Third New Inter'} Dictionary Unabridged 1580 [1986] [capitalization altered and emphasis added]; see R. 890 [architect's description of broken conduit as a "pathway for water intrusion"]). As such, Plaintiffs' argument is unreasonable: if the conduit were not an opening, i.e. if it had not provided the avenue for the breach of the building' s wall, the water would not have entered the basement through it. B. The Water Damage Exclusion and Endorsement Apply Regardless of Any Prior or Concurrent Cause of a Break in the Electrical Conduit As argued at length in AIC's principal brief, Plaintiffs' continued emphasis on D&D Power's alleged negligence in breaking the underground electrical conduit line is irrelevant to this coverage issue. The lead-in clause to the Policy's Part B "Exclusions" section, which contains the Water Damages Exclusion, expressly states that there is no coverage for any "loss or damage caused directly or indirectly" by an excluded cause "regardless of any other cause or event that contributes concurrently or in any sequence to the loss." (R. 745 [emphasis added]). Notably, not only does New York law recognize the validity of such anti-concurrent causation clauses, but it is also well settled that in New York "the principles of causation should not be strictly applied to circumvent the intent of the parties." (Kula v. State Farm Fire & Cas. Co. , 212 AD2d 16, 21 [4th Dep't 1995]). Instead, "[ o ]nly the most direct and obvious cause should be looked to for purposes of the exclusionary clause." (Kula, 212 AD2d at 20; see Album Realty Corp., 80 NY2d at 1011). Plaintiffs' opposition on this point is based solely on the faulty assertion that the Water Damage Exclusion and Endorsement language is ambiguous as it applies to their claim. As argued above, even when this language is considered in isolation, no reasonable interpretation of 6 the exclusion and the endorsement supports Plaintiffs' argument. Moreover, a court may not consider policy language in isolation in determining whether an ambiguity exists, but must instead consider a reasonable insured ' s expectations after reading the policy as a whole. (see Universal Am. Corp., 25 NY3d at 680). Here, any question whether the Water Damage Exclusion applies because the water entered through a broken or corroded electrical conduit is resolved when this exclusion is read in conjunction with the anti-concurrent causation clause. Read as a whole, the Policy makes clear that regardless whether one interprets the damage in this case as being caused directly by D&D Power's alleged negligence and indirectly by the resulting water flow through the broken conduit, or vice versa, the result is the same: coverage for water damage from underground water flowing into the basement is excluded under the Policy, except to the extent restored under the Water Damage Endorsement. II. PLAINTIFFS' ATTEMPT TO CREATE AMBIGUITY IN THE WEAR AND TEAR EXCLUSION IS ALSO MERITLESS Plaintiffs do not dispute AIC' s argument that there are sufficient facts in the record to raise a triable question of material fact whether, assuming arguendo that any break and/or hole in the electrical conduit could be considered the sole dominant cause of Plaintiffs' claimed damage, such break or hole was the result of rust, corrosion, or general wear and tear. (Resp Br 15-16, 24; see R. 746). Plaintiffs instead argue that the Policy' s wear and tear exclusion is also ambiguous. Specifically, Plaintiffs point to this exclusion' s exception for water damage from the "accidental discharge or leakage of water or steam as the direct result of the breaking or cracking or any part of a system or appliance containing water or steam." (R. 746, 767- 68). They contend that, here, the electrical conduit " is ' part of a system' - the electrical system at the Premises and as a result of the ruptured conduit that system contained water." (Resp Br 16). 7 Plaintiffs' argument reverses the causation and damage required by the plain language of this exception to the wear and tear exclusion. As stated, this policy provision first requires that there be "a system or appliance containing water or steam." (R. 768). The electrical conduit may be part of a system, but absent malfunction that system contains wires, not water. (R. 859). In contrast, the exception to the wear and tear exclusion requires a system that would normally contain water or steam but, as a "direct result" of an accidental breaking or cracking, that water or steam "discharge[s] or leak[s]" from the system and causes damage. In this latter situation, the presence of water is expected and the potential for water damage foreseeable. In contrast, no reasonable insured would read this water damage exception to the wear and tear exclusion and reasonably assume it provided coverage for an electrical system. The trial court therefore erred in granting Plaintiffs' cross-motion for summary judgment against AIC, even assummg arguendo that an ambiguity m the Water Damage Exclusion and Endorsement could be reasonably found in this case. CONCLUSION Even considering the facts in a light most favorable to Plaintiffs, the plain and unambiguous terms of the Policy clearly exclude coverage for Plaintiffs' claim of damage caused by groundwater flowing through an electrical conduit into the basement, except to the extent that coverage was restored by the Water Damage Endorsement. Because AIC has already paid Plaintiffs the $25,000 limit under this endorsement, the Policy has not been breached and AIC is entitled to a declaration that it owes no further obligation to Plaintiffs with respect to this claim. The Order and Judgment should therefore be reversed and remanded for entry of a declaration in favor of AIC and dismissal of Plaintiffs' complaint as against it. 8 Dated: August 1° , 2016 By: Respectfully Submitted, HURWITZ & FINE, PC. StevenE£)( Jennifer J. Phillips, Esq. Attorneys for Defendant-Appellant Associated Indemnity Corporation 1300 Liberty Building Buffalo, New York 14202 716-849-8900 9