Great American Insurance v Mesh Cafe, (02-840) 06/03/2003

Appeal by plaintiff from judgment entered 29 January 2002 by Judge Thomas Haigwood, Superior Court, Pitt County. Heard in the Court of Appeals 22 April 2003.

Patterson, Dilthey, Clay, Bryson & Anderson, L.L.P., by Phillip J. Anthony, G. Lawrence Reeves, Jr., and Daniel M. Gaylord for plaintiff-appellant.

Owens, Rouse & Nelson, P.L.L.C., by Jonathan E. Jones for defendant-appellee.

    WYNN, Judge.

    Following a declaratory judgment that an insurance policy issued by Great American Insurance Company provided business interruption coverage for Mesh Café, Inc.'s income losses incurred as a result of a loss of electricity due to hurricane flooding, Great American appeals. We affirm the trial court's judgment.
    In April 1999, Mesh Café obtained commercial insurance from Great American for its restaurant in Greenville, North Carolina. In September 1999, Hurricane Floyd caused flooding in the Greenville area resulting in the loss of electrical power and water supply to Mesh Café for approximately 24 hours. As a result, MeshCafé filed an insurance claim for alleged loss due to an interruption of its business operations. When Great American denied Mesh Café's claim, the parties sought a declaratory judgment to interpret the following disputed provision of the policy (emphasis added):
        When indicated in the Declarations that this Coverage applies, we will pay for loss of Business Income or Extra Expense, caused by the interruption of service to the described premises. The interruption must result from direct physical loss or damage by a Covered Cause of Loss to the property described below, if the property is located outside of a covered building described in the Declarations:

        (1) Water Supply Services, meaning the following types of property supplying water to the described premises:

        (a) pumping stations; and
        (b) water mains.

                    ...

        (3) Power Supply Services, meaning the following types of property supplying electricity, steam or gas to the described premises:

        (a) utility generating plants;
        (b) switching stations;
        (c) substations;
        (d) transformers;
        (e) transmission lines.

    At the declaratory judgment hearing, Great American contended “direct physical loss or damage” excluded losses and damages caused by flooding. On the other hand, Mesh Café argued the phrase “Covered Cause of Loss” modified “damages” only and that a “direct physical loss” regardless of the cause was covered. The trialcourt concluded:
    Mesh Café, Inc. suffered loss of business income based upon interruption of water and power supply based upon direct physical loss to the water supply stations and electric power supply stations providing power to Mesh Café, Inc.'s restaurant business, and therefore Mesh Café, Inc. had coverage under its policy with Great American for its losses.”

    On appeal by Great American from that declaratory judgment, “our function is to determine whether the record contains competent evidence to support the findings; and whether the findings support the conclusions.” Nationwide Mut. Ins. Co. v. Allison, 51 N.C. App. 654, 657, 277 S.E.2d 473, 475 (1981). In this case, the trial court found Mesh Café lost electric power for 24 hours due to the utilities commission shutting down its main substation; lost water supply for a period of time; was forced to close its restaurant; and suffered business interruption losses and losses due to food spoilage. Moreover, the court took judicial notice that there was direct physical loss to the water supply station and electric supply station. Great American does not challenge these findings of fact on appeal; accordingly, we address the trial court's conclusions of law.
    “The interpretation of language used in an insurance policy is a question of law, governed by well-established rules of construction. If an insurance policy is not ambiguous, then the court must enforce the policy as written and may not remake the policy under the guise of interpreting an ambiguous provision. Moreover, a contract of insurance should be given that construction which a reasonable person in the position of the insured would haveunderstood it to mean and, if the language used in the policy is reasonably susceptible of different constructions, it must be given the construction most favorable to the insured, since the company prepared the policy and chose the language.” Barnes v. Erie Ins. Exch., _____ N.C. App. ____, 576 S.E.2d 681, 684-85 (2003).
    In this case, the trial court construed the conjunction “or” under the disputed provision to indicate that “direct physical loss” must be read as an alternative to “damage by a Covered Cause of Loss” and that “under a plain reading of the policy language, there is not punctuation or language indicating that Covered Cause of Loss has a connection to “direct physical loss” in that section of the policy.” In essence, the trial court found that the policy language is reasonably susceptible to different constructions; we agree. Whereas a reasonable person could understand the language “by a Covered Cause of Loss” to be a prepositional phrase modifying “direct physical loss or damage,” another reasonable person could understand “direct physical loss” to be an alternative to “damage by a Covered Cause of Loss” because of the conjunction “or.” Therefore, the language used in the policy is reasonably susceptible of different constructions; accordingly, it must be given the construction most favorable to the insured, since the company prepared the policy and chose the language. See Barnes, _____ N.C. App. at _____, 576 S.E.2d at 684-85.
    Affirmed.
    Judges TYSON and STEELMAN concur.
    Report per Rule 30(e).

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