In Ashrit Realty, LLC v. Tower National Ins. Co., 2015 WL 248490, 2015 N.J. Super. Unpub. LEXIS 107 (N.J.Super.Ct., App.Div., Jan. 20, 2015), New Jersey’s Appellate Division held that an anti-concurrent/anti-sequential causation clause precluded coverage for a Hurricane Irene loss. A covered peril (hidden decay) led to an excluded peril (soil erosion), bringing down part of the insured’s structure. As the court explained, such a provision “excludes coverage in situations where a covered event and an excluded event contribute, concurrently or sequentially, to a single loss.” While the New Jersey Supreme Court has yet to weigh in on anti-concurrent/anti-sequential causation clauses, the case adds to growing body of lower court decisions holding or suggesting that such provisions are valid and enforceable. See Assurance Co. of Am., Inc. v. Jay-Mar, Inc., 38 F.Supp.2d 349 (D.N.J. 1999); Simonetti v. Selective Ins. Co., 372 N.J.Super. 421 (N.J.App.Div. 2004); Petrick v. State Farm Fire and Cas. Co., 2010 WL 3257894, 2010 N.J. Super. Unpub. LEXIS 1964 (N.J.Super.Ct., App.Div. 2010).
The policyholders owned a gas station and convenience store in Cherry Hill, New Jersey. The structure experienced moderate damage during a storm on August 14, 2011. Two weeks later on August 28th, the rear portion of the building collapsed during Hurricane Irene. There was a 72” corrugated metal culvert running underground near the rear of the structure, and this was corroded and decayed. Experts for both sides agreed that the deteriorated culvert sustained damage during the first storm and then partially collapsed after Irene, leading to extensive soil erosion; when the insurer’s expert examined the property two days after the storm, there was a hole 60’ long, 20’ wide, and 8’ deep behind the building.
The insureds made claim against their property insurance carrier, Tower National Insurance Company, and they filed suit for breach of contract and breach of the duty of good faith after the insurer denied liability. Tower moved for summary judgment, and that was granted by the trial court in October of 2013. Last week, an appellate panel (Judges Marie Cimonelli and Michael A. Guadagno) affirmed.
The policy covered damage caused by hidden pipe decay. It contained exclusions for loss caused by earth movement and water, however. The former recited that Tower would not pay for “[e]arth sinking . . ., rising or shifting including soil conditions;” “soil conditions” were defined to include both “erosion” and also “the action of water under the ground surface.” The latter exclusion barred coverage where the cause was, inter alia, “[w]ater that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment.” Finally, the “Exclusions” section of the policy was prefaced by language that stated as follows:
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.
The appellate court called that “an anti-concurrent/anti-sequential clause.”
The appellate panel concluded that there was no material dispute as to the facts, noting that experts for both sides agreed that water seepage through the decayed pipe led to soil erosion – a species of excluded “earth movement.” In addition, the fact that the pipe decay itself was covered did not alter the result. As the per curiam opinion explained:
Even if plaintiffs are correct in asserting that hidden decay was a cause of loss, plaintiffs do not dispute that water leaked from the collapsed culvert also causing soil erosion. Further, there is no dispute that soil erosion is excluded from coverage. Because these causes happen sequentially, the anti-sequential language in the policy excludes recovery.
The trial judge interpreted this policy properly when she granted summary judgment:
The policy at issue that was drafted by the defendant was clearly drafted to eliminate the efficient proximate cause doctrine. Such an exclusion is not inconsistent . . . with public expectations, or commercially acceptable standards[.] The loss is . . . specifically excluded by not only the policy language, but by the anti-sequential preamble to the policy language.
