Ammonia Release Causing Plant Shutdown Can Trigger Property Insurance Coverage According To New Jersey Federal Court

While a New Jersey company was constructing a new juice packaging plant in Georgia, a release of anhydrous ammonia occurred during the start-up of the plant’s refrigeration system.  The release severely burned a contractor’s employee and the plant owner made an insurance claim under a property insurance policy that covered “direct physical loss of or damage to” the property on the grounds the plant had to be shutdown and the ammonia release curtailed.  The insurer denied coverage, but the U.S. District Court for the District of New Jersey granted partial summary judgment to the plant owner that the release caused a “direct physical loss of or damage to” the property.  First, the court concluded that there was no genuine issue dispute that the ammonia release temporarily incapacitated the facility.  The court determined that given this fact, a “direct physical loss of or damage to” the property occurred regardless of whether the court applied New Jersey law (because the ammonia release rendered the facility unusable for a period of time) or under Georgia law (because the release physically changed the facility’s condition to an unsatisfactorily state needing repair).

The court indicated that the insured would still have to prove that the damage was caused by or resulted from a “Covered Cause or Loss” under the policy.