Unambiguous Terms of Insured’s Policy Exclude Coverage for Insured’s Loss

In City Brewing Company LLC. v. Liberty Mutual Fire Ins. Co., there was a declaratory judgment action involving commercial property insurance coverage for damages suffered when the aluminum pull tab openings of cans of an energy drink failed and some of the cans burst open. City Brewing Company submitted a claim to Liberty Mutual Fire Insurance Company (“Liberty Mutual”). Liberty Mutual denied the claim on the grounds that the loss was excluded from coverage under the policy pursuant to policy exclusions for deterioration, corrosion, and inadequate workmanship. The trial court found that unambiguous terms of City Brewing Company’s (“City Brewing”) policy excluded coverage for plaintiff’s loss, regardless of whether it was caused by hydrogen induced cracking, stress corrosion cracking, or City Brewing’s operations and procedures.

The court reviewed the wording of the policy. In particular, the court turned to the interpretation of the term “deterioration.” The term was not defined in the policy; therefore, the court interpreted it by giving the term its plain, ordinary, and popular meaning. Furthermore, the parties generally agree that the term “deterioration” should be given its ordinary meaning, which is the gradual worsening of an object. This meaning of “deterioration” as a gradual worsening is consistent with the policy’s definition of an “accident,” which refers to a sudden, fortuitous event, but does not include depletion, deterioration, rust corrosion, erosion, settling or wear and tear, or any other gradually developing condition.

City Brewing strains to find an ambiguity in the deterioration exclusion where none exists. The court states that even if the word “gradual” has two meanings, the broad policy term of deterioration unambiguously refers to all deterioration, however brought about. The existence of multiple shades of meaning for the word “gradual” does not result in more than one reasonable interpretation of the deterioration exclusion. City Brewing tries to fault the insurer for failing to specify in the policy a time or speed component for the type of deterioration excluded from coverage. However, the court finds this argument unsound and irrelevant. City Brewing cannot credibly argue that any ambiguity was created by the speed/temporal and non-speed/temporal meanings of “gradual” because the speed of deterioration or the time lapse over which the deterioration occurred was not relevant to the application of the deterioration exclusion to City Brewing’s loss.

City Brewing also argues that stress corrosion cracking is not excluded corrosion under the policy because stress corrosion cracking is commonly called a type of cracking rather then corrosion. A loss caused by stress corrosion cracking is a loss attributable to corrosion under the policy. There is no dispute among the experts of both parties that corrosion is a necessary component of stress corrosion cracking. Based on the plain meaning of corrosion, persuasive case law, and expert testimony, the court concluded that stress corrosion cracking is a form of corrosion and falls under the policy’s exclusion for corrosion as a matter of law.

The court held the unambiguous terms of the insured’s policy excluded coverage for the insured’s loss as a matter of law, regardless of whether hydrogen induced cracking or stress corrosion cracking caused the loss.

City Brewing Company LLC. v. Liberty Mutual Fire Ins. Co., 2013 IL App (1st) 111996-U.