Lantheus Medical Imaging, Inc. v. Zurich American Insurance Company
REDACTED OPINION AND ORDER re: 106 Motion for Summary Judgment. Zurich contends that Lantheus's losses are not covered under the policy because (i) Lantheus did not experience a total cessation of business activity, and (ii) the shutdown was c aused in whole or in part by the excluded peril of corrosion. Zurich now moves for summary judgment on these two grounds. For the reasons discussed herein, Defendant's motion for summary judgment is GRANTED. The Clerk of Court is directed to terminate Docket Entry 106. (Signed by Judge Katherine Polk Failla on 4/28/2015) (kko)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
LANTHEUS MEDICAL IMAGING, INC.,
ZURICH AMERICAN INS. CO.,
DOC #: _________________
DATE FILED: April 28, 2015
10 Civ. 9371 (KPF)
KATHERINE POLK FAILLA, District Judge:
Plaintiff Lantheus Medical Imaging, Inc. (“Lantheus”) initiated this action
against Zurich American Insurance Company (“Zurich”) on December 16, 2010.
The lawsuit challenges Zurich’s denial of coverage, under a commercial
property insurance policy purchased by Lantheus, for business income loss
related to a 15-month shutdown of the nuclear reactor at Chalk River
Laboratories in Ontario, Canada (the “NRU Reactor”). The NRU Reactor
supplied a radioactive isotope used in Lantheus’s diagnostic medical imaging
products, and Lantheus alleges that it incurred more than $70 million in losses
as a result of the shutdown. Zurich contends that Lantheus’s losses are not
covered under the policy because (i) Lantheus did not experience a total
cessation of business activity, and (ii) the shutdown was caused in whole or in
part by the excluded peril of corrosion. Zurich now moves for summary
judgment on these two grounds. For the reasons set forth in this Opinion,
Zurich’s motion is granted.
Lantheus and the NRU Reactor
Lantheus is a specialty pharmaceutical company that manufactures and
distributes, among other things, diagnostic medical imaging products. (Def.
56.1 ¶ 1). Molybdenum-99 (“Moly-99”), a radioactive isotope resulting from the
fission of uranium-235 in a nuclear reactor, is a key component in one of
Lantheus’s products, the TechneLite Generator. (Id. at ¶ 2). Prior to May
2009, Lantheus obtained Moly-99 from Nordion, Inc. (“Nordion”), which in turn
was supplied by the NRU Reactor. (Id. at ¶ 4). The NRU Reactor is operated by
Atomic Energy of Canada Limited (“AECL”). (Id. at ¶ 6). As of May 2009, the
NRU Reactor supplied approximately 40% of the world’s medical isotopes. (Id.
at ¶ 5).
Zurich issued to Lantheus an all-risk property insurance policy (the
“Policy”)2 that was in effect from January 8, 2009, through January 8, 2010.
The facts stated herein are drawn from the parties’ submissions in connection with the
instant motion, including Defendant’s 56.1 Statement (“Def. 56.1”), and Plaintiff’s
responses thereto (“Pl. 56.1 Response”); Plaintiff’s 56.1 Counterstatement (“Pl. 56.1”),
and Defendant’s responses thereto (“Def. 56.1 Reply”); and the declarations (“[Name]
Decl.”) and exhibits thereto submitted with the parties’ briefs. Citations to a party’s
Local Rule 56.1 Statement incorporate by reference the documents and deposition
testimony cited therein. For convenience, Defendant’s opening brief will be referred to
as “Def. Br”; Plaintiff’s opposition brief as “Pl. Opp.”; and Defendant's reply brief as “Def.
Reply.” Many of these documents were filed under seal, and will be refiled in redacted
form pursuant to the Court’s instructions.
Such a policy is distinguished from a “named peril” policy. See generally TAG 380, LLC
v. ComMet 380, Inc., 10 N.Y.3d 507, 513 (2008) (“‘Named-perils’ covers only specifically
enumerated risks, whereas an ‘all-risk’ agreement generally covers all risks of physical
loss, except for those perils specifically excluded.”).
(Def. 56.1 ¶ 23). Of particular relevance to the instant motion, the Policy
covers Lantheus’s “Contingent Business Income Loss” (“CBI”) according to the
We will pay for the actual Business Income Loss you
sustain and necessary Extra Expense you incur
resulting from the necessary suspension of your
business activities occurring at a premises described in
the Declarations Schedule if the suspension is caused
by direct physical loss of or damage caused by a covered
cause of loss to a Contingent Property (of the type
insured) not owned, occupied, leased or rented by you
or insured under this Policy and that property is located
within the Covered Territory. We will pay no more than
the applicable sub-limit of insurance.
(Silverberg Decl., Ex. G at 28 (emphasis added)). Lantheus’s Billerica,
Massachusetts facility where TechneLite Generators are produced (the
“Billerica Facility”) is one of the premises described in the Declarations
Schedule. (Id. at 18).
The Policy defines “Contingent Property” to include “[a] property from
which you or others on your account receive the delivery of manufactured
materials or services if those materials or services are essential for the
continuation of your business activities.” (Silverberg Decl., Ex. G at 28).
Endorsement 6, in turn, amends the Policy to provide a $70 million sub-limit of
insurance for “Contingent Time Element f[ro]m [AECL] — Chalk River Reactor
as a supplier of … Nordion.” (Id. at 76).3 “Extra Expenses” are covered under
The Court notes that “[t]he word ‘contingent’ is something of a misnomer; it simply
means that the insured’s business interruption loss resulted from damage to a third
party’s property.” Pentair, Inc. v. Am. Guarantee & Liab. Ins. Co., 400 F.3d 613, 615 n.3
(8th Cir. 2005). The parties do not dispute that the NRU Reactor constitutes
Contingent Property under the Policy.
the CBI provision beginning on the date of the loss, and continuing “during the
period of restoration to resume and continue as nearly as practicable your
normal business activities at [the] premises[.]” (Id. at 28).
The Policy distinguishes between “covered” causes of loss and “excluded”
causes of loss. “Covered Cause of Loss” is defined broadly, to include “all risks
of direct physical loss of or damage (including machinery breakdown) from any
external cause unless excluded.” (Silverberg Decl., Ex. G at 50). Conversely,
exclusions are detailed in “Causes of Loss Not Covered,” with corrosion being
the exclusion relevant to the instant dispute:
We will not pay for loss or damage resulting from any of
the following; such loss or damages is excluded
regardless of any cause or event that contributes
concurrently or in any sequence to the loss or damage,
except as specifically provided.
Developing, Latent and Other Causes
The effects or cause of:
Deterioration, depletion, rust, corrosion, erosion,
loss of weight, evaporation[,] or wear and tear[.]
But if any of these results in a covered cause of loss,
this exclusion does not apply to the loss or damage
caused by the covered cause of loss.
(Id. at 24-25 (emphasis added)). The corrosion exclusion is bookended by two
provisions that bear separate mention. First, the Policy contains a so-called
“anti-concurrent cause” provision, which bars coverage where a claimed loss is
caused by a combination of covered and excluded perils. Second, the Policy
contains an “ensuing loss” exception, which provides coverage if an excluded
peril causes a second, covered peril to occur; in that eventuality, coverage is
provided only for the loss or damage that proximately results from the covered
The Structure of the NRU Reactor and the Weakening of the
The NRU Reactor consists of a cylindrical aluminum alloy reactor vessel
and light water reflector, uranium fuel rods, and a cooling system. (Pl. 56.1
¶ 36). The light water reflector surrounds the reactor vessel, and a gas-filled
space of about six inches, called an “annulus,” separates the two. (Id. at
¶¶ 37-38). Within the reactor vessel, uranium undergoes nuclear fission,
producing up to 135 megawatts of mechanical power in the form of heat. (Id.
at ¶ 45). Pumps, ordinarily powered by the electrical grid, drive “heavy water”
through the vessel and into a series of heat exchangers to cool the uranium
fuel rods. (Id. at ¶¶ 39-43).4
As of May 2009, the wall separating the annulus and reactor vessel was
weakening (or thinning) to varying degrees in several places. The parties agree
on this fact, but disagree on the types and causes of this weakening; for
purposes of this motion, the Court will focus on the Plaintiff’s account of the
“Heavy water,” or D2O, is distinguished from “light water,” or H2O, because it “contain[s]
significantly more than the natural proportions (one in 6,500) of heavy hydrogen
(deuterium, D) atoms to ordinary hydrogen atoms.” Heavy Water, U.S. Nuclear
Regulatory Commission, http://www.nrc.gov/reading-rm/basic-ref/glossary/heavywater-d2o.html (last visited Mar. 24, 2015).
weakening. (See Pl. 56.1 ¶¶ 47-53). The first manner of weakening is referred
to by both parties as corrosion, and, solely to avoid confusion, the Court will
use Plaintiff’s term for this form of thinning: “General Corrosion.” (Id. at ¶ 53;
see also St. Pierre Decl., Ex. 1 at 11 (describing the “general slow corrosion rate
thinning of the reactor vessel on the annulus side”)). This General Corrosion
caused solids to accumulate near the base of the annulus. (Pl. 56.1 ¶ 53; see
also St. Pierre Decl., Ex. 1 at 11 (“The spongy solids that built up at the bottom
of the annulus included [redacted].”)). The second form of thinning to the wall
was a highly localized pitting or weakening (referred to by Plaintiff as
“[redacted] Penetration”) that occurred approximately four centimeters above
the base. (Pl. 56.1 ¶ 49; see also St. Pierre Decl., Ex. 1 at 11 (describing the
thinning as “a highly localized attack in the form of [redacted]”)).5
The May 2009 Shutdown
On May 14, 2009, the NRU Reactor lost power. (Pl. 56.1 ¶ 63).6
[Redacted]. (Id. at ¶¶ 66-67). AECL acted to [redacted]. (See id. at ¶¶ 66-70).
When the vessel was refilled, the vessel wall failed where the [redacted]
Penetration had occurred, causing a through-wall breach. (Id. at ¶¶ 72-75).
Heavy water containing a radioactive substance called tritium was released
within the NRU Reactor facility, which caused AECL to take the NRU Reactor
The parties appear to dispute whether this “highly localized, [redacted]” thinning
occurred in one location or in multiple locations (compare Pl. 56.1 ¶ 50, with Def. 56.1
Reply ¶ 50), but the dispute is irrelevant to the instant motion.
The parties dispute whether the cause of the power outage was a lightning strike (see
Def. 56.1 Reply ¶ 64), but this, too, is irrelevant to resolution of the instant motion.
out of service until it could investigate the source of the leak and complete
repairs. (Def. 56.1 ¶ 8). The shutdown lasted for approximately 15 months.
Both sides offer expert testimony concerning the cause of the throughwall breach. Again, given the current procedural posture, the Court focuses on
the evidence submitted by the non-movant. Lantheus offers opinions from two
expert witnesses, metallurgist George R. St. Pierre and nuclear engineer John
H. Bickel. The witnesses make clear that their reports are to be read in
tandem. (See, e.g., Bickel Decl., Ex. 1 at 5 (noting that the cause of the
weakening in the vessel wall “will be explained by another expert”)).7
St. Pierre considered the metallurgic properties of the aluminum reactor
vessel and the changes in that metal that allowed it to be susceptible to a
breach. He focuses on a confluence of chemical processes in the annulus that
led to the [redacted] Penetration, which he claims to be a causal factor in the
breach and — perhaps more significantly for Plaintiff’s coverage arguments —
which he seeks to distinguish from General Corrosion. Specifically, St. Pierre
links the formation of the [redacted] Penetration to an “electrochemical cell”
(alternately referred to as a “differential aeration cell” or an “aeration cell”) that
resulted from the interaction of waters with two different electric potentials at
the base of the NRU Reactor. (Pl. 56.1 ¶ 52; see generally St. Pierre Decl., Ex.
1 at 11-15)).8 Water flowing down the side of the light water reflector to the
Zurich offers various challenges to Lantheus’s expert testimony in its reply brief and its
supplemental letter brief. (See Def. Reply 1-5; Dkt. #137). While these challenges are
not without merit, for purposes of this motion, the Court accepts the expert testimony.
St. Pierre opined that the process by which the aeration caused a degradation of the
aluminum vessel wall differed from General Corrosion in that (i) it proceeded at a rate
base of the reactor vessel became trapped in the insoluble materials that had
accumulated near the base of the annulus during the General Corrosion
process and remained aerated; water flowing down the reactor wall in the
annulus became de-aerated. (Pl. 56.1 ¶¶ 54-55; see also St. Pierre Decl., Ex. 1
at 14-15). An electrochemical cell formed at the base of the vessel, where the
de-aerated water flowing down the reactor wall (which was electrically charged)
contacted the aerated water (which had a different electrical charge) that had
commingled with the corrosion by-products. (Pl. 56.1 ¶ 56; see also St. Pierre
Decl., Ex. 1 at 14).
According to St. Pierre, the electrochemical cell caused the aluminum
wall of the vessel to thin at a rate greater than that caused elsewhere by
General Corrosion. (See Pl. 56.1 ¶¶ 57-58; see also St. Pierre Decl., Ex. 1 at 2,
18). While “well-known corrosion mechanisms,” including nitric acid, could
result in metal loss of 0.03 millimeters per year (St. Pierre Decl., Ex. 1 at 11),
the thinning rate at the water line of the annulus “could be more than 10
millimeters per year” (id. at 18). Ultimately, St. Pierre opines that the rate of
thinning at the areas of [redacted] Penetration “took place at a rate in excess of
100 [millimeters per year] as a result of the formation of an electrochemical
differential aeration cell” (id.), which would have penetrated through the 8
millimeter reactor vessel wall in less than one month. St. Pierre cautions,
“orders of magnitude greater than the rate of the processes that cause general
corrosion” (St. Pierre Decl., Ex. 1 at 2); (ii) “it require[d] special conditions of water
contact with the aluminum reactor wall” (id.); and (iii) the damage was not caused by
“acidic action” involving the metal, but rather an electrical current (id. at 15).
however, that the thinning of the wall was not the sole cause of the breach;
rather, he opines, “[t]hinned metal at the base of the [redacted] [was] ruptured
by internal pressure surges that were felt on May 14, 2009,” [redacted]. (Id. at
3; see also id. at 18 (concluding “to a reasonable degree of scientific certainty
that [a rapid increase in hydrostatic pressure at the failure location from
[redacted] pounds per square inch to at least [redacted] pounds per square
inch over a two-minute period] ruptured the highly-localized, [redacted] sites in
the vessel wall”)).
Bickel, for his part, focuses on the NRU Reactor in opining on the cause
of the May 2009 shutdown. Ultimately, he concludes that a “transient
hydraulic event that beg[a]n when light[n]ing caused a loss of power at the NRU
facility resulted in a through-wall breach of the vessel ... at locations where the
vessel had already been thinned by other causes.” (Bickel Decl., Ex. 1 at 5).
Bickel claims to “offer no opinions on matters of ‘corrosion or materials,’ or
‘materials strength/stress analyses,’” matters he understands are being
addressed by Lantheus’s other experts. (Id. at 6). However, later on in his
report, he opines that corrosion by nitric acid (the conclusion of AECL as to the
cause of the breach) could not be the sole cause of the shutdown of the NRU
Reactor without some other “triggering event.” (Id. at 22).
Bickel then considers what triggering event could have acted
concurrently with the degradation of the aluminum vessel wall to cause the
shutdown. After raising and refuting various triggering events, including core
power surges and seismic events, Bickel concludes that a rapid change in
pressure within the reactor vessel — a “pressure transient” — was the likely
cause. (Bickel Decl., Ex. 1 at 24-66). Bickel reasons from the fact that
abnormal tritium leakage was not detected by AECL until the week of the May
14, 2009 incident, that there were no pre-existing breaches in the vessel wall.
(Id. at 49). Instead, Bickel concludes “that the through-wall reactor vessel
failure was a direct result of a combination of a ‘pre-weakened’ condition and a
‘triggering event’ that came together following the May 14th, 2009 Loss of Class
IV Power at the NRU facility.” (Id. at 67; see also id. at 5 (“I conclude, to a
reasonable degree of scientific certainty, that a hydraulic transient failed the
NRU Reactor vessel at locations where the vessel wall had already been thinned
due to other causes.”)).
Lantheus’s Decrease in Production
Lantheus asserts that the NRU Reactor shutdown forced its Billerica
Facility to cancel numerous production runs for TechneLite Generators,
including four production runs in May 2009, eight production runs in June
2009, fourteen production runs in July 2009, twelve production runs in
August 2009, and nine production runs in September 2009. (Pl. 56.1 ¶¶ 8590; see also Pl. Opp. 2).
As of May 2009, Lantheus manufactured TechneLite Generators on
weekdays and on weekends, with the largest production runs occurring on the
weekends. (Pl. 56.1 ¶¶ 91-92). The weekend production runs began on
Saturday evenings between 6:30 p.m. and 7:30 p.m., and concluded on
Sunday mornings between 6:30 a.m. and 7:30 a.m. (Id. at ¶¶ 94-95).
Lantheus did not manufacture other products during the weekend. (Id. at
¶ 93). Prior to the NRU Reactor shutdown, Lantheus produced approximately
410 TechneLite Generators during its weekend production runs. (Id. at ¶ 96).
This number dropped following the NRU Reactor shutdown, and, by August
2009, Lantheus was producing an average of 216 TechneLite Generators
during its weekend production runs. (Id. at ¶¶ 97-100).
Because Lantheus received less Moly-99 and produced fewer TechneLite
Generators during its weekend production runs while the NRU Reactor was
offline, it halted its production activities on Sundays one to three hours earlier
than it otherwise would have. (Pl. 56.1 ¶ 103). Put another way, instead of
producing TechneLite Generators for approximately twelve hours each
weekend, Lantheus produced TechneLite Generators for nine to eleven hours
each weekend. (See id.). Nothing in the records suggests that production runs
for TechneLite Generators — or any other product — scheduled during
weekdays were affected as a result of the NRU Reactor shutdown.
As a result of the NRU Reactor shutdown, Lantheus asserts it lost
revenue and incurred extra expense in obtaining an alternate supply of Moly99. (Def. 56.1 ¶ 18). Lantheus has estimated its financial losses to be greater
than the Policy’s $70 million sub-limit for CBI losses provided by Endorsement
6. (Id. at ¶ 19).
Zurich’s Denial of the Claim
Zurich denied coverage to Lantheus by latter dated March 22, 2010. (Pl.
56.1 ¶ 155). The letter explained that, “[i]nasmuch as all of the available
information indicates that the shutdown of the NRU Reactor was because of
corrosion, an excluded cause of loss, Lantheus’s Contingent Business Income
Loss and Extra Expense claim is not covered.” (Sutton Decl., Ex. Z at 4).
The Instant Litigation
Plaintiff initiated this action on December 16, 2010, seeking a
declaratory judgment that its losses were covered by the Policy, and relatedly
claiming breach of contract under the terms of the Policy. (Dkt. #1). Despite
the diligent efforts of the parties, discovery in this case persisted for several
years because of difficulties and delays conducting foreign discovery. On
January 11, 2012, the Honorable James L. Cott, United States Magistrate
Judge — to whom the case had been assigned for general pretrial
purposes — issued an Opinion and Order granting Lantheus’s request for the
issuance of letters rogatory seeking documents and deposition testimony from
AECL. Lantheus Med. Imaging, Inc. v. Zurich Am. Ins. Co., 841 F. Supp. 2d 769
On June 19, 2013, the action was reassigned to this Court. (Dkt. #82).
As discovery pressed forward, Lantheus diligently pursued documents from
abroad, but continued to have difficulties in obtaining what it considered to be
a complete set of discovery from AECL. (See Dkt. #85, 87, 90). Zurich’s
position, as expressed in its pre-motion conference letter of March 11, 2014, to
this Court, was that the remaining discovery was largely irrelevant because any
loss was subject to the corrosion exclusion, and because Lantheus did not
suffer a “necessary suspension” of its operations. (Dkt. #91 at 3 & n.4). Zurich
indicated that these bases for a summary judgment motion would exist
regardless of what additional discovery revealed. (Id. at 1). Lantheus
disagreed, and contended that “[e]ach new production of information from
AECL support[ed] Lantheus’[s] position, and [that] Zurich want[ed] to turn the
spigot off … before more damaging information emerge[d].” (Dkt. #93 at 3). In
light of the unique challenges Lantheus faced in obtaining the foreign
discovery, the Court permitted fact discovery to be extended until the end of
March 2014 (Dkt. #89), and then once again until the end of June 2014 (Dkt.
On July 14, 2014, Zurich filed its motion for summary judgment and
accompanying papers. (Dkt. #106-109). On August 25, 2014, Lantheus filed
its opposition papers. (Dkt. #114-115, 117-120). On September 15, 2014,
Zurich filed its reply papers. (Dkt. #124-126).
On November 4, 2014, the Court granted Zurich’s request to supplement
the summary judgment record with deposition transcripts from Plaintiff’s
expert witnesses, who had recently been deposed. (Dkt. #134). The Court
permitted each party to submit a supplemental letter brief regarding the
testimony. (Dkt. #137, 138).
On March 25, 2015, the Court filed an unredacted copy of this Opinion
under seal. On that same day, the Court provided the parties with a copy of
the unredacted Opinion and allowed the parties to propose redactions.
Pursuant to the Court’s directions, the parties will file their materials publicly
by April 27, 2015, with certain limited categories of information redacted in
accordance with Lugosch v. Pyramid Co. of Onondaga, 435 F.3d 110 (2d Cir.
2006). On that date, the parties will also file a joint letter suggesting
redactions to the Opinion. Taking the parties’ suggestions into consideration,
the Court will then file the redacted Opinion publicly. The Court now considers
the pending motion for summary judgment.
Summary Judgment Generally
Under Federal Rule of Civil Procedure 56(a), summary judgment may be
granted only if all the submissions taken together “show that there is no
genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986) (internal citation and quotation marks omitted); see also Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party bears the
initial burden of demonstrating “the absence of a genuine issue of material
fact.” Celotex, 477 U.S. at 323. A fact is “material” if it “might affect the
outcome of the suit under the governing law,” and is genuinely in dispute “if
the evidence is such that a reasonable jury could return a verdict for the
nonmoving party.” Anderson, 477 U.S. at 248; see also Jeffreys v. City of New
York, 426 F.3d 549, 553 (2d Cir. 2005) (citing Anderson). The movant may
discharge this burden by showing that the nonmoving party has “fail[ed] to
make a showing sufficient to establish the existence of an element essential to
that party’s case, and on which that party will bear the burden of proof at
trial.” Celotex, 477 U.S. at 322; see also Selevan v. N.Y. Thruway Auth., 711
F.3d 253, 256 (2d Cir. 2013) (finding summary judgment appropriate where the
non-moving party fails to “come forth with evidence sufficient to permit a
reasonable juror to return a verdict in his or her favor on an essential element
of a claim” (internal quotation marks omitted)).
If the moving party meets this burden, the nonmoving party must “set
out specific facts showing a genuine issue for trial” using affidavits or
otherwise, and cannot rely on the “mere allegations or denials” contained in the
pleadings. Anderson, 477 U.S. at 248, 250; see also Celotex, 477 U.S. at 32324; Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009). The nonmoving party
“must do more than simply show that there is some metaphysical doubt as to
the material facts,” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 586 (1986), and cannot rely on “mere speculation or conjecture as to the
true nature of the facts to overcome a motion for summary judgment,” Knight v.
U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir. 1986) (quoting Quarles v. Gen. Motors
Corp., 758 F.2d 839, 840 (2d Cir. 1985)). Furthermore, “[m]ere conclusory
allegations or denials cannot by themselves create a genuine issue of material
fact where none would otherwise exist.” Hicks v. Baines, 593 F.3d 159, 166
(2d Cir. 2010) (quoting Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995))
(internal quotation marks and citations omitted); see also Vargas v. Transeau,
514 F. Supp. 2d 439, 442 (S.D.N.Y. 2007) (observing that “the mere existence
of a scintilla of evidence in support of the [non-movant’s] position will be
insufficient” to defeat summary judgment (internal quotation marks and
citations omitted)), aff’d sub nom. Vargas v. Pfizer, Inc., 352 F. App’x 458 (2d
Cir. 2009) (summary order).
“When ruling on a summary judgment motion, the district court must
construe the facts in the light most favorable to the non-moving party and
must resolve all ambiguities and draw all reasonable inferences against the
movant.” Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 780 (2d Cir.
Interpretation of Insurance Contracts
“Insurance policies are, in essence, creatures of contract, and,
accordingly, subject to principles of contract interpretation.” Porco v. Lexington
Ins. Co., 679 F. Supp. 2d 432, 435 (S.D.N.Y. 2009) (quoting In re Estates of
Covert, 97 N.Y.2d 68, 76 (2001) (internal quotation marks omitted)). Under
New York law, the interpretation of a contract “is a matter of law for the court
to decide.” Int’l Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76, 83
(2d Cir. 2002) (internal citation omitted); see also Parks Real Estate Purchasing
Grp. v. St. Paul Fire and Marine Ins. Co., 472 F.3d 33, 42 (2d Cir. 2006) (“[T]he
initial interpretation of a contract is a matter of law for the court to decide.”
(internal quotation marks and citation omitted)).9
In this diversity action, the issues are governed by either New York or Massachusetts
state law. See MBIA Inc. v. Fed. Ins. Co., 652 F.3d 152, 158 (2d Cir. 2011). The parties
cite cases from both jurisdictions interchangeably (see, e.g., Def. Br. 8; Pl. Opp. 14), and
neither party asserts that there is a meaningful difference between the two jurisdictions’
laws with respect to the instant dispute. Accordingly, the Court will rely on New York
state law. See Johnson v. Priceline.com, Inc., 711 F.3d 271, 276 n.2 (2d Cir. 2013)
(“courts sitting in diversity may properly rely on the forum state’s law where neither
party asserts that another jurisdiction’s law meaningfully differs”); see also Mem’l Drive
Consultants, Inc. v. ONY, Inc., 29 F. App’x 56, 60 & n.2 (2d Cir. 2002) (summary order)
(applying New York law where, “[a]lthough the parties dispute[d] whether New York or
If the Court finds contract provisions to be unambiguous, it must then
interpret the provisions in light of ‘“their plain and ordinary meaning.’” Ellicott
Square Court Corp. v. Mountain Valley Indem. Co., 634 F.3d 112, 119 (2d Cir.
2011) (quoting Essex Ins. Co. v. Laruccia Constr., Inc., 898 N.Y.S.2d 558, 559
(2d Dep’t 2010)). The Court must interpret such terms “in light of ‘common
speech’ and the reasonable expectations of a businessperson.” Belt Painting
Corp. v. TIG Ins. Co., 100 N.Y.2d 377, 383 (2003) (internal citation omitted).
“Where contractual language is ambiguous and subject to varying reasonable
interpretations, intent becomes an issue of fact and summary judgment is
inappropriate…. Only where the language is unambiguous may the district
court construe it as a matter of law and grant summary judgment accordingly.”
Palmieri v. Allstate Ins. Co., 445 F.3d 179, 187 (2d Cir. 2006) (internal
quotation marks and citations omitted).
If a contract term is “susceptible to at least two reasonable
interpretations,” the case may not be resolved on summary judgment, because
the meaning of an ambiguous contract term is “generally an issue of fact,
requiring the trier of fact to determine the parties’ intent.” U.S. Naval Inst. v.
Massachusetts law should govern[,] ... their briefs implicitly agree[d] that the rules for
interpreting contract language [we]re substantially the same under the law of both
states”); Tutor Perini Corp. v. Banc of Am. Sec. LLC, No. 11 Civ. 10895 (NMG), 2012 WL
2178950, at *8 n.9 (D. Mass. June 13, 2012) (“To the extent Massachusetts law were to
apply, the basic principles of contract interpretation would be the same as under New
York law.”); Water Transp. Co. v. Boston Towing & Transp. Co., No. 92 Civ. 5290, 1993
WL 625536, at *8 n.4 (S.D.N.Y. Apr. 7, 1993) (Sotomayor, D.J.) (“In their papers both
parties cite cases arising under New York law. However, the parties also indicate that
Massachusetts law may apply. Although I rely on cases arising under New York law,
principles of contract interpretation under Massachusetts law are virtually identical to
those in New York.”).
Charter Commc’ns, Inc., 875 F.2d 1044, 1048 (2d Cir. 1989) (internal citations
omitted). In contrast, if the terms of the contract are not ambiguous, the
dispute is properly resolved on summary judgment, and the court must
endeavor to “give effect to the intent of the parties as expressed in the clear
language of the contract.” Mount Vernon Fire Ins. Co. v. Belize NY, Inc., 277
F.3d 232, 236 (2d Cir. 2002) (internal quotation marks and citation omitted).
When insurance contracts contain an exclusion provision, ‘“[t]he insurer
generally bears the burden of proving that the claim falls within the scope of an
exclusion ... [by] establish[ing] that the exclusion is stated in clear and
unmistakable language, is subject to no other reasonable interpretation, and
applies in the particular case.’” Seneca Ins. Co. v. Kemper Ins. Co., No. 02 Civ.
10088 (PKL), 2004 WL 1145830, at *10 (S.D.N.Y. May 21, 2004) (quoting Vill. of
Sylvan Beach v. Travelers Indem. Co., 55 F.3d 114, 115-16 (2d Cir. 1995)),
aff’d, 133 F. App’x 770 (2d Cir. 2005) (summary order); see also Seaboard Sur.
Co. v. Gillette Co., 64 N.Y.2d 304, 311 (1984) (stating that exclusions “are not to
be extended by interpretation or implication, but are to be accorded a strict
and narrow construction” (internal citation omitted)).
Finally, the burden shifts to the insured to establish coverage once an
exception to an applicable exclusion is raised. See Ment Bros. Iron Works Co. v.
Interstate Fire & Cas. Co., 702 F.3d 118, 122 (2d Cir. 2012) (“[A]fter an insurer
establishes that a policy exclusion applies, the burden shifts to the
policyholder to prove that an exception to that exclusion applies.”); Northville
Indus. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 89 N.Y.2d 621, 634
(1997) (“Shifting the burden to establish the exception conforms with an
insured’s general duty to establish coverage where it would otherwise not
exist[.]”); see generally MBIA Inc. v. Fed. Ins. Co., 652 F.3d 152, 158 (2d Cir.
The Court must first decide, as a threshold matter, whether the
provisions at issue are unambiguous as a matter of law. The parties disagree
as to the meaning and application of three provisions: (i) the CBI provision, and
specifically what it means to suffer a “necessary suspension” of business
activities; (ii) the “corrosion” exclusion, and specifically whether the [redacted]
Penetration constitutes corrosion; and (iii) the “ensuing loss provision,” and
specifically whether otherwise excluded loss caused by “corrosion” can be
restored to coverage because of a subsequent, fortuitous event.
The Court Need Not Resolve the Issue of Whether the
Requisite “Necessary Suspension” of “Business Activities”
Zurich argues that Lantheus cannot claim under the Policy’s CBI
provision in the first instance because it did not suffer a “necessary
suspension” of its business activities. (Def. Br. 15-17; Def. Reply 7-10). In this
regard, Zurich contends that “suspension” is equivalent to total or complete
cessation — a level of interruption the Billerica Facility never approached.
(Def. Br. 16; Def. Reply 9). Lantheus counters that the disruptions it faced as a
result of the NRU Reactor shutdown were precisely the kinds the parties
anticipated when executing the Policy, and, in any event, that the NRU Reactor
shutdown forced it to “suspend” — briefly but repeatedly — its business
activities. (Pl. Opp. 22-24). The Court notes that there are persuasive
arguments on both sides; as set forth in the remainder of this section, however,
the Court need not resolve the issue in order to resolve Defendant’s motion.
The Policy provides no definition for the term “suspension.” Accordingly,
this Court looks to the dictionary to provide the everyday, common meaning of
the term. Fed. Ins. Co. v. Am. Home Assur. Co., 639 F.3d 557, 567 (2d Cir.
2011) (“It is common practice for the courts of New York State to refer to the
dictionary to determine the plain and ordinary meaning of words to a contract.”
(internal quotation marks, alterations and citations omitted)). Webster’s Third
New International Dictionary defines “suspension” as “the act of suspending or
the state or period of being suspended, interrupted, or abrogated.” Webster’s
Third New International Dictionary, Unabridged (3d ed.) (“Webster’s
(last visited Mar. 24, 2015). “Suspended” is defined as “temporarily debarred,
inactive, inoperative.” Webster’s Dictionary, http://unabridged.merriamwebster.com/unabridged/suspended (last visited Mar. 24, 2015).
Other courts have found the word “suspension,” as used here, to be
unambiguous. For example, another court in this District found that, given
the common meaning of the term “suspension,” a “complete cessation of
activity, even a temporary one, was required” under the express terms of a
business income loss provision. Madison Maidens, Inc. v. Am. Mfrs. Mut. Ins.
Co., No. 05 Civ. 4584 (LTS), 2006 WL 1650689, at *4 (S.D.N.Y. June 15, 2006)
(granting insurer’s motion for summary judgment) (emphasis in original).
Several New York state courts have found similarly. See, e.g., Broad St., LLC v.
Gulf Ins. Co., 832 N.Y.S.2d 1, 5 (1st Dep’t 2006) (“[T]his Court [has] addressed
the very issue pivotal on this appeal and determined that in order for business
interruption insurance to be triggered, there must be a ‘necessary suspension,’
i.e., a total interruption or cessation of operations.” (internal quotation marks
and citations omitted)); 54th St. Ltd. Partners, L.P. v. Fid. & Guar. Ins. Co., 763
N.Y.S.2d 243, 243 (1st Dep’t 2003) (“[T]he language of the subject policy clearly
and unambiguously provides that for business interruption coverage to be
triggered, there must be a ‘necessary suspension,’ i.e., a total interruption or
cessation.”); Howard Stores Corp. v. Foremost Ins. Co., 441 N.Y.S.2d 674, 676
(1st Dep’t 1981) (reversing jury verdict and damages award based on business
interruption coverage where “there was no actual suspension of business
operations, but rather an alleged adverse effect on continuing sales”), aff’d, 56
N.Y.2d 991 (1982).10
The majority of courts have reached the same conclusion when faced with this
language. See generally 11 Couch on Ins. § 167:11 (“[A] business … ‘suspension’
triggering coverage typically involves a total cessation of business, not merely a
slowdown or reduction of operations.”); see also, e.g., GBP Partners, Ltd. v. Md. Cas. Co.,
505 F. App’x 389, 392 (5th Cir. 2013) (unpublished opinion) (“Under Texas law, a
suspension of operations clause requires business to have completely ceased for some
interval.”); H & H Hospitality LLC v. Discover Specialty Ins. Co., No. 10 Civ. 1886, 2011
WL 6372825, at *3 (S.D. Tex. Dec. 20, 2011) (“While the Policy does not define
‘necessary suspension of your operations,’ courts have interpreted language identical or
similar to the clause in this policy to cover the risk of a complete cessation of business
activities at the covered premises[.]”); Tastee Treats, Inc. v. U.S. Fid. & Guar. Co., 07 No.
Civ. 338, 2010 WL 4919606, at *6 (S.D. W. Va. Nov. 29, 2010) (“Following the plain
meaning of the Policy’s language, the Court finds that a complete shutdown or
cessation of business ... was required for [the insured] to recover lost business
income.”), aff’d, 474 F. App’x 101 (4th Cir. 2012) (unpublished opinion); Am. States Ins.
Co. v. Creative Walking, Inc., 16 F. Supp. 2d 1062, 1065 (E.D. Mo. 1998) (“This
otherwise unqualified language unambiguously refers to a total cessation of Defendant’s
business activities.”); Home Indem. Co. v. Hyplains Beef, L.C., 893 F. Supp. 987, 990 (D.
The Policy language concerning what must be suspended in order to
trigger CBI coverage — “business activities occurring at [the insured’s]
premises” — is itself unambiguous. Read together, the provisions suggest that
Lantheus’s CBI coverage hinges on whether its business activities at the
Billerica Facility ceased completely as a result of the NRU Reactor shutdown.
Because they concededly did not, Zurich would appear to be entitled to
summary judgment. However, the Court is loath to grant relief on this basis
for two reasons.
Kan. 1995) (“holding … that a complete cessation of … business was required to trigger
coverage”), aff’d, 89 F.3d 850 (10th Cir. 1996) (unpublished opinion); Forestview The
Beautiful, Inc. v. All Nation Ins. Co., 704 N.W.2d 773, 775 (Minn. Ct. App. 2005) (“The
plain and ordinary meaning of ‘suspension’ requires a complete cessation and does not
support coverage when only a partial suspension occurred.”); Buxbaum v. Aetna Life &
Cas. Co., 126 Cal. Rptr. 2d 682, 693 (Cal. Ct. App. 2002) (“[A] total cessation of
business activity must occur.”); Quality Oilfield Prods., Inc. v. Mich. Mut. Ins. Co., 971
S.W.2d 635, 639 (Tex. App. 1998) (“[W]e find that ‘interruption of business’ is an
unambiguous term meaning ‘cessation or suspension of business.’ Therefore, [plaintiff]
was not entitled to business interruption coverage for the work slowdown it
experienced, and we find the trial court did not err in granting [defendant’s] motion for
summary judgment.”). Cf. Archer Daniels Midland Co. v. Aon Risk Servs., Inc. of Minn.,
356 F.3d 850, 856 (8th Cir. 2004) (finding a provision that “specifically require[d] a
suspension of operations” “requir[ed] a shutdown for loss of earnings coverage” to apply,
while finding an “extra expense” coverage provision lacking this requirement did not
require complete cessation). But see Maher v. Cont’l Cas. Co., 76 F.3d 535, 539 n.1 (4th
Cir. 1996) (finding that the policy “clearly contemplate[d] that a policyholder may be
compensated for lost income, regardless of whether the business continued to operate
at a reduced level immediately following the covered loss”); Icue Corp. v. U.S. Fid. &
Guar. Co., 07 No. Civ. 1781, slip op. at 2 n.1 (E.D. Pa. Apr. 23, 2008) (unpublished
order) (“[T]he term ‘necessary suspension’ should not be construed to require a total
cessation of business operations as prerequisite to payment.”).
The Court also notes that the Policy’s CBI language does not qualify the “suspension”
that must occur with words like “potential” or “partial.” Provisions covering “potential
suspension” or “partial suspension” — by their own express terms — contemplate
coverage for less-than-total cessation. See Am. Med. Imaging Corp. v. St. Paul Fire and
Marine Ins. Co., 949 F.2d 690, 692 (3d Cir. 1991) (holding that policy language
purporting to cover “necessary or potential suspension” allowed for coverage up until the
insured resumed “normal operations” (emphasis added)); Aztar Corp. v. U.S. Fire Ins.
Co., 223 Ariz. 463, 469 (Ariz. Ct. App. 2010) (“The addition of the phrase ‘total or partial’
also makes it plain that any stoppage, or hindrance, need not impact the entire
‘business’ but only a portion.” (emphasis added)).
The cases described above pertain to “business interruption” or
“business income loss” (“BI”) coverage, rather than the “contingent business
income loss” coverage that is implicated by the instant case. (See Pl. Opp. 23
(observing that the “cases cited by Zurich … do not involve CBI coverage”)). In
2005, the Second Circuit observed that “CBI coverage is a relatively recent
development in insurance law and its scope has not yet been fully delineated
by the courts.” Zurich Am. Ins. Co. v. ABM Indus., Inc., 397 F.3d 158, 168 (2d
Cir. 2005). This observation remains true ten years later, particularly in the
context of importing conventions from the field of ordinary BI insurance.
In the context of BI coverage, the circumstances under which a company
suffers complete cessation at a given facility, which successfully and
uncontroversially triggers a BI loss, are innumerable and easily imagined. The
circumstances under which complete cessation at a facility follows from
damage to contingent property are less obvious. See Pentair, 400 F.3d at 615
(“Though few reported cases have construed this type of extended business
interruption coverage, it has doubtless become more common and significant
as companies increasingly out-source component parts manufacturing and rely
on so-called ‘just in time’ inventory systems.”). Perhaps some CBI provisions
would more accurately reflect the expectations of the insured parties regarding
contingent property if the policies covered “partial suspensions” or
“interruptions” short of complete cessation. Nonetheless, the Court is
appropriately reluctant to rewrite the Policy to accommodate perceived
conceptual differences between BI insurance and CBI insurance. Cf. Duane
Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 411 F.3d 384, 392 (2d Cir. 2005)
(modifying the order of the district court that “effectively rewr[ote] the policy by
superseding and enlarging upon the more limited coverage provided by the
policy’s” business interruption provisions).11
This reluctance is heightened where the relevant language of the BI and
CBI provisions is identical. The Policy contains a BI provision (not at issue in
the instant matter) that protects Lantheus from direct damage and loss to its
Billerica Facility. This provision contains the very same requirement of a
“necessary suspension.” (Silverberg Decl., Ex. G at 27). Thus, even if the
Court were inclined toward making a distinction between BI and CBI coverage,
to do so in the context of this Policy would entail reading two parts of the same
contract, that contain the same terms, in such a way that they would have two
entirely different meanings. Md. Cas. Co. v. W.R. Grace & Co., 128 F.3d 794,
799 (2d Cir. 1997), as amended (Nov. 18, 1997) (“Terms in a document,
especially terms of art, normally have the same meaning throughout the
document in the absence of a clear indication that different meanings were
As a point of counterbalance, Lantheus argues that adopting Zurich’s
interpretation of the CBI provision would render the coverage it received
concerning the NRU Reactor effectively illusory. According to Zurich, in order
The Court recognizes that CBI coverage exists for partial suspensions of and/or
interruptions in business operations, and accepts Zurich’s representation that such
coverage was available in 2008. (See Def. Reply 9-10). What is unclear from the
current record is whether such coverage was specifically offered to Lantheus and, if so,
the reasons for Lantheus’s decision not to obtain such coverage.
to trigger CBI coverage under the Policy, “business activities occurring at a
[Lantheus] premises” — in this case the Billerica Facility — must have
completely ceased. Endorsement 6, which concerns the NRU Reactor, does not
purport to modify this. (See Silverberg Decl., Ex. G at 76 (changing the sublimit of insurance to $70 million, but noting that “[a]ll other terms, conditions[,]
and limitations of this Policy remain unchanged”)). Lantheus responds that it
has multiple lines of production at the Billerica Facility, several of which do not
implicate Moly-99; that it specifically bought the CBI coverage at issue here to
safeguard the continuation of a single business line; and that requiring a
complete cessation of all business activities at the Billerica Facility would thus
be fundamentally inconsistent with the Policy’s critical concern. (See Pl. Opp.
21, 23-24). Relatedly, Lantheus asserts that because there is no set of
circumstances under which shutdown of the NRU Reactor would cause a
complete cessation of operations at the Billerica Facility, the coverage it
obtained via Endorsement 6 was illusory.
Under New York law, courts should avoid a contractual interpretation
that renders an agreement illusory and unenforceable for lack of mutual
obligation. See Curtis Props. Corp. v. Greif Cos., 628 N.Y.S.2d 628, 632-33 (1st
Dep’t 1995). It is also “settled” law that New York courts “will not adopt an
interpretation that renders a contract illusory when it is clear that the parties
intended to be bound thereby.” Blandford Land Clearing Corp. v. National
Union Fire Ins. Co. of Pittsburgh, Pa., 698 N.Y.S.2d 237, 243 (1st Dep’t 1999);
accord Lebowitz v. Dow Jones & Co., Inc., 847 F. Supp. 2d 599, 604 (S.D.N.Y.
2012), aff’d, 508 F. App’x 83 (2d Cir. 2013) (summary order). The Court has
endeavored here to conceive of a set of circumstances in which Lantheus could
obtain CBI coverage for the NRU Reactor under the Policy; it has been unable
to do so.
In sum, both sides offer cogent reasons for and against interpreting the
CBI provision to require total cessation of operations at the Billerica Facility.
Zurich offers considerable (if not 100% apposite) case law requiring total
cessation, as well as abundant factual evidence that Lantheus continued to
operate the Billerica Facility during the relevant time period. It also notes the
size and sophistication of Lantheus and its insurance broker, which, Zurich
argues, speaks to the likelihood that Lantheus misperceived the coverage it
received. Lantheus counters with logical explanations why the parties could
not, and did not, contemplate a requirement of total cessation. Because the
Court ultimately finds that the corrosion exclusion operates to foreclose
coverage under the Policy, it declines to resolve this issue, and assumes for
purposes of this motion that Lantheus is entitled to claim under the CBI
The Corrosion Exclusion and the Ensuing Loss Provision
The Exclusion Applies to Preclude Coverage
The bulk of Zurich’s motion is devoted to the argument that coverage is
foreclosed because the loss was caused, at least in part, by an excluded peril:
corrosion. (See Def. Br. 8-13). Lantheus counters that “machinery breakdown”
caused the loss, and that, even if the [redacted] Penetration played some part,
it occurred too rapidly to be considered corrosion as that term is commonly
used. (Pl. Opp. 8-10, 14-18). Because Zurich has established that “corrosion”
is unambiguous as used in the Policy, and that the only reasonable
interpretation of “corrosion” includes the [redacted] Penetration that occurred
here, Zurich has met its burden of demonstrating that the exclusion applies.
The Court begins with the plain language of the provision in dispute.
The Policy provides, in relevant part, that Zurich “will not pay for loss or
damage resulting from … corrosion.” (Silverberg Decl., Ex. G at 24-25). The
provision also contains so-called “anti-concurrent cause” language, providing
that “loss or damages [from corrosion] is excluded regardless of any cause or
event that contributes concurrently or in any sequence to the loss or damage,
except as specifically provided.” (Id. at 24).
The Policy provides no definition for the term “corrosion,” and the Court
will, as before, refer to a dictionary to determine the ordinary meaning of this
term. Webster’s defines “corrosion” as “the action or process of corrosive
chemical change not necessarily accompanied by loss of form or compactness;
typically: a gradual wearing away or alteration by a chemical or electrochemical
essentially oxidizing process (as in the atmospheric rusting of iron).” Webster’s
(emphasis in original) (last visited Mar. 24, 2015). The Court notes that both
parties agree that the common meaning of the term “corrosion” — and not the
definition that a scientist or one of the parties’ experts might
advance — controls the Court’s interpretation of the Policy language. (See Pl.
Opp. 14 n.7; Def. Reply. 3-4). See also Belt Painting, 100 N.Y.2d at 383.
The Court will first address Lantheus’s argument that machinery
breakdown — and not corrosion — caused the loss. (See Pl. Opp. 9-10).
Lantheus argues that the NRU Reactor shutdown was caused by a fortuitous
event. Specifically, Lantheus asserts that the refilling of the vessel following
the power outage caused a “rapid surge in pressure [that] ruptured the vessel.”
(Id. at 10). Zurich responds that Lantheus’s argument fails at the outset
because NRU Reactor was not an “object” for which such coverage was
available. (Def. Br. 7 n.5). The Court accepts for now Lantheus’s arguments
that the reactor qualified as an object. (Pl. 56.1 Response ¶¶ 32-33). This does
not, of course, end the coverage inquiry.
The parties then tussle over the significance of the term “machinery
breakdown”: Lantheus argues that the term “machinery breakdown” refers to a
covered cause of loss, which is important to its coverage and ensuing loss
arguments. (See Pl. Opp. 9-10). Zurich rejoins, reviewing the Policy language,
that “machinery breakdown is thus a type of covered ‘physical loss or damage,’
not a cause of loss.” (Def. Reply 5 (emphasis in original)). The Court believes
that Zurich has the better of the argument, but that this semantic difference
does not affect the Court’s analysis of the corrosion exclusion.
Considering the evidence in Lantheus’s favor, the Court accepts for the
purpose of this motion that the breach occurred because of a “pressure
surge … act[ing] upon an already weakened point.” (Pl. Opp. 10; see also
Bickel Decl., Ex 1 at 67 (“In my opinion, it is more likely than not, that the
through-the-wall reactor vessel failure was a direct result of a combination of a
‘pre-weakened’ condition and a ‘triggering event’ that came together[.] A preweakened condition alone would not explain the sudden through-wall failure of
the NRU reactor vessel, coincident in time with the significant ‘triggering
event.’” (emphasis omitted))). However, in light of the anti-concurrent
causation language, this theory simply begs the question of what process
caused the vessel to be “already weakened.”12 If corrosion “contribute[d]
concurrently or in any sequence to the loss or damage” caused by the pressure
surge, then the corrosion exclusion forecloses coverage. See Alamia v.
Nationwide Mut. Fire Ins. Co., 495 F. Supp. 2d 362, 368 (S.D.N.Y. 2007) (“[A]n
‘anti-concurrent’ clause ... excludes coverage for damage caused by an
excluded peril even when covered perils also contribute to the damage.”); ABI
Asset Corp. v. Twin City Fire Ins. Co., No. 96 Civ. 2067 (AGS), 1997 WL 724568,
at *2 (S.D.N.Y. Nov. 18, 1997) (“New York courts have interpreted similar
clauses to mean that where a loss results from multiple contributing causes,
coverage is excluded if the insurer can demonstrate that any of the concurrent
or contributing causes of loss are excluded by the policy.”).
Lantheus’s next argument addresses the crucial point of whether
“corrosion” contributed to the loss. (Pl. Opp. 14-20). As detailed above, both
St. Pierre and Bickel agree that a thinning over time of the aluminum wall of
After all, according to Lantheus’s expert witnesses, the degradation of the vessel wall
caused by the aeration cell was ongoing at the time of the power outage [redacted], and
had existed for approximately one month before that date.
the reactor vessel, referred to as [redacted] Penetration, was a necessary
component to the through-wall breach that occurred after a rapid shift in
pressure [redacted]. See Background Sec. A(4), supra. Lantheus argues that
the [redacted] Penetration that contributed to the loss was not sufficiently
gradual to constitute “corrosion” as the term is commonly understood. The
Court notes that Lantheus’s interpretation of “corrosion” as a gradual process
is completely consistent with the dictionary definition. However, the Court
cannot agree with Lantheus’s assertion that “‘[c]orrosion’ as used in Exclusion
5b, is the gradual corrosion damage that takes place inevitably over the useful
life of a machine.” (Pl. Opp. 16 (emphasis added)). To begin with, this is not a
reasonable interpretation of the term “corrosion” as it is commonly used.
Nothing in the dictionary definition narrows the scope of “corrosion” to that
which occurs “inevitably” over the life of a machine. Other courts have rejected
analogous attempts to narrow the definition of “corrosion.” See AdamsArapahoe Joint Sch. Dist. No. 28-J v. Cont’l Ins. Co., 891 F.2d 772, 777 (10th
Cir. 1989) (“[U]nder Colorado law the word ‘corrosion’ unambiguously refers to
all corrosion, however brought about.”); Sports Arena Mgmt., Inc. v. Great Am.
Ins. Grp., No. 06 Civ. 788, 2007 WL 684003, at *4 (N.D. Ill. Mar. 1, 2007) (“The
specific type of corrosion or its cause is irrelevant given the policy’s clear
language.”); City Brewing Co., LLC v. Liberty Mut. Fire Ins. Co., No. 1-11-1996,
2013 WL 2635847, at *10 (Ill. App. Ct. June 7, 2013) (rejecting “attempt to
limit corrosion exclusion in [an] all-risk polic[y] to certain types of corrosion”);
Alex R. Thomas & Co. v. Mut. Serv. Cas. Ins. Co., 119 Cal. Rptr. 2d 394, 401
(Cal. Ct. App. 2002) (“No matter how the corrosion occurred, however, it was
nevertheless corrosion — an excluded peril — which caused the loss.”);
Bettigole v. Am. Employers Ins. Co., 567 N.E.2d 1259, 1261 (Mass Ct. App.
1991) (finding “no reason for confining the term corrosion in the context of the
policy to a wearing away by ‘natural’ means of weather or the like, or in
consequence of conduct of the insured rather than an outsider”); see generally
Gilbane Building Co. v. Altman Co., No. 04AP-664, 2005 WL 534906, at *3-5
(Ohio Ct. App. Mar. 8, 2005) (reviewing case law from other jurisdictions
concerning the corrosion exclusion, and rejecting efforts to impose temporal
requirements on what qualified as corrosion).
Lantheus’s interpretation remains unreasonable when viewed in the
context of the Policy itself. Relying on a somewhat obscure canon of
construction, “reverse ejusdem generis,” Lantheus argues that, because the
string of excluded causes ends with “wear and tear,” all of the preceding
excluded causes listed must be read to be a subset thereof. (Pl. Opp. 15-17
(discussing canons of construction)). See, e.g., United States v. Williams-Davis,
90 F.3d 490, 508-09 (D.C. Cir. 1996) (describing “a sort of reverse ejusdem
generis (where the general term reflects back on the more specific rather than
the other way around), [such] that the phrase ‘A, B, or any other C’ indicates
that A is a subset of C[.]”). The Court rejects this argument for two reasons.
First, examining the list of excluded perils in Exclusion 5b closely, the Court
notes that the putative “catch-all” term, “wear and tear,” lacks any hallmark of
being a “catch-all.” While the phrase appears at the end of the list, the
exclusion is not preceded by an adjective — such as “other” — that would hint
toward the purpose of establishing “wear and tear” as the general class. Cf.
Tverskoy v. Ramaswami, 920 N.Y.S.2d 803, 806 (3d Dep’t 2011) (“[I]n our view,
this last listed method ..., which includes the term ‘other appropriate means,’ is
a catch-all clause and, under the rule of statutory construction known as
ejusdem generis, such a catch-all provision following a list of specific items in a
statute will generally be interpreted to include only items of the same type as
those listed.” (emphasis added)). The absence of a “catch-all” phrase is all the
more conspicuous in Exclusion 5b, given that Exclusions 5a and 5h each end
with catch-all phrases that plausibly invite the application of ejusdem generis.
(See Silverberg Decl., Ex. G at 25 (“Accumulated effects of smog, smoke, vapor,
liquid and dust[,] or other developing defects” (emphasis added)); id. (“Latent
defect or quality in the property that causes it to damage or destroy itself,
decay[,] or other spoilage” (emphasis added)).
A second problem with Lantheus’s application of reverse ejusdem generis
is that the resulting interpretation of “corrosion” as a subset of inevitable “wear
and tear” over a machine’s useful life, is not reasonable given the presence of
“evaporation” within the same Policy provision. “[I]t has long been recognized
that ejusdem generis cannot be called into play when the specific terms
preceding the general one do not themselves have a common attribute from
which a ‘kind or class’ may be defined.” United States v. Amato, 540 F.3d 153,
160 (2d Cir. 2008). A comparison of the processes of evaporation and
corrosion simply does not suggest “inevitable wear and tear” as a conceivable
Similar problems beset Lantheus’s reliance on the canon of construction
known as noscitur a sociis, which a former judge in this District has described
as the “cousin” to ejusdem generis. ESI, Inc. v. Coastal Corp., 61 F. Supp. 2d
35, 75 (S.D.N.Y. 1999) (Conner, J.); see generally Dole v. United Steelworkers of
Am., 494 U.S. 26, 36 (1990) (“The traditional canon of construction, noscitur a
sociis, dictates that words grouped in a list should be given related meaning.”
(internal quotation marks omitted)); SR Int’l Bus. Ins. Co. Ltd. v. World Trade
Center Properties, LLC, 445 F. Supp. 2d 320, 352-53 (S.D.N.Y. 2006). Lantheus
argues that the term “corrosion” appears “in the company of words that
connote gradual damage.” (Pl. Opp. 15). As an initial matter, this argument
focuses only on one of eight “sublists” of the exclusion provision; consideration
of the remainder of the “Developing, Latent and Other Causes” provision
underscores the difficulty in discerning similarities among the items on the list.
More fundamentally, accepting Lantheus’s argument that the Court should
read a “gradualness” requirement into these terms is not the same as
specifying a period of time that qualifies as sufficiently gradual; the
It also bears noting that unlike some policies, where the corrosion exclusion is
contained in a section specifically designated “Wear and Tear,” the Policy lists corrosion
among numerous (and not easily unified) items grouped under the heading “Developing,
Latent and Other Causes.” (Silverberg Decl., Ex. G at 25). Cf. Trupo v. Preferred Mut.
Ins. Co., 872 N.Y.S.2d 786, 788 (4th Dep’t 2009) (noting, in a 3-2 decision, that “[t]he
title ‘Wear and Tear’ would lead an average person to believe that the exclusion for
‘contamination’ therein included only contamination that occurred over time, rather
than a sudden occurrence such as the incident here”).
juxtaposition of “rust” and “evaporation” in the same sublist confirms the
The Court rejects Lantheus’s argument that the [redacted] Penetration
occurred too rapidly, or not sufficiently gradually, to qualify as “corrosion.” (Pl.
Opp. 17-18). Implicit in Lantheus’s argument is the notion that a “gradual”
process cannot also occur rapidly. This is not so. A “gradual” process
“proceed[s] by steps or degrees,” but it does not necessarily do so slowly.
Webster’s Dictionary, http://unabridged.merriamwebster.com/unabridged/gradual (last visited Mar. 24, 2015). According to
Lantheus’s expert, the “localized rapid [redacted]” process that weakened the 8
millimeter vessel wall occurred at a rate of between 10 millimeters and 100
millimeters per year. (See St. Pierre Decl., Ex. 1 at 18). Resolving the
ambiguity in favor of Lantheus, and thus assuming the more “rapid” 100millimeter-per-year rate of thinning, this process would have taken
approximately 29 days before it penetrated the wall. (See id. (“This rate
corresponds to the advance of a penetration site through an 8 m[illimeter] wall
in less than one month.”)).14 That the progress of the electrochemical cell’s
effect on the wall can be measured by such increments is, in and of itself,
evidence that it was a gradual process; that the weakening effect persisted for
several weeks (rather than months or years) is no barrier to this result. This
Court agrees with others courts that have addressed similar corrosion
To be precise, at a rate of 100 millimeters per 365 days, the process would have
penetrated 7.94 millimeters after 29 days and 8.21 millimeters after 30 days.
exclusions, and finds that even “rapid” corrosion falls within the scope of this
Policy’s exclusion. See Pioneer Chlor Alkali Co. v. Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa., 863 F. Supp. 1226, 1236 (D. Nev. 1994) (“The chemical reaction
which caused the perforations and the chemical reaction which caused the
hole … were corrosion. Whether corrosion takes a matter of days, twenty-five
years, or 100 years does not change the fact that it is corrosion.”); City Brewing
Co., 2013 WL 2635847, at *8 (“Under a reasonable reading of the word
‘gradual,’ the process of disintegration or wearing away that occurred here over
a period of three weeks … would not be considered a quick occurrence.”); see
also Arkwright-Boston Mfrs. Mut. Ins. Co. v. Wausau Paper Mills Co., 818 F.2d
591, 595 (7th Cir. 1987) (“[T]he speed at which the corrosion took place here is
not relevant to whether it falls under the corrosion exclusion.”); TravCo Ins. Co.
v. Ward, 284 Va. 547, 508 (Va. 2012) (“There is ... no basis for reading a
temporal element into the instant corrosion exclusion.”).
Lantheus’s remaining challenge is that the [redacted] Penetration, caused
by the formation of an electrochemical cell, does not constitute “corrosion given
its speed, and the absence of an acid, base, or wear and tear process.” (Pl.
Opp. 17). The Court has already determined that “corrosion,” as the term is
commonly used and as it used in the context of the Policy, is not reasonably
defined as a subset of “wear and tear.” Lantheus ascribes significance to the
absence of an “acid.” (See, e.g., St. Pierre Decl., Ex. 1 at 15 (“Importantly, in
[an electrochemical cell], acidic action is not involved and does not damage the
metal. Rather, the damage results from the voltage potential created in the
water depleted of oxygen, creating an electrical current between the anodic and
cathodic surfaces. Acidity is not a necessary part of a differential aeration
cell.”)). But the Court finds nothing in the dictionary definition that requires
the presence of an acid; to the contrary, the dictionary includes “wearing
away … by a[n] … electrochemical … process.” This definition fully embraces
Lantheus’s assertion that an “electrochemical cell” caused the [redacted]
In sum, the Court finds that Zurich has met its burden of establishing
that the corrosion exclusion in the Policy is unambiguous, that the [redacted]
Penetration falls squarely within this corrosion exclusion, and that the
[redacted] Penetration “contribute[d] concurrently or in any sequence to the …
damage.” In making this determination, the Court has taken pains not to
conflate the two types of weakening that the parties argue were occurring to
the vessel wall. That is, the Court acknowledges that disputed issues of fact
remain relating to Zurich’s assertion that General Corrosion precipitated the
NRU Reactor shutdown.15 These disputes are immaterial to the resolution of
this motion because the Court finds that the formation of the [redacted]
Penetration and its concurrent involvement in the through-wall breach that
In its briefing, Lantheus contends that the General Corrosion — unlike the [redacted]
Penetration — had nothing to do with the NRU Reactor shutdown. (See Pl. 56.1
Response ¶¶ 9-10, 12, 14-17). Zurich disagrees, noting that AECL originally
determined that the General Corrosion was the cause of the shutdown (see Def. 56.1
¶¶ 9-10, 12), and asserting in the alternative that the electrochemical cell that caused
the [redacted] Penetration would not have developed but for the accumulation of
General Corrosion products at the base of the annulus (see Def. Reply 3). In analyzing
the above, the Court has resolved these factual ambiguities in Lantheus’s favor,
considering both its 56.1 Statement and the statements of its expert witnesses.
shut down the NRU Reactor is sufficient to bring the loss within the corrosion
exclusion. See Demery v. Extebank Deferred Comp. Plan (B), 216 F.3d 283, 286
(2d Cir. 2000) (“Only disputes over facts that might affect the outcome of the
suit under the governing law will properly preclude the entry of summary
judgment, and the mere existence of factual issues — where those issues are
not material to the claims before the court — will not suffice to defeat a motion
for summary judgment.” (internal quotation marks, citation, and alteration
The Ensuing Loss Exception Does Not Restore Coverage
Finally, the Court will consider whether Lantheus has met its burden of
establishing that an exception to the exclusion applies. Even if corrosion
played some part in the damage to the NRU Reactor, Lantheus argues that the
Policy’s “ensuing loss” provision provides an exception to the exclusion that
restores coverage. (Pl. Opp. 11-13). After careful consideration of Lantheus’s
arguments, the Court finds the ensuing loss provision cannot be applied here
to restore coverage for the loss caused by corrosion.
In the property loss context, courts have found that “[a]n ensuing loss
provision does not cover loss caused by the excluded peril, but rather covers
loss caused to other property wholly separate from the defective property itself.
Under New York law, Plaintiff would be entitled to coverage under an exception
for ensuing loss only if and to the extent that it could prove that ‘collateral or
subsequent’ damage occurred to other insured property as a result of the
[excluded peril].” Montefiore Medical Ctr. v. Am. Protection Ins. Co., 226 F.
Supp. 2d 470, 479 (S.D.N.Y. 2002) (citing Laquila Constr. Inc. v. Travelers
Indem. Co. of Ill., 66 F. Supp. 2d 543 (S.D.N.Y. 1999), and Narob Devel. Corp. v.
Ins. Co. of N. Am., 631 N.Y.S.2d 155 (1st Dep’t 1995)); accord Hanover New
England Ins. Co. v. Smith, 621 N.E.2d 382, 383 (Mass. App. Ct. 1993).
Moreover, “[w]here a property insurance policy contains an exclusion with an
exception for ensuing loss, courts have sought to assure that the exception
does not supersede the exclusion by disallowing coverage for ensuing loss
directly related to the original excluded risk.” Narob Devel. Corp., 631 N.Y.S.2d
These concepts have also been recognized in the business income loss
context. In Rapid Park Indus. v. Great Northern Ins. Co., 502 F. App’x 40 (2d
Cir. 2012) (summary order), the Second Circuit rejected an insured’s reliance
on an ensuing loss provision to obtain coverage for lost income after the New
York City Department of Buildings closed the insured’s parking garage because
See 11 Couch on Ins. § 153.70 (footnotes omitted):
Some insurance policies contain “ensuing loss provisions,” that
provide coverage for certain covered perils which would otherwise
be covered even when that covered peril was caused by an excluded
peril. In other words, an ensuing loss provision provides coverage
for specific types of losses that are otherwise covered in the policy
when that loss is the result of the occurrence of an excluded peril.
For example, a policy may provide that it does not cover any loss
caused by earth movement; however, any ensuing loss by fire
which is not excluded or excepted is covered. This means the policy
covers loss caused by fire that would not have occurred but for the
earth movement; however, other damage caused by the earth
movement is not covered.
Two of the most common ensuing loss perils are fire and water
of safety issues. The focus of the Court was on the divisibility of the putative
covered and non-covered perils:
Plaintiffs’ argument that their loss falls within the
“ensuing loss or damage” exception to the “wear and
tear” exclusion is unavailing. Plaintiffs argue that it was
“originally water seeping into the garage” that resulted
in the deterioration of the garage. While there is
testimony to that effect, this damage was not “ensuing,”
in the sense that it was a separate, subsequent event
that occurred due to the deterioration. Instead, it was
“directly related to the original excluded risk,” which
New York courts exclude from the “ensuing loss”
502 F. App’x at 41-42 (citing, among other cases, Aetna Cas. & Sur. Co. v.
Yates, 344 F.2d 939, 941 (5th Cir. 1965) (Friendly, J., sitting by designation)
(“A likely case for application of the clause would be if water used in
extinguishing a fire or coming from a burst pipe flooded the house and in turn
caused rust or rot; loss from rust or rot so caused would be a loss ensuing on
water damage. That is not this case, where the rot may have ensued from the
presence of water but not from water damage.”)).
Again, the Court starts with the language of the Policy. The relevant
exception provides that “if [corrosion] results in a covered cause of loss, th[e]
[corrosion] exclusion does not apply to the loss or damage caused by the
covered cause of loss.” (Silverberg Decl., Ex. G at 25 (emphasis added)). The
plain language sets the stage for a narrow inquiry: whether the “corrosion,” as
established in the foregoing, “result[ed] in” a covered “cause” of loss. Given the
statements of its experts, the burden for Lantheus is considerable: The expert
report of its metallurgist George St. Pierre, summarily stated, is that
(i) corrosion (in the form of “spongy” solids that accumulated — to some critical
mass — at the bottom of the annulus as part of the General Corrosion of the
aluminum vessel wall) begat (ii) corrosion (in the form of an aeration cell, which
emerged from the “confluence of the acidified deaerated water flowing down the
reactor vessel wall with the aerated water flowing from the reflector wall and
being trapped in the built up solids”), which (iii) accelerated the thinning of the
reactor wall, which (iv) coupled with a loss in ductility that took place over the
lifetime of the wall, allowed it to become susceptible to breach. (St. Pierre
Decl., Ex. 1 at 2-3, 11-12, 14-15, 18, 23). The parties agree that General
Corrosion is subject to the corrosion exclusion, and the Court has found that
the aeration cell is also subject to the corrosion exclusion. Even under
Lantheus’s theory of the case, the aeration cell operated in tandem with the
hydraulic transient to cause the through-wall breach — there was, therefore,
no “ensuing loss.”
In its opening salvo on this issue, Lantheus argues that “[a] jury could
reasonably conclude that the final, predominant cause of the breakdown … was
a rapid pressure surge, the electrochemical cell, or their combined effects.” (Pl.
Opp. 11 (emphasis added)). But where, as here, “the Policy includes an anticoncurrent clause, there is no need for the court to undertake this causation
inquiry.” Coney Island Auto Parts Unlimited, Inc. v. Charter Oak Fire Ins. Co.,
No. 13 Civ. 1570 (ARR), 2014 WL 3958080, at *8 n.5 (E.D.N.Y. Aug. 13, 2014);
see also Boazova v. Safety Ins. Co., 968 N.E.2d 385, 394 n.4 (Mass. 2012) (“The
inclusion of an ‘anticoncurrent cause’ provision … is designed to circumvent
the doctrine of efficient proximate cause whereby coverage is afforded as long
as the predominant cause of the loss is a covered peril.”).
Next, Lantheus argues that the ensuing loss provision restores coverage
if Lantheus “come[s] forward with evidence of covered damage after the alleged
excluded peril even if the earlier excluded period was also a ‘but-for’ cause.”
(Pl. Opp. 11 (emphasis added)). To begin with, the assertion elides subsequent
damage or loss stemming from the corrosion with a subsequent cause of loss,
which is what is required under the terms of the Policy. This distinction makes
a difference: Lantheus alleges that an increase in pressure, or “pressure
transient,” caused the vessel to rupture. (Pl. Opp. 12). But “corrosion” — the
excluded peril — did not “result in” or trigger this subsequent cause of loss.
See Platek v. Town of Hamburg, 24 N.Y.3d 688, 695 (2015) (finding that
ensuing loss provision did not apply where evidence failed to show that an
explosion (the putative ensuing cause of loss) was the “result of” excluded
Lantheus attempts to recast the vessel rupture as “covered machinery
breakdown arising from corrosion” (Pl. Opp. 12), but again this conflates
ensuing causes of loss with the loss itself. Indeed, “machinery breakdown” is
defined consistently in the Policy as type of “physical loss … or damage.”
(Silverberg Decl., Ex. G at 50, 52 (emphasis added)). Cf. Babcock & Wilcox
Ebensburg Power, Inc. v. Zurich Am. Ins. Co., 368 F. Supp. 2d 387, 403-04
(W.D. Pa. 2004) (finding “any loss suffered due to subsequent mechanical
breakdown would be covered under the terms of the ensuing loss provision”
where “mechanical breakdown” was defined as a covered cause of loss); Green
Meadow Bean Co. v. Nationwide Agribusiness Ins. Co., No. 08 Civ. 4725 (JMR),
2010 WL 1427271, at *5 (D. Minn. Apr. 8, 2010) (finding the same where there
was “a clearly stated exception for losses caused by equipment breakdown”
(emphasis added)). To accept Lantheus’s argument would effectively read the
corrosion exclusion out of the Policy.
Interpreting the record in the light most favorable to Lantheus, the
damage to the NRU Reactor was caused, at least in part, by corrosion, and is
therefore excluded from coverage under the Policy. Lantheus’s efforts to argue
an “ensuing loss” exception fail because it has not raised a genuine issue of
material fact that “a separate, subsequent event ... occurred due to the
[corrosion].” Rapid Park Indus., 502 F. App’x at 42 (internal quotation marks
omitted). Further, “interpreting the insurance policy as [P]laintiff propose[s]
would contravene the [corrosion] exclusion’s purpose, as expressed in
unambiguous language, which is to preclude coverage for damages caused by”
corrosion. Platek, 24 N.Y.3d at 697; see also Laquila Constr., Inc., 66 F. Supp.
2d at 545 (“[T]he exception to an exclusion should not be read so broadly that
the rule — the exclusion clause — is swallowed by the exception — here, the
exception for ensuing loss.”), aff’d, 216 F.3d 1072 (2d Cir. 2000).
For the reasons discussed herein, Defendant’s motion for summary
judgment is GRANTED. The Clerk of Court is directed to terminate Docket
April 28, 2015
New York, New York
KATHERINE POLK FAILLA
United States District Judge
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