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September 11, 1991


The opinion of the court was delivered by: Kram, District Judge.


Plaintiff Jakobson Shipyard, Inc. ("Jakobson") brings this declaratory judgment action to determine the rights and liabilities of the parties under a contract of insurance issued by defendant Aetna Life and Casualty Company ("Aetna").*fn1 The action arises in connection with Aetna's refusal to defend a prior action in this court, Express Barge Inc. v. Jakobson Shipyard, Inc., 86 Civ. 6509 (KTD) (the "Express Action"), in which Jakobson suffered a $775,000.00 judgment. The Court has jurisdiction under 28 U.S.C. § 1332.

Aetna moves, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for an order granting it summary judgment dismissing the complaint. Aetna contends that the express provisions of the policy at issue exclude its obligation to defend or indemnify Jakobson with respect to the judgment Jakobson suffered or any attorneys' fees it incurred in defending the Express Action.


Jakobson is a corporation which owns and operates a shipyard in Oyster Bay, New York. Defendants are Connecticut corporations maintaining their principal place of business in Hartford, Connecticut. In or about January 1984 Jakobson purchased and Aetna issued a Comprehensive General Liability insurance policy effective from January 1, 1984 through January 1, 1985. Attached to and made part of this policy was a Broad Form General Liability Endorsement containing various modifications to the policy for which Jakobson paid an additional premium. In or about January 1985, plaintiff purchased from Aetna a second Comprehensive General Liability insurance policy, identical to the first, for coverage from January 1, 1985 through January 1, 1986. This policy contained the same Broad Form General Liability Endorsement as did the first. (The policies and endorsements are referred to collectively as the "CGL Policy.")

On August 10, 1983, Jakobson delivered to Express Barge, Inc. ("Express") a single screw diesel tug named "Escort," contracted for in 1981.*fn2 On August 4, 1983, Jakobson contracted with Express to build a second diesel tug, identical to the first, named "Consort." During Consort's sea-trials in October 1984 and thereafter, Express discovered certain defects in Consort's steering mechanism and notified Jakobson.

On August 21, 1986, Express commenced the Express Action against Jakobson claiming breach of warranty in connection with the steering mechanisms of both Consort and Escort. The complaint in the Express Action alleges that "the steering systems do not operate as warranted; the steering systems do not have adequate power to perform in accordance with the Specifications and the steering system on the tug CONSORT was improperly installed through defective, incompetent workmanship." Complaint at ¶ 15. The defects allegedly made both boats inoperable because they prevented their rudders from turning. Id. at ¶ 16.

Jakobson informed Aetna of Express' claims and requested that Aetna defend the Express Action and indemnify it for any loss suffered in connection with the Express Action. By letter dated October 14, 1986, Aetna refused to either defend or indemnify Jakobson on the grounds that the CGL Policy expressly excluded such coverage. The Express Action went to trial and judgment was entered in favor of Express in the amount of $872,660.23. The parties settled prior to appeal and the judgment was subsequently satisfied for $775,000.00.

The complaint in this action alleges that under the CGL Policy, Aetna is obligated to indemnify Jakobson for the amount of the settlement in the Express Action as well as the legal fees Jakobson incurred defending that action. Aetna interposed an answer denying liability under the CGL Policy.

Aetna now moves for summary judgment dismissing the complaint. It argues that the Policy only requires Aetna to indemnify the insured for an "occurrence" as that term is defined in the CGL Policy, and that no such "occurrence" is alleged in the Express Action complaint. It also argues that the CGL Policy's exclusionary clauses eliminate Aetna's duty to either indemnify or defend plaintiff for losses incurred in connection with the Express Action.

Jakobson opposes the motion and argues that the damages suffered in the Express Action are covered by the CGL Policy and, alternatively, that the language and obscure location of the Policy's exclusionary clauses render the CGL Policy unconscionable.

A. Summary Judgment Standard

Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In testing whether the movant has met this burden, the Court must resolve all ambiguities against the movant. Lopez v. S.B. Thomas, Inc., 831 F.2d 1184, 1187 (2d Cir. 1987) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962)).

Where the sole question presented on a motion for summary judgment is the interpretation of a clear and unambiguous written agreement, the issue is one of law for the court and may be decided upon a motion for summary judgment. See Pantone, Inc. v. Esselte Letraset, Ltd., 878 F.2d 601 (2d Cir. 1989); Tokio Marine & Fire Ins. Co. v. McDonnell Douglas Corp., 617 F.2d 936 (2d Cir. 1980); West, Weir & Bartel, Inc. v. Mary Carter Paint Co., 25 N.Y.2d 535, 307 N.Y.S.2d 449, 255 N.E.2d 709 (1969); Super v. Lux, 159 A.D.2d 203, 552 N.Y.S.2d 202 (1st Dept. 1990); Pharmaceutical Horizons, Inc. v. Sterling Drug, Inc., 127 A.D.2d 514, 512 N.Y.S.2d 30 (1st Dept. 1987). This principle applies equally to contracts of insurance. See Ogden Corp. v. Travelers Indemnity Co., 681 F. Supp. 169, 173 (S.D.N.Y. 1988); State v. Home Indem. Co., 66 N.Y.2d 669, 495 N YS.2d 969, 486 N.E.2d 827 (1985).

B. Aetna's Duty to Indemnify

Under New York law an insurer's obligation to indemnify arises only when the insurance contract expressly or impliedly creates such a duty. See Smith v. Hooker Chemical and Plastics Corp., 83 A.D.2d 199, 443 N.Y.S.2d 922, 924 (4th Dept. 1981). In examining an insurance contract to determine whether such a duty exists, a court must give the words of the contract their plain and ordinary interpretation; the Court may not modify a contract's terms, nor give its words meaning which the parties did not intend. See In re Ambassador Group, Inc. Litigation, 738 F. Supp. 57, 62 (E.D.N.Y. 1990). If the insured can show that a covered loss has occurred, the burden of proof shifts to the insurer to demonstrate that the loss is expressly excluded from coverage. McCormick and Co., Inc. v. Empire Ins. Group, 878 F.2d 27 (2d Cir. 1989); Sokolowski v. Aetna Life and Casualty Co., 670 F. Supp. 1199 (S.D.N.Y. 1987).

1. Existence of an Occurrence

Aetna argues that the CGL Policy's coverage applies only to losses resulting from an "occurrence" as that term is defined by the CGL Policy. Since Jakobson, according to Aetna, has failed to show damage resulting from an "occurrence," Jakobson has failed to establish that the loss for which it seeks to be indemnified is a covered loss under the CGL Policy. Aetna contends that because Jakobson has failed to carry its burden of establishing that the loss for which it seeks indemnity is a covered loss under the CGL Policy it is entitled to summary judgment as a matter of law. The Court agrees.

The first paragraph of the CGL Policy states in part:

  [Aetna] will pay on behalf of the insured all sums
  which the insured shall become legally obligated
  to pay as damages because of bodily injury or
  property damage to which this insurance applies
  caused by an occurrence, and [Aetna] shall have the
  right and duty to defend any suit against the

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