National Union Fire of Pittsburgh v. Travelers
| Decision Date | 19 July 2002 |
| Docket Number | No. 01 Civ. 3183(WCC).,01 Civ. 3183(WCC). |
| Parties | NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA, Plaintiff, v. The TRAVELERS INDEMNITY COMPANY, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Law Offices of Robert G. Mazeau, New York City, James J. Bonicos, of counsel, for plaintiff.
Robinson & Cole, LLP, Hartford, CT, Stephen E. Goldman, of counsel, for defendant.
Plaintiff National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National Union") brings the instant action against defendant The Travelers Indemnity Company ("Travelers") seeking indemnity under a reinsurance contract. Both parties now move for summary judgment pursuant to FED.R.CIV.P. 56. For the reasons that follow, National Union's motion for summary judgment is granted and Travelers' cross-motion for summary judgment is denied.
The following facts are undisputed unless otherwise noted.1 National Union issued a property insurance policy to Integrated Packaging Corporation ("Integrated Packaging"), a paper carton manufacturer, for the term August 30, 1997 to March 31, 1999 (the "National Union policy"). (Def.Rule 56.1 Stmt. ¶ 1.) The National Union policy provides "all-risk" coverage to Integrated Packaging subject to certain exclusions. The risks excluded from coverage are outlined in a form entitled "Causes of Loss — Special Form" which provides, in part:
A. COVERED CAUSES OF LOSS
When Special is shown in the Declarations, Covered Causes of Loss means RISKS OF DIRECT PHYSICAL LOSS unless the loss is:
1. Excluded in Section B., Exclusions; or
2. Limited in Section C.; Limitations.
(Def.Mem.Supp.Summ.J., Ex. A at 17.)2 The categories of property covered by the "all-risk" policy are listed in the Building and Personal Property Coverage Form ("B & P Coverage Form"), which states:
A. Coverage
We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.
(Id., Ex. A at 8.) In the list of property not covered, the B & P Coverage Form includes a so-called "excess clause".3 The excess clause provides that "Covered Property does not include: (k) Property that is covered under another coverage form of this or any other policy in which it is more specifically described, except for the excess of the amount due (whether you can collect it or not) from that other insurance." (Id., Ex. A at 9 ¶ A(2)(k).) The National Union policy also includes a Boiler and Machinery Endorsement ("B & M Endorsement") that provides coverage for certain specified causes of loss which would otherwise be excluded under the property coverage form. (Id. at 6.) The B & M Endorsement provides:
1. Insuring Agreement
Subject to all the provisions stated herein and in the Policy to which this Endorsement is part, not in conflict herewith, the Company shall be liable for:
a. direct physical loss to property of the Insured and to property of others in the care, custody or control of the Insured; and
b. the loss and expense resulting from the necessary interruption of business all as resulting from an "Accident" to an "Object;" and
c. extra expense to run the business; and
d. spoilage.
all as resulting from an "Accident" to an "Object."
(Id., Ex. A at 42.) The B & M Endorsement defines the terms "Accident" and "Object" as follows:
6. Definitions
A. "Accident" means a sudden and accidental breakdown of an "Object" or part of the "Object." At the time the breakdown occurs, it must become apparent, by physical damage that necessitates repair or replacement.
B. "Object" shall mean:
(1) any boiler, fired or unfired pressure;
(2) refrigeration or air conditioning system;
(3) piping and its accessory equipment; and
(4) any mechanical or electrical machine or apparatus used for the generation, transmission or utilization of mechanical or electrical power
that you own, is in your care, custody or control and for which you are liable while at a covered location.
(Id., Ex. A at 44.) The B & M Endorsement covers only losses that are not otherwise covered under the National Union policy. This is made clear by a provision of the B & M Endorsement that excludes coverage for losses resulting from "a peril insured elsewhere under this Policy." (Id., Ex. A at 46 ¶ (13).)
Travelers entered an agreement with National Union to reinsure National Union's liability under the B & M Endorsement (the "reinsurance contract"). Reinsurance is a contractual agreement in which one insurer (the ceding insurer) transfers all or a portion of the risk it underwrites to another insurer (the reinsurer). BARRY R. OSTRAGER & THOMAS R. NEWMAN, HANDBOOK ON INSURANCE COVERAGE DISPUTES § 15.01[a] (10th ed.2000) [hereinafter OSTRAGER & NEWMAN] (citing Colonial Am. Life Ins. Co. v. Commissioner, 491 U.S. 244, 109 S.Ct. 2408, 105 L.Ed.2d 199 (1989)). The reinsurer agrees to indemnify the ceding insurer for any liability incurred that is covered by the reinsurance. Id. Reinsurance allows an insurer to spread risks among a larger pool of insurers and permits a reduction in the amount of reserves the insurer would otherwise be required to maintain. Id. § 15.01[b]. In order to set the terms of the reinsurance agreement, Travelers issued National Union a Boiler & Machinery Reinsurance Certificate (the "Reinsurance Certificate") which provides, inter alia, that Travelers liability is limited to National Union's liability under B & M Endorsement:
1. Reinsurer's Liability
The Reinsurer's Liability under this [Reinsurance Certificate] shall follow [National Union's] in accordance with the terms and conditions of the policy reinsured hereunder except with respect to those terms and/or conditions as may be nonconcurrent with the terms of this Certificate.... The retention of [National Union] and liability of the Reinsurer shall be determined as though [National Union's policy] applied only to Boiler Machinery exposures.
(Def.Mem.Supp.Summ.J., Ex. B at 3.)
On September 27, 1997, an off-premises power transformer supplying electricity to Integrated Packaging malfunctioned causing a power surge. (Def.Rule 56.1 Stmt. ¶ 4.) National Union and Travelers disagree over the cause of the transformer's malfunction. According to Travelers, vandalism caused the damage to the transformer. National Union, however, disputes Travelers' contention that the transformer's malfunction resulted from vandalism. Both parties have submitted statements from experts in support of their respective positions.4 The power surge from the transformer caused small fires and resulting damage to various electrical fixtures and components throughout Integrated Packaging's plant, requiring repair and replacement. (Def.Rule 56.1 Stmt. ¶ 4.) Consequently, Integrated Packaging made a claim to National Union for property damage and business interruption losses (the "Integrated Packaging claim") which National Union has since reimbursed. (Complt. ¶¶ 13, 14.)
After National Union presented the Integrated Packaging claim to Travelers for indemnification, Travelers had David LaPointe, a private adjuster, investigate the loss to determine whether coverage existed under the B & M Endorsement. (Pl. Mem.Supp.Summ.J. at 3.) In a letter dated September 9, 1998, LaPointe concluded that because the cause of the loss was vandalism, and vandalism was not excluded under National Union's "all-risk" coverage, the loss was caused by a "peril insured elsewhere" in the National Union policy and thus excluded under the B & M Endorsement. (Id., Ex. C.) This action followed.
Under FED.R.CIV.P. 56, summary judgment may be granted where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. See FED.R.CIV.P. 56(c); Anderson v. Liberty Lobby, 477 U.S. 242, 247-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The burden rests on the movant to demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine factual issue exists if there is sufficient evidence favoring the nonmovant for a reasonable jury to return a verdict in his favor. Anderson, 477 U.S. at 248, 106 S.Ct. 2505. In deciding whether summary judgment is appropriate, the court resolves all ambiguities and draws all permissible factual inferences against the movant. See id. at 255, 106 S.Ct. 2505. To defeat summary judgment, the non-movant must go beyond the pleadings and "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The court's role at this stage of the litigation is not to decide issues of material fact, but to discern whether any exist. See Gallo v. Prudential Residential Servs., L.P., 22 F.3d 1219, 1224 (2d Cir.1994).
The reinsurance contract at issue here does not specify a governing law for contract interpretation. Accordingly, as a federal court sitting in diversity, we must apply the choice of law rules of New York, the state in which this action was brought. See Arkwright-Boston Mfrs. Mut. Ins. Co. v. Calvert Fire Ins. Co., 887 F.2d 437, 439 (2d Cir.1989). "New York courts apply an `interest analysis' to choice of law issues involving contractual disputes and, therefore, the law of the jurisdiction having the greatest interest in the litigation will be applied." Id. (citations and quotations omitted).
We conclude that New York has the greatest interest in the resolution of this dispute. National Union is a New York corporation seeking recovery under the reinsurance contract. Furthermore, the reinsurance contract was negotiated and entered into in New York. (Pl.Mem. Opp.Summ.J. at 1.) Travelers' argument that...
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