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Milk Industry Management Corp. v. Travelers Indemnity Company of America

United States District Court, D. New Jersey

August 30, 2018



          YALE GLAZER LAZARE POTTER & GIACOVAS LLP On behalf of Defendant.


          NOEL L. HILLMAN, U.S.D.J.

         Presently before the court are Plaintiff's and Defendant's cross-motions for partial summary judgment regarding Plaintiff's claim for business income insurance and extended business income insurance. The parties' dispute arises out of the termination of Plaintiff's dairy distribution contract caused by a catastrophic fire at the storage facility used by Plaintiff. For the reasons expressed below, Plaintiff's motion will be denied, and Defendant's motion will be granted.


         Milk Industry Management Corporation (“MIMCO”), trading as Balford Farms, is a distributor of butter, cheese, fluid milk, and associated dairy and other food products for its own account and the accounts of third parties. On July 30, 2012, MIMCO and Dairy Farmers of America (“DFA”) entered into a Warehousing and Distribution Services Agreement (the “DFA Services Agreement”) and an Asset Purchase Agreement (collectively, the “DFA Agreements”). Under these agreements, MIMCO acquired the right to receive, store, warehouse, load out, and distribute seventy million pounds annually of DFA's products to DFA's customers for a term of five years, automatically renewing for subsequent two-year terms.

         On August 20, 2012, MIMCO entered into a Warehouse Services Agreement with Black Bear Distribution LLC (“Black Bear”) for the purpose of subcontracting the receipt, storage, and load out of DFA's product to MIMCO trucks at Black Bear's frozen and refrigerated warehouse storage facilities located in Delanco, New Jersey. MIMCO commenced distributing product to DFA's customers in September 2012.

         At approximately 1:30 p.m. on September 1, 2013, a fire broke out on the roof of the Black Bear Facility. Firefighters were unable to contain the fire for over twenty-four hours. The Black Bear Facility collapsed and was completely destroyed. On September 13, 2013, MIMCO terminated its contract with Black Bear under the Force Majeure provisions of the contract because Black Bear no longer had the ability to perform the contract due to the fire and the complete destruction of its warehouse.

         MIMCO claims that in an effort to mitigate its losses and continue operations under the DFA Agreements, MIMCO attempted to procure alternate warehouse space and services capabilities. MIMCO claims that it was unable to find any warehouses that had the capacity to warehouse all of DFA's product and to provide the logistical, technological, and other services required by DFA that Black Bear had provided prior to the fire. MIMCO eventually located an alternate warehouse with space and capabilities sufficient to maintain only a portion of the DFA-required storage, capabilities, and deliveries, but this alternate location did not provide MIMCO with the ability to fully provide the services it rendered to DFA prior to the fire, and it imposed extra costs, such as for warehousing, transportation, and labor.

         In June 2014, Black Bear's affiliate announced it would not re-build in the same geographical area or on the same scale as the Black Bear Facility. MIMCO claims that effective January 31, 2015, MIMCO and DFA mutually agreed to terminate the DFA Agreements as a result of the fire because MIMCO was unable to find a suitable replacement facility to enable MIMCO to efficiently and fully perform the services to be provided to DFA under the DFA Services Agreement. As a result, MIMCO claims that it incurred significant financial losses, including business income loss and other expenses, totaling in excess of $9.7 million.

         Previously, MIMCO purchased a package insurance policy, No. Y-630-5076A285-TIA-13, from Defendant, Travelers Indemnity Company of America (“Travelers”), for the policy period July 1, 2013, to July 1, 2014. The Policy covers Business Income and Extra Expense loss up to $16, 167, 000, and MIMCO claims that it purchased coverage specifically to account for the DFA business and paid a premium to extend the Policy coverage to include losses resulting from damage to the Black Bear warehouse. MIMCO also purchased enhanced coverage that provided for 365 days of Extended Business Income Coverage instead of the standard 180 days.

         Within days of the fire at the Black Bear facility, MIMCO tendered notice of an insurance claim for Business Income and Extra Expense due to the fire. Ultimately, Travelers paid MIMCO $11.6 million under the Policy for Business Personal Property (“BBP”), Business Income (“BI”) (approximately $3 million), and Extra Expense (“EE”). MIMCO claims, however, that Travelers still owes it $7 million in BI coverage and for Extended Business Income (“Extended BI”). For Travelers' refusal to fully compensate MIMCO under the Policy, MIMCO seeks a declaratory judgment that MIMCO is entitled to the additional $7 million under the Policy, and it has asserted a claim for breach of contract.

         Both parties have moved for partial summary judgment.[1] The heart of the instant dispute is the import of Black Bear not rebuilding its facility and MIMCO ultimately ceasing operations under the DFA contract. In order to calculate the amount of the insured loss under the BI provision, Travelers determined the Period of Restoration (“POR”) under the policy, which Travelers based on the reasonable time it would have taken Black Bear to rebuild its facility - 23 months. In contrast, MIMCO contends that the proper method to determine the POR is based on its unfulfilled contract term with DFA - 48 months plus an additional 24 months - because Travelers' use of a hypothetical restoration over which MIMCO had no control is contrary to the law and the Policy language. MIMCO further contends that because the Black Bear facility was never rebuilt and MIMCO never resumed its operations, a hypothetical POR when there is no restoration is not the appropriate guidepost for BI coverage.

         The “no restoration” and “no resumption of business” issues also affect MIMCO's claim for Extended BI, should it not be awarded full compensation under the BI provision. Travelers argues that MIMCO is not entitled to Extended BI because that provision only provides coverage when an insured suffers certain BI losses after actually repairing, replacing, or rebuilding the damaged property, and then resuming operations, and MIMCO never did any of those things. MIMCO argues the that the Extended BI provision is ambiguous, and therefore should be construed in its favor to provide Extended BI to MIMCO.

         MIMCO has moved for summary judgment in its favor on the POR issue. Travelers has moved for summary judgment in its favor on the Extended BI issue. Each party has opposed the other's motion.


         A. Subject matter jurisdiction

         This Court has jurisdiction over the subject matter of this action under the Declaratory Judgment Act, 28 U.S.C. § 2201, and pursuant to 28 U.S.C. § 1332(a) because there is complete diversity of citizenship between Plaintiff and Defendant, and the amount in controversy exceeds $75, 000.00, exclusive of interest, attorneys' fees, and costs. Plaintiff is a citizen of Pennsylvania and New Jersey, and Defendant is a citizen of Connecticut.

         B. Standard for Summary Judgment

         Summary judgment is appropriate where the Court is satisfied that the materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations, admissions, or interrogatory answers, demonstrate that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986); Fed.R.Civ.P. 56(a).

         An issue is “genuine” if it is supported by evidence such that a reasonable jury could return a verdict in the nonmoving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is “material” if, under the governing substantive law, a dispute about the fact might affect the outcome of the suit. Id. In considering a motion for summary judgment, a district court may not make credibility determinations or engage in any weighing of the evidence; instead, the non-moving party's evidence “is to be believed and all justifiable inferences are to be drawn in his favor.” Marino v. Industrial Crating Co., 358 F.3d 241, 247 (3d Cir. 2004)(quoting Anderson, 477 U.S. at 255).

         Initially, the moving party has the burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met this burden, the nonmoving party must identify, by affidavits or otherwise, specific facts showing that there is a genuine issue for trial. Id. Thus, to withstand a properly supported motion for summary judgment, the nonmoving party must identify specific facts and affirmative evidence that contradict those offered by the moving party. Anderson, 477 U.S. at 256-57. A party opposing summary judgment must do more than just rest upon mere allegations, general denials, or vague statements. Saldana v. Kmart Corp., 260 F.3d 228, 232 (3d Cir. 2001).

         C. Analysis

         1. MIMCO's motion for summary judgment

         As with any insurance coverage dispute, the starting point of the analysis is the language of the Policy. The provisions relevant to MIMCO's motion provide:

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