On appeal from the Superior Court of New Jersey, Law Division, Union County, L-2959-05.
The opinion of the court was delivered by: Reisner, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Lisa, Reisner and Alvarez.
Plaintiffs, Wakefern Food Corporation and related companies,*fn1 appeal from two orders entered by the Law Division on November 23, 2007, denying plaintiffs' motion for summary judgment and granting summary judgment in favor of defendant Liberty Mutual Fire Insurance Company (Liberty).
To summarize, on August 14, 2003, problems with the interconnected North American power system (the "electrical grid") resulted in a four-day electrical blackout over much of the northeastern United States and eastern Canada. As might be expected, plaintiffs, a group of supermarkets, suffered losses due to food spoilage during the blackout, in addition to incurring loss of business. Having paid a $5.5 million premium for insurance, covering (among other things) damage due to the loss of electric power, plaintiffs turned to their insurer, Liberty, to pay for their losses. Liberty, however, denied coverage, contending that its policy only applied in case of "physical damage" to off-premises electrical plant and equipment and that, although the power grid was physically incapable of supplying power for four days,*fn2 it suffered no "physical damage" and therefore there was no coverage. The policy did not define the term "physical damage."
The trial court granted summary judgment for Liberty, holding that the grid was not physically damaged because it could be returned to service after the interruption. The court also concluded that "the protective system [within the grid] worked to prevent physical damage to the types of equipment included in 1.B.(3) of the Services Away Extension." In other words, because the grid had safety features that shut down the generators and transmission equipment, and kept them turned off, the loss of power was not due to "physical damage," even though the event rendered the system incapable of producing electricity for four days. Concluding that the decision is inconsistent with well-settled principles of insurance law, we reverse and remand this matter to the trial court.
To place the legal issues in context, we set forth the facts in some detail. Plaintiffs own and operate supermarkets in five northeastern states, including New Jersey. For the period covering 2003, plaintiffs collectively purchased a first-party, all-risk insurance policy from Liberty. In addition to the basic policy, plaintiffs purchased from Liberty a "Services Away From Covered Location Coverage Extension" (Extension), which extended coverage for consequential loss or damage resulting from an interruption of electrical power to plaintiffs' supermarkets where that interruption is caused by "physical damage" to specified electrical equipment and property located away from the supermarkets.
Paul Truncellito, Wakefern's Director of Insurance, was responsible for purchasing "first party insurance coverage for Wakefern" and its member supermarkets. Truncellito "retained an insurance broker, BWD Group, LLC, (BWD), to assist in those efforts." BWD canvassed the insurance marketplace for a policy that would satisfy Wakefern's requirements, bringing to Truncellito the bid from Liberty for the new policy. Liberty and Wakefern were not strangers to one another; Liberty had been Wakefern's "primary layer insurer" for its "property insurance program" since January 1, 2000.
Truncellito elected to purchase Wakefern's first-party, all-risk insurance coverage from Liberty. One reason for his decision was that Wakefern and its ShopRite members wanted "to have insurance coverage for food spoilage and other losses due to loss of power from utilities." Truncellito certified that, by purchasing the policy, he "understood that I had obtained this coverage from Liberty."
According to Truncellito, Wakefern "expressly sought and purchased" additional insurance coverage for "any losses [that] were not otherwise encompassed by the All Risk coverages." Thus, Truncellito indicated that Wakefern purchased the Extension because it wanted to insure against any losses not covered under the basic policy that might result from power outages. Truncellito certified that, by purchasing the Liberty policy and Extension, he "understood [that] we [Wakefern] had coverage for both local and system-wide power outages, including the outage that occurred on August 14, 2003. I was never told otherwise by Liberty Mutual and/or its agents."
Significantly, Truncellito also certified that "[n]either I nor anyone else at Wakefern had any role in the drafting of the Liberty Mutual Policy. Indeed, I did not understand that I had the power to negotiate the written provisions of the insurance policy sold to Wakefern by Liberty Mutual."
Wakefern purchased the first-party, all-risk insurance policy from Liberty for a total premium of $5,503,807 to cover the period from January 1, 2003 to April 1, 2004. Wakefern's purchase included the Extension, which extended coverage to Wakefern for consequential loss or damage resulting from an interruption of electrical power to the ShopRite stores.
Specifically, the Extension provided that:
A. We will pay for consequential loss or damage resulting from interruption of:
B. We will pay only if the interruption results:
(1) From physical damage by a peril insured against;
(2) Away from a covered location; and,
(3) To the following types of property, if marked with an "X":
(X) Any powerhouse, generating plant, substation, power switching station, gas compressor station, transformer, telephone exchange;
(X) Transmission lines, connections or supply pipes which furnish electricity. . . to a covered location.
There was no dispute that Wakefern's ShopRite stores were "covered locations" and that "plaintiffs' food spoilage and other claimed losses constitute consequential loss or damage within the meaning" of the policy and Extension. Thus, the Extension pertinently provided that Liberty would pay for food spoilage and other consequential losses or damages incurred by Wakefern as a result of a loss of electrical power at its Shoprite stores, if the interruption of electrical power resulted from "physical damage" to specified electrical equipment and property located away from those stores. Significantly, the term "physical damage" was not defined in the Extension or in the underlying policy.
The insurance policy and Extension that Truncellito purchased for Wakefield were in effect on August 14, 2003, when the power outages occurred that are the subject of this lawsuit. On that date, "large portions of the Midwest and Northeast United States and Ontario, Canada, experienced an electric power blackout." An estimated fifty million people were affected, "[a]t least 265 power plants with more than 508 individual generating units [were] shut down," and power was "not restored for 4 days to some parts of the United States." Significantly, the power blackout, which began ...