255 F. Supp. 3d 443
S.D.N.Y.2015Background
- Lantheus purchased an all-risk commercial property policy from Zurich (Jan 8, 2009–Jan 8, 2010) that included Contingent Business Income (CBI) coverage with a $70 million sublimit for loss from AECL/Chalk River (NRU Reactor).
- The NRU Reactor (supplier of Mo-99 used in Lantheus’s TechneLite Generators) suffered a through‑wall breach after a May 14, 2009 power loss, producing a ~15‑month shutdown that reduced Lantheus’s weekend production and forced earlier cessation of some weekend runs.
- Lantheus alleges over $70 million in CBI losses; Zurich denied coverage, invoking the policy’s corrosion exclusion and arguing there was no “necessary suspension” of business.
- Experts for Lantheus opined localized, electrochemical cell–driven thinning (distinct from general corrosion) produced rapid penetration at discrete sites, and a hydraulic/pressure transient triggered the rupture.
- The policy excludes loss “resulting from … corrosion” and contains an anti‑concurrent‑cause clause; it also contains an ensuing‑loss exception that covers loss caused by a covered peril that results from an excluded peril.
- The Court assumed (for disposition) that CBI could be claimed but held Zurich’s summary judgment motion granted because (1) the localized penetration fell within the corrosion exclusion and (2) the ensuing‑loss exception did not restore coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CBI requires a “necessary suspension” (i.e., total cessation) at insured premises to trigger coverage | Lantheus: CBI should cover contingent interruptions that meaningfully suspend a line of business (weekend generator runs were curtailed) and requiring total cessation would render NRU endorsement illusory | Zurich: “Suspension” means total cessation; Billerica did not cease operations so CBI not triggered | Court declined to decide finally; assumed coverage claim could be made but decided case on exclusion grounds (did not adopt plaintiff’s view) |
| Whether the localized electrochemical penetration constitutes excluded “corrosion” | Lantheus: The penetration was rapid, electrochemical and not the kind of gradual “corrosion” excluded; machinery breakdown/pressure surge was the proximate covered cause | Zurich: Dictionary/plain meaning of corrosion includes electrochemical processes and rapid corrosion is still corrosion; anti‑concurrent clause bars coverage when excluded peril contributes | Held: Corrosion exclusion unambiguous; the localized penetration falls within “corrosion” and contributed to the loss, excluding coverage |
| Whether a machinery breakdown or pressure transient (a covered peril) supersedes exclusion under anti‑concurrent clause | Lantheus: Pressure transient was the triggering covered cause; any covered machinery breakdown that resulted should be covered | Zurich: Anti‑concurrent clause excludes coverage where an excluded peril contributed in any sequence; thus concurrent contribution by corrosion precludes coverage | Held: Anti‑concurrent language applies; because corrosion contributed, exclusion bars coverage despite triggering event |
| Whether the ensuing‑loss exception restores coverage | Lantheus: Even if corrosion occurred, the ensuing‑loss exception covers subsequent covered loss (e.g., vessel rupture/machinery breakdown) | Zurich: Ensuing‑loss applies only where excluded peril causes a separate, subsequent covered loss to other property; courts narrowly construe the exception | Held: Ensuing‑loss exception does not apply — Lantheus failed to show a separate subsequent covered cause of loss resulting from the excluded corrosion; exception cannot swallow exclusion |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment standard on genuine issue)
- Int’l Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76 (contract interpretation is a question of law)
- Belt Painting Corp. v. TIG Ins. Co., 100 N.Y.2d 377 (insurance terms interpreted by plain and ordinary meaning)
- Palmieri v. Allstate Ins. Co., 445 F.3d 179 (ambiguity in contracts defeats summary judgment)
- Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 411 F.3d 384 (courts should not rewrite policy coverage)
- Md. Cas. Co. v. W.R. Grace & Co., 128 F.3d 794 (terms in a document normally have the same meaning throughout)
- Arkwright‑Boston Mfrs. Mut. Ins. Co. v. Wausau Paper Mills Co., 818 F.2d 591 (speed of corrosion not necessarily relevant to exclusion)
- Platek v. Town of Hamburg, 24 N.Y.3d 688 (ensuing‑loss exception requires causal link to a subsequent covered peril)