I don’t do much in Coverage Opinions with property policy coverage disputes.  But the New Hampshire Supreme Court’s decision in CC 145 Main v. Union Mutual Fire Insurance Company, No. 2021-037 (N.H. July 20, 2023) caught my interest.  I like decisions where the entire dispute centers around the meaning of a single word.  In addition, the decision demonstrates the interpretation of a policy term by the words around it.

CC 145 Main owned an apartment building.  The property sustained damage when a tenant poured cat litter down a toilet.  An interior pipe clogged, causing water to overflow from a shower and toilet.  Significant cleaning and repairs were required. 

CC 145 Main sought coverage from its property insurer, Union Mutual.  The insurer denied coverage, citing an exclusion 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 coverage action.  The trial court concluded that the word “drain” was ambiguous and granted its motion for summary judgment.  Union Mutual headed to the New Hampshire Supreme Court.

On one hand, the court agreed with Union Mutual that, looking at dictionary definitions of “drain” – “a channel by which liquid is drained or gradually carried off; esp. an artificial conduit or channel for carrying off water, sewage, etc.” -- the shower drain and toilet are drains.

However, unfortunately for the insurer, the court didn’t stop there: “[C]ontext 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. (citation omitted).  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.”

To appreciate the court’s conclusion, that the water exclusion contemplated only causes of damage where water originated outside the property, and flowed into it, requires looking at the water exclusion in its totality:

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 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.
  
What’s more, the court looked to the example provided in the policy of the exclusions applicability: “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.”

Wouldn’t you know it.  This, the court stated, was a situation where water damage was 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.”  

In the end, the problem for the insurer was not that its argument was wrong, but that, as the court saw it, there were two reasonable interpretations of “drain.”  Hence, it was ambiguous and construed against it.

As I always say, insurers need to prove what a word means.  Policyholders have a simpler task – establishing that a word has two reasonable meanings.