The opinion of the court was delivered by: WOLIN
This matter is before the Court on Centennial Insurance Co.'s ("Centennial") motion for summary judgment on Elizabethtown Water Company's ("Elizabethtown") claims for indemnity. Hartford Casualty Insurance Company ("Hartford") also moves for summary judgment of Elizabethtown's claims for indemnity. The Court has decided these motions upon the written submissions of the parties pursuant to Rule 78 of the Federal Rules of Civil Procedure. Elizabethtown also moves the Court to strike sections of Centennial's reply brief.
In an underlying action, Big Sheepy Partnership ("Big Sheepy") and Sheep Hill Associates (collectively "developers") filed a complaint in New Jersey Superior Court against Elizabethtown. Developers alleged that in 1986, Big Sheepy purchased a large tract of land for development in Somerset County because Elizabethtown represented that it would and could supply adequate water to the future development. Developers alleged that in 1988, Big Sheepy entered into an agreement with Elizabethtown in which Big Sheepy agreed to pay for an extension of water mains from Elizabethtown's water supply to the houses built in the development. Implicit in the contract was that Elizabethtown would be able to provide water service to all the houses. (Centennial Ex. A).
According to the underlying complaint, Elizabethtown failed to supply water for all of the houses until October 1990, even though the water mains were complete in July 1988, and even though Elizabethtown had the ability to provide water to all of the houses and lots. Developers claimed that Elizabethtown's failure to provide water caused them to lose numerous sales and adversely affected their reputation. Thus, developers sought equitable relief and compensatory, punitive, and treble damages based on breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, equitable fraud, and the New Jersey Consumer Fraud Act. (Centennial Ex. A). In an answer to an interrogatory, developers claimed that the injury to their business reputation was $ 1,000,000, and that their carrying costs, i.e., property taxes, mortgage payments, auction expenses, promotion expenses, and Internal Revenue Service expenses, exceeded $ 2,000,000.
Developers also claimed lost sales.
Centennial and Hartford ("defendants") are Elizabethtown's insurers. Centennial issued Elizabethtown two Comprehensive General Liability Policies ("CGL Policy") with effective dates of June 30, 1987, to June 30, 1988, and June 30, 1988, to June 30, 1989. Centennial also issued a Commercial Umbrella Policy ("Umbrella Policy") with effective dates of June 30, 1988, to June 30, 1989. Hartford issued two Comprehensive General Liability Policies ("Hartford Policy") to Elizabethtown with effective dates of June 30, 1989, to June 30, 1990, and June 30, 1990, to June 30, 1991.
Defendants allege that they received their first notice of the existence of the underlying lawsuit in mid-1993, almost two years after the underlying litigation commenced. After receiving notice of the underlying suit, defendants replied with independent letters discussing their interpretations of the relevant policy provisions and concluding that they would not cover Elizabethtown's alleged loss. (Centennial Ex. B; Hartford Ex. E).
Centennial denied coverage because the underlying complaint did not allege "bodily injury" or "property damage" caused by an "occurrence" as defined by the CGL Policy and did not allege "advertising injury," "personal liability injury," or "property damage liability" caused by an "occurrence" as defined by the Umbrella Policy. The CGL Policy defines "property damage" as:
(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.
The CGL Policy defines "occurrence" as: "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." Centennial also informed Elizabethtown that it was denying coverage because Elizabethtown failed to comply with the policies when it failed to notify Centennial "as soon as practicable" of an "occurrence," to forward a summons "immediately," and to "cooperate" with Centennial in its defense. (Centennial Ex. B).
Hartford denied coverage on the grounds that the allegations and circumstances surrounding plaintiff's case did not comport with the definitions for "occurrence" or "property damage" in the Hartford Policy. (Hartford Ex. E). The Hartford Policy defines "property damage" as:
a. Physical injury that occurs during the policy period to tangible property, including all resulting loss of use of that property; or
b. Loss of use that occurs during the policy period of tangible property that is not physically injured, provided such loss of use is caused by an occurrence during the policy period.
The Hartford Policy defines "occurrence" with respect to bodily injury and property damage as: "a. Bodily injury or property damage: an accident, including continuous or repeated exposure to substantially the same general conditions." In an earlier letter, Hartford informed Elizabethtown that "serious coverage questions" existed in that Elizabethtown failed to provide immediate notice of its claim and that the date of the underlying loss may have occurred outside the period covered by the Hartford Policy. (Hartford Ex. C).
The Hartford Policy also contains a "Water Utilities Limitation Endorsement," which provides:
It is agreed that the insurance does not apply to property damage arising out of the inability of the insured to supply water in quantities of pressure sufficient to meet the demands of the insured's customers, unless such inability is the result of an occurrence not related to a shortage of water or distributional capacity nor fluctuation in the level of demand of the insured's customers.
The Hartford Policy also contains general exclusions, including:
(3) Property of which your product or your work forms a part or property that has not been physically injured, arising out of:
(b) A delay or failure by any insured or anyone acting on an insured's behalf to perform a contract or agreement in accordance with its terms.
On November 3, 1994, Elizabethtown wrote defendants letters advising them that the underlying case had settled, and that Elizabethtown would pay $ 1.75 million to developers. In reaching their settlement, the parties entered into a release in which they agreed that "the monies are being paid because of [Elizabethtown's] potential liability to developers on the negligence count only." (Centennial Ex. C). Centennial promptly responded that it was disclaiming coverage. (Centennial Ex. D).
In August 1995, Centennial sent Elizabethtown a letter supplementing its prior disclaimers in order to inform Elizabethtown that it also disclaimed coverage under the "Failure to Supply Water Endorsements" in the CGL and Umbrella Policies. (Centennial Ex. F). The CGL Policy's Failure to Supply Water Endorsement provides:
It is agreed that this policy does not apply to personal injury or bodily injury arising out of the interruption or [impairment] of electrical, gas or water service.
Property damage shall not include damage arising out of inability of the insured to supply gas and/or electricity or water in quantities sufficient to meet the demands of the insured's customers unless such liability shall be the result of a sudden and unforseen occurrence resulting from physical damage to tangible property and which is not related to a shortage of gas, electricity, water, distributional or generating capacity not fluctuation, or fluctuation in the level of demand of the insured's customers.
The 1988-89 Umbrella policy included a "Failure To Supply Endorsement" that provided: "It is agreed that this policy does not apply to personal injury[,] bodily injury or property damage arising out of the interruption or impairment of electrical, gas or water service."
In July 1995, Elizabethtown filed a three-count complaint. In the First Count, Elizabethtown sought a declaratory judgment that defendants are obligated to reimburse it for money it paid to developers unless the claims fall outside the policy period and for legal fees and costs. In the Second Count, Elizabethtown claimed that defendants breached their contracts by failing to defend and indemnify Elizabethtown. On September 30, 1996, this Court granted defendants' motions for partial summary judgment on Elizabethtown's Third Count.
Defendants now move the Court to enter summary judgment on the remainder of Elizabethtown's claims because Elizabethtown's failure to provide water to developers is not covered in the ...