Travelers Property Casualty Co. of America v. USA Container Co.
686 F. App'x 105
| 3rd Cir. | 2017Background
- USA Container subcontracted Passaic River in 2006 to transfer heated corn syrup into drums; Passaic River overheated and damaged the product, which was later rejected by Meelunie’s customers.
- Meelunie sold the damaged syrup at a reduced price and incurred $782,723.77 in losses; Meelunie sued and USA Container settled with Meelunie, paying $425,000, and executed a settlement agreement with contingent sharing of future recoveries up to a $732,000 threshold.
- USA Container sought coverage from its CGL policy issued by Travelers; Travelers denied coverage, prompting litigation.
- The District Court held the CGL policy covered the loss, found Travelers obligated to pay $732,000 (per its interpretation of the settlement), and awarded prejudgment interest and attorneys’ fees to USA Container.
- The Third Circuit reviewed (applying New Jersey law): it affirmed coverage (including rejecting Travelers’ ‘‘faulty workmanship’’ bar to an occurrence), rejected application of exclusions j(6) and n, vacated the $732,000 settlement-amount ruling, remanded to enter judgment for $425,000, vacated prejudgment interest calculation for recalculation on $425,000, and affirmed the attorney-fee award.
Issues
| Issue | Plaintiff's Argument (USA Container) | Defendant's Argument (Travelers) | Held |
|---|---|---|---|
| Whether damage to corn syrup is an “occurrence” under the CGL policy | Damage was unintended and unexpected negligent harm, thus an occurrence | Damages stem from faulty workmanship/business risk and are not an ‘‘occurrence’’ | Affirmed: Cypress Point standard adopted; damage qualifies as an occurrence (unintended harm) |
| Applicability of Exclusion j(6) ("your work" repair/replace exclusion) | Exclusion does not apply because corn syrup was not ‘‘restored, repaired, or replaced’’ | Exclusion bars coverage as the loss is essentially replacement/repair of defective work | Rejected: j(6) inapplicable; policy language does not fit these facts |
| Applicability of Exclusion n (precautionary recall exclusion) | Exclusion irrelevant; no recall occurred and Meelunie sold the product | Exclusion could bar recovery as a precautionary/recall-type loss | Rejected: no recall; exclusion does not apply (and was raised late) |
| Proper measure of insured’s loss under the Settlement Agreement; prejudgment interest calculation | Loss equals amounts actually paid by USA Container ($425,000); prejudgment interest should be recalculated on that sum | District Court erred; $732,000 is at most a conditional maximum, not amounts paid by USA Container | Court vacated $732,000 ruling and remanded: actual loss = $425,000; prejudgment interest must be recalculated on $425,000; attorney fees affirmed |
Key Cases Cited
- Cypress Point Condominium Ass’n, Inc. v. Adria Towers, L.L.C., 143 A.3d 273 (N.J. 2016) (defines “occurrence” to include unintended, unexpected harm from negligent conduct and rejects treating faulty workmanship as barring occurrence analysis)
- Weedo v. Stone-E-Brick, Inc., 405 A.2d 788 (N.J. 1979) (historical rule limiting indemnity for cost to correct defective work; court distinguishes its scope)
- U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871 (Fla. 2007) (supports coverage where defective work causes unanticipated damage to other property)
- Fireman’s Fund Ins. Co. of Hartford v. Sec. Ins. Co., 367 A.2d 864 (N.J. 1976) (insurer liable for amount paid by insured in a reasonable, good-faith settlement)
- Rova Farms Resort, Inc. v. Inv’rs Ins. Co. of Am., 323 A.2d 495 (N.J. 1974) (prejudgment interest on insured’s payment supports calculating interest from payment date)