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Nationwide Mutual Insurance Co. v. CPB International

November 21, 2007

NATIONWIDE MUTUAL INSURANCE COMPANY, PLAINTIFF,
v.
CPB INTERNATIONAL, INC., DEFENDANT.



The opinion of the court was delivered by: Judge Caputo

MEMORANDUM

Presently before the Court is Plaintiff and counterclaim Defendant Nationwide Mutual Insurance Company ("Nationwide")'s motion for summary judgment, in which it requests that the Court grant it the declaratory judgment it seeks and that the Court dismiss Defendant and counterclaim Plaintiff CPB International, Inc., ("CPB")'s counterclaim for declaratory judgment as moot. Because the underlying claims against CPB are contractual in nature and therefore fail to meet the "occurrence" requirement for coverage and are specifically excluded by exclusion (b) of the policy, Nationwide's motion will be granted. The Court has jurisdiction over this matter based on diversity of citizenship. 28 U.S.C. § 1332.

BACKGROUND

The facts of this case are well known to this Court and to the parties, and were discussed in more detail in the Court's Memorandum and Order of February 8, 2007 (Doc. 22.). To summarize, CPB is an importer of chondroitin sulfate sodium ("chondroitin"), a nutritional supplement made from animal cartilage which has been found beneficial to people who suffer from osteoarthritis. (Doc. 14-3 ¶¶ 53-55.) CPB imports chondroitin manufactured in China and sells it to companies in the United States, which combine chondroitin and glucosamine, a nutritional supplement made from crab, lobster and shrimp shells, with other ingredients to manufacture nutritional tablets. (Doc. 14-3 ¶ 55.) These tablets are then sold to retailers, which, in turn, sell the nutritional tablets under their own store labels to consumers. (Id.)

In April 2005, CPB filed suit against Rexall Sundown, Inc. ("Rexall") and a related corporation, NBTY, Inc. ("NBTY"), because Rexall had failed to pay CPB for a shipment of chondroitin. Rexall and NBTY filed an Answer, New Matter and Counterclaim, alleging that the chondroitin that was shipped to it was deficient, of improper composition, and unusable for its intended purpose, and that the delivery of the material constituted a material breach of contract. (Doc. 1-1 ¶ 15; Doc. 1-2 ¶¶ 58-59.) However, Rexall and NBTY did not discover that the chondroitin was deficient and of improper composition until after it had already combined it with glucosamine and other ingredients to form the nutritional tablets. (Doc. 14-3 ¶ 56.) Rexall and NBTY sought repayment of the $760,000 it had furnished to CPB, as well as consequential damages. (Doc. 1-1 ¶ 16; Doc. 1-2 ¶ 89.)

CPB tendered the counterclaim made against it by Rexall and NBTY to Nationwide pursuant to CPB's policy of commercial liability insurance. (Doc. 1-1 ¶ 18; Doc. 11 ¶ 18.) In response to CPB's tender of the counterclaim, Nationwide sent CPB two letters, both dated October 4, 2005. (Doc. 11 ¶ 61.) In one letter, Nationwide advised CPB that it was reserving its right to deny commercial liability coverage of the counterclaim. (Doc. 11 ¶ 62.) In the other, Nationwide stated that it had referred the counterclaim to the law firm of Swartz, Campbell & Detweiler ("Swartz Campbell") to undertake CPB's defense. (Doc. 11 ¶ 63.)

Thereafter, on February 16, 2006, Nationwide filed a Complaint in this Court seeking a Declaratory Judgment that it owed no duty to defend or indemnify CPB, pursuant to a policy of commercial liability insurance, for claims made against CPB by Rexall and NBTY for breach of contract. (Doc. 1-1.) In its Complaint for Declaratory Judgment, Nationwide asserts that it has no duty to defend or indemnify CPB because, inter alia, the breach of contract damages claimed by Rexall and NBTY were not caused by an "occurrence", a prerequisite to Nationwide affording coverage. (Doc. 1-1 ¶¶ 34-37.) Nationwide also argues that it owes no duty to defend or indemnify CPB because the claims asserted by Rexall and NBTY are subject to a provision in the insurance policy which excludes from coverage claims made against CPB which arose from CPB supplying a damaged or impaired product. (Doc. 1-1 ¶¶ 38-44.)

On May 8, 2006, CPB filed an Answer and Counterclaim, raising affirmative defenses and four counterclaims. (Doc. 11.) In my Memorandum and Order of January 8, 2007 (Doc. 22), I granted Nationwide's motion to dismiss three of those four counterclaims. (Doc. 13.) The only remaining counterclaim against Nationwide is Count I, in which CPB requests that the Court enter a judgment declaring that Nationwide does owe CPB a duty to defend it against the claims asserted by Rexall and NBTY (Doc. 11 ¶¶ 73-75.).

This Court also approved a stipulation between the parties dismissing NBTY and Rexall as parties (Doc. 19.). The remaining claims in this case are: (1) Nationwide's request for a declaratory judgment that it does not have a contractual obligation to defend or indemnify CPB for the claims in the underlying state court action, and (2) CPB's counterclaim for a declaratory judgment that Nationwide does have those obligations. Nationwide now moves for summary judgment, requesting the Court declare that Nationwide has no duty to defend or indemnify CPB in the underlying action and dismiss CPB's counterclaim as moot (Doc. 24.). Nationwide's motion is fully briefed and ripe for disposition.

LEGAL STANDARD

Summary judgment is appropriate 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 a judgment as a matter of law." FED. R. CIV. P. 56(c). A fact is material if proof of its existence or nonexistence might affect the outcome of the suit under the applicable substantive law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

Where there is no material fact in dispute, the moving party need only establish that it is entitled to judgment as a matter of law. Where, however, there is a disputed issue of material fact, summary judgment is appropriate only if the factual dispute is not a genuine one. See id. at 248. An issue of material fact is genuine if "a reasonable jury could return a verdict for the nonmoving party." Id.

Where there is a material fact in dispute, the moving party has the initial burden of proving that: (1) there is no genuine issue of material fact; and (2) the moving party is entitled to judgment as a matter of law. See CHARLES ALAN WRIGHT & ARTHURR. MILLER, FEDERAL PRACTICE AND PROCEDURE: CIVIL 2D § 2727 (2d ed. 1983). The moving party may present its own evidence or, where the nonmoving party has the burden of proof, simply point out to the Court that "the nonmoving party has failed to make a sufficient showing of an essential element of her case." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

All doubts as to the existence of a genuine issue of material fact must be resolved against the moving party, and the entire record must be examined in the light most favorable to the nonmoving party. See White v. Westinghouse Elec. Co., 862 F.2d 56, 59 (3d Cir. 1988). Once the moving party has satisfied its initial burden, the burden shifts to the nonmoving party to either present affirmative evidence supporting its version of the material facts or to refute ...


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