Plaintiffs, insured under an all-risk policy covering a building, appeal from grant of summary judgment in favor of the defendant insurer by the United States District Court for the Eastern District of New York (Irizarry, J.). Although New York court rulings were in conflict, the district court inferred from the silence of the New York Court of Appeals that under New York law insurance against "collapse" is triggered only by "total or near total destruction," and not by a building's loss of structural integrity resulting from hidden decay. Because the insurer wrote a policy using ambiguous terms whose meaning is not clarified by New York decisions, the policy must be read under New York law in favor of the insured. The Court of Appeals (Leval, J.) vacates the judgment and remands.
The opinion of the court was delivered by: Leval, Circuit Judge
Before: LEVAL, KATZMANN, and LIVINGSTON, Circuit Judges.
This is an appeal by the insured plaintiffs from the judgment of the United States District Court for the Eastern District of New York (Irizarry, J.) granting the defendant insurer's motion for summary judgment dismissing the suit. Plaintiffs-Appellants Irma and Blanche Dalton (collectively "the Daltons"), as proprietors of a building at 39 Sidney Place, Brooklyn, N.Y., were insured under a so-called "all risk" policy issued by the defendant Harleysville Worcester Mutual Insurance Company, which covered "collapse" caused by "[h]idden decay." The building was found to be so severely damaged by hidden decay that the New York City Department of Buildings issued a notice to vacate because of the building's structural instability. The Daltons claimed for the damage. When Harleysville disclaimed coverage, the Daltons brought this suit.
Both sides moved for summary judgment. The district court granted summary judgment in favor of Harleysville, holding that the damage to the Daltons' building came within the policy's express exclusion of "bulging," and in any event did not come within the concept of "collapse" under New York law, which the court concluded is triggered only by "total or near total destruction." We believe the district court misread the evidence in relation to the terms of the policy, and drew inappropriate significance from the refusal of the New York Court of Appeals to review lower court precedent. The judgment is vacated and the case remanded.
The following facts are undisputed. The Daltons own a three-story townhouse located at 39 Sidney Place, Brooklyn, New York, upon which in May 2003 Harleysville issued an all-risk insurance policy. On February 25, 2004, while the policy was in effect, damage to an interior common party wall between the Daltons' building and an adjacent building was discovered. The Daltons immediately reported the damage and claimed against the policy. On June 10, 2004, the New York City Department of Buildings ordered that the building be vacated.
Harleysville disclaimed coverage, asserting that the damage fell within the policy exclusions. The Daltons then retained Benjamin Lavon, a professional engineer, to conduct an analysis of the structural failure of the party wall. The Daltons and Harleysville agreed to rely on Lavon's report for purposes of this litigation. Lavon observed that the party wall exhibited large bulging of the masonry wall, movements, deteriorating masonry, and crumbling mortar joints. The conditions were hidden from view by a wall finish, which prevented observation of the deterioration. Lavon concluded that the "structural failure of the Party Wall resulted from deteriorated mortar joints"and that "the deterioration of the mortar joints that resulted in the Collapse of the Party Wall was hidden from view" because of a finish which completely covered the Party Wall.
The policy provides that Harleysville will pay for "direct physical loss of or damage . . . caused by or resulting from any Covered Cause of Loss." A Covered Cause of Loss includes risks of direct physical loss.
Section B of the policy provides for exclusions. Section B.2.k(2) excludes coverage for "decay, deterioration, . . . or any quality in [the] property that causes it to damage or destroy itself." Section B.2.k(4) excludes coverage for "[s]ettling, cracking, shrinking or expansion." And finally, Section B.2.i. excludes coverage for "[c]ollapse, except as provided in the Additional Coverage for Collapse" (emphasis added).
The Additional Coverage for Collapse under Section A.5.d. states that Harleysville will pay for loss or damage resulting from "risks of direct physical loss involving collapse of a building or any part of a building caused . . . by . . . (2) [h]idden decay." It adds, however, that collapse does not include "settling, cracking, shrinkage, bulging or expansion."
The district court granted the defendant insurer's motion for summary judgment, relying essentially on two reasons. First, the court construed the Lavon report as meaning that the damage to the building consisted of "bulging," which is expressly excluded by the terms of the Additional Coverage for Collapse. Second, the court read the opinions of New York State courts, citing Graffeo v. U.S. Fidelity & Guaranty Co., 246 N.Y.S.2d 258 (App. Div. 2d Dep't 1964) and Rector St. Food Enterprises Ltd. v. Fire & Casualty Insurance Co. of Connecticut., 827 N.Y.S.2d 18 (App. Div. 1st Dep't 2006), to mean that "collapse" coverage applies only to total or near total destruction of the property. Because it was undisputed that the ...