Opinion ID: 203976
Heading Depth: 3
Heading Rank: 1

Heading: ALI and BCC

Text: At its core, the dispute between ALI and BCC centers around the language contained in § 21(b) of the Program Agreement, which covers termination without cause. Section 21(b) reads as follows: [1] Either party may terminate this Agreement at the end of the initial term or any successive one (1) month term without cause upon ten (10) days' prior written notice to the other party. [2] In the event of such termination, the Insured Lessor [BCC] agrees that all Coverage effective prior to termination shall remain in effect with the Insurance Company [Balboa Insurance]. [3] The Insurance Manager [ALI] shall not thereafter cancel Coverage with respect to any Lease of Equipment that is subject to Coverage at the time of termination of this Agreement, except as provided in this Agreement or the Insurance Policy. Neither ALI nor BCC disputes that, pursuant to the first sentence of § 21(b), BCC was allowed to terminate its agreement with ALI without cause, as it did through its November 1, 2007 termination letter. However, ALI and BCC dispute the legal effect of the second and third sentences of § 21(b). ALI argues that the second and third sentences of § 21(b) unambiguously establish that any existing coverage would survive termination of the Program Agreement. According to ALI, the second sentence is addressed to BCC and prevents BCC from doing exactly what it has done here  it is a categorical prohibition on cancellation of any coverage managed by ALI prior to the termination of the Program Agreement. [8] With respect to the third sentence, ALI argues that it is addressed to ALI and reinforces the protection of BCC's interest by preventing ALI from cancelling existing coverage and thereby leaving BCC uninsured in the event the Program Agreement is terminated. ALI maintains that nothing in the third sentence, even its references to the Insurance Policy, alters the plain meaning of the second sentence. Further, because the Program Agreement contains a merger clause, ALI states that we cannot look to the Insurance Policy or other extrinsic evidence to interpret the second sentence of § 21(b). For its part, BCC maintains that the district court correctly held that the Program Agreement was ambiguous and that the Insurance Policy supplies requisite clarification. Alternatively, BCC argues that even if the Program Agreement is unambiguous, it is still proper to look to the Insurance Policy because it was recognized and incorporated by the third sentence. With respect to the Insurance Policy, BCC argues that § V.1(b) [9] allows BCC to cancel coverage for all leases no matter how this other coverage came about, who provided the notification or who the named insured is or will be. Specifically, it contends that the 1452 individual cancellation notices it sent to ALI are notices that there is other specific insurance on the individual Covered Equipment which meets BCC's own criteria, as determined by BCC. [10] We disagree with BCC and conclude that § 21(b) of the Program Agreement is unambiguous. By its plain terms, the second sentence states that coverage will continue even if BCC cancels without cause. The third sentence does not place a limit on BCC's obligation under the second sentence; rather it is phrased as a condition on ALI's behavior (and not BCC's) and speaks to ALI's continuing obligation to BCC if either party were to terminate without cause. [11] Also, while BCC is correct that the Insurance Policy is expressly incorporated by the Program Agreement, see CooperVision, Inc. v. Intek Integration Techs., Inc., 7 Misc.3d 592, 794 N.Y.S.2d 812, 819 (N.Y.Sup.2005) (The well settled rule is that `a reference by the contracting parties to an extraneous writing for a particular purpose makes it a part of their agreement only for the purpose specified.') (quoting Guerini Stone Co. v. P.J. Carlin Constr. Co., 240 U.S. 264, 277, 36 S.Ct. 300, 60 L.Ed. 636 (1916)), the Insurance Policy's legal effect is incorporated only to the extent that it details particular circumstances where ALI is exempt from its obligation to continue coverage post-termination as specified by third sentence in § 21(b). [12] Even if we were to consider the Insurance Policy more broadly, BCC's reading would still fail because it contravenes the intent of the parties as expressed by the Insurance Policy's plain language. Specifically, § V.1 is addressed to individual lessees, not to BCC, ALI, or Balboa Insurance. [13] Further, § V contains two separate provisions that deal with cancellation of the agreement by BCC (§ V.2 entitled How YOU may cancel this Policy) and by Balboa Insurance (§ V.3 entitled How WE may cancel this Policy). [14] Under both cancellation provisions, leases insured by Balboa Insurance (with ALI as agent and manager) are to continue after termination of the overall policy. Both provisions thus contemplate a continuation of the status quojust as do the Program and Finance Agreements. This is consistent with ALI's claim that the contracts were structured to fully compensate ALI for its front-loaded work. [15] The parties included two sections clearly designed to cover each side's cancellation, as indicated by the titles of each section and their language. BCC's interpretation is especially unpersuasive when we read § V of the Insurance Policy alongside § 21(b) of the Program Agreement. BCC's obligations (if any) under § V.1(b) must remain consistent with the second sentence of § 21(b). It would be inconsistent with that sentence to allow BCC to effect 1452 individual terminations under § V.1(b), and it would frustrate the purpose of that sentence to give BCC an alternative means of cancellation under the Insurance Policy. Instead, it is clear that the Insurance Policy is only referenced to ensure that ALI's existing managerial obligations continue even after a prospective termination. Thus, we agree with ALI that a proper construction of the Program Agreement and the Insurance Policy does not allow BCC to unilaterally cancel individual insurance policies, and any existing coverage would survive termination of the Program Agreement.