Millennium Inorganic Chemicals v. National Union Fire Insurance
Filing
PUBLISHED AUTHORED OPINION filed. Originating case number: 1:09-cv-01893-ELH. [999299990]. [13-1194]
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-1194
MILLENNIUM INORGANIC
CHEMICALS LIMITED,
CHEMICALS
LTD.;
CRISTAL
INORGANIC
Plaintiffs - Appellees,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA; ACE
AMERICAN INSURANCE COMPANY,
Defendants - Appellants.
Appeal from the United States District Court for the District of
Maryland, at Baltimore.
Ellen L. Hollander, District Judge.
(1:09−cv−01893−ELH)
Argued:
December 12, 2013
Decided:
February 20, 2014
Before NIEMEYER, AGEE, and WYNN, Circuit Judges.
Reversed and remanded by published opinion.
Judge Agee wrote
the opinion, in which Judge Niemeyer joined. Judge Wynn wrote a
dissenting opinion.
ARGUED:
Charles
Glaston
Cole,
STEPTOE
&
JOHNSON,
LLP,
Washington, D.C., for Appellants.
Joseph Lanham Beavers, MILES
& STOCKBRIDGE P.C., Baltimore, Maryland, for Appellees.
ON
BRIEF: Jonathan D. Hacker, O’MELVENY & MYERS LLP, Washington,
D.C., for Appellant ACE American Insurance Company.
Roger E.
Warin, STEPTOE & JOHNSON LLP, Washington, D.C., for Appellant
National Union Fire Insurance Company of Pittsburgh, PA.
John
C. Mezzacappa, Hilary M. Henkind, MOUND COTTON WOLLAN &
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GREENGRASS, New York, New York, for Appellants. Gary C. Duvall,
Jeffrey P. Reilly, John C. Celeste, MILES & STOCKBRIDGE P.C.,
Baltimore, Maryland, for Appellees.
2
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AGEE, Circuit Judge:
National
Union
Fire
Insurance
Company
of
Pittsburgh,
PA
(“National Union”) and ACE American Insurance Co. (“ACE” and
together with National Union, the “Insurers”) appeal from the
district court’s grant of partial summary judgment in favor of
Millennium
Inorganic
Chemicals
Ltd.
and
Cristal
Inorganic
Chemicals Ltd. (collectively, “Millennium”). Millennium sued the
Insurers in the United States District Court for the District of
Maryland,
contending
that
Millennium's
claim
interruption
provisions
policies
issued
for
by
the
the
Insurers
coverage
of
had
under
commercial
Insurers.
The
wrongfully
contingent
liability
district
denied
business
insurance
court
granted
partial summary judgment in favor of Millennium after concluding
that certain terms in the policies were ambiguous and that the
doctrine
of
contra
proferentem
therefore
applied.
For
the
reasons set forth below, we reverse the judgment of the district
court and remand for entry of summary judgment in favor of the
Insurers.
I
A
The Insurance Policy Provisions
In 2008, Millennium enlisted the help of Marsh USA, Inc.
(“Marsh”), an insurance brokerage firm, to secure a commercial
liability
insurance
policy
including
3
contingent
business
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interruption (“CBI”) insurance coverage. 1 Marsh solicited bids
from a number of insurers, including National Union and ACE,
seeking CBI coverage and outlining the coverage specifications
Millennium sought, specifically stating only that it required
coverage
“for
direct
suppliers/customers.”
(J.A.
1193.)
In
response, National Union's quote provided, “THERE SHALL BE NO
COVERAGE
FOR
INDIRECT
SUPPLIERS/RECIPIENTS.”
(J.A.
1209.)
ACE
also offered a quote, providing policy limits only for “direct”
suppliers. (J.A. 1217.)
Millennium
chose
to
purchase
its
commercial
coverage,
including the CBI endorsement, from National Union and ACE, each
of
which
would
bear
responsibility
for
50%
of
Millennium’s
covered losses, up to specified limits. As pertinent to the CBI
coverage,
National
“Binder”),
which
Union
issued
a
Binder
stated,
“THERE
SHALL
BE
of
Insurance
NO
COVERAGE
(a
FOR
INDIRECT SUPPLIERS/RECIPIENTS.” (J.A. 1289.) The National Union
Binder
also
provided
a
sublimit
on
liability
for
“DIRECT
CONTRIBUTING OR RECIPIENT PROPERTY(IES).” (J.A. 1287.) Likewise,
1
Generically, business interruption insurance coverage
protects the insured party against losses stemming from
unexpected interruptions of normal business operations resulting
from damage to property caused by a covered hazard. 11 Steven
Plitt et al., Couch on Insurance 3d § 167:9 (2013). A subset of
business interruption coverage, termed CBI coverage, protects
against business losses caused by damage to property not owned
by the insured party. Id. § 167:14. The only provision of the
policies at issue in this case concerns the CBI coverage.
4
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ACE
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issued
“‘Direct’
a
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Binder
Contingent
that
Time
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provided
a
Element[s].”
similar
(J.A.
sublimit
1305.)
on
Neither
Binder provided any coverage for “indirect” suppliers.
Shortly after issuing the Binders, National Union and ACE
separately issued policies to Millennium (the “Policies”) with
essentially identical terms. Each policy included an Endorsement
titled
“CONTINGENT
PROPERTY(IES)
1496.)
The
BUSINESS
ENDORSEMENT”
Endorsements
(the
INTERRUPTION
CONTRIBUTING
“Endorsements”).
insured
Millennium
(J.A.
against
1392,
certain
losses resulting from the disruption of the supply of materials
to
Millennium
caused
by
damage
to
certain
“contributing
properties.” 2 (J.A. 1392, 1496.) Specifically, Section C of the
Endorsements defined events of coverage as insurance
only against loss directly resulting from
necessary interruption of business conducted
on premises occupied by [Millennium], caused
by damage to or destruction of any of the
real or personal property described above
and
referred
to
as
CONTRIBUTING
2
The term “contributing properties” means “the insured’s
prime suppliers of materials, parts and services. If the insured
depends upon one or, at most, a few manufacturers or suppliers
for the bulk of materials and supplies necessary to conduct its
business operations, then these suppliers are said to be
contributing properties.” Insuring Real Property § 3.03[2]
(Stephen A. Cozen ed. 2013); (see J.A. 1707). Consistent with
this industry definition, the Endorsements define “contributing
property” by reference to the policy schedules, which state that
covered locations “must be direct suppliers of materials to
[Millennium’s] locations.” (J.A. 1392, 1496.) The parties in
this case use the term “contributing property” interchangeably
with the term “supplier.” (See, e.g., Response Br. 27 n.12.)
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PROPERTY(IES) and which is not operated by
[Millennium],
by
the
peril(s)
insured
against during the term of this Policy,
which wholly or partially prevents the
delivery of materials to [Millennium] or to
others for the account of [Millennium] and
results directly in a necessary interruption
of [Millennium’s] business.
(J.A. 1392, 1496.) “Contributing Properties” in Section C of the
Endorsements was thus defined by reference (“described above”)
to
the
preceding
Section
B,
which
establishes
that
only
a
“direct supplier of materials to the Insured's locations” can be
a “contributing property.” Section B provided a “SCHEDULE OF
LOCATION(S),” (the “Schedules”) in which Millennium could list
any
“contributing
property”
that
created
a
risk
of
business
interruption. (J.A. 1392, 1496.)
A
general
section
of
each
of
the
Policies
set
policy
sublimits and provided that any direct contributing properties
named in the Schedules were covered for $25 million, while any
unnamed
direct
contributing
properties
were
covered
for
$10
million. Millennium did not list any contributing properties on
the provided Schedules. The Endorsements also each contained a
loss-mitigation
provision
requiring
Millennium
to
“use
[its]
influence to induce the CONTRIBUTING PROPERTY(IES) to make use
of
any
available
other
in
machinery,
order
to
equipment,
resume
supplies
operations
materials to [Millennium].” (J.A. 1393, 1497.)
6
and
or
location
delivery
of
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B
Millennium
Millennium's Coverage Claim
was
in
the
business
of
processing
titanium
dioxide, a compound often used for its white pigmentation, at
its processing facility in Western Australia. The energy source
for
Millennium’s
titanium
dioxide
processing
operation
was
natural gas received through the Dampier-to-Bunbury Natural Gas
Pipeline (the “DB Pipeline”), Western Australia’s principal gas
transmission
contract
pipeline.
with
Alinta
Millennium
Sales
Pty
purchased
Ltd
the
(“Alinta”),
gas
a
under
retail
a
gas
supplier. Alinta purchased the gas it offered for sale from a
number
of
natural
gas
producers,
one
of
which
was
Apache
Corporation (“Apache”).
As a natural gas producer, Apache extracted and processed
natural gas from wells on Varanus Island, an island located off
the
coast
of
Western
Australia.
Once
Apache
processed
the
natural gas, it would inject the gas into the DB Pipeline, at
which
point
custody,
title,
and
risk
passed
from
Apache
to
Alinta. The natural gas received from Apache's facility then
comingled with that obtained from other producers, resulting in
an amorphous mix of gas in a single pipeline.
Apache has no ownership interest in the DB Pipeline and
does not own any downstream gas transmission or distribution
facilities. Alinta retains sole ownership of the gas once it
enters the DB Pipeline. Under Alinta’s end-user contract with
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Millennium, title to the gas passed to Millennium only at the
time of delivery, i.e., when the gas left the DB Pipeline and
was
delivered
to
Millennium’s
facility
by
way
of
a
separate
delivery line. Millennium’s contract for the purchase of natural
gas
was
solely
with
Alinta.
Millennium
had
no
contract
or
business relationship with Apache, and the contract with Alinta
made no reference to Apache. At the time period relevant to this
appeal, Apache produced about 20% of the natural gas that Alinta
sold.
On June 3, 2008, an explosion occurred at Apache’s Varanus
Island facility, causing its natural gas production to cease.
Apache notified Alinta that the explosion caused it to shut down
its
operations
and
that
there
would
be
no
gas
supply
from
Varanus Island until further notice. Alinta, in turn, sent a
notice of force majeure to Millennium and other customers. The
Australian
government
quickly
intervened
and
imposed
controls
prioritizing delivery of natural gas to domestic customers and
essential services. As a result, Millennium’s gas supply was
curtailed, and it was forced to shut down its titanium dioxide
manufacturing operations for a number of months.
Two days after the explosion, on June 5, 2008, Millennium
sent notice of claim letters to National Union and ACE, seeking
CBI coverage for its losses incurred when the titanium dioxide
facility
closed.
The
Insurers
investigated
8
Millennium’s
claim
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and provided a detailed report explaining the Australian gas
distribution system and concluding that Apache was not a direct
supplier
to
determined
Millennium.
there
was
As
no
a
consequence,
coverage
under
the
the
Insurers
Policies
for
Millennium’s claim, but invited Millennium to provide evidence
of
a
direct
relationship
between
Millennium
and
Apache
sufficient to establish policy coverage.
Millennium responded by asserting, inter alia, that Apache
was
a
direct
supplier
to
it
because
Alinta
provided
only
a
service, the delivery of natural gas, whereas Apache provided
the
actual
material
at
issue.
National
Union
reaffirmed
its
denial of Millennium’s claim, contending that Alinta, and not
Apache,
was
only
There
Millennium.
the
was
direct
no
supplier
further
of
natural
communication
gas
to
between
the
against
the
parties.
C
In
July
Proceedings in the District Court
2009,
Millennium
filed
a
complaint
Insurers in the United States District Court for the District of
Maryland,
invoking
the
court’s
diversity
jurisdiction. 3
Millennium requested a declaratory judgment regarding the rights
3
Millennium also asserted several claims against Marsh, but
voluntarily dismissed those claims pursuant to Rule 41(a)(1) of
the Federal Rules of Civil Procedure. Millennium’s claims
against Marsh are not at issue on appeal.
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and liabilities of the parties with respect to the Policies.
Further, Millennium asserted claims of breach of contract 4 and
failure to act in good faith pursuant to section 3-1701 of the
Maryland Courts and Judicial Proceedings Code.
After the close of discovery, Millennium moved for partial
summary judgment on its declaratory judgment claim, arguing that
the Policies unambiguously covered Millennium’s loss because the
Endorsements did not limit coverage to direct suppliers. The
Insurers
filed
Millennium’s
a
joint
declaratory
cross-motion
judgment
for
and
summary
bad
judgment
faith
on
claims,
contending that the Policies provided coverage only for direct
suppliers
and
that
Apache
was
not
a
direct
supplier
to
Millennium. The Insurers also argued that Millennium failed to
present any evidence in support of its bad faith claim.
The district court entered an order granting Millennium’s
motion
for
motion
partial
for
summary
summary
judgment
judgment,
with
denying
respect
to
the
Insurers’
Millennium’s
declaratory judgment claim, and granting the Insurers’ motion
with respect to Millennium’s bad faith claim. In an accompanying
opinion,
the
district
court
reviewed
4
and
interpreted
the
Millennium’s breach of contract claim was based upon the
Insurers’ refusal to cover Millennium’s CBI losses arising out
of the Varanus Island explosion, and Millennium asserts coverage
only under the Endorsements. Thus, Millennium’s breach of
contract claim must rise or fall with its coverage claim.
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Policies, 5 concluding that coverage under the Policies extended
only
to
“direct
contributing
properties.”
In
determining
the
meaning of the term “direct contributing property,” the district
court reviewed existing caselaw on CBI coverage.
The
district
court
concluded
that
“the
physical
relationship between the properties is as or more important than
the legal relationship between the properties’ owners.” (J.A.
1991.) The district court held that Millennium’s contract with
Alinta had “no effect on the physical realities of natural gas
supply
between
[Apache]
and
[Millennium]”
because,
although
Alinta took title to the gas when it traveled through the DB
Pipeline, Alinta “never [took] physical possession of the gas
and [had] no ‘property’ with which to do so.” (J.A. 1991.)
5
Finding that the Policies lacked choice of law provisions,
the district court applied a Maryland choice of law analysis to
determine which state’s law applied to the construction of the
Policies. See CACI Int’l, Inc. v. St. Paul Fire & Marine Ins.
Co., 566 F.3d 150, 154 (4th Cir. 2009) (holding that federal
courts exercising diversity jurisdiction “apply the choice of
law rules of the forum state”). Millennium argued in favor of
New Jersey law and the Insurers argued in favor of New York law.
The district court concluded that, under a lex loci analysis,
New York law would apply, but ultimately declined to reach a
decision, reasoning that there was no meaningful difference in
the common law regarding interpretation of insurance policies of
either state. We need not perform a choice of law analysis on
appeal because the parties now agree that there is no
substantive difference between the applicable laws of New York
and New Jersey with respect to the issues in this case, and each
party cites to both New York and New Jersey caselaw. We
therefore cite to the laws of both jurisdictions.
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The district court then observed that “the policies do not
define the term ‘direct,’” and concluded that “the term ‘direct’
is ambiguous here, in the context of an entity that provides a
direct physical supply of material to the insured, but has no
direct contractual relationship with the insured.” (J.A. 1993.)
Although the parties presented extrinsic evidence to establish
the meaning of "direct," the district court concluded that none
of that evidence “speaks to the specific meaning the parties
intended by the use of the word ‘direct.’” (J.A. 1994.) In order
to
resolve
doctrine
the
of
ambiguity,
contra
the
district
proferentem 6
in
court
favor
of
applied
the
Millennium.
Accordingly, the district court held that Apache qualified as a
“direct” supplier to Millennium and that Apache’s natural gas
production facility was a “direct contributing property” within
the
meaning
physically
Millennium’s
of
the
provided
Policies
a
premises,
direct
despite
“because
supply
the
of
fact
Apache’s
natural
that
facility
gas
Apache
to
and
Millennium had no direct contractual relationship.” (J.A. 1995.)
6
When a court determines that a provision in an insurance
contract is ambiguous and “extrinsic evidence does not yield a
conclusive answer as to the parties’ intent,” the rule of contra
proferentem provides that “where an insurer drafts a policy,
‘any ambiguity in [the] . . . policy should be resolved in favor
of the insured.’” Morgan Stanley Group Inc. v. New England Ins.
Co., 225 F.3d 270, 276 (2d Cir. 2000) (quoting McCostis v. Home
Ins. Co., 31 F.3d 110, 113 (2d Cir. 1994)).
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As an alternative holding, the district court opined that
the
Endorsements
also
provided
coverage
for
damage
to
contributing properties “‘which wholly or partially prevents the
delivery
of
materials
to
[Millennium]
or
to
others
for
the
account of [Millennium].’” (J.A. 1995.) The district court then
concluded that this provision was also ambiguous because it did
not explain “who must hold the ‘account of the Insured’—the one
who delivers, or the ‘others’ to whom delivery is made.” (J.A.
1998.)
Based
applied
phrase
the
[‘for
upon
this
doctrine
the
ambiguity,
of
contra
account
the
district
of’]
proferentem,
in
favor
of
court
again
construing
coverage
for
“the
the
insured,” Millennium. (J.A. 1998.)
After the district court granted Millennium’s motion for
partial summary judgment, the parties stipulated and agreed to
the entry of judgment in favor of Millennium in the amount of
$10,850,000,
Insurers
inclusive
expressly
of
pre-judgment
preserving
their
interest,
right
to
with
the
appeal
the
judgment. The district court then entered final judgment against
the Insurers in the stipulated amount, and the Insurers timely
appealed. We have jurisdiction under 28 U.S.C. § 1291.
II
We review a district court’s grant of a motion for summary
judgment de novo, construing all facts and reasonable inferences
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in favor of the non-moving party. Crockett v. Mission Hosp.,
Inc., 717 F.3d 348, 350 n.1, 354 (4th Cir. 2013).
III
When interpreting insurance contracts, courts first look to
the plain language of the provision at issue. See Fed. Ins. Co.
v. Int’l Bus. Machs. Corp., 965 N.E.2d 934, 935 (N.Y. 2012);
Chubb Custom Ins. Co. v. The Prudential Ins. Co. of Am., 948
A.2d
1285,
1289
(N.J.
2008).
If
the
plain
language
of
the
provision is clear, “that is the end of the inquiry.” Chubb
Custom, 948 A.2d at 1289.
Beginning with the plain language of the Policies, as the
district court found and Millennium concedes, the Endorsements
provided
coverage
properties.”
ambiguous
only
Millennium
because
it
with
respect
argues
that
could
refer
to
“direct
the
term
either
to
contributing
“direct”
the
is
legal
relationship between the contributing property and the insured
or the physical relationship between those parties. We find the
term “direct” to be clear as used in the Policies and without
ambiguity.
The term “direct” is defined as “proceeding from one point
to another in time or space without deviation or interruption,”
“transmitted
“operating
back
or
and
guided
forth
without
without
14
an
digression
intermediary,”
or
or
obstruction.”
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Webster’s
Apache
Filed: 02/20/2014
Third
to
be
Millennium,
it
New
International
considered
must
Pg: 15 of 34
a
have
Dictionary
direct
supplied
640.
contributing
Millennium
Thus,
for
property
with
to
materials
necessary to the operation of its business “without deviation or
interruption” from “an intermediary.” 7 Id.
On the undisputed facts of this case, neither Apache nor
Apache’s
facilities
“direct
contributing
not
dispute
that
it
on
Varanus
Island
property”
of
received
its
can
be
Millennium.
gas
from
considered
Millennium
Alinta,
and
a
does
that
Alinta—and not Apache—had the sole ability to control the amount
of gas directed to Millennium, to determine the rate at which
Millennium would be charged for that gas, and even to shut the
gas off completely. Indeed, Millennium concedes that it has no
legal relationship, direct or otherwise, with Apache.
7
Our colleague in dissent argues that the term "direct" is
ambiguous as used in the Policies because the dictionary
contains another definition for the term, "from the source or
the original without interruption or diversion." See Webster's
Third New International Dictionary 640. However, the definition
cited to in the dissent is the adverbial definition of the term
"direct," even though the term is clearly used as an adjective
in
the
operative
policy
phrase,
"direct
contributing
properties." Regardless, the phrase "without interruption or
diversion" as used in the adverbial definition of the term
"direct" has the same meaning as the phrase "without digression
or
obstruction"
as
used
in
the
adjectival
definition,
demonstrating that the term "direct" has a single clear,
unambiguous meaning. Even using the phrase selected by the
dissent, it is unambiguous that there is no "direct" transfer of
gas from Apache to Millennium because of the unescapable fact of
the "interruption or diversion" by the presence of Alinta and
the DB Pipeline as interrupting intermediaries.
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Millennium also does not dispute that it received its gas
by way of the DB Pipeline, and that the DB Pipeline is neither
owned nor operated by Apache. Nor does Millennium dispute that
Apache relinquished both legal title and physical control over
the gas once it entered the DB Pipeline. In fact, Millennium
concedes
that
Apache
had
no
control
over
whether
Millennium
received its gas and that, due to commingling, Millennium could
not
demonstrate
originated
how
with
much,
Apache.
if
any,
Thus,
of
neither
the
gas
Apache
it
received
nor
Apache’s
facilities had a direct physical relationship with Millennium.
Whatever the relationship between Apache and Millennium, it
was clearly interrupted by “an intermediary,” Alinta, who took
full
physical
control
indistinguishable
of
Apache’s
commingled
gas
gas
before
delivering
to
Millennium.
That
relationship was also interrupted by an intervening step, the
physical insertion of the gas into the DB Pipeline, at which
point Apache relinquished all physical control over that gas.
Under any view of the relevant facts, Apache can therefore be
only an indirect contributing property to Millennium, coverage
of which is not included in the terms of the Policies. 8
8
The Insurers failed to argue in their briefing that the
Binders, which stated directly that “THERE SHALL BE NO COVERAGE
FOR
INDIRECT
SUPPLIERS/RECIPIENTS,”
J.A.
1289,
were
the
operative documents at the time of the explosion on Varanus
Island. Had the Insurers properly made that argument before this
(Continued)
16
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Having
Policies,
property
Filed: 02/20/2014
concluded
Apache
to
that,
on
Pg: 17 of 34
the
plain
cannot
be
considered
Millennium,
we
consider
a
language
direct
Millennium’s
of
the
contributing
alternative
argument that it could also receive coverage under the “for the
account of” clause of the Endorsements. Millennium’s alternative
contention fails for the same reason as its primary argument.
Under the plain language of the Policies, coverage is triggered
only
by
damage
to
or
destruction
of
direct
contributing
properties. Because Apache is at most an indirect supplier to
Millennium, there can be no coverage under any reading of the
“for the account of” clause. Therefore, Millennium presents no
plausible reading of the Policies under which it could receive
coverage for its CBI losses. 9
IV
For the foregoing reasons, the judgment of the district
court is reversed, and we remand the case to the district court
for entry of summary judgment in favor of the Insurers.
REVERSED AND REMANDED
Court, that language would also demonstrate that Millennium had
no coverage on the facts of this case.
9
As we find no basis for coverage of Millennium’s CBI
losses under the Endorsements, Millennium’s breach of contract
claim, as pleaded, also must fail.
17
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WYNN, Circuit Judge, dissenting:
On
June
3,
2008,
a
massive
explosion
at
a
natural
gas
production facility on Varanus Island, Australia disrupted the
availability
of
natural
gas
throughout
Western
Australia.
Appellant Millennium’s supply of natural gas ceased later that
same day, requiring it to shut down operations at its titanium
dioxide production facilities, and resulting in over $10 million
in damages.
The sole question we must decide is whether the
contingent business interruption endorsements of the insurance
contracts between Millennium and Appellees National Union and
ACE
(together,
the
“Insurers”)
require
the
latter
to
cover
Millennium’s losses.
Although
the
interpretation
of
majority
the
opinion
disputed
provides
portions
of
a
reasonable
the
insurance
policies, the district court articulated an equally reasonable
alternate interpretation.
‘susceptible
of
Abdul-Baki,
976
two
reasonable
F.2d
189,
policies to be ambiguous.
evaluate
the
parties’
intent
extrinsic
in
Because “no writing is unambiguous if
interpretations[,]’”
192
(4th
Cir.
1992),
Atalla
I
find
v.
the
Like the district court, I would thus
evidence
drafting
the
for
an
ambiguous
indication
policy
of
the
provisions.
And like the district court, I would find that none of the
proffered evidence reveals that intent.
It follows that I would
affirm the district court’s decision to apply the doctrine of
18
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contra
Filed: 02/20/2014
proferentem
Millennium
and
to
against
Pg: 19 of 34
resolve
the
the
ambiguity
Insurers.
in
favor
Accordingly,
I
of
must
respectfully dissent.
I
A
For the policy year at issue, 2008–09, Millennium obtained
insurance
coverage
through
its
broker,
Marsh.
Millennium’s
coverage consisted of “master policies” issued by National Union
and ACE and local policies issued by Australian companies.
The
master policies covered Millennium for up to $450 million per
occurrence
in
responsibility
provisions
aggregate
for
are
50%
for
losses,
of
any
contingent
with
each
covered
business
insurer
loss.
The
bearing
disputed
interruption
(“CBI”)
coverage, which is “a relatively recent development in insurance
law[.]”
Zurich Am. Ins. Co. v. ABM Indus., Inc., 397 F.3d 158,
168 (2d Cir. 2005).
CBI
coverage
“protects
against
the
loss
of
prospective
earnings because of the interruption of the insured’s business
caused by an insured peril to property that the insured does not
own, operate, or control.”
CII Carbon, L.L.C. v. Nat’l Union
Fire Ins. Co. of La., Inc., 918 So. 2d 1060, 1061 n.1 (La. Ct.
App. 2005).
CBI coverage is distinct from “[r]egular business
interruption
insurance[,
which]
19
replaces
profits
lost
as
a
Appeal: 13-1194
result
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of
Filed: 02/20/2014
physical
damages
to
Pg: 20 of 34
the
insured’s”
own
property.
Archer Daniels Midland Co. v. Hartford Fire Ins. Co., 243 F.3d
369, 371 (7th Cir. 2001).
Endorsement 8 of each of Millennium’s master policies sets
forth the CBI coverage.
The relevant portion of Endorsement 8
reads as follows:
CONTINGENT BUSINESS INTERRUPTION
CONTRIBUTING PROPERTY(IES)
(Not Operated By The Insured)
A.
AMOUNT OF INSURANCE:
$(As
per
declarations)
Only
against
loss
directly resulting from necessary interruption of
business
conducted
on
premises
occupied
by
the
insured, caused by damage to or destruction of any of
the real or personal property described below and
referred to as CONTRIBUTING PROPERTY(IES) and which is
not operated by the Insured, by the peril(s) insured
against during the term of this Policy, which wholly
or partially prevents the delivery of materials to the
Insured or to others for the account of the Insured
and results directly in a necessary interruption of
the Insured’s business.
B.
SCHEDULE OF LOCATION(S):
The following locations must be direct suppliers of
materials to the Insured’s locations or coverage is
deemed to be void:
CONTINGENT
LOCATION NO.
CONTRIBUTING PROPERTY
LIMIT OF LIABILITY
DIRECT ONLY
1
AS STATED IN
DECLARATIONS 1
The most significant difference between the National Union
and the ACE Endorsements is that the ACE policy contains the
phrases “DIRECT ONLY” and “AS STATED IN DECLARATIONS” as shown
(Continued)
20
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C.
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Pg: 21 of 34
COVERAGE:
Subject to all terms, conditions and stipulations of
the Policy to which this endorsement is attached, not
in conflict herewith, this Policy is extended to cover
only against loss directly resulting from necessary
interruption
of
business
conducted
on
premises
occupied by the Insured, caused by damage to or
destruction of any of the real or personal property
described above and referred to as CONTRIBUTING
PROPERTY(IES) and which is not operated by the
Insured, by the peril(s) insured against during the
term of this Policy, which wholly or partially
prevents the delivery of materials to the Insured or
to others for the account of the Insured and results
directly in a necessary interruption of the Insured’s
business.
J.A. 336, 450
The
value
Declarations
of
$25,000,000
of
the
for
the
CBI
master
locations
coverage
policies.
that
is
set
The
Millennium
forth
coverage
has
in
limit
named
in
the
is
the
policy, whereas the coverage limit is $10,000,000 for locations
that are not named or listed in the policy.
refer
to
both
named
and
unnamed
CONTRIBUTING OR RECIPIENT PROPERTY(IES).”
The Declarations
locations
as
“DIRECT
J.A. 303, 416.
B
The
salient
straightforward
and
facts
giving
rise
to
undisputed.
At
all
this
suit
relevant
are
times,
here. The National Union policy, by contrast, contains nothing
in the columns shown above.
21
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Millennium was in the business of producing titanium dioxide, a
white pigment used in a variety of applications including paints
and plastics.
Millennium operated two interdependent factories
near Bunbury, Australia, which relied primarily on natural gas
for
energy.
Millennium
Like
many
purchased
its
businesses
natural
gas
in
from
Western
a
Australia,
supplier
aggregator, rather than directly from a producer.
or
an
Millennium
had a natural gas supply contract with one such entity, Alinta
Sales Pty Ltd. (“Alinta”).
Alinta
producers
obtained
in
the
Western
gas
that
Australia,
it
resold
including
from
Apache
multiple
Corporation
(“Apache”), which supplied at least 20% of the gas that Alinta
bought and resold.
Pursuant to the agreement between Alinta and
Apache, Alinta took title to Apache’s gas when the gas entered a
major
Western
Dampier
to
Australian
Bunbury
gas
Natural
transmission
Gas
Pipeline
line
known
as
(“Pipeline”).
the
The
Pipeline is a government-regulated common carrier owned by third
parties who charge pipeline users a fee based on the distance
their gas travels.
After the gas leaves the Pipeline, it is
transported to end users via a network of distribution lines.
Alinta consumes a small amount of the natural gas that it
purchases for its own operations.
And although it takes title
to the gas, it never physically possesses the gas that it sells
to its customers because it does not own the transmission or
22
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distribution facilities. 2
Pg: 23 of 34
Indeed, because the gas molecules are
commingled as soon as they enter the Pipeline, it is impossible
to tell either the source or the owner of any given molecule at
any
given
time.
Notwithstanding
the
impossibility
of
determining the source or the ownership of any particular gas
molecule, the title to a specified volume of gas passed from
Alinta
to
Millennium
at
the
inlet
point
of
Millennium’s
production facilities.
On June 3, 2008, a massive explosion and fire occurred at
Apache’s production facilities on Varanus Island, off the coast
of Western Australia.
20%
to
30%
of
the
The explosion caused the interruption of
natural
gas
supply
in
Western
Australia.
Apache immediately issued a notice of force majeure to Alinta,
and Alinta immediately issued the same to Millennium.
Shortly
thereafter, Millennium notified the Insurers of its claim of
lost business income through its broker, Marsh.
agree
that
the
damages
total
$10,850,000,
but
The parties
the
Insurers
denied Millennium’s claim because “[t]here is no direct supply
of gas between [Millennium] and Apache.”
2
J.A. 760.
The Insurers seem to dispute Millennium’s statement that
Alinta never took physical possession of the gas.
But they
offer no evidence to establish that the gas that they purchased
ever made its way into a vessel that was owned or controlled by
Alinta.
The Insurers merely reassert that Alinta owned the
title to the gas after it was injected into the Pipeline, a fact
that is neither disputed nor probative of whether Alinta
physically possessed the gas.
23
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C
On
July
17,
2009,
Millennium
filed
this
suit
alleging,
among other things, declaratory relief, breach of contract, and
bad
faith.
After
a
lengthy
discovery
process
and
the
presentation of a “virtual cornucopia of extrinsic evidence,”
Millennium Inorganic Chems. v. Nat’l Union, 893 F. Supp. 2d 715,
736
(D.
Md.
2012),
the
parties
submitted
cross
motions
for
summary judgment.
In a well-reasoned opinion, the district court analyzed the
language of the policies and determined that multiple reasonable
interpretations
existed
Endorsement 8.
evidence
and
for
two
disputed
provisions
in
The district court then analyzed the extrinsic
found
that
“none
of
it
presents
a
dispute
of
material fact for a fact finder to resolve[] because none of the
extrinsic
intent
evidence
was
at
established.”
of
contra
sheds
the
Id.
light
time
that
what
the
the
parties’
Master
Policies
mutual
were
The district court thus applied the doctrine
proferentem
to
by
Millennium
on
that
holding
resolve
the
“Apache’s
ambiguity
natural
in
gas
favor
of
production
facility was a ‘direct contributing property’ to Millennium’s
Bunbury Operations, . . . because Apache’s facility physically
provided
a
direct
supply
of
natural
gas
to
Millennium’s
premises, despite the fact that Apache and Millennium had no
direct contractual relationship.”
24
Id. at 737.
The district
Appeal: 13-1194
court
Doc: 47
Filed: 02/20/2014
conducted
a
similar
Pg: 25 of 34
analysis
and
reached
the
same
conclusion as to the second disputed phrase in Endorsement 8,
“for the account of the Insured.”
See id. at 737–39.
The district court granted Millennium’s motion for partial
summary judgment regarding its declaratory judgment claim and
granted
the
Insurers’
motion
for
Millennium’s bad faith claim.
summary
judgment
regarding
The parties jointly moved for
entry of judgment, which the district court granted on January
11, 2013.
The Insurers appealed.
II
The
Jersey
parties
law
contracts.
initially
governs
Like
the
the
disputed
whether
interpretation
district
of
court,
difference between the two states’ laws.
New
I
York
their
or
New
insurance
perceive
little
See Millennium, 893 F.
Supp. 2d at 728.
In both states:
Insurance contracts are to be interpreted
according to their “plain and ordinary meaning.”
Voorhees v.
Preferred Mut. Ins. Co., 607 A.2d 1255, 1260 (N.J. 1992).
See
also Fieldston Prop. Owners Ass’n, Inc. v. Hermitage Ins. Co.,
Inc., 945 N.E.2d 1013, 1017 (N.Y. 2011) (“In resolving insurance
disputes,
we
first
look
to
the
language
of
the
applicable
policies.
If the plain language of the policy is determinative,
we cannot rewrite the agreement by disregarding that language.”)
25
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Filed: 02/20/2014
(citations omitted).
susceptible
to
Pg: 26 of 34
But “[i]f the terms of the contract are
at
least
two
reasonable
interpretations, an ambiguity exists.”
alternative
Chubb Custom Ins. Co. v.
Prudential Ins. Co. of Am., 948 A.2d 1285, 1289 (N.J. 2008).
See Mostow v. State Farm Ins. Cos., 668 N.E.2d 392, 394 (N.Y.
1996) (“Because the policy may be reasonably interpreted in two
conflicting manners, its terms are ambiguous.”).
If a provision is ambiguous, “a court may look to extrinsic
evidence as an aid to interpretation.”
Chubb, 948 A.2d at 1289.
See Greenfield v. Philles Records, Inc., 780 N.E.2d 166, 170
(N.Y. 2002) (“Extrinsic evidence of the parties’ intent may be
considered only if the agreement is ambiguous, which is an issue
of
law
for
the
courts
to
decide.”).
Extrinsic
evidence
is
relevant only if it sheds light on the parties’ intent at the
time of contracting.
Newin Corp. v. Hartford Acc. & Indem. Co.,
467 N.E.2d 887, 889 (N.Y. 1984).
the
parties’
intent
turns
on
And if a determination as to
“the
credibility
of
extrinsic
evidence[,]” “such determination is to be made by the jury.”
Hartford Accident & Indem. Co. v. Wesolowski, 305 N.E.2d 907,
909 (N.Y. 1973).
In
extrinsic
the
absence
evidence,
of
clear
courts
must
policy
rely
language
on
or
additional
relevant
rules
of
contract interpretation to apply the terms of an ambiguously
worded provision to the facts at hand.
26
“[C]overage provisions
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are to be read broadly, exclusions are to be read narrowly,
potential ambiguities must be resolved in favor of the insured,
and the policy is to be read in a manner that fulfills the
insured’s reasonable expectations.”
Selective Ins. Co. of Am.
v. Hudson East Pain Mgmt. Osteopathic Medicine, 46 A.3d 1272,
1277 (N.J. 2012).
See Westview Assocs. v. Guaranty Nat’l Ins.
Co., 740 N.E.2d 220, 223 (N.Y. 2000) (“If the language of the
policy is doubtful or uncertain in its meaning, any ambiguity
must
be
resolved
insurer.”)
in
favor
(citation
of
the
omitted).
insured
“When
an
and
against
insurance
the
carrier
drafts an ambiguously worded provision and attempts to limit its
liability
by
relying
on
against the carrier.”
it,
we
will
construe
the
language
Metro. Prop. & Cas. Ins. Co. v. Mancuso,
715 N.E.2d 107, 112 (N.Y. 1999).
“It
has
long
been
the
rule
contractual
instrument
will
against
party
prepared
the
who
be
that
resolved
or
ambiguities
contra
presented
it.”
in
a
proferentem,
151
West
Assocs. v. Printsiples Fabric Corp., 460 N.E.2d 1344, 1345 (N.Y.
1984).
When
construing
an
ambiguous
policy,
“courts
should
consider whether more precise language by the insurer, had such
language been included in the policy, ‘would have put the matter
beyond reasonable question.’”
Gibson v. Callaghan, 730 A.2d
1278, 1282 (N.J. 1999) (quoting Mazzilli v. Accident & Cas. Ins.
Co., 170 A.2d 800, 803 (N.J. 1961)).
27
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In
short,
Filed: 02/20/2014
these
cases
Pg: 28 of 34
convincingly
show
that
little difference between the two states’ laws.
there
is
But to the
extent that applicable New York and New Jersey law differ, it is
with respect to contra proferentem.
Whereas New York seems to
use the doctrine anytime a contract is not jointly drafted, New
Jersey seems to require unequal bargaining power before it will
favor an insured.
Compare Taylor v. U.S. Cas. Co., 199 N.E.
620, 622 (N.Y. 1936) with Chubb, 948 A.2d at 1294 and Pacifico
v. Pacifico, 920 A.2d 73, 78 (N.J. 2007).
Here, this is a distinction without a difference.
Although
Millennium is a sophisticated commercial entity and employed a
broker
to
obtain
its
policies,
bargaining power with the Insurers.
it
did
not
possess
equal
Therefore, even under New
Jersey law, contra proferentem would still be available.
But
were it necessary to choose between New York and New Jersey law,
I
would
apply
New
York
law
district court articulated.
for
the
same
reasons
that
the
Millennium, 893 F. Supp. 2d at 727
(conducting a lex loci analysis and determining that New York
law would apply because both policies were countersigned by the
Insurers in New York).
28
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Pg: 29 of 34
III
A
Turning now to the Insurers’ appeal, summary judgment shall
be granted “if the movant shows 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).
We review the
district court’s grant of a motion for summary judgment de novo.
See Henson v. Liggett Group, Inc., 61 F.3d 270, 274 (4th Cir.
1995).
Where, as here, the district court considered cross motions
for summary judgment, we “must review each motion separately on
its
own
merits
to
determine
whether
deserves judgment as a matter of law.”
either
of
the
parties
Rossignol v. Voorhaar,
316 F.3d 516, 523 (4th Cir. 2003) (quotation marks omitted).
In
considering each motion, we “resolve all factual disputes and
any competing, rational inferences in the light most favorable
to
the
party
opposing
that
motion.”
Id.
(quotation
marks
omitted).
B
The majority opinion outlines a reasonable interpretation
of the disputed portions of Endorsement 8.
For example, the
majority opinion provides a dictionary definition of “direct”
and concludes that under its chosen definition, “neither Apache
29
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nor Apache’s facilities on Varanus Island can be considered a
‘direct contributing property’ of Millennium.”
Ante at 15.
The problem for the majority opinion’s reasoning is that
other equally reasonable alternative explanations exist.
For
example, an alternate definition for “direct” can be found on
the
same
page
of
the
same
dictionary
as
that
cited
in
the
majority opinion, yet it supports the conclusion that Apache was
indeed a direct contributing property.
is
also
without
defined
as
interruption
being
or
“from
diversion.”
International Dictionary 640.
“Regardless
contracted
of
whether
directly
the
source
or
the
Webster’s
original
Third
New
As stated by the district court:
Millennium
with
Specifically, “direct”
Apache,
contracted
the
with
pressurized
Alinta
natural
or
gas
still would flow directly from Apache’s facility through the
[Pipeline] to Millennium’s Bunbury Operations by operation of .
. . the law of physics.”
Millennium, 893 F. Supp. 2d at 735
(quotation marks omitted). 3
3
The majority opinion takes issue with the definition cited
above, noting that it is “the adverbial definition of the term
‘direct,’ even though the term is clearly used as an adjective
in the operative policy phrase, ‘direct contributing property.’”
Ante at 15 n.7.
But the issue here is not whether the term
“direct” is an adverb that modifies the word “contributing” or
an adjective that modifies the term “contributing property.”
Nor is the issue a question of which of the over 200 available
dictionaries we should selectively choose to find the definition
that satisfies our own interpretation of the policies.
See,
e.g.,
OED
Online,
http://www.oed.com/view/Entry/53293?rskey
(Continued)
30
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Moreover, no evidence suggests that Alinta has the ability
to divert natural gas once it is injected into the Pipeline.
In
fact,
or
because
distribution
it
does
lines
not
through
own
any
which
of
the
the
transmission
natural
gas
flows,
the
evidence indicates that Alinta has just as much physical control
over the gas as does Apache, which is to say, none.
Because the
policies do not describe the nature of the direct relationship
required for something to be a “direct contributing property,” I
find
this
to
be
sufficient
for
Millennium
to
withstand
the
Insurers’ motion for summary judgment.
In
fact,
language
of
and
as
explained
Endorsement
8
is
relationships
between
physical
relationships
between
people
the
words
by
the
district
written
in
properties
and
terms
the
of
the
than
the
First,
the
rather
entities.
“CONTRIBUTING
court,
Endorsement
uses
subtitle.”
Second, Section “B” limits coverage to “locations”
that must be direct suppliers.
attributable
to
damage
or
PROPERTY(IES)
for
a
Third, Section “C” covers losses
destruction
of
“real
or
personal
=x0vIbu&result=2&isAdvanced=false (last visited Feb. 06, 2014)
(defining the adjectival form of “direct” as “[s]traight,
undeviating in course; not circuitous or crooked”) and Oxford
Dictionaries
Online,
http://www.oxforddictionaries.com/us/
definition/american_english/direct?q=direct (last visited Feb.
6, 2014) (defining the adjectival form of “direct” as “extending
or moving from one place to another by the shortest way without
changing direction or stopping”).
31
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property . . . not operated by the Insured . . . .”
All of this
“suggests that the physical relationship between the properties
is as or more important than the legal relationship between the
properties’ owners.”
Millennium, 893 F. Supp. at 735.
Additionally, the fact that it is impossible to trace any
of the gas molecules to Apache is of no import in determining
whether
a
physical
Millennium.
relationship
existed
between
Apache
and
If it mattered where each molecule came from or
which molecule belonged to whom, Alinta would have no way of
knowing
that
it
actually
owned
transferred to its customers.
any
of
the
gas
that
it
The Insurers’ arguments regarding
the gas molecules are simply a red herring.
C
To
be
sure,
reasonable
alternate
interpretations
contested provisions of Endorsement 8 exist.
of
the
As I noted above,
the majority opinion provides one such reasonable interpretation
for each provision.
See
Millennium,
district
court
interpretation
893
The district court provides a few more.
F.
noted
of
the
Supp.
that
Master
2d
at
“[i]t
736.
is
Policies
not
to
For
an
example,
the
unreasonable
conclude
that,
by
providing only ‘direct’ CBI coverage, the Insurers sought to
limit their exposure to situations in which the insured lacked
the kind of influence over a contributing property that comes
32
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Filed: 02/20/2014
with contractual privity.”
Pg: 33 of 34
Millennium, 893 F. Supp. 2d at 736.
But, as with the other reasonable interpretations, “the Master
Policies
do
not
language
of
district
court
say
the
this
policies
also
expressly[,]”
cannot
explained
id.
resolve
that
the
the
and
the
plain
ambiguity.
“for
the
account
The
of
clause” was ambiguous because the policies fail to name a party
who must hold the account, and one could reasonably conclude
that either Apache or Alinta could “hold the ‘account of the
Insured’” to trigger coverage.
can
conclude
from
this
recitation
is
that
the
interpretations
ambiguous.
Id. at 739.
See
unambiguous
Atalla,
if
976
of
language
F.2d
at
susceptible
The only thing we
competing
of
192
of
the
reasonable
policies
is
writing
is
(“[N]o
two
reasonable
interpretations[.]”) (quotation marks omitted).
I
would,
therefore,
proceed
to
analyze
the
extrinsic
evidence submitted by the parties.
Although the record in this
case
I
is
court’s
nearly
2,200
conclusion
pages
that
long,
none
of
agree
the
with
extrinsic
the
district
evidence
is
admissible because none of it provides evidence of the parties’
intent at the time the provisions of Endorsement 8 were drafted.
See Millennium, 893 F. Supp. 2d at 737, 739.
Because
none
of
the
extrinsic
evidence
is
relevant
or
admissible, there is nothing for a jury to consider, and it is
“the
responsibility
of
the
court
33
to
interpret
written
Appeal: 13-1194
Doc: 47
instruments.”
omitted).
Filed: 02/20/2014
Pg: 34 of 34
Wesolowski, 305 N.E.2d at 909 (internal citation
We must, therefore, rely on well-settled rules of
contract interpretation to decide the case.
Here, the district court applied the doctrine of contra
proferentem
to
construe
the
ambiguous
policies
in
favor
of
Millennium and against the Insurers, and it granted Millennium’s
motion
for
partial
judgment claim.
summary
judgment
as
to
its
declaratory
Millennium, 893 F. Supp. 2d at 739.
I agree
with the district court, and I would, therefore, affirm.
For
this and the other reasons discussed above, I must respectfully
dissent.
34
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