Ronald J. Papa et al.,, Appellants,v.Associated Indemnity Corporation et al., Respondents.

Brief

N.Y.June 20, 2017

HEADQUARTERS: 1300 LIBERTY BUILDING, BUFFALO, NEW YORK 14202  P: 716-849-8900  F: 716-855-0874  WWW.HURWITZFINE.COM OFFICES IN  BUFFALO, NEW YORK  ALBANY, NEW YORK  ALBION, NEW YORK  AMHERST, NEW YORK  MELVILLE, NEW YORK NIAGARA FALLS, NEW YORK  PALM BEACH GARDENS, FLORIDA  TORONTO, ONTARIO  FAX/E-MAIL NOT FOR SERVICE May 4, 2017 State of New York Court of Appeals 20 Eagle Street Albany, New York 12207 Re: Papa v. Associated Indemnity Corporation et al. APL-2017-00040 To the Members of the Court: This letter is submitted pursuant to section 500.11(d) of this Court’s Rules of Practice in support of Defendant-Respondent Associated Indemnity Corporation’s position on the merits. Associated Indemnity Corporation (“AIC”) also has no objection to this alternative procedure review of the merits in this matter. This insurance coverage action arises out of Plaintiffs’ claim for damages under an insurance policy resulting from when, on or about June 6, 2010, Plaintiffs-Appellants Ronald J.Papa and Theresa m. Papa d/b/a Muir Lake Associates suffered water damage when water entered the Premises basement. (R. 74). Contrary to Plaintiffs’ contentions on the instant appeal, the Appellate Steven E. Peiper, Esq. sep@hurwitzfine.com Papa v. Associated Indemnity Corporation et al. APL-2017-00040 HURWITZ & FINE P.C. Pg. 2 Division correctly reversed the trial court’s order and granted summary judgment to AIC dismissing Plaintiffs’ complaint for declaratory relief and breach of contract because Plaintiffs’ claimed loss falls completely within the $25,000 policy limitation for water damage claims. a. Factual Background As relevant to this appeal, Plaintiffs’ claim under the insurance policy issued to Muir Lake by AIC arose from the alleged negligence of co-Defendant D&D Power, Inc., in its replacement of a utility pole outside the insured premises on May 1, 2010. (R. 73-74). An electrical conduit ran underground to the Premises where it entered the building through a basement wall, ending in an electrical box or cabinet. (R. 152-55, 510, 886). D&D Power’s alleged negligence purportedly caused the electrical conduit to break and disconnect around the elbow portion located underground. (R. 404, 510-11, 859-60, 886, 911-12). The utility pole and the underground conduit elbow are situated in a drainage swale that collects rainwater. (R. 890-91). Approximately one month after D&D Power replaced the utility pole, there was a significant rainfall at least 2 inches or more. (R. 74, 853, 868-871). Rainwater collected in the drainage swale area around the conduit and, on June 6, 2010, water began flowing into the basement of the Premises through the broken electrical conduit. (R. 853-55, 890- 91, 957). There was also evidence that water had been leaking through or around Papa v. Associated Indemnity Corporation et al. APL-2017-00040 HURWITZ & FINE P.C. Pg. 3 the electrical conduit even prior to the occurrence, a fact conceded by Ronald Papa at his deposition. (R. 543-47, 855). Plaintiffs allege that, as a result of this water damage, they suffered damages in excess of $133,000, “including emergency drying, replacement of carpeting, drywall replacement, painting and repair of the electrical conduits.” (R. 74, 420-21, 436). On or about September 15, 2010, AIC sent Muir Lake a check for $25,000, indicating that the payment reflected the applicable limit for losses resulting from ground water afforded under the Policy. (R. 341, 856, 904-06). AIC sent a further letter on or about October 12, 2010, stating its finding that any coverage for damage caused by the ground water entering the basement through a broken conduit was limited by the policy’s Water Damage Endorsement to no more than $25,000. (R. 907-10). b. Decision of the Appellate Division, Fourth Department In a February 10, 2017 memorandum and order, the Appellate Division, as relevant to the appeal before this Court, modified an order and judgment of the trial court by granting AIC’s motion for summary judgment dismissing Plaintiffs’ complaint against it in its entirety and denying Plaintiffs’ cross-motion for summary judgment against AIC. (Papa v. Associated Indemnity Corp., 147 AD3d 1558, 1560 [4th Dep’t 2017]). Three justices held in favor of AIC on the ground that the plain language of the policy at issue was unambiguous (Carni, DeJoseph, Papa v. Associated Indemnity Corporation et al. APL-2017-00040 HURWITZ & FINE P.C. Pg. 4 and Curran, JJ). Two justices dissented, finding that based on the application of the ejusdem generis rule of construction, there was an ambiguity whether the electrical conduit through which groundwater entered the basement constituted an “other opening” within the meaning of the Policy. (Whalen, PJ, and Smith, J). The appeal to this Court ensued as a matter of right. c. The Appellate Division Majority Correctly Held that the Language of the Water Damage Exclusion, given its Plain and Common Meaning, is Unambiguous as a Matter of Law Plaintiffs contend on this appeal that the Appellate Division majority erred in holding that the water damage exclusion applies under the circumstances of this case because: (1) the majority misquoted the policy language and ignored an ambiguity in that language; (2) the case cited by the majority is unpersuasive and distinguishable from the instant case; and (3) the “longstanding law of New York State” is highly favorable to insureds. Contrary to Plaintiffs’ contentions, however, under the single reasonable interpretation of the policy language at issue, Plaintiffs’ claimed loss falls completely within the $25,000 policy limitation for water damage claims. Deference to an insured’s interpretation is warranted only where, considering the plain language of the provisions at issue in context of the policy as a whole, a provision “may be reasonably interpreted in two conflicting manners.” (Lend Lease (US) Const. LMB Inc. v. Zurich Am. Ins. Co., 28 NY3d 675, 682 Papa v. Associated Indemnity Corporation et al. APL-2017-00040 HURWITZ & FINE P.C. Pg. 5 [2017]). An insured cannot create ambiguity from whole cloth where none exists, inasmuch as policy “provisions ‘are not ambiguous merely because the parties interpret them differently.’ ” (Universal Am. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 25 NY3d 675, 680 [2015] (quoting Mount Vernon Fire Ins. Co. v. Creative Hous., 88 NY2d 347, 352 [1996]). Instead, the determination of whether a particular policy provision is ambiguous is a question of law for the court. (Universal Am. Corp., 25 NY3d at 680; Vigilant Ins. Co. v. Bear Stearns Cos., 10 NY3d 170, 177 [2008]). “Ambiguity in a[n insurance] contract arises when the contract, read as a whole, fails to disclose its purpose and the parties’ intent, or where its terms are subject to more than one reasonable interpretation.” (Universal Am. Corp., 25 NY3d at 680 [internal citation omitted]). Here, the policy provided coverage for “direct physical loss of or damage to Covered Property at the premises . . . caused by or resulting from any Covered Cause of Loss,” unless that loss was excluded in Part B of the Policy or otherwise expressly limited. (R. 733). To that end: B. Exclusions 1. 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. Unless otherwise stated, the following exclusions apply to all Section 1- Coverages. * * * Papa v. Associated Indemnity Corporation et al. APL-2017-00040 HURWITZ & FINE P.C. Pg. 6 f. Water (1) Flood, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not; (2) Surface water; (3) Mudslide or mudflow; (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. But if loss or damage by fire, explosion or sprinkler leakage results, we will pay for that resulting loss or damage. (R. 745-46). A Water Damage Endorsement in the policy modified the above Water Damage Exclusion by restoring limited coverage up to $25,000 for water damage caused 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; see 772, 776). As noted above, it is undisputed that AIC paid Plaintiffs §25,000. (R. 341, 856, 904-06). Papa v. Associated Indemnity Corporation et al. APL-2017-00040 HURWITZ & FINE P.C. Pg. 7 Initially, AIC respectfully submits that, on its face, this case amounts to nothing more than water which flows through the foundation. Despite Plaintiffs’ efforts to cast this as something it is not, the facts of the incident are not disputed. Nevertheless, should the Court determine that it is not, at its basic level, water flowing through a foundation, it must then fall within the portion of the exclusion which precludes coverage for water entering through other openings. To that end, the Appellate Division majority correctly held that AIC met its burden of establishing that the above-quoted policy provisions were reasonably susceptible to only one interpretation. (Cragg v. Allstate Indem. Corp., 17 NY3d 118, 122 [2011]; White v. Cont'l Cas. Co., 9 NY3d 264, 267 [2007]). The majority considered the water damage exclusion, including the exclusion for water flowing through doors, windows or other openings, in “in light of ‘common speech’ and the reasonable expectations of a businessperson.’” (Papa v. Associated Indemnity Corp., 147 AD3d 1558, 1560 [4th Dep’t 2017] (citing Belt Painting Corp. v. TIG Ins. Co., 100 NY2d 377, 383 [2003])). So construed, the majority correctly concluded that when viewed in context the policy language regarding “[d]oors, windows or other openings” unambiguously applied to “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.” (R. 745-46; Papa, 147 AD3d at 1560). Papa v. Associated Indemnity Corporation et al. APL-2017-00040 HURWITZ & FINE P.C. Pg. 8 Commerce Ctr. Partnership v Cincinnati Ins. Co., cited by the majority, supports this common speech analysis. (2006 WL 1236745, *2-3 [Mich Ct Appeals 2006]). Like New York law, Michigan courts also give policy language its ordinary and plain meaning. (Commerce Ctr. Partnership, 2006 WL 1236745, at*3 (citing Royce v. Citizens Ins. Co., 219 Mich App 537, 542 [Mich Ct App 2006]); see Bahri v. IDS Prop. Cas. Ins. Co., 308 Mich App 420, 424 [Mich Ct App 2014] [although ambiguities should be construed in favor of an insured, policy language should not be warped merely for the purpose of benefiting the insured]). Notably, the Commerce Ctr. court considered a water loss exclusion with almost identical wording to the instant policy: g. Water (1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not; (2) Mudslide or mudflow; (3) Water that backs up or overflows from a sewer, drain, or sump; or (4) 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. However, if Water, as described B.1.g (1) through (4) above, results in fire, explosion or sprinkler leakage, we will pay for the “loss’ caused by that fire, explosion, or sprinkler leakage. (Commerce Ctr. Partnership, 2006 WL 1236745 at *2). Papa v. Associated Indemnity Corporation et al. APL-2017-00040 HURWITZ & FINE P.C. Pg. 9 In resolving the parties’ coverage issue, the Commerce Ctr. Partnership court gave the terms “surface water” and “other openings” their ordinary and common meanings. (Commerce Ctr. Partnership, 2006 WL 1236745, at*3). The court recognized that “an ‘electrical conduit’ certainly falls within the definition of ‘other openings’ in § I.B.1.g(4)(c),” referring to the language quoted above. (Id. [emphasis added]). Thus, contrary to the assertion in Plaintiffs’ letter submission, the court was not referencing some uncited and unknown policy definition, but it was instead considering the plain language of the exclusion itself, and affording that language a common sense interpretation. Further, the fact that the source of the water was not conclusively established was irrelevant to the Michigan court’s decision, inasmuch as the court undertook a separate analysis with respect to each potential exclusion. (Commerce Ctr. Partnership, 2006 WL 1236745, at*2-3). In light of its consistency with New York law and the identical policy language considered, the Appellate Division majority did not err in finding Commerce Ctr. Partnership highly persuasive. Moreover, the majority’s conclusion does not run afoul of the ejusdem generis rule of construction, whereby “a series of specific words describing things or concepts of a particular sort are used to explain the meaning of a general one in the same series.” (Matter of Riefberg, 58 NY2d 134, 141 [1983]). Doors and windows share the characteristic of being an intentional man-made hole, or Papa v. Associated Indemnity Corporation et al. APL-2017-00040 HURWITZ & FINE P.C. Pg. 10 opening, in a foundation or basement wall for the purpose of allowing something through, be it persons or daylight. Similarly, the conduit created an opening in the wall through which electrical wires could pass into the basement. (R. 153-54, 886). There is no distinctive factor associated with the opening created by the electrical conduit that would lead a reasonable insured to distinguish it from the opening created by a door, window, or a “portal or a vent,” as hypothesized by the dissent. (Papa, 147 AD3d at 1561). Pioneer Tower Owners Assn. v. State Farm Fire & Cas. Co., on which Plaintiffs rely, highlights the importance of a distinguishing characteristic in the application of the ejusdem generis rule. (12 NY3d 302, 307-08 [2009]). There, the policy listed “earthquake, landslide, erosion, and subsidence” as examples of “earth movement,” damages from which were excluded from coverage. (Id. at 307- 08). This Court expressly noted that the case was “a close one,” but ultimately found an ambiguity because an insured could reasonably interpret and conclude that this list of naturally-occurring, unintentional soil shifting created a category that did not include the intentional, purposeful removal of earth by humans, the cause of the damage at issue. (Id. at 307, 308). Thus, because the insured presented a reasonable interpretation of the clause in favor of coverage, this Court was constrained to resolve the ambiguity in the insured’s favor. (Id. at 308). Papa v. Associated Indemnity Corporation et al. APL-2017-00040 HURWITZ & FINE P.C. Pg. 11 The same conclusion cannot be reached regarding the series of examples at issue in the instant case. As noted, each of the examples specified in the policy exclusion and the electrical conduit at issue are all intentional, purposeful openings in the basement wall. Like the electrical conduit, water could, but is not intended to, flow through a door or window. In contrast, neither Plaintiffs nor the dissent articulated what characteristic distinguishes the electrical conduit from a window, door, or a vent such that an insured would reasonably conclude that an opening created by a conduit would not be included in the definition of “other openings.” Instead, when read as a whole, it is clear that the purpose and intent of the water damage exclusion is to exclude coverage regardless of how the water enters a building: i.e., whether it seeps through an unintended crack in a paved or unpaved foundation or flows through an open doorway.” (Universal Am. Corp., 25 NY3d at 680). Absent articulation of a distinguishing characteristic, such as that recognized in Pioneer Tower, it cannot be concluded that the Policy here “may be reasonably interpreted in two conflicting manners.” (Lend Lease [US] Const. LMB Inc, 28 NY3d at 682 [emphasis added]). The Appellate Division majority therefore correctly held that, under the common usage of the terms employed, the language of the water damage exclusion in this case allowed for only one reasonable interpretation: that coverage for the flow or seepage of groundwater through an Papa v. Associated Indemnity Corporation eta!. APL-20 1 7-00040 electrical conduit into the basement was limited to the $25,000 already paid by AIC as a matter of law. (See Cragg, 17 NY3d at 122; Broome Cty. Co., 125 AD3d at 1242). AIC therefore respectfully requests that, for the reasons stated herein and in AIC's appellant and reply briefs below, this Court affirm the February 10, 2017 memorandum and order of the Appellate Division, Fourth Department. Respectfully Submitted, HURWITZ & FINE, P.C. ,[{! Steven E. Peiper, Esq. Jennifer J. Phillips, Esq. Attorneys for Defendant-Respondent Associated Indemnity Corporation 1300 Liberty Building Buffalo, NY 14202 (716) 849 8900 HURWITZ & FINE P.C. Pg. 12 Papa v. Associated Indemnity Corporation et al. APL-2017-00040 RULE 500.1(0 DISCLOSURE STATEMENT In accordance with this Court's rules, Associated Indemnity Corporation states the following: Associated Indemnity Corporation, a California corporation, is a wholly owned subsidiary of Fireman's Fund Insurance Company, a California corporation. Fireman's Fund Insurance Company is a wholly owned subsidiary of Allianz Global Risks US Insurance Company ("AGR US"), an Illinois corporation. The parent corporation of AGR US is Allianz of America, Inc., which owns eighty percent of the voting stock of AGR US. The remaining twenty percent of AGR US voting stock is owned by AGCS International Holding B.V. Both Allianz of America, Inc. and AGCS International Holding B.V. are wholly owned indirect subsidiaries of Allianz SE, a publicly traded company. I[? Steven E. Peiper, Esq. Jennifer J. Phillips, Esq. Attorneys for Defendant-Respondent Associated Indemnity Corporation 1300 Liberty Building Buffalo, NY 14202 (716) 849 8900 HURWITZ & FINE P.C. Pg. 13 Papa v. Associated Indemnity Corporation et al. APL-2017-00040 HURWITZ & FINE P.C. Pg. 14 RULE 500.11(h) STATEMENT In addition to the continuation of Plaintiffs’ claims against co-Defendant D&D Power, Inc., in the instant action following the decision of the Appellate Division, the related action of National Fire Adjustment Co. v D&D Power, Inc., is also ongoing in New York State Supreme Court, Erie County, under Index No. 2012-0000023. Plaintiff Ronald J. Papa is the president of National Fire Adjustment Co., Inc., which is a tenant of Muir Lake Associates at the insured premises, (R. 300, 389-90), and this related action arises out of the same facts and circumstances as the action currently being considered by this Court. For both actions, a status conference is scheduled for August 22, 2017, and a trial date of March 12, 2018 has been assigned. Papa v. Associated Indemnity Corporation et al. APL-2017-00040 RULE SOO.ll(m) CERTIFICATION In accordance with this Court's rules, I hereby certify that the present submission in printed in a proportionally-spaced Times New Roman 14-point typeface, and that the total word count of the document, exclusive of the statements and certifications required by Rules 500.1(±) and 500.11(h),(m), is 2548 words. Steven E. Peiper, Esq. Jennifer J. Phillips, Esq. Attorneys for Defendant-Respondent Associated Indemnity Corporation 1300 Liberty Building Buffalo, NY 14202 (716) 849 8900 HURWITZ & FINE P.C. Pg. 15