Summary
applying "proximate, efficient and dominant cause" test to hold that covered risk of water damage, which was caused by frozen pipes, rather than excluded risk of freezing, was cause of loss
Summary of this case from World Trade Center Properties v. Hartford FireOpinion
Argued October 21, 1992
Decided November 24, 1992
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, Harold Tompkins, J. Zalman Schnurman, New York City (Norman E. Frowley, Benjamin Zalman and Donna Russo of counsel), for appellants.
Mound, Cotton Wollan, New York City (John Mezzacappa and Bruce R. Kaliner of counsel), for respondent.
MEMORANDUM.
The order of the Appellate Division should be reversed, with costs, and the order of Supreme Court reinstated.
American Home Assurance Company issued a builders risk insurance policy to plaintiff Album Realty Corp. covering a building plaintiff was constructing in New York City. The policy insured against "all risks of direct physical loss of or damage to the property insured from any external cause". However, it expressly excluded from coverage loss or damage (1) "caused by or resulting from * * * extremes of temperature" or (2) "caused by * * * freezing".
On December 24, 1989, a sprinkler head froze and ruptured, causing water to fill the subbasement of the insured premises to a depth of 13 feet. The flooding resulted in damage to mechanical and electrical equipment located in the subbasement and caused some structural damage to the building. After American Home rejected plaintiff's claim on the ground that the damage was caused by "extremes in temperature" and/or "freezing" and therefore excluded from coverage, plaintiff commenced this action seeking damages. The trial court granted plaintiff summary judgment as to liability, but the Appellate Division reversed and granted summary judgment in favor of defendant.
The question presented is whether the loss sustained by plaintiff is within the exclusionary clause relating to freezing. The answer depends on whether the parties contemplated that the exclusion would apply in a circumstance such as that presented; that is, did they expect a loss arising in this manner to be characterized as being caused by freezing? (See, Bird v St. Paul Fire Mar. Ins. Co., 224 N.Y. 47, 51.) The loss can be traced back to freezing, but "[w]e are to follow the chain of causation so far, and so far only, as the parties meant that we should follow it" (Goldstein v Standard Acc. Ins. Co., 236 N.Y. 178, 183). In determining the intent of the parties, "[o]ur guide is the reasonable expectation and purpose of the ordinary business [person] when making an ordinary business contract" (see, Bird v St. Paul Fire Mar. Ins. Co., 224 N.Y., at 51, supra).
The Appellate Division found that the loss was caused by freezing. There is no evidence in the record to show that "extremes" of temperature, an arguably ambiguous term, existed on the day in question; temperatures below freezing might not be considered "extreme" in December. Moreover, American Home does not argue that the analysis under the extremes in temperature clause should be any different than that under the freezing clause. Consequently, we focus on the exclusionary clause relating to freezing.
Manifestly, the property damage would not have occurred in the absence of the freezing, as the Appellate Division concluded. However, we do not accept that Court's determination that the freezing was the proximate, efficient and dominant cause of the flooding and water damage within the meaning of the exclusionary clause. As read by the ordinary and reasonable business person, a loss caused by freezing could not be found to incorporate a loss visibly occasioned by water damage by virtue of the mere fact that the presence of water can best be explained by the rupturing of a sprinkler head which had frozen. A reasonable business person would conclude in this case that plaintiff's loss was caused by water damage and would look no further for alternate causes (see, Home Ins. Co. v American Ins. Co., 147 A.D.2d 353, 354 [in insurance context, a causation inquiry does not trace events back to their "metaphysical beginnings"]). That only this most direct and obvious cause should be looked to for purposes of the exclusionary clause at issue becomes even more evident when the limited language of the clause, which excludes damage "caused by" freezing, is compared to the other exclusionary clauses, all of which use broader language, i.e., "caused by or resulting from", "arising directly or indirectly from", "directly or indirectly caused by" or "resulting from", etc.
Because the facts are not in dispute and the inferences to be drawn are not in doubt, summary judgment as to liability should have been granted to plaintiff.
Acting Chief Judge SIMONS and Judges KAYE, HANCOCK, JR., and BELLACOSA concur in memorandum; Judge TITONE dissents and votes to affirm in an opinion; Judge SMITH taking no part.
Order reversed, etc.
I cannot join in the majority's conclusion that the freezing of a sprinkler head in plaintiff's building was not the "proximate, efficient and dominant cause" of plaintiff's loss (majority mem, at 1010). Where the danger of property damage is the principal concern, it is not the subfreezing weather itself that poses the significant threat, but rather the harm that may result when inanimate objects are exposed to temperatures that they were not made to endure.
As any owner of a home or other property with running water knows, the risk of ruptured pipes is one of the primary hazards associated with freezing temperatures. Since water expands when it freezes, there is always a substantial risk that, as the temperature drops below 32 degrees Fahrenheit, inelastic water-bearing vessels will split or break apart, spilling their liquid contents onto the property and fixtures below. Thus, contrary to the majority's conclusion, a clause in an insurance contract excluding damages caused by "extremes of temperature" or "freezing" could only be construed by a reasonable business person as applying to the water damage that inevitably ensues when water-bearing pipes freeze and burst. Indeed, as a matter of common sense and experience, such water damage may well be the chief peril that is contemplated by a clause referring to harms caused by freezing temperatures.
Inasmuch as the water damage in this case was clearly the "direct and obvious" product of the property's exposure to subfreezing temperatures, it is irrelevant that other exclusionary clauses may have encompassed hazards that were related more remotely to the ultimate harm (see, majority mem, at 1011). Here, the exclusionary clause on which defendant insurer relies was unquestionably applicable, and, accordingly, the order of the Appellate Division granting defendant insurer summary judgment should be affirmed.