August 20, 2012
STEVEN L. GROSSBERG AND DONNA GROSSBERG, PLAINTIFFS-APPELLANTS,
CHUBB INSURANCE COMPANY OF NEW JERSEY, DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-2343-10.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 13, 2011
Before Judges Messano and Kennedy.
Plaintiffs Steven and Donna Grossberg appeal from a February 18, 2011 order of the Law Division granting summary judgment to defendant Chubb Insurance Company of New Jersey (Chubb) and dismissing with prejudice their complaint for insurance coverage. The conflict between the parties is not factual, but rather arises from differences in the parties' interpretation of the language in the Chubb insurance policy and their arguments pertaining to the applicability of the policy to the loss at issue.
Plaintiffs own a single family home situated on the bay in Beach Haven. They purchased the property in 1987, and demolished ninety percent of the existing structure which they then re-built to their own specifications. They use the property as a seasonal vacation home.
The structure is a single story wood-framed house sheathed in plywood and finished with horizontal cedar siding. There are upper level loft areas on either end of the house. By all accounts, plaintiffs maintained the house well and painted it every four years. Plaintiffs never saw, nor were they otherwise aware of, any water intrusion within the house.
In late August or early September 2009, Steven Grossberg noticed some loose cedar siding on the exterior of the house and asked a local contractor to examine and repair the siding. The contractor removed some of the siding "and discovered that the framing beneath the siding, hidden from view, was either severely compromised or not visible at all."
The contractor then asked an architect, Richard P. Luthringer, to inspect the house. In an initial letter dated September 28, 2009, Luthringer reported seeing "damages" to exterior framing, sill plates, rim joists and the "tails" of the floor joists and stated "[m]uch of the framing which is still present has been compromised by the elements." He explained that because the house was situated on the bay and is "constantly subjected to high wind", it was in "imminent danger of collapse" due to the damages, and required support.
Plaintiffs arranged to have the house temporarily shored-up by their contractor and notified Chubb on October 7, 2009, they were making a claim under their Chubb "Masterpiece" policy which was in effect for the period December 10, 2008, to December 10, 2009. Chubb immediately hired Glenn P. Rentschler, Ph.D., P.E., to examine the property, and he undertook that examination on October 8, 2009, in the presence of a Chubb adjuster, as well as Steven Grossberg and his contractor.
In a report issued October 16, 2009, Rentschler found "varying degrees of wood decay" within the structure. He explained,
At the exterior location along the right front wall, severe decay has caused significant deterioration of the plywood sheathing, the wall studs, the rim joist, and multiple floor joists. The decay has significantly reduced the load carrying capacity of the wall system, introducing a potential for localized collapse. . . . At another location on the rear of the house, slightly less extensive, but nonetheless severe, decay is also present.
He added that "evidence of decay" was found at most probe locations, and that the temporary shoring undertaken was "prudent and necessary."
Further, Rentschler explained,
It is our opinion that the decay is the result of water intrusion behind the siding that could not drain, and which managed to bypass the weather resistant barrier and attacked the underlying wood framing. Storms and accompanying winds at the shoreline area can be quite severe, causing wind-driven rain to be forced a considerable distance up behind siding elements, despite the well-maintained condition of the siding, as was the case in this home. If the water is driven up behind a siding plank above the concealed top edge of the top of the plank, it is extremely difficult for that water to drain to the exterior.
He also concluded that some aspects of the construction were "incorrect" or "questionable" and contributed to the water intrusion and consequent "decay."
The Chubb Masterpiece policy provided, among other things, "Deluxe House Coverage" for the dwelling with limits of $1,447,000. Under this coverage, "a 'covered loss' includes all risk of physical loss to your house or other property covered under this part of your Masterpiece policy, unless stated otherwise or an exclusion applies. Exclusions to this coverage are described in Exclusions." (Emphasis in original).
The "Exclusions" section of the policy states that "[t]hese exclusions apply to your Deluxe House Coverage" and then provides that "[t]he words 'caused by' mean any loss that is contributed to, made worse by, or in any way results from that peril." Among the identified exclusions are the following:
Gradual or sudden loss. We do not provide coverage for the presence of wear and tear, gradual deterioration, rust, bacteria, corrosion, dry or wet rot, or warping, however caused, or any loss caused by wear and tear, gradual deterioration, rust, bacteria, corrosion, dry or wet rot, or warping. We also do not cover any loss caused by inherent vice, latent defect or mechanical breakdown. But we do insure ensuing covered loss unless another exclusion applies. . . .
Faulty planning, construction or maintenance. We do not cover any loss caused by the faulty acts, errors or omissions of you or any other person in planning, construction or maintenance. It does not matter whether the faulty acts, errors or omissions take place on or off the insured property. But we do insure ensuing covered loss unless another exclusion applies. "Planning" includes zoning, placing, surveying, designing, compacting, setting specifications, developing property and establishing building codes or construction standards. "Construction" included materials, workmanship, and parts equipment used for construction or repair.
On December 9, 2009, Chubb notified plaintiffs it was denying coverage under its Masterpiece policy. In its letter of denial, Chubb cited the "Gradual or sudden loss" exclusion and the "Faulty planning, construction or maintenance" exclusion and stated , in pertinent part,
It is apparent that the loss to your home was caused by gradual deterioration, dry or wet rot, and/or faulty installation of the underlying weather resistant barrier, all of which are excluded perils[.]
Plaintiffs rejected Chubb's denial of coverage, and contended that Chubb's "all risks" policy insured against "hidden storm damage decay and resultant imminent collapse" of a covered structure.
Plaintiffs thereafter obtained a report from Frank Gatlin, A.I.A., which, among other things, responded to the Rentschler report. Gatlin's conclusion was that the decay of the structure was not due to improper construction practices or materials. Gatlin, however, also concluded that the decay in the wood framing and sheathing occurred due to "water intrusion" caused by the exposure of the structure to "torrential wind-driven rain and high winds during coastal storms and/or Nor'easters."
Chubb did not change its position, however, and plaintiffs thereupon filed a declaratory judgment action against Chubb seeking coverage. After the exchange of some discovery, the parties each moved for summary judgment. The motion judge granted Chubb's motion and denied plaintiffs' motion, holding, in part, as follows:
The question here is whether or not the exclusion which the Court has read into the record would exclude coverage in this matter notwithstanding the fact that the cause of the damage to the structure in question may have been the result of an external agency, that is, the wind driven rain.
The Court's reading of the language of the policy would, in fact, indicate that coverage here is excluded by the language of the policy notwithstanding the fact that the cause of the damage here in question may have been in the first instance the result of wind driven rain which is an external cause and notwithstanding the fact that this policy is to be considered an all-risk policy. The specific language of the policy in relevant part provides that there is no coverage for any loss caused by rot.
It's clear to this Court that that language is to be given its plain meaning, and that is that dry rot is not covered under the policy -- that is, rot is not covered under the policy, quote, "however caused." That language in the judgment of this Court would exclude damage to the structure even in an instance where the rot or decay itself might have been the result of an external cause. The language of the exclusion is clear.
This appeal followed.
In reviewing a grant of summary judgment, we apply the same standard as the motion judge. EMC Mortgage Corp. v. Chaudhri, 400 N.J. Super. 126, 136 (App. Div. 2008) (citing Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007)). We first determine whether the moving party has demonstrated there were no genuine disputes as to material facts. Alt. Mut. Ins. Co. v. Hillside Bottling Co., 387 N.J. Super. 224, 230 (App. Div.), certif. denied, 189 N.J. 104 (2006).
[A] determination whether there exists a "genuine issue" of material fact that precludes summary judgment requires the motion judge to consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party. [Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).]
We then decide "whether the motion judge's application of the law was correct." Atl. Mut. Ins. Co., supra, 387 N.J. Super. at 231. In doing so, we owe no deference to the motion judge's conclusions on the issues of law, and review those de novo. Ibid. (citing Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995)).
We begin by stating some general principles that govern the interpretation of an insurance contract. An insurance policy is "interpreted according to its plain and ordinary meaning." Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992). The policy language "underscores the basic notion that the premium paid by the insured does not buy coverage for all . . . damage but only for that type of damage provided for in the policy." Hardy v. Abdul-Matin, 198 N.J. 95, 102 (2009) (quoting Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 237 (1979)). "[E]xclusions are presumptively valid and will be given effect if 'specific, plain, clear, prominent, and not contrary to public policy.'" Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997) (citations omitted); see also Hardy, supra, 198 N.J. at 101-102 (court upheld insurer's denial of benefits to passenger injured in stolen vehicle based on a policy provision excluding PIP benefits to an insured who occupied a vehicle without the owner's permission).
However, as a general rule, "insurance policy exclusions must be narrowly construed; the burden is on the insurer to bring the case within the exclusion." Princeton Ins. Co., supra, 151 N.J. at 95. If the policy language is clear, we must interpret the policy as written and refrain from "writing a better insurance policy than the one purchased." Hardy, supra, 198 N.J. at 101-102 (quoting Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595 (2001)); Villa v. Short, 195 N.J. 15, 23 (2008); President v. Jenkins, 180 N.J. 550, 562 (2004). If the policy language is sufficiently ambiguous to support two meanings, one that favors the insurer and one that favors the insured, the policy should be construed to provide coverage, President, supra, 180 N.J. at 563, and to "comport with the reasonable expectations of the insured." Zacarias, supra, 168 N.J. at 595; see also Sealed Air Corp. v. Royal Indem. Co., 404 N.J. Super. 363, 375 (App. Div.), certif. denied, 196 N.J. 601 (2008); Search EDP, Inc. v. Home Assurance. Co., 267 N.J. Super. 537, 542 (App. Div. 1993), certif. denied, 135 N.J. 466 (1994).
With these principles guiding our analysis, we first determine that the Chubb Masterpiece policy is patently an "all-risk" policy of insurance, rather than a policy that insures against losses arising from specifically identified causes.*fn1 The Chubb policy itself defines a "covered loss" to include "all risk of physical loss" to the covered property, unless stated otherwise "or an exclusion applies." In Victory Peach Group, Inc. v. Greater N.Y. Mut. Ins. Co., 310 N.J. Super. 82, 87 (App. Div. 1998), we explained, An "all-risk" policy creates a "special type of insurance extending to risks not usually contemplated, and recovery under the policy will generally be allowed, at least for all losses of a fortuitous nature, in the absence of fraud or other intentional misconduct of the insured, unless the policy contains a specific provision expressly excluding the loss from coverage." 43 Am.Jur.2d Insurance § 505 (1982). [footnotes omitted.]
Accord: Ariston Airline & Catering Supply Co., Inc. v. Forbes, 211 N.J. Super. 472 (Law Div. 1986). We have defined a "fortuitous loss" as "one that, so far as the parties to the insurance contract are aware, is dependent on chance. Ibid. (citing 5 Appleman, Insurance Law and Practice, § 3092 (Supp. 1996-97).
We have little trouble concluding that a loss occasioned by wind-driven rain would be a "covered loss" under the "all-risk" Masterpiece Chubb policy, unless specifically excluded from coverage. Both plaintiffs' and Chubb's experts found that the deterioration and decay within plaintiffs' property occurred as a consequence of the structure's repeated exposure to wind-driven rain being forced behind the cedar siding. We now turn to the exclusions section of the Chubb policy to ascertain if the condition that resulted from this otherwise "covered loss" is excluded.
As we explained earlier, the policy specifically excludes coverage occasioned by the presence of "wear and tear, gradual deterioration, rust, bacteria, corrosion, dry or wet rot, or warping, however caused, . . . ." Again, the experts for both parties have identified the loss occasioned to the structure by the wind-driven rain to be "wood decay" and "deterioration." While no case in New Jersey has addressed this particular exclusion, cases in other jurisdictions considering exclusions and conditions similar to those before us, have concluded that the unambiguous exclusion supported a denial of coverage. See, e.g., Aetna Casualty & Surety Co. v. Yates, 344 F.2d 939 (5th Cir. 1965) (decayed joists, sills and subflooring caused by condensation from chilled air trapped within the crawl space beneath the home not covered by a policy excluding loss caused by "rot" or "dampness"); Church of the Palms Presby.(U.S.A.) Inc. v. The Cincinnati Ins. Co., 404 F. Supp. 2d 1339 (M. D. Fla. 2005) (all-risk policy excluding losses caused by wear and tear, fungus, decay or deterioration does not cover losses occasioned by mold from, among other things, excessive moisture); Ames Privilege Assoc., L.P. v. Utica Mut. Ins. Co., 742 F. Supp. 704 (D. Mass. 1990) (rotted wood beams caused by a leaking roof not covered where the policy excluded loss caused by deterioration and wet or dry rot.)
It is clear that plaintiffs' premises was compromised by wood rot occasioned by wind-driven rain that could not otherwise escape from behind the cedar siding. By its plain and unambiguous terms, the Chubb Masterpiece policy excludes coverage for losses occasioned by rot, and thus Chubb was justified in denying coverage on the claim brought by plaintiffs.*fn2
Plaintiffs contend, however, that the exclusion should not apply where the loss was occasioned by a covered "efficient or predominant cause," even if the policy excludes other contributing causes. Normally, "when an insurance policy uses an exclusion which bars coverage for losses caused by a particular peril, the exclusion applies only if the excluded peril was the 'efficient proximate cause' of the loss." Zurich Am. Ins. Co. v. Keating Bldg. Corp., 513 F. Supp. 2d 55, 70 (D.N.J. 2007) (quoting Auto Lenders Acceptance Corp. v. Gentilini Ford, Inc., 181 N.J. 245, 257 (2004)). Thus, an insured is normally afforded coverage where an "included cause of loss is either the first or last step in the chain of causation which leads to the loss." Assurance Co. of Am., Inc. v. Jay-Mar, Inc., 38 F. Supp. 2d 349, 353 (D.N.J. 1999) (citing Franklin Packaging Co. v. Cal. Union Ins. Co., 171 N.J. Super. 188, 191 (App. Div. 1979) (where vandals broke into insured's warehouse and caused flood, resulting in damage to inventory, court held that vandalism, a covered cause of loss, was proximate cause even though water damage was excluded under the policy), certif. denied, 84 N.J. 434 (1980)); Stone v. Royal Ins. Co., 211 N.J. Super. 246, 251 (App. Div. 1986) (where sump pump hose broke and flooded insured's basement, court held broken household appliance, a covered cause of loss, was proximate cause even though losses caused by subsurface water were excluded under the policy).
The problem with this argument is that the Chubb Masterpiece policy excludes losses occasioned by gradual deterioration, or dry or wet rot, "however caused." Thus, it makes no difference what the cause of the excluded loss may have been, and the sequence of causes is likewise irrelevant. The phrase "however caused" avoids application of the efficient proximate cause doctrine and, because it is clear and unambiguous, it is enforceable. See Assurance Co. of Am., Inc., supra, 38 F. Supp. 2d at 354.
Given our conclusions, we need not address Chubb's reliance on the "Faulty planning, construction or maintenance" exclusion. If that were the only applicable exclusion, we would no doubt have remanded for trial in view of Gatlin's expert report, which created a fact issue as to the presence of faulty construction. However, because the unambiguous language of the "Gradual or sudden loss" exclusion applies and negates application of the efficient proximate cause doctrine, we affirm the judgment of the trial court.