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IMPERIAL RESOURCE RECOVERY ASSOCS., L.P. v. ALLEND

March 14, 1995

IMPERIAL RESOURCE RECOVERY ASSOCIATES, L.P., WESTERN POWER GROUP UNIT II, INCORPORATED, HCE-IMPERIAL VALLEY, INC., HYDRA-CO ENTERPRISES, INC., Plaintiffs,
v.
ALLENDALE MUTUAL INSURANCE COMPANY, AFFILIATED FM INSURANCE COMPANY, Defendants.


FREDERICK J. SCULLIN, JR., U.S. DISTRICT JUDGE


The opinion of the court was delivered by: FREDERICK J. SCULLIN, JR.

This is an insurance coverage dispute involving three fires that destroyed "organic fuel", primarily straw, during the construction of a California power production facility in the summer of 1990. Plaintiffs filed this action on March 5, 1992 in the Supreme Court for Onondaga County and the out-of-state defendant removed it to this court on May 19, 1992. Jurisdiction is based on diversity, and New York's choice of law rule requires that California law govern this matter. The case is presently before the court on defendants' motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil of Procedure. Defendants argue that summary judgment is appropriate because plaintiffs' action was time-barred by the policy's suit limitation clause and, in the alternative, that the damaged property was not insured under the policy in question. For the reasons stated below, the defendants' motion is granted.

 BACKGROUND

 The Parties

 There are four plaintiffs. Imperial Resource Recovery Associates ("Imperial") is a California limited partnership with offices in Syracuse. On June 17, 1988, Imperial contracted with National Energy Production Corporation ("NEPSCO"), which is not a party to this action, to construct a biomass power production facility in Imperial Valley, California. In this enterprise, Imperial had three general partners, who are the other three plaintiffs in the instant case: Western Power Group Unit II, a California corporation with an office in Newport Beach, California; HCE-Imperial Valley, Inc., a New York corporation with an office in Syracuse; and Hydra-Co Enterprises, Inc., also a New York corporation with an office in Syracuse.

 The Imperial-NEPSCO Contract

 Article 8.1.1(d) of Imperial-NEPSCO contract required NEPSCO to obtain and maintain a Builder's Risk Insurance Policy with Imperial and its three partners as additional named insureds. NEPSCO also was to maintain the policy at its cost from the date of the Notice to Proceed through the Completion Date and care and custody of the facility was to remain with NEPSCO until the completion date. Completion was to be determined, at least in part, by start-up and testing, for which Imperial was to provide the performance fuel. Pursuant to this agreement, NEPSCO obtained an insurance policy with defendant Affiliated FM Insurance Co. ("Affiliated"). Defendant Allendale Mutual Insurance Co. is Affiliated's parent corporation.

 The Affiliated Policy

 The Affiliated insurance policy defined "property insured" as, inter alia, "materials and supplies of all kinds and temporary structures incidental to the construction of said building(s) or structure(s)." Demore Aff. Ex. B, p.18. The policy also insured "all materials, equipment, machinery and supplies which have been specifically designated for use in the construction" of the facility. Id. Additionally, the policy contained a suits limitations provision, which provided that

 
no suit, action or proceeding for the recovery of any claim under this Policy shall be sustainable in any court of law or equity unless the Insured shall have fully complied with all the requirements of this Policy, nor unless the same be commenced within twelve (12) months next after discovery by the Insured of the occurrence which gives rise to the claim . . . .

 The stated liability limits were $ 30,000,000 with each property damage claim subject to a $ 25,000 deductible.

 The Policy Claim

 On June 13, July 13, and July 28, 1990, three separate fires occurred at the still uncompleted facility, while it was under NEPSCO's care and custody. These fires were deemed to be caused by spontaneous combustion and resulted in the destruction of organic fuel (straw) that was present at the site. On August 8, 1990, plaintiffs gave written notice. to Affiliated and NEPSCO of the damages it sustained as a result of each of these fires.

 On November 5, 1990, Affiliated Senior Adjuster Norman Schurr wrote to Joseph Meaney, a risk manager at Hydro-Co, regarding plaintiffs' claims for coverage under the ...


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