PROTECTION MUTUAL v. Mitsubishi Silicon

• Decision Date: 15 December 1999
• Citation: 992 P.2d 479,164 Or. App. 385
• Court: Oregon Court of Appeals
• Parties: PROTECTION MUTUAL INSURANCE CO., an Illinois corporation, Appellant, v. MITSUBISHI SILICON AMERICA CORPORATION, Respondent.

992 P.2d 479

164 Or. App. 385

PROTECTION MUTUAL INSURANCE CO., an Illinois corporation, Appellant, v. MITSUBISHI SILICON AMERICA CORPORATION, Respondent.

(96C13332; CA A98943)

Court of Appeals of Oregon.

Argued and Submitted September 15, 1998.

Decided December 15, 1999.

I. Franklin Hunsaker, Portland, argued the cause for appellant. With him on the briefs were Douglas G. Houser and Bullivant Houser Bailey.

James T. McDermott, Portland, argued the cause for respondent. With him on the brief was Ball Janik LLP.

Before De MUNIZ, Presiding Judge, and HASELTON and LINDER, Judges.

LINDER, J.

This case arises out of an insurance coverage dispute between plaintiff Protection Mutual Insurance Company (Protection Mutual) and defendant, Mitsubishi Silicon America Corporation (known as and referred to in this opinion as "Siltec"). The specific issue is whether Siltec's general property casualty policy, issued by Protection Mutual, covers certain "business interruption" losses that Siltec incurred when it lost useable water and water discharge services due to a flood. Protection Mutual filed a complaint seeking a declaration that the policy does not cover the losses. Siltec counterclaimed for coverage on breach of contract, negligent misrepresentation, and estoppel theories. Protection Mutual moved for summary judgment on its declaratory judgment claim, and Siltec crossmoved for summary judgment solely on its breach of contract claim. After ruling that the policy provides the disputed coverage, the trial court granted Siltec's motion for summary judgment, denied Protection Mutual's motion, and did not reach Siltec's counterclaims for negligent misrepresentation and estoppel. On appeal, we hold that the policy does not cover the losses in question. We therefore reverse the summary judgment for Siltec and remand for entry of summary judgment in Protection Mutual's favor and for further proceedings on Siltec's counterclaims.

The facts pertinent to our review are not disputed.¹ Siltec operates a silicon wafer manufacturing plant in Salem, Oregon. In February 1996, the Salem area experienced a severe flood. On February 7, responding to increased turbidity in its water, the City of Salem (Salem) shut down its water treatment facility and requested that Siltec voluntarily reduce its water consumption. Siltec stopped all discretionary water uses, but it continued its nondiscretionary uses, which required Siltec to specially filter the incoming water to prevent dirt particles from damaging its equipment. On February 8, Salem closed its wastewater treatment facility because of the threat of imminent flooding at its plant. As a result, Siltec could not discharge its wastewater into the sewer system. Because the space in its waste storage tanks was limited, Siltec was forced to cease most of its operations. Two days later, Salem restored sewer services, and Siltec was able to resume discharging wastewater. The incoming water from Salem's water treatment facility still lacked its usual clarity, however, so Siltec began buying clean water from an alternate source. Siltec used that supply until Salem's water was restored to normal.

Siltec incurred a loss of business revenue due to the limitations on its ability to conduct its operations. It also sustained increased operating expenses due to added costs for filtering water, performing equipment repairs, and purchasing clean water from the alternate source. Siltec sought coverage for those losses under its general property damage insurance policy with Protection Mutual. Protection Mutual denied coverage, and this litigation followed.

The particular type of coverage in dispute is often termed "business interruption" insurance. By way of background, it is helpful to understand the general nature of that coverage. Commercial property casualty policies, in their most basic form, insure against the risk of damage to or loss of a business's real and personal property. When real and personal property is lost or damaged, commercial enterprises often incur further consequential economic losses (e.g., increased costs, lost profits) flowing from their inability, or impaired ability, to conduct their business operations. Special additional coverage, in the form of endorsements to a casualty policy, can be negotiated to cover those economic damages. In covering those consequential economic damages, so-called "business interruption" insurance is "designed to do for the business what the business would have done for itself had no loss occurred." A & S Corporation v. Centennial Insurance Company, 242 F.Supp. 584, 589 (N.D.Ill.1965). Typically the added endorsement is closely tied to the underlying property damage coverage. That is, the endorsement usually covers business interruptions that result from physical loss or damage to covered property from a covered peril. See generally B. Glenn, Annotation, Business Interruption or Use and Occupancy Insurance, 83 A.L.R.2d 885 (1962). Few generalizations about business interruption endorsements can be made, however, because the nature of the coverage varies widely. In any given case, the particular terms and conditions of the policy in question must be examined to determine whether a specific business interruption loss falls within the scope of the coverage. See generally id. at 891.

The interpretation of an insurance policy is a question of law. Hoffman Construction Co. v. Fred S. James & Co., 313 Or. 464, 469, 836 P.2d 703 (1992). To determine an insurance policy's meaning, Oregon courts use a familiar and settled methodology, the goal of which is to ascertain the intent of the parties, based on the terms and conditions of the policy. Id.; Totten v. New York Life Ins. Co., 298 Or. 765, 770, 696 P.2d 1082 (1985). The analysis begins with an examination of the plain meaning of the policy's terms, turns next to the context in which those terms appear, and, as a last resort resolves ambiguity by applying the rule of interpretation against the drafter of the language. Hoffman, 313 Or. at 469-70, 836 P.2d 703.

In this particular case, the parties' dispute over the scope of the policy's coverage is not a result of different meanings that they attribute to a particular word, term, or phrase. Rather, the crux of their disagreement lies in the interplay between the policy's provisions and how the policy should be understood as a whole. The policy's overall design is typical of many insurance policies, especially those negotiated for complex business coverage, in which the nature and scope of the coverage is determined by a general statement of coverage that is modified, limited, and expanded by other provisions. See generally Denton v. International Health & Life, 270 Or. 444, 450, 528 P.2d 546 (1974)

("all parts and clauses [of an insurance contract] must be construed to determine if and how far one clause is modified, limited or controlled by others"). Thus, our essential interpretative task in this case turns less on the meaning of the individual parts or specific words and more on the meaning of the parts combined. See generally Fisher v. California Insurance Co., 236 Or. 376, 380, 388 P.2d 441 (1964) ("Contracts, including insurance contracts, are to be construed as a whole, not as a congeries of separate parts.").

Before examining the combined meaning of the particular policy provisions at issue, it is helpful to be precise about Siltec's losses and, hence, the nature of the coverage that Siltec and Protection Mutual dispute. Siltec suffered two distinct types of losses: (1) lost business income due to interruption of the water and sewer services; and (2) extra expenses incurred due to quality problems with Salem's water supply (e.g., filter replacements, equipment repair, and an alternative supply source). Both losses were consequences of the 1996 flood. Significantly, however, neither loss occurred because Siltec's property was itself flooded or directly damaged by flood waters. Rather, the losses were indirect consequences of flooding at the site of Salem's water supply and waste treatment facilities.

That distinction lies at the heart of the parties' disagreement about the policy's interpretation. Ultimately, the parties agree that the policy, through a special endorsement, covers some business interruption losses. They also agree that the policy covers some economic losses due to interruption of utility services. Finally, the parties agree that the policy covers some flood-related losses. They disagree, however, whether those endorsements, in combination, cover business interruption losses caused by loss of or impaired delivery of utility service due to flooding at the utility site.

With the focus of the dispute sharpened, we turn to an examination of the insurance policy in question. Overall, it is a general property casualty policy that indemnifies Siltec for damage and loss to its real and personal property. In what might be considered a declaration of its "base" coverage, the policy provides that Siltec is insured "against all risks of physical loss or damage" to its property, except as specifically excluded. A "general coverage clause" then incorporates "Property Damage Form 3000" and explicitly declares that any coverage beyond what that form provides must be provided by separate endorsements.

Form 3000, therefore, is the beginning point for determining the scope of the coverage provided by the policy. It first describes the property insured (generally, most of Siltec's real and personal property) and the property excluded (such things as valuable papers, fine art, vehicles, property in transit, etc.). Then, and of significance here, the policy specifies certain sources of damage or loss (i.e., perils) that are not insured against. In a section labeled "C. Exclusions," the policy divides excluded perils into two groups. "Group A" contains two exclusions relevant to this case:

"This Policy does not insure against loss or damage

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