United States District Court, S.D. New York
April 1, 2005.
TUFO'S WHOLESALE DAIRY, INC., Plaintiff,
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.
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.
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
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
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
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
(2) At a "location" specified in the Consequential
(3) In use or connected ready for use.
In addition, the Consequential Damage Endorsement contains the
1. All the exclusions of the Boiler and Machinery
Coverage Form apply to loss and expense under this
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
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
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.
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
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.
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
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