Opinion ID: 796324
Heading Depth: 2
Heading Rank: 2

Heading: Interpretation of Insurance Contracts Under New York Law

Text: 33 In this case, St. Paul provided Parks with first-party coverage, which means that the Policy is designed to compensate Parks for damage to its own property. See 2 Ostrager & Newman, Insurance Coverage Disputes § 21.01[a], at 1303 (13th ed.2006) (citing Newmont Mines Ltd. v. Hanover Ins. Co., 784 F.2d 127, 136 (2d Cir.1986) (stating that first-party property insurance policies provide financial protection against damage to property)). Commercial property insurance generally is offered in the form of either an all-risk policy or a named perils policy. Under an all-risk policy, losses caused by any fortuitous peril not specifically excluded under the policy will be covered. Id. § 21.02[a], at 1306 (emphasis supplied) (citing Ingersoll Milling Machine Co. v. M/V Bodena, 829 F.2d 293, 307 (2d Cir. 1987)); see also Murray v. State Farm Fire and Cas. Co., 203 W.Va. 477, 509 S.E.2d 1, 7 (1998) (Under an all[-]risk policy, recovery is allowed for all losses arising from any fortuitous cause, unless the policy contains an express provision excluding loss from coverage.). See generally J. Draper, Coverage under all-risk insurance, 30 A.L.R. 5th 170, 1995 WL 900253 (1995). By contrast a `named perils' policy covers only losses suffered from an enumerated peril. Id. (citing Opera Boats, Inc. v. La Reunion Francaise, 893 F.2d 103, 105 (5th Cir.1990)). 34 Here, St. Paul issued to Parks an all-risk property insurance policy providing that St. Paul would [p]rotect covered property against risks of direct physical loss or damage except as indicated in the Exclusions — Losses We Won't Cover section. In this case, we are asked primarily to review the parties' dispute surrounding, and the District Court's interpretation of, one of the exclusions — to wit, the Contamination Exclusion — contained in the all-risk Policy. 35 When a dispute arises involving the terms of an insurance contract, New York insurance law provides that `an insurance contract is interpreted to give effect to the intent of the parties as expressed in the clear language of the contract.' Morgan Stanley Group Inc. v. New England Ins. Co., 225 F.3d 270, 275 (2d Cir.2000) (quoting Village of Sylvan Beach v. Travelers Indem. Co., 55 F.3d 114, 115 (2d Cir. 1995)); see also Goldberger v. Paul Revere Life Ins. Co., 165 F.3d 180, 182 (2d Cir. 1999). When the provisions are unambiguous and understandable, courts are to enforce them as written. See Goldberger, 165 F.3d at 182. [T]he initial interpretation of a contract is a matter of law for the court to decide. Morgan Stanley Group Inc., 225 F.3d at 275 (internal quotation marks omitted). 36 Whether a contract is ambiguous, however, is a threshold question of law to be determined by the court. Duane Reade Inc. v. St. Paul Fire and Marine Ins. Co., 411 F.3d 384, 390 (2d Cir.2005); see also Morgan Stanley Group, Inc., 225 F.3d at 275 (Part of this threshold interpretation is the question of whether the terms of the insurance contract are ambiguous. (citing Alexander & Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, 136 F.3d 82, 86 (2d Cir.1998))). An ambiguity exists where the terms of an insurance contract could suggest `more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.' Morgan Stanley Group Inc., 225 F.3d at 275 (quoting Lightfoot v. Union Carbide Corp., 110 F.3d 898, 906 (2d Cir.1997)); see also Duane Reade Inc., 411 F.3d at 390 (quoting Morgan Stanley Group Inc. for same). An insurance policy should be read in light of common speech and the reasonable expectations of a businessperson. Pepsico, Inc. v. Winterthur Int'l Am. Ins. Co., 13 A.D.3d 599, 788 N.Y.S.2d 142, 144 (N.Y.App.Div.2004) (internal quotation marks omitted); accord Throgs Neck Bagels, Inc. v. GA Ins. Co. of N.Y., 241 A.D.2d 66, 671 N.Y.S.2d 66, 68-69 (N.Y.App.Div.1998) (stating that courts are to construe the terms of an insurance contract as they are used in common speech). 37 Moreover, to negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case and that its interpretation of the exclusion is the only construction that [could] fairly be placed thereon. Throgs Neck Bagels, Inc., 241 A.D.2d at 71, 671 N.Y.S.2d at 69 (internal quotation marks and citation omitted; alteration in original). Under New York insurance law, [t]he burden, a heavy one, is on the insurer, and [i]f the language of the policy is doubtful or uncertain in its meaning, any ambiguity must be resolved in favor of the insured and against the insurer. Pepsico, Inc., 788 N.Y.S.2d at 144 (internal citations and quotations omitted; second alternation in original); see Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 486 N.Y.S.2d 873, 876, 476 N.E.2d 272 (1984) (holding that policy exclusions are not to be extended by interpretation or implication but are to be accorded a strict and narrow construction and that any ambiguity will be resolved against the insurer); see also Olin Corp. v. Certain Underwriters at Lloyd's London, 468 F.3d 120, 129 (2d Cir.2006) (examining whether migrating contamination constitutes additional property damage to trigger liability coverage and recognizing the general tenet under New York law that where the precise meaning of insurance policies is ambiguous, their provisions are to be construed in favor of finding coverage). 38 Once a court concludes that an insurance provision is ambiguous, `the court may accept any available extrinsic evidence to ascertain the meaning intended by the parties during the formation of the contract.' Morgan Stanley Group Inc., 225 F.3d at 275-76 (quoting Alexander & Alexander, 136 F.3d at 86; see also Seiden Assocs. v. ANC Holdings, Inc., 959 F.2d 425, 428-29 (2d Cir.1992)). If the court concludes that an insurance policy is ambiguous, then the burden shifts to the insurer to prove that its interpretation is correct: if extrinsic evidence is available but inconclusive, the burden shifts at the trial stage. Morgan Stanley Group Inc., 225 F.3d at 276 (citing Union Ins. Soc'y v. William Gluckin & Co., 353 F.2d 946, 951-52 (2d Cir.1965) (remanding for trial in order to allow district court to consider extrinsic evidence before applying contra proferentem )). [I]n the absence of extrinsic evidence, the burden shifts [to the insurer] at the summary judgment stage. Id. (citing Twombly v. AIG Life Ins. Co., 199 F.3d 20, 25-26 (1st Cir.1999)). Thus, `[i]f the extrinsic evidence does not yield a conclusive answer as to the parties' intent,' a court may apply other rules of contract construction, including the rule of contra proferentem, which generally provides that where an insurer drafts a policy `any ambiguity in [the] ... policy should be resolved in favor of the insured.' Id. at 276 (quoting McCostis v. Home Ins. Co., 31 F.3d 110, 113 (2d Cir.1994)). 39