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TUFO'S WHOLESALE DAIRY, INC. v. CNA FINANCIAL CORP.

April 1, 2005.

TUFO'S WHOLESALE DAIRY, INC., Plaintiff,
v.
CNA FINANCIAL CORP., Defendant.



The opinion of the court was delivered by: JOHN KEENAN, Senior District Judge

OPINION AND ORDER

Before the Court is the motion of defendant CNA Financial Corp. ("CNA") for summary judgment against plaintiff Tufo's Wholesale Dairy, Inc. ("Tufo"). For the reasons that follow, defendant's motion is granted in part and denied in part.

  Facts

  The following is a summary of the parties' "Agreed Statement of Undisputed Material Facts."

  Tufo operates a wholesale food company in Bronx County, New York, that sells, among other items, dairy products. Tufo purchased a policy of insurance ("policy") from CNA's subsidiary, Continental Casualty Company, providing coverage for the period of November 3, 2002, to November 3, 2003.

  On August 14, 2003, an electrical power outage (hereinafter referred to as the "blackout") covered the east coast of the United States, extending to the Midwest as far as Ohio. Before the blackout occurred, Tufo's electrical supplier, Consolidated Edison Company ("Con Ed") was experiencing normal system operations. Just before 4:11 p.m., voltage on the Con Ed system began fluctuating and declining and frequency began to drop. Low system frequency triggered sensors which caused the functioning of safety and protective devices that activated an automatic, four-step under-frequency load shedding program disconnecting approximately 50% of Con Ed's load. The voltage continued to fluctuate and did not recover. There was a loss of generation and transmission and the function of safety and protective devices shut down the system very quickly. The Con Ed system shut down was not caused by physical damage to Con Ed equipment.

  Tufo's refrigeration units consequently lost electrical power until August 15, 2003. As a result, Tufo's dairy products spoiled and had to be discarded.

  Other than the spoiled dairy products, there was no physical damage to property owned by Tufo, including its refrigeration units, that necessitated repair or replacement as a result of the blackout. Once power was restored, Tufo's refrigeration units were turned on and operated normally.

  Procedural History

  After filing its insurance claim with defendant and being denied coverage, plaintiff filed the instant action in the Supreme Court, Bronx County, as a class action, alleging breach of contract and unfair claim settlement practices, and demanding damages exceeding $100 million plus punitive damages. Defendant, a Delaware corporation with its principal place of business in Illinois, removed the action to this court. In the interest of expediency, the parties, in a Civil Case Scheduling Order dated March 17, 2004, agreed that plaintiff's motion for class certification would be stayed pending the outcome of defendant's summary judgment motion. In its summary judgment motion, defendant argues principally that plaintiff cannot prove that it meets the requirements for triggering coverage under the policy. Specifically, defendant argues that, according to the policy, plaintiff's loss of inventory resulting from the blackout is not a covered loss. Plaintiff principally contends that the contract is ambiguous and illusory and that "a reasonable business person" would have believed that the policy covered losses due to the blackout.

  Defendant also argues that plaintiff's second cause of action for unfair claim settlement practices should be dismissed because no private cause of action for such a claim exists.

  The parties do not dispute that New York law applies to the interpretation of the provisions of the policy, which are summarized below.

  Policy Provisions

  The following is a summary of the relevant provisions of Tufo's policy. A copy of the complete policy is included as Exhibit A to the Affirmation ...


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