Opinion
Civil Action No. 03-10196-RWZ.
August 16, 2004
MEMORANDUM OF DECISION
On September 25, 2001, RLI Insurance Company ("RLI") issued a property insurance policy to Wood Recycling, Inc. ("Wood") effective August 1, 2001 through August 31, 2002. At the time the policy was issued, Wood had three Massachusetts facilities, including a waste management and recycling operation in Southbridge, Massachusetts, which received construction debris in exchange for tipping fees.
On July 26, 2002, Wood reported a fire in its debris pile at the Southbridge facility. Thereafter, the Southbridge operation was shut down for three time periods: (1) from July 26 through August 2, when the fire was extinguished, (2) August 2 through August 12 by order of the local fire chief, and (3) October 21 through December 12 of that same year by order of the town. Wood sought coverage under the policy for its loss due to business interruption for each of the three periods which RLI denied. Thereafter, RLI filed a Complaint in this Court, seeking a declaration that it is not liable for Wood's business interruption losses, or alternatively, if liable, then it does not owe for any increase in loss as a result of any action taken by the town of Southbridge. On May 20, 2003, Wood filed a third-party Complaint against its insurance broker, International Insurance Group Limited ("IIG"), claiming that if the RLI policy did not cover its losses, then IIG was liable. IIG answered and also alleged four counts against RLI: (1) breach of implied duty of good faith and fair dealing, (2) breach of contract, (3) negligent misrepresentation, and (4) negligence. IIG also sought a declaratory judgment. RLI moves for summary judgment against both Wood and IIG, and they each move for summary judgment against RLI.
General rules of contract interpretation govern the construction of an insurance policy. Brazas Sporting Arms, Inc. v. American Empire Surplus Lines Insurance Co., 220 F.3d 1, 4 (1st Cir. 2000). First, the plain and ordinary meaning of the policy language is considered. Id. "In so doing, we consider what an objectively reasonable insured, reading the relevant policy language, would expect to be covered." Id. (quotations and citations omitted). The language is considered ambiguous where the terms "are fairly susceptible to more than one construction." Bird v. Centennial Insurance Co., 11 F.3d 228, 232 (1st Cir. 1993) (citation omitted). "When any ambiguities are found, courts apply rules of interpretation designed to protect the insured party." Marston v. American Employers Insur. Co., 439 F.2d 1035, 1039 (1st Cir. 1971).
RLI states that under the Commercial Output Program policy (attached to the Complaint), business interruption coverage applies only when the loss occurs at a "covered location." It then argues that the Southbridge facility does not qualify as a "covered location," which is defined by the policy as a place having buildings, structures, or business personal property. RLI further makes the unfounded assertion that buildings or business personal property must be identified in the Scheduled Locations Endorsement for that location. However, the policy itself belies that argument. The Scheduled Locations Endorsement, which is listed as part of the policy under the Commercial Coverage Schedule of Endorsements, states that "[c]overage provided by the Commercial Output Program Coverage applies only to the `covered locations' shown below." The Southbridge facility is listed as one of three covered locations and furthermore, it describes the "Coverage Provided" as "Business Income Included." The policy plainly states that Wood's Southbridge facility is a "covered location."
RLI asserts that if "business income included" is interpreted to grant coverage for Wood's business interruption loss, then the definition for "covered location" would be rendered "utterly meaningless." (RLI's Mem. at 12). However, to interpret that phrase otherwise would distort the plain meaning of the language. In any case, the "business personal property" portion of the definition of "covered location" is undefined and may be read to include the construction debris at the Southbridge location. RLI's next contention that the phrase "business income included" was meant to indicate that coverage is triggered when "covered property" at the Peabody and Charlton locations interrupts business at Southbridge is an unpersuasive and contorted interpretation of the policy language. Finally, RLI states that because the business interruption must be caused by "covered property" damage in order to trigger coverage, Wood is not entitled to coverage because it did not insure the debris pile. However, the value of Wood's business lies in the collection and recycling of waste — not in the waste itself. It is absurd to suggest that Wood is required to insure the waste. Furthermore, the "Income Coverage Part" of the policy defines "business" as "normal business activities occurring at `covered locations'. . . ." Under a plain reading of the policy, Wood is entitled to insurance coverage at its Southbridge facility when its business activity, namely, the collection of waste, is interrupted as was the case here.
The next issue is whether coverage continued for the time the facility was closed due to the town's orders. Although the fire was extinguished on August 2, 2002, the facility remained closed until August 12, 2002 by order of the town of Southbridge. The facility was again shut down by the town from October 21, 2002 through December 12, 2002. RLI contends that it is not liable for the additional time the operation was closed after the fire was extinguished. Wood contends that the sole question is whether the fire chief's October 21, 2002, order constitutes the "enforcement of any ordinance, law or decree." Under the "Commercial Output Program — Income Coverage Part" of the policy, "Restoration period" is defined as:
the time it should reasonably take to resume `your' `business' starting from the date of loss to `covered locations' caused by a covered peril, and ending on the date the property should be rebuilt, repaired, or replaced . . . This does not include any increase in time due to the enforcement of any ordinance, law, or decree that:
a. regulates the construction, use, repair, or demolition of any property. . . .
On this record, the nature of both orders is unclear as are the reasons for the facility's closure during those time periods. Therefore, the issue cannot be resolved at this time.
Wood inexplicably claims that the town's closure of its facility is not a coverage issue but only speaks to the length of the business interruption. However, RLI has correctly stated that given the terms of the policy, if the additional length in time of the business interruption is due to the town's enforcement of an ordinance, law, or decree, then coverage after that point ceases.
IIG moves for summary judgment, seeking a dismissal of Wood's Third-Party Complaint against it. IIG also states that should this Court find coverage for business interruption under the policy, then its claims against RLI may be dismissed as moot. Because this Court has found that the policy covers Wood's business interruption, the claims against IIG are dismissed and RLI's Motion for Summary Judgment is denied as moot.
Accordingly, RLI's Motion for Summary Judgment is denied, and Wood's Motion for Summary Judgment is granted as to the existence of business interruption coverage and denied as to the issue of whether coverage continued in light of the action taken by the town of Southbridge. IIG's Motion for Summary Judgment is granted, and RLI's Motion for Summary Judgment against IIG is denied as moot.