The opinion of the court was delivered by: LEISURE
Plaintiff Puro International of New Jersey Corp. ("Puro") processes raw down and feathers, and deals in finished down products such as jackets, vest, comforters and pillows. Puro has brought this action against its insurer, defendant California Union Insurance Co. ("Cal-Union"), to recover under its insurance policy for damages to Puro's down and feather inventory caused by sprinkler leakage.
Cal-Union, while not disputing the fact that plaintiff's sprinkler system failed and that its goods were damaged, has moved for partial summary judgment, arguing that the terms of Puro's insurance policy limit recovery for "water damage" to $100,000. Plaintiff opposes defendant's motion and has filed a cross-motion for summary judgment, arguing that the policy places no limit on recovery for "sprinkler leakage damage," which Puro characterizes as a distinct peril not encompassed by its policy's limitation on "water damage." Alternatively, Puro argues that the language of the limitation clause is materially ambiguous, and that plaintiff should be given the opportunity to demonstrate the distinction between "water damage" and "sprinkler leakage damage" at trial.
It is undisputed that Puro purchased insurance policy number ZPM010212 ("policy") from Cal-Union for a premium of $32,500. This policy had an inception date of November 19, 1983 and an expiration date of November 19, 1984.
The policy provided coverage at five designated locations. It was an "all risk" policy, meaning that it covered damage to all real and personal property at those locations, subject to specified exclusions and limitations. The policy's maximum insurance coverage was $1,000,000.
The policy also excluded certain perils. Among these excluded perils was: "Loss or damage to personal property resulting from . . . leakage . . . unless such loss or damage is caused directly by . . . sprinkler leakage." Policy (Perils Excluded para. 12) at 2.
Although the standard policy adopted by Puro and Cal-Union ordinarily excludes general water damage, this exclusion was voided by the parties. See Policy (Perils Excluded para. 3) at 1. Thus, the policy covered water damage, but not without limitation. The policy also provided that Cal-Union's liability for water damage would be limited to $250,000 at location no. 4, and limited to $100,000 at the other four locations (nos. 1, 2, 3, 5). See Policy (Endorsement #2).
The events leading up to the damage suffered by Puro are not in dispute. On December 28, 1983, Puro suffered a loss at its premises on 1080 Madison Street in Hoboken, New Jersey, designated in the insurance policy as location number 5.
At location number 5, Puro has a dry-pipe sprinkler system, meaning that the pipes fill with air rather than water until the system is activated. Puro's sprinkler system is interconnected with a wet-pipe sprinkler system in the adjacent premises. On December 28, 1983, an alarm sounded in the adjacent premises causing water to fill Puro's dry-pipe sprinkler system. The alarm was classified as false and its cause remains unknown. Subsequently, the water that had filled the dry-pipe system in Puro's premises froze, thereby expanding and rupturing the pipes. As the ice thawed, water flowed through the ruptured pipes onto Puro's property, damaging Puro's inventory of feathers and down. The parties do not dispute the occurrence of these events; nor do they dispute that the physical cause of the damage was the water that came into contact with Puro's property.
In its motion for summary judgment, Cal-Union argues that since plaintiff's goods were damaged by contact with water, the loss was caused by "water damage" and Cal-Union's maximum liability under the policy is $100,000. Cal-Union contends that the term "water damage" is unambiguous, and so it is entitled to summary judgment as a matter of law.
In its cross-motion for summary judgment, Puro argues that the legal cause of its damage should be determined by the precipitating cause which sets into motion the chain of events that produces the ultimate loss. Thus, the fact that water was the immediate cause of the loss is not dispositive. Here, the precipitating cause of the loss was leakage from the sprinkler system. Therefore, according to Puro, the legal cause of the damage was sprinkler leakage, and the policy's limitation on liability for water damage should be found inapplicable as a matter of law.
Puro also argues that the policy's limitation on liability is inapplicable because "sprinkler leakage" is a distinct peril from "water damage." In support of this proposition, Puro relies on case law, trade usage and the use of the term in the policy itself. To buttress its trade usage argument, Puro cites a bulletin published by the National Underwriters Company which distinguishes sprinkler leakage insurance from other types of insurance. In support of its argument based on the use of the term in the policy, Puro notes that the policy addresses general water damage and sprinkler leakage damage in two separate sections, thus suggesting that the parties themselves regarded these perils as distinct. Compare Policy (Perils Excluded para. 3) with Policy (Perils Excluded para. 12).