In Tufo's Wholesale Dairy, Inc. v. CNA Financial Corp., No. 03 Civ. 10175 (JFK), 2005 WL 756884 (S.D.N.Y. Apr. 4, 2005), the court found provisions in a boiler and machinery policy to be ambiguous.

 

Tufo's Wholesale Dairy's refrigeration units lost power during the August 14, 2003, blackout that occurred in the Northeast. Tufo's electric supplier's system was shut down by the system's safety and protective devices—the shut down was not caused by physical damage to the supplier's equipment.

 

As a result of the power outage, Tufo's dairy products spoiled, but there was no other physical damage to Tufo's property. Tufo's filed a claim with its boiler and machinery insurer, Continental Casualty (a subsidiary of the defendant, CNA). The policy included a consequential damage endorsement and a utility interruption endorsement. The policy required an “accident' to an “object,” as defined in the policy, in order to trigger coverage.

 

The insurer argued that the loss of dairy products due to the blackout was not covered. Tufo's countered that the policy was ambiguous and that “'a reasonable business person' would have believed that the policy covered losses due to the blackout.”

 

The policy defined “accident” as “a sudden and accidental breakdown of an 'object' or a part of the 'object.' At the time the breakdown occurs, it must manifest itself by physical damage to the 'object' that necessitates repair or replacement.” The consequential damage endorsement stated that the “lack of power, light, heat, steam or refrigeration” exclusion on the boiler and machinery coverage form did not apply. The utility interruption endorsement contained an exclusion for “a deliberate act or acts by the supplying utility to shed load to maintain system integrity.”

 

The court focused on these three provisions in finding that ambiguities existed in the policy. First, the court said that “to define 'accident' through use of the term 'accidental' is tautological [redundant]. Indeed, it is a logical absurdity.” Further, the court stated that the consequential damage endorsement's exception to the “lack of power, light, steam or refrigeration” exclusion was unclear regarding whether or not such lack did or did not trigger coverage. Finally, the court said that the utility interruption endorsement's exclusion appeared to strengthen the defendant's argument and “only adds to the ambiguity when considered in the context of the policy as a whole.”

 

Thus, the court denied CNA's motion for summary judgment in the breach of contract portion of the case.