Phibro Animal Health Corp. v. National Union Fire Ins. Co., 446 N.J. Super. 419 (App. Div. 2016). When it comes to whatever the judicial opinion equivalent is of “click-bait,” few if any court rulings can top Judge Sabatino’s opening sentence in his opinion for the Appellate Division in this case yesterday. “This case is about insurance coverage and undersized broiler chickens.” Who could resist reading further?
Plaintiff is an animal product manufacturer. Three of plaintiff’s customers, who raised broiler chickens for human consumption, saw the growth of their chickens stunted because the chickens had ingested one of plaintiff’s drugs that was designed to combat an intestinal disease. Plaintiff sought a declaratory judgment that the defendant insurer was obligated to provide coverage for the customers’ losses.
The Law Division granted the insurer’s motion for summary judgment. That court concluded that there was no “occurrence” or “property damage” that called for coverage under the policy language. Moreover, the Law Division found that an “impaired property” exclusion barred coverage. Plaintiff appealed, and the Appellate Division reversed and remanded for further proceedings.
For two reasons, Judge Sabatino applied the de novo standard of review. First, that is the standard applicable to decisions on motions for summary judgment. Second, de novo review also governs the interpretation of an insurance policy, a legal question.
After reviewing some of the general rules of interpreting insurance contracts, Judge Sabatino ruled that the stunted growth of the chickens was a non-accidental “occurrence” that was covered by the insurance. The record suggested that plaintiff did not anticipate that its drug had a side effect of stunting animal growth. Citing several reasons, the panel distinguished Weedo v. Stone-E-Brick, Inc., 81 N.J. 233 (1979), on which the Law Division and the insurer had relied.
Next, Judge Sabatino held that the chickens’ stunted growth qualified as covered “property damage.” One part of the operative policy language defined “property damage” in terms of “physical injury.” Judge Sabatino cited Customized Distrib. Servs. v. Zurich Ins. Co., 373 N.J. Super. 480 (App. Div. 2004), as having “adopted a broad notion of the term ‘physical.'” He also marshaled decisions from other jurisdictions that held that “physical injury” means “an alteration in appearance, shape, color or in material dimension” (emphasis by Judge Sabatino). “Simply stated, stunted growth represents harm to the physical condition of the chickens.” The possibility that the chickens might eventually have regained the lost weight once they were no longer ingesting the drug did not negate the fact that property damage had occurred.
Alternatively, there was “property damage” because other policy language defined that term as “[l]oss of use of tangible property that is not physically injured.” Though the panel had already found physical injury, Judge Sabatino went on to rule that “even if we were to consider the chickens not physically injured, their stunted growth nonetheless resulted in a partial loss of their use, which independently qualifies as ‘property damage.'” This was because plaintiff’s customers were “unable to realize the chickens’ full potential for sale,” given their stunted condition (and assuming that it was not commercially feasible to delay their slaughter).
Judge Sabatino then turned to the exclusion language, noting that exclusions to coverage are narrowly construed, and that the insurer bears the burden of bringing the case within the exclusion. For reasons that the panel explained in detail, there was a fact issue for trial as to whether the chickens were “impaired property” so as to trigger the exclusion on which the insurer relied. In summary, “the impaired property exclusion might apply here, but only if the chickens reasonably and feasibly could be restored to their normal size and weight within a commercially-viable time frame and at commercially reasonable cost.” A fact finder will have to decide that issue on remand.
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