Windows v. Erie Ins. Exch.

161 A.3d 953

Howard WINDOWS, Jr. and Eleanor Windows, Appellees

v.ERIE INSURANCE EXCHANGE, Appellant

No. 362 WDA 2016

Superior Court of Pennsylvania.

Argued October 25, 2016

Filed May 1, 2017

Jason H. Peck, Pittsburgh, for appellant.

Alexander H. Lindsay, Jr., Butler, for appellee.

BEFORE: DUBOW, J., MOULTON, J., and MUSMANNO, J.

OPINION BY MOULTON, J.:

Erie Insurance Exchange ("Erie") appeals from the February 24, 2016 judgment entered in the Allegheny County Court of Common Pleas in favor of Howard Windows, Jr. and Eleanor Windows ("Homeowners"). We reverse and remand for further proceedings.

This matter arises from Erie's denial of an insurance claim made by the Homeowners following the infiltration of raw sewage into their home in May 2012. Erie denied the claim, and on May 2, 2013, the Homeowners filed a complaint, alleging that Erie breached its policy. On March 9, 2015, Erie filed a motion for summary judgment, arguing that the policy's "general exclusion for water damage unambiguously excludes coverage for the Homeowners' losses because the back up of raw sewage and water through the Warner Alley sewer system and the drain in the Homeowners' basement contributed to their losses." Erie's Mot. for S.J., at ¶ 25.¹

On June 16, 2015, the Honorable Paul F. Lutty, Jr. denied the motion in a one-line order. Before trial, Erie presented a motion in limine , arguing that the law of the case did not apply and that Erie should not be precluded from presenting evidence of its coverage defense, i.e. , that the insurance policy did not cover the Homeowners' claims based on the water-damage exclusion. The trial judge, the Honorable Michael E. McCarthy, denied the motion and ruled that Judge Lutty's order "operat[ed] as at least for that limited purpose the law as to the case as to whether Exclusion 2B applies, that is the water damage," N.T., 11/30/15, at 9, and "defer[red] to Judge Lutty's determination that exclusion 2(b) of the policy could not be construed to preclude plaintiffs' claim," Opinion, 5/9/16, at 3 ("1925(a) Op."). The case proceeded to trial, and on December 2, 2015, the jury returned a verdict in favor of the Homeowners and awarded $75,073.56 in damages.

On December 9, 2015, Erie filed a post-trial motion seeking a new trial, arguing that the trial court erred in concluding that the denial of Erie's summary judgment motion had established the law of the case, thereby denying Erie a trial on whether insurance coverage for the Homeowners' losses existed and whether the water-damage exclusion applied. On January 27, 2016, the trial court denied Erie's motion. On February 24, 2016, the trial court entered judgment in the Homeowners' favor. On March 8, 2016, Erie filed a timely notice of appeal.

Erie raises the following issues on appeal:

1. Whether the Honorable Paul F. Lutty, Jr. abused his discretion or committed an error of law in denying Erie's Motion for Summary Judgment where the undisputed material facts established that water or sewage that backed up through sewers or drains caused or contributed to the [Homeowners'] losses such that these losses were excluded from coverage under the [Homeowners'] insurance policy's exclusion of losses caused by "water damage."

2. Whether the Honorable Michael E. McCarthy abused his discretion or committed an error of law in denying Erie's Motion for Post–Trial Relief where he held that Judge Lutty's summary denial of Erie's motion for Summary Judgment without opinion constituted the law of the case as to the application of the policy's exclusion for "water damage," and therefore held, as a matter of law and without the benefit of trial or fact-finding by a jury, that the policy's exclusion for "water damage" did not exclude any of the [Homeowners'] losses.

Erie's Br. at 3.

We first address Erie's challenge to Judge Lutty's denial of its motion for summary judgment.

When reviewing a trial court's grant of summary judgment, our standard and scope of review are as follows:

[O]ur scope of review is plenary, and our standard of review is the same as that applied by the trial court. Our Supreme Court has stated the applicable standard of review as follows: [A]n appellate court may reverse the entry of a summary judgment only where it finds that the lower court erred in concluding that the matter presented no genuine issue as to any material fact and that it is clear that the moving party was entitled to a judgment as a matter of law. In making this assessment, we view the record in the light most favorable to the non-moving party, and all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party. As our inquiry involves solely questions of law, our review is de novo .

Thus, our responsibility as an appellate court is to determine whether the record either establishes that the material facts are undisputed or contains insufficient evidence of facts to make out a prima facie cause of action, such that there is no issue to be decided by the fact-finder. If there is evidence that would allow a fact-finder to render a verdict in favor of the non-moving party, then summary judgment should be denied.

Reinoso v. Heritage Warminster SPE LLC, 108 A.3d 80, 84 (Pa.Super.), app. denied , 632 Pa. 673, 117 A.3d 298 (2015) (alterations in original) (quoting Mull v. Ickes, 994 A.2d 1137, 1139–40 (Pa.Super. 2010) ). "With respect to the denial of summary judgment, ‘[w]e review the trial court's denial of summary judgment for an abuse of discretion or error of law.’ " Bezjak v. Diamond, 135 A.3d 623, 627 (Pa.Super.), app. denied , 145 A.3d 722 (Pa. 2016) (alteration in original) (citation omitted).

On summary judgment, Erie argued that the water-damage exclusion unambiguously precluded coverage for the Homeowners' losses. We disagree.

"A defense based on an exception or exclusion in a policy is an affirmative one, and the burden is cast upon the defendant to establish it." Erie Ins. Exch. v. Transamerica Ins. Co., 516 Pa. 574, 533 A.2d 1363, 1366 (1987) (quotation omitted). Because "[i]nsurance policies are contracts, [ ] the rules of contract interpretation provide that the mutual intention of the parties at the time they formed the contract governs its interpretation." Am. & Foreign Ins. Co. v. Jerry's Sport Ctr., Inc., 606 Pa. 584, 2 A.3d 526, 540 (2010). "While courts are responsible for deciding whether, as a matter of law, written contract terms are either clear or ambiguous; it is for the fact[ ]finder to resolve ambiguities and find the parties' intent." Metzger v. Clifford Realty Corp., 327 Pa.Super. 377, 476 A.2d 1, 5 (1984).

A contract is ambiguous if it is reasonably susceptible of different constructions and capable of being understood in more than one sense. The "reasonably" qualifier is important: there is no ambiguity if one of the two proffered meanings is unreasonable. See Murphy v. Duquesne Univ. Of The Holy Ghost, [ ] 565 Pa. 571, 777 A.2d 418, 430 (2001) ("[C]ontractual terms are ambiguous if they are subject to more than one reasonable interpretation when applied to a particular set of facts." (emphasis added)). Furthermore, reviewing courts will not distort the meaning of the language or resort to a strained contrivance in order to find an ambiguity. Finally, while ambiguous writings are interpreted by the finder of fact, unambiguous ones are construed by the court as a matter of law.

Trizechahn Gateway LLC v. Titus, 601 Pa. 637, 976 A.2d 474, 483 (2009) (emphasis added) (some citations omitted). It is well-settled that "[w]here a provision of a policy is ambiguous, the policy provision is to be construed in favor of the insured and against the insurer, the drafter of the agreement." Prudential Prop. & Cas. Ins. Co. v. Sartno, 588 Pa. 205, 903 A.2d 1170, 1174 (2006) (quoting Standard Venetian Blind Co. v. Am. Empire Ins. Co., 503 Pa. 300, 469 A.2d 563, 566 (1983) ); see also Egyptian Sands Real Estate, Inc. v. Polony, 222 Pa.Super. 315, 294 A.2d 799, 803 (1972) ( "Under general contract rules, a promise ... if ambiguous, [ ] will be construed [c ]ontra proferentum , against the party having drafted it.") (italics added) (footnote omitted). However,

it is equally clear that the rule is not intended as a talismanic solution to the construction of ambiguous language. Rules of construction serve the legitimate purpose of aiding courts in their quest to ascertain and give effect to the intention of parties to an instrument. They are not meant to be applied as a substitute for that quest. Where a document is found to be ambiguous, inquiry should always be made into the circumstances surrounding the execution of the document in an effort to clarify the meaning that the parties sought to express in the language which they chose. It is only when such an inquiry fails to clarify the ambiguity that the rule of construction ... should be used to conclude the matter against that party responsible for the ambiguity, the drafter of the document.

Burns Mfg. Co. v. Boehm, 467 Pa. 307, 356 A.2d 763, 767 n.3 (1976) (citations omitted). When an ambiguity in contractual language exists, "parol evidence is admissible to explain or clarify or resolve the ambiguity, irrespective of whether the ambiguity is patent, created by the language of the instrument, or latent, created by extrinsic or collateral circumstances." Miller v. Poole, 45 A.3d 1143, 1146 (Pa.Super. 2012). While

[t]his Court may determine the existence of an ambiguity as a matter of law, [ ] the resolution of conflicting parol evidence relevant to what the parties intended by the ambiguous provision is for the trier of fact. Where the words used in a contract are ambiguous, the surrounding circumstances may be examined to ascertain the intent of the parties.

Walton v. Philadelphia Nat'l Bank, 376 Pa.Super. 329, 545 A.2d 1383, 1389 (1988).

Here, the water-damage exclusion in the Homeowners' insurance policy provides that losses caused by "water or sewage which backs up through sewers and drains" are...