Opinion ID: 167743
Heading Depth: 3
Heading Rank: 3

Heading: Application of Exclusion D

Text: 44 When it granted partial summary judgment to FM, the district court determined that Exclusion D was not ambiguous and that the cheese was contaminated, and therefore Exclusion D applied. Aplt's App. vol. III, at A0756. 45 Here, the parties agree that there is contamination of the cheese. Id. vol. III, at A0758. The burden thus shifts to FM to establish the applicability of Exclusion D. Novell, 15 P.3d at 778. FM argues that the contamination of the cheese falls within Exclusion D, because the cheese contained numerous chemical compounds [that the] cheese does not normally, and should not, contain. Aple's Br. at 17. 46 Leprino argues, however, that even if FM shows that Exclusion D applies, an exception to that exclusion also applies here. The burden falls on Leprino to prove the applicability of an exception the exclusion. Public Serv. Co. of Colo., 955 P.2d at 568. Leprino maintains that the damage to the cheese was covered under the other physical damage exception to the FM Policy because the damage stemmed from a covered source, i.e. the condition of the third-party warehouse that stored the cheese. Leprino further contends it was deprived of an opportunity to prove this exception by presenting to the jury any evidence that the damage resulted from that covered source, including observations of countless spills of juice concentrate on the floor and on pallets throughout the warehouse. Aplt's App. vol. III, at A0874. 47 Leprino sought to argue that spills in the warehouse, and the crushing of products such as popsicles by forklifts, released chemicals that caused the damage to Leprino's cheese. Leprino also sought to introduce evidence that two FM representatives would testify that if there was a spill that caused the off-flavor to the cheese, that would be covered, because it would fall within the [other physical damage not excluded] exception to the contamination exclusion. Aplt's App. vol. III, at A0873. According to Leprino, a jury could find that it was entitled to damages because the contamination resulted from third-party negligence that was covered by the policy, and that the chemical compounds from these spills caused the off-flavor to the cheese. Thus, Leprino contends that the district court erred by precluding the presentation of any evidence in support of the other physical damage not excluded exception. 48 Relying on this court's decision in Adams-Arapahoe Joint School District v. The Continental Insurance Co., 891 F.2d 772, 777 (10th Cir.1989), FM counters that no exception to Exclusion D applies because nobody knows how, when or where the cheese became contaminated. In Adams-Arapahoe, we determined that a policy's exclusion clause operated to provide coverage. Under the clause, coverage was excluded for corrosion unless such loss results from a peril not excluded in this policy. Id. There, the school district sought coverage under its all-risk policy for extensive corrosion in newly constructed roofing. We saw no other reasonable construction of the clause.... [T]he policy still excludes losses due to corrosion with no identifiable non-excluded cause. In effect, the corrosion exclusion applies only to naturally occurring corrosion. Id. FM argues that Leprino has not shown that the exception to Exclusion D applies, as is its burden, because Leprino has not pointed to an identifiable, non-excluded event that caused the contamination. FM also contends that, assuming the cheese was contaminated by the general conditions of the warehouse, those conditions would not amount to other physical damage that would satisfy the exception to Exclusion D. See Aple's Br. at 24. 49 We begin our examination applying the axiom that [w]e enforce insurance contracts as written, giving the words and phrases their plain and ordinary meaning. Certain Underwriters at Lloyd's London Subscribing to Certificate No. 986557 v. Rychel, 126 P.3d 234, 236 (Colo.Ct.App. 2005), cert. granted, 2006 WL 259661 (2006). It is somewhat difficult to follow FM's argument as to what the other physical damage exception may include, except to surmise it encompasses little. FM's brief clearly argued that the warehouse's condition is not covered other physical damage. Aple's Br. at 24. At oral argument, counsel admitted that sunlight exposure altering the cheese's flavor would be covered, because exposure to sunlight would not be an infiltration of chemicals or foreign substances like those present here. Also, at argument, FM's counsel noted that a pipe leak or even a barrel leak causing contamination would be a covered event. FM seems to be arguing that, because the parties did not agree as to what caused the damage, it must prevail. 50 Thus, FM reads Adams-Arapahoe to require that the source of the contamination be known. Leprino argues that it was denied the opportunity to combat this theory by proffering evidence that these concentrate spills were other physical damage constituting an exception to Exclusion D. We note that both sides acknowledge that limonene, a chemical found in fruit juice concentrates, was found in the damaged cheese, in addition to other chemicals. Moreover, FM, in its answer and in the pre-trial order, specifically identified limonene, also stored at the warehouse, as the cause of the contamination that altered the flavor and aroma of the cheese. Aplt's App. vol. I, at A0036; see also id. at A0250. 51 We reject FM's insistence that we must read Adams-Arapahoe's reference to other perils rather than other physical damage as precluding coverage here. To adopt that reading would be to render the other physical damage exception meaningless. 52 In this respect, the facts here closely resemble those of Allianz Ins. Co. v. RJR Nabisco Holdings Corp., 96 F.Supp.2d 253 (S.D.N.Y.2000). In that case, Nabisco's food products were included under an all-risk policy issued by Allianz and other insurance companies (together, Allianz). Shortly after Nabisco began moving its products into a new warehouse, it began receiving complaints regarding a chemical odor and flavor in various products. Nabisco's investigation revealed that, during the warehouse's construction, the concrete floor had been sealed with certain suspect chemicals, which the construction company had failed to properly clean up. The insurer did not dispute that the warehouse was the source of the contamination. Id. at 255. 53 Nabisco submitted a claim for coverage, which Allianz denied, based on an exclusion clause in the all-risk policy. That clause excluded coverage for loss or damage caused by or resulting from contamination unless such loss or damage results from a peril not otherwise excluded.  Id. (emphasis added). As the Allianz court noted, [t]his somewhat awkward wording, in effect a double negative, was drafted by the insurers, possibly so as to try to come within the doctrine that places on the insured the burden of demonstrating that an exception to an exclusion applies. Id. However, as to the exclusion, the court stated: 54 the only reasonable reading of this language is that contamination losses resulting from perils otherwise covered by the policy are likewise covered and contamination losses resulting from perils expressly excluded by the policy are likewise excluded. Any other interpretation... would, as a practical matter, exclude contamination losses altogether and thereby render the [exception] language meaningless. 55 Id. (emphasis added). 56 The court further determined that Allianz failed to produce any competent evidence disputing Nabisco's contentions that the chemicals at the warehouse were the proximate and likely the sole practical cause of the contamination. Id. at 256. Thus, on any fair interpretation of the exclusionary language, the damage to the insured food ... resulted from a non-excluded `peril,' namely, a third-party's actions. Id. at 255. 57 Although there is no known pipe break or spill, we must examine the record in a light most favorable to Leprino. Factual disputes exist as to what precisely caused the contamination, despite FM's suggestion that there was an insufficient amount of fruit concentrate to damage such large quantities of cheese. We note that this argument also relates to disputed facts. Accordingly, we hold that the district court erred when it granted partial summary judgment to FM and when it excluded evidence regarding the application of the exception to Exclusion D.