Kane v. Royal Insurance Co. of America

LOHR, Justice,

dissenting:

I respectfully dissent. The majority holds that the term “flood” as contained in the insurance policies is free from ambiguity and covers inundations of water caused by the breakage of a dam. The majority also overrules Koncilja v. Trinity Universal Insurance Co., 35 Colo.App. 27, 528 P.2d 939 (1974), and holds that the “efficient moving cause” rule does not apply to this case because there is no inconsistency between the relevant inclusionary and exclusionary clauses of the policy. I disagree with the majority on both of these issues. In my view the term “flood” as used in the policy is ambiguous. Even assuming that the majority is correct in concluding that the term is free from ambiguity and that the inundation caused in this case is excluded from coverage, I believe that there is a conflict between the inclu-sionary and exclusionary clauses of the policies and that under the method of analysis set forth in Koncilja the type of damage suffered by the plaintiffs is included within the coverage of the insurance policies.

I.

In Ferndale Development Co. v. Great American Insurance Co., 34 Colo.App. 258, 527 P.2d 939 (1974), the Colorado Court of Appeals correctly recognized that the term “flood” is subject to several somewhat different “plain” meanings. Id. at 260, 527 P.2d at 940. The court noted that courts and commentators sometimes disagree as to whether certain types of inundations fall within the meaning of the term “flood.” Id. The court of appeals therefore held that the term “flood” was ambiguous and that an inundation of water caused by the breakage of a city water line was not excluded from coverage under the insurance policy by the provision excluding damage caused by “flood, [or] surface water” since ambiguities are to be resolved against the insurer. Id. at 260-61, 527 P.2d at 940.

I do not believe, as the majority does, that Femdale is readily distinguishable in principle from the present case, although admittedly the facts are not the same. The court in Femdale characterized the flow of water as an “inundation,” and the inundation was caused by the breakage of an artificially created containment of water. Those are the facts that caused the court of appeals to hold as it did in Femdale, and the inundation from the failure of the dam in the present case can fairly be characterized in a like manner.

The plaintiffs argue that “flood” should be interpreted to refer only to inundations caused by natural conditions or events. In this case, the term “flood” in the exclusionary clauses is found in the context of natural causes of flooding, i.e., “flood, surface water, waves, tidal water or tidal waves, overflow of streams or other bodies of water, or spray from any of the foregoing, all whether driven by wind or not.” This in itself indicates that the term “flood” could be interpreted as encompassing only natural causes. Cf. Bly v. Auto Owners Ins. Co., 437 So.2d 495, 496-97 (Ala.1983) (term “earth movement” in insurance policy en*687compasses only natural phenomena involving earth movement because examples mentioned in policy are only natural phenomena); Ariston Airline & Catering Supply Co. v. Forbes, 211 N.J.Super. 472, 511 A.2d 1278, 1284 (Law Div.1986) (“words ‘earth movement,’ like other language in policies being construed, must be read in the light of other words contained in the same exclusion”).

Several courts have interpreted similar insurance policy provisions in just this way. See, e.g., Robert Dorsen, Inc. v. Aetna Casualty & Sur. Co., 562 F.Supp. 495, 496 (D.D.C.1983). See also 5 J. Appleman, Insurance Law and Practice § 3145, at 462-63 (1970). Indeed, in the present case the district court initially interpreted the policy provisions to encompass only flooding by natural causes and not to include “a situation of an artificially-impounded or contained body of water that escapes and causes damage.” Kane v. Royal Ins. Co., No. 83CV603, slip op. at 2-3 (Dist. Ct. Larimer Co., Feb. 28,1984) (Dressel, J.) (the district court later reversed this decision since it viewed as binding the Colorado Court of Appeals decision in Bartlett v. Continental Divide Insurance Co., 697 P.2d 412 (Colo.App.1984)). These authorities, of course, do not compel us to take the same view, but they do provide support for a conclusion that the term “flood” as contained in insurance policies is ambiguous. See Annot., Division of Opinion as Evidence that Particular Clause of Insurance Policy is Ambiguous, 4 A.L.R. 4th 1253 (1981) (existence of differing interpretations of a term among or within jurisdictions is evidence of ambiguity of the term).

In sum, I believe the term “flood” as contained in the insurance policy is ambiguous. See Ferndale, 34 Colo.App. 258, 527 P.2d 939 (1974); Mateer v. Reliance Ins. Co., 247 Md. 643, 233 A.2d 797 (1967) (term “flood” is latently ambiguous when used in an insurance policy). Ambiguous terms in an insurance policy are to be construed most strongly against the insurer. Republic Ins. Co. v. Jernigan, 753 P.2d 229, 232 (Colo.1988); Reed v. U.S. Fidelity & Guar. Co., 176 Colo. 568, 572, 491 P.2d 1377, 1379 (1971). Therefore, I would hold that inundation caused by the breakage of a dam is not excluded from coverage by the flood provisions of these policies.

II.

Even if the majority is correct in concluding that the damage caused to the petitioners’ place of business is excluded from coverage by the flood provisions of the policies, the “all-risk” policies in question cover damage caused by the negligent acts of a third party or any other source not specifically excepted from coverage by the exclusionary clauses of the policies. Under a proper construction of Koncilja v. Trinity Universal Insurance Co., 35 Colo.App. 27, 528 P.2d 939 (1974), I believe that the insurer should bear the loss under the policies if third-party negligence or some other nonexcluded risk caused the dam to break.

In Koncilja, leakage from a broken water pipe in the insured home (a peril explicitly covered by the policy) caused subsidence of ground beneath the home (a peril excluded from coverage). There was therefore an inconsistency as to coverage. To resolve this inconsistency the court of appeals adopted the view that

[I]n determining whether a loss is within an exception in a policy, where there is a concurrency of different causes, the efficient cause — the one that sets others in motion — is the cause to which the loss is to be attributed, though the other causes may follow it, and operate more immediately in producing the disaster.

Id. at 30, 528 P.2d at 940-41 (quoting 6 G. Couch, Cyclopedia of Insurance Law § 1466 (1930)). The first cause, the leak from the water pipe, set in motion the second cause, the subsidence. Therefore the loss was covered under the policy. Koncilja, 35 Colo.App. at 30-31, 528 P.2d at 940-41. I believe this to be a sound rule. See 5 Appleman, supra § 3083 (1970 & 1988 Supp.). Moreover, this rule is consistent with the view of a majority of jurisdictions. See Villella v. Public Employees Mut. Ins. Co., 106 Wash.2d 806, 725 P.2d 957, 962 (1986). Accordingly, I see no need to overrule the settled law of Koncilja as does the majority opinion. See maj. op. at 685 n. 6; see also infra note 1.

The majority apparently concedes that third party negligence, such as negligence *688in the design, construction, or operation of the dam, is covered by the “all risk” policies in this case. However, the majority also concludes that there is no inconsistency because that coverage is “expressly subject to the language of the exclusions included in the policy.” Maj. op. at 685. This approach has the effect of treating the events leading up to the damage of the petitioners’ place of business as a single cause by implicitly saying that third party negligence is covered under the policy but not if the third party negligence causes flooding. I believe this approach misapprehends the rationale underlying Koncilja. There was more than one “cause” of the petitioners’ damage in this case. There was third party negligence in the design, construction or operation of the Lawn Lake Dam or some other cause that resulted in failure of the dam, and there was the “flood” which was “caused” or put in motion by the precipitating cause of the breakage of the dam.

In Hatley v. Truck Insurance Exchange, 261 Or. 606, 494 P.2d 426 (1972), vandals caused flooding of the plaintiffs’ place of business. Vandalism was covered by the policy but loss resulting from “flood,” “surface water” or “water below the surface of the ground” was excluded from coverage. The Oregon Supreme Court did not hold, as the majority in this case apparently would, that the vandalism that caused flooding was not covered by the policy. Rather, the court, using an analysis very similar to that in Koncilja, determined that there were two causes of the plaintiffs’ damage and that the policy covered this damage since the vandalism “cause” was the direct or immediate cause of the water damage. Id. 494 P.2d at 431-32. Accord Beauty Supplies, Inc. v. Hanover Ins. Co., 526 S.W.2d 75 (Mo.Ct.App.1975); Franklin Packaging Co. v. California Union Ins. Co., 171 N.J.Super. 188, 408 A.2d 448 (App.Div.1979).

I believe that this is also the proper method of analysis under Koncilja. Third party negligence or some other source resulting in breakage of the dam was one cause of the damage to the petitioners’ place of business and the “flooding” was another cause. However, because the precipitating cause of the failure of the dam set in motion the flooding, the policy should be construed in favor of coverage, if the precipitating cause is not itself excluded from coverage. See Koncilja, 35 Colo.App. at 30-31, 528 P.2d at 940-41.1

Moreover, this analysis is consistent with the rule applied in the majority of jurisdictions when both a covered risk and an excluded risk contribute to the claimed loss. See Villella v. Public Employees Mut. Ins. Co., 106 Wash.2d 806, 725 P.2d 957, 962 (1986). “[Wjhere an insured risk itself sets into operation a chain of causation in which the last step may have been an excepted risk, the excepted risk will not defeat recovery.” Id. (citing 5 J. Appleman, Insurance Law and Practice § 3083, at 311 (1970); 18 R. Anderson, Couch on Insurance § 74:711, at 1020-22 (2d rev. ed. 1983)). In Villella, the Washington Supreme Court held that a homeowner’s policy provision excluding coverage for “any loss caused by, resulting from, contributed *689to or aggravated by ... earthquake, landslide, mudflow, earth sinking, rising or shifting” would not preclude coverage for damage to a house caused by the negligent work of a building contractor which resulted in improper drainage and soil shifting. Villella, 725 P.2d at 958-59, 964. If the alleged proximate cause of the loss was the negligently constructed drainage system, the “earth movement exclusionary clause would not exclude coverage.” Id. at 964 (emphasis in original). See also Ariston Airline & Catering Supply Co. v. Forbes, 211 N.J.Super. 472, 511 A.2d 1278 (Law Div.1986) (efficient proximate cause rule applies to provide coverage for damage to warehouse from frost heaves despite “earth movement” exclusion if efficient cause was design or construction defect); Safeco Ins. Co. v. Hirschmann, 52 Wash. App. 469, 760 P.2d 969 (1988) (“all-risk” homeowners policy provides coverage for landslide damage despite “earth movement” exclusion where the proximate cause of loss was wind and rain).

For the reasons set forth above, I would reverse the order of the district court granting summary judgment and would remand the case for further proceedings.

ERICKSON and MULLARKEY, JJ., join in this dissent.

. The majority overrules Koncilja, concluding that the ‘“efficient moving cause’ rule should not apply in a case where the exclusion includes qualifying and enlarging words of causation." Maj. op. at 685 n. 6. However, this conclusion overlooks the fact that the efficient moving cause or proximate cause rules have been applied regularly even when qualifying and enlarging words of causation tire present. See, e.g., Villella, 106 Wash.2d 806, 725 P.2d 957 (1986) ("caused by, resulting from, contributed to or aggravated by"); Ariston, 211 N.J.Super. 472, 511 A.2d 1278 (Law Div.1986) (“caused by, resulting from, contributed to or aggravated by”); Stone v. Royal Ins. Co., 211 N.J.Super. 246, 511 A.2d 717 (App.Div.1986) ("directly or indirectly” caused by excluded risk). Moreover, at least one court has held that exclusionary clause language designed specifically to avoid application of a proximate cause analysis will not preclude such an analysis since the inquiry is based in part on public policy concerns over attempts to exclude losses connected with certain perils regardless of the importance of these perils in causing the loss. Safeco Ins. Co. v. Hirschmann, 52 Wash.App. 469, 760 P.2d 969 (1988) (clause excluding listed perils "whether occurring alone or in any sequence with a covered peril” held not to preclude proximate cause inquiry). Thus, the majority’s conclusion that Koncilja was wrongly decided based on the policy language at issue is not well supported by the case law.