December 7, 2009
Written By Attorneys: Robert M. Runyon III and Jennifer A. Coughlin
This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
In Bishops, Inc. v. Penn National Insurance, the Pennsylvania Superior Court held that concurrent causation language contained in an exclusionary provision within a property insurance policy is rendered unenforceable where coverage for an excluded loss is afforded by an endorsement to the policy without similar lead-in language. 2009 WL 4045191 (Pa.Super. Nov. 24, 2009).
On or about September 17, 2004, torrential rains during Hurricane Ivan caused water run-off to back-up through a municipal drainage system and water to overflow from nearby bodies of water, inundating much of the town where Bishops' property was located. Id. Both the sewer and drain back up and the extensive flooding caused a total loss to Bishops' inventory and office equipment. Id. Bishops also submitted a claim for loss of business income.
The policy issued by Penn National contained exclusions for damage caused by flooding and by water that backs up or overflows from a sewer, drain or sump, "regardless of any other cause or event that contributes concurrently or in any sequence to the loss." Id. at *2. The policy also contained a "Penn Pac Endorsement," which provided that Penn National will pay for loss or damage to Covered Property caused by a back up from a sewer or drain or an overflow from a sump within the building. The endorsement specifically stated that "Exclusion B.1.9.(3)[the exclusion relating to water that backs up or overflows from a sewer, drain or pump,] does not apply to this Additional Coverage." Id. at *4.
Penn National denied the claim under the exclusions for damages caused by generalized flooding and ground water that backs up through a sewer or drain. Litigation ensued and the Allegheny County Court of Common Pleas entered summary judgment for Bishops, holding that coverage was provided under the Penn Pac Endorsement. Id.
Penn National appealed to the Superior Court, alleging that coverage of the claim was precluded by the concurrent causation language because the damage was also caused by flooding, an enumerated exclusion separate from the sewer back up exclusion and Penn Pac Endorsement. Id.
The Court disagreed, finding that the Penn Pac Endorsement and the basic policy exclusion provision are ambiguous as they relate to each other when applied to the facts of the claim. Id. at *8. The Court found that the ambiguity existed since the Penn Pac Endorsement failed to restate the concurrent causation language or otherwise delineate what, if any, portion of the basic policy exclusion remained. The Court further noted that the Penn Pac Endorsement did not restate the language that bars coverage based on concurrent causation where the damage was caused in part by another excluded cause of loss. Id. The Court noted that, considering the basic policy alone, coverage for the damage was unequivocally excluded, but, as a result of the Endorsement, loss or damage caused by sewer or drain back-up became a covered loss without qualification, thus removing the exclusion of the basic policy as a bar to coverage for the damage. Id. at *7.
The Court also took into consideration the reasonable expectations of Bishops, concluding that it might reasonably conclude that the purchase of the Penn Pac Endorsement eliminated both the specific limitation concerning sewer and drain back up, as well as the concurrent causation lead-in language.
The parties stipulated that the loss was caused by both flooding and sewer and drain back-up, yet it was not possible to divide or separate the damages caused by each peril. The Court found that the failure of both the Endorsement and the basic policy to provide a clear indication of the continuing role, if any, of the concurrent cause language rendered the concurrent causation language superseded and invalidated. Id. at *3, *9. As a result, it was of no importance to the Court that flooding, a clearly excluded loss, contributed to the damage. Id. at *9.
The Court referenced Penn National's citations to several federal court decisions outside of Pennsylvania holding that concurrent causation language is enforceable, Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419 (5th Cir. 2007); Noran Neurological Clinic, P.A. v. Travelers, 229 F.3d 707 (8th Cir. 2000); Front Row Theatre, Inc. v. American Mfr.'s Ins. Cos., 18 F.3d 1343 (6th Cir. 1994). Id. However, the Court distinguished these cases as inapplicable on the ground that they interpreted concurrent cause exclusions as they appeared in the basic policy only, and they were not faced with the modifying language of an extra-cost endorsement, the ambiguity that it created, or the reasonable expectations of an insured in light of that ambiguity. Id.
Notably, the Court failed to address, recent decisions of federal courts sitting in Pennsylvania and applying Pennsylvania law holding that concurrent causation lead-in language was unambiguous and enforceable. Pisano v. Nationwide, 2009 WL 3415278 (E.D.Pa. Oct. 21, 2009), T.H.E. Ins. Co., v. Boyer, 455 F.Supp.2d 284 (M.D.Pa. 2006),
Although federal courts sitting in Pennsylvania have upheld an insurer's right to enforce concurrent causation lead-in language, Bishops further highlights the Pennsylvania Superior Court's apparent disfavor of such language. While the Superior Court agreed that such language was enforceable when utilized in the context of the basic policy form, when used in conjunction with additionally purchased coverage an ambiguity can arise, it appears that until the Pennsylvania Supreme Court definitively speaks on this issue, the disparity within the courts will remain. NLdH will continue to monitor this important issue.
