Opinion
06 Civ. 5494 (WHP).
January 29, 2008
Counsel of Record:
Joseph Austin Kilbourn, Esq., Cone Kilbourn, Mt. Kisco, NYC.
Steven Irwin Lewbel, Esq., Melito Adolfsen, P.C., York, NY, Counsel for Defendant.
MEMORANDUM AND ORDER
Plaintiff Tradin Organics USA, Inc. ("Tradin"), a New Hampshire corporation, brings this breach of contract action against Defendant Maryland Casualty Company ("Maryland"), a Maryland corporation, after Maryland denied Tradin coverage for losses associated with a government recall of its raspberry crumble. Both parties move for summary judgment. For the following reasons, Maryland's motion for summary judgment is granted, and the action is dismissed.
BACKGROUND
In July 2003, Canada-based Crofters Food Ltd. ("Crofters") purchased eighty metric tons of raspberry crumble from Tradin (the "Crumble"). (Declaration of Steven I. Lewbel dated Nov. 26, 2007 ("Second Lewbel Decl.") Ex. H: Sales Contract dated July 21, 2003.) To fulfill the order, Tradin's parent in Amsterdam, Tradin Organic Agriculture B.V. ("Tradin BV"), contracted with Den Juro, a Serbian company. (Second Lewbel Decl. Exs. E, F: Sales Contracts between Den Juro and Tradin BV dated Sept. 30, 2003 and Oct. 3, 2003, Invoice Nos. 20031287, 20031149.) Tradin BV's contract with Den Juro provided for Den Juro to ship the Crumble directly to Crofters. (Second Lewbel Decl. Ex N: Transcript of Stephen Snyder Deposition dated Feb. 2, 2007 at 39-40.) After Crofters accepted delivery, the Crumble was discovered to contain plastic, pits, cherry stems, glass and other materials, and the Canadian government ordered it recalled. (Affidavit of Vipon Kumar dated Nov. 21, 2007 ("Kumar Aff.") ¶ 4; Second Lewbel Decl. Ex. I: Letter from Steve Snyder to Lloyd Butler dated Apr. 14, 2004 at 2.) Tradin agreed to compensate Crofters $214,444.32 for the contaminated Crumble (the "Settlement"). (Kumar Aff. ¶ 7.)
Tradin filed an insurance claim with Maryland to recover the costs of the Settlement under Precision Portfolio Policy No. 35242205 (the "Policy"), which included commercial general liability coverage. (Kumar Aff. ¶ 6; Declaration of Steven I. Lewbel dated Dec. 14, 2007 ("Lewbel Decl.") Ex. C: Insurance Policy at MAR003.) Maryland had issued the Policy to Tradin, effective April 2004, through a New Hampshire-based insurance broker. (Lewbel Decl. Ex. C at MAR003, MAR071.) The Policy contains no choice-of-law provision.
Under the Policy, Maryland covers Tradin for "those sums that [Tradin] becomes legally obligated to pay as damages because of . . . `property damage' to which this insurance applies." (Lewbel Decl. Ex. C at MAR006.) The Policy excludes from coverage any property damage due to "`your product' arising out of it or any part of it" (the "Your Product Exclusion"). "[Y]our product" includes "any goods or products . . . manufactured, sold, handled, distributed or disposed of by" Tradin. (Lewbel Decl. Ex. C at MAR021.) The Policy also contains an exclusion for damages caused by "your work," which is defined as "[w]ork or operations performed by [Tradin] or on [Tradin's] behalf" and "[m]aterials, parts or equipment furnished in connection with such work or operations" (the "Your Work Exclusion"). (Lewbel Decl. Ex. C at MAR010, MAR021.) However, the Your Work Exclusion "does not apply if the damaged work or the work out of which the damage arises was performed on [Tradin's] behalf by a subcontractor." (Lewbel Decl. Ex. C at MAR010.)
By letter dated May 11, 2004, Maryland rejected Tradin's claim, citing the Your Product Exclusion. (Kumar Aff. ¶ 6, Ex. A: Letter from John D'Amico to Stephen E. Snyder at 1.) Tradin claims it has a right to full reimbursement of the Settlement. (Complaint dated July 19, 2006 ("Compl.") ¶ 18.) Tradin also seeks treble damages, alleging Maryland's decision to reject Tradin's claim was made "in bad faith." (Compl. ¶ 21.)
DISCUSSION
I. Legal Standard
Summary judgment should be granted "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In determining whether there is a genuine issue as to any material fact, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 255 (1986). When the dispute hinges on contract interpretation, "summary judgment may be granted when [the contract's] words convey a definite and precise meaning absent any ambiguity."Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992).
II. Choice of Law
A federal court in a diversity action must apply the choice-of-law rules of the forum state. White v. ABCO Eng'g Corp., 221 F.3d 293, 301 (2d Cir. 2000). For contract disputes, New York courts consider "(1) any choice-of-law provision contained in the contract; (2) the place where the contract was negotiated, issued, and signed; (3) the place of performance; (4) the location of the subject matter of the contract; and (5) the domicile, residence, nationality, place of incorporation, and place of business of the parties." Advani Enters., Inc. v. Underwriters at Lloyds of London, 140 F.3d 157, 162 (2d Cir. 1998). "In the context of insurance contracts, New York courts also consider . . . `the location of the insured risk; the insured's principal place of business; where the policy was issued and delivered; the location of the broker or agent placing the policy; where the premiums were paid; and the insurer's place of business.'" Schwartz v. Twin City Fire Ins. Co., 492 F. Supp. 2d 308, 317 (S.D.N.Y. 2007) (quoting Restatement (Second) of Conflict of Laws § 193). "[W]here liability insurance contracts are concerned, the applicable law is `the local law of the state which the parties understood was to be the principal location of the insured risk unless with respect to the particular issue, some other state has a more significant relationship . . . to the transaction and the parties.'" Zurich Ins. Co. v. Shearson Lehman Hutton, Inc., 84 N.Y.2d 309, 319 (N.Y. 1994) (quoting Restatement (Second) § 193).
The Policy, which contains no choice-of-law provision, was issued to a New Hampshire agent on behalf of Tradin, a New Hampshire corporation. (Lewbel Decl. Ex. C at MAR071.) The parties offer no evidence about where Tradin's agent signed the Policy. (Transcript of oral argument dated Jan. 18, 2008 ("Tr.") at 15.). New Hampshire is Tradin's only place of business (Second Lewbel Decl. Ex N at 14), and therefore, the only place from which the premiums could have been paid. New Hampshire's substantive law therefore governs the Policy.
II. Breach of Contract
New Hampshire courts "generally construe an insurance policy as [they] do any other contract." Energynorth Natural Gas, Inc. v. Continental Ins. Co., 146 N.H. 156, 159 (N.H. 2001). A contract is ambiguous "when the contracting parties reasonably differ as to its meaning." Behrens v. S.P. Constr. Co., Inc., 153 N.H. 498, 503 (N.H. 2006).
New Hampshire courts have not specifically interpreted "your work" and "your product" exclusions in insurance policies. In such situations — when the law of another state is unsettled — New York courts may presume that state's law would resemble New York's, but must also examine the law of that state and other states. Rogers v. Grimaldi, 875 F.2d 994, 1003 (2d Cir. 1989). New York courts, as well as courts in other jurisdictions, have held that similarly defined "your product" exclusions unambiguously preclude coverage for losses caused by a contaminated or defective product sold by the insured. Lowville Producer's Dairy Co-op., Inc. v. Am. Motorists Ins. Co., 198 A.D.2d 851, 852 (N.Y.Ct.App. 1993); see also Hartog Rahal P'ship v. Am. Motorists Ins. Co., 359 F. Supp. 2d 331, 332-33 (S.D.N.Y. 2005) (granting summary judgment to insurance company denying coverage based on "your product" exclusion where insured's losses were caused by contaminated apple juice concentrate it sold). See also Nat'l Union Fire Ins. Co. of Pittsburgh, Penn, v. Liberty Mut. Ins., 234 Fed. Appx. 190, (5th Cir. 2007) (interpreting Louisiana law); Modern Equipment Co. v. Cont'l Western Ins. Co., Inc., 355 F.3d 1125, 1129, 1131 (8th Cir. 2004) (interpreting Iowa law); United Capitol Ins. Co. v. Special Trucks, Inc., 918 F. Supp. 1250, 1255-57 (N.D. Ind. 1996) (interpreting Indiana law).
Moreover, the plain language of the contract supports this interpretation, as the Policy explicitly defines "your product" as "any goods or products . . . manufactured, sold, handled, distributed or disposed of by" Tradin or others using Tradin's name. (Lewbel Decl. Ex. C at 19.) It is undisputed that Tradin "sold" the food to Crofters. (Tr. at 2.) Because the Your Product Exclusion applies, Tradin's argument that recovery is not precluded by the Your Work Exclusion is irrelevant. The Policy unambiguously allows Tradin to deny coverage if any one of sixteen exclusions applies. (Lewbel Decl. Ex. C at MAR007-MAR011.) Maryland's motion for summary judgment on Tradin's contract claim is therefore granted, and Tradin's motion for summary judgment on its contract claim is denied.
III. Bad Faith
New Hampshire courts recognize a "bad faith" tort claim arising from breach of contract suits where "the facts constituting the breach of the contract also constitute a breach of a duty owed by the defendant to the plaintiff independent of the contract."Lawton v. Great Southwest Fire Ins. Co., 118 N.H. 607, 613 (N.H. 1978). Tradin claims bad faith because (1) Maryland did not sufficiently investigate the claim before denying it, and (2) in its letter to Tradin denying coverage, Maryland did not refer to the exception for subcontractors in the Your Work Exclusion. Tradin has not identified any duty Maryland owed independent of its contractual duty. Moreover, because the facts in this case do not constitute a breach of contract, there can be no bad faith claim. The Court therefore grants summary judgment to Maryland on Tradin's bad faith claim as well.
CONCLUSION
For the foregoing reasons, Tradin's motion for summary judgment is denied and Maryland's motion for summary judgment is granted. The Clerk of the Court shall terminate all motions pending as of January 29, 2008 as moot and mark the case closed.SO ORDERED: