United Capital v. Travelers Indem. Co. of Ill., 02-CV-3066(TCP)(MLO).

• Decision Date: 20 December 2002
• Docket Number: No. 02-CV-3066(TCP)(MLO).,02-CV-3066(TCP)(MLO).
• Citation: 237 F.Supp.2d 270
• Parties: UNITED CAPITAL CORP. and Tri-Mart., Corp., Plaintiffs, v. TRAVELERS INDEMNITY COMPANY OF ILLINOIS, Defendant.
• Court: U.S. District Court — Eastern District of New York

237 F.Supp.2d 270

UNITED CAPITAL CORP. and Tri-Mart., Corp., Plaintiffs, v. TRAVELERS INDEMNITY COMPANY OF ILLINOIS, Defendant.

No. 02-CV-3066(TCP)(MLO).

United States District Court, E.D. New York.

December 20, 2002.

Paul E. Breene, Newark, NJ, for Plaintiffs.

Stephen M. Lazare, New York City, for Defendant.

MEMORANDUM AND ORDER

PLATT, District Judge.

This action is brought by plaintiffs, United Capital Corp. ("UCC" or "Plaintiff") and its wholly-owned subsidiary of Tri-Mart Corp. ("Tri-Mart" and collectively with UCC, "Plaintiffs"), against Travelers Indemnity Company of Illinois ("Travelers" or "Defendant") and arises out of a dispute regarding insurance coverage. In the Complaint, Plaintiffs allege three claims. The First Claim is for breach of an insurance policy for failure to provide insurance coverage. The Second Claim is for breach of the covenant of good faith and fair dealing related to the alleged breach. The Third Claim is also related to the alleged breach and asserts a claim for breach of fiduciary duty.

Presently before this Court are cross-motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Plaintiffs have moved for summary judgment in regards to the First Claim on the issue of whether a certain exclusion is applicable.¹ The Defendant has moved for summary judgment in order to dismiss each of the three claims in their entirety. Both parties agree that there are no genuine issues of material fact. The Court heard oral argument on the motions on December 6, 2002.

For the reasons discussed below, Plaintiffs' Motion is GRANTED on the First Claim and Defendant's Motion is DENIED as to the First Claim. Defendant's Motion is, however, GRANTED as to the Second and Third Claims.

BACKGROUND

The policy at issue is a property insurance policy which provides, inter alia, insurance coverage for physical loss or damage to Plaintiffs property for the period of September 29, 2001, through September 29, 2002, (hereinafter the "Policy"). Under the Policy, Plaintiff is insured for up to $25,000,000 of property losses.

Section A of the Policy, entitled "Insuring Agreement" provides that, "[Defendant] will pay for direct physical loss or damage to Covered Property ... caused by or resulting from a Covered Cause of Loss. Covered Cause of Loss means risks of direct physical loss unless the loss is excluded [or limited by other sections of the policy]." (Breene Aff., Ex. A.) (emphasis added.)

On October 23, 2001, a fire severely damaged a building owned by Plaintiffs in Mount Morris, Michigan. Plaintiffs subsequently filed an insurance claim for building and personal property damage.

At the time of the fire the building had been "vacant" for more than 60 days. The Mt. Morris police determined that the fire had been caused by trespassers who had broken into the building. (Breene Aff., Ex. E.) The Fire Department further concluded, "this was in fact an arson fire and that there were approx. 4-5 different places where the fire had been started that being the ceiling, in the stairwell, and the floor."² (Breene Aff., Ex. E.)

After an investigation, Defendant denied Plaintiffs' insurance claim based on its conclusion that the Policy excluded coverage for acts of "Vandalism." In making its determination, Defendant relied on Section D of the Policy entitled "Exclusions". Section D.2.k. (the "Vacancy Exclusion") provides in relevant part:

2. The Company will not pay for loss or damage caused by or resulting from any of the following:

k. If the building or leased premises where loss or damage has occurred has been "vacant" for more than 60 days before that loss or damage occurs, the Company will not pay for any loss or damage caused by any of the following, even if they are Covered Causes of Loss:

(1) Vandalism;

(2) Sprinkler leakage;

(3) Building glass Breakage;

(4) Water damage;

(5) Theft; or

(6) Attempted theft.

(Breene Aff., Ex. A)(emphasis added.)

The Policy does not explicitly exclude coverage for "Fire" or "Arson" (individually or collectively) under this provision.

Although individual "Covered Causes of Loss" are not clearly specifically set forth in the Policy, the term is used throughout the Policy and at times delineates between "Fire" and "Vandalism." Specifically, "Fire" and "Vandalism" are listed separately in regards to "Outdoor Property", which is defined as "retaining walls not part of a building, lawns ... tress, shrubs, plants, bridges ... walks, etc." (Breene Aff., Ex. A.) Section B.1.h (the "Outdoor Property Section"), provides that insurance applies to `Outdoor Property' at the Insured's premises for loss or damage only by the following Covered Causes of Loss:

(1) Fire;

(2) Lightning;

(3) Explosion;

(4) Riot or civil commotion;

(5) Vandalism or malicious mischief; or

(6) Aircraft or vehicles ..

(Breene Aff., Ex. A.)

The Policy also differentiates between "Fire" and "Vandalism" when defining "Specified Cause of Loss". Section G.1 lists "Fire" and "vandalism" separately. (Breene Aff., Ex. A.) "Specified Cause of Loss" is used throughout the Policy and is relevant to, inter alia, what coverage is extended to pollution cleanup and an exclusion regarding the collapse of the building.

As indicated above, both parties agree that there are no genuine issues of material fact. The determinative issue is whether an "arson fire" is an act of "Vandalism" under the Policy or whether it should be viewed as a separate "Covered Cause of Loss", namely, "Fire".

Plaintiffs contend that arson is not subsumed under "Vandalism" and argue that the listing "Fire" and "Vandalism" as separate "Covered Causes of Loss" in the Outdoor Property Section, as well their being listed separately under the definition of "Specified Causes of Loss" at least creates an ambiguity as to whether arson is excluded from coverage. They interpret the Policy to contain the enumerated "Covered Causes of Loss" set forth in the Outdoor Property Section and that the Vacancy Exclusion excludes only that subset of "Covered Causes of Loss" enumerated in the Vacancy Exclusion. Since "Fire" caused the destruction of the building and is not listed in the Vacancy Exclusion, they contend they are entitled to coverage.

Defendant argues that while all fires may not be excluded by the Vacancy Exclusion, arson is excluded because arson is by definition an act of "Vandalism". Defendant further contends that the separate listing of "Fire" and "Vandalism" in the other sections of the Policy does not create an ambiguity. Specifically, Defendant argues the Outdoor Property Section provides a different form of coverage than the rest of the Policy and that the enumeration of "Causes of Loss" only applies to that coverage.

According to Defendant, the Policy generally provides "all-risk" coverage, which means that Plaintiffs' loss is covered unless it is limited or excluded by other terms of the Policy. Defendant contends however, that the Section regarding "Out-door Property" provides "named perils" coverage, in which a loss is not covered by the Policy unless the peril which caused the loss is specifically listed. Defendant therefore concludes that any ambiguity created by the enumeration of "Covered Causes of Loss" in Section B.1.h. applies only to "Outdoor Property" and that there are no enumerated "Covered Causes of Loss" for the remainder of the Policy. (Def. Reply Mem. at 4.)

Although there is somewhat conflicting case law on the issue, courts generally agree that the ordinary use of the word vandalism would include an arson. Nonetheless, under the specific wording and format of the Policy, the Court finds that the Policy is at least ambiguous as to whether "Vandalism" in the Vacancy Exclusion includes arson. Because any ambiguity must be construed against the insurer as the drafter of the Policy, the Court finds for Plaintiffs on this issue and holds that the Vacancy Exclusion does not provide a basis for the denial of coverage.

DISCUSSION

A. Summary Judgment Standard

Summary judgment should be granted where there is no genuine issue as to any material fact. Fed R. Civ. P. 56(c). Summary judgment is a particularly appropriate vehicle for resolving insurance coverage disputes. Freedom Gravel Products, Inc. v. Michigan Mutual Insurance Company, 819 F.Supp. 275, 277 (W.D.N.Y. 1993).

B. Breach of the Insurance Policy

1. Legal Standard

Both parties have briefed the present motions as if New York law applies to the interpretation of the Policy. The Court agrees that New York law applies and also notes that there does not seem to be any significant difference between New York and Michigan law on the interpretation of insurance polices such as the one at issue.

When construing an insurance policy, words are accorded their normal, everyday meaning. As the Second Circuit has stated, "[w]hen construing an insurance policy, the tests applied are `common speech' and the `reasonable expectation and purpose of the ordinary businessman'." Stoney Run Co. v. Prudential-LMI Commercial Insurance Company, 47 F.3d 34, 37 (2d Cir.1995) (quoting Ace Wire & Cable Co. v. Aetna Casualty & Surety Co., 60 N.Y.2d 390, 469 N.Y.S.2d 655, 658, 457 N.E.2d 761 (1983)). It is also well established that any ambiguities are to be interpreted in favor of the insured. "The rationale is that if the policy language is unclear and can reasonably be interpreted in a way that affords as well as excludes coverage, the ambiguity should be resolved against the insurer, the draftsman of the language." Moshiko, Inc. v. Seiger & Smith, Inc., 137 A.D.2d 170, 175, 529 N.Y.S.2d 284, 288 (1st Dep't 1988).

This is especially true when construing exclusionary clauses. As the Second Circuit has held, "[a]ny ambiguity is to be construed against the insurer, particularly when the ambiguity is in an exclusionary clause." Stoney Run Co., 47 F.3d at 37. In order "to negate coverage by virtue of an exclusion, an insurer must establish that the...