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FOLD-PAK CORP. v. LIBERTY MUT. FIRE INS. CO.

February 7, 1992

FOLD-PAK CORPORATION, Plaintiff,
v.
LIBERTY MUTUAL FIRE INSURANCE COMPANY, Defendant.



The opinion of the court was delivered by: WILLIAM M. SKRETNY

 Defendant Liberty Mutual Fire Insurance Company has moved for summary judgment, or in the alternative, for partial summary judgment, and for an order compelling plaintiff to produce certain documentation. Plaintiff Fold-Pak Corporation has moved for partial summary judgment.

 In support of its motion, defendant submits a memorandum of law with exhibits ("Defendant's memo"); a supplemental memorandum of law with exhibits ("Defendant's second memo"); the affidavit of Sheldon Hurwitz with exhibits, sworn to on January 9, 1991 ("Hurwitz aff."); a supplemental reply affidavit of Sheldon Hurwitz, sworn to on February 28, 1991 ("Second Hurwitz aff."); and the affidavit of Karin Harbour, sworn to on January 8, 1991 ("Harbour aff.").

 In opposition to defendant's motions and in support of its own motion plaintiff submits a memorandum of law ("Plaintiff's memo"); a reply memorandum of law ("Plaintiff's second memo"); the affidavit of William Alper, sworn to on February 6, 1991 ("Alper aff."); the affidavit of Karl DeMay, sworn to on February 8, 1991 ("DeMay aff."); and the affidavit of Jack Slawson, sworn to on February 8, 1991 ("Slawson aff.").

 I also heard oral argument on the motions on March 7, 1991.

 For the reasons discussed below, defendant's motion for summary judgment is denied. Defendant's motion for partial summary judgment is granted. Plaintiff's motion for partial summary judgment is granted in part and denied in part. Defendant's motion to compel production is granted.

 FACTS

 This dispute concerns the interpretation of an insurance policy. Jurisdiction is predicated on diversity.

 Plaintiff manufactures and sells various types of folding food containers. Approximately one-half of its business is the sale of so-called "food pails" typically used in Chinese restaurants to package takeout food. (DeMay aff., para. 2).

 On August 1, 1988, defendant issued plaintiff a "Comprehensive Business Property Policy" (the "Policy") for 1989. The Policy contains a "Loss of Income Endorsement" (the "Endorsement"), which both parties agree governs the propriety of plaintiff's claims for lost income and expenses. A copy of the entire Policy, including the Endorsement, is attached as Exhibit D to the Hurwitz affidavit. The Endorsement extends the coverage of the Policy to include . . . "LOSS OF INCOME, during the period of recovery . . . directly resulting from necessary interruption of the insured's operations . . . caused by physical damage to real or personal property by a peril insured against."

 On April 9, 1989, plaintiff experienced a fire at its Newark, New York plant. (DeMay aff., para. 4). This fire destroyed certain flexology equipment (the "Flexo machine"), which plaintiff used to manufacture food pails. As a result, plaintiff had to use a more expensive process to make food pails. This process is called the "litho" process. (Exhibit F to Hurwitz aff., Section II B). Defendant compensated plaintiff for the loss of the Flexo machine, and advanced it $ 250,000.00 towards its claimed losses recoverable under the Endorsement. (Exhibit H to Hurwitz aff.).

 In December 1989 plaintiff submitted a claim to defendant for $ 4,081,471.00, which it claimed was recoverable as Business Interruption under the Endorsement. *fn1" Of this amount, plaintiff designated $ 1,479,940.00 as "Loss of Production" and $ 2,601,531.00 as "Extra Expenses." The "Extra Expense" claim consists of $ 2,077,984.00 in "Increased Cost of Production," $ 200,250.00 in "Management Expediting Expenses" and various other extra expenses. Defendant did not pay these full amounts. In June 1990, plaintiff commenced this lawsuit, alleging that defendant breached the Policy because it did not pay plaintiff's full claim under the Endorsement. The complaint seeks damages of no less than $ 4,000,000.00. (Complaint, para. 10).

 In its answer to plaintiff's complaint, defendant asserts four affirmative defenses, two of which are relevant to the instant motions. The second defense alleges that plaintiff misrepresented the extent of its loss and, therefore, under paragraph 18 of the Policy, the Policy is void. (Answer, paras. 9-12). The third defense alleges that plaintiff is not entitled to recovery because it failed to cooperate with defendant in violation of paragraph 13 of the Policy. (Answer, paras. 13-15).

 The Instant Motions

 Defendant seeks summary judgment dismissing the complaint in its entirety based on both its second and third affirmative defenses. In the alternative, defendant seeks partial summary judgment striking plaintiff's "Loss of Production" claim in its entirety, limiting plaintiff's "Extra Expense" claim to the actual increased cost of production excluding normal operating expenses that did not reduce the loss, striking plaintiff's claim for management expediting expenses, and reducing plaintiff's claim for waste by the amount of income (not yet determined) plaintiff received from its sale of waste. Defendant further seeks an order compelling plaintiff to produce certain documentation.

 Plaintiff cross-moves for partial summary judgment striking defendant's second and third affirmative defenses. As to the second defense, plaintiff argues that defendant has not produced sufficient evidence to show by clear and convincing evidence that plaintiff misrepresented the extent of its loss. As to the third defense, plaintiff contends it has complied with the defendants requests, and produced thousands of documents. Further, plaintiff opposes defendant's alternative motion for partial summary judgment, arguing that genuine issues of material fact exist regarding the amount it may recover on its claims under the Endorsement.

 DISCUSSION

 Fed R. Civ. P. 56(c) mandates summary judgment when the moving party establishes "that there is no genuine issue as to any material fact and that the moving party is entitled to summary judgment as a matter of law." Where the defendant moves for summary judgment, the plaintiff must make a sufficient showing of each essential element of its case, on which it bears the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). A sufficient showing of an essential element means a showing upon which a reasonable jury could find for the plaintiff. Anderson v. Liberty Lobby, Inc. 477 U.S. 242, 106 S. Ct. 2505, 2512, 91 L. Ed. 2d 202 (1986). A summary judgment motion will not be defeated merely on the basis of conjecture or surmise. Bryant v. Maffucci, 923 F.2d 979, 982 (2nd Cir.), cert. denied, U.S. , 112 S. Ct. 152, 116 L. Ed. 2d 117 (1991). Courts should not be reluctant to grant summary judgment in appropriate cases because "one of the principle purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims" Celotex Corp. v. Catrett, 477 U.S. at 323-324, 106 S. Ct. at 2553, thereby permitting courts to avoid ". . . protracted, expensive and harassing trials." Meiri v. Dacon, 759 F.2d 989, 998 (2nd Cir.), cert. denied, 474 U.S. 829, 106 S. Ct. 91, 88 L. Ed. 2d 74 (1985).

 a. Loss of Production Claim

 Plaintiff seeks to recover $ 1,479,940 under the Endorsement as "Loss of Production." Plaintiff arrives at this figure by estimating that, but for the fire, it would have produced 274,444,000 food pails at its Newark plant between April 10, 1989 and January 15, 1990. This is 35 percent more food pails than it produced during that same period in 1988 and 1989. *fn2" Plaintiff then subtracts from this number the number of food pails it actually did produce at Newark between April 10, 1989 and January 15, 1990: 189,876,000. Thus, plaintiff estimates that the fire prevented it from producing 84,568,000 more pails than it actually produced during the relevant period. If plaintiff sold those additional pails at $ 70.00 per 1000 pails, it would have brought in $ 5,919,760.00. If plaintiff realized a 25 percent profit on that amount, its income on the lost pails would have been $ 1,479,940.00. Accordingly, plaintiff seeks to recover all these profits pursuant to para. B.1 of the Endorsement which states, in relevant part:

 In determining LOSS OF INCOME, due consideration shall be given to the experience before the date of the damage or destruction and the probable experience thereafter had no loss occurred.

 Despite plaintiff's calculation of lost profits, I find that plaintiff has failed to show that this alleged 84,568,000 pail shortfall, even if it was caused by the fire, caused any loss of income. Plaintiff's president Karl DeMay relates that after the fire occurred and the Flexo machine was destroyed, plaintiff immediately began utilizing the litho process to make food pails. (DeMay aff., para. 15). Further, in June 1989, plaintiff installed a used Flexo machine at its Newark facility to replace the machine that was destroyed by the fire (DeMay aff., para. 16). Plaintiff used this replacement machine throughout the period of the claim, although it did not operate at peak efficiency (DeMay aff., paras. 16-17). Although there is no dispute that these measures were more expensive, Mr. DeMay admits that plaintiff ". . . managed to satisfy all food pail orders. . . ." (DeMay aff., para. 17). *fn3" Mr. DeMay also testified at his examination under oath that plaintiff had no difficulty keeping up with the orders it had from its customers:

 Q. Were you meeting the needs of your customers in '89?

 A. [Mr. DeMay] Yes.

 Q. You don't have any documents to show that you couldn't satisfy the needs of your customers in '89, do you?

 A. No.

 Q. Then you don't claim, sir -- Mr. DeMay, then you don't claim, sir, that you lost any sales to customers as a result of this fire?

 A. I'm going to qualify that. We don't claim -- to my knowledge, the claim does not tell you that we lost any sales except that we feel that with the conditions, that we maybe could have gotten more.

 (Exhibit I to Hurwitz aff., at 125-127).

 Likewise, Robert Mullally, plaintiff's vice president of sales and marketing testified:

 Q. If there were customers who were not being shipped the products they ordered, would that come to your ...


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