The Waterfowl Rule of Insurance Policy Interpretation -- First: Read the Policy. Second: Read the Policy Again

PROPERTY – HOMEOWNERS – OTHER STRUCTURES COVERAGE
Weichert v. Allstate Ins. Co.
(Sup. Ct., Onondaga Co., decided 4/1/2009)

When Allstate issued a homeowner's policy to the plaintiffs in 2000, plaintiffs' agent told them that a detached pole barn on their property would not be covered under their Allstate policy and procured a separate policy for them from another carrier specifically insuring that structure.   In June 2005, while both policies were still in effect, a fire destroyed the pole barn and its contents. 

Plaintiffs made a claim to and were paid by the pole barn's insurer, in a amount less than the full value of the loss.  While adjusting that fire loss, plaintiffs discovered that their Allstate policy covered other structures and contained no exclusion for the pole barn. Plaintiffs submitted a claim to Allstate for the approximately $45,000 balance of their damages, which Allstate denied, and plaintiffs sued.  Following discovery, both sides moved for summary judgment.

In support of their motion, plaintiffs contended that despite what their agent may have told them regarding what coverage the Allstate policy did and did not afford, the Allstate policy was clear and unambiguous in affording coverage to the pole barn as a covered structure, not excluded by any specific endorsement to the policy that Allstate issued to them and for which they had paid a premium.

In opposition, Allstate argued that what plaintiffs agent had told them regarding the lack of coverage under the Allstate policy for the pole barn should control, despite what the policy provided or did not specifically exclude.  Allstate further contended that a specific policy exclusion, in this case endorsement AP 54, was not necessary and it was not their practice to have insureds actually sign the AP 54.

In granting plaintiffs' motion for summary judgment, Onondaga County Supreme Court Justice Anthony J. Paris found that plaintiffs had met, and defendants had not met, their respective burdens of showing on their motions for summary judgment:

In reviewing insurance policies vis-à-vis motions for summary judgment, Professor Samuel Donnelly instructs that there are two rules to follow:

First: Read the policy.

Second: Read the policy again.

It appears that the Court of Appeals agrees with Professor Donnelly as it has held in TAG 380, LLC v. COMMET 380, INC., 10 NY3d 507 (2008), that it is for the Court to determine the parties' rights and obligations under an insurance policy based on the specific language of the policy.

To negate coverage pursuant to an exclusion, a carrier must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case. Policy exclusions are to be narrowly construed and any ambiguity must be resolved against the insurer. BELT PAINTING CORP. v. TIG INSURANCE COMPANY, 100 NY2d 377 (2003).

Also, in construing an endorsement to an insurance policy, the endorsement and the policy must be read together, and the words of the policy remain in full force and effect except as altered by the words of the endorsement. COUNTY OF COLUMBIA v. CONTINENTAL INSURANCE COMPANY, 83 NY2d 618 (1994).

In this particular case, it is impossible for the policy and the endorsement to be read together as the endorsement AP 54 which allegedly excluded the pole barn from coverage was never attached to the policy or presented to Plaintiffs. Furthermore, when a copy of AP 54 was requested, all that Defendants could produce was a blank form without any entries describing the structure or evidencing a signature by either Plaintiff. Also, the policy provides for "other structures" protected in the amount of forty-one thousand nine hundred seventy-two dollars ($41,972.00).

Therefore, the policy language commands and it clearly and unambiguously states that under Coverage B at Page six of the policy that structures at Plaintiffs' address separated by clear space are covered.

The Court notes that the only other structure on Plaintiffs' property separated by clear space is the pole barn. The Court further notes that pursuant to CPLR 3123 Defendants have admitted that the policy and endorsements in Plaintiffs' Exhibit L are the policy endorsements that are the subject of this action. The AP 54 endorsement is not contained therein.

Where the language of the policy is clear and unambiguous, parole and extrinsic evidence may not be considered. STATE OF NEW YORK v. HOME INDEMNITY COMPANY, 66 NY2d 669 (1985); KENNEDY v. VALLEY FORGE INSURANCE COMPANY, 203 AD2d 930 (4th Dept., 1994).

Even if the Court went "outside the box" and considered evidence extrinsic to the policy, what can be considered?

How about the deposition testimony of MR. HUDSON, Defendants' adjustor, with twenty-four (24) years of experience, who testified that AP 54 is used to exclude structures otherwise covered. So if AP 54 is not issued, then, there is coverage. Also, if AP 54 is not filled in and addressed to a particular structure, there is coverage.

How about the deposition testimony of MR. BEALE, who never found nor could secure AP 54 from the Company and was never given an explanation as to why it could not be located. Most likely because it did not exist.

How about MS. GLEASON'S testimony, the Defendants' supervisor, who denied coverage because the Company computer told her to do so. Sounds a little like the teleprompter thing that Rush talks about.

And let's not forget the testimony of MS. HARROD [plaintiffs' agent] who told Plaintiff, CYRUS WEICHERT, that the pole barn was not covered because of size and intended use, but never secured information regarding size or intended use, and collected a double commission, one from Defendants and one from the other carrier who duplicated coverage.

In addition, MS. HARROD testified that she never read the policies that she wrote for plaintiffs in 2000 or 2002. Had she done so, she would have realized that there was coverage under the policies, specifically, Coverage B.

Defendants cannot defeat Plaintiffs' motion for summary judgment on the mere allegation that there was no coverage because MS. HARROD said so, especially when the language of the policy specifically provides for such coverage.

The fact that she was in error and caused Plaintiffs to pay a double premium cannot be held against Plaintiffs who relied on Defendants' agent's mistaken statements. Fortunately for Defendants, Plaintiffs had another policy that covered part of the loss to the pole barn and only seek excess or secondary coverage.

If an insured cannot recover when he or she does not read the policy and alleges that the agent told the insured there was coverage that's not in the language of the policy, how can an insurance company avoid coverage by saying its agent told the insured there wasn't coverage when the agent did not read the policy that specifically contains coverage and does not exclude such coverage. What the policy says is what the policy means; and the Court will cite the case of GOOSE v. GANDER, at 19 AJP 814.

Barnyard animal insurance coverage buffs may also recall the seminal cases of Cat v. Mouse (interpretation of a homeowners policy's vermin exclusion), E. Fudd v. B. Bunny (intentional acts exclusion), Wyle E. Coyote v. Rhode Runner (explosion exclusion of a commercial property policy), Tortoise v. Hare (the racing exclusion of a personal auto policy), Fox v. Hound (whether harassment claims are covered under a PUP policy), and In re Charlotte's Web (the savings clause of a farmowners policy). 

Hat tip to attorney Michael Mernin of Finazzo Cossolini O'Leary Meola & Hager, LLC, for both bringing this decision to my attention yesterday afternoon and decrypting the "AJP" reporter citation in Justice Anthony J. Paris' decision.  Could the 19 volume and 814 page citation be an Orwellian reference to Animal Farm?

Had the policy not be sufficiently clear in what it did not contain, perhaps Justice Paris could have ordered the parties to settle their coverage dispute with a game of rock, paper, scissors, as United State District Court Judge Gregory Presnell did in Avista Management, Inc. v. Wausau Underwriters Ins. Co.

It seems that all I really needed to know for analyzing and litigating insurance coverage disputes I did learn in kindergarten. Thank you Mrs. Henning.