Victory Container Corp. v. Sphere Ins. Co.

• Citation: 448 F. Supp. 1043
• Decision Date: 17 March 1978
• Docket Number: No. 77 Civ. 1370 (CHT).,77 Civ. 1370 (CHT).
• Parties: VICTORY CONTAINER CORPORATION, and Warrensburg Paper & Board Corp., Plaintiffs, v. SPHERE INSURANCE COMPANY, Excess Insurance Company, South Eastern Fidelity Insurance Company, and Foremost Insurance Company, Defendants.
• Court: U.S. District Court — Southern District of New York

448 F. Supp. 1043

VICTORY CONTAINER CORPORATION, and Warrensburg Paper & Board Corp., Plaintiffs, v. SPHERE INSURANCE COMPANY, Excess Insurance Company, South Eastern Fidelity Insurance Company, and Foremost Insurance Company, Defendants.

No. 77 Civ. 1370 (CHT).

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

March 17, 1978.

Berman & Zivyak, New York City, for plaintiffs.

Levy, Bivona & Cohen, New York City, for defendants Sphere Ins. Co. and Excess Ins. Co.

MEMORANDUM

TENNEY, District Judge.

Plaintiffs Victory Container Corporation and Warrensburg Paper & Board Corp. have moved for partial summary judgment pursuant to Rule 56(c) of the Federal Rules of Civil Procedure against defendants Sphere Insurance Company and Excess Insurance Company on the issue of liability under an insurance policy issued by defendants.¹ Jurisdiction is based upon diversity. 28 U.S.C. § 1332. Plaintiffs claim that by the terms of the policy defendants' total liability is $490,000. Sphere and Excess oppose the motion, asserting that maximum liability is $250,000. For the reasons that follow, plaintiffs' motion for partial summary judgment is granted.

The Warrensburg Paper Mill was one of a number of locations covered to plaintiffs' benefit by a policy issued by defendants in December 1975 through their General Agents, Universal Excess Company and Inram Corporation. The policy provided the primary layer of coverage against property damage and business interruption losses from flood and other perils.² As a result of a flood occurring in April 1976, the Mill property was damaged. Although there were negotiations concerning the claimed damages, plaintiffs have been unable to recover under the policy. Plaintiffs now claim property damage of $250,000 and business interruption loss of $240,000, for a total of $490,000. Defendants both dispute the damages and assert as an affirmative defense that the terms of the policy limit their liability for loss occasioned by the flood to a total of $250,000.³

By its terms the policy provides a maximum coverage of $500,000 "in any one loss casualty or disaster, which limit shall be subject to further reduction by any sub-limit appearing herein in respect of any peril or form of coverage, and shall be subject, further, to any reduced limit of liability designated in any location schedule attached hereto." The Declaration Form, relied on by both plaintiffs and defendants, names Victory as the insured and states, in relevant part:

                  LOCATION:        As per Location Schedule attached
                  PROPERTY LIMITS: *   *   *   *   *   *
                                   B. Flood - Aggregate limit of
                                   $250,000
                                   *   *   *   *   *   *
                  DEDUCTIBLE:      A. Flood - $2,500
                                   B. All other perils - $1,000
                  VALUED BUSINESS
                  INTERRUPTION:    This clause supersedes Gross
                                   Earnings Form # 140 with respect
                                   to the evaluation of
                                   a Business Interruption Loss
                                   At each location where Business
                                   Interruption is insured,
                                   it is agreed that the amount
                                   of loss for each . . . day
                                   . . . shall be the Per Diem
                                   amount specified in the Location
                                   Schedule . . . but
                                   not to exceed the Maximum
                                   specified in the Location
                                   Schedule in any one loss.
                

The Gross Earnings Endorsement (Form # 140), made a part of the policy, broadens the policy to cover loss "from necessary interruption of business caused by the perils insured against damaging or destroying . . . real or personal property (except finished stock) at the premises described . . ., subject to the limit of liability specified . . . for the premises at which the damage or destruction occurs." The Location Schedule to which the maximum coverage statement and Declaration Form refer states, with respect to the Mill property:

                                           BLANKET    BUSINESS INTERRUPTION
                     BUILDING  CONTENTS    PROPERTY     PER DIEM   MAXIMUM     TOTAL
                    ----------------------------------------------------------------------
                     $600,000   $1,550,000  $2,150,000   $3,000     $240,000  $2,390,000
                

The sole issue now before the Court is the maximum extent of coverage for which the insurer is liable for both the property damage and business interruption losses on this insurance policy.⁴ Resolution of the controversy turns upon the interpretation of the written contract which, in turn, involves a determination of the intent of the parties as it is expressed by the language used. Hartford Accident & Indemnity Co. v. Wesolowski, 33 N.Y.2d 169, 350 N.Y.S.2d 895, 305 N.E.2d 907 (1973); Sperling v. Great American Indemnity Co., 7 N.Y.2d 442, 199 N.Y. S.2d 465, 166 N.E.2d 482 (1960); Raleigh Associates v. Henry, 302 N.Y. 467, 99 N.E.2d 289 (1951). It is for the Court to decide whether a contract is ambiguous and if it finds that it is not, to interpret the contract as a matter of law. Bethlehem Steel Co. v. Turner Construction Co., 2 N.Y.2d 456, 161 N.Y.S.2d 90, 141 N.E.2d 590 (1957). A contract presents an ambiguity when the "language is susceptible of at least two fairly reasonable interpretations." Aetna Casualty & Surety Co. v. Giesow, 412 F.2d 468, 471 (2d Cir. 1969). Accord, Heyman v. Commerce & Industry Insurance Co., 524 F.2d 1317 (2d Cir. 1975); Union Insurance Society of Canton, Ltd. v. William Gluckin & Co., 353 F.2d 946 (2d Cir. 1965). However, "mere assertion by one that contract language means something to him, where it is otherwise clear, unequivocal and understandable when read in connection with the whole contract, is not in and of itself enough to raise a triable issue of fact." Bethlehem Steel Co. v. Turner Construction Co., supra, 2 N.Y.2d at 460, 161 N.Y.S.2d at 93, 141 N.E.2d at 593. In the opinion of this Court the instant contract of insurance is unambiguous in that the Declaration Form, Location Schedule, and the language of the policy as a whole establish that separate independent limitations exist for the property and business interruption coverage.

Initially, the Court notes that business interruption and property damage represent distinct forms of coverage. See, e. g., Northwestern States Portland Cement Co. v. Hartford Fire Insurance Co., 360 F.2d 531 (8th Cir. 1966); Gordon Chemical Co. v. Aetna Casualty & Surety Co., 358 Mass. 632, 266 N.E.2d 653 (1971); Michael v. Prussian National Insurance Co., 171 N.Y. 25, 63 N.E. 810 (1902); 11 Couch on Insurance §§ 42:401-07 (2d ed. 1963 & Supp.1977). In Jarvis Towing & Transportation Corp. v. Aetna Insurance Co., 72 N.Y.S.2d 696, 697 (Sup.Ct.N.Y.Co.), aff'd, 273 App.Div. 853, 77 N.Y.S.2d 260 (1st Dep't 1947), rev'd on other grounds, 298 N.Y. 280, 82 N.E.2d 577 (1948), the court stated that "loss of use is a separate interest which may be specifically insured, but is not covered by a general property loss or damage, fire or marine insurance policy." Accord, Burdett Oxygen Co. of Cleveland v. Employers Surplus Lines Insurance Co., 419 F.2d 247 (6th Cir. 1969); Stephan v. Allstate Insurance Co., 26 Ariz.App. 367, 548 P.2d 1179 (1976). In the instant case, it is clear that both types of interest are covered by the single policy. The policy itself points to this distinction by its use of the separate Gross Earnings Endorsement to provide business interruption coverage. Notwithstanding the separate treatment, however, defendants maintain that the coverage for business interruption is limited by the aggregate flood limit in the Declaration Form. Undoubtedly, had the Declaration Form contained a provision denominated "Flood Limit," the insurers' liability would indeed be limited for all types of loss caused by flood. However, while defendants characterize the stipulated $250,000 limit as aggregate flood limit, they ignore the specific heading which they utilized to characterize the flood limit, i. e., "Property Limits." The specific words of this heading, coupled with the Location Schedule and the language employed through the policy compel a decision at odds with defendants' contention.

Defendants' interpretation of the contract requires that "business interruption" be included within the meaning of "property" in the Declaration Form for purposes of limited liability for flood losses. However, the Court must look to the entire contract to discern the meaning of the language used, Murray Oil Products, Inc. v. Royal Exchange Assurance Co., 21 N.Y.2d 440, 288 N.Y.S.2d 618, 235 N.E.2d 762 (1968), and thus viewed the contract clearly covers two separately defined interests. This distinction is supported not only by the fact that the policy was specifically extended by the Gross Earnings Endorsement, but also by differences in the nature of the coverage referred to in distinct sections of the policy. Buildings and contents are listed on the Replacement Cost Coverage Endorsement, and the various property damage portions of the policy refer to replacement and repair of physical property.⁵ In contrast the Gross Earnings Endorsement, while conditioning coverage on loss due to damage to physical property from a covered peril, refers to loss resulting from interference with business operations. Courts have found that this kind of endorsement covers the value of the business operations and not the value of material property. See, e. g., Michael v. Prussian National Insurance Co., supra; Gordon Chemical Co. v. Aetna Casualty & Surety Co., supra.

Additionally, the Declaration Form and Location Schedule indicate that the property limit of $250,000 does not modify and limit business interruption coverage. Looking first to the Location Schedule, the Court notes that value is separately assigned to building and contents and that these two subcategories are added together under the heading "Blanket Property." The Schedule then goes on to make a separate computation...