Power Failure Exclusion Not Ambiguous, Coverage Denied

Commercial Property	Off-Premise Power Failure
Cause Of Loss	Beyond Control

Mark and Sue Gies, operating as Twin City Packing (also known as Twin City Pack, collectively TCP), was a meatpacking business located in Gering, Nebraska. The facility included two large coolers powered by a shared 10-horsepower compressor, a blast freezer connected to a separate 10-horsepower compressor, and a holding freezer cooled by a 3-horsepower compressor. All compressors received electricity from the City of Gering.

On January 23, 1999, a power outage affected part of Gering, including the TCP site. The outage was caused by a broken aluminum jumper cable attached to an air brake switch on two utility poles at a transformer substation several blocks away. This switch interrupted the supply of three-phase electric power that the compressors needed, which the substation provided.

A broken jumper cable caused a single-phase power outage. As a result, the compressors continued to run on only two phases until their motors overheated and were damaged. The damaged compressors were temporarily replaced, and TCP submitted a written claim to the City of Gering for $18,500 to cover the loss. Gering denied the claim, arguing that the broken jumper cable was outside their control.

TCP then submitted the claim to its insurer, Union Insurance Co. (Union), which denied it on April 18, 2000, citing a policy exclusion for losses caused by a power failure occurring away from TCP's premises. The policy states that losses due to "the failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises," are excluded. However, it also notes that "if failure of power or other utility service results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss."

TCP filed an operative petition against Union on February 13, 2002. Union responded to that petition on April 8, 2002, and later filed an amended answer on January 21, 2003. The court bench trial overruled Union's motion for a directed verdict.

On July 11, 2003, the court issued an order stating that an electrical power outage was the triggering event, and the damaged compressors were considered "Covered Property" under the policy. The court believed that excluding only the first sentence would clearly deny coverage. However, it questioned the second sentence and interpreted it to mean that coverage applies if the power failure caused a risk of direct physical damage to covered property.

The court found the second sentence was ambiguous and interpreted it as confirming coverage. It concluded that coverage existed and issued a judgment against Union, including attorney fees and costs. Union appealed, arguing that the trial court erred in ruling that TCP's loss was covered, as well as in entering judgment against them and awarding attorney fees and costs.

TCP's cross-appeal raised several technical issues, including the determination of an inadequate damages amount.

In examining the insurance policy provisions, the appellate court needed to establish from the clear language whether the insurance company covered the risk involved. It was important to understand the parties' intent when the policy was issued and to interpret unambiguous terms in their plain and ordinary meaning. Insurance policy language should be interpreted in a way that minimizes ambiguities whenever possible, and such language should not be deliberately manipulated to produce them.

An ambiguous policy or provision must be construed in favor of the insured. However, ambiguity should not be assumed in plain and unambiguous language just to interpret it against the insurance company. Regarding the contested sentences at issue, the trial court explained, "Reading both sentences together, there would be coverage unless it is excluded, but it would not be excluded if there was coverage." Union contended that this interpretation "completely nullifies the first clause, rendering the entire section meaningless."

The appellate court ruled that an insurance policy should be interpreted as a whole, giving effect to every part. It found that the provisions in the second sentence were included for a specific purpose, which was to create an exception for that particular risk of loss, to restore coverage that would otherwise be excluded.

The fact that the exception under power failure used the term "Covered Cause of Loss" rather than a more specific risk, such as fire or explosion, as found in other clauses, did not affect their decision. It meant the exception to the exclusion was not intended to be limited to a single cause of loss but instead to apply to any risk of direct physical loss or damage not otherwise limited or excluded.

In this case, the appellate court found that the power failure did not constitute a covered cause of loss and that the exception in the second sentence was inapplicable.

In summary, the appellate court found no ambiguity in the exclusionary language. It was determined that the clause was a general exclusion that eliminated coverage for certain listed causes of loss, some of which, including power failure, provided an exception to the exclusion to restore coverage. The exception was not applicable in this case, and the trial court's decision was reversed.

The trial court erred in finding the policy ambiguous and awarded judgment in favor of TCP. The decision was overturned and sent back with instructions to vacate the judgment as well as the award of attorney fees and costs against Union.

Mark Gies and Sue Gies, doing business as Twin City Packing, also known as Twin City Pack, Appellees and Cross-Appellants, v. City Of Gering, a municipal corporation, Appellee; Union Insurance Co., a division of Continental Western Group, a Nebraska authorized insurance company doing business in Nebraska, Appellant and Cross-Appellee, and Scott Kerbel, doing business as Arctic Air Refrigeration, Appellee. Nebraska Court of Appeals. No. A-03-1112. Filed March 22, 2005. Appeal from the District Court, Scotts Bluff County. Reversed and remanded with directions. 2005 CCH Personal and Commercial Liability Cases. Paragraph 48,023.