The Second Circuit reversed the District Court's issuance of summary judgment to the insurer because a windstorm exclusion was deemed ambiguous. 7001 East 71st Street, LLC v. Continental Cas. Co., 2018 U.S. App. LEXIS 17334 (2nd Cir. June 26, 2018).
A windstorm during Hurricane Sandy caused the roof of 7001 East 71st Street LLC (7001) to tear, allowing rainwater to seep in and damage 7001's "Covered Equipment" as defined by the policy. Continental denied coverage based upon the windstorm exclusion and the district court granted summary judgment to Continental.
The policy's Windstorm Exclusion followed an anti-concurrent causation clause which read, "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 contributed concurrently or in any sequence to the loss." The section then listed numerous items, including "earth movement," "an explosion," etc. Another exclusion read, "A Breakdown that is caused by windstorm or hail." The policy defined a "Breakdown" as a "sudden and accidental direct physical loss to 'Covered Equipment,' which manifests itself by physical damage, necessitating its repair or replacement, unless such loss is otherwise excluded within this Coverage Form."
The Second Circuit found notable that the exclusion did not simply read, "we will not pay for loss or damage caused directly or indirectly by windstorm." The language of the windstorm exclusion was distinguishable from, for example, the policy's Earth Movement Exclusion, which - read in context- stated, "we will not pay for loss or damage caused directly or indirectly by earth movement." If the Windstorm Exclusion simply stated,"we will not pay for loss or damage caused directly or indirectly by windstorm,' it may have barred 7001 from indemnification in this case because the damage was caused directly or indirectly by windstorm.
But Continental drafted the Windstorm Exclusion differently than the Earth Movement Exclusion. A person could read the Windstorm Exclusion as saying that Continental "will not pay for loss or damage caused directly or indirectly by a 'Breakdown' that is caused by windstorm." But another fair reading of the exclusion would be "if a 'Breakdown' that is caused by windstorm occurs, Continental will not pay for loss or damage that such a 'Breakdown' directly or indirectly causes." When inserting the policy's definition of "Breakdown" into the exclusion, the language read, "We will not pay for loss or damage caused directly or indirectly by . . . a sudden and accidental direct physical loss to 'Covered Equipment' that is caused by windstorm . . ." This language meant that the broad exclusion applied only when a windstorm directly caused damage to Covered Equipment, and not when a windstorm indirectly damaged Covered Equipment. This reasonable reading made it at least ambiguous whether the exclusion applied.
Therefore, the District Court's judgment was vacated for further proceedings.
