NY 1st Department Affirms Duty to Defend Freezer Manufacturer for Unfrozen, Ruined Cakes Under CGL Policy


Last month New York’s Supreme Court, Appellate Division 1st Department affirmed the Supreme Court, New York County’s decision granting partial summary judgment in favor of an insured freezer manufacturer, I.J White Corp., which sought defense and indemnity under a CGL policy for claims against it brought by Hill Country Bakery for breach of contract, breach of warranties, and fraudulent inducement. See I.J. White v. Columbia Casualty Co., 2013 N.Y. Slip Op 02500 (NY A.D., 1st Dept., April 16, 2013). The court held that Hill Country’s underlying complaint against I.J. White seeking damages because of a defect in its freezer system alleged both an “occurrence “and “property damage” within the meaning of the policy, triggering the insurer’s duty to defend.

Hill Country, a maker and distributor of baked goods, bought a spiral freezer system from I.J. White which was to freeze freshly baked goods within 150 minutes to a temperature necessary for proper handling and packaging. Once installed, however, the freezer failed to freeze the cakes as required, which became evident when workers cut into the cakes as part of the packaging process.

Hill Country sued the freezer manufacture for damages, including for the eight months its $21 million facility (specifically constructed to house the freezer equipment) was out of use and for the additional $1.9 million it spent fixing the defective equipment.
I.J. White tendered the claim to its CGL insurer, Columbia Casualty Co., which took the position that the alleged defects in the freezer did not qualify as an “occurrence” and that there was no “property damage” within the meaning of the policy and denied coverage.

The Supreme Court and the 1st Department on appeal disagreed. As the appellate court explained, while CGL policies like the one at issue do not insure against faulty workmanship in the work product itself, they do insure against property damage caused by faulty workmanship to something other than the work product. And here, that something other was Hill Country’s cakes. Distinguishing George A. Fuller v. United States Fid. & Guar. Co., 200 A.D. 255 (NY AD 1st Dept 1994), in which the court said the insured contractor sought coverage for damage to its own work, the court said here the insured seeks coverage for damage to the cakes, not to its freezer. This damage, according to the court, “is precisely the kind that [the insurer’s] CGL policy contemplated, and therefore, the complaint properly alleges an ‘occurrence’ within the meaning of the policy.” Additionally, the damages for loss of use of the facility specifically built to house the freeze fall squarely within the policy’s definition of property damage, which includes “[l]oss of use of tangible property that is not physically injured.” The court rejected the insurer’s argument that it was the act of cutting into the unfrozen cakes that ruined the product rather than the defective freezer itself as a distinction without a difference: “the fact remains that Hill Country’s product was rendered unusable as a direct result of the alleged defect in plaintiff’s freezer.”