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

United States District Court, S.D. New York


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 of Charles J. Rocco dated April 7, 2004.

  Tufo's policy, a "Boiler and Machinery Insurance Policy" included a "Consequential Damages Endorsement" and a "Utility Interruption Endorsement." The policy required, for plaintiff to establish coverage, an "accident" to an "object" as defined in the policy. "Accident" is defined as follows: 1. "Accident" means a sudden and accidental breakdown of the "object" or a part of the "object." At the time the breakdown occurs, it must manifest itself by physical damage to the "object" that necessitates repair or replacement.

  None of the following is an "accident":

a. Depletion, deterioration, corrosion or erosion;
b. Wear and tear;
c. Leakage at any valve, fitting, shaft seal, gland packing, joint or connection;
d. Breakdown of any vacuum tube, gas tube or brush;
e. Breakdown of any electronic computer or electronic data processing equipment;
f. Breakdown of any structure or foundation supporting the "object" or any of its parts; or
g. The functioning of any safety or protective device.
  The definition of "object" includes boilers, fired vessels, "apparatus used for the generation, transmission or utilization of mechanical or electrical power," and certain tanks "used with an `object.'"

  The Consequential Damages Endorsement, which covers "food solely in storage dependent upon cold or heat," also requires an "accident" to an "object" under the following circumstances:

a. The "accident" must occur during the time this coverage is in force;
b. The "object" that has the "accident" must be:
(1) Specified as covered in the Consequential Damage Schedule; and
(2) At a "location" specified in the Consequential Damage Schedule;
(3) In use or connected ready for use.
  In addition, the Consequential Damage Endorsement contains the following exclusion:

 

1. All the exclusions of the Boiler and Machinery Coverage Form apply to loss and expense under this endorsement except:
Lack of power, light, heat, steam or refrigeration.
  The Utility Interruption Endorsement, which covers certain types of loss due to the failure of a utility, contains the following language:

 

1. The coverage provided . . . is extended to include an "accident" to an "object," whether or not at the location specified . . ., that is:
1. Owned, operated or controlled by a public or private utility that you have contracted with to furnish you the utility service specified above; and
2. Of a type defined in the Object Definition Endorsement(s) specified above.
  The Utility Interruption Endorsement also contains the following exclusion:

  We will not pay for loss caused by or resulting from:

. . . .
13. A deliberate act or acts by the supplying utility to shed load to maintain system integrity.
Discussion
1. Summary Judgment Standards
  A motion for summary judgment may be granted under Rule 56 of the Federal Rules of Civil Procedure if the entire record demonstrates that "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). When viewing the evidence, the Court must "assess the record in the light most favorable to the non-movant and . . . draw all reasonable inferences in its favor." Delaware & Hudson Ry. Co. v. Consol. Rail Corp., 902 F.2d 174, 177 (2d Cir. 1990); see McLee v. Chrysler Corp., 109 F.3d 130, 134 (2d Cir. 1997); see also Anderson, 477 U.S. at 255. "[A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249. "[T]he plaintiff, to survive the defendant's motion, need only present evidence from which a jury might return a verdict in his favor. If he does so, there is a genuine issue of fact that requires a trial." Id. at 257.

  2. Insurance Contract Interpretation

  "Where the terms of an insurance policy are clear and unambiguous, they should be given their plain and ordinary meaning, and courts should refrain from rewriting the agreement." Matter of Ideal Mut. Ins. Co., 659 N.Y.S.2d 273, 275 (1st Dep't 1997) (citation omitted). On the other hand, when the terms of an insurance policy are ambiguous, New York courts adhere to the "general rule that ambiguities in an insurance policy are to be construed against the insurer, particularly when found in an exclusionary clause." Breed v. Ins. Co. of N. America, 413 N.Y.S.2d 352, 354 (N.Y. 1978) (citation omitted). In resolving ambiguities, courts consider the reasonable expectation of the business person who purchased the contract. DeForte v. Allstate Ins. Co., 442 N.Y.S.2d 307, 309 (4th Dep't 1981); see Rocon Mfg., Inc. v. Ferraro, 605 N.Y.S.2d 591, 592 (4th Dep't 1993).

  In the context of an insurance policy, "accident" is a multifaceted term that should not be given a narrow, technical definition. Instead, its construction should comport with the understanding of the average person or, in the case of an insurance policy issued to a business, the reasonable expectation of the ordinary business person. Michaels v. City of Buffalo, 628 N.Y.S.2d 253, 254 (N.Y. 1995). Any unexpected event is not necessarily an "accident." New York Courts have focused, rather, on whether the event was "catastrophic or extraordinary." Michaels, 628 N.Y.S.2d at 255.

  3. Application

  This Court finds that ambiguities exist in the policy that preclude summary judgment. The following discussion focuses on two examples of ambiguity and is not intended to be exhaustive.

  First, CNA's attempt to define "accident" through use of the term "accidental" is tautological. Indeed, it is a logical absurdity. A definition that defines by use of the word defined inherently creates ambiguity. Second, the exception to the exclusion in the Consequential Damage Endorsement, quoted above, is unclear. Ambiguity exists as to whether a "[l]ack of power, light, heat, steam or refrigeration" would or would not trigger coverage. Third, the exclusion to the Utility Interruption Endorsement, quoted supra at page 5, although seeming to strengthen CNA's argument that coverage under the policy has not been triggered, only adds to the ambiguity when considered in the context of the policy as a whole.

  Because of these ambiguities, and because resolution of ambiguities requires consideration of the reasonable expectations of the parties, summary judgment is not appropriate. Defendant's motion as to plaintiff's claim of breach of insurance policy contract is, therefore, denied.

  Unfair Claim Settlement Practices

  Defendant asserts that, under New York law, plaintiff's claim for unfair claim settlement practices fails because no private cause of action for such claims exists. Plaintiff, however, does not address defendant's argument on this issue in its Memorandum of Law. Therefore, the Court deems plaintiff to have abandoned this cause of action, and defendant's motion for summary judgment is, accordingly, granted with respect to plaintiff's second cause of action. Conclusion

  For the reasons given, defendant's motion for summary judgment is granted in part and denied in part. The parties are to appear before the court on May 23, 2005 at 9:45 a.m. for a scheduling conference.

  SO ORDERED.

20050401

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