United States District Court, S.D. New York
U.S. SPECIALITY INSURANCE COMPANY, Plaintiff,
CATALENT, INC., Defendant.
the Plaintiff: Jeffrey S. Weinstein Emilie Bakal-Caplan Sara
F. Lilling Mound Cotton Wollan & Greengrass LLP.
the Defendant: Elizabeth A. Edmondson Jenner & Block LLP
John H. Mathias, Jr. David M. Kroeger Jenner & Block LLP.
OPINION AND ORDER
COTE United States District Judge.
declaratory judgment action arises out of an insurance claim
filed by the defendant Catalent, Inc.
(“Catalent”) for financial losses it sustained
during a government-mandated suspension of manufacturing at
Catalent's softgel manufacturing facility in Beinheim,
France. A five month suspension of operations followed the
discovery of softgel capsules “out-of-place” in
the manufacturing facility. U.S. Specialty Insurance Company
(“USSIC”) denied coverage and filed the instant
action seeking a declaration that there is no coverage under
the insurance policy (the “Policy”).
parties have cross-moved under Rule 12(c) for judgment on the
pleadings based on their competing readings of the Policy
terms. They agree that the financial damage to Catalent
caused by the suspension of manufacturing is not a defined
“LOSS” under the Policy. Catalent, however,
proffers several arguments in favor of finding coverage. For
the reasons that follow, USSIC's motion is granted.
issued a “Special Coverages Policy” to Catalent
effective June 9, 2014 to June 30, 2017. On January 4, 2016,
Catalent submitted an initial notification of a claim under
the Policy for business interruption losses.
Leading to Suspension of Operations
January and October of 2015,  Catalent's manufacturing
facility in Beinhem, France detected several instances of
“out-of-place” capsules during the execution of
its quality control procedures,  including incidents in which
a capsule from one batch of product was found in another
product batch, as well as instances of capsules found on an
empty shelf or the floor. In particular, Andriol capsules,
which are normally processed on a dedicated line, were found
in groupings of other capsules. Catalent concluded that the
incidents could be due to deliberate, malicious acts. Because
of the contaminations, the National Agency for the Safety of
Medicines and Health Products (“ANSM”), the
primary French pharmaceutical regulatory agency, suspended
operations at Catalent's manufacturing facility on
November 13, 2015.
parties disagree as to whether ANSM concluded that these
contaminations could be considered malicious in
nature or were malicious in nature. The person or
persons that may have caused the contaminations have not been
identified. ANSM lifted the suspension on manufacturing on
April 28, 2016.
sustained losses in excess of $10, 000, 000 related to the
five-month suspension in manufacturing. Catalent never
received a written or oral demand for money related to the
contamination and admits that it has not identified a
“sum of monies or the monetary value of any other
consideration surrendered by or on behalf of the INSURED as
an extortion payment” arising from these events.
Policy is organized into three sections. Section I includes a
Declarations page and several endorsements that add coverage
to the Policy. The Declarations page states that
“insurance afforded is only with respect to such of the
hazard parts and coverages indicated below.” Below is
listed: “Hazard Applicable: 1, 2, 3, 4.” The
“Limit of Liability” for “Each Loss”
is $10, 000, 000. Section I also contains Endorsements 5
& 6, which amend Section III, paragraph 6, and are
II, titled “LOSS DEFINED AND SCOPE OF COVERAGE, ”
begins with a preamble:
The Company hereby agrees, subject to the terms, limitations
and conditions set forth herein, to indemnify the Named
Insured specified in Item 1 of the Declarations for LOSS (as
II then sets out descriptions of Hazards 1, 2, and 3, which
are for “Kidnap/Ransom, ” “Extortion Bodily
Injury, ” and “Detention, ” respectively.
The following paragraph defines “LOSS” for
Hazards 1 and 2, and separately for Hazard 3. The next page,
titled “EXTORTION PROPERTY DAMAGE, ” sets out
Hazard 4. It is Hazard 4 that is at issue here.
4 covers extortion payments. It reads:
OF HAZARD 4
4. Extortion Property Damage:
by reason of the receipt of a threat, communicated directly
or indirectly to the INSURED to cause physical damage or loss