744 F.3d 279
4th Cir.2014Background
- Millennium sought contingent business interruption (CBI) coverage under master policies issued by National Union and ACE after Marsh solicited bids for coverage including CBI.
- Endorsements defined contributing properties and limited coverage to properties that were direct suppliers of materials to Millennium’s locations.
- Millennium’s gas for titanium dioxide processing came from Alinta via the Dampier–to–Bunbury Natural Gas Pipeline, with Apache as a gas producer supplying a portion of Alinta’s input.
- Apache produced gas on Varanus Island, but Alinta took title and delivered the gas through the pipeline, with commingling making it impossible to trace individual molecules to Apache.
- Millennium had no direct contractual relationship with Apache and no ownership or control of the pipeline facilities; Alinta controlled the gas before delivery to Millennium, and the government intervened after the Varanus Island explosion, curtailing gas supply.
- The district court held that Endorsements were ambiguous and applied contra proferentem in Millennium’s favor, granting partial summary judgment to Millennium; the court also concluded that Apache could be a direct contributing property and that the for the account of clause favored Millennium.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Endorsement 8 unambiguously limits coverage to direct contributing properties. | Millennium—Apache is a direct contributing property. | Insurers—Apache is not a direct supplier; only direct suppliers are covered. | Unambiguous; Apache is not a direct contributing property. |
| Whether Apache could be covered under the Endorsements’ for the account of clause. | Coverage should extend to Apache under the for the account of language. | Coverage limited to damage to direct contributing properties; Apache not direct. | No coverage under any reading; for the account of clause does not broaden to indirect suppliers. |
| Whether extrinsic evidence can resolve the ambiguity in Endorsement 8. | Extrinsic evidence should illuminate parties’ intent. | Extrinsic evidence does not reveal mutual intent at drafting; ambiguity remains. | Extrinsic evidence not dispositive; ambiguity resolved against Millennium under contra proferentem. |
| Which law governs interpretation of the policies and the doctrine of contra proferentem. | New York law should apply (lex loci); Epoch supports Millennium. | New York and New Jersey law yield little difference; contra proferentem should favor Millennium. | No substantive difference; if applicable, New York law would apply; contra proferentem applied against Millennium. |
Key Cases Cited
- Morgan Stanley Group Inc. v. New England Ins. Co., 225 F.3d 270 (2d Cir.2000) (ambiguities resolved in favor of insured when insurer drafts policy)
- Chubb Custom Ins. Co. v. Prudential Ins. Co. of Am., 195 N.J. 231, 948 A.2d 1285 (N.J.2008) (plain language controls; ambiguity resolved accordingly)
- Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 607 A.2d 1255 (N.J.1992) (interpretation of insurance contracts and plain meaning)
- Fieldston Prop. Owners Ass’n., Inc. v. Hermitage Ins. Co., Inc., 16 N.Y.3d 257, 920 N.Y.S.2d 763, 945 N.E.2d 1013 (N.Y.2011) (language and ambiguity in insurance contracts; plain meaning rule)
- Selective Ins. Co. of Am. v. Hudson East Pain Mgmt. Osteopathic Medicine, 210 N.J. 597, 46 A.3d 1272 (N.J.2012) (ambiguous terms; interpret in insured’s favor)