THE TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA v. USA CONTAINER CO., INC.

Filing 96

OPINION. Signed by Judge Jose L. Linares on 7/8/13. (gmd, )

NOT FOR PUBLICATION

UNiTED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

THE TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA,
Plaintiff,

Civil Action No. 09-1612 (JLL)
OPINION

V.

USA CONTAINER CO., INC.
Defendant.
LINARES, District Judge.
This matter comes before the Court by way
of two motions: (1) Plaintiff I Counterclaim
Defendant The Travelers Property Casualty
Company of America (hereinafter “Traveler
s”)’s
motion for summary judgment and (2) Defe
ndant / Counterclaim Plaintiff USA Containe
r Co.,
Inc. (hereinafter “USA Container”)’s moti
on for partial summary judgment. The Cou
rt has
considered the submissions made in supp
ort of and in opposition to the parties’ respe
ctive
motions, and decides this matter without
oral argument pursuant to Federal Rule of
Civil
Procedure 78. For the reasons set forth belo
w, Travelers’ motion is denied and USA Con
tainer’s
motion is granted.

I.

FACTUAL AND PROCEDURAL BACK
GROUND’

This action arises from an insurance coverag
e dispute between USA Container and its
insurer, Travelers. At issue in this case
is whether USA Container is entitled to cov
erage for
damages it paid to non-party Meelunie B.V./A
msterdam (“Meelunie”) as a result of a sett
lement
reached between these entities in another litig
ation involving claims for breach of contrac
t and
negligence.
A.

The Underlying Dispute between USA Con
tainer and Meelunie

In or about 2006, USA Container—a
company engaged in the business of sup
plying
industrial containers, logistical services
, and warehousing—first contracted wit
h Meelunie, a
distributor of corn syrup, to arrange for
the transfer of corn syrup from rail cars
to drums.
(CM/ECF No. 87-I at 6; CM/ECF No.
¶
83-3 at ¶ 2.) Once transferred to the dru
ms, the corn
syrup was to be shipped to Meelunie’s cus
tomers in Kuwait, Nigeria, and Iran. (Id.
)
To appropriately transfer the corn syru
p from the rail cars to the drums, the cor
n syrup
had to be heated in accordance with cert
ain standard operating procedures (“S
OPs”). (CM/ECF
No. 83-3 at ¶ 3; CM/ECF No. 87-1
at ¶ 6.) These SOPs were developed
by the supplier of
Meelunie’s corn syrup, Archer Daniels
Midland (“ADM”). (CM/ECF No. 87-1
at ¶ 6.) Because
‘Pursuant to Local Civil Rule 56.1, a party
filing a motion for summary judgment “sha
ll furnish a statement which
sets forth material facts as to which there
does not exist a genuine issue, in separatel
y numbered paragraphs citing to
the affidavits and other documents subm
itted in support of the motion.” The oppo
nent must “furnish, with its
opposition papers, a responsive state
ment of material facts, addressing each para
graph of the movant’s statement,
indicating agreement or disagreement
and, if not agreed, stating each material
fact in dispute and citing to the
affidavits and other documents subm
itted in connection with the motion.”
Loc. Civ. R. 56.1 (emphasis added). In
its responsive 56.1 Statement, Traveler’
s failed specifically to admit or deny
the statements set forth in Paragraphs 4,
7, 8,9, 10, 12, 13,14, 16, 17, 23, 24,
26, 27, 31, 32, and 34 of USA Containe
r’s Rule 56.1 Statement, as required
under Rule 56.1. Accordingly, the Cou
rt deems undisputed each statement in
USA Container’s Rule 56.1 Statement
that Travelers failed to admit or deny.
See, e.g., Schwartz v. Hilton Hotels Corp
., 639 F. Supp. 2d 467, 469 n.2
(D.N.J. 2009) (“The Court deems undi
sputed each statement that [party oppo
sing summary judgment] neither
admitted nor denied in her responsive
statement.”): see also Owens v. Am. Hard
ware Mut. Ins. Co., No. 11-6663,
2012 U.S. Dist. LEXIS 182953 (D.N
.J. Dec. 31, 2012) (“The proper respo
nse to a procedurally correct Rule 56
motion is to file a counter statement
that denies the fact is material, admits
the material fact, or denies the material
fact by counter proofs conforming to
the rules of evidence.”).

2

USA Container did not have the resourc
es “to heat, drum and ship Meelunie’s cor
n syrup” in
accordance with ADM’s SOPs, USA Con
tainer “subcontracted with Passaic River Ter
minal,
LLC (“Passaic River”) to perform the enti
rety of all of the work necessary” to transfer
the corn
syrup to the drums for transport. (Id. 7.)
¶
According to Travelers, Meelunie directed
USA Container to advise Passaic River how
to
appropriately handle the corn syrup. (CM
IECF No. 83-3 at

¶ 4.)

USA Container, on the other

hand, denies this fact, and claims that “Pa
ssaic River dealt directly with ADM wit
h respect to the
SOPs to be utilized for the transfer
ring of the corn syrup.” (CM/ECF
No. 88-1 at ¶ 4.)
According to USA Container, it had
“no involvement in directing, oversee
ing, supervising,
inspecting or specifying the means
and/or methods to be utilized in Passaic
River’s heating and
drumming operations.” (CM/ECF No.
87-1 at ¶ 12.) Instead, “Meelunie arra
nged for the bulk
corn syrup it purchased from ADM
to be delivered by ADM in rail cars dire
ctly to Passaic River
at its Newark, New Jersey facility whe
re all of the work necessary for heating
, processing and
shipping the product overseas was per
formed exclusively by Passaic River.”
(CM/ECF No. 84-1
at ¶ 8.) “Passaic River dealt directly
with ADM with respect to the
SOPs to be utilized for
heating, drumming and transferring
the corn syrup.” (Id. at 9.)
.

.

.

¶

In or about November 2007, Pas
saic River damaged Meelunie’s
corn syrup by
overheating it. (See CM/ECF No.
87-I at ¶ 11.) The damage to the
corn syrup was not
discovered until after it was shipped
overseas and rejected by Meelunie’s
customers. (CM/ECF
No. 83-3 at ¶ 9; CM/ECF No. 87-1
at ¶ 13.) As a result of the damage
d corn syrup, Meelunie
incurred approximately $700,000
in damages, inclusive of customs cos
ts, storage fees and other
expenses. (CM/ECF No. 83-3
¶ 12; CM/ECF No. 87-1 at ¶ 14.) Meelunie subsequently
demanded that USA Container com
pensate it for its losses. (CM/ECF
No. 87-1 at ¶ 13.) On or
3

about October 29, 2008, Meelunie filed a complaint (the “Meelunie Complaint”) in
this district
alleging one count for breach of contract against USA Container, and one count
for negligence
against both USA Container and Passaic River. (CM/ECF No. 83-3 at

¶ 11.) In May 2009,

Meelunie settled its claims against USA Container for $425,000 plus half
of any recovery that
USA Container obtains in this action against Travelers. (CM/ECF No.
87-1 at

¶ 34; CMIECF

No. 83-3 at ¶ 14.)
B.

The Insurance Policy Agreement Between Travelers and USA Contai
ner

In or about June 2007, USA obtained a Commercial General Liabili
ty insurance policy
(the “CGL Policy”) from Travelers. Under the terms of the CGL
Policy, Travelers is required to
pay those sums that the insured [i.e., USA Container] becom
es
legally obligated to pay as damages because of “bodily injury”
or
“property damage” to which this insurance applies
[and]
defend the insured against any “suit” seeking those damages.
.

.

.

(CM/ECF No. 84-3 at 11.)
The CGL Policy covers “bodily injury” or “property damag
e” that is “caused by an
‘occurrence.” (Id.) “Property damage” is defined as “[p]hy
sical injury to tangible property,
including all resulting loss of use of that property.

.

.

[that is] deemed to occur at the time of the

physical injury that caused it” or “[l]oss of use of tangible proper
ty that is not physically injured.
[that is] deemed to occur at the time of the ‘occurrence’
that caused it.” (Id. at 25.)
“Occurrence “is defined as “an accident, including
continuous or repeated exposure to
substantially the same general harmful conditions.” (Id. at 24.)
The CGL Policy contains several exclusions to coverage,
four of which are relevant in
this case: (I) Exclusion j(4), which precludes coverage for
damage to “[p]ersonal property in the
care, custody or control of the insured;” (2) Exclusion
j(6), which precludes coverage for
property damage to “that particular part of any proper
ty that must be restored, repaired or
4

replaced because ‘your [i.e., USA Container’s] work’ was incorrectly
performed on it;” (3)
Exclusion 1 which precludes coverage for “[p]roperty damage’ to ‘your
[i.e., USA Container’s]
work arising out of it or any part of it;” and (4) Exclusion n, which
in pertinent part precludes
coverage for damage to “product, work, or property [that] is withdr
awn or recalled from the
market or from use by any person or organization because of
a known or suspected defect,
deficiency, inadequacy or dangerous condition in it.” (CM/ECF
No. 84-3 at 14-1 5.) Exclusion
j(6) does not apply to property damage included within the Policy
’s definition of the “productscompleted operations hazard.” (CM/ECF No. 84-3 at 15.)
Additionally, Exclusion I “does not
apply if the damaged work or the work out of which the damag
e arises was performed on [USA
Container’s] behalf by a subcontractor.” (Id. at 25.)
In relevant part, the Policy defines “your work” and “produ
cts-completed operations
hazard,” respectively, as follows:
‘“Your Work’ means [w]ork or operations performed by
you [i.e.,
USA Container] or on your [i.e., USA Container’s] behalf’
and
“[m]aterials, parts or equipment furnished in connection with
such
work or operations.” (Id. at 25.)
“Products-completed operations hazard includes all ‘bodily
injury’
and ‘property damage’ occurring away from premises
you [i.e.,
USA Container] own or rent and arising out of.
‘your work’
except: (I) Products that are still in your [i.e., USA Contai
ner’s]
physical possession; or (2) Work that has not yet been
completed
or abandoned.” (Id. at 24-25.)
.

C.

.

USA Container’s Insurance Claim

In or about August 2008, USA Container timely notifie
d Travelers of Meelunie’s demand
for damages, and made a claim for coverage under
the CGL Policy. (See CM/ECF No. 87-1 at
¶
15.) USA Container also timely notified Travelers
of the Meelunie Complaint, and sought a
defense and indemnity pursuant to the CGL Policy.
(Id. at ¶J 19, 21.)
5

In August 2008, Travelers began investigating whether
it was required to provide
coverage to USA Container pursuant to the Policy. (CM
/ECF No. 84-3 at 100.) Travelers’
Senior Claim Specialist, Michele M. Simpson (“Sim
pson” or “Senior Claims Specialist”),
“initially believed that there was an ‘occurrence’ or mult
iple ‘occurrences’ within the meaning of
the CGL Policy.” (CM/ECF No. 84-1 at

¶ 33.)

Nevertheless, Travelers ultimately denied USA

Container’s request for coverage on December 19,
2008. (CM/ECF No. 83-3 at

¶

15; CM/ECF

No. 87-1 at ¶ 22.)
On that date, Simpson sent a letter (the “denial
letter”) to USA Container’s counsel on
behalf of Travelers asserting the following reaso
ns for denying coverage: “(1) the [Meelunie]
Complaint does not allege ‘bodily injury’ as defin
ed in the Travelers Policy; (2) there is no
‘property damage’ to the extent that the Meelunie
Complaint ‘fails to alleged [sic] physical
injury to or loss of use of tangible property othe
r than to the work performed by or on behalf of
the named insured;’ (3) claims based upon brea
ch of contract and faulty workmanship are not
deemed an ‘occurrence’ under the Travelers Polic
y; and (4) policy exclusions
(1X4) and (jX6) in
the Travelers Policy preclude coverage.” (CM/ECF
No. 83-3 at ¶ 15; see also CM/ECF No. 83-2
at 33.) Simpson consulted with Travelers’ cove
rage counsel prior to signing the denial letter.
(CMJECF No. 87-1 at ¶f 28.)

In a letter dated January 26, 2009, USA Containe
r requested that Travelers reconsider its
denial of coverage. (CM/ECF No. 24 at 24.)
Travelers denied USA Container’s request for
¶
reconsideration. Subsequently, on April 6,
2009, Travelers filed a complaint with this Cou
rt
seeking, among other things, (1) a declaration
that the Policy “does not provide coverage for
the
allegations in the Meelunie Complaint,” and
(2) a declaration “that Travelers has no obligation
s
to USA Container in connection with the Mee
lunie Complaint.” (CM!ECF No. 1 at 3.) On June
6

9, 2009, USA Container filed a counterclaim against Travelers asserting a claim for breach
of
contract and another for bad faith. (CM!ECF No. 3 at 8-9.)
On April 26, 2013, Travelers moved for summary judgment as to both its affirma
tive
claims and USA Container’s counterclaim; on this date USA Container also
moved for partial
summary judgment as to its breach of contract claim. Specifically, USA Contai
ner seeks a ruling
that the Policy ‘provides USA Container coverage for the claims of Meelu
nie

.

.

.

arising from

sub-contractor Passaic River’s damage to Meelunie’s corn syrup, and that
Travelers breached its
duty to defend and indemnify USA Container.” (CM/ECF No. 84-2 at 40.)
II.

LEGAL STANDARD

A court “shall grant summary judgment 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). An issue is “genuine’

.

.

.

if the evidence is such that a reasonable jury could

return a verdict for the non-moving party.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248
(1986). The moving party must first demonstrate that there is no genuin
e issue of material fact in
dispute, such that a grant of summary judgment would be appropriate.
See Celotex v. Catrett,
477 U.S. 317, 325 (1986). To do so, “the moving party must show
that the non-moving party
has failed to establish one or more essential elements of its case
on which the non-moving party
has the burden of proof at trial.” McCabe v. Ernst & Young, 494
F.3d 418, 424 (3d Cir. 2007).
If the moving party satisfies this burden, the burden shifts to
the non-moving party to point to
sufficient evidence that creates genuine issues of disputed materi
al fact “such that a reasonable
jury could find in its favor.” Id.; see also Celotex, 477 U.S. at
332. “While the evidence that the
non-moving party presents may be either direct or circumstantia
l, and need not be as great as a
preponderance, the evidence must be more than a scintilla.”
Hugh v. Butter County Family
7

YMCA, 418 F.3d 265, 267 (3d Cir. 2005). Tn deciding whet
her there are any genuine issues of
disputed material fact, courts must “view the facts in the light mos
t favorable to the nonmoving
party and draw all inferences in that party’s favor.” Farrell

i’.

Planters Lifesavers Co., 206 F.3d

271, 278 (3d Cir. 2000) (citation omitted). “Thus, if a reaso
nable fact finder could find in the
nonmovant’s favor, then summary judgment may not be gran
ted.” Norfolk Southern Ry. Co. v.
Basell USA Inc., 512 F.3d 86, 91 (3d Cir. 2008).
Ill.

DISCUSSiON

Deciding the merits of each party’s respective motion requ
ires this Court to answer two
questions—(l) was USA Container’s claim within the basic
coverage terms of the Policy? and
(2) if so, do any of the Policy’s exclusions apply to bar cove
rage? Thus, the questions the
parties’ respective motions raise are ones of contract inter
pretation.
Before turning to these questions, a recitation of well estab
lished principles that apply to
the interpretation of insurance contracts is in order. Und
er New Jersey law, “the interpretation of
insurance contracts requires generous readings of cove
rage provisions, narrow readings of
exclusionary provisions, resolution of ambiguities in
favor of the insured, and construction
consistent with the insured’s reasonable expectations.”
Cobra Products, Inc. v. Federal Ins. Co.,
317 N.J. Super. 392, 400 (App. Div. 1998).2 The insured
bears the initial burden of establishing
that the claim is “within the basic terms of the polic
y.” S. T Hudson Eng ‘rs, Inc. v. Pa. Nat ‘1 Mut.
Cas. Co., 388 N.J. Super. 592, 603 (App. Div. 2006
) (citation omitted). The insurer then bears
the burden of proving the applicability of a provision
excluding coverage. See, e.g., Princeton
Ins. Co. i’. Chunmuang, 151 N.J. 80, 95 (1997) (“In
general, insurance policy exclusions must be
2

Neither side disputes that New Jersey law govern
s the instant dispute. (See, e.g., CMJECF Nos. 87
at 6; 84-2 at
12.) Accordingly, this Court applies New Jersey
law in deciding the pending motions for summary judgm
ent. See,
e.g., Lebergen v. Forman, 471 F.3d 424, 428 (3d Cir.
2006) (noting that “[t)here is a presumption that the
law of the
situs state applies” when a federal court exercises diversi
ty jurisdiction).

8

narrowly construed; the burden is on the
insurer to bring the case within the exclusi
on.”). “When
considering an exclusion of coverage,
any ambiguity ‘must be strictly construed
against the
insurer so that reasonably anticipated cov
erage is provided.” Am. Wrecking Cor
p. v. Burlington
Ins. Co., 400 N.J. Super. 276, 282-83
(App. Div. 2008). However, “exclusion
s are
presumptively valid and will be given
effect if specific, plain, clear, promin
ent, and not contrary
to public policy.” Chunmuang, 151
N.J. at 95 (citation omitted).
With this framework in mind, the Cou
rt will now address the questions rais
ed in the
parties’ motions.
A.

Whether USA Container’s Claim
Falls within the Basic Coverage Ter
ms of the
Policy

As a threshold matter, USA Contain
er must demonstrate that its claim
is (1) for “property
damage” that is (2) “caused by an
occurrence” to establish that its clai
m falls within the Policy’s
basic coverage terms.
a.

Property Damage
3

There is no dispute that USA Con
tainer’s liability to Meelunie arises
from the fact that its
subcontractor, Passaic River, dam
aged Meelunie’s corn syrup, (see
CM/ECF No. 87-1 at 11),
¶
and that the damaged corn syrup “wa
s not discovered. until it was ship
ped overseas and
rejected by Meelunie’s customers,
”(id. at ¶ 13.). As it is clear that
USA Container became liable
for damage to Meelunie’s “tangib
le property”(i.e., corn syrup) and
for the “loss of use” of said
property, this Court concludes
that USA Container’s claim is one
for “property damage” as that
term is defined in the Policy. (Se
e CM/ECF No. 84-3 at 25.)
.

b.

.

Occurrence

Travelers relies on exclusions in
the CGL Policy to argue that USA
Container has failed to establish
for property damage. Travele
that it is liable
rs does not, however, dispute that
the damage to Meelunie’s corn syru
CGL Policy’s basic definition of
p satisfies the
property damage. The merits of
Traveler’s reliance on the CGL Polic
are discussed infra.
y’s exclusions

9

Coverage under the Policy is triggered by an “occurrence,” which the Polic
y defines, in
relevant part, as an “accident.” (CM/ECF No. 84-3 at 24.) The New
Jersey Supreme Court has
held that “the accidental nature of an ‘occurrence’ is determined by analy
zing whether the
alleged wrongdoer intended or expected to cause an injury. If not,
the resulting injury is
‘accidental,’ even if the act that caused the injury was intentiona
l.” Voorhees v. Preferred Mut.
Ins. Co., 128 N.J. 165, 183 (1992). Thus, to determine whether
USA Container’s claim is for a
covered “occurrence,” the Court must decide whether USA
Container intended or expected to
cause the damage to, and loss of use of, Meelunie’s corn syru
p. See, e.g., Id.
The record in this case is devoid of any evidence suggestin
g that either USA Container or
Passaic River intended or expected that Meelunie would
lose the use of its corn syrup, or that
said corn syrup would be damaged. To the contrary, Trav
4
eler’s Senior Claims Specialist
confirmed that Traveler’s “initial impression [was] that
there is an occurrence, or multiple
occurrences, as defined under the Policy.” (See CM/ECF
No. 84-1 at ¶ 33.)
Notwithstanding the initial impression of Travelers’ Seni
or Claims Specialist, Travelers
now argues that there has been no “occurrence” with
in the meaning of the CGL Policy for two
reasons: (1) its liability to Meelunie arose from “faulty
workmanship” to USA Container’s own
work product and (2) “[t]he Policy provided USA Con
tainer with coverage for tort liability for
physical damage to others and not for contractual liabi
lity resulting from faulty workmanship.”
(See, e.g., CM/ECF No. 83-1 at 13.) The Court will
now address each of these arguments, in
In its brief in opposition to USA Container’s motion
for partial summary judgment, Travelers argues that there
was
no occurrence because, among other things, “USA Contai
ner knew that if its subcontractor failed to follow
the
[standard operating procedures for heating Meelunie’s
corn syrup], the corn syrup could be damaged resulting
in a
breach of its contract.” (CM!ECF No. 87 at 11.) This
argument is premised on a misapplication of the standa
rd for
determining an “occurrence.” The relevant inquiry
is not whether USA Container knew, could have or
should have
known that a failure to follow the SOPs would result
in damage to the corn syrup, but whether USA Contai
ner
actually expected or intended the damage. See,
e.g., Voorhees, 128 N.J. at 185 (“Absent exceptional circum
stances
that objectively establish the insured’s intent to injure,
we will look to the insured’s subjective intent to determine
intent to injure.”) (emphasis added).

10

turn.
1.

“Faulty Workmanship” as an “Occurrence”

To support its proposition that USA Container’s claim for “fau
lty workmanship” cannot
amount to an occurrence, Travelers relies extensively on
Weedo v. Stone-E-Brick, Inc., 81 N.J.
233, 249 (1979). Weedo involved a masonry contracto
r who was sued for breach of contract
arising out of its faulty workmanship. Weedo, 81 N.J. at
235. The masonry contractor sought a
defense and indemnification from its insurer under the
terms of a CGL policy containing the
standard provisions adopted in 1973. Id. at 236-3 7.
The court held that the masonry contractor
was not entitled to coverage based on the applicabi
lity of exclusions in the policy. Id. at 241. In
so doing, the court observed that “the policy in ques
tion does not cover an accident of faulty
workmanship, but rather faulty workmanship whic
h causes an accident.” Id. at 249. Notably,
however, the court did not address whether there
was an “occurrence” under the policy because
the insurer “conceded at oral argument. that but
for the exclusions in the policy, coverage
would obtain.” Id. at n.2. Thus, Weedo does not prov
ide specific guidance on the extent to which
liability arising from faulty workmanship may amo
unt to an occurrence under a CGL policy.
6
.

.

Prior to 1986, “[tlhe standard provisions of the
CGL [had) undergone four principal revisions in 1943,
1955,
1966 and 1973 since their initial promulgation
in 1940.” See Weedo, 81 N.J. at 237 n.1. In 1986,
the current
version of the CGL was further revised by the Insuran
ce Services Office on behalf of the insurance industr
y. See,
e.g., Hartford ins. Co. v. Caflfornia, 509 U.S. 764
(1993) (describing how CGL forms are produced by
the insurance
industry). The CGL Policy at issue in this case
contains the 1986 revisions which include the subcon
tractor
exception to Exclusion 1. Throughout its submissions,
USA Container argues that this Court should read
the
subcontractor exception to Exclusion I in the CGL
Policy as affirmatively providing coverage in this
case. The
Court declines to adopt such a broad reading of
the subcontractor exception, which applies only to
limit the scope of
Exclusion 1, not as an affirmative grant of covera
ge. See, e.g., Weedo, 81 N.J. at 248 (“[ejach exclus
ion is meant to
be read with the insuring agreement, independently
of every other exclusion. The exclusions should
be read
seriatim, not cumulatively.”) (citation omitted)
(emphasis added).
--

--

6

Many of the other cases upon which Travelers relies
for the proposition that there is no occurrence in
this case do
not address the circumstances under which damag
e resulting from faulty workmanship may constit
ute an occurrence
under New Jersey law. See, e.g., Grand Cove II
Condominium Ass ‘n, Inc. v. Ginsberg, 291 N.J. Super.
58 (App.
Div. 1996) (containing no analysis on what constit
utes an “occurrence” under a CGL. policy); Nation
wide Mut. Ins.
Co. v. CPB Intl Inc., 562 F.3d 591 (3d Cir. 2009)
(holding that faulty workmanship does not amoun
t to an
“occurrence” under Pennsylvania law) (emphasis
added); Wausau Underwriters Ins. Co. v. State Auto
Mut. Ins. Co.,
557 F. Supp. 2d 502 (D.N.J. 2008) (applying Pennsy
lvania law) (emphasis added); Kvaerner Metals
Div. of

11

Although Weedo did not, itself, address wha
t constitutes an “occurrence” under a CGL
policy, New Jersey courts have cited We
edo for the proposition that faulty workm
anship causing
damage to the insured’s own work is not
an “occurrence.” See, e.g., Firemen Ins.
o. of
Newark v. Nat’! Union Fire Ins. Co.,
387 N.J. Super. 434 (App. Div. 2006) (ap
plying Weedo, the
court noted in dicta that under the 1973
version of a CGL policy, faulty workm
anship--whether
performed by a general contractor or
a subcontractor--is not an occurrence whe
n the faulty
workmanship causes damage to the gen
eral contractor’s own work); Atlantic
Mutual Ins. Co. v.
Hillside Bottling Co., Inc., 387 N.J.
Super. 224, 233 (App. Div. 2006) (ho
lding that faulty
workmanship of the insured causing
damage to insured’s own work produc
t did not fall within
basic coverage terms of CGL policy)
; see also Pa. Nat ‘1 Mitt. Cas. Ins. Co.
v. Parkshore Dcv.
Corp., 2009 U.S. Dist. LEXIS 50738, *6
at
(D.N.J. June 17, 2009) (applying New
Jersey law in
holding that faulty construction that
damaged insured’s own work did not
amount to an
occurrence). Conversely, New Jers
ey courts have concluded that a cov
erage-triggering
“occurrence” exists when the faulty
workmanship of an insured causes
damage to a third-party’s
property. See, e.g., S.N Golden Est
ates, Inc. v. Continental Cas. Co.,
293 N.J. Super. 395 (App.
Div. 1996) (holding that an insured
’s faulty construction of septic sys
tems that caused damage to
neighboring homes constituted an
“occurrence”); Newark Ins. Co. v. Acu
pac Packaging, Inc.,
328 N.J. Super. 385 (App. Div. 200
0) (holding that where underlying com
plaint asserted
damages to third party’s property,
insured’s claim for damages fell wit
hin the scope of an
“occurrence”); accord Weedo, 81
N.J. 233, 240-41 (“Whether the liab
ility of the businessman is
predicated upon warranty theory
or, preferably and more accurately,
upon tort concepts, injury to
persons and damage to other pro
perty constitute the risks intended
to be covered under the
Kvaerner U.S., Inc. v. Commercial
Union ins. Co., 589 Pa. 317 (2006)
(applying Pennsylvania law) (emphasis
added).

12

CGL.”) (cited in S]’L Golden Estates, 293 N.J. Super at 401).
In its brief in opposition to USA Container’s motion for partial summary judg
ment,
Travelers acknowledges that it is “unquestionably true” that “faulty work
manship may constitute
an occurrence.” (CM/ECF No. 87 at 14.)

Travelers also acknowledges “that in order for there

to be an occurrence, there must be damage to property other than an
insured’s work.” (Id.) An
application of the principles that Travelers, itself, acknowledges
are applicable compels this
Court to conclude that the faulty workmanship resulting in the
damage to, and loss of use of,
Meelunie’s corn syrup is an “occurrence.”
Indeed, USA Container neither owned, manufactured, nor supp
lied Meelunie’s corn
syrup. Put differently, Meelunie’s corn syrup was not a prod
uct of USA Container’s work. USA
Container does not merely seek coverage for an “acciden
t of faulty workmanship,” but for its
subcontractor’s faulty workmanship resulting in damage to,
and loss of use of, the property of a
third party-that is, Meelunie’s corn syrup. Accordingly, USA
Container’s insurance claim fits
squarely within the scope of an “occurrence” under New Jerse
y law. See, e.g., S.I’L Golden
Estates, Inc., 293 N.J. Super. 395; Acupac Packaging, Inc.,
328 N.J. Super. 385.
2.

Whether Breach of Contract Liability Forecloses the Poss
ibility of an
“Occurrence”

Travelers’ argument that there is no occurrence in this case
because Passaic River’s
failure to follow the SOPs also resulted in USA Containe
r’s breaching its contract with
Meelunie, (see CM/ECF Nos. 83-I at 13; 87 at 15; 93 at
3-7), is unpersuasive for two reasons.
First, the theory upon which a plaintiff proceeds in an unde
rlying litigation for which an
insured seeks coverage is “irrelevant to a determination
of whether there [is] a covered
‘occurrence’ under [a] CGL [policy].” Aetna Cas. & Stir.
C’o. v. Ply Gem Industries, Inc., 343
N.J. Super. 430, 447 (App. Div. 2001) (citing Weedo,
81 N.J. at 240-41). Thus, the fact that the
13

Meelunie Complaint asserts a breach of contract claim against USA Container
is irrelevant to
determining whether there is a coverage-triggering “occurrence” in this case.
See id.
Second, the Court is unaware of and Travelers has not cited, any binding
authority
compelling the Court to conclude that faulty workmanship that causes
damage to third party
property is not an “occurrence” if the faulty workmanship also results
in the insured being liable
for breach of contract. Accordingly, just because USA Container may
have been liable for
breach of contract on account of Passaic River’s faulty workmanship
, it does not follow that said
faulty workmanship causing damage to third party property (i.e., Meelu
nie’s corn syrup) cannot
constitute an occurrence. See Travelers Indem. Co. v. Dammann
& Co., Inc., No. 04-5699, 2008
WL 370914, at

*

(D.N.J. Feb. 11, 2008) (holding that there was “occurrence” under a
CGL

policy where faulty workmanship causing damage to third party’s
property gave rise to insured’s
liability for both contractual and tort damages).
As USA Container has established that it seeks coverage for “prope
rty damage” that was
“caused by an occurrence,” this Court holds that USA Container’s
claim falls within the basic
coverage provisions of the CGL Policy.
B.

Whether any of the CGL Policy’s Exclusions Apply

Having determined that USA Container has established that its
claim falls within the
CGL Policy’s basic coverage provisions, the Court now turns
to consider whether Travelers has
met its burden of establishing that any of the exclusions in the
CGL Policy apply.
in its brief in support of its motion for summary judgment, Travel
ers argues that
Exclusionj(6) bars coverage. Additionally, in its brief in opposi
tion to USA Container’s motion
for partial summary judgment, Travelers argues that Exclus
ions n and j(6) bar coverage.
I.

Applicability of Exclusion j(6)

14

As discussed supra, Exclusion j(6) bars coverage for prop
erty damage to “[t]hat
particular part of any property that must be restored, repa
ired or replaced because ‘[the insured’s]
work’ was incorrectly performed on it.” (CM/ECF No.
84-3 at 14-1 5.) Exclusion j(6), however,
does not apply to damage included within the CGL
Policy’s definition of “products-completed
operations hazard.”
7
In its submissions, Travelers has failed to cite any
authority in support of its argument
that Exclusion j(6) applies in this case. Addition
ally, Travelers has not offered any explanation
as to why USA Container’s claim is for damage
to property “that must be restored, repaired or
8
replaced.” Rather, in arguing that Exclusion
j(6) applies, Travelers has merely attempted
to
persuade the Court that the damage to, and loss
of use ot Meelunie’s corn syrup do not fall
within the CGL Policy’s definition of the “pro
ducts-completed operations hazard.” (See
CM/ECF Nos. 83-1 at 14-15; 87 at 16-17;
93 at 13-14.) Travelers’ argument that Exclusi
onj(6)
applies because an exception to said exclusion
does not is unpersuasive. More importantly,
Travelers’ failure to demonstrate that the
damage to, and loss of use of the corn syrup
fits
within the basic terms of Exclusion j(6) is
insufficient to satisfy Traveler’s burden of prov
ing the
applicability of the exclusion.
In light of the narrow construction with whic
h this Court is required to read Exclusion
j(6) and Travelers’ failure to satisfy its burd
en of proving the applicability of said exclu
sion, this
Court holds that Exclusion j(6) does not bar
coverage under the CGL Policy.
2.

Applicability of Exclusion n

As discussed above, the “products-complete
d operations hazard includes all ‘bodily injur
y’ and ‘property damage’
occurring away from premises you [i.e.,
USA Container] own or rent and arising out
of. ‘your work’ except: (1)
Products that are still in your [i.e., USA
Container’s] physical possession; or (2) Wor
k that has not yet been
completed or abandoned.” (CM/ECF No.
84-3 at 14-15.)
.

.

Neither the Meelunie Complaint nor any
evidence in the record suggests that the dam
aged corn syrup was
“restored, repaired, or replaced.” To the
contrary, the Meelunie Complaint states that
Meelunie “sold all of the
damaged product, at a reduced rate.” (CM
/ECF No. 83-2 at 5.)

15

As discussed supra, Exclusion n bars coverage for damage to “product, work, or property
[that] is withdrawn or recalled from the market or from use by any person or organization
because of a known or suspected defect, deficiency, inadequacy or dangerous condition in
it.”
(CM/ECF No. 84-3 at 14-15.) Travelers did not invoke Exclusion n until responding to
USA
Container’s brief in support of its motion for summary judgment. It is procedurally improp
9
er
for Travelers to invoke Exclusion n for the first time in a brief in response to a summa
ry
judgment motion. See, e.g., Elizabethtown Water Co. v. Har’ford Cas. Ins. Co.,
15 F. Supp. 2d
561, 566 (D.N.J. 1998) (“[C]ourts cannot allow insurers to hide the exclusions
they plan to use
until trial or summary judgment. Insurers have a duty to notify insureds of
the exclusions they
plan to use before discovery is complete and before the deadline for dispositive motion
s is
reached.”); accord Mariani v. Bender, 85 N.J. Super. 490, 499 (App. Div.
1998) (insurer not
entitled to rely on notice clause in declaratory judgment suit between two insurer
s where insurer
did not disclaim coverage on that ground in underlying suit).
Even if Travelers’ invocation of Exclusion n at this late stage were approp
riate, its
reliance on this exclusion is misplaced. Travelers makes the conclusory asserti
on, without any
citation to the record, that “[t]he facts here reveal that the costs sought in the
underlying action
[i.e., the Meelunie Complaint] were for the recall and the replacement of the
corn syrup which
did not meet required specifications.” (CM/ECF No. 87.) As previously
discussed, nothing in
the record suggests that Meelunie’s damaged corn syrup was ever recalle
d or replaced.
Accordingly, the Court declines to hold that Exclusion n applies in this
case.
IV.

CONCLUSION

For the foregoing reasons, Travelers motion for summary judgment is
denied and USA
Container’s motion for partial summary judgment is granted. An approp
riate Order accompanies
Notably, Travelers did not invoke Exclusion n in its denial letter
or in its answer to USA Container’s counterclaim.

16

this Opinion.

Dated: JuIy, 2013.

L. LINARES
U.S. DISTRICT JUDGE

17