Summary
suggesting that overuse of public-policy voiding would "unjustly interfere with the right of freedom to contract"
Summary of this case from Libeau v. FoxOpinion
C.A. No. 03C-01-008-JRS.
Submitted: September 24, 2003.
Decided: December 30, 2003.
Upon Consideration of Defendant's Motion for Summary Judgment. GRANTED. Upon Consideration of Plaintiffs' Cross Motion for Summary Judgment. DENIED.
Wendy R. Danner, Esquire, Saul Ewing LLP, Wilmington, Delaware for Plaintiffs, Ricky and Tina Sexton.
Donald M. Ransom, Esquire and Thomas P. Leff, Esquire, Casarino, Christman Shalk, P.A., Wilmington, Delaware for Defendant, State Farm Fire and Casualty Company.
MEMORANDUM OPINION
I.
On cross motions for summary judgment, the Court is called upon to interpret provisions of an insurance policy that both parties have acknowledged are clear and unambiguous. Plaintiffs, Ricky and Tina Sexton ("plaintiffs"), seek coverage under their homeowner's insurance policy ("Policy") with Defendant, State Farm Fire and Casualty Company ("State Farm"), for structural damage to the foundation and first floor of their home. A structural engineer has advised plaintiffs that their home is no longer fit for occupation and they have since vacated the premises.
Relying upon provisions of the Policy that operate to limit coverage for structural damage to instances where the home has actually "collapsed," State Farm has denied coverage because plaintiffs' home is, as of the time of this writing, still standing. Plaintiffs acknowledge that the Policy as written would require an actual collapse as a predicate to coverage, but urge the Court to reject a literal interpretation of the insurance policy because the impact of such an interpretation in this case and others like it would offend public policy. The issue joined by the cross motions, then, is whether the Court should refuse to enforce the plain language of the insurance policy in the interest of public policy.
Because the Court is unable to identify a public policy so compelling that it should override the parties' express agreement as memorialized in their clear and unambiguous contract, State Farm's motion for summary judgment must be GRANTED and plaintiffs' motion for summary judgment must be DENIED.
II.
Plaintiffs purchased their home in July of 1993. Because the house was newly renovated, they did not consult a realtor or seek a professional home inspection. In 1994 or 1995, plaintiffs noticed cracks around the doorways on the first floor and shifting of the door joists. They attributed these conditions to normal "settling" and repaired the cracks. Mr. Sexton examined the crawl space underneath the house around this time and noted that the area was damp. He did not inspect the flooring. To remedy the dampness, he installed a sump pump with the expectation that this would solve the problem.In 1998 or 1999, the cracks returned around the doorways and windowsills and the floors began to show signs of weakness. A year or so later, plaintiffs noticed cracks in the ceilings and again observed that the floors felt weak. Plaintiffs became concerned that they might have a minor floor joist problem. In August of 2002, they retained a building contractor to inspect the house. It was then that plaintiffs learned the house's main support beam was decayed. They subsequently hired additional contractors and a structural engineer to conduct a more thorough inspection. The structural engineer confirmed the original contractor's discovery, and attributed the condition to ongoing decay caused by wood degrading fungi. The engineer advised plaintiffs to vacate the house immediately citing the possibility of an "imminent failure of the entire first floor." Plaintiffs heeded the warning and vacated the premises. They have not returned. To date, the house has not actually collapsed.
Plaintiffs moved into a rented home and made a homeowner's claim under the Policy. State Farm denied coverage relying upon several exclusions to coverage set forth in the Policy. Specifically, State Farm, quoting the "Losses Not Insured" section of the Policy, argued that the Policy did not provide coverage for damage caused by: (1) "wear, tear, marring, scratching, deterioration, inherent vice, latent defect or mechanical breakdown;" (2) "mold, fungus or wet or dry rot;" (3) "settling, cracking, shrinking, bulging or expansion of pavements, patios, foundation, walls, floors, roofs or ceilings;" and (4) "birds, vermin, rodents, insects or domestic animals." The Policy also contains a Fungus Exclusion Endorsement which, in relevant part, defines "fungus" as "any type or form of fungus, including mold, mildew, myotoxins, spores, scents or byproducts produced or released by fungi."
Notwithstanding the exclusions, plaintiffs claim that coverage must be afforded under the "Additional Coverages" section of the Policy in which State Farm commits to provide coverage for direct physical loss to property involving the "sudden, entire collapse of a building or any part of a building." This provision goes on to state: "[c]ollapse means actually fallen down or fallen into pieces. It does not include settling, cracking, shrinking, bulging, expansion, sagging or bowing."
III.
Plaintiffs filed a complaint seeking a declaratory judgment that the Policy provides coverage for the damage to their house and also seeking damages for breach of contract. These cross motions for summary judgment followed. State Farm argues that the terms of the Policy are clear and unambiguous and that the Policy's exclusions make clear that coverage is not available for the particular damage sustained by plaintiffs' home. State Farm asserts that since the rotting joists in plaintiffs' home were damaged by fungus attributable to water damage, plaintiffs are not entitled to coverage pursuant to the clear and unambiguous language in the "Losses Not Insured" section of the Policy (excluding coverage for fungus and rot damage).
With respect to plaintiffs' claim that they are entitled to coverage because their home has "collapsed," State Farm observes that the home is still standing and, therefore, it does not meet the Policy's definition of "collapse." In this regard, State Farm notes that it purposefully redrafted the definition of "collapse" so that it would unambiguously communicate to policyholders that the coverage provided for collapsed structures was limited to situations of actual collapse. This redrafting was in response to Judge v. State Farm, in which this court held that State Farm's previous use of the term "collapse" was ambiguous and then interpreted the provision to include imminent as well as actual collapse. State Farm correctly observes that plaintiffs have not identified any ambiguity in the revised definition. Finally, State Farm points to Delaware's public policy promoting the mitigation of damages and avoidance of waste, as well as the Policy's mandate for an insured to take remedial measures when a covered loss is anticipated. According to State Farm, plaintiffs' duty to mitigate would require them to attempt some repair of the rotting condition at their expense rather than allowing the home to waste away until it collapsed.
1993 WL 1611307 (Del.Super.).
In the "Losses Not Insured" section, the Policy excludes coverage for "[n]eglect, meaning neglect of the insured to use all reasonable means to save and preserve property . . . when property is endangered."
Plaintiffs concede that some of the Policy's exclusions would appear to apply here and that the definition of "collapse" in the "Additional Coverage" rider is unambiguous. Their argument is based principally upon the premise that requiring an insured to wait until a structure has actually fallen down before seeking coverage is clearly contrary to public policy and a definition of "collapse" that would require this result should be stricken. In its place, plaintiffs would have the Court insert a definition of "collapse" that includes coverage for a serious impairment of structural integrity as well as actual collapse. They contend that Delaware courts previously have voided clear and unambiguous policy language when such language offends public policy, and they ask the Court to engage in more rigorous scrutiny of the Policy because of the disparity in the parties' bargaining power.
IV.
Summary judgment may be granted only when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. The moving party has the burden of showing the absence of issues of material fact. When evaluating whether the moving party has carried this burden, the court must examine the facts in the light most favorable to the non-moving party. If a motion for summary judgment is properly supported, the burden shifts to the non-moving party to demonstrate the existence of material issues of fact.
Wilson v. Joma, 537 A.2d 187 (Del. 1988).
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979).
Alabi v. DHL Airways, Inc., 583 A.2d 1358, 1361 (Del.Super. 1990).
State v. Regency Group, Inc., 668 A.2d 1123, 1129 (Del.Super. 1991).
The standard of review "is not altered because the parties have filed cross-motions for summary judgment." As our Supreme Court has observed:
Haas v. Indian River Vol. Fire Co., 2000 WL 1336730 (Del.Ch.) (citation omitted), aff'd, 768 A.2d 469 (Del. 2001).
[T]he existence of cross motions for summary judgment does not act per se as a concession that there is an absence of factual issues. Rather, a party moving for summary judgment concedes the absence of a factual issue and the truth of the nonmoving party's allegations only for the purposes of its own motion, and does not waive its right to assert that there are disputed facts that preclude summary judgment in favor of the other party. Thus, the mere filing of a cross motion for summary judgment does not serve as a waiver of the movant's right to assert the existence of a factual dispute as to the other party's motion.
United Vanguard Fund, Inc. v. Takecare, Inc., 693 A.2d 1076, 1079 (Del. 1997) (citation omitted).
V.
A court cannot rewrite a contact under the guise of construing it, and construing a contract is only proper when an ambiguity exists. Under the parol evidence rule, courts are not permitted to "torture contractual terms to impart ambiguity where ordinary meaning leaves no room for uncertainty." When exclusionary provisions in insurance contracts are ambiguous, the terms are strictly construed against the insurer. When the provisions are not ambiguous, however, the rule of strict construction is inapplicable. Ambiguity does not arise simply from the suggestion of two different readings of the contract. Rather, ambiguity becomes an issue only when both readings are reasonable interpretations of the language. Likewise, ambiguity does not exist because courts have interpreted a particular contract provision differently.Plaintiffs concede that the language in the Policy is unambiguous. Clear and unambiguous terms bind the parties to the plain language of the policy. In recognition of the parties' right to reach their own agreement and to memorialize the agreement by contract, courts will allow parties to an insurance contract to agree upon terms of their choosing, so long as those terms are not prohibited by statute or other legal authority and so long as the terms do not offend a specifically identified public policy. In those instances where a party seeks to be excused from the clear provisions of a contract on the ground of public policy, Delaware courts will expect "clear indicia that such a policy actually exists" before entertaining the argument.
Id. at 288-89.
Id., at 286 (citing Grissom, 599 A.2d at 1088; Whalen v. On-Deck, 514 A.2d 1072 (Del. 1986)).
Whalen, 514 A.2d at 1074.
Typically, Delaware's General Assembly will declare the public policy of this state with its statutes and resolutions. The legislature not only has the power to make laws, but also the discretion to determine what is in the public's interest. It is the preferred venue to effectuate social change because it offers a forum where elected representatives can voice the concerns of their constituents and openly debate the issues of the day after careful study and consideration of all competing interests and concerns. Generally, the separation of powers doctrine forbids one branch of government from encroaching upon the functions of another.
Wilmington Finishing Co. v. Leary, 2000 WL 303320, at *4 (Del.Super.) ("[I]t is the function of the Legislature and not the Judiciary to declare the public policy of the State.") (citing Ames v. Wilmington Housing Authority, 233 A.2d 453, 456 (Del. 1967); Federal United Corp. v. Havender, 11 A.2d 331, 337 (Del. 1940)).
See 16A AM. JUR. 2D CONSTITUTIONAL LAW § 275 (2003).
State ex. rel. Oberly v. Troise, 526 A.2d 898, 904 (Del. 1987) (citation omitted).
On rare occasions, Delaware courts have recognized a public policy that has not been articulated by the legislature. And, in the process of doing so, courts have, from time to time, voided contracts or particular provisions of contracts. Nevertheless, while it is true that courts have the power to strike down contract language on the basis of public policy, this authority must be exercised "cautiously and only in circumstances patently within bounds of the reasons on which that doctrine rests."
See, e.g. Schuster v. Derocili, 775 A.2d 1029 (Del. 2001) (recognizing a common law cause of action for sexual harassment based upon the implied covenant of good faith and fair dealing exception to the at-will employment doctrine, noting that the claim is grounded in Delaware's public policy); Stuart Kingston, Inc. v. Robinson, 596 A.2d 1378 (Del. 1991) (recognizing that the rule against perpetuities is "a principle grounded in the public policy" of Delaware).
See, e.g. Take a Break Coffee Serv. v. Grose, 1990 WL 67392 (Del. Ch.) (refusing to uphold a noncompete clause and recognizing that such clauses are not "mechanically enforced"); McCann Surveyors, Inc. v. Evans, 611 A.2d 1 (Del.Ch. 1987) (same). See also cases cited infra note 33.
17A AM. JUR. 2D CONTRACTS § 257 (2003).
Delaware courts have not confronted the term "collapse" as it is defined in the Policy. Nevertheless, Judge v. State Farm and its progeny — a series of cases interpreting an ambiguous use of "collapse" in homeowner's policies — do provide some guidance here. In Judge, the term "collapse" was not specifically defined. Rather, the State Farm policy at issue provided that "collapse" did not include "settling, cracking, shrinking, bulging or expansion." After determining that the undefined term "collapse" was ambiguous, the court interpreted the term to include a state of imminent as well as actual collapse. In so doing, the court noted that "[i]f the insurer had intended that the provision to be so severely limited as to include only those situations involving a sudden falling of a structure, they could have drafted the contract to read that way." Subsequent Delaware cases addressed a nearly identical provision of "collapse" in other policies and, after finding the term to be ambiguous, adopted the use endorsed by Judge.
In their argument, plaintiffs cite to Rosen v. State Farm, a case where the California Court of Appeals interpreted a definition of "collapse" nearly identical to the definition sub judice. 120 Cal.Rptr.2d 373 (Cal.Ct.App. 2002), rev'd, 70 P.3d 351 (Cal. 2003). In Rosen, the court found that the definition of "collapse" was unambiguous but nevertheless ordered State Farm to cover the loss on public policy grounds. As plaintiffs acknowledge, however, Rosen was reversed by the Supreme Court of California, which recognized the importance of freedom to contract and declined to "rewrite the coverage provision of an existing [policy] to remove a restriction." Rosen, 70 P.3d at 368.
Judge v. State Farm, 1993 WL 1611307 (Del.Super.). See also Weiner v. Selective Way Insurance Co., 793 A.2d 434 (Del.Super. 2002); Olde Colonial Village Condominium Council v. Millers Mutual Insurance Co., 2002 WL 122885 (Del.Super.).
Judge, 1993 WL 1611307, at *2.
Id., at *2-3 (construing the provision against the party that drafted it (the insurer), the court recognized that its interpretation would avoid placing the insured in the difficult position of having to wait until the structure actually fell apart before receiving policy benefits).
Id., at *3.
See Weiner, 793 A.2d 434 (following Judge); Olde Colonial Village, 2002 WL 122885, at * 7 (citing O'Brien, 785 A.2d 281) ("[I]f [the insurer] wanted the court to define collapse differently to avoid Judge and most other authorities, it could have made that clear.")
In Judge and its progeny, it was the predicate finding of ambiguity, not a consideration of public policy, that prompted the courts to undertake contract construction; the insurance policies at issue in those cases did not contain an explicit definition of "collapse." State Farm addressed that problem by defining the term in its subsequent policies, including the Policy at issue here. By doing so, State Farm heeded the admonition in O'Brien, where the court "encourag[ed] insurers to reexamine even their most unambiguous policies in an attempt to stem costly litigation" and "[to] reduce the likelihood that policyholders will be tempted to debate terms of an insurance contract to obtain indemnification for which they have neither bargained nor paid."
O'Brien, 785 A.2d at 290.
Yet plaintiffs argue that even unambiguous contract language can be voided by a contrary public policy. As a general matter, plaintiffs are correct in stating that public policy can trump a clear and unambiguous contract. Indeed, as previously mentioned, Delaware courts have, on rare occasions, voided provisions of contracts or entire contracts when to do otherwise would offend public policy. These cases, however, involved public policy concerns that not only had been previously articulated, but also were well established and explicit. Otherwise, courts should be careful not to invoke public policy simply as a means to avoid what might be perceived as a harsh result. Indeed, such a free-wielding application of public policy to excuse parties from their contractual commitments would unjustly interfere with the right of freedom to contract.
See supra note 23.
Plaintiffs cite to the following cases where courts have recognized a public policy basis to reach a result, even when the public policy has not been recognized by the legislature: Siple v. Corbett, 447 A.2d 1184 (Del. 1982) (contracts based on sexual favors are invalid as against public policy); Tracey v. Franklin, 67 A.2d 56 (Del. 1949) (unreasonable restraint on alienation of property is contrary to public policy); KPM Peat Marwick LLP v. Fernandez, 709 A.2d 1160 (Del.Ch. 1998) (construing a non-compete clause narrowly); Texas Instruments, Inc. v. Tandy Corp., 1992 WL 200604 (Del.Ch.) (prohibiting a claim of breach of contract action based on the filing of a lawsuit); Wilmington Sixth Dist. Community Committee v. Pettinaro Enterprises, 1989 WL 150785 (Del. Ch.) (restriction on alienation of property contrary to public policy); JLF, Inc. v. NJE Aircraft Corp., 1988 WL 130641 (Del.Ch.) (same); Stogsdill v. Hackett, 1986 WL 3417 (Del.Ch.) (restriction on marriage against public policy); Aldrich v. Wood, 53 A.2d 439 (Del.Ch. 1947) (same); Princess Hotels, Intern Inc. v. Delaware State Bar Ass'n, 1997 WL 817853(Del.Super.) (contract clauses providing for excessive liquidated damages are penalties and void as against public policy); Sann v. Rental Care Centers Corp., 1995 WL 161458 (Del.Super.) (noting public policy implications of rehabilitation programs for alcoholics).
See 2 APPLEMAN ON INSURANCE § 9.1 (2d ed 1996) ("[The public policy] doctrine is exercised sparingly, recognizing the right of freedom to contract. The mere fact that harsh results could occasionally result from nonintervention would not justify meddling by the courts.").
Id.
After examining the relevant case law, the Court cannot discern a clear public policy in this state that would undermine the Policy's unambiguous definition of "collapse." And, in the absence of a defined public policy to the contrary, the Court must refrain from rewriting a policy provision that both parties concede is unambiguous. The Court recognizes that the insurer is often in a better bargaining position than the insured. But it cannot on this basis alone gloss over the right of the parties freely to express their agreement by contract. The Court also recognizes the hardship faced by plaintiffs and others who may confront the situation where homeowner's coverage is not available to defray the cost of repairing devastating structural damage to their home. The remedy, however, does not lie with the courts. The problem must be addressed either at the bargaining table or, if this is not feasible, with the General Assembly in a forum where all aspects of the issue can be explored.
The Court is mindful that in both Judge and Olde Colonial Village the courts could have expressed specific public policy concerns regarding the insurers' interpretations of the relevant policy language but did not do so. Instead, the courts acknowledged that the insurers could have reworded the provisions in their policies clearly to express their intent that the policies would cover only actual collapses. Judge, 1993 WL 1611307, at *3; Olde Colonial Village, 2002 WL 122885, at *7.
See Whalen, 514 A.2d at 1074 ("[T]here is no evidence of public policy against [insurance covering punitive damages] in this State . . . [t]he Delaware Legislature has formulated no such policy, and this Court has indicated in the past that it would defer to the Legislature on this issue."); Kent General Hospital, Inc. v. Blue Cross and Blue Shield of Delaware, Inc., 442 A.2d 1368 (Del. 1982) (upholding a non-assignability clause in the absence of a contrary public policy and acknowledging that "[i]f we have misjudged, our error can be corrected by the General Assembly."); Reynolds v. Willis, 209 A.2d 760, 763 (Del. 1965) ("If these results are deemed undesirable as a matter of public policy, the Legislature is the proper forum in which to seek a change."). See also Jones v. State Farm Mutual Automobile Insurance Co., 610 A.2d 1352 (Del. 1992) (legislature is the proper forum to seek a public policy change regarding a UM/UIM policy's coverage for punitive damages); Allstate Insurance Co. v. Gillaspie, 668 A.2d 757, 762 (Del.Super. 1995) (referring to the statutory definition of "underinsured motor vehicle": "regardless of what is the best public policy, it is the legislature and not the judiciary that should make the determination."), aff'd, 676 A.2d 903 (Del. 1996).
VI.
Based on the foregoing, Defendant's motion for summary judgment is GRANTED and Plaintiffs' motion for summary judgment is DENIED.IT IS SO ORDERED.
Original to the Prothonotary.