This case arises out of a lawsuit between Plaintiff, Berry Plastics Corporation, and its 'former customer, Packgen, which resulted in a $7.2 million jury verdict against Berry. Packgen v. Berry Plastics Corp., et al., Cause No. 2:12-cv-80-JAW (D. Maine). At the time of the events alleged in the Packgen lawsuit, Berry had $1 million in commercial general liability (or “CGL”) insurance coverage with Federal Insurance Company and an additional $25 million in commercial umbrella liability insurance coverage that was issued by the Defendant herein, Illinois National Insurance Company. Federal agreed to defend and indemnify Berry in the Packgen lawsuit; Illinois National did not.
In Count I of Berry’s, Complaint; for Declaratory Relief and Damages, Berry seeks a-declaration that Illinois National had a duty to defend and indemnify it against the Packgen lawsuit, including the judgment and appeal. Berry brings two additional claims against Illinois National: breach of contract (Count II) and bad faith (Count III).
Illinois National moves for summary judgment on Counts I-III of Berry’s Complaint or, in the alternative, moves, for summary judgment on Count II and III, Berry, in turn, cross-moves for summary judgment on Counts I-II. The court, having read and reviewed the parties’ written submissions, the designated evidence, and the applicable law,- now GRANTS Illinois National’s Motion for Summary Judgment and DENIES Berry Plastics’ Cross-Motion for Summary Judgment.
I. Background
Packgen manufactures and sells intermediate bulk containers (“IBCs”) that are used, among other applications, by petroleum refineries to transport and store, catalyst, alchemical agent used to...refine crude oil, (Filing No,. 1-2, Packgen Complaint ¶.4), Packgen manufactured the subject IBCs out of . a woven polypropylene fabric that is chemically bonded to a layer of foil laminate. (Id. ¶ 6). The design was custom-made for CRI, one of Packgen’s customers and a producer-of fresh catalyst. (Filing No. 41-1, Trial Transcript of John Lapoint
From October 2007 to March 2008, CRI purchased 7,567 IBCs for nearly $1.5 million, and it placed an order for 1,359 IBCs to be delivered in April 2008. See Packgen v. Berry Plastics Corp.,
The Packgen lawsuit arises out of an incident that occurred at CRI on April 4, 2008. (Id. at 43, 59). While CRI was lifting an IBC to reposition the container, the foil laminate separated from the wovén fabric such that the liner of the IBC was exposed. (Id. at 59, 65). The liner is meant to work as an oxygen barrier to the catalyst to prevent the catalyst from self-heating.
On December 9, 2011, Packgen brought suit against Berry for breach of contract, breach of express warranty, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, and negligence, in the Superior Court for Androscoggin County, Maine. (Filing No. 1-2, Packgen Complaint at 84-91). The Packgen lawsuit was subsequently removed to the United States District Court for the District of Maine, under Cause No. 2:12-cv-80-JAW.
Berry timely notified Federal and Illinois National of the Packgen lawsuit. (Filing No. 55-8, Declaration of Allyson Claybourn (“Claybourn Decl,”) ¶ 5). Federal agreed to defend and indemnify Berry. (Id. ¶ 6). Illinois National assigned a claims administrator who monitored and received regular updates on the Packgen lawsuit. (Id. ¶7). In June 2013, Illinois National retained coverage counsel to provide legal advice, and in October 2013, sent a reservation of rights letter to Berry. (Filing No. 42-3, Responses of Illinois National to Berry’s First Set of Interrogatories at 22-23).
In September 2014, Illinois National’s claims administrator contacted Berry to advise that the investigation to date indicated covered exposure was within the limits of the Federal Policy and thus, the Illinois National Policy was not implicated. (Id. at 23). In November 2014, Illinois National sent a supplemental reservation of rights to Berry. (Id.).
On December 10, 2014, Illinois National’s coverage counsel sent a letter to Berry explaining its position, that “lost anticipated profits due to anticipated orders that never materialized” are not property damages within the meaning of the Policy. (Filing No, 55-10, Letter dated December 10, 2014). On December 12, 2014, Illinois National attended a mediation of the Pack-gen lawsuit with Federal. (Filing N.o. 55-9, Claim Notes). Although Federal offered its $1 million policy limits, Illinois National explained its coverage position to the mediator. (Id.). The mediation unsuccessfully concluded. (Id.).
The case went to trial in November 2015. As is relevant to the present motion, Packgen’s President, John Lapointe, testified , that Packgen’s out-of-pocket losses due to Berry’s. defective product totaled $643,039.30. (Lapointe Tr. at 92), Pack-gen’s damages expert, Mark Filler, testified that Packgen’s lost profits from can-celled orders from CRI would have netted Packgen future profits of $130,629.93. Had CRI continued to do business with Pack-gen, Filler opined, its sales over the succeeding ten-year period would have earned Packgen future profit of $4,606,405.00. (Filing No. 41-2, Trial Transcript of Mark Filler (“Filler Tr.”) at 26). With regard to the thirty-seven oil refineries which expressed interest in purchasing IBCs from Packgen but changed their minds after the incident, Filler testified that Packgen would have earned future profits of $1,957,202.00 over a ten year period. (Id. at 48). In Filler’s opinion, anticipated lost profits damages totaled $6,563,607.00.. (Id. at 42, 48). In addition, the jury was instructed on legal cause; in particular, whether Packgen’s damages were “either a ‘direct result’ or a ‘reasonably foreseeable consequence’ of the act or failure to act.” (Filing No. 55-4, Jury Instructions at 10). The jury was also instructed on the following:
If you should find for Packgen in accordance with these instructions,. then you must determine the amount of damages to which Packgen is entitled as a resultof injuries proximately caused by Berry.... The elements of damages at issue in this case may include: Actual damages; Incidental damages; and Consequential damages.
(Id. at 13-14).
The jury returned a verdict in favor of Packgen and against Berry on November 12, 2015, in the amount of $7,206,646.30 ($643,039.30 + $6,563,607.00). (Filing No. 55-5, Special Verdict Form). The district court entered judgment in favor of Pack-gen and against Berry the following day.
On November 23, 2015, Berry notified Illinois National of the verdict and requested coverage for the verdict and subsequent judgment. (Claybourn Deck ¶ 8; Filing No. 55-11, Nov. 23, 2015 Letter). Illinois National maintained that its Policy did not cover Berry’s exposure beyond the limits of the Federal Policy. (Claybourn Decl. ¶ 8).
Berry appealed the judgment to the First Circuit Court of Appeals, contending that the district court erred by: (1) denying its motion to exclude Filler’s testimony, (2) allowing Packgen employees to testify concerning potential customers’ intent to purchase Packgen’s IBCs, and (3) denying Berry’s motion for judgment as a matter of law, a new trial, or to alter or amend the judgment. Packgen Corp.,
II. Berry’s Insurance Coverage
At the time of the events alleged by Packgen, Berry had two commercial general liability policies to protect it against any liability it may face stemming from its products: the Federal commercial general liability policy covering the first $1 million in liability, and the Illinois National commercial umbrella liability policy covering the next $25 million. (Claybourn Deck ¶ 4; Filing No. 42-2, Federal Policy at BP000087; Filing No. 42-4, Illinois National Policy at IN0017914). Both policies are occurrence-based and include “products-completed operations” coverage. (Federal Policy at BP000118; Illinois National Policy at IN0017924).
The Federal Policy provides that it will “pay damages that [Berry] becomes legally obligated to pay by reason of liability: imposed by law; or assumed in an insured contract; for ... property damage caused by an occurrence.” (Federal Policy at BP000091). The Illinois National Policy provides that it will “pay on behalf of [Berry] those sums in excess of the Retained Limit [the $1 million in the Federal Policy] that [Berry] becomes legally obligated to pay as damages by reason of liability imposed by law because of ... Property Damage ... to which this insurance applies.... ” (Illinois National Policy at IN0017915). In both policies, “property damage” is defined as:
1. physical injury to tangible property, including all resulting loss of use of that property. All such loss of use will be deemed to occur at the time of the physical injury that caused it; or
2. loss of use of tangible property that is not physically injured. All such loss of use will be deemed to occur at the time of the Occurrence that caused it.
(Federal Policy at BP000119; Illinois National Policy at IN0017937).
In addition, the Federal Policy states that Federal has “the right and duty to defend [Berry Plastics] against a suit, even if such suit is false, fraudulent or groundless.” (Federal Policy at BP000092). The Illinois National Policy states:
We will have the right and duty to defend any Suit against [Berry] that seeks damages for ... Property Damage ... covered by this policy, even if the Suit isgroundless, false or fraudulent, when the applicable limits listed in the Schedule of Retained Limits have been exhausted by payment of Loss to which this policy applies.
(Illinois National Policy at IN0017984). The Policy further provides that Illinois National has “the right, but not the duty, to participate in the defense of any Suit and the investigation of any claim to which this policy may apply.” (Id. at IN0017917).
III. Summary Judgment Standard
Summary judgment should be entered if “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “The fact that both sides have filed motions for summary judgment does not alter the applicable standard; the court must consider each motion independently and will deny both motions if there is a genuine issue’ of material fact.” Aearo Corp. v. Am. Int’l Specialty Lines Ins. Co.,
Under Indiana law,
IV. Discussion
The court will first address Berry’s claim for a declaratory judgment that the Illinois National umbrella policy provides coverage for the judgment entered against Berry in the underlying Packgen lawsuit (Count I). The parties did not address whether Illinois National had duty to defend in Count I; instead, the issue is framed as a claim for breach of contract in Count II.
A. Declaratory Judgment on Coverage (Count I)
As noted above, Illinois National agreed to pay “those sums in excess of the Retained Limit that [Berry] becomes- legally obligated to pay as damages by reason of liability imposed by law because of ... Property Damage ... to which this insurance applies....” (Illinois National Policy at IN0017915). Illinois National does not dispute that the defective and destroyed IBCs which incorporated Berry’s product represent “Property Damage” under the Policy. According to Illinois National, those damages comprise less than the $1 million Retained Limit set forth in the Federal Policy. It argues that the balance of the damáges awarded by the Packgen jury which exceed the Retained Limit—lost profits damages—are not “damages because of ... Property Damage” within the meaning of the Policy. Therefore, it has no duty to indemnify Berry for the Packgen judgment. In response, Berry raises three arguments: (1) Illinois National is estopped from re-litigating the damages détermination by the Packgen jury; (2) even if Illinois National were entitled to re-litigate the issue,
1. Estoppel
Issue preclusion, or collateral estoppel, “bars subsequent re-litigation of a fact or issue where that fact or issue was necessarily adjudicated in a prior cause of action and the same fact or issue is presented in a subsequent suit.” Small v. Centocor, Inc.,
The Indiana cases on point apply estoppel to bar the primary liability insurance carrier, which wrongfully denied its defense obligation, from later asserting contractual coverage defenses. See State Farm Fire & Cas. Co. v. T.B. ex rel. Bruce,
Here, Illinois National is not the primary insurance carrier; it is the excess (or umbrella) carrier. For the reasons explained infra, in that capacity, Illinois National did not have a duty to defend under the terms of the Policy. Therefore, the court concludes that it is not estopped from asserting its defense of no coverage. See Stroh Brewery,
Furthermore, an insurer is bound only to the matters necessarily determined in the underlying' action. State Farm,
In reaching its verdict in favor of Pack-gen, the jury considered the actual, incidental, and consequential damages it suffered as a result of Berry’s defective product. (Jury Instructions at 13-14). The jury concluded that Packgen’s actual and lost profits damages were “legally caused” by the failure of Berry’s laminate product, and awarded $7,206,646.30 in lump sum damages. (Id.). The legal question presented here—whether thé anticipated lost profits damages as awarded in the Pack-gen action are “damages because of '... ‘Property Damage’” within the meaning of the Illinois National Policy—was not decided by the Packgen jury. Afolabi v. A. Mortg. & Inv. Corp.,
2. Coverage for Anticipated Lost Profits Damages
The parties agree that the jury’s damages figure includes $6,563,607.00 in anticipated lost profits. (See, e.g., Filler Tr. at 26 (testifying that had CRI continued to do business with Packgen over the next ten years, its sales over the succeeding ten years would have earned Packgen a net profit of $4,606,405.00); see also id. at 48 (testifying that had Packgen entered into contracts with the 37 oil refineries, its sales would have earned Packgen $1,957,202.00 over a ten year period)). The anticipated lost 'profits figure represents damages from sales that never occurred, but were expected to occur in the future. (See e.g., id. at 3 (“Q: What are lost profits? A: Lost profits is the difference between sales that you expected to make and the eost that you avoided by not having made those sales.”); id. at 29 (“Q: Did you also factor in lost profits for Packgen for any other categories? A: Yes. I calculated lost profits for sales not made to the 37 refineries.”). (See also Lapointe Tr. at 95 (“Q: And you’ve already testified that you were told by CRI that those ‘ sales of [IBCs] would continue into the future and even increase; in fact, more than double? A: That’s right.”).
As noted previously, the Policy provides that Illinois National will “pay on behalf of [Berry] those sums in excess of the Retained Limit [the $1 million in the Federal Policy] that [Berry] becomes legally obligated to pay as damages by reason of liability imposed by law because of ,. -. Property Damage ... to which this insurance applies.... ” (Illinois National Policy at IN0017915). Property damage includes “physical damage to tangible property, including all resulting loss- of use of that property” and “loss of use of tangible property that is not physically injured.” (Id. at IN 0017937). Intangible losses and
The court first turns to Travelers, supra. There, the insured, Penda, received an order from its customer, U.S. Sample, to produce white lithograde styrene sheets.
The Seventh Circuit reversed. It had “little difficulty in concluding that U.S. Sample’s broad allegations of future profit and reputational damage are purely economic losses and beyond the coverage of the policy.” Id. at 829. But it held that U.S. Sample’s claim for “lost profits” was partially one for the recovery of its costs in repairing the damaged and rejected sample books. Id. Those damages, the court clarified, could potentially come within the bounds of the policy, thus triggering Travelers’ duty to defend. Id.
Cases from other jurisdictions are consistent with Travelers. For example, in Nat'l Union Fire Ins. Co. v. Ready Pac Foods, Inc.,
Before the district court, Taco Bell argued that but for the E. coli outbreak that caused bodily injury and property damage, it would not have suffered lost revenue and profits from a decline in patronage. Id. at 1054. The district court rejected this contention because it did not amount to an expense incurred “to remedy either the damage done to tangible property at Taco Bell restaurants or the personal injuries suffered by Taco Bell’s customers.” Id. at 1055. The court explained:
Taco Bell’s claim for lost profits is not a measure of the damage to meals served at Taco Bell restaurants nor the cost ofthe destroyed contaminated food items. Taco Bell’s alleged lost profits as a result of customers deciding not to eat at Taco Bell restaurants nationwide is not a measure of the value of the meals and food that were destroyed at Taco Bell restaurants directly affected by the outbreak.
Id. At bottom, “the occurrence itself must directly cause the bodily injury, the injury to tangible property, or the loss of use of the property for coverage to apply.” Id. at 1057. “As such, damages for loss of goodwill and loss of anticipated profits are not covered under a liability policy even where such loss of goodwill and loss of profits are alleged to have resulted from covered ‘property damage.’ ” Id.
In Essex Ins. Co. v. Chemical Formula, LLP, No. 1:CV-05-0364,
The district court rejected the contention, observing that the purported lost profits did not remedy physically injured property or relate to a loss of use of tangible property. Id. at *5. Rather, the lost profits “arise out of intangible damages that occurred after the physical damage occurred.” Id. See also St. Paul Fire & Marine Ins. Co.,
These cases lead the court to conclude that damages for lost profits are not covered as “damages because of ... Property Damage” unless they are a measure of the actual physical injury to tangible property or for the loss of use of that property. The cases cited by Berry do not persuade the court otherwise. See Mid-Continent Cas. Co. v. Circle S Feed Store, LLC,
3. Ambiguity
Having rejected Berry’s first two arguments, the court turns to the third—whether the policy , is ambiguous and must be construed in favor of Berry. A contract is ambiguous “if reasonable persons would differ as to the meaning of its terms.” Beam v. Wausau Ins. Co.,
Berry argues the phrase “because of’.js ambiguous because some courts have found coverage for . consequential damages arising from property damage, and others have not. Berry does not provide the names of the cases that are in conflict. Furthermore, the court finds the language of the Policy to unambiguously provide for damages arising from the physical damage to tangible property. Lost future profits arising from sales not yet made are not causally related to physical property damage. Therefore, the court must find, as a matter of law, that Illinois National had ,no duty to indemnify Berry under the fact’s of this case. Accordingly, Illinois National’s Motion for Summary Judgment on Count I is GRANTED, and Berry’s Motion for Summary Judgment on Count I is DENIED,
B. Breach of Contract (Count II)
Berry argues Illinois National committed an anticipatory breach—or repudiation—of the insurance contract by failing to defend it during the pendency of the'Packgen lawsuit. Such a repudiation or anticipatory breach can give rise to an action for damages. Colonial Life & Accident Ins. Co. v. Newman,
The Policy provides that Illinois National has a duty to defend a suit against an insuréd that seeks property damages “when the total applicable limits of Scheduled Underlying Insurance have been exhausted by payment of the Loss to which this policy applies.” (Illinois National Policy at IN0017984). The applicable “Retained Limit” is $1 .million per occurrence. (Id. at IÑ0017937). And the term “Loss” means, “those sums actually paid as judgment • or settlements.” (Id. at IN0017934), Taken together, Illinois National has no duty to defend Berry unless
In the present case, Federal defended Berry in the trial court in the Packgen action, and funded the appeal of the judgment. (See Filing No. 1-2, Complaint ¶ 19). Further, no portion of the judgment' has been paid. Therefore, under the unambiguous terms of the Policy, Illinois National had no duty to defend Berry in the Pack-gen lawsuit because the “Retained Limit” of the Federal Policy has not yet exhausted. See Allianz Ins. Co. v. Guidant Corp.,
Furthermore, damages are an essential element of any breach of contract claim. Berkel & Co. Contractors, Inc. v. Palm & Assocs., Inc.,
With respect to Illinois National’s duty to indemnify, the Policy provides that it “will not make any payment under this policy unless and until the total applicable Retained Limit(s) and any applicable Other Insurance have been exhausted by the payment-of Loss to which this insurance applies.” (Illinois National Policy at IN0017983). Illinois National' did not breach its contract here for two reasons. First, for the reasons just explained, it did not have a duty to indemnify. Second, even if it did, Illinois National, has no obligation to indemnify Berry until the $1 million Retained Limit has been paid towards the final judgment. For all of these reasons, Illinois National’s Motion for Summary Judgment on Count II is GRANTED, and Berry’s Motion for Summary .Judgment on Count II is DENIED,
C. Bad Faith (Count III)
Implied in all insurance contracts is the duty of an insurer to deal with its insured in good faith. Erie Ins. Co. v. Hickman,
Berry contends Illinois National engaged in bad faith by refusing to participate in any settlement negotiations in the underlying Packgen lawsuit, even after Berry’s primary insurer, Federal, offered to pay its $1 million policy limits. See United Farm Bureau Mut. Ins. Co. v. Ira,
The evidence reflects that Illinois National assigned a claims administrator to monitor the Packgen lawsuit, conducted an investigation, hired coverage counsel, and attended the December 2014 mediation. Illinois National’s position was, and continues to be, that anticipated lost profits damages are not covered property damages under the Policy, and the court agrees with its assessment. There is no evidence of ill motive here. Therefore, the court finds, as a matter of law, that Illinois National did not commit the tort of bad faith in this case. Illinois National’s Motion for Summary Judgment on Count III is GRANTED, and Berry’s Motion for Summary Judgment on Count III is DENIED.
V. Conclusion
The court finds no genuine issue of material fact exists on Counts I, II, and III of Berry’s Complaint and that judgment must be entered in favor of Illinois National. Accordingly, Illinois National’s Motion for Summary Judgment on Counts I-III of Berry’s Complaint (Filing No. 40) is GRANTED, and Berry’s Motion for Summary Judgment on Counts I and II (Filing No. 54) is DENIED.
SO ORDERED this 22nd day of March 2017.
Notes
. The court grants Illinois National’s request to take judicial notice of the trial transcript from the Packgen trial. See In re FedEx Ground Package Sys., Inc. v. Employment Practices, Lit., No. 3:05-MD-527 RM (MDL- 1700),
. The parties agree that this action; is governed by Indiana law.