[Cite as Trautman v. Union Ins. Co., 2010-Ohio-1504.]




                      IN THE COURT OF APPEALS OF OHIO
                          THIRD APPELLATE DISTRICT
                              HANCOCK COUNTY



KAREN TRAUTMAN,                                           CASE NO. 5-09-34

   PLAINTIFF-APPELLANT,

  v.

UNION INSURANCE COMPANY, ET AL.,                            OPINION

   DEFENDANTS-APPELLEES.



                Appeal from Hancock County Common Pleas Court
                          Trial Court No. 2008 CV 914

                      Judgment Reversed and Cause Remanded

                              Date of Decision: April 5, 2010




APPEARANCES:

        Ralph D. Russo for Appellant

        Timothy J. Fitzgerald for Appellees
Case No. 5-09-34



WILLAMOWSKI, P.J.,

      {¶1} Plaintiff-Appellant Karen Trautman (“Trautman”) appeals the

judgment of the Hancock County Court of Common Pleas granting summary

judgment in favor of Defendant-Appellee, Union Insurance Company, et al.

(“Union Insurance”), and denying Appellant’s cross motion for summary

judgment on the question of the extent of coverage provided by a commercial

insurance policy issued by Union Insurance.       Trautman contends that her

insurance policy provided for payments for loss of business income and extra

expense and that Union Insurance should have paid her claim. For the reasons set

forth below, the judgment is reversed.

      {¶2} In August 2007, a torrential rainfall fell upon Hancock County. At

the time, Trautman was leasing a retail establishment located at 506 South Main

Street, Findlay, Ohio. Because of the tremendous amount of rainwater flowing

into area storm sewers, water backed up through the drains located inside the

building which housed Trautman’s business, Trautman’s Interiors, causing severe

damage to her business property. Because of this damage, Trautman ceased all

business operations for several weeks.

      {¶3} Trautman submitted a claim on the commercial insurance policy she

had purchased from Union Insurance. Union Insurance paid the portion of her




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claim for property damage due to the water back-up but denied coverage for loss

of business income and extra expense.

       {¶4} Trautman’s policy provided coverage for losses of business income

and extra expense pursuant to sections “f” and “g” under “A.5. Additional

Coverages,” provided that they resulted from a “Covered Cause of Loss.” The

pertinent sections are:

       f.     Business Income

       (1)    Business Income

       (a)     We will pay for the actual loss of Business Income you
       sustain due to the necessary suspension of your “operations”
       during the “period of restoration.” The suspension must be
       caused by direct physical loss or damage to the property at the
       described premises. The loss or damage must be caused by or
       result from a Covered Cause of Loss.” (Emphasis added.)

       g.     Extra Expense

       (1)     We will pay necessary Extra Expense you incur during
       the “period of restoration” that you would not have incurred if
       there had been no direct physical loss or damage to property at
       the described premises. The loss or damage must be caused by or
       result from a Covered Cause of Loss.” (Emphasis added.)

Union Insurance contended that Trautman’s business income loss and extra

expense were not caused by a “covered cause of loss” and denied payment.

       {¶5} In December 2008, Trautman filed a complaint for declaratory

judgment. Trautman acknowledged that Union Insurance’s standard insurance

policy, without any special riders or endorsements, excluded coverage for water



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back-up (section “B.1.g. Water”). However, Trautman purchased coverage for

“Water Back-up and Sump Overflow” through an endorsement to the policy

(“water back-up endorsement”).       Because she had purchased this additional

coverage for water back-up, Trautman believed that water back-up was now a

“covered cause of loss” under her modified policy and that she was entitled to

payment for the loss of business income and extra expense.

       {¶6} Union Insurance answered the complaint and shortly thereafter filed

a motion for summary judgment. Union maintained that the insurance policy did

not define the water damage that Trautman sustained as a “covered cause of loss.”

Under section “A.3.” of the policy, “Covered Causes of Loss” are described to be:

       Risks of direct physical loss unless the loss is:

       a.     Excluded in Paragraph B. Exclusions in Section 1;

       ***

Union Insurance argued that the water back-up endorsement that Trautman

purchased applied only to the direct physical damage to her property and that the

water back-up endorsement did not extend to any business income coverage or

extra expense coverage.

       {¶7} Trautman filed a cross-motion for summary judgment arguing that,

as a result of the replacement of the original policy exclusion with the language of

the water back-up endorsement, the damage to Trautman’s business property must

be deemed to have been caused by a “covered cause of loss.” Trautman included


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the report of Union Insurance’s adjustor, who stated that the business income and

extra expense would be covered under the business owner’s water back-up

endorsement.    Trautman also submitted affidavits from two other insurance

companies’ agents stating that, when issuing similar water back-up endorsements,

they have added specific exclusionary language to these endorsements when the

intention was to exclude loss of income and extra expense coverages.

      {¶8} On September 29, 2008, the trial court issued its final judgment

entry granting Union Insurance’s motion for summary judgment and declaratory

relief and overruling Trautman’s motion for summary judgment. The trial court

found that the business owner’s policy of insurance and water back-up

endorsement did not provide coverage for Trautman’s business loss and extra

expense.

      {¶9} It is from this judgment that Trautman appeals, setting forth the

following two assignments of error for our review.

                           First Assignment of Error

      The trial court erred in overruling [Trautman’s] motion for
      summary judgment and granting [Union Insurance’s] motion
      for summary judgment because [Trautman’s] business owner’s
      policy of insurance, together with its endorsement, does provide
      her coverage for business income loss and extra expense.

                          Second Assignment of Error

      The trial court erred in overruling [Trautman’s] motion for
      summary judgment and granting [Union Insurance’s] motion
      for summary judgment because the language of the policy of


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Case No. 5-09-34


      insurance was ambiguous and consequently said language
      should have been construed by the lower court in favor of
      affording coverage to [Trautman].

      {¶10} An appellate court reviews a summary judgment order de novo.

Hillyer v. State Farm Mut. Auto. Ins. Co. (1999), 131 Ohio App.3d 172, 175, 722

N.E.2d 108. This review of a trial court’s grant of summary judgment is done

independently and without any deference to the trial court. Ohio Govt. Risk Mgt.

Plan v. Harrison, 115 Ohio St.3d 241, 2007-Ohio-4948, 874 N.E.2d 1155, ¶ 5.

Summary judgment is appropriate when, looking at the evidence as a whole: (1)

no genuine issues of material fact remain to be litigated; (2) construing the

evidence most strongly in favor of the nonmoving party, it appears that reasonable

minds could only conclude in favor of the moving party; and (3) the moving party

is entitled to judgment as a matter of law. Civ.R. 56(C); Horton v. Harwick

Chemical Corp., 73 Ohio St.3d 679, 686-687, 1995-Ohio-286, 653 N.E.2d 1196.

      {¶11} Insurance policies are contracts and their interpretation is a matter of

law for the court. City of Sharonville v. Am. Employers Ins. Co., 109 Ohio St.3d

186, 187, 2006-Ohio-2180, 846 N.E.2d 833, ¶6, citing Alexander v. Buckeye Pipe

Line Co. (1978), 53 Ohio St.2d 241, 374 N.E.2d 146, paragraph one of the

syllabus. Contract terms are to be given their plain and ordinary meaning. Id.

Insurance coverage is determined by reasonably construing the contract “in

conformity with the intention of the parties as gathered from the ordinary and

commonly understood meaning of the language employed.” King v. Nationwide


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Ins. Co. (1988), 35 Ohio St.3d 208, 211, 519 N.E.2d 1380. “Where provisions of

a contract of insurance are reasonably susceptible to more than one interpretation,

they will be construed strictly against the insurer and liberally in favor of the

insured.” Id., at the syllabus (citations omitted).

        {¶12} Furthermore, “an exclusion in an insurance policy will be interpreted

as applying only to that which is clearly intended to be excluded.” Hybud Equip.

Corp. v. Sphere Drake Ins. Co., Ltd. (1992), 64 Ohio St.3d 657, 665, 597 N.E.2d

1096 (emphasis sic.). “The insurer, being the one who selects the language in the

contract, must be specific in its use; an exclusion from liability must be clear and

exact in order to be given effect.” Lane v. Grange Mut. Cos. (1989), 45 Ohio

St.3d 63, 65, 543 N.E.2d 488.

        {¶13} The party seeking to recover under an insurance policy generally

bears the burden of demonstrating coverage under the policy as well as proving a

loss.   See Chicago Title Ins. Co. v. Huntington Natl. Bank, 87 Ohio St.3d 270,

273, 1999-Ohio-62, 719 N.E.2d 955. However, when an insurer denies liability

coverage based upon a policy exclusion, the insurer bears the burden of

demonstrating the applicability of the exclusion. Beaverdam Contracting, Inc. v.

Erie Ins. Co., 3d Dist. No. 1-08-17, 2008-Ohio-4953, ¶19, citing Continental Ins.

Co. v. Louis Marx & Co. (1980), 64 Ohio St.2d 399, 415 N.E.2d 315, at the

syllabus.




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       {¶14} In the case before us, the parties agree that there are no genuine

issues of material fact in dispute. Both parties agree that the insurance policy was

in effect at the time of the occurrence and Union Insurance acknowledges that

Trautman’s business personal property sustained water damage in August 2007.

The sole issue is whether the water damage was a “covered cause of loss” under

the terms of the insurance policy so as to provide coverage for the business income

loss and extra expense Trautman sustained as a result of the water damage.

Because both of Trautman’s assignments of error are closely related, we shall

discuss them together.

       {¶15} Section “A” of the standard policy outlines “Coverage” and section

“B” covers “Exclusions,” stating in section “B.1.” that “[w]e will not pay for loss

or damage caused directly or indirectly by any of the following. ***” Pertinent to

this action is exclusion “B.1.g.” in the original standard policy, which states:

       g.     Water

       (1)   Flood, surface water, waves, tides, tidal waves, overflow of
       any body of water, or their spray, all whether driven by wind or
       not;

       (2)    Mudslide or mudflow

       (3)   Water that backs up or overflows from a sewer, drain or
       sump; or

       (4)    Water under the ground surface pressing on, or flowing
       or seeping through ***.

       (Emphasis added.)


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       {¶16} However, Trautman purchased a “Water Back-up and Sump

Overflow” endorsement which states that “[t]his endorsement changes the policy”

and “[t]his endorsement modifies insurance provided under the following:

Businessowners Coverage Form.” (Emphasis added.) “Businessowners Coverage

Form” is the title given to the entire insurance policy.      The water back-up

endorsement states that the insurance company would pay for direct physical loss

or damage to the covered property resulting from water which backs up through or

overflows from a sewer or drain. The water back-up endorsement further specifies

other aspects of the coverage and certain exclusions, such as losses due to failure

to maintain a sump pump, etc. Section “D” of the water back-up endorsement

added to the policy states:

       With respect to the coverage provided under this endorsement,
       Exclusion B.1.g. Water in Section I – Property is replaced by the
       following exclusion:

       f.     Water

       (1)   Flood, surface water, waves, tides, tidal waves, overflow of
       any body of water, or their spray, all whether driven by wind or
       not;

       (2)    Mudslide or mudflow

       (3)    Water under the ground surface pressing on, or flowing
       or seeping through ***.

       (Emphasis added.)




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       {¶17} Therefore, the original, standard policy section “B.1.g.(3)” exclusion

for water back-up is no longer a part of section “B.1.g.” – it has been fully

replaced by the new section from the water back-up endorsement.

       {¶18} Union Insurance did not question paying for the property damage

caused by the sewer back-up under the water back-up endorsement and

acknowledged that Trautman had coverage for property damage. However, Union

Insurance argues that water back-up is not a “covered cause of loss” for any other

purposes.

       {¶19} Section A.3. of the policy, which defines “covered causes of loss,”

states that covered causes of loss are “[r]isks of direct physical loss unless the loss

is *** [e]xcluded in Paragraph B. Exclusions in Section 1.” Therefore, according

to the original exclusion “B.1.g.” in the standard policy, back-up water was not a

“covered cause of loss.”    However, the water back-up endorsement changed the

standard policy and replaced the original B.1.g. exclusion. As modified by the

endorsement, water back-up is no longer part of exclusion B.1.g, so it would not

be excluded from the definition of “covered causes of loss.” The water back-up

endorsement modified the policy and, according to the changes made by the

replacement section “B.1.g.” in the endorsement, we find that water back-up is no

longer excluded from the definition of a “covered cause of loss.”

       {¶20} Union Insurance further argues that the endorsement only extends

coverage for “physical loss or damage” and does not provide for loss of business


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Case No. 5-09-34


income or extra expense. Presumably, this is because section “A” of the water

back-up endorsement states that “we will pay for direct physical loss or damage to

Covered Property ***.” However, this is the same language used in section “A”

of the entire standard policy. If this interpretation was used, then coverage for

business income loss or extra expense would not be applicable to any “physical

loss or damage” and any coverage under those sections would be illusory. An

insurance provision is illusory when it appears to grant a benefit to the insured,

although in reality it does not. Beaverdam, supra, 2008-Ohio-4953, at ¶49. Courts

are not inclined to give insurance provisions a meaning that would render them

illusory. GNFH, Inc. v. W. Am. Ins. Co., 172 Ohio App.3d 127, 2007-Ohio-2722,

873 N.E.2d 345, ¶133; Talbert v. Continental Cas. Co., 157 Ohio App.3d 469,

2004-Ohio-2608, 811 N.E.2d 1169, ¶9.

      {¶21} Union Insurance also claims that the language of the introductory

paragraph of section “D” of the water back-up endorsement states that the

“endorsement replaces Exclusion B.1.g. Water in Section I Property so as to

remove ‘[w]ater which backs up or overflows from a sewer, drain or sump’, but

only ‘[w]ith respect to the coverage provided under this endorsement’” and that

such coverage did not include business income or extra expense coverage.

(Appellee’s Brief, p. 12, emphasis added.)     However, the endorsement does not

specify that the replacement of exclusion B.1.g. is effective “but only” with

respect to property damage covered by the endorsement – those words are found


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in Union Insurance’s argument, but not in the policy or endorsement. The water

back-up endorsement does not use the word “only” to narrow the coverage, nor

does it exclude other coverages. The heading of the water back-up endorsement

specifically states that it modifies the “Businessowners Coverage Form,” i.e., the

entire policy. Union Insurance wrote the policy, and it could have included the

words “but only,” or otherwise narrowed the coverage of the endorsement if that

was its intent, but it did not do so.

       {¶22} We do not find Union Insurance’s reading of section “D” to include

the addition of the phrase “but only” to be a reasonable interpretation of the

language in the endorsement.            Even if this interpretation could possibly be

inferred, it would at most render the paragraph ambiguous and, therefore, it would

have to be interpreted in favor of the insured. See Bosserman Aviation Equip.,

Inc. v. U.S. Liab. Ins. Co., 183 Ohio App.3d 29, 2009-Ohio- 2526, 915 N.E.2d

687, ¶12. When the provisions of an insurance policy are reasonably susceptible

to more than one interpretation, any reasonable construction which results in

coverage for the insured must be adopted by the trial court. Nationwide Mut. Ins.

Co. v. Wright (1990), 70 Ohio App.3d 431, 434, 591 N.E.2d 362.

       {¶23} In its decision granting summary judgment in favor of Union

Insurance, the trial court concluded:

       While the policy and endorsement are not absolute models of
       clarity, when Sections A and D of the Endorsement are read
       together they can reasonably be construed to deny the coverage


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       as sought by [Trautman.] The Court finds that the contractual
       language at issue notifies a reasonably prudent person that
       income and expense losses are not covered under the
       endorsement if caused by water backup.

We completely agree with the trial court’s finding that the policy and endorsement

“are not absolute models of clarity.” However, in finding that the endorsement

could “reasonably be construed” to deny coverage, the trial court did not apply the

correct standard. It did not find that this was the only reasonable construction that

a reasonably prudent person could find in interpreting the contract. Furthermore,

the trial court “construed” the denial of coverage by reading reading “Sections A

and D of the Endorsement” together. However, the endorsement does not stand

alone. It clearly states that it modifies the policy as a whole, and therefore, the

endorsement must be read in conjunction with the rest of the policy. Given that

Trautman’s reading of the contract is also reasonable, if not more so, then the

interpretation that results in coverage for the insured must be adopted.         See

Nationwide Mut. Ins. Co. v. Wright, supra.

       {¶24} Union Insurance further cites four cases where it claims a court

considered policy language similar to that in this policy and where the court ruled

in favor of the insurer. We find that each of these cases either does not involve the

issue presented here or they are clearly distinguishable from the specific policy

provisions before this Court. Much closer on point is the United States District

Court case cited by Trautman, Dream Spa, Inc. v. Fireman’s Funds Ins., (Feb. 6,



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2008), S.D.N.Y. No. 06-CV-13142, 2008 WL 355458 where the district court

found that the water damage endorsement replaced the basic policy exclusion as if

it was never there and so the insured’s water damage was a covered cause of loss

for purposes of the business income coverage.

       {¶25} Union Insurance’s policy with Trautman did not clearly and

unambiguously exclude coverage for her claimed loss of income and extra

expense arising from the damage to her property from water back-up. Union

Insurance has failed to meet its burden to show the clear application of the

exclusion. Therefore, this Court must interpret the policy in favor of Trautman as

providing coverage for loss of income and extra expense.

       {¶26} Trautman’s assignments of error are well taken and are sustained.

The judgment of the Hancock County Court of Common Pleas is reversed and the

cause is remanded for further proceedings consistent with this opinion.

                                       Judgment Reversed and Cause Remanded

ROGERS and SHAW, J.J., concur.

/jnc




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