Within the last week, the U.S. Court of Appeals for the Eighth Circuit and the Supreme Judicial Court of Massachusetts issued opinions analyzing the effect of policy endorsements that only amended part of the policies to which they were added. Both courts ruled, correctly, that the scope of policy endorsements should be limited to what their terms actually provide.
The Eighth Circuit addressed the issue in Grinnell Mutual Reinsurance Co. v. Schweiger, — F.3d —, 2012 WL 2874028 (8th Cir. July 16, 2012). There, Schweiger Livestock (“Schweiger”) boarded market cattle at a feedlot operated by Voss. Voss improperly mixed the cattle feed, and hundreds of Schweiger’s cattle either died or became malnourished. Grinnell insured Voss under a liability policy that precluded coverage for liability arising out of both the care and raising of livestock (the “Livestock Exclusion”), and damage to property in Voss’ care, custody, or control (the “Care, Custody, or Control Exclusion”). An endorsement to the policy reinstated coverage for liability arising out of the care and raising of livestock, but noted that “[a]ll other terms and provisions of the policy apply.”
Schweiger sued Voss, and they entered into an agreement under which Voss consented to a judgment entered against him in exchange for Schweiger agreeing to both release Voss from personal liability and seek coverage from Grinnell. Grinnell then sued Schweiger and Voss seeking a declaration that its policy did not cover the loss of Schweiger’s cattle. On summary judgment, Grinnell argued that that the Care, Custody, or Control Exclusion precluded coverage; Schweiger and Voss, on the other hand, argued that the endorsement either superseded that exclusion, or created an ambiguity that should be construed against Grinnell. The district court agreed with Schweiger and Voss that the endorsement superseded the Care, Custody, or Control Exclusion, but the Eighth Circuit reversed. Specifically, after noting that the policy was not ambiguous, the court reasoned that “the endorsement expressly limits its application to [the Livestock Exclusion] and thus does not alter that portion of the policy which excludes coverage for property within the insured’s care, custody, or control.”
The Supreme Judicial Court of Massachusetts reached the same conclusion interpreting an endorsement to a first-party property policy. In Surabian Realty Co., Inc. v. NGM Insurance Co., — N.E.2d —, 2012 WL 2819398 (Mass. July 12, 2012), the first floor of a three-story office building owned by Surabian sustained flood damage after a heavy rainfall as a result of a clogged drain in the parking lot surrounding the building. Surabian’s policy, issued by NGM, precluded coverage for damage caused by surface water (the “Surface Water Exclusion”) and “water that backs up or overflows from a sewer, drain or sump.” An endorsement to the policy reinstated coverage for loss or damage caused by water that backs up or overflows from a sewer, drain, or sump, but was silent as to its effect on other policy provisions. The policy also contained an anti-concurrent cause provision stating that loss or damage caused by any excluded peril was “excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”
NGM denied Surabian’s claim, and Surabian sued. The parties cross-moved for summary judgment, and agreed for purposes of the motions that the flood damage was caused by a combination of water that backed up after entering the parking lot drain, and water that never entered the drain because of the blockage. Because rain that collects on paved surfaces qualifies as surface water under Massachusetts law, the trial court granted summary judgment to NGM based on the anti-concurrent cause provision. Surabian appealed, arguing that the endorsement either covered all damage caused by water that backed up from the drain, or created a conflict with the Surface Water Exclusion that rendered the policy ambiguous. Concluding that the anti-concurrent cause provision unambiguously precluded coverage, the Supreme Judicial Court wrote that “by situating the new coverage within the structure of the original policy, NGM clarified that all other provisions of the original policy continued to apply, including the [Surface Water Exclusion] and the anticoncurrent cause provision.”