Gordon Chemical Co. v. Aetna Cas. & Sur. Co.

• Decision Date: 02 February 1971
• Citation: 358 Mass. 632,266 N.E.2d 653
• Parties: GORDON CHEMICAL CO., Inc. & others v. The AETNA CASUALTY AND SURETY COMPANY & Others.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 653

266 N.E.2d 653

358 Mass. 632

GORDON CHEMICAL CO., Inc. & others v. The AETNA CASUALTY AND SURETY COMPANY & Others.

Supreme Judicial Court of Massachusetts, Worcester.

Argued Dec. 9, 1970.

Decided Feb. 2, 1971.

Francis E. Dooley, Jr., Boston, for Factory Ins. Assn.

Francis P. O'Connor, Boston, for Gordon Chemical Co., Inc.

Before TAURO, C.J., and SPALDING, CUTTER, REARDON and QUIRICO, JJ.

SPALDING, Justice.

This is an action of contract to recover for business interruption loss on an insurance policy. It was submitted on a case stated and there was a finding, in the amount of $211,350, for the plaintiff Gordon Chemical Co., Inc. (hereinafter sometimes called the plaintiff) which we treat as an order for judgment. ¹ Shrewsbury v. Murphy, 333 Mass. 290, 291, 130 N.E.2d 559. The defendant ² appealed. G.L. c. 231, § 96.

At all times here material there were in existence between Hammond Plastics, Inc., Gordon Chemical Co., Inc., Gordon Realty Corporation, and the Factor Insurance Association two policies of insurance, as amended by certain endorsements. One of these policies insured real and personal property against the risk of fire and explosion. The plaintiff makes no claim under this policy, full payment thereunder having been made. The other policy insured against business interruption loss. This policy describes the insured as 'Hammond Plastics, Inc. and Gordon Realty Corporation of Worcester and Gordon Chemical Company and Oxgord (sic) Polymers Inc. as their interests may appeal.' The policy covers, for such length of time as would be required, by the exercise of due diligence and dispatch to rubuild and replace the damaged property, the actual loss sustained on the net profits which are prevented from being earned and on the necessarily continuing charges and expenses. The policy also covered payroll expense, which was incurred and would have been earned had no loss occurred, for a period not in excess of ninety days.

On July 20, 1963, real estate which was owned by Gordon Realty Corporation (Gordon Realty), machinery which was owned by Gordon Chemical Co., Inc. (Gordon), and plastic stock which was owned by Hammond Plastics, Inc. (Hammond), all of which were located at 80--92 Webster Street, Worcester, were damaged by fire and explosion. As a direct result thereof, Gordon for fifteen months (from July 20, 1963, through October 20, 1964) was unable to manufacture its product at the Worcester plant. This fifteen month period was required to rebuild, repair and replace the damaged property.

Gordon and Hammond carried on their business in separate plants both of which were located on the same parcel of land. The land and buildings were owned by Gordon Realty. At the time of the fire Gordon's business was the conversion of monomer liquid plastic, which it purchased elsewhere, into polystyrene. It produced crystal polystyrene at its plant in Worcester and it produced high impact polystyrene at its Oxford plant. Gordon sold its entire product to Hammond 'for the purpose of being colored, extruded and manufactured into plastic molding pellets for sale by Hammond.' As a direct result of the interruption of its business Gordon lost net profits and incurred charges and expenses amounting in the aggregate to $211,350.

Management functions of Gordon and Hammond were performed by the same persons. After the fire and explosion they purchased polystyrene on behalf of Hammond from outside sources. If they had chosen to purchase such polystyrene on behalf of Gordon instead of on behalf of Hammond, they could have done so and could have then resold the polystyrene on behalf of Gordon to Hammond. Had this course been pursued, Gordon would have sustained no loss.

During the fifteen month period that Gordon could not operate its plant, Hammond sold its products to virtually the same customers and at the same prices as before the fire. However, its net profit during this period was $239,675 more than that realized during a similar period prior to the fire.

1. The defendant contends that Gordon was obligated under the insurance policy to purchase polystyrene on the open market and resell it to Hammond. It is agreed that no loss would have resulted if Gordon had done this. It is also agreed that the loss suffered by Gordon is covered by the business interruption policy unless the purchase by Gordon of polystyrene from others is one of the activities contemplated by paragraph 5 of the policy.

Paragraph 5 provides: 'It is a condition of this insurance that if the Insured could reduce the loss resulting from the interruption of business, A. by complete or partial resumption of operation of the property herein described, whether damaged or not, or B. by making use of other property at the location(s) described herein or elsewhere, or C. by making use of stock, (raw, in process or finished) at the location(s) described herein or elsewhere, such reduction shall be taken into account in arriving at the amount of loss hereunder.' Paragraph 5 is entitled 'RESUMPTION OF OPERATIONS.' To resume is, of course, to recommence something which has been interrupted. As used in the policy these words mean to recommence the use of the insured property, or to recommence the business of the insured by using the property described in the policy or by using other property in the same way as the described property was used before the fire. The purchase and resale by Gordon of polystyrene from its competitors is not in any sense a resumption of its operation. Gordon was a manufacturer of polystyrene from monomer liquid plastic. The purchase and resale of polystyrene is not a recommencement of manufacturing nor is it a recommencement of the use of its property.

In support of the argument that Gordon was required by the policy to purchase and resell polystyrene, the defendant quotes from National Union Fire Ins. Co. v. Anderson-Prichard Oil Corp., 141 F.2d 443, 445 (10th Cir.), the following: 'the policy (of insurance (Business Interruption)) is designed to do for the insured in the event of business interruption caused by fire, just what the business itself would have done if no interruption had occurred--no more.' No more certainly, but also no less. Gordon was required to continue or to resume manufacture of polystyrene from monomer liquid plastic when and if possible and to sell the product manufactured by it as it would have done if no fire had occurred. However, it was not required to buy from competing manufacturers and resell their product, which it would never have done had no fire occurred. The purpose of the policy is to preserve the continuity of the insured's earnings. The policy does not accomplish that purpose if the insured...