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Lubik v. Harleysville Insurance:Breaching an Insured's Reasonable Expectations of Coverage


Lubik v. Harleysville Insurance:

Breaching an Insured’s Reasonable Expectations of Coverage

Lubik v. Harleysville Ins. Co. of N.J., A-1120-12T2, 2014 WL 740087 (N.J. Super. Ct. App. Div.)

The New Jersey Appellate Division recently affirmed a trial court’s denial of water damage claim under a condominium unit-owner’s dwelling policy that expressly included water damage coverage, through a misinterpretation of an exclusionary subsection of the policy, negating one of the essential insured considerations – coverage of water damages.

The Harleysville Policy Expressly Provided Coverage for Water Damage

Michael Lubik suffered $60,000 in damages to his 8th floor apartment [unit 800], when water from a broken line in a 10th floor apartment [unit 1000], two floors above, leaked down to Lubik’s unit.  Mr. Lubik insured his condo unit under a Harleysville Insurance ‘dwelling policy’, a form of insurance coverage typically used by landlords, tenants and/or condo unit owners in high-rise apartments, such as the 21-story Vassar Square Condominiums, at 4800 Boardwalk, Ventnor City, New Jersey, where Mr. Lubik and his fellow unit owner lived.

Mr. Lubik might have bought a less-expensive, less comprehensive dwelling policy than the policy that he did buy, such as a “DP-1 Basic Form” dwelling policy that would have provided coverage only for very limited categories of losses (fire, lightning and internal explosion), which would not have covered water damage to his unit.  But Mr. Lubik was not a penny-wise/dollar-foolish insurance bargain-hunter, as some commentators have suggested[1].  Instead, Lubik prudently paid the extra dollars to procure extended coverage, in the form of a “DP-2 Broad Form” dwelling policy (the “Harleysville Policy”).  The Harleysville Policy included a number of additional categories of “Extended Coverage” for risks in the policy’s “Perils Insured Against” section, including coverage for losses from:

12. Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protection sprinkler system or from a household appliance....”

Lubik v. Harleysville Ins., at 1. (this section 12 of “Perils Insured Against” provision is hereinafter referred to as “Water Damage Coverage”)

-- Other Coverage Forms --

The property insurance industry also markets a “DP-3 Open Risks” (formerly called “All Risks”) dwelling policy that provides certain additional coverages that are not relevant to the water damage claim at issue in Lubik v. Harleysville.  With respect to the Lubik claim, the coverage under the DP-3 Open Risks dwelling policy is identical to the Water Damage Coverage that Mr. Lubik obtained under the Harleysville Policy.

There are also Homeowner policies that are used for apartments or condominiums that bundle liability coverage with the property coverage and in that sense are even broader than the DP-3 Open Risks dwelling policy.  But again, with respect to the water damage loss that Mr. Lubik suffered, the coverage under the various types of homeowner policies is identical to the Harleysville Policy’s Water Damage Coverage.

Mr. Lubik acquired the maximum available coverage for the loss at issue.  The Water Damage Coverage is thus a grant of very specific coverage which precisely conforms to the type of loss that Lubik suffered.  An “accidental discharge or overflow of water” was the very thing that caused $60,000 in damages to his apartment.

Off “Described Location” Exception to Water Damage Coverage

Nonetheless, Harleysville saw a back-door way out from the seemingly inevitable conclusion that the claim was covered.  Harleysville instead disclaimed based on a narrow, cramped interpretation of a Harleysville policy term, “Described Location”.   Harleysville cited to an exception to the “Perils Insured Against” section that included the Water Damage Coverage, which stated that the policy did not cover water damage,

“. . . 12.e. on the Described Location caused by accidental discharge or overflow which occurs off the Described Location.”

Lubik v. Harleysville Ins., at 1.  The coverage issue, thus, at least as framed by Harleysville, begged the critical question, what is considered on, and what is considered off, the Described Location, with respect to losses occurring within an individual condo unit?  The question cannot be answered without delineating the boundaries of the “Described Location”, which, of course, requires foreknowledge of what and where is the “Described Location”.  Harleysville argued for the narrowest of interpretations, one that limited “Described Location” to the interior of a single condominium unit.  The Appellate Division noted that the trial judge unequivocally held for Harleysville on that basis:

The judge found that the Described Location in Clause 12(e) . . . clearly referred to his specific unit only, which was the location stated on the policy's declaration page as the Location Address. Thus, as the water from Unit 1000 originated off the Described Location, the judge reasoned, it was not a covered peril under the straightforward policy terms.

The Appellate Division affirmed the trial court’s finding that “Described Location” meant only “unit 800”.   The implication being that in order to secure effective water damage coverage of an apartment unit, the insured would have to, in effect, identify other units, not owned or occupied by the insured, and to bring them within the meaning of Described Location.

The Insured’s Reasonable Expectations of Water Damage Coverage

Before engaging the insurer in a policy text-oriented coverage fight, counsel for an insured must often remind the court as to which party is served by insurance, and which party assumes the covered risk.  There are many examples where New Jersey courts have declined to adopt exclusionary theories of coverage avoidance, without further analysis, because to do so would negate the essential purpose of the policy – the coverage constituting substantive consideration to the insured.

New Jersey Courts used to recognize that in the retail/consumer coverage case, such as was present in Lubik v. Harleysville, no terms can thwart essential consideration to the policyholder – that is some operative coverage of the risk ostensibly being addressed by the policy.  Didn’t Lubik reasonably expect, in buying the extended “Broad Form” policy with the Water Damage Coverage, that water damages from the most likely source in a high-rise apartment (water leaking from higher floors to apartments on lower floors below) would be covered?   Wasn’t it reasonable to expect this, given the laws of gravity, the way that water tends to seek lower levels and the universal experience of those living in high-rise apartment buildings?

No court interpretation can leave the insured with hollow or illusory coverage which would essentially negate the overall purpose of the policy – to cover a common (and in Lubik’s instance expressly enumerated) risk. See, PRESSLER & VERNIERO, Current N.J. COURT RULES, Comment R. 4:5-4, [22.1], (GANN), quoting Harr v. Allstate Insurance Co., 54 N.J. 303-304 (1969), explaining the basis of judicial attitude as follows:

[O]ur expressions have come in a variety of issues and contexts, but all have indicated as their keystone the goal of greater protection to the ordinary policyholder untutored in the intricacies of insurance. We have realistically faced up to the fact that insurance policies are complex contracts of adhesion, prepared by the insurer, not subject to negotiation . . . We have stressed, among other things, the aim that average purchasers of insurance are entitled to the broad measure of protection necessary to fulfill their reasonable expectations;

The insurer cannot, in effect, belatedly testify as an expert on its own policy, in support of an interpretation that thwarts fairly expected coverage, especially coverage expectations induced by marketing and supported by the insurer’s regulatory filings.  Counsel for insured policyholder must have the intestinal fortitude to begin their presentation of a coverage affording construction of the policy sold to their clients, with a reminder to courts, uncomfortable with directly applying public policy to contract terms, of these guiding principles.  In the consumer context especially (i.e., the homeowner’s policy or the non-commercial auto policy) these principles require repeating, that:

. . . ambiguities in an insurance policy are to be interpreted in favor of the insured is fundamental . . . Further, insurance policies must be construed to comport with the reasonable expectations of the insured. American Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29, 41, 713 A.2d 1007 (1998); see also DiOrio v. New Jersey Mfrs. Ins. Co., 79 N.J. 257, 269, 398 A.2d 1274 (1979) . . . See Sparks, supra, 100 N.J. at 338, 495 A.2d 406. In exceptional circumstances, “even an unambiguous contract has been interpreted contrary to its plain meaning so as to fulfill the reasonable expectations of the insured.” Werner Indus., Inc. v. First State Ins. Co., 112 N.J. 30, 35-36, 548 A.2d 188 (1988); see also Robert E. Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv. L.Rev. 961, 967 (1970) (“The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations.”).

Gibson v. Callaghan, 158 N.J. 662, 670-71 (1999) (citations excerpted)

The record in Lubik v. Harleysville indicates that counsel for the insured made the arguments and that the Appellate Division took at least passing note of them (see, Lubik v. Harleysville at 3) in its opinion.  However, the Appellate Division’s holding demonstrates that the long-held doctrines of reasonable expectations and of interpreting policy ambiguities in favor of the insured unfortunately were not substantively followed.

The Harleysville Policy Text in Context

“Described Location” is an Undefined, Expansive Term in the Harleysville Policy Which Refers to the Condominium Complex as a Whole

The trial judge was able to determine (and the Appellate Division affirmed) the meaning of the critical term, “Described Location” as being strictly confined to the interior of unit 800, despite its not being a defined term in the Harleysville Policy.  Yet for all the courts’ certainty on the issue, it is difficult to discern or follow the logic of the reasoning through which the undefined term “Described Location”, as appearing in the 12(e) exception to the Water Damage Coverage, appearing in the policy text, actually becomes an excerpt of “Location Address”, appearing in a different document, the Harleysville declaration page.  Close analysis of the terms of the Harleysville Policy and declaration page does not support the courts’ literal construction of the definition without context.

“Location Address” in the Harleysville Declaration Page

The opinion sidesteps the lack of a definition for “Described Location” by substituting in a ‘definition’ of another term, “Location Address”:

Looking at the plain and ordinary meaning of the term Described Location, the only reasonable conclusion is that the Described Location is the location set forth as the Location Address in the declaration page.

Lubik v. Harleysville, at 4.

In actual fact, the term “Location Address” never appears within the text of the Harleysville policy at all.  And where it does appear in the declaration page, it does not solely and unequivocally identify an individual condo unit as the boundary of coverage as the Appellate Division opinion at times suggests.  Initially, the Appellate Division notes that “[T]he declaration page lists the “Location Address” as “4800 [Boardwalk], Unit 800.” Lubik v. Harleysville, at 1. (emphasis added)   This is, of course, a reference both to the overall address of the Vassar Square Condominium complex (4800 Boardwalk) and a specific reference to Lubik’s individual unit (800).  But when the opinion thereafter refers to the “Location Address”, it conveniently drops the “4800 [Boardwalk]” part from the term without any explanation and thereafter reasons as if it did not exist at all.

Mr. Lubik did actually live at 4800 Boardwalk, and the unit owner on the 10th floor, with the leaking water pipe, also lived at 4800 Boardwalk.   The leak came from and pooled in units at 4800 Boardwalk.  All of the common elements of the Vassar Square Condominium, in which Mr. Lubik had an ownership interest through his membership in the condominium association, also have the 4800 Boardwalk address.[2]  All of the material activity relative to Lubik’s claim occurred at 4800 Boardwalk, Ventnor City, New Jersey.  All relevant activity occurred on or at the location of the Vassar Square Condominium.  Thus, even the insurer’s coverage constricting constructs do not hold up under objective scrutiny.

A more sensible interpretation of the disputed terms in context would be that where Harleysville sought to convey some individual unit-bound aspect of coverage, they invariably used the noun form of the term “dwelling” and where they meant for a provision to apply to the condominium complex as a whole, they used the broader term “Described Location”.  Yet the Appellate Division summarily rejects this as “patently unreasonable” and accuses the insured of wanting the court to “torture the language in his policy to afford him coverage that he did not purchase”.  Lubik v. Harleysville, at 5.  A close reading of the entirety of the Harleysville Policy reveals instead that it is the insurer that uses tortured logic to relieve itself from the coverage obligations it actually undertook.  If there is any rational basis for the Appellate Division’s rather categorical “hypothesis”, it was lost in the translation from reasoning to written opinion.

With respect to the Water Damage Coverage, the nexus of Lubik’s damaged property was certainly confined to his unit 800.  The necessary repairs and replacements were all to be within unit 800.  Lubik was not arguing for coverage for damages occurring anywhere on the condominium complex other than within his unit 800, to repair or replace property he individually owned.  To state what should be the obvious, unit 800 is within the Described Location, but is not the entirety of the Described Location.  The unit 800 dwelling is a component part of the larger Vassar Square condominium at 4800 Boardwalk.  Also known as the Described Location in the Harleysville Policy.  Lubik owned and insured a finite, readily quantifiable amount of real and personal property at the Vassar Square Condominium.

The Appellate Division opinion seems to lose its way when it interprets Lubik’s argument into the “supposition suggests that plaintiff thought he had purchased insurance to cover the entire condominium building”.   There might be claim scenarios wherein damage is widespread throughout a condominium complex, encompassing many units and common areas, wherein there would be conflicts between a general homeowners’ association “global” policy and a series of individual unit policies procured by individual units, wherein genuine coverage questions or conflicts might arise, but that was not the type of loss Lubik suffered.   Lubik was simply an insured seeking coverage for damages within his individual unit.  The Appellate Division instead bought into Harleysville’s ‘march of imaginary horribles’ scenario, as if Lubik was trying instead to fund the rebuilding of an entire condominium complex under the cover of a single unit policy.

The Appellate Division uses terms like “plain and ordinary” and “the only reasonable conclusion” in affirming Harleysville’s disclaimer, and uses “patently unreasonable” to denigrate Lubik’s arguments for coverage, so it is impossible to misconstrue the holding or to miss the depth of the Appellate Division’s identification with the Harleysville position.  But there is no discernable reasoning in the opinion, grounded in the actual Harleysville Policy text, to support the result.

The Appellate Division makes generalized references to disparate parts of the Harleysville Policy and concludes without meaningful elaboration:

. . . we do not find Clause 12(e) to be ambiguous. Plaintiff's policy does not define the term Described Location. Rather, it refers to the Location Address as plaintiff's specific unit, Unit 800. Looking at the plain and ordinary meaning of the term Described Location, the only reasonable conclusion is that the Described Location is the location set forth as the Location Address in the declaration page.

Lubik v. Harleysville, at 4.

With due respect to the court, no, section 12 (e) does not refer to “Location Address”, and no, transposing a subset of “Location Address” for “Described Location” is not a reasonable conclusion, no less the only one.

“Described Location” in the Harleysville Policy

The Appellate Division, in attempt to provide the missing definitional link that would support its decision, generally references a few Harleysville Policy references to Described Location:

 “[T]he policy frequently used the term “Described Location,” but did not specifically define it. References simply are made throughout the policy to the owner of the Described Location, a tenant of the Described Location, and an owner and family member of the Described Location.”

Lubik v. Harleysville, at 1 .

But the Harleysville Policy uses “Described Location” to modify much more than just the classes of unit occupants[3] that the Appellate Division notes.  In fact, the undefined “Described Location” term is sprinkled liberally throughout, used more than 30 times in the Harleysville Policy, in various coverage sections and in varied contexts and predominantly in a such a way that is inconsistent with a meaning of the term as describing a single condominium unit.

An interpretation of “Described Location” as meaning an individual condominium unit would render the Harleysville Police nonsensical.  To give just a few examples:

  • “COVERAGE A – Dwelling, We cover: 1. the dwelling on the Described Location. . . ” (what would be the meaning of ‘the dwelling on unit 800’?);
  • “COVERAGE B -- Other Structures, We cover other structures on the Described Location set apart from the dwelling by clear space” (what would be the meaning of ‘structures on unit 800 set apart from the dwelling by clear space?);
  • “COVERAGE C – Personal Property, We cover personal property, usual to the occupancy as a dwelling and owned and used by you . . . while it is on the Described Location”.  The limitations section to personal property coverage states that the Harleysville does not cover, “f. Watercraft of all types, other than rowboats and canoes;” (Why would the Harleysville Policy cover rowboats and canoes, and what would rowboats and canoes be doing inside an 8th floor condo unit?);
  • “COVERAGE D – Fair Rental Value.  This coverage part deals with losses that relate to tenants and repeatedly speaks in terms of “part of the Described Location rented to others” (Mr. Lubik would not be renting ‘part of unit 800 to others’); and
  • “COVERAGE F -- Other Coverages, 8. We cover trees, shrubs, plants or lawns, on the Described Location” (Why would Harleysville cover trees, shrubs and lawns inside an 8th floor apartment and how would such things would exist ‘on’ unit 800?).

This admittedly simple exercise illustrates the fallacy of the Appellate Division’s holding.  It is, absurd, of course, for there to be provisions dealing with coverage for canoes and rowboats, shrubs, trees and grass, fences and other structures, all within Lubik’s 8th floor apartment unit.  Yet the Harleysville Policy provides coverage for all these things while they are on the Described Location.  The only logical possibility is that Described Location means something other than just within the confines of “unit 800”.  Logically and textually, “Described Location” means the condominium complex, including its grounds, buildings, structures and individual condominium units.

On appeal, the insurer successfully cherry-picked references to “Described Location” that were not obvious non-sequitors, but the construct can only be sustained by viewing those passages in isolation and out of the context of the Harleysville Policy as a whole.  Courts must not read one provision such that another provision is rendered meaningless. Homesite Ins. Co. v. Hindman, 413 N.J.Super. 41, 47 (App.Div.2010); see also, Kenny, George J., and Lattal, Frank A., “Conflict Between Policy and Endorsement, Look at the Policy as a Whole”, § 4-8:1, New Jersey Insurance Law”, “The construction that gives a reasonable meaning to all of its provisions is preferred to one that leaves a portion of the writing useless or inexplicable.”

“Dwelling” in the Harleysville Policy

The insurer transposes “Described Location” to indicate a single apartment unit renders the Harleysville Policy term “dwelling” redundant and confusing throughout the policy.  In at least 9 separate provisions[4] in the Harleysville Policy, the terms “Described Location” and “dwelling” follow one another within the same sentence.  For example, in the 12(b) exception to the Water Damage Coverage, which appears just above the disputed 12(e) exception central to the matter, the policy excludes water damage losses:

“12(b) on the Described Location, if the dwelling has been vacant for more than 30 consecutive days immediately before the loss”.

The frequent juxtaposition of the terms “Described Location” and “dwelling” requires that the two terms do not mean the same thing, or else the Harleysville Policy would be riddled with meaningless and confusing redundancies.  The most rational determination is that Harleysville meant to use “dwelling” to describe a single unit, and that “Described Location” instead meant the condominium complex as a whole.  This understanding, of Described Location as referring to the entirety of the condominium complex and dwelling referring to individual units, is the only one that allows the Harleysville Policy to be rationally read in its entirety.    This is the only formulation that allows the Harleysville Policy to “work” as a rational contract.

Similarly, the holding also renders the Harleysville Policy ungrammatical.  Harleysville, in drafting their policy, used the prepositions of place “on” and “off” to delineate the scope of coverage of water damage, a drafting formulation suited in this context to delineating the condominium complex as a whole (4800 Boardwalk) and not for a discrete, contained, interior, unit within a larger building (unit 800).  If the Harleysville Policy’s formulation of the term “Described Location” was intended to confine Water Damage Coverage to the interior of a single unit, they would have instead used ‘inside’ or ‘outside’ of the Described Location/unit 800 when they drafted 12(e).

The courts’ reading of “Described Location” is also counter to the organization and reality of the 4800Vassar Square Condominium Association.  As is common with condominium associations, the individual unit owners have rights to occupy and utilize onsite structures and facilities, and to carry and use their personal property in areas other than within the walls of their individual unit[5].

Fundamental Misapprehension of the Scope of Coverage

As near as can be determined from the available record, the overriding concern of the trial and Appellate Division courts’ seems to be a mistaken, but nonetheless unshakable, understanding that it was inconceivable that coverage under the Harleysville Policy might extend to the entirety of the condominium complex, despite numerous provisions within that policy that expressly do exactly that.  The Appellate Division felt that a finding that “Described Location” in the context of Water Damage Coverage and which referred to the Vassar Square Condominium as a whole would represent a vast expansion of the coverage provided under the Harleysville policy.  The trial court thought this “unrealistic” and the Appellate Division went the trial judge one better, terming the idea “patently unreasonable”.

Yet this idea, when applied to insured “personal property”, which is modified by this same term, “Described Location”, would mean that all coverage under the Harleysville Policy ceased once the insured crossed the threshold of his apartment and entered the hall, a proposition that is uncontrovertibly refuted by numerous provisions throughout the Harleysville Policy, which will be discussed below.  Such personal property, regardless of where within the condominium complex it is carried, is covered.[6]

As stated above, the Harleysville Policy provided coverage for Lubik’s personal property whenever and wherever he took it on the condominium grounds and throughout the condominium building.  Such coverage applies, therefore, whether the personal property is located within the individual unit, or within the common areas of the condominium such as the lobby, library, restaurant, exercise room or the swimming pool area.  Coverage does not evaporate at the threshold of the condo unit door, any more than it would if a homeowner carried a piece of insured personal property from his kitchen out into his own backyard.  The misunderstanding that a complex-wide scope for coverage is an exponential expansion of coverage is a straw-man formulation erected by Harleysville, and it’s disappointing that the court did not reasonably consider other, more reasonable interpretations of the policy terms in their proper context.

A number of mistaken conclusions sprang from the courts’ adoption of Harleysville’s mistaken premise, each hostile to the insured’s interests.[7]    Lubik sought additional discovery from Harleysville prior to the notice of arbitration and prior to the setting of a trial date, and prior to Harleysville’s summary judgment motion, which the trial court denied (and the Appellate Division affirmed the denial).  The trial judge, and by extension the Appellate Division, thereby cut themselves off from badly needed extrinsic aid in interpreting the insurance policy issues before them.

The courts’ determination to disallow discovery at a point in the proceedings when only good cause need be shown for an extension, was indicative of their understanding of the matter.  The insurer succeeded in styling the insured as being a penurious and grasping plaintiff seeking to extend coverage beyond the bargained for price:

Plaintiff is attempting to rewrite his policy to afford him more coverage than he bargained for. As defendant points out, plaintiff chose to purchase a limited “Perils Insured Against” policy as opposed to a policy that covers all risks.

Lubik v. Harleysville, at 5. (citations omitted).

As stated above, the DP-3 All Risks dwelling policy and the forms of Homeowners policies that bundle liability coverage along with property damage coverage, all contained the same Water Damage Coverage, subject to the same exception.  Even had there been some arguably greater or less obtuse form of policy available on the market, the fact remains that Lubik’s Harleysville Policy provided coverage for the Lubik loss.   With respect to the loss at issue, it is incorrect to describe the Harleysville Policy coverage as “limited”.  

Misplaced Burden of Proof

The court’s analysis also errs with respect to New Jersey insurance law, relative to assigning the burden of proof in matters of arguably ambiguous policy terms.  The Appellate Division placed the burden of proof squarely on the insured, noting that under New Jersey insurance law, “the insured has the burden ‘to bring the claim within the basic terms of the policy.’” Lubik v. Harleysville, at 3.  Lubik’s having the Harleysville Policy’s Water Damage Coverage in place, matched the kind of loss suffered, and easily satisfied that burden had it properly been the insured’s to carry.

So, leaving aside for the moment the court’s misapprehension about the exclusionary nature of the 12(e) exception to the Water Damage Coverage, with due respect, the Appellate Division ought to have recognized that the burden shifted to Harleysville to establish the claim was outside of coverage.  The Appellate Division instead takes the truncated view advanced by the insurer that because the 12(e) clause appeared in a coverage section and not in the policy section specifically entitled “Exclusions”, it could not be understood as an exclusion and therefore subject to greater scrutiny:

. . . Clause 12(e) is not an exclusionary provision, and thus does not require additional scrutiny. See Gibson, supra, 158 N.J. at 671. It is contained in the “Perils Insured Against” section, which lists the policy coverage parameters; it is not contained in the “General Exclusions” section.

Lubik v. Harleysville, at 4.

While it is true that 12(e) appears in a coverage section and not within the “General Exclusions” section of the Harleysville Policy, the effect of 12(e) is irrefutably to exclude water damage that would otherwise be covered under the Water Damage Coverage provision.[8]  Such an exception to coverage is to be considered an exclusion of coverage by courts undertaking an ambiguity analysis, and the New Jersey Supreme Court is clear that in such circumstances the burden of proof therefore placed on the insurer, to establish that there was no coverage:

. . . we emphasize that whether inserted in the form of a specific exclusion or packaged within the definition of an "occurrence," the effect of this language is ultimately the same: it denies coverage . . . "[i]f an insurer were able to distribute provisions limiting liability throughout a policy, with the expectation that its shouldering of the burden of proof would be limited to the single section entitled, 'Exclusions,' this would create considerable incentive to obfuscation and subterfuge").  We agree that exclusions do not shed their essential character when they are moved from one section of a policy and are crafted as part of that policy's grant of coverage.

Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312, 331-32 (N.J. 1998)(citations omitted).  In addition, the critical phrase at the center of the controversy, “Described Location”, also appears within the Harleysville Policy’s “General Exclusions” section.  See, subsection 4, “Power Failure”.

The doctrine of reasonable expectations has particular force when the meaning of an exclusionary clause is at issue, and when ambiguity arises in this context, the clause must be strictly construed against the insure so that reasonably anticipated coverage is provided.  See, Kenny, George J., and Lattal, Frank A., “Reasonable Expectations and Exclusions”, § 4-7:4, New Jersey Insurance Law”

Additional Support for Coverage under the Harleysville Policy

Dwelling policies are commonly used to cover homes configured in a wide variety of ways, including single-family detached houses, small, multi-family/multi-unit homes (both attached and in a series of buildings), and in high-rise apartment complexes.   The policy forms therefore have a certain amount of built-in flexibility, so coverage questions inevitably arise.  Despite all of the negative characterization of Lubik’s arguments by the trial and Appellate Division courts, the insured’s view is the one that is consistent with the way dwelling policies are drafted and marketed and even the way they are taught within the insurance industry itself.

For many decades insurance industry personnel and insurance companies have utilized the services and publications of Insurance Schools, Inc.  Their materials specific to dwelling policies confirm that Lubik’s DP-2 Broad Form Harleysville Policy was an extended and not a limited form of coverage, that it costs more than the DP-1 Basic Form policies, that the Water Damage Coverage was the same in the DP-2, DP-3 and higher-end Homeowner policies. There is, within these materials, a recognition that, with respect to specific Water Damage Coverage, that “[T]his peril has sometimes caused some confusion” and provides as an illustration of something that might be appropriately considered “off the Described Location”, “a broken city water line for example”.[9]

Harleysville itself has seen the necessity of providing additional clarification for the Water Damage Coverage part of its line of dwelling policies, and these regulatory filings confirm that there is coverage for water damages that originated from outside of a single unit or dwelling on an insured property.[10]   For example, recent Harleysville filings (F-4814 (07-13)) clarify that they will cover damages:

“ . . . if water is leaking from a break in a water line that is on the Described Location and under a paved driveway or cement walk (a non-building structure), and that water is causing damage to the dwelling, we’ll pay to: a) tear up the driveway or walk to access the break and stop the leak; and b) repair or replace that part of the driveway or walk that was disturbed.”

Thus, Harleysville itself acknowledges that water coming from an area outside of the dwelling but still located on the Described Location that nonetheless causes water damages to the dwelling, is a covered loss.  “Described Location” therefore is not limited to the building wherein the insured lives, but extends instead to the driveways and sidewalks, and even the areas beneath the driveways and sidewalks are within the reach of the term.

Please direct questions or comments to Mark J. McPherson   (


[1] See, “You Get What You Pay For”, Zalma on Insurance, March 3, 2014,

[3] When “Described Location” is referenced with respect to a class of owner, the term “dwelling” (as discussed herein) is used to identify the specific type of owner and interest.

[4] The Harleysville Policy refers to ‘the dwelling’ wherever in the Policy the effect of vacancy is dealt with; the dwelling is on the “Described Location”, which is never itself the object described as being vacant.

[5]See, and  “Dine at our Boardwalk on-site restaurant, and afterwards utilize our well equipped ocean front rooftop exercise room. One can relax at our swimming pool overlooking the beach. We possess a library, card room and ocean front rooftop party room including an attached panoramic rooftop deck.”

[6] If the simplistic logic informing the Appellate Division were extended to other coverage sections that would suggest that the section 4, “World-Wide Coverage” part of the Harleysville Policy, which covers an insured’s loss of personal property “while anywhere in the world” meant that Harleysville insured Lubik’s personal property across the entire world. But the Harleysville Policy covers only personal property used on the Described Location.  Such personal property can be taken by an insured wherever in the world they might roam, and still be covered, subject to personal property limits. 

[7] The denial of Lubik’s discovery request, the adoption of Harleysville’s view that Lubik was seeking a free-ride to expanded coverage, the misapprehension about the actual scope of Lubik’s coverage, the finding that water damage was not covered, that Lubik bore the burden of proof, that there was no ambiguity whatsoever, that Lubik had no reasonable expectation of coverage, that Lubik was asking Harleysville to cover all and everyone’s risks throughout the condominium property evince an overarching hostility toward  the insured’s interests.

[8] This water damage coverage is often the principle reason an insured pays the additional premiums and selects the DP-2 Broad Form dwelling policy (Harleysville Policy) instead of the less expensive DP-1 Basic Form dwelling policy.

[9] See, Section Two: Dwelling Forms--Coverages, Perils & Exclusions,, at page 22, Insurance Schools, Inc.; see also,  Property & Casualty Licensing Manual,  “Chapter 3 - Dwelling Insurance”, Insurance Schools, Inc

[10] New Jersey courts have frequently considered insurance industry regulatory filings and explanatory memoranda to aid in the analysis of disputed policy passages or terms.  See, Morton Intern. v. General Acc. Ins., 134 N.J. 1 (1993) (detailed analysis of Insurance Rating Board (ISO predecessor insurance industry organization) Explanatory Memorandum for “sudden and accidental” pollution exclusion clause); Nav-Its, Inc. v. Selective Insurance Company of America, 183 N.J. 110 (2005) ("If the absolute exclusion was intended to reach as broadly as now contended, one would expect to see conclusive ISO memoranda and similar documents"); see also, Kimber Petroleum Corp. v. Travelers Indem. Co., 298 N.J. Super. 286 (App.Div. 1997)(analysis of ISO Explanatory Memorandum and related ISO documents providing coverage-illustrating claim hypotheticals with respect to the 1985 “absolute” pollution exclusion clause).

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