Phibro Animal Health Corporation v. National Union
142 A.3d 761
| N.J. Super. Ct. App. Div. | 2016Background
- Phibro Animal Health manufactured Aviax II, a feed additive to prevent coccidiosis; three customers reported that chickens fed Aviax experienced stunted growth (lower weight, increased feed/processing costs) though no increase in mortality.
- Phibro notified insurer National Union (via affiliate Chartis) in 2010; National Union investigated, retained a forensic accountant, reserved rights, and ultimately informed Phibro it would deny coverage.
- Phibro settled with Customer A without insurer consent; later settled with Customers B and C. Phibro sued National Union in New Jersey Law Division seeking a declaration of coverage and breach of contract/implied covenant claims; National Union moved for summary judgment.
- Trial court granted summary judgment for National Union, holding no covered "occurrence" or "property damage," applying the economic-loss principle and the impaired-property exclusion; found contractual/professional exclusions inapplicable and that Phibro waived indemnity for the Customer A settlement.
- The Appellate Division reversed in part: it held the stunted growth qualified as an "occurrence" and "property damage" under the policies, rejected the broad application of the economic-loss doctrine to negate coverage, but remanded on the impaired-property exclusion and restoration feasibility.
Issues
| Issue | Plaintiff's Argument (Phibro) | Defendant's Argument (National Union) | Held |
|---|---|---|---|
| Whether the stunted growth of chickens is an "occurrence" (an "accident") under the CGL/Umbrella policies | The stunting was unintended and unforeseen by Phibro, thus an accidental "occurrence" | The adverse effect was foreseeable from the product, so not accidental | Court: Stunted growth was an "occurrence" — unintended consequence qualifies as accidental under the 2007/2009 ISO forms |
| Whether the harm constitutes "property damage" under the policy ("physical injury" or "loss of use") | Stunted growth is a physical alteration/ harm to tangible property (chickens) and caused loss of use/production; commercial constraints locked in damages | No physiological injury shown; chickens were sold for consumption so no physical injury or loss of use | Court: Stunted growth qualified as "property damage" — fits "physical injury" or alternatively "loss of use" given commercial lifecycle constraints |
| Whether the economic-loss doctrine bars coverage (i.e., damages are purely contractual/economic) | Policy covers sums insured for property damage caused by occurrence regardless of plaintiffs' theory; economic-loss doctrine does not negate coverage under these facts | Customers' losses are purely economic/business risks (Weedo), so not a covered occurrence | Court: Economic-loss doctrine does not defeat coverage here; Weedo does not automatically preclude coverage under the newer ISO forms and given consequential harm to third-party property |
| Whether the impaired-property exclusion bars coverage because chickens could be "restored to use" by removing Aviax | Exclusion should not apply because chickens were physically injured and could not be feasibly restored within the commercial lifecycle (locked-in losses) | Exclusion applies because Aviax could be removed and chickens would regain weight over time — thus property was "restorable" | Court: Remand required — factual question whether chickens could reasonably/ commercially be "restored to use"; exclusion may apply only if restoration was commercially feasible and reasonable |
Key Cases Cited
- Weedo v. Stone-E-Brick, 81 N.J. 233 (N.J. 1979) (interpreting business-risk exclusions in older ISO CGL form; exclusion analysis central to coverage limits)
- Aetna Cas. & Sur. Co. v. Ply Gem Indus., 343 N.J. Super. 430 (App. Div. 2001) (economic-loss doctrine does not automatically preclude a finding of "occurrence"; focus on whether damages fall within policy coverage)
- Cypress Point Condo. Ass'n, Inc. v. Adria Toners, LLC, 441 N.J. Super. 369 (App. Div. 2015) (consequential damage to other property can be "property damage" and an "occurrence")
- Customized Distrib. Servs. v. Zurich Ins. Co., 373 N.J. Super. 480 (App. Div. 2004) (broad interpretation of "physical" or "direct physical loss" favors coverage when ambiguous)
- Flomerfelt v. Cardiello, 202 N.J. 432 (N.J. 2010) (insurer bears burden to prove exclusions; exclusionary clauses narrowly construed)
- Nat'l Union Fire Ins. Co. v. Terra Indus., Inc., 216 F. Supp. 2d 899 (N.D. Iowa 2002) (authority interpreting "physical injury" as alteration in material dimension)