Opinion
A2-98-53.
Filed September 23, 1999.
Summary: Cross motions for summary judgment. Insurance coverage dispute arising out of the tragic flooding which devastated the greater Grand Forks, North Dakota area during the spring of 1997. The court declares that the policy at issue clearly and unambiguously affords coverage for plaintiff's actual loss resulting directly from an interruption of business during the length of time, not exceeding two consecutive weeks, when as a direct result of damage to or destruction of property within 1,000 feet of the covered premises, by the perils insured against, access to such premises is specifically prohibited by order of civil authority. Accordingly, plaintiff's motion for summary judgment (doc. #30) is GRANTED, and defendant's motion for summary judgment (doc. #34) is DENIED. Plaintiff's motion to amend (doc. #26) is DENIED AS MOOT. The court notes that its holding is limited to the above-stated coverage issue.
ORDER
Before the court are cross motions for summary judgment (doc. #s 30, 34) as well as plaintiff's motion to amend (doc. #26). The parties have basically stipulated to the following facts for purposes of the summary judgment motions.
In its amended complaint, plaintiff alleges that defendant reduced flood coverage from $2,500,000 to 1,500,000 without notice, in violation of N.D. Cent. Code §§ 26.1-30.1-07, -08.
II. BACKGROUND
Briefly stated, this somewhat novel insurance coverage dispute arose out of the tragic flooding which devastated the greater Grand Forks, North Dakota area during the spring of 1997. Prior to the flood, plaintiff Altru Health System and Altru Specialty Services purchased a "Highly Protected Risk" (HPR) insurance policy, a form of all-risk policy, from defendant. See Ex. A accompanying Pl.'s Br. in Supp. of Mot. for Summ. J. The policy was in full force and effect during all times pertinent, and contained the following provisions:
E. SPECIAL PROVISIONS APPLYING TO TIME ELEMENT COVERAGE
6. Interruption by Civil Authority - This Policy is extended to include the actual loss sustained by the Insured, resulting directly from an interruption of business as covered hereunder, during the length of time, not exceeding two consecutive weeks, when as a direct result of damage to or destruction of property within 1,000 feet of the premises herein described by the peril(s) insured against, access to such described premises is specifically prohibited by order of civil authority.. . . .
FLOOD DEDUCTIBLE AND LIMIT ENDORSEMENT
All claims for loss, damage or expense arising out of any one Flood occurrence shall be adjusted as one claim, and from the amount of such adjusted claim there shall be deducted the following:
$500,000. For loss, damage or expense to real property and,
$500,000. For loss, damage or expense to personal property and,
$25,000. For loss, damage or expense to other than real or personal property.
A $1,500,000 sublimit of liability applies to any one flood disaster and a $1,500,000 [sublimit] of liability applies in any single one year period commencing August 1 at this location.
Flood waters never entered Altru hospital. However, much of the hospital parking lot was destroyed to make way for a ring dike. Flood waters did cause damage within 1,000 feet of Altru Hospital and on April 19, 1997, the North Dakota State Health Officer ordered the evacuation of all patients residing therein. The hospital was closed from April 20, 1997 until May 9, 1997. Full services were restored on May 12, 1997.
Plaintiff subsequently presented defendant with the following claims for loss:
Business interruption by order of civil authority: $3,424,070
Extra expense: $ 280,672
Parking lot damage (less a $500,000 deductible): $1,066,275
Repair and cleanup of parking lot: $ 191,247
Total: $4,962,264
The claim for business interruption by order of civil authority represented Altru's calculation of actual loss sustained during two consecutive weeks of the evacuation.
Defendant conceded coverage under the aforementioned civil authority (CA) provision. However defendant limited total indemnities for all of the foregoing loss to $1,500,000, the coverage limit provided in the flood endorsement.
Plaintiff responded with this action, maintaining that the CA provision clearly and unambiguously affords coverage for business loss for a period of two consecutive weeks when its provisions are triggered by the occurrence of a peril covered by the policy. Defendant counterclaimed for declaratory judgment, maintaining that a reading of the policy as a whole clearly and unambiguously reveals that the coverage afforded by the CA provision operates subject to the triggering peril and is therefore limited by the sublimits applicable to that peril, in this case, the $1,500,000 sublimit contained in the flood endorsement. The instant motions ensued, came on for hearing on August 16, 1999, and were thereafter taken under advisement.
III. ANALYSIS A. SUMMARY JUDGMENT STANDARDS
Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). A fact is "material" if it might affect the outcome of a case, and a factual dispute is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Churchill Bus. Credit, Inc. v. Pacific Mut. Door Co., 49 F.3d 1334, 1336 (8th Cir. 1995).
The "basic inquiry" for purposes of summary judgment is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one sided that one party must prevail as a matter of law." Quick v. Donaldson Co., Inc., 90 F.3d 1372, 1376 (8th Cir. 1996) (citing Anderson, 477 U.S. at 251-52). Along these lines, courts in North Dakota view the interpretation of an insurance policy as a question of law. Dundee Mut. Ins. Co. v. Marifjeren, 587 N.W.2d 191, 193 (N.D. 1998). Consequently, such cases are particularly amenable to summary judgment. See John Deere Ins. Co. v. Shamrock Indus., Inc., 929 F.2d 413, 415 (8th Cir. 1991).
When construing an insurance policy, North Dakota courts seek to give effect to the mutual intent of the parties as it existed at the time the contract was formed. See Landis v. CNA Ins., 589 N.W.2d 590, 591-92 (N.D. 1999). To accomplish this aim, North Dakota courts look first to the policy language itself. Id. at 592; Marifjeren, 587 N.W.2d at 193. Where a policy term is self explanatory and subject to only one meaning, the inquiry ends.Landis, 589 N.W.2d at 592; Marifjeren, 587 N.W.2d at 193. If coverage hinges on an undefined term, the plain, ordinary meaning of the term is applied in interpreting the contract. Landis, 589 N.W.2d at 592.
An ambiguity exists in an insurance policy under North Dakota law when good arguments can be made for two contrary positions regarding the meaning of a term. Marifjeren, 587 N.W.2d at 194. In these cases, North Dakota courts construe the term in favor of the insured. Id. However, North Dakota courts will not strain the definition of a term to create an ambiguity. See Close v. Ebertz, 583 N.W.2d 794, 796 (N.D. 1998).
B. MOTIONS FOR SUMMARY JUDGMENT
As previously mentioned, plaintiff contends that the applicable measure of its coverage under the CA provision is its actual loss sustained within a period of two consecutive weeks during the evacuation, "as set forth in the [provision] itself." See Pl.'s Br. in Supp. of Mot. for Summ. J. Plaintiff argues:
It is illogical and contrary to the language contained in the [CA] provision of the policy for [defendant] to argue that flood limits found in an endorsement to the policy apply when there is clear and explicit language . . . within the [CA provision] that specifically state[s] that coverage is for the actual loss sustained within a period not to exceed two weeks. There is nothing . . . to remotely suggest that the [flood sublimit] . . . somehow [is] imported into the [CA] section without ever being mentioned. In this regard, [defendant] could have very easily put language in the [CA] section of the policy [limiting CA] coverage . . . to the limits of coverage for the [triggering] peril. . . .See id.
Defendant, on the other hand, maintains that a plain reading of the whole policy results in the conclusion that the coverage provided by the CA provision operates subject to the $1,500,000 flood sublimit, and, that limit having been exhausted, there is no other coverage available. See Mem. In Supp. of Def.'s Mot. for Summ. J. Defendant establishes the connection between the CA provision and the flood endorsement as follows: First, defendant notes that the provision itself only affords coverage for loss due to an order caused "by the peril(s) insured against." Since the coverage is dependent upon and cannot be triggered without the occurrence of a covered peril, defendants contend that the CA provision operates subject to that peril and any of its accompanying limitations. Next, defendant points to the "Application to Coverage" paragraphs of subparts D ("General Conditions") and E ("Special Provisions Applying to Time Element Coverage") of the policy's Coverage Form, each of which provide
When Time Element Coverage is provided, for the purpose of such coverage any reference herein to direct loss or damage to the described property shall be construed to mean Time Element loss, as conditioned and limited in such coverage, [resulting directly from] [caused by] such direct loss or damage.
The coverage provided by the CA provision is, of course, "Time Element" coverage.
Defendant next turns to the policy preamble's "Limits of Liability" paragraph, which states:
All liability for loss or expense under this Policy for any one occurrence shall not exceed the smallest of the latest Policy amount entered on the Insurance Summary Page or any applicable sublimits of liability entered elsewhere in the Policy including but not limited to its Location Pages, Policy Coverage Sections and Endorsements. Sublimits are part of and not in addition to the Policy amount or other sublimits provided in the Policy.
Next, defendant argues that the policy's Location Pages direct the reader to the aforementioned flood endorsement for all damages arising out of a flood occurrence. Once there, defendant maintains that the flood endorsement "caps all damages, regardless of the type provided for under the policy, to a total of $1,500,000. . . . Thus, regardless of where you find coverage for a particular type of loss, whether it be loss to accounts receivable, valuable papers, boilers or machinery, etc., the damages recognized under those additional coverages will be capped by the limit or sub-limit of the peril causing the damage." Def.'s Resp. to Pl.'s Mot. for Summ. J.
The court finds plaintiff's interpretation correct. The CA provision clearly and explicitly limits coverage to "actual loss sustained by the Insured, resulting directly from an interruption of business . . ., during the length of time, not exceeding two consecutive weeks, when as a direct result of damage to or destruction of property within 1,000 feet of the premises . . . by the peril(s) insured against, access to [the] . . . premises is specifically prohibited by order of civil authority." In the context of this clear and unambiguous language, the phrase "by the peril(s) insured against" merely provides a triggering requirement, rather than a connection sufficient to subject the coverage provided in the CA provision to the sublimits contained in the flood endorsement.
Nor does the court find a connection between the CA provision and the flood endorsement in defendant's long and winding road from the former to the latter. Defendant simply cannot point to a provision anywhere in the policy which clearly and explicitly renders the coverage afforded by the CA provision subject to or dependent upon the sublimit contained in the flood endorsement. Though defendant correctly points out that the policy must be construed as a whole, this cannot be done to render a term illusory or superfluous; rather, meaning must be given to each word and phrase. Hanneman v. Continental W. Ins. Co., 575 N.W.2d 445, 449 (N.D. 1998) (citations omitted). Nor can this court add words to the policy in order to alter the coverage. Id. at 450 (citations omitted).
North Dakota courts require limitations of or exclusions from an insurance policy to be both clear and explicit. Thedin v. United States Fidelity Guar. Ins. Co., 518 N.W.2d 703, 706 (citingEmcasco Ins. Co. v. L M Dev., Inc., 372 N.W.2d 908 (N.D. 1985)). In light of the foregoing, the court finds that the policy provisions cited by defendant clearly fail to reach this standard.
The court finds support for its interpretation from the admittedly few authorities which address analogous coverage disputes. The first of these cases, Victory Container Corp. v. Sphere Ins. Co., 448 F. Supp. 1043 (S.D.N.Y. 1978), featured a suit to recover losses due to property damage and business interruption resulting from a flood. The policy at issue provided a maximum coverage of $500,000 "in any one loss casualty or disaster, which limit shall be subject to further reduction by any sub-limit appearing herein in respect of any peril or form of coverage, and shall be subject, further, to any reduced limit of liability designated in any location schedule attached hereto." Id. at 1044. The policy further provided a $250,000 sublimit for property damage due to flood as well as a separate $240,000 sublimit for loss "from necessary interruption of business caused by the perils insured against damaging or destroying . . . real or personal property . . . at the premises described . . ., subject to the limit of liability specified . . . for the premises at which the damage or destruction occurs." Id. Following the flood, plaintiffs claimed property damage of $250,000 as well as business interruption loss of $240,000, for a total of $490,000. Id. at 1043. Defendants, on the other hand, maintained that the policy limited coverage for business interruption to the aggregate property limit for flood loss. Id. The New York court sided with the plaintiffs, finding that the policy unambiguously provided separate, independent limitations for property and business interruption coverage. Id. at 1045. The court stated, in pertinent part:
The only connection between business interruption coverage and property damage coverage is that interruption of business must be due to damage to physical property from one of the covered perils. As the policy clearly separates and defines the two types of coverage, it is unreasonable to read the Declaration Form provision for property limits as limiting business interruption coverage. Defendants, in effect, seek to superimpose the words `Flood Limit' on to the heading `Property Limits' to establish liability at $250,000 for all types of loss caused by flood. Further, added to the business interruption provision would be an additional phrase stating that the amount specified in the Location Schedule is further limited by the property limits. If defendants had intended to so limit business interruption coverage, explicit language to that effect could and should have been employed. This Court cannot read the language into the policy as a `court is not at liberty to inject a clause into the policy or to make a new contract for the protection of the insurance company.'Id. at 1048-49 (citations omitted).
Victory Container clearly stands for the proposition that business interruption coverage does not automatically operate subject to the sublimits provided for a triggering peril. Rather, an explicit connection between business interruption coverage and the sublimits applicable to the triggering peril must be present in order to impose the latter upon the former.
The Missouri Court of Appeals purportedly found such a connection in Gilbert/Robinson, Inc. v. Sequoia Ins. Co., 655 S.W.2d 581 (Mo.Ct.App. 1983). That case also arose out of a flood, which resulted in a business interruption loss at four separate premises owned by plaintiff, to the tune of $282,528. Id. at 582. Though the policy at issue contained limits for business interruption coverage ranging from $100,000-375,000 for each respective premises, the defendant/insurer limited indemnities to $100,000 pursuant to the following policy provisions:
GROSS EARNINGS ENDORSEMENT
Subject to all the provisions and stipulations otherwise applicable to Section I of this policy, except the Coinsurance Clause and the Loss Deductible Clauses, this policy is extended to insure against loss resulting directly from necessary interruption of business caused by the perils insured against damaging or destroying during the policy period, real or personal property . . . at the premises described in this endorsement, subject to the limit of liability specified above for the premises at which the damage or destruction occurs. For the purposes of this insurance, `perils insured against' shall mean the perils, as defined and limited in the forms and endorsements listed above, for each premises specified and also subject to the provisions of this endorsement.
FLOOD AND EARTHQUAKE ENDORSEMENT
This Company shall not be liable for more than the limits stated in the schedule attached to this policy, these limits being maximum any one loss except for flood and earthquake which covered subject to a limit of $25,000 at any one location.Id. at 582-84. The court affirmed a summary judgment in favor of defendant, holding that the aforementioned provisions rendered the business interruption coverage "subject to" the flood and earthquake endorsement, including the limits therein. Id. at 584-88.
As previously mentioned, however, the CA provision at issue in this case contains no "subject to" clause. Moreover, in Med Imaging Ctr., Inc. v. Allstate Ins. Co., 818 F. Supp. 333 (1993), the United States District Court for the Middle District of Florida convincingly distinguished Gilbert/Robinson. The policy at issue in Med-Imaging limited coverage for "employee dishonesty" to $20,000, but contained no such monetary limit for "Loss of Income-Rents" coverage. Id. at 334. The policy further provided:
The court reviewed the additional cases cited by the parties and found them less instructive.
LOSSES COVERED UNDER COVERAGE A:
1. This policy insures your covered property for loss or damage resulting from direct physical loss, except for those losses we do not cover listed below:
LOSSES WE DO NOT COVER:
2. We do not cover losses due to the pilfering, taking or concealment of any property or any fraudulent or criminal act, your partners, joint venturers, directors, trustees, agents, employees or anyone to whom you have entrusted the property was knowingly involved in the loss.
OPTIONAL COVERAGES:
The following optional coverages are subject to the agreements and conditions applicable to Coverage A — Business Property, except as otherwise provided.
PART III — LOSS OF INCOME-RENTS
When coverage is shown in the Declarations for loss of income, we will pay up to twelve consecutive months from the time of loss for:
1. Your loss of income resulting from a covered loss but not to exceed the actual reduction in net income from the operation of the business, plus charges and expenses which necessarily continue during the interruption of a business.
PART VI — EMPLOYEE DISHONESTY
When coverage is shown in the Declarations for employee dishonesty, we will pay you for the loss of money, securities, and other personal property for an amount not exceeding the limit of liability shown in the Declarations.Id. at 334-35.
Based upon the Gilbert/Robinson case, the defendant/insurer argued that any coverage triggered by employee dishonesty, including coverage for Loss of Income-Rents, operated "subject to" the limits for the former peril. Id. at 335. The Florida court was unpersuaded, stating:
After due consideration, this Court does not find the Gilbert/Robinson case persuasive on the issue argued by the Defendant. Although the policy in this case may contain the language `subject to the agreements and conditions applicable to Coverage A,' it continues on to state `except as otherwise provided.' [T]his `except' clause is as much an integral part of the policy as is the `subject to' clause. The fact that Plaintiff specifically bought back coverage for employee dishonesty under the optional coverage provision of the policy, creates an exception to the exclusion for employee dishonesty in Coverage A.
The purchasing of this optional coverage made employee dishonesty a `covered loss,' subject to a $20,000.00 limitation for claims under that provision. Optional coverage for Loss of Income-Rents was also purchased by Plaintiff, however, no specific limitation was placed on recovery for claims under that provision, except that the loss was not to exceed the `actual reduction in net income from the operation of the business, plus charges and expenses . . . during the interruption of business.' Although Defendant argues that the $20,000.00 limitation under Employee Dishonesty should limit Plaintiff's claim for Loss of Income-Rents as well, this Court does not agree.
[I]f the language in an insurance policy is not ambiguous, then the court's task is simply to apply the plain meaning of the words and phrases used to the facts before it. [A] court is not free to rewrite an insurance policy or add meaning to it that really is not there. By asking this Court to impose a $20,000.00 limitation on all of Plaintiff's losses under the policy, including loss of income, Defendant has, in essence, asked this Court to rewrite the policy and add meaning to it that is really not there.
It is clear from the Declarations page that no specific monetary limitation was placed on a claim for Loss of Income-Rents, although Defendant could have easily provided one if that was its intention. Although this Court finds there is no ambiguity as to the policy providing both that employee dishonesty is a covered loss and that there is no specified limitation on recovery for Loss of Income-Rents, the rule in Florida is that any ambiguities in exclusionary provisions must be construed in favor of coverage.Id. at 335-36 (emphasis added).
The court finds the above-emphasized reasoning of the reputed Florida Judge particularly applicable to the instant case. This court similarly cannot add words to an insurance contract in order to alter the coverage provided therein. Hanneman, 575 N.W.2d at 450. Rather, as previously mentioned, an insurer seeking to limit coverage must do so clearly and explicitly. Thedin, 518 N.W.2d at 706. Moreover, this court must construe any ambiguities in favor of the insured. See Marifjeren, 587 N.W.2d at 194. Thus, to the extent the terms disputed here lend equally to an interpretation that imposes liability upon defendant as one that does not, this court must adopt the interpretation imposing liability. Id.
Finally, the court notes that its interpretation falls in line with the purpose of the coverage at issue. It is axiomatic that the business interruption coverage afforded by the CA provision operates to compensate losses stemming from the business interruption visited by the civil authority's order; i.e., to preserve the continuity of the insured's business. See Couch on Insurance § 167:9 (3d ed. 1998). Thus, this type of coverage is distinct "in the sense that[,] [while] [it] is triggered by perils that affect the business property, . . . [it] protect[s] against the secondary consequences of the loss of the property, rather than damage to the property itself." See id. § 167:1. The coverage afforded by the CA provision is the quintessential example of this; no physical damage is required to trigger its terms. Consequently, rendering the coverage subject to the sublimits applicable to the triggering peril would undermine the purpose of the coverage and, indeed, render it superfluous in many situations.
Business interruption coverage was devised to respond to those situations in which "there was no direct relationship between the amount of property damage and the amount of business income loss. For example, a small property loss to a vital section of a manufacturing plant could result in the total suspension of all operations resulting in economic losses far in excess of the damage to the property. Owners soon found out that, while the property could ultimately be repaired or replaced, without the stream of normal income, the business could be lost forever." See David A. Borghesi, Business Interruption Insurance — A Business Perspective, 17 Nova L. Rev. 1147, 1148 (1993). Indeed, the hefty premium paid by plaintiffs to insure against business interruption reflects the distinctive nature of this coverage.
In light of the foregoing, the court declares that the policy at issue clearly and unambiguously affords coverage for plaintiff's actual loss resulting directly from an interruption of business during the length of time, not exceeding two consecutive weeks, when as a direct result of damage to or destruction of property within 1,000 feet of the covered premises, by the perils insured against, access to such premises is specifically prohibited by order of civil authority. Accordingly, plaintiff's motion for summary judgment (doc. #30) is GRANTED, and defendant's motion for summary judgment (doc. #34) is DENIED. Plaintiff's motion to amend (doc. #26) is DENIED AS MOOT. The court notes that its holding is limited to the above-stated coverage issue. Any remaining issues relating to numerical loss, etc., should be resolved by the parties or through trial.
IT IS FURTHER ORDERED, pursuant to Section 32-03-04 of the North Dakota Century Code, that plaintiff is entitled to interest at the legal rate from August 20, 1997, the time of the denial of plaintiff's claim. North Dakota courts have found prejudgment interest awards appropriate in insurance coverage disputes. See generally Dolajak v. State Auto. and Cas. Underwriters, 278 N.W.2d 373, 383 (N.D. 1979).
The court will not grant plaintiff's request for attorney's fees, however. "Absent specific contractual or statutory authority, the `American Rule' requires parties to bear their own attorney's fees. Finding neither, . . . the `American Rule' control[s] attorney's fees in this case." State Farm Mut. Auto. Ins. Co. v. Estate of Gabel, 539 N.W.2d 290, 294 (N.D. 1995).
IV. SUMMARY
Plaintiff's motion for summary judgment (doc. #30) is GRANTED. Defendant's motion for summary judgment (doc. #34) is DENIED. Plaintiff's motion to amend (doc. #26) is consequently DENIED AS MOOT.
IT IS SO ORDERED.