The opinion of the court was delivered by: Kram, District Judge.
MEMORANDUM OPINION AND ORDER
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.
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
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