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MCWG client wins declaratory judgment in a $10 million lawsuit OVER coverage for Extortion Property Damage.
U.S. Specialty Ins. Co. v. Catalent, Inc., No. 16cv4414 (DLC)

The insured sought coverage for business interruption losses in excess of $10 million allegedly sustained during a five-month government-mandated shutdown of its manufacturing operations after the discovery of “out-of-place” softgel capsules in several product batches at the insured’s manufacturing facility.  The insured sought coverage for “Extortion Property Damage” under a Special Coverages Policy under the theory that the incidents must have been the result of malicious acts.  There was no evidence, however, that the insured received a “threat, communicated directly or indirectly . . .to cause physical damage or loss to PROPERTY,” or a written or oral demand for money (i.e. a ransom) related to the misplaced softgel capsules.  The insurer denied coverage on the ground that there had been no “extortion” and filed a Complaint in the SDNY seeking a declaratory judgment of “no coverage” under the Policy.  The insured answered the Complaint and then moved for judgment on the pleadings. The insurer cross-moved for judgment on the pleadings. In ruling for the insurer, the Court observed that the insured never identified any sum of monies or other consideration surrendered by or on behalf of the insured as an extortion payment (i.e. a ransom) and, thus, held there was no Extortion Property Damage or Loss under the terms of the Policy.  The Court also rejected the insured’s argument, among others, that the Policy’s “Other Expenses” provision was a separate and independent insuring agreement not predicated on the existence of an “Extortion Property Damage” or a “Loss.”

The full opinion is available at 2017 WL 728704 (S.D.N.Y. Feb. 24, 2017).

The insured unsuccessfully sought reconsideration of the judgment of dismissal.  See decision at 2017WL 2533504 (S.D.N.Y. June 9, 2017).

For inquiries about this case, please contact partners Jeffrey S. Weinstein or Emilie Bakal-Caplan or associate Sara Lilling.