650 F. App'x 70
2d Cir.2016Background
- Lantheus Medical Imaging suffered a supply‑chain loss after a 15‑month shutdown of a National Research University (NRU) nuclear reactor in 2009, which halted production runs for a product.
- Lantheus submitted a claim under its Zurich American Insurance Company policy for contingent business income (CBI) losses; Zurich denied coverage based on policy exclusions.
- The District Court granted summary judgment for Zurich, finding that Exclusion 5b (a corrosion exclusion with anti‑concurrent‑causation language) applied to bar coverage.
- The District Court accepted Lantheus’s factual account where favorable but concluded that a through‑wall breach required an existing thinning (the [redacted] Penetration) that predated a rapid pressure event.
- The court treated the thinning as ‘‘corrosion’’ under the policy, including electrochemical/differential‑aeration mechanisms Lantheus’s experts described, and therefore within Exclusion 5b.
- On appeal the Second Circuit affirmed, assuming (without deciding) CBI coverage could be triggered, but holding the corrosion exclusion precluded recovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Lantheus’s NRU shutdown losses are covered under the Policy (CBI) | CBI applies to the shutdown losses; policy should cover contingent income loss from the reactor stoppage | Even if CBI applies, an exclusion (Exclusion 5b) bars coverage for losses caused by corrosion | Assumed CBI coverage for appeal but held Exclusion 5b bars recovery |
| Whether Exclusion 5b’s definition of “corrosion” excludes losses caused in part by an electrochemical/differential‑aeration cell | “Corrosion” implies a gradual intrinsic wearing process and should be read narrowly; does not encompass the rapid breach event | Exclusion language clearly and unambiguously covers the thinning/penetration, including electrochemical mechanisms | Court held the policy’s definition of corrosion ‘‘fully embraces’’ the [redacted] Penetration, including electrochemical causes |
| Whether concurrent causation (preexisting thinning + rapid pressure change) avoids the exclusion | The rapid pressure event was the proximate cause; the preexisting condition should not trigger exclusion when combined with a concurrent external event | Anti‑concurrent‑causation wording excludes losses where corrosion contributed concurrently or in any sequence | Court applied anti‑concurrent‑causation language: concurrent involvement of penetration brings loss within exclusion |
| Whether factual ambiguities (e.g., general corrosion as precipitating shutdown) precluded summary judgment | Factual disputes about causation require denial of summary judgment | District Court drew all reasonable inferences for Lantheus but found no genuine dispute material to application of exclusion | Summary judgment affirmed; remaining factual uncertainties were not material to the exclusion’s application |
Key Cases Cited
- In re Estates of Covert, 97 N.Y.2d 68 (stating insurance contracts are contract law matters)
- Int’l Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76 (contract interpretation is a question of law)
- Palmieri v. Allstate Ins. Co., 445 F.3d 179 (ambiguity precludes summary judgment)
- Vill. of Sylvan Beach v. Travelers Indem. Co., 55 F.3d 114 (insurer bears burden to show exclusion applies; exclusions construed narrowly)
- Seaboard Sur. Co. v. Gillette Co., 72 N.Y.2d 304 (exclusions not extended by implication)
- Northville Indus. Corp. v. Nat’l Union Fire Ins. Co., 89 N.Y.2d 621 (insured bears burden to prove exception to exclusion)
- City of Burlington v. Indem. Ins. Co. of N. Am., 332 F.3d 38 (reading corrosion/related exclusions in light of all‑risks policy history)
- Zurich Am. Ins. Co. v. ABM Indus., Inc., 397 F.3d 158 (discussing scope of CBI coverage)