Mark and Sue Gies, doing business as Twin City Packing, also known as Twin City Pack (collectively TCP) was a meatpacking business in Gering, Nebraska. The business had two large coolers connected to the same 10-horsepower compressor, a blast freezer linked to a different 10-horsepower compressor and a holding freezer refrigerated by a 3-horsepower compressor. All compressors operated on electricity provided by the City of Gering. On January 23, 1999, an electrical power outage occurred in a section of Gering including the TCP location. A broken aluminum jumper cable connected to an air break switch located on top of two utility poles at a transformer substation several blocks away from the TCP location caused the outage. The compressors used three-phase electric motors for which the substation provided that type of power. The broken jumper cable knocked out one phase of that power, referred to as a single-phase occurrence. The compressors continued to run on only two phases of power until their motors eventually overheated and were damaged. The damaged compressors were temporarily replaced and TCP submitted a written notice of loss to the City of Gering for $18,500 for the loss of the compressors. The City denied the claim because the broken jumper cable was beyond their control. TCP then submitted the claim to its insurer, Union Insurance Co. (Union), who denied the claim on April 18, 2000 based on the policy exclusion for losses due to power failure occurring away from the TCP premises. The policy excluded 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." "But 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 answered that petition on April 8, 2002 and filed an amended answer on January 21, 2003. The court bench trial overruled Union's motion for a directed verdict. The court filed an order on July 11, 2003 stating that an electrical power outage was the precipitating incident and the damaged compressors constituted "Covered Property" under the policy. The court felt if the exclusion contained only the first sentence, there was clearly no coverage. It took issue with the second sentence and construed it to read that there was coverage if the power failure caused a risk of direct physical damage to covered property. It ruled the second sentence was ambiguous and should be read to provide coverage. It determined that coverage existed and entered judgment, including attorney fees and costs, against Union. Union appealed, arguing that the trial court erred in concluding that TCP's loss was covered, for entering judgment against them and for assessing attorney fees and costs. TCP's cross-appeal included a number of technical issues, including the award of an insufficient amount of damages.

In reviewing the insurance policy provisions, the appellate court had to determine from the clear language of it whether the insurance company actually insured against the risk involved. It had to determine the intent of the parties at the time of policy issuance and give clear terms their plain and ordinary meaning. Insurance policy language should be read to avoid ambiguities, if possible, and policy language should not be manipulated to create them. An ambiguous policy or provision must be construed in favor of the insured but ambiguity should not be read into policy language that is plain and unambiguous in order to construe it against the insurance company. Concerning the sentences at issue, the trial court stated "Reading both sentences together there would be coverage unless it is excluded, but it would not be excluded if there was coverage." Union argued that such an interpretation "completely nullifies the first clause, leaving the whole section utterly meaningless."

The appellate court ruled that an insurance policy, as a contract, must be construed as a whole and effect given to every part of it. It determined that the provisions of the second sentence were inserted for a purpose and the reasonable explanation was to provide an exception for that specific risk of loss to restore coverage where it would otherwise be eliminated by the exclusion. The fact that the exception under power failure used the terms "Covered Cause of Loss" instead of 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 just one 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 the power failure did not result in a covered cause of loss and the exception in the second sentence was not applicable.

In summary, the appellate court found no ambiguity in the exclusionary language. It determined that it was a general exclusionary clause that eliminated coverage based on certain listed causes of loss, some of which, including power failure, provide an exception to the exclusion to restore coverage. The exception was not applicable in this case and the decision of the trial court was reversed. The trial court erred in finding the policy ambiguous and in entering an award in favor of TCP. The trial court decision was reversed and remanded with directions to vacate the judgment and 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.