McCALLA, District Judge.
Before the Court is the Motion of Pacific Insurance Company Limited for Summary Judgment, filed December 9, 2005. Plaintiff responded in opposition and filed a cross-motion for partial summary judgment as to liability on January 12, 2006.
Plaintiff Southeast Mental Health Center, Inc. is a Tennessee not-for-profit corporation that provides outpatient mental health services and substance abuse treatment to Tennessee residents. Defendant issued an insurance policy, Policy No. ZG 0023267 ("Policy"), to Plaintiff for coverage from February 25, 2003, through February 25, 2004. The Policy included both an "All Risks" property insurance policy as well as a business interruption policy, entitled "Business Income (Without Extra Expense) Coverage". The Policy covered Plaintiff's clinics at multiple locations.
On July 22, 2003, a heavy rain and windstorm, commonly referred to as Hurricane Elvis, caused significant damage to Plaintiff's clinic and operations center located at 2579 Douglas Avenue, Memphis, Tennessee ("Douglas Avenue location"). Approximately twenty power and utility poles adjacent to the Douglas Avenue location were blown down or destroyed, which resulted in the loss of electrical and telephone service at that location until August 5, 2003. Plaintiff asserts that the loss of electricity also damaged its pharmacy computer (located at the Douglas Avenue location), which resulted in the loss of data from the computer.
Plaintiff submitted an insurance claim to Defendant sometime in late July or early August, 2003, based on its loss of business income. Defendant notified Plaintiff by letter dated September 16, 2003, that it would not pay the claim. (Letter from Douglas White, Appendix to Pl.'s Resp., 43-44.) On November 5, 2003, Plaintiff gave notice to Defendant of its intent to seek relief in court.
Plaintiff seeks payment of its insurance claim by Defendant and also brings claims against Defendant under Tenn.Code Arm. § 56-7-105 for Defendant's bad faith failure to pay the insurance claim and under the Tennessee Consumer Protection Act, Tenn.Code Ann. § 47-18-101, et seq. ("TCPA"). Defendant contends that Plaintiff's claim is not covered under the Policy. It moves for summary judgment under two theories: first, that Plaintiff's losses were not caused by direct physical loss of or damage to the insured property and thus are not covered under the Policy; and second, that even if Plaintiffs losses do fall under the Policy, they are precluded by specific exclusions delineated in the policy. In response, Plaintiff moves for partial summary judgment as to liability, contending that its losses are covered under the All—Risk Policy and that any ambiguities in the Policy must be construed in its favor.
Under Federal Rule of Civil Procedure 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). So long as the movant has met its initial burden of "demonstrat[ing] the absence of a genuine issue of material fact," Celotex, 477 U.S. at 323, 106 S.Ct. 2548, and the nonmoving party is unable to make such a showing, summary judgment is appropriate. Emmons v. McLaughlin, 874 F.2d 351, 353 (6th Cir.1989). In considering a motion
When confronted with a properly-supported motion for summary judgment, the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); see also Abeita v. TransAmerica Mailings, Inc., 159 F.3d 246, 250 (6th Cir.1998). A genuine issue of material fact exists for trial "if the evidence [presented by the nonmoving party] is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In essence, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52, 106 S.Ct. 2505.
The parties agree that the insurance policy at issue is governed by Tennessee law. Under Tennessee law, the interpretation of an insurance contract is a matter of law to be determined by the court. Black v. State Farm Mut. Auto. Ins. Co., 101 S.W.3d 427, 428 (Tenn.Ct. App.2002). An insurance policy is generally to be interpreted as any other contract. Am. Justice Ins. Reciprocal v. Hutchison, 15 S.W.3d 811, 814 (Tenn.2000). Insurance contracts should be construed "so as to give effect to the intention and express language of the parties." Blaylock & Brown Construction, Inc. v. AIU Ins. Co., 796 S.W.2d 146, 149 (Tenn.Ct.App.1990). In construing an insurance contract, "the language of the parties should be given its plain and ordinary meaning," Burdett Oxygen Co. of Cleveland, Inc. v. Employers Surplus Lines Ins. Co., 419 F.2d 247, 248 (6th Cir.1969), and the court must read the insurance contract as a layperson would read it, Paul v. Ins. Co. of N. Am., 675 S.W.2d 481, 484 (Tenn.Ct.App.1984). Further, "the contract should be read as a whole and each word given its appropriate meaning, if possible." Burdett Oxygen Co. of Cleveland, Inc., 419 F.2d at 248; Mid-South Title Ins. Corp. v. Resolution Trust Corp., 840 F.Supp. 522, 526 (W.D.Tenn. 1993).
An all-risk insurance policy "automatically covers any loss unless the policy contains a provision expressly excluding the loss from coverage" and generally covers against all fortuitous losses. HCA, Inc. v. Am. Protection Ins. Co., 174 S.W.3d 184, 187 (Tenn.Ct.App.2005). Under an all-risk policy, the claimant has the initial burden of proving that a loss comes within the terms of the policy, Blaine Constr. Corp. v. Ins. Co. of N. Am., 171 F.3d 343, 349 (6th Cir.1999)(quoting Farmers Bank & Trust Co. of Winchester v. Transamerica Ins. Co., 674 F.2d 548, 550 (6th Cir.1982)), but the burden is upon the insurer to show that an exclusion applies which precludes recovery, id. Exclusionary clauses are to be strictly construed against the insurer. Mid-South Title Ins. Corp., 840 F.Supp. at 526. Where contract language is ambiguous, "the ambiguity must be resolved in favor of the insured." Farmers Chem. Ass'n v. Maryland Cas. Co., 421 F.2d 319, 321 (6th Cir.1970). However, the court must be careful not to create ambiguity where none exists. Blaylock & Brown Construction, Inc., 796 S.W.2d at 149.
Plaintiff brings two claims for coverage, both under the Policy's business interruption provision. First, Plaintiff claims that it is entitled to coverage for its loss of income due to the power outage, which caused Plaintiff to close its facilities at the Douglas Avenue location and impeded service at the Winchester and Summer Avenue locations for two weeks. Plaintiff also seeks to recover for lost business income due to the damage to its pharmacy computer and its inability to fill patients' prescriptions.
The Policy provides coverage for both property loss and losses due to business interruption. The first page of the Policy is the "All Risk Form Declarations Page." That page lists "INTEREST & PROPERTY COVERED" as follows:
(All Risk Form Declarations Page, C-70-3 (3/03).) The "All Risk Form" sets forth the terms of its coverage as follows:
(All Risk Form, C-70 (4/2001) ("All Risk Form") § 2 PERILS INSURED AGAINST, at 1.) The All Risk Form also lists a number of perils that might cause damage to insured property that are specifically excluded from coverage. These include:
(All Risk Form, § 5 PERILS EXCLUDED, at 3-4.)
In addition, the Policy includes coverage for losses occasioned by business interruption. The "Business Income (Without Extra Expense) Coverage Form" states:
(Business Income (Without Extra Expense) Coverage Form, CP 00 32 10 00 ("Business Income Form"), ¶ A)(emphasis added).
The "All Risk Form Declarations Page" lists a summary of the insurance coverage and refers to form MP 1205 for the "Description & Location." (All Risk Form Declarations Page, C-70-3 (3/03).) Form MP 1205, entitled "Supplemental Declarations Endorsement," lists the addresses of covered properties and the coverage available for each property. (Supplemental Declarations Endorsement, MP 1205, at 1.) The Supplemental Declarations Endorsement form notes that the Douglas Avenue location has insurance coverage for "BUILDING," "CONTENTS," and "BUSINESS INCOME W/O EXTRA EXPENSE." (Id.)
Defendant first contends that Plaintiffs losses were not within the scope of the Policy's coverage, because the suspension of Plaintiffs operations "were not caused by direct physical damage to the property." (Answer ¶ 8 (citing Business Income Form, ¶ A).) Accordingly, the Court must determine whether Plaintiffs losses, due to the electrical and telephone outages, were caused by "direct physical loss of or damage to property" at the insured premises.
The Court finds the language in the Policy to be plain and unambiguous. Case law construing this exact language in insurance contracts supports the proposition that the words "direct physical" modify both "loss of and "damage to." See e.g., Ward General Ins. Servs., Inc. v. Employers Fire Ins. Co., 114 Cal.App.4th 548,554, 7 Cal.Rptr.3d 844 (Cal.App.2003). In the instant matter, it is undisputed that the electrical and telephone outages were caused by damage to power and utility lines that were not located on Plaintiffs property. The Court finds that the power outage therefore does not constitute "direct physical loss of or damage to" Plaintiffs property.
The cases cited by Plaintiff are unavailing. Plaintiff points to Pressman v. Aetna Cas. & Surety Co., 574 A.2d 757 (R.I.1990), where the court allowed recovery for business losses due to a power outage that occurred when a tree fell on a power line adjacent to the plaintiffs property. However, in Pressman, there was no language in the insurance policy limiting coverage to direct physical loss or damage. Instead, the Pressman court found coverage based on its interpretation of an exclusion in the policy that prevented coverage for power outages taking place away from described premises. Id. at 759-60.
Similarly, in MCMAHON Books, Inc. v. Nationwide Property & Cas. Ins. Co., 1993 WL 1303168 (Del.Com.Pl.1993), the court allowed recovery for the plaintiffs business losses caused by a power interruption at its bookstore which was located in a shopping mall. The power loss was caused by damage to electrical equipment owned by the bookstore's landlord and located in a different section of the shopping mall. However, in finding that the plaintiffs losses were covered, the MCMAHON court relied on a provision in the policy that specifically limited coverage for failure of power "if the failure occurs away from the described premises." Id. at *1-2. As the policy in the instant case does not contain such a limitation, MCMAHON is inapplicable. The Court thus finds no authority to support Plaintiffs construction of the plain language of the Policy, and concludes that Plaintiffs losses due to the electrical and telephone outages were not caused by "direct physical loss of or damage to property" to the insured premises. Accordingly, the Court GRANTS Defendant's motion for summary judgment on this issue and DENIES Plaintiffs motion for partial summary judgment.
Defendant also contends that Plaintiffs business losses due to the damage to its pharmacy computer are not covered because there was no direct physical damage to the computer and because losses due to power failure or to failure of computer systems are specifically excluded under the Policy. As set forth below, the Court finds Defendant's contentions to be without merit.
The Court finds that the corruption of the pharmacy computer constitutes "direct physical loss of or damage to property" under the business interruption policy. In
The Ingram court found that Ingram's computer system had sustained direct physical damage. The court stated that "`physical damage' is not restricted to the physical destruction or harm of computer circuitry but includes loss of access, loss of use, and loss of functionality." Id. at *2. The computers "physically lost programming information and custom configurations necessary for them to function" when they were damaged by the power outage. Id. at *3. The Court finds the Ingram court's reasoning persuasive, and finds that Plaintiffs pharmacy computer sustained direct physical damage, within the meaning of the business interruption provision.
However, in order to obtain coverage under this provision, Plaintiff's loss must also "be caused by or result from a Covered Cause of Loss." (Business Income Form ¶ A.) The Business Income Form includes a provision entitled "Covered Causes Of Loss," which states, "See applicable Causes of Loss Form as shown in the Declarations." (Id. at ¶ A(2).) However, there is no "Causes of Loss Form" in the All Risk Form Declarations Page or elsewhere in the Policy. The All Risk Form Declarations Page notes that the Policy provides coverage for "Business Interruption as described in form specifically endorsed hereon," (All Risk Form Declarations Page C-70-3 (3/03)0 and the Supplemental Declarations Endorsement lists CP 00 32 10 00 (the Business Income Form) as the only form applicable to business income coverage, (Supplemental Declarations Endorsement at 1.)
The Sixth Circuit considered a similar insurance policy in Burdett Oxygen Co. of Cleveland, Inc. v. Employers Surplus Lines Ins. Co., 419 F.2d 247 (6th Cir.1969). In Burdett, the plaintiffs policy included all-risk coverage, as well as a second section that insured against business interruption. Plaintiff suffered a mechanical breakdown, which caused its facility to be shut down until the machinery could be repaired. The business interruption provision of the policy provided coverage for business interruption and extra expense related thereto "caused by damage to . . . property . . . by the perils insured against." Id. at 248. The insurance company argued that this provision covered only business interruptions that were caused by a loss to property recoverable under the property section of the policy, and, therefore, plaintiff's recovery was precluded because mechanical breakdowns were not recoverable under the property section.
The Sixth Circuit found that "[t]he language of the contract does not unambiguously condition recovery on the presence of insured property damage under the basic [all-risks] policy . . . . Therefore, . . . we hold that ambiguous language is to be construed strictly against the insurance company." Id. at 250. In construing the language against the insurance company, the court found that the contract could be interpreted to require only (1) a loss
In this case, the Policy is similarly ambiguous as to whether it conditions recovery under the business interruption section on a property loss recoverable under the All Risk section. The Court finds it ambiguous whether the exclusions in the All Risk form apply to the business interruption insurance, or whether Plaintiff's loss is a Covered Cause of Loss. There is no reference to C-70, the All Risk Form, in the Business Income Form nor in any other provision relating to business interruption coverage. Further, the All Risk Form makes no mention of business interruption insurance, other than listing "interruption of business" as a Peril Excluded, "unless endorsed hereon," and business interruption insurance is clearly "endorsed" on the Business Income Form.
In addition, certain provisions of the All Risk Form are inconsistent with provisions of the Business Income Form. The Business Income Form states:
(Business Income Form, 11 D(3).) Accordingly, the Business interruption coverage contemplates coverage for business losses due to the loss of electronic media for a limited amount of time. In contrast, the All Risks Form contains an exclusion from coverage for electronic media, namely "failure, malfunction or inadequacy of computer hardware, microprocessors, computer application software, computer operating systems . ..." Under the All Risks Form, coverage for electronic media is only available "unless loss or damage from a peril insured herein ensues."
Construing this ambiguity in favor of the insured, Farmers Chem. Ass'n, 421 F.2d at 321, the Court finds that a power outage could reasonably be considered a Covered Cause of Loss under the business interruption portion of the Policy. Because the suspension of Plaintiffs business was caused by "direct physical loss of or damage to property" at the premises, and the loss or damage was caused by a Covered Cause of Loss, Plaintiff is entitled to coverage due to the failure of its pharmacy computer. Accordingly, Plaintiff's motion for partial summary judgment is GRANTED as to coverage for business losses relating to the loss of the pharmacy computer
Finally, Defendant contends that the Court should prohibit Plaintiff from introducing evidence regarding the damage to the pharmacy computer because one of Plaintiffs employees discarded the damaged drive in July or August of 2004. Howard Hicks, one of Plaintiffs employees, testified at his deposition that he tested the disk drive soon after the storm, and that the drive was corrupted. Hicks was the only person who tested or evaluated the drive. Further, he testified that the drive "sat on the shelf for almost a year ... and ultimately I disposed of it." (Dep. Howard Hicks 98.) Defendant contends that "Southeast was at the very least grossly negligent in failing to preserve material evidence to pending litigation" and accordingly is liable for spoliation of evidence. (Mem.Supp.Mot.Summ. J. 13.)
"The doctrine of spoliation of evidence permits a court to draw a negative inference against a party that has intentionally, and for an improper purpose, destroyed, mutilated, lost, altered, or concealed evidence." Bronson v. Umphries, 138 S.W.3d 844, 854 (Tenn.Ct.App.2003). The inference is rebuttable and "arises only when the spoliation occurs in circumstances indicating fraud and a desire to suppress the truth. It does not arise when the destruction was a matter of routine with no fraudulent intent." McLean v. Bourget's Bike Works, Inc., 2005 WL 2493479, *4 (Tenn.Ct.App.2005).
The Court finds no evidence to suggest that Plaintiff disposed of the drive in order to improperly conceal the drive or the cause of its failure from the Court or from Defendant. Plaintiff kept the damaged drive for approximately one year. Defendant points to no evidence to suggest that it ever requested that Plaintiff make the drive available to its experts for examination, either during the year that Plaintiff was in custody of the drive, or anytime thereafter.
For the reasons stated above, Defendant's motion for summary judgment is GRANTED as to Plaintiffs claims for loss of business income due to the closure of its facilities, but DENIED as to the loss of income due to the damaged pharmacy computer. Plaintiffs motion is DENIED as to the loss of business income due to the closure of its facilities, but GRANTED as to its loss of income due to the damaged computer drive. The Court makes no ruling as to Plaintiffs claims under Tenn. Code Ann. § 56-7-105 or under the Tennessee Consumer Protection Act.