The insured, Bishops, Inc., sought insurance coverage under an all-risks insurance policy issued by Penn National Insurance for damages to its business premises and inventory caused by Hurricane Ivan-related water damage. The water damage was caused by sewer and drain backup followed by extensive flooding. The all-risks policy contained a concurrent-cause exclusion which excluded coverage for damage caused by water including flooding and water that backs up or overflows from a sewer or drain, “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” At issue is the relationship between the concurrent-cause exclusion and an endorsement purchased by Bishops, the Penn Pac Endorsement, that specifically added coverage up to $5,000 for loss or damage caused by backup from a sewer or drain.
Penn National denied coverage for a majority of Bishops’ damages based on the concurrent-cause exclusion. In response, Bishops argued that coverage exists pursuant to the Penn Pac Endorsement which specifically added coverage for the back up of sewers and drains. Nevertheless, Penn National continued to take the position that there was no coverage because Bishops’ damages were caused jointly by sewer backup and flooding, and that regardless of the Penn Pac Endorsement’s addition of coverage for sewer backup, the concurrent-cause exclusion excluded coverage for loss contributed to by flooding, as was the case with Bishops’ claim.
Bishops filed a declaratory judgment action against Penn National asserting that the Penn Pac Endorsement provided an affirmative grant of coverage for the losses it sustained, rendering the concurrent-cause exclusion unenforceable. Penn National filed a partial motion for summary judgment asking the court to enforce the concurrent-cause exclusion. Bishops filed a cross-motion asking the court to find that its damages are subject to coverage under the Penn Pac Endorsement and further that because sewer and drain back up qualifies as a covered cause of loss, coverage was not limited to coverage under the Penn Pac Endorsement and in fact Bishops is entitled to coverage under its Business Income (and Extra Expense) Coverage Form up to the policy limits of $600,000. The trial court determined that Bishops is entitled to coverage under the Penn Pac Endorsement up to $5,000. Ultimately, the trial court denied Bishops’ request for coverage under the Business Income (and Extra Expense) Coverage Form up to the policy limits of $600,000. Both Bishops and Penn National appealed the decisions.
In finding for Bishops, the Superior Court noted that the concurrent-cause exclusion and the Penn Pac Endorsement provisions are ambiguous when considered together “to the extent that they fail to provide a clear indication of the continuing role of the concurrent causation language” after the addition of coverage under the endorsement. Accordingly, in construing the provisions in favor of the insured, the Superior Court held that the concurrent-cause exclusion was unenforceable. In addition, the Superior Court determined that because sewer and drain backup is a covered cause of loss, coverage is available to Bishops under the Business Income (and Extra Expense) Coverage Form.