CC 145 Main, LLC v. Union Mutual Fire Insurance Company

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THE SUPREME COURT OF NEW HAMPSHIRE

___________________________

Rockingham
No. 2021-0376

CC 145 MAIN, LLC

v.

UNION MUTUAL FIRE INSURANCE COMPANY

Argued: June 14, 2022
Opinion Issued: July 20, 2023

Stebbins, Lazos & Vanderbeken PLLC, of Manchester (Henry B. Stebbins
on the brief and orally), for the plaintiff.

Primmer Piper Eggleston & Cramer PC, of Manchester (Gary M. Burt and
Bailey M. Robbins on the brief, and Gary M. Burt orally), for the defendant.

HICKS, J. The defendant, Union Mutual Fire Insurance Company,
appeals an order of the Superior Court (Honigberg, J.) granting summary
judgment to the plaintiff, CC 145 Main, LLC, in a declaratory judgment action
regarding the interpretation of an insurance policy exclusion. The defendant
challenges the trial court’s ruling that the policy’s water damage exclusion was
ambiguous and its decision to construe the policy, therefore, in favor of CC 145
Main. We affirm.

The following facts are supported by the record or are not in dispute. CC
145 Main owns an apartment building in Newmarket. To protect this
operation, it purchased from Union Mutual a “Businessowners Coverage”
insurance policy that includes “all risk” property insurance, which provides
that Union Mutual will “pay for direct physical loss of or damage to” the
covered property, unless coverage is specifically limited or excluded by the
policy. See Caryn L. Daum, A Primer on New Hampshire First-Party Property
Insurance, 52 N.H.B.J. 20, 21 (Autumn 2011) (“An ‘all risk’ policy typically
covers any risk of direct physical loss or damage that is not specifically
excluded or limited by the terms of the policy.”); see also Russell v. NGM Ins.
Co., 170 N.H. 424, 429-30 (2017) (describing an “all risk” property insurance
policy).

CC 145 Main contends, and Union Mutual does not dispute, that the
insured property sustained damage when a tenant poured cat litter down a
toilet, clogging an interior pipe and causing water to overflow from a shower
and toilet. The property required significant cleaning and repair, and tenants
were required to temporarily relocate. CC 145 Main filed a claim with Union
Mutual for water damage, which Union Mutual denied pursuant to a provision
in the insurance policy excluding coverage for damage caused by “[w]ater that
backs up or overflows or is otherwise discharged from a sewer, drain, sump,
sump pump or related equipment.”

CC 145 Main filed a complaint seeking a declaration that the water
exclusion does not apply to its claim. Union Mutual filed a motion for
summary judgment, arguing that the damage at issue was caused by water
that overflowed from “drains” within the meaning of the exclusion. CC 145
Main objected and filed a cross-motion for summary judgment. The trial court
granted CC 145 Main’s motion and denied Union Mutual’s motion, concluding
that it is unclear whether the word “drain” in the water exclusion applies to
shower and toilet drains and, therefore, the water exclusion is ambiguous and
must be construed in favor of CC 145 Main. It reasoned, inter alia, that
“[i]nterpreting drain to mean literally any drain,” such as a shower drain,
“would set this term apart from the others in the provision” — such as “sewer”
and “sump pump” — which “are typically external features that are intended to
carry water away from a property.” This appeal followed.

On appeal, Union Mutual argues that the trial court erred by finding the
water exclusion ambiguous because the only reasonable interpretation of the
exclusion is that it applies to water that overflows from toilet and shower
drains. CC 145 Main counters that the trial court reached the correct result
because the relevant portion of the water exclusion is ambiguous when read in
context.

In reviewing rulings on cross-motions for summary judgment, “we
consider the evidence in the light most favorable to each party in its capacity as
the nonmoving party and, if no genuine issue of material fact exists, we
determine whether the moving party is entitled to judgment as a matter of law.”

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Ro v. Factory Mut. Ins. Co., 174 N.H. 112, 116 (2021) (quotation omitted). “If
our review of that evidence discloses no genuine issue of material fact and if
the moving party is entitled to judgment as a matter of law, then we will affirm
the grant of summary judgment.” Id. (quotation omitted). We review the trial
court’s application of the law to the facts de novo. Id.

This appeal requires that we interpret the language of the insurance
policy. “The interpretation of insurance policy language, like any contract
language, is ultimately an issue of law for this court to decide.” Mellin v. N.
Sec. Ins. Co., 167 N.H. 544, 547 (2015). In a declaratory judgment action to
determine the coverage of an insurance policy, the burden of proof is always on
the insurer, regardless of which party brings the petition. Id.; RSA 491:22-a
(2010).

“The fundamental goal of interpreting an insurance policy, as in all
contracts, is to carry out the intent of the contracting parties.” Bartlett v.
Commerce Ins. Co., 167 N.H. 521, 530 (2015) (quotation omitted). To discern
the parties’ intent, we first examine the language of the policy itself and look to
the plain and ordinary meaning of the policy’s words in context. Id. We
construe the terms of the policy as would a reasonable person in the position of
the insured based upon more than a casual reading of the policy as a whole.
Id. at 530-31. Policy terms are construed objectively, and where the terms of a
policy are clear and unambiguous, we accord the language its natural and
ordinary meaning. Id. at 531. We need not examine the parties’ reasonable
expectations of coverage when a policy is clear and unambiguous; absent
ambiguity, our search for the parties’ intent is limited to the words of the
policy. Id. The fact that parties may disagree on the interpretation of policy
language does not necessarily create an ambiguity. Id. For an ambiguity to
exist, the disagreement must be reasonable. Id.

In determining whether an ambiguity exists, we consider the disputed
policy language in its appropriate context, and construe the words used
according to their plain, ordinary, and popular definitions. Id. If one of the
reasonable meanings of the language favors the policyholder, the ambiguity will
be construed against the insurer in order to honor the insured’s reasonable
expectations. Id. However, when “the policy language is clear, this court will
not perform amazing feats of linguistic gymnastics to find a purported
ambiguity simply to construe the policy against the insurer and create coverage
where it is clear that none was intended.” Id. (quotation omitted).

The language at issue in this case is contained within the following
exclusion:

1. We will not pay for loss or damage caused directly or indirectly by any
of the following. Such loss or damage is excluded regardless of any other
cause or event that contributes concurrently or in any sequence to the

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 loss. These exclusions apply whether or not the loss event results in
widespread damage or affects a substantial area.
....
g. Water
(1) Flood, surface water, waves (including tidal wave and
tsunami), tides, tidal water, overflow of any body of water, or
spray from any of these, all whether or not driven by wind
(including storm surge);
(2) Mudslide or mudflow;
(3) Water that backs up or overflows or is otherwise
discharged from a sewer, drain, sump, sump pump or
related equipment;
(4) Water under the ground surface pressing on, or flowing or
seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings; or
(5) Waterborne material carried or otherwise moved by any of
the water referred to in Paragraph (1), (3) or (4), or material
carried or otherwise moved by mudslide or mudflow.
(Bolding omitted; emphasis added.) We begin by analyzing Union Mutual’s
argument. Union Mutual focuses its argument on the term “drain,” arguing
that this term unambiguously encompasses water overflowing from showers
and toilets. “Drain” is defined as “[a] channel by which liquid is drained or
gradually carried off; esp. an artificial conduit or channel for carrying off water,
sewage, etc.,” Oxford English Dictionary, https://www.oed.com/view/Entry/
57459?rskey=TcQDG6&result=1&isAdvanced=false#eid (last visited July 11,
2023), or “an artificial channel by means of which liquid or other matter is
drained or carried off,” Merriam-Webster Unabridged, https://
unabridged.merriam-webster.com/unabridged/drain (last visited July 11,
2023). Shower drains meet these definitions. As for the toilet overflow, a toilet
is a receptacle “connected by plumbing to a system for flushing away the waste
into the sewer.” Oxford English Dictionary, https://www.oed.com/view/
Entry/202921?rskey=nH4oj4&result=1&isAdvanced=false#eid (last visited July
11, 2023). Consulting these definitions, we find reasonable Union Mutual’s
argument that “[t]he toilet that backed up and overflowed was connected to a
drain” — the drain is part of the “system” that the toilet relies upon to flush
away the waste — and, therefore, that a toilet is “related equipment” to a drain.
Union Mutual also correctly observes that there is no language within the
exclusion that explicitly limits the application of this term to certain types of
drains or causes of overflow. See Keene Auto Body v. State Farm Mut. Auto.
Ins. Co., 175 N.H. 503, 507-08 (2022) (concluding insurer’s reading of policy

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provision was reasonable in light of broad language and absence of qualifying
language). Accordingly, we are satisfied that Union Mutual’s reading of the
water exclusion is reasonable. See id.

However, CC 145 Main presents a reasonable, alternative interpretation
of the exclusion. It argues that context contained within the insurance policy
limits the water exclusion’s applicability to water damage precipitated by off-
premises circumstances or events. We agree that context could cause a
reasonable insured to understand the exclusion in this way. See Bartlett, 167
N.H. at 530-31. As CC 145 Main correctly observes, the other subsections of
the water exclusion contemplate only causes of damage — flooding from any
body of water, mudslide or mudflow, and groundwater “flowing or seeping” into
the property — that, necessarily, originate outside the property and cause
water to flow into it. See Mellin, 167 N.H. at 552-54.

Additionally, the water exclusion contains the following example:

An example of a situation to which this exclusion applies is the
situation where a dam, levee, seawall or other boundary or
containment system fails in whole or in part, for any reason, to
contain the water.
This is the only example contained within the water exclusion. Contrary to
Union Mutual’s assertion that the example is “clearly not intended to limit the
scope of the Exclusion,” the trial court found, and we agree, that this example
would fortify a reasonable insured’s impression that the exclusion is intended
to encompass water damage caused by events external to the property, and not
water damage resulting from an internal pipe clogged by a tenant’s disposal of
cat litter. Cf. id. at 555 (observing that, reading a pollution exclusion in
context, “an insured may have reasonably understood that [it] precluded
coverage for damages resulting from odors emanating from large-scale . . .
industrial settings,” as opposed to odors “created in a private residence”).

Union Mutual responds that “the context in which the term ‘drain’
appears in the Policy does not render the term ambiguous.” To this end, Union
Mutual provides textual arguments for why the word “drain” must be
interpreted as encompassing overflow from both internal and external drains.
However, Union Mutual provides no argument to counter CC 145 Main’s
position that the precipitating cause of the overflow must be external, nor does
Union Mutual identify policy language or articulate reasoning to contradict CC
145 Main’s contextual arguments. See Mellin, 167 N.H. at 547 (insurer has
burden to prove lack of coverage in declaratory judgment actions to determine
insurance coverage).

Rather, Union Mutual’s refutation of CC 145 Main’s argument relies
largely on out-of-state authority. However, far from settling the issue, the few

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courts that have been called upon to interpret exclusions identical or nearly
identical to the one before us have reached differing results. Compare Kelley
Street Associates v. United Fire & Casualty Co., No. 14-14-00755-CV, 2015 WL
7740450, at *3-8 (Tex. App. 2015) (concluding that exclusion encompassed
damage caused by water flowing from an internal drain), and Cardio Diagnostic
Imaging, Inc. v. Farmers Ins. Exch., 150 Cal. Rptr. 3d 798, 800, 803 (Cal. Ct.
App. 2012) (rejecting insured’s arguments that analogous water exclusion
applied only to damage caused by major external events and that “drain” does
not include a toilet), with Cameron v. Scottsdale Ins. Co., 726 F. App’x 757,
760-62 (11th Cir. 2018) (per curiam) (concluding that identical exclusion
applied only to “water damage caused in part by outside forces”), and Pichel v.
Dryden Mut. Ins. Co., 986 N.Y.S.2d 268, 270, 271-72 (N.Y. App. Div. 2014)
(holding that exclusion for damage caused by “water which backs up through
sewers or drains” was ambiguous because a reasonable insured could read it
as not applying to water damage caused by clogged drains, but rather applying
“if the cause of the backup/overflow is from outside the insured’s property
boundaries”).

Union Mutual attempts to distinguish the cases in which courts have
found such exclusions ambiguous by observing that those cases “involve
policies that contain contradictory provisions which provide coverage from
water damage arising from internal plumbing,” and asserting that, here, the
policy “contains no such affirmative coverage provision.” We are not
persuaded. The policy at issue in this case explicitly provides coverage, under
certain circumstances, for damage caused by “accidental discharge or leakage
of water or steam as the direct result of the breaking apart or cracking of any
part of a system or appliance . . . containing water or steam,” as well as
damage from water that “leaks or flows from plumbing” as a result of frozen
pipes. It would seem odd to an insured — as it did to the trial court — that a
policy providing coverage for frozen and ruptured internal piping “would not
also provide coverage when an internal pipe fails in a manner that causes a
toilet to overflow.”

The foregoing discussion demonstrates a “reasonable disagreement
between the contracting parties leading to at least two interpretations of the
policy’s language.” Exeter Hosp. v. Steadfast Ins. Co., 170 N.H. 170, 179
(2017) (quotation and brackets omitted); see also M. Mooney Corp. v. U.S.
Fidelity & Guaranty Co., 136 N.H. 463, 472 (1992) (finding an insurance policy
provision ambiguous “[i]n light of the parties’ reasonable and contradictory
interpretations”). Because we conclude that the exclusion is ambiguous, we
must construe it against the insurer. Trombly v. Blue Cross/Blue Shield, 120
N.H. 764, 771-72 (1980). We therefore conclude that the water exclusion did

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not encompass the water damage to CC 145 Main’s property and did not
preclude insurance coverage. Accordingly, we affirm.

Affirmed.

DONOVAN, J., concurred; ABRAMSON, J., retired superior court justice,
specially assigned under RSA 490:3, concurred; MACDONALD, C.J., and
BASSETT, J., dissented.

MACDONALD, C.J., and BASSETT, J., dissenting. A fundamental
principle of contract interpretation is to give effect to the unambiguous
meaning of the words to which the parties agreed. The unambiguous language
at issue here excludes coverage for damage caused by water that overflowed
from a “drain.” Although the majority rightly determines that the exclusion can
reasonably be read to encompass damage caused by water that overflowed from
shower and toilet drains, the majority nonetheless concludes that the damage
to CC 145 Main’s property is covered. In order to reach this result, the
majority posits an alternative “reasonable” interpretation of the water exclusion
that goes well beyond the arguments advanced by CC 145 Main. Because we
believe Union Mutual’s is the only reasonable reading of the policy, we
respectfully dissent.

Union Mutual has the burden to prove that the policy did not cover the
damage to CC 145 Main’s property. See RSA 491:22-a (2010). The majority
concludes that Union Mutual did not meet its burden because “Union Mutual
provides no argument to counter CC 145 Main’s position that the precipitating
cause of the overflow must be external.” However, CC 145 Main does not, as
the majority contends, argue that the water exclusion may be reasonably read
as applying “to water damage precipitated by off-premises circumstances or
events.” (Emphasis omitted.) Rather, CC 145 Main focuses on the definition of
“drain,” arguing that the term creates a “semantic ambiguity” and that, reading
the exclusion in context, “[t]he drains referenced . . . must be off-premises.”

Properly framed, CC 145 Main’s argument lacks merit. The word “drain”
appears in a list with “sump” and “sump pump,” which — contrary to the trial
court’s characterization — are typically, if not always, internal features of the
property. See U.S. Dep’t of Energy, Drain or Sump Pump Installed in
Basements or Crawlspaces, https://basc.pnnl.gov/resource-guides/drain-or-
sump-pump-installed-basements-or-crawlspaces#edit-group-description (last
visited July 11, 2023). Because “drain” appears alongside these words, it
would be anomalous to interpret it as excluding internal drains such as shower
and toilet drains, absent some other indication that we should do so. See
Home Gas Corp. v. Strafford Fuels, Inc., 130 N.H. 74, 82 (1987) (explaining
that, under the canon of construction noscitur a sociis, “the broader term itself

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takes on the more specialized character of its neighbors, under the rule that
applies as well to one term within a series as it does to an individual within a
group”); see also 11 Richard A. Lord, Williston on Contracts § 32:6, at 708-12
(4th ed. 2012) (defining noscitur a sociis).

Even if we were to accept the majority’s characterization of CC 145
Main’s argument, we would not be persuaded. In concluding that the water
exclusion applies only to damage precipitated by events or circumstances
external to the property, the majority asserts that “the other subsections of the
water exclusion contemplate only causes of damage . . . that, necessarily,
originate outside the property and cause water to flow into it.” But that is not
the case. For example, subsection (4) of the water exclusion applies to damage
caused by water “flowing or seeping through: (a) Foundations, walls, floors or
paved surfaces; (b) Basements, whether paved or not; or (c) Doors, windows or
other openings.” (Bolding omitted.) It is simply not the case that, given this
list, one can fairly state that the cause of damage “necessarily” originates
outside the property. Subsection (4) of the exclusion applies to damage
precipitated by a property’s floors, walls, or openings — decidedly “internal”
features of the property.

Additionally, we are unconvinced by the majority’s assertion that the
single example located at the end of the water exclusion “would fortify a
reasonable insured’s impression” that the exclusion refers only to damage
caused by external events or circumstances. The example is intended only to
clarify that the exclusion applies to water damage caused by a failed water
containment system; it plainly does not encompass the full panoply of water
damage to which the exclusion refers. We are unconvinced that the example
highlighted by the majority would so influence a reasonable insured’s
understanding of the water exclusion that he or she would disregard the
exclusion’s plain language. For these reasons, we do not agree with the
majority that the water exclusion, considered as a whole, can be reasonably
read as referring to damages caused only by external events or circumstances.

The majority also asserts that Union Mutual’s interpretation of the
insurance policy creates a conflict between the water exclusion and another
policy provision. The majority states:

It would seem odd to an insured — as it did to the trial court — that a
policy providing coverage for frozen and ruptured internal piping “would
not also provide coverage when an internal pipe fails in a manner that
causes a toilet to overflow.”
However, we have never held that “seeming odd” is sufficient to create an
ambiguity in otherwise clear policy language. If we can construe two
purportedly contradictory policy provisions harmoniously, we do so, consistent
with our practice of interpreting insurance policies according to their plain

8
language. See Barbuto v. Peerless Ins. Co., 156 N.H. 565, 569 (2007)
(distinguishing a situation in which two provisions actually conflict from one in
which they can apply in a way that does not conflict); Int’l Surplus Lines Ins.
Co. v. Mfgs. & Merchants Mut. Ins. Co., 140 N.H. 15, 20 (1995) (“[I]n
determining whether an ambiguity exists, we . . . construe the words used
according to their plain, ordinary, and popular definitions.” (Quotation
omitted)). Indeed, to construe an insurance policy against the insurer because
some aspect of the policy “seems odd” would constrain insurers’ “free[dom] to
contractually limit the extent of their liability,” however they choose, “provided
that they violate no statutory provision by doing so.” Santos v. Metro. Prop. &
Cas. Ins. Co., 171 N.H. 682, 686 (2019).

Finally, the majority overlooks the fact that another policy provision
expressly provides or excludes coverage based on whether the cause of a loss
originates within or outside the insured’s property. The Utility Services
exclusion applies to damages caused by:

The failure of power, communication, water, or other utility services
supplied to the described premises, however caused, if the failure:
(1) Originates away from the described premises; or
(2) Originates at the described premises, but only if such failure involves
equipment used to supply the utility service to the described premises
from a source away from the described premises.
(Bolding omitted; emphases added.) Given that this exclusion expressly
distinguishes between interior and exterior origins of loss, a reasonable insured
engaging in “more than a casual reading of the policy as a whole,” Santos, 171
N.H. at 686, would have no reasonable basis to read such a distinction into the
water exclusion, which is silent in that respect.

For the foregoing reasons, we disagree with the majority’s conclusion
that CC 145 Main presents “a reasonable, alternative interpretation of the
exclusion.” We respectfully dissent.

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