Novelties v. Great N. Ins. Co.

399 F.Supp.3d 3

MADELAINE CHOCOLATE NOVELTIES, Plaintiff,

v.GREAT NORTHERN INSURANCE CO., Defendant.

15 CV 5830 (RJD)(SMG)

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

Signed July 18, 2019

Filed July 19, 2019

Edward Michael Joyce, Jason B. Lissy, James Matthew Gross, Jones Day, New York, NY, for Plaintiff.

Melissa Brill, Thomas McKay, III, Cozen and O'Connor, Philip C. Silverberg, Mound Cotton Wollan & Greengrass, New York, NY, Charles J. Jesuit, Richard Mackowsky, Cozen O'Connor, Philadelphia, PA, for Defendant.

MEMORANDUM & ORDER

DEARIE, District Judge:

Plaintiff Madelaine Chocolate Novelties ("Plaintiff" or "Madelaine") brings a breach of contract claim against Great Northern Insurance Co. ("Defendant" or "Great Northern"), relating to insurance coverage for building damage and business losses following Superstorm Sandy ("Sandy"). Madelaine claims that loss and damage sustained as a result of Sandy must be covered under its all-risks insurance policy ("Policy") with Great Northern because it was caused by a windstorm—a "peril" covered by the Policy, regardless of any other concurrent or contributing cause. Great Northern, on the other hand, argues that the Policy's "Flood Exclusion" unambiguously precludes coverage. In sum and substance, the question confronting the Court on summary judgment is the Policy's scope of coverage: does the Policy cover loss and damage caused by a windstorm regardless of any other concurrent or contributing cause, or does the Flood Exclusion preclude coverage entirely? The parties filed cross-motions for summary judgment, and for the reasons that follow, the Court the finds that (i) the Policy's coverage grant is ambiguous, and (ii) the extrinsic evidence proffered reveals a triable issue of fact, inappropriate for summary judgment. Accordingly, the parties' motions for summary judgment are denied.

FACTUAL AND PROCEDURAL BACKGROUND

I. Policy Coverage for Loss or Damage Caused by or Resulting from Superstorm Sandy

On October 29, 2012, as Sandy made landfall in New York, Madelaine's manufacturing facility, located one block from Jamaica Bay, sustained significant damage resulting in substantial inventory and business income losses. Madelaine submitted an itemized proof of loss to Great Northern for over $53 million. Great Northern paid just under $4 million and claimed that the remaining losses were not covered as a result of the Policy's Flood Exclusion. At the time, Madelaine was insured by Great Northern's Customarq Classic Insurance Program, which included coverage for "Building and Personal Property" damage as well as "Business Income with Extra Expense" losses. The Policy obligated Great Northern to pay for (i) "direct physical loss or damage to: building, or personal property, caused by or resulting from a peril not otherwise excluded" and (ii) "actual business income loss...and extra expense...incur[red] due to the actual or potential impairment of...operations...caused by or resulting from direct physical loss or damage by a covered peril to property, unless otherwise stated." ECF No. 56-5, at M_00003958, M_00003987.¹

The Policy also contains a series of coverage exclusions, including a "Flood Exclusion" which eliminates coverage for "loss or damage caused by or resulting from: waves, tidal water or tidal waves; or rising, overflowing or breaking of any boundary, of any...oceans or any other body of water or watercourse, whether driven by wind or not, regardless of any other cause or event that directly or indirectly: contributes concurrently to; or contributes in any sequence to, the loss or damage, even if such other cause or event would otherwise be covered ." Id., at M_00003974 (emphasis added). The latter half of the Flood Exclusion constitutes what is known in the insurance industry as an anti-concurrent causation ("ACC") clause. In the context of the Flood Exclusion, the ACC clause means that where loss or damage results from or is caused by some combination of covered and excluded causes, such as a flood, the resulting loss or damage will not be covered and the exclusion will govern.

Finally, the Policy includes a series of appended, but simultaneously executed, endorsements, including a "Windstorm Endorsement." The Windstorm Endorsement is comprised of three provisions: (i) a provision that increases the deductible for damage caused by a "windstorm" from $25,000 to $50,000 ("Windstorm Deductible"), (ii) a provision that extends the waiting period for business income losses caused by a windstorm from 24 hours to 72 hours ("Windstorm Waiting Period"), and (iii) a provision that defines a "windstorm" as "wind, wind-driven rain...regardless of any other cause or event that directly or indirectly: contributes concurrently to; or contributes in any sequence to, the loss or damage, even if such other cause or event would otherwise be covered " ("Windstorm Definition"). Id., at M_00004113 (emphasis added). Like the Flood Exclusion, the Windstorm Definition within the Windstorm Endorsement also contains an ACC clause.

II. "Madelaine I" and Second Circuit Appeal

The Court granted summary judgment in favor of Great Northern on September 26, 2017. Madelaine Chocolate Novelties v. Great Northern Insurance Co., 2017 WL 4280550 (E.D.N.Y. Sept. 26, 2017). On appeal, the Second Circuit concluded that the "the Windstorm Endorsement adds an ACC clause to the definition of a covered peril for the entire Policy," noting "it is undisputed that, for purposes of the Policy, a ‘windstorm’ is a covered peril." Madelaine Chocolate Novelties, Inc. v. Great Northern Insurance Co., 752 F. App'x 47, 48, 50 (2d Cir. 2018). The Second Circuit directed this Court on remand (i) to "assess whether the Windstorm Endorsement's ACC clause conflicts with or otherwise creates an ambiguity vis-à-vis the Policy's Flood Exclusion," and (ii) to the extent this Court concludes an ambiguity exists, to consider "interpretive materials relating to the Windstorm Endorsement and its relationship with the Policy's coverage provisions." Id. at 50.

III. "Madelaine II"

In its renewed motion for summary judgment Madelaine argues that applying the Windstorm Definition's ACC clause to the entire Policy creates an ambiguity that cannot be resolved in Great Northern's favor because (i) the Windstorm Definition's ACC clause supersedes the Flood Exclusion's ACC clause as an "added or attached" change to the "basic insurance contract" and (ii) the record is otherwise devoid of any relevant extrinsic evidence supporting an interpretation that would foreclose coverage. As a result, Madelaine argues, the last-resort doctrine of contra proferentem compels the Court to resolve the Policy's ambiguity in favor of the insured. On the other hand, Great Northern argues that (i) the Flood Exclusion unambiguously precludes coverage because "applying the definition of ‘windstorm’ throughout the policy has no impact on the scope of coverage afforded under the Policy," and (ii) even if the Windstorm Definition creates an ambiguity vis-a-vis the Flood Exclusion, extrinsic evidence favors Great Northern because it reveals that Madelaine had no reasonable expectation of receiving flood coverage, under any circumstances, when it purchased its Great Northern insurance policy.

LEGAL STANDARD

To prevail on a motion for summary judgment, the moving party must "show that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The movant bears the burden of demonstrating the absence of a question of material fact and the Court must view all facts "in the light most favorable" to the non-moving party and resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought. Tolan v. Cotton, 572 U.S. 650, 660-61, 134 S.Ct. 1861, 188 L.Ed.2d 895 (2014). On the other hand, to survive a motion for summary judgment, the non-moving party must establish a genuine issue of fact "by citing to particular parts of materials in the record." Fed. R. Civ. P. 56(c)(1). "Where parties make cross motions for summary judgment, the standard is the same as that for individual motions. The district court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Marotta v. Road Carrier Local 707 Welfare Fund, 100 F. Supp. 2d 149, 155 (E.D.N.Y. 2000) (citing Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993) ).

In considering cross-motions for summary judgment bearing on the interpretation of a contract, summary judgment is appropriate where (i) the contractual language is "unambiguous and conveys a definite meaning," Sayers v. Rochester Tel. Corp. Management Supplemental Pension Plan, 7 F.3d 1091, 1094 (2d Cir. 1993), (ii) the contract is ambiguous, but there is no relevant extrinsic evidence to resolve the ambiguity, Andy Warhol Foundation for Visual Arts, Inc. v. Federal Ins. Co., 189 F.3d 208, 215 (2d Cir. 1999) ("[e]ven though a contract may be ambiguous, summary judgment may nonetheless be appropriate where a court is in position to resolve the ambiguities through a legal rather than factual, construction of its terms"), or (iii) "the rare event ... where the extrinsic evidence of the parties' intent is so one-sided in one party's favor that no reasonable person could reach the contrary conclusion," Ross Univ. Sch. of Medicine, Ltd. v. Brooklyn-Queens Health Care, Inc., 2013 WL 1334271, at *8 (E.D.N.Y. Mar. 28, 2013) (citing Compagnie Financiere de CIC et de L'Union Europeenne v. Merrill Lynch, Pierce, Fenner & Smith Inc., 232 F.3d 153, 158 (2d Cir. 2000) ). The Court cannot consider extrinsic evidence unless it determines the relevant contractual provision is sufficiently ambiguous as to be "susceptible of at least two fairly reasonable meanings." Wards Co., Inc. v. Stamford Ridgeway Assoc's, 761 F.2d 117, 120...