Opinion
No. 04 Civ. 5201 (LAP).
September 28, 2005
MEMORANDUM AND ORDER
St. Paul Fire and Marine Insurance Company ("Defendant") brings the present summary judgment motion against Parks Real Estate Purchasing Group, et al. ("Plaintiffs") arguing that Plaintiffs seek insurance coverage for damages specifically carved out of the insurance policy between the parties. Because the particulate matter that Plaintiffs allege caused damage to its property falls under the relevant exclusion in the policy, Defendant's summary judgment motion is granted.
I. Background
Plaintiffs own the property at 90-100 John Street, New York, New York (the "Property" or "Building"). On January 15, 2001, Plaintiffs entered into an insurance contract (the "Policy") with Defendant, covering various losses to the Property. (Affidavit of Donald Gerten, sworn to on Dec. 13, 2004 ("Gerten Aff."), Ex. A.) The contract provides that Defendant will: "[p]rotect covered property against risks of direct physical loss or damage except as indicated in the Exclusions — Losses We Won't Cover section." (Gerten Aff., Ex. A, SP 01324.) The exclusion section specifically states that: (1) Defendant will not cover any loss or damage caused by or made worse by any kind of contamination (the "Contamination Exclusion"); (2) Defendant will not cover damage caused by mechanical breakdown (the "Mechanical Breakdown Exclusion"); and (3) Defendant will not cover any damage caused by wear and tear (the "Wear and Tear Exclusion"). (Gerten Aff., Ex. A, SP 01332-01335.)
On September 11, 2001, Plaintiffs claim that the Property sustained extensive damage as a result of the attacks on and collapse of the World Trade Center ("WTC"). According to Plaintiffs, particulate matter (i.e., the pulverized and corrosive contents of the fallen towers, the "Particulate") caused damage to both the interior and exterior of the building, including its facade, elevators, and mechanical and electrical systems. Plaintiffs further contend that the Particulate continues to damage the building to this day.
On September 18, 2001, Plaintiffs provided Defendant with notice of property damage. Shortly after receipt of that notice, Defendant investigated the claim and eventually advanced a payment of $1,915,914 to Plaintiffs. Plaintiffs contend that this payment does not fully cover the damage sustained and they filed the instant Complaint on January 15, 2004, seeking to recover the alleged full amount. Defendant's present summary judgment motion argues that the alleged damage Plaintiffs suffered is excluded from the Policy under the Contamination Exclusion. Plaintiffs contend that two factors independently preclude entry of summary judgment: (1) the Contamination Exclusion is ambiguous, and the damages suffered are not properly considered contamination in any event; and (2) the efficient cause of Plaintiffs' damages was the collapse of the WTC, a covered event under the Policy. Because the Particulate that is alleged to have caused damage to the Property is properly considered a contaminant under the Contamination Exclusion and because the Particulate and not the collapse of the WTC is the efficient cause of Plaintiffs damages, Defendant's motion is granted.
Defendant argues that Plaintiffs' alleged losses are also excluded from coverage by the Mechanical Breakdown Exclusion and the Wear and Tear Exclusion under the Policy. However, neither exclusion applies to Plaintiffs' claims.
The Mechanical Breakdown Exclusion provides that St. Paul will not "cover loss to covered property caused or made worse by: mechanical breakdown or failure." (Ex. A, SP 01333.) However, Plaintiffs are not seeking coverage for loss caused by mechanical breakdown or failure but for damage caused by a "corrosive and abrasive particulate" which has infiltrated the interior and exterior of the building. (Pls'. Local Rule 56.1 Statement, ¶ 7.)
Additionally, coverage is not precluded by the Wear and Tear Exclusion of the Policy. The damage was the alleged result of an unexpected and sudden event rather than gradual wear and tear. The cases the Defendant cites, Simkowitz v. Fireman's Fund Ins. Co., 774 N.Y.S.2d 684 (1st Dept. 2004) and Kent Centre Assoc. v. Greater N.Y. Ins. Co., 527 N.Y.S.2d 269 (2d Dept. 1988), both deal with the gradual deterioration of property over time and are correspondingly irrelevant.
Accordingly, the only remaining question is whether Plaintiffs' claims are properly included within the definition and scope of the Policy's Contamination Exclusion.
II. The Standard for Summary Judgment
Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment shall be rendered forthwith if the pleadings, depositions, answers, interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); see Anderson v. Liberty Lobby, 477 U.S. 242, 250 (1986).
The moving party has the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrate[s] the absence of a material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In determining whether summary judgment is appropriate, a court must resolve all ambiguities, and draw all reasonable inferences against the moving party. See Matsushita Elec. Industr. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1982)).
If the moving party meets its burden, the burden then shifts to the non-moving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The non-moving party must "do more than simply show there is some metaphysical doubt as to the material facts,"Matsushita, 475 U.S. at 586, and the non-moving party may not "rest upon . . . mere allegations or denials," St. Pierre v. Dyer, 208 F.3d 394, 404 (2d Cir. 2000). However, only when it is apparent than no rational finder of fact "could find in favor of the non-moving party because the evidence to support its case is so slight" should summary judgment be granted. Gallo v. Prudential Residential Servs., Ltd., 22 F.3d 1219, 1223 (2d Cir. 1994).
III. Discussion
A. The Scope of the Contamination Exclusion
Under New York insurance law, an insurance contract is interpreted to give effect to the intent of the parties as expressed in the clear language of the contract. Goldberger v. Paul Revere Life Ins. Co., 165 F.3d 180, 182 (2d Cir. 1999). When the provisions are unambiguous and understandable, courts are to enforce them as written. Id. However, if a provision is ambiguous — especially when found in an exclusion clause — it is to be strictly construed against the insurer and interpreted in favor of the insured. See Id.; Roofers' Joint Training, Apprentice and Educ. Comm. of Western New York v. Gen. Accident Ins. Co. of America, 713 N.Y.S.2d 615, 617 (N.Y.App.Div. 2000); De Paolo v. Leatherstocking Coop Ins. Co., 681 N.Y.S.2d 686, 688 (N.Y.App.Div. 1998).
In order for an insurer to negate coverage based on an exclusion, it "must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case."Belt Painting Corp. v. TIG Ins. Co., 795 N.E.2d 15, 17 (N.Y. 2003). These exclusions from coverage are not to be extended by interpretation or implication, but are to be accorded a strict and narrow construction, and any ambiguity will be resolved against the insurer. Roofers' Joint Training, Apprentice and Educ. Comm. of Western New York, 713 N.Y.S.2d at 617.
Courts are to construe the terms of an insurance contract as they are used in common speech. Throgs Neck Bagels, Inc. v. GA Insurance Company of New York, 671 N.Y.S.2d 66, 69 (N.Y.App. Div. 1998). In so doing, courts "have almost uniformly construed the term [contamination] in insurance policies in light of modern dictionary definitions and concluded that it is unambiguous."Richland Valley Products, Inc. v. St. Paul Fire Casualty Co., 548 N.W.2d 127, 131 (Wis.Ct.App. 1996). The First Circuit has defined contamination as the introduction of a foreign substance that injures the usefulness of the object. Hi-G, Inc. v. St. Paul Fire and Marine Ins. Co., 391 F.2d 924, 925 (1st Cir. 1968). See also J.L. French Automotive Castings, Inc. v. Factory Mutual Ins. Co., No. 02 C 9479, 2003 U.S. Dist. LEXIS 13060, at *6-7 (N.D. Ill. July 23, 2003) (contamination defined as "to render unfit for use by the introduction of unwholesome or undesirable elements"); Hartory v. State Auto Mut. Ins. Co., 552 N.E.2d 223, 225 (Ohio Ct.App. 1998) (same). The Fifth Circuit has defined contamination as a condition of impurity resulting from the mixture or contact with a foreign substance. American Casualty Co. of Reading, Pennsylvania v. Myrick, 304 F.2d 179, 183 (5th Cir. 1962). See also Auten v. Employers Nat. Ins. Co., 722 S.W.2d 468, 470 (Tex.App. 1986) ("contamination occurs when impairment or impurity results from mixture or contact with a foreign substance"). Courts have even favorably viewed both definitions of contamination simultaneously. See Richland Valley, 548 N.W.2d at 131 (citing Hi-G, Myrick, Auten andHartory definitions with approval); Duensing v. The Traveler's Companies, 849 P.2d 203 (Mont. 1993) (citing Hi-G, Myrick, and Auten definitions with approval).
Under either definition outlined above, the facts in the record here describe contamination. Although not cognizable on summary judgment, the Complaint reads:
On September 11, 2001 . . . Plaintiffs sustained loss as a result of the collapse of the World Trade Center, then situated only a few blocks away such that the particulate matter infiltrated much of the Subject Property causing damage in the form of erosion, corrosion, destruction, excessive wear, increased maintenance and repair of the architectural facade, mechanical, electrical, structural and Heat Ventilation and Air Conditioning systems and other equipment and machinery including computers and related hardware pertaining to and comprising the Subject Property and its surrounding environs.
(Compl., ¶¶ 9, 23, 36.) Though Plaintiffs obviously avoid the word "contamination" in their briefs (but, as noted below, not in their expert report), the damages alleged still fall quite clearly within either definition of contamination outlined above. The airborne particulate matter created as a result of the WTC collapse is properly considered either a foreign substance that came into contact with the Property creating a condition of impurity or a foreign substance that, when introduced to the Property, injured the Property's usefulness.
Based on their expert report, Plaintiffs argue (Pl's. Br. at 5) that their damages were caused by "abrasive and corrosive particulate," (Declaration of Lisa Wall, executed on January 31, 2005, Ex. B ("Assessment 90 John Street/100 John Street Property, Expert Report dated December 2004 (the "Expert Report")), pp. 3, 22.) rather than contaminants, but they offer no justification for any such distinction. Indeed, the Expert Report itself refers to "contaminated" moving parts withing the Building's machinery. The Expert Report finds that "[p]articulate in the Building has a component with an identifiable signature (WTC Signature) . . ." and characterizes the material in the Particulate as "corrosive, abrasive and hazardous." (Expert Report at 2.) In discussing the "unfeasib[ility]" of remediating the Building systems and components, the Expert Report notes that "the quartz, mineral wool, and glass fibers present in the WTC particulate have been shown to abrade hard ball bearing steel. Abrasion will increase the wear of contaminated moving parts and shorten machinery lifetimes." (Expert Report at 3, emphasis added.)
Plaintiffs cite McConnell Construction Co. v. Ins. Co. of St. Louis, 428 S.W.2d 659 (Tex. 1968) for the proposition that abrasion, corrosion and erosion all have different meanings from contamination. However, the McConnell Court specifically noted that "[w]hile it may be possible that under certain situations, a corrosion may also be classified as a contamination, that is not the case here. We have no mixing of substances resulting in impurity. We have a pitting, a destruction and a disintegration of metal caused by chemical fumes and a resultant degenerative reaction adversely affecting the structure of metal." Id. at 661.
Here, Plaintiffs' Expert Report notes several ways in which the Particulate damaged and will continue to damage the functionality of the Building: (1) by generating leakage currents ("electronic devices and controls have been and will continue to be adversely affected by the ionic nature (i.e., conductivity) of the WTC Particulate, which is responsible for generating leakage currents in the presence of humidity and are a common cause of electronic device failures" (Expert Report at 3); (2) corrosion ("the WTC Particulate will also chemically and/or electrochemically corrode the metallic conductors on electronic devices and cause component failures" (Expert Report at 3); and (3) abrasion ("the quartz, mineral wool, and glass fibers present in the WTC Particulate have been shown to abrade hard ball bearing steel. Abrasion will increase the wear of contaminated moving parts and shorten machinery lifetimes." (Expert Report at 3).
Regardless of how the Particulate damages the Building, it is clear that the Building is "rendered unfit for use by the introduction of unwholesome or undesirable elements" and that the Building suffers from "a condition of impurity resulting from . . . contact with a foreign substance." Whether the airborne substance at issue is considered pulverized, abrasive, corrosive, erosive, particulate or contaminant, the effect on the Property was contamination. "Although various forms of matter can constitute contamination, the term itself is not susceptible to multiple meanings." J.L. French Automotive, 2003 U.S. Dist. LEXIS 13060, at *6. Accordingly, I find that contamination as used in the Policy is not an ambiguous term, and that Plaintiffs' alleged damages are properly considered contamination. As such, the Contamination Exclusion applies.
Three other cases that Plaintiffs cite to show that contamination is an ambiguous term are also irrelevant. Herald Square Loft. Corp. v. Merrimack Mutual Fire Ins. Co., 344 F. Supp. 2d 915 (S.D.N.Y. 2004), found over-broad and ambiguous a pollution exclusion clause that used the terms: solid, irritant, smoke, vapor, soot, fumes, acids, alkalis, chemicals, waste and contaminant. The case does not consider a contamination exclusion or any specific ambiguity in the term "contaminant."
First Realty, Ltd. v. Frontier Ins. Co., 378 F.3d 729, 732 (8th Cir. 2004), concerned a pollution exclusion which defined pollutant as any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. While this case is both factually irrelevant as the Contamination Exclusion here contains no such language, the First Realty Court found the phrase "irritant and contaminant" ambiguous because it could "mean a substance that actually caused physical irritation or environmental contamination or merely had the capability of doing so." No such issue is present here.
Finally, Pepsico, Inc. v. Winterthur International America Ins. Co., 788 N.Y.S.2d 142 (N.Y.App.Div. 2004), concerned a bad batch of soft drink products caused by faulty raw ingredients. Pepsico claimed that losses arising from the unsalable soft drinks were insured, and Winterthur countered that the loss was excluded under a "Seepage and/or Pollution and/or Contamination Exclusion." Id. at 143-44. The Pepsico Court found the exclusion ambiguous, but only because Pepsico claimed losses which where "non-environmental in nature." Here, the loss claimed by Plaintiffs is not at all similar to the loss claimed by Pepsico; Plaintiffs' loss is clearly environmental in nature.
B. The Efficient Cause of Loss
Where an insured seeks recovery of a loss for which there are several potential causes, some covered and some not covered under the insurance policy, it is the efficient cause of the loss that will be recognized for purposes of insurance coverage. "The efficient proximate cause of a loss is the cause that originally sets other events in motion." Kula v. State Farm Fire and Casualty Co., 628 N.Y.S.2d 988, 991 (N.Y.App.Div. 1995). However, in determining the efficient cause of a loss, a court should not identify "the event that merely set[s] the stage for [a] later event." Kosich v. Metropolitan Property and Casualty Ins. Co., 626 N.Y.S.2d 618, 618 (N.Y.App.Div. 1995) (internal quotation marks omitted). "Only the most direct and obvious [efficient] cause should be looked to for purposes of the exclusionary clause." Kula, 628 N.Y.S.2d at 991; see also Album Realty Corp. v. American Home Assur. Co., 592 N.Y.S.2d 697 (N.Y. 1992); Granchelli v. Travelers Ins. Co., 561 N.Y.S.2d 944 (N.Y.App.Div. 1990). "The causation inquiry stops at the efficient physical cause of the loss; it does not trace events back to metaphysical beginnings." Throgs Neck Bagels, 671 N.Y.S.2d at 69.
Before proceeding with an inquiry into the efficient cause of Plaintiffs' loss, I must note that the specific language of the Contamination Exclusion makes the actual efficient cause of the loss irrelevant. The Contamination Exclusion states: "[Defendant] won't cover loss or damage caused by or made worse by any kind of contamination of your products or property covered by this insuring agreement." (Gerten Aff., Ex. A, SP 01332 (emphasis added).) Even assuming that the efficient cause of Plaintiffs' loss was, as Plaintiffs argue, the collapse of the WTC and not airborne particulate contamination, there is no doubt that, at the very least, Plaintiffs' damages were made worse by contamination. Pursuant to the clear language of the exclusion, Defendant will not cover any loss made worse by contamination.
And, though the efficient cause inquiry is made unnecessary by the plain terms of the Contamination Exclusion, on this record it is also clear that the efficient cause of Plaintiffs' loss was not the collapse of the WTC as Plaintiffs contend but rather the contamination that affected the Property in the wake of the collapse. Plaintiffs urge the Court to take the efficient cause analysis a step backwards, away from the actual contact of the airborne particulate matter with the Property, and towards the collapse of the WTC. Nevertheless, Plaintiffs' invitation to move beyond the direct cause of the loss — the contamination itself — would lead me down a slippery slope of causation.
Once the efficient cause inquiry passes the airborne particulate matter, there is no particular reason to stop at the collapse of the WTC. The efficient cause of Plaintiffs' loss could be the first hijacked plane that struck the WTC; it could also be the second. It could be the explosion of the airplanes' fuel tanks, or the resulting fires which caused the WTC's structural supports to buckle, or the design of those very supports. It could even be the prevailing winds, or lack thereof, which allowed the particulate matter to reach the Property instead of being held up or indeed sent in the opposite direction. Also, the WTC collapse could generate several efficient causes of damage to surrounding buildings: for example, some could be weakened or pushed over by advancing material or vibration from the collapse, still others could have been flooded by a water main break caused by the collapse. These last two causes of damage would not be excluded under the contamination exclusion.
Because efficient cause analysis can become so easily and obviously attenuated, courts look for the dominant, direct cause of the loss, not an event that is merely connected to a result. Thus, in Kosich v. Metropolitan Property and Casualty Ins. Co., 626 N.Y.S.2d at 618, where a contractor cut into vinyl flooring with a chain saw and released asbestos, the court found that the efficient cause of the plaintiff's loss was not the damage done to the flooring but the release of the asbestos itself. Plaintiff's losses were therefore excluded from coverage under the relevant insurance policy's contamination exclusion. Id. Similarly, in Home Ins. Co. v. American Ins. Co., 537 N.Y.S.2d 516, 516-17 (N.Y.App.Div. 1989), hot water and steam escaped from an open drain line and saturated a bus duct system, causing a breakdown of electrical wire insulation and permitting an arc which short circuited the insured building's electrical system. Plaintiff argued that the moisture was the efficient cause of its loss and covered under the insurance policy, but the court held that "the efficient or dominant cause of the loss was the short circuit in the electrical system; the steam merely set the stage for that later event, and therefore, the escape of steam was the remote and not the proximate cause of the loss." Id. at 517. There too, plaintiff's losses were excluded from coverage. See also Jamaica Public Service Co. v. La Interamericana Compania de Seguros Generales S.A., 767 N.Y.S.2d 71 (N.Y.App.Div. 2003) (burst steam pipe eventually resulted in boiler explosion, efficient cause of loss found to be explosion and not burst steam pipe); Kula, 628 N.Y.S.2d at 988-991 (where water pipe rupture caused earth-slide and damage to home, efficient cause of loss found to be earth-slide and not pipe rupture); Whitelegg v. Standard Accident Ins. Co., 271 N.Y.S.2d 492 (N.Y.Sup.Ct. 1966) (frozen water caused explosion in property owner's furnace, efficient cause of loss found to be explosion and not cold weather or frozen water).
Thus, the prevailing case law consistently finds the relevant efficient cause to be that event which most closely and directly resulted in the loss to the insured, not the "metaphysical beginnings" of that cause. Throgs Neck Bagels, 671 N.Y.S.2d at 69. On the present facts, then, the efficient cause of Plaintiffs' loss can only be the contamination itself — the actual contact between the Particulate and the Property — an occurrence that is excluded under the Policy's Contamination Exclusion.
Plaintiffs have identified a handful of cases in which courts identified an efficient cause to be something other than the direct cause of loss, but those cases run afoul of the precedent outlined above. Plaintiffs cite Throgs Neck Bagels, 671 N.Y.S.2d at 71-73, where the court found the efficient cause of loss to be a fire, not a subsequent order to vacate surrounding premises, Tonkin v. California Ins. Co. of San Francisco, Inc., 62 N.E.2d 615 (N.Y. 1945), where the efficient cause of loss was smoke from a dashboard fire, not the resultant automobile accident, and Farrell v. Royal Ins. Co. of America, 989 F. Supp. 159 (D. Conn. 1997), where the efficient cause of loss was found to be an incorrect delivery of fuel oil and not the resultant oil discharge into the foundation of an insured's residence. Application of these cases to the present facts, however, would direct me to look at the efficient cause of the contamination, rather than the efficient cause of the loss, an approach inconsistent with New York precedent.
It also cannot be the case that a contamination exclusion in an insurance policy can only operate where the efficient cause of the contamination is also a cause excluded under that insurance policy. See Conde v. State Farm Fire Casualty Co., Nos. 93-3793, 93-3874, 1994 U.S. App. LEXIS 35427, at *5-6 (6th Cir. Dec. 14, 1994). Such an approach would render the Contamination Exclusion contained in the Policy, and any contamination exclusion in any insurance policy, meaningless.
Accordingly, I find that the efficient cause of Plaintiffs' loss was not the collapse of the WTC as Plaintiffs argue, but rather the actual contamination resulting from contact between airborne particulate matter and the Property.
IV. Conclusion
Defendant's motion for summary judgment (Docket No. 16) is granted. The Clerk of the Court shall mark this matter closed and all pending motions denied as moot.
SO ORDERED.