Pennbarr Corp. v. Insurance Co. of North America
| Decision Date | 21 October 1992 |
| Docket Number | 91-5608 and 91-5642,Nos. 91-5607,s. 91-5607 |
| Citation | 976 F.2d 145 |
| Parties | PENNBARR CORP.; Kilbarr Corp., Appellants in 91-5607, v. INSURANCE COMPANY OF NORTH AMERICA, Appellant in 91-5608. PENNBARR CORP.; Kilbarr Corp. v. INSURANCE COMPANY of NORTH AMERICA, Pennbarr Corporation and Kilbarr Corporation, formerly Remington Rand Corporation-New Jersey and Remington Rand Corporation-Delaware, Appellants in 91-5642. |
| Court | U.S. Court of Appeals — Third Circuit |
Andrew F. Napoli (argued), Manchel, Lundy & Lessin, Philadelphia, Pa., for Pennbarr Corp. and Kilbarr Corp.
Michael J. Izzo, Jr. (argued), Cozen & O'Connor, Philadelphia, Pa., for Insurance Co. of North America.
Before: BECKER, ROTH, and HIGGINBOTHAM, Circuit Judges.
This appeal requires us to interpret the indemnity period of a business interruption insurance policy. Appellees, Remington Rand Corporation, Delaware, and its wholly owned subsidiary Remington Rand Corporation, New Jersey, (collectively "Remington") 1 brought suit against appellant, the Insurance Company of North America ("INA"), for recovery of lost profits and royalties allegedly due and owing under a business interruption insurance policy procured from INA in December of 1979. The case was tried before a jury, and a verdict was rendered in favor of Remington. INA appeals the district court's denial of its pre-trial motion for summary judgment, arguing that as a matter of law Remington's alleged lost profits were not covered under the clear policy language. 2 We agree and
will reverse the district court's summary judgment decision.
During 1980 and 1981 Remington Rand New Jersey was in the business of selling electromechanical typewriters, under the Remington Rand logo, to a network of dealers, government entities, and other customers. Remington Rand Delaware, as the parent company, collected royalties on the sale and production of these typewriters. The Remington companies also included two wholly owned subsidiaries: Remington Rand Business Systems B.V., in DenBosch, Holland, and Remington Systems Italiana, S.P.A., in Naples, Italy. All typewriters sold by Remington New Jersey were manufactured at these two sites: the Naples plant produced virtually all typewriters sold in Remington's North American market, while the DenBosch plant produced typewriters for sale in Remington's other markets.
The business interruption insurance policy at issue in this case was negotiated with INA on Remington's behalf by Remington's broker and insurance consultant. The parties agree that the goal of these negotiations was to create an insurance program covering all of the related Remington companies, including the Italian and Dutch subsidiaries. The negotiations culminated in Remington's purchase of a policy of business interruption insurance from INA for a one-year period ending December 1, 1980, with a liability limit of two million dollars. This policy was later renewed for one additional year, with an increased liability limit of six million dollars.
The relevant terms of that policy are as follows:
II. COVERAGE
1. Subject to all of its provisions and stipulations, this policy covers only against loss resulting directly from necessary interruption of business conducted by/or through the insureds' U.S. sales operations caused by damage to or destruction of any of the real or personal property (including finished stock) hereinafter described and referred to as contributing properties (and/or arising out of inability of one contributing property to produce due to destruction/damage/loss to or at another contributing property) by the perils insured against by the terms of this policy which wholly or partially prevents the delivery of materials (including finished stock) to the insured or to others for the account of the insured and results directly in the necessary interruption of the insureds' business.
2. The Company shall be liable for the ACTUAL LOSS SUSTAINED by the Insured resulting directly from such interruption of business, but not exceeding the reduction of Gross Earnings less charges and expenses which do not necessarily continue during the interruption of business, for only such time as would be required with the exercise of due diligence and dispatch to rebuild, repair or replace such contributing properties as has been damaged or destroyed, commencing with the dates of such interruption of the Insured's business and not limited by the expiration date of this policy. Due consideration shall be given to the continuation of normal charges and expenses, including payroll expense, to the extent necessary to resume operations of the Insured with the same quality of service which existed immediately preceding the loss.
3. by making use of any other available source of materials such reduction shall be taken into account in arriving at the amount of loss hereunder.
(emphasis added). Both foreign subsidiaries are listed in the policy as contributing properties. Though one policy was initially contemplated to provide business interruption insurance for all Remington properties, it was necessary in order to comply with foreign law to draft separate policies for the foreign subsidiaries. Separate policies issued to the Italian and Dutch subsidiaries provided property and business interruption coverage identical to that in the United States. This case, however, does not involve any claim for reimbursement under these separate policies.
Remington's business interruption claim arose out of damage caused by two earthquakes that struck Naples, Italy, in November of 1980 and January of 1981. 3 First, on November 23, 1980, an earthquake damaged Remington's Naples subsidiary. Though the parties dispute the extent of damage, they agree that typewriter production ceased for five working days. After the Naples facility resumed manufacturing on December 2, 1980, production continued through January 9, 1981, when a second earthquake again stopped operations. Repairs to the plant were completed, and production resumed, on February 17, 1981.
On March 25, 1981, the Naples subsidiary was closed as a result of an Italian bankruptcy proceeding that was not related in any way to the earthquakes. As a consequence, Remington lost all control over, and received no more typewriters from, its Italian plant. Almost concurrently, Remington's Holland plant went into bankruptcy and ceased shipping typewriters. Remington's United States companies also filed for bankruptcy under Chapter 11 of the Bankruptcy Code. After the bankruptcy of its European subsidiaries, Remington was not able to locate alternative typewriter production facilities. As a result, the company went into a passive marketing mode in an effort to stretch its inventory until it could switch to an alternative product. Remington, however, was able to acquire approximately 14,500 typewriters from an outside source between September and November of 1981. The company reorganized in December of that year and changed its product to an electronic typewriter.
Remington subsequently filed a claim under its business interruption insurance policy for the recovery of lost profits and royalties suffered as a consequence of the two Italian earthquakes. In calculating its damages, Remington claimed a loss of sales equal to the production lost as a consequence of the earthquakes, approximately 14,900 typewriters. However, the claim did not allege that the loss was incurred during the actual period that its Naples subsidiary was inoperative as a result of earthquake damage. Instead, Remington asserted that its loss occurred during any three-month period between May of 1981 and June of 1982: according to Remington, it could have sold the 14,900 typewriters that were not produced because of the earthquakes at any point during that period because by that time its inventory was depleted and it could not meet its ordinary sales obligations. 4 INA denied coverage of these losses under the business interruption policy on the grounds that only losses incurred simultaneously with an interruption of business came within the clear language of the policy's indemnity period.
On November 20, 1981, Remington instituted an action against INA in the United States Bankruptcy Court for the District of New Jersey, seeking recovery under the business interruption insurance policy of earnings and royalties allegedly lost as a result of the earthquakes. Remington INA moved for summary judgment in April of 1986, arguing that, as a matter of law, under the clear language of the policy Remington could not recover the losses it claimed because they fell outside of the policy's indemnity period. The district court denied INA's motion, reasoning that there was a material issue of fact for trial because the language establishing the indemnity period was ambiguous. The court anchored this finding of ambiguity on what it deemed the unique nature of Remington's typewriter business: a long production pipeline and shipping time which resulted in a significant lag time between production and sales and necessitated the maintenance of a substantial inventory. Because Remington's business was the sale of typewriters, the court agreed with Remington that it was possible to read the policy's phrase "interruption of the Insured's business" as meaning "interruption of the sale of typewriters." This alternative interpretation rendered the indemnity period of the policy capable of...
To continue reading
Request your trial
-
Seidenberg v. Mutual Life Ins. Co. of New York
...Mach. Corp. of Am., Inc. v. AlliedSignal, Inc., 81 F.3d 328, 332 (3d Cir.1996) (citations omitted); Pennbarr Corp. v. Insurance Co. of North America, 976 F.2d 145, 151 (3d Cir.1992) (citing Tigg Corp., 822 F.2d at 362); Kaufman, 828 F.Supp. at 283; Air Master Sales Co., 748 F.Supp. at 1115;......
-
Pittston Co. v. Allianz Ins. Co.
...Co. of Reading, Pa. v. Continisio, 819 F.Supp. 385, 396 (D.N.J.1993), aff'd, 17 F.3d 62 (3d Cir.1994); Pennbarr Corp. v. Insurance Co. of N. Am., 976 F.2d 145, 151 (3d. Cir.1992). The determination of whether ambiguity exists is the first step in examining an insurance contract. "When the t......
-
Oglesby v. Penn Mut. Life Ins. Co., Civ. A. No. 93-224 MMS.
...process; first, the court determines whether the contractual language is ambiguous as a matter of law. Pennbarr Corp. v. Insurance Co. of North America, 976 F.2d 145, 149-50 (3d Cir.1992). If the Court finds as a matter of law that a contract is ambiguous, the fact finder must then determin......
-
Dictiomatic, Inc. v. U.S. Fid. & Guar. Co., 93-2123-CIV.
...lost sales or business during the periods when the business premises and business property were not functioning. Pennbarr Corp. v. INA, 976 F.2d 145 (3rd Cir.1992); Rogers v. American Ins. Co., 338 F.2d 240 (8th Cir.1964); Boyd Motors, Inc. v. Employers Ins. of Wausau, 880 F.2d 270 (10th Ci......
-
The Y2K bug: will insurance carriers be stung by a swarm of claims?
...CALIFORNIA BUSINESS INSURANCE LAW AND GUIDE, supra note 37, at [sections] 5.03[2][a]. (64.) Pennbarr Corp. v. Ins. Co. of No. America, 976 F.2d 145, 147 (3rd Cir. 1992) (emphasis in (65.) COUCH, supra note 62, at [sections] 54:179. (66.) See, e.g., Pennbarr, 976 F.2d at 147. (67.) COUCH, su......
-
The global supply chain: understanding, measuring, mitigating and managing exposure in a supply chain dependent globalized market.
...Cas. Co., 619 F.2d 482 (5th Cir. 1980). (61) 784 F. Supp. 49 (W.D.N.Y. 1992). (62) Id. at 51. (63) Id. at 53. (64) Id. at 54. (65) 976 F.2d 145 (3d Cir. (66) Id. at 147. (67) Id. at 148. (68) Id. at 154. (69) Id. at 154-155. (70) Id. at 153. (71) 936 F. Supp. 534 (S.D. Ill. 1996). (72) Id. ......