Sirob Imports, Inc. v M.R.W. Group, Inc.

[*1] Sirob Imports, Inc. v M.R.W. Group, Inc. 2004 NY Slip Op 50960(U) Decided on June 21, 2004 Supreme Court, Suffolk County Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on June 21, 2004
Supreme Court, Suffolk County

SIROB IMPORTS, INC., ALFA AMAC, FOODS LTD. and NICHOLAS BOBORIS, Plaintiffs,

against

M.R.W. GROUP, INC., RICHTBERG & REHBERGER AGENCY, MILLS-MULLER-WOOD AGENCY, PENNSYLVANIA GENERAL INSURANCE COMPANY, CGU INSURANCE COMPANY n/k/a 1 BEACON INS., FRED REHBERGER, JANINE LINQUIST, and KEVIN MCCEON, Defendants.



24173-01



RAZIS & ROSS, P.C.

Attorneys for the Plaintiffs

23-09 31st Street

Astoria, New York 11105

LUSTIG & BROWN, LLP

Attorneys for Defendants M.R.W. Group Inc.

Richtberg & Rehberger Agency, Mills-Muller-Wood Agency, and Fred Rehberger

28 West 44th Street, 20th Floor

New York, New York 10036

SPEYER & PERLBERG, LLP

Attorneys for Defendants Pennsylvania General Insurance Company, CGU Insurance Company, n/k/a 1 Beacon Insurance

115 Broadhollow Road, Suite 250

Melville, New York 11747

Elizabeth Hazlitt Emerson, J.

ORDERED that the motion (No.002) by defendants M.R.W. Group, Inc., Richtberg & Rehberger Agency, and Mills-Muller-Wood Agency (hereafter MRW), for an order pursuant to CPLR 3212 granting partial summary judgment dismissing plaintiffs' causes of action for business loss and/or business interruption and for punitive damages, is denied; and it is further

ORDERED that the motion (#003) by defendants Pennsylvania General Ins. Co. and CGU

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Ins. Co., n/k/a 1 Beacon Ins. (hereafter 1 Beacon), for an order pursuant to CPLR 3212 granting summary judgment dismissing the complaint or, in the alternative, partial summary judgment on plaintiffs' claim for business income or business interruption, and on their cross claim for indemnification from M.R.W. Group, Inc., Richtberg & Rehberger Agency, and Mills-Muller-Wood Agency, is denied.

These two motions are hereby consolidated for the purposes of this decision and order only. Initially, it appears that the parties executed a stipulation dated March 17, 2003 [FN1], wherein [*2]plaintiffs agreed to withdraw their claim for punitive damages, and all parties agreed to withdraw the claims, counterclaims and cross claims against Fred Rehberger, Janine Linquist and Kevin McCeon, individually. Accordingly, so much of motion #002 which seeks summary judgment dismissing plaintiff's cause of action for punitive damages [FN2], is denied as moot.

Plaintiffs commenced this hybrid breach of contract, negligence and declaratory judgment action when their insurance carrier declined coverage relative to a fire which occurred on October 29, 2000, at property leased by Sirob Imports, Inc. and located at 1110A Route 109, Lindenhurst, LI. Plaintiffs (collectively, hereafter Sirob) are in the wholesale food business and deal mainly in importation, blending and repackaging of spices, soup bases, and certain soft drink mixes. Plaintiffs' insurance agency is collectively referred to hereafter as MRW. Plaintiffs have been dealing exclusively with MRW since 1994 and met with Fred Rehberger of MRW, at minimum, once every other month. Mr. Rehberger testified at his examination before trial that Nicholas Boboris, Sirob's principal, came to depend on him and to "anticipate his needs with regards to insurance." MRW provided all plaintiffs' insurance needs, including, liability, property, business loss, worker's compensation, auto, and excess liability. The liability/property policy was initially with a different company. The original 1 Beacon policy (written by its predecessor, CGU) effective 1/17/1998, covered plaintiffs' facilities located at 21 Gear Ave. and 6 Gear Ave., Lindenhurst. The policy blanketed both locations and covered liability risks and property risks, including contents, and was renewed annually up to 1/17/2000 through 1/17/2001, the policy period at issue.

Fred Rehberger and 1 Beacon's loss control inspector, Kevin McKeown, testified that they visited 21 Gear Ave. in 1999 and 1998 and that certain recommendations were made to plaintiff. Among these were reducing the height that stock was stacked and placing fire extinguishers, or installing a sprinkler system, and certain clean-up outside the building. Mr. Boboris spoke to Fred Rehberger in June of 2000, advising him that Sirob had leased additional space located at 1110A Rt. 109 and requesting that it be added to the insurance. The landlord had agreed to a two-month

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rent waiver so that the premises could be painted and cleaned up and certain electrical renovation could be performed to accommodate plaintiffs' machinery. Plaintiffs mailed a copy of the lease to Fred Rehberger so that Fred could make sure that the policy would "cover the landlord's requirements." A policy change was initiated adding liability coverage for "location #3" at Rt. 109 to the existing policy, effective 6/3/00. The new location is very close to 21 Gear [*3]Ave., less than two blocks away. Mr. Boboris testified that he needed additional space, some 65,000 sq. ft., to accommodate the mixing, grinding, and bottling machines, and that Rt. 109 had an existing sprinkler system, which he had been told was necessary.

The gravamen of 1 Beacon's disclaimer of coverage is that the policy addition effective June 3, 2000, for 1110A Rt 109, covered liability only, not property damage or business losses, and, in any event, the business income loss provision in the policy did not cover plaintiffs' circumstances. They argue that coverage was not in place because plaintiffs had failed to respond to a request that they fix a separate dollar value for merchandise at each location. In support, 1 Beacon submitted, inter alia, a copy of the policy, the change endorsement, and various correspondence between the parties.

The "Summary of Change" issued 8/28/2000 and effective 6/3/2000 provides, in relevant part, that location 3, 1110A Rte 109, as well as an additional insured, were added to the policy, with no change in premium. It stated that changes made as of the effective date included the endorsement and revised declarations pages, and that it updated the policy to include the new location and remove a location no longer leased (6 Gear Ave).

The $16,335.79 annual premium was listed as: commercial property $9,220.00

commercial general liability $6,135.00

boiler and machinery$ 937.00

New York Fire Surcharge $ 43.79

The policy, on page four, entitled Wholesale Food, Commercial Account Policy, Common Policy, Declarations, provides:

Property Form Coverages:

Loss Payable Provisions

New York Changes

Commercial Property Conditions

Changes Pollutants

Wholesale-Food

Building and Personal Property

Causes of Loss-Special Form

CU Security For Prop Endt

Com'l Prop Cov Extnsn

Business Income & EE Other (emphasis added)

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Fred Rehberger testified at his examination before trial that he and Kevin McKeown, the insurer's loss control inspector, visited both 21 Gear Ave and 1110A Rt. 109 on August 3, 2000.

He also testified that Rt. 109 was to be added to the existing policy under a blanket coverage, which would blanket the contents, business interruption, and extra expense coverage, between both locations. His assistant also testified that that was her understanding as well. Mr. Rehberger further testified that he was surprised when 1 Beacon denied coverage, his understanding was that the dollar amounts requested represented rating data and were not necessary to bind coverage. A September 7, 2000 letter from MRW to plaintiff reads:We are pleased to enclose this endorsement to your policy.It adds Liability coverage for 1110A Route 109, which you're leasing with an option to buy. Please remember to let us know as soon as that status changes because your coverage will need to be adjusted.

Leo Triantafilidis testified at his examination before trial that, at the relevant time, he was employed by Sirob as an accountant and that he dealt with Sirob's insurance agent, Fred Rehberger, at least once a month. He testified that in August of 2000, he met with Rehberger and Kevin McKeown, the insurer's representative, at both 21 Gear Ave and Rt 109, so that they could ascertain if Sirob had followed up on certain recommendations relative to storage of materials and safety at 21 Gear, and to see the new location. Since the policy already listed the two Gear Ave locations, Mr. Triantafilidis believed that adding the new location on the policy included the same coverage afforded the first two locations. Sirob began moving raw materials from 21 Gear Ave, as well as new machinery, into Rt. 109 during the end of July. By the end of September, the Rt 109 location was fully operational. After blending, grinding and packaging was complete, the products were stored at 21 Gear Ave. before shipping. Mr. Triantafilidis also testified that the raw materials and repackaged products were in a constant state of flux between the two locations, although the records were kept at 21 Gear Ave. office.

By letter dated July 12, 2000, from the insurer to MRW, the insurer acknowledged the request to add a third location effective 6/3/2000, and a conversation with Fred Rehberger to the effect that plaintiff had begun moving into Rt 109. It requested from MRW a value of the materials at Rt 109 and the square feet occupied by plaintiff, and sought clarification that location #2, 6 Gear Ave., was no longer occupied. By fax dated September 12, 2000, from MRW to Sirob, MRW requested the approximate value of property Sirob "will be putting into the new location, the approximate date you will have most of the property in that location, and the value of the property that will remain in your current location." Mr. Triantafilidis testified that he spoke to Fred Rehberger and reiterated that the inventory of over 2 million dollars was continually moved between the two locations and asked "how do you want me to handle" these estimates. To which he stated Fred told him; "I'll take care of it." [*4]

Words in an insurance policy are to be read and understood, not hypertechnically, but in their plain and ordinary sense (see, Lewis v Ocean Acc. & Guar. Corp., 224 NY 18, 21 [1918];

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Silverstein v Metropolitan Life Ins. Co., 254 NY 81 [1930]). In construing an insurance contract,

the tests to be applied are "common speech" and "the reasonable expectation of the ordinary businessman" (Ace Wire & Cable Co. v Aetna Cas. & Sur. Co., 60 NY2d 390, 469 NYS2d 655 [1983]). The average businessman reading plaintiffs' policy would not conclude that adding location #3 to an already existing blanket policy would create two different coverages, one for 21 Gear Ave and one limited to liability only for Rt. 109. "If an exclusion of liability is intended which is not apparent from the language employed, it is the insurer's responsibility to make such intention clearly known" (Aetna Cas. & Sur. Co. v General Cas. Co., 285 AD 767, 770, 140 NYS2d 670 [1995]). Moreover, any ambiguity in an insurance policy must be construed against the insurer, the draftsman of the policy (Handelsman v Sea Ins. Co. Ltd., 85 NY2d 96, 623 NYS2d 750 [1994]; United States Fid. & Guar. Co. v Annuziata, 67 NY2d 229, 232, 501 NYS2d 790 [1986]). The insurance contract cannot be altered by a letter requesting amounts, it is the contract which is dispositive not a letter or even a certificate (see, Tribeca Broadway Assoc. v Mt. Vernon Fire Ins. Co., 2004 NY App Div LEXIS 2568). It is well settled that on a motion for summary judgment, movant has the initial burden of setting forth evidentiary facts sufficient to establish its entitlement to judgment as a matter of law (see, Zuckerman v City of New York, 49 NY2d 557, 427 NYS2d 595 [1980]; Fabbricatore v Lindenhurst Union Free School District, 259 AD2d 659, 686 NYS2d 822 [1999]). Here, 1 Beacon has not established that the addition of 1110A Rt. 109 to the existing policy created a coverage which excluded all but liability insurance as to the Rt. 109 property. Accordingly, so much of 1 Beacon's motion seeking summary judgment dismissing plaintiffs' complaint is denied.

1 Beacon and MRW argue that, even if property liability was in effect at the time of the fire, the policy excludes coverage for business losses incurred when plaintiff was unable to fill, or only able to partially fill, international contracts. They argue that the business income that plaintiffs seek to recover is specifically excluded by the policy because the shipments which plaintiffs where unable to fill, due to smoke damage, consisted on "finished stock."

To "negate coverage by virtue of an exclusion, an insurer 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" (see, Continental Casualty Co. v Rapid American Corp, 80 NY2d 640, 593 NYS2d 966 [1993]; Seaboard Surety Co. v Gillette, 64 NY2d 304, 486 NYS2d 873 [1984]). "Policy exclusions are not to be extended by interpretation or implication, but are to be accorded a strict and narrow construction" (see, Incorporated Village of Cedarhurst v Hanover Ins. Co., 89 NY2d 293, 653 NYS2d 68 [1996]; Town of [*5]Harrison v National Union Fire Insurance Co., 89 NY2d 308, 653 NYS2d 75 [1996]. Further, "any ambiguity is to be construed against the insurer, particularly when the ambiguity is in an exclusionary clause" and "an exclusionary clause, moreover, can be ambiguous in one context and not in another" (Stoney Run Co. v Prudential-LMI Commercial Ins. Co., 47 F3d 34 [2d Cir. 1995]). Nonetheless, regardless of the context, "when construing an insurance policy, the tests applied are 'common speech' and the 'reasonable expectation and purpose of the ordinary businessman' " (Id.).

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The policy provides at the endorsement for "Special Coverage for Food Wholesalers" that: A. COVERAGE amended as follows: (in relevant part)Sections A.1.a. Building, A.1.b. Your Business Personal Property

3. Resumption of Operations

4. Definitions

"Business Income" means the: (1) Net Income (net profit or loss before income taxes) that would have been earned or incurred; and

(2) Continuing normal operating expenses incurred, including payroll It further provides at the Building and Personal Property Coverage FormA. COVERAGE1. Covered Property

a. Building

* * *

b. Your Building Personal Property . . . .

(1) Furniture and fixtures;

(2) Machinery and equipment;

(3) "Stock"

defined at subsection H Definitions: "Stock" means merchandise held in storage or for sale, raw materials and in-process or finished goods, including supplies

used in their packing or shipping. (emphasis added)

Since plaintiffs are clearly covered as "food wholesalers" and covered for "business income" and "stock" in their buildings, and it would appear that that was the intent of both plaintiff and their broker, it is defendants' burden to establish that coverage is excluded by some [*6]other provision. Defendants rely on seemingly contradictory language at the section entitled "Causes of Loss-Special Form" which provides, at subsection 4. Special Exclusion: a. Business Income (And Extra Expense) Coverage Form, Business Income (Without Extra Expense) Coverage Form or Extra Expense Coverage Form

4. Special Exclusions We will not pay for:

* * * (2) Any loss caused by or resulting from:(a) Damage or destruction of "finished stock"; or

(b) The time required to reproduce "finished stock." This exclusion does not apply to Extra Expense.

"Where the policy is ambiguous, the policy must be narrowly interpreted in favor of the insured" (MDW Enterprises, Inc. v CNA Ins. Co., 4 AD3d 338, 772 NYS2d 79 [ 2004]). Here,

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it does not appear that 1 Beacon's policy defined "finished stock." The definitions for the Causes of Loss-Special Form appear at subsection F. However, subsection F does not define "finished stock", it merely defines "specified causes of loss" as: Fire; lightening; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow; ice or sleet; water damage (emphasis added). Further, 1 Beacon also argues that plaintiffs continued to operate out of the 21 Gear Ave. location and made partial shipments, and are therefore barred from recovery because they did not incur a total suspension of operations. However, those issues cannot be resolved upon 1 Beacon's submissions. Therefore, there remain questions of fact relative to what is meant by "finished stock," how it differed from the "stock" which is defined and covered under the Building and Personal Property Coverage Form, whether the property contents coverage may impact on plaintiffs' income claim, as well as plaintiffs' ability to fulfill partial shipments. Accordingly, those portions of the motions which seek to dismiss plaintiffs claim for business income or business interruption are denied (Winegrad v New York University Medical Center, 64 NY2d 851, 487 NYS2d 316 [1985]).

Lastly, 1 Beacon seeks summary judgment on its cross claim for indemnifications from MRW. On a motion for summary judgment it is not the court's function to assess credibility (see, Ferrante v American Lung Association, 90 NY2d 623, 665 NYS2d 25 [1997]; Glick & Dolleck v Tri-Pac Export Corp., 22 NY2d 439, 293 NYS2d 93 [1968]). Moreover, in accordance with the often recited standards for summary judgment, it is the movant who has the burden to establish his entitlement to summary judgment as a matter of law (see, Alvarez v Prospect Hosp., [*7]68 NY2d 320, 508 NYS2d 923 [1986]; Zuckerman v City of New York, supra). For movant to prevail it must clearly appear that no material and triable issue of fact is presented (see, Di Menna & Sons v City of New York, 301 NY 118 [1950]). This drastic remedy should not be granted where there is any doubt as to the existence of such issues (see, Braun v Carey, 280 AD 1019, 116 NYS2d 857 [1952]), or where the issue is "arguable" (see, Barrett v Jacobs, 255 NY 520 [1931]); "issue-finding, rather than issue-determination, is the key to the procedure" (see, Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 165 NYS2d 498 [1957], citing to Esteve v Abad, 271 AD 725, 68 NYS2d 322 [1948]). Here, the Court finds that 1 Beacon has not established its entitlement to summary judgment as a matter of law on its indemnification cross claim, and that portion of the motion is also denied.

DATED: June 21, 2004

J. S.C. Footnotes

Footnote 1: It does not appear that the stipulation was filed with the County Clerk, and plaintiff is directed to file same forthwith.

Footnote 2:Moreover, the Court notes that a demand for punitive damages may not constitute a separate cause of action for pleading purposes (Warhoftig v Allstate Ins. Co., 199 AD2d 258, 604 NYS2d 245 [1993]; Porter v Allstate Ins. Co., 184 AD2d 685, 585 NYS2d 465 [1992])