"Mechanical Breakdown" And "Corrosion" Interpreted By Court

Commercial Property	Ambiguity
Equipment Breakdown	Contamination

The insured, a manufacturer of a dairy product, used a press in a pasteurization process that involved heating and cooling of the product on one side of 250 metal plates. Heat or cold was provided by hot or cold water on the other side of the plates.

Bacteria were found to have entered and contaminated the product, resulting in customer claims. It was determined that the contamination occurred because of leaks due to pitting/corrosion in plates used in the cooling process. The insured's claim for its losses under boiler and machinery insurance covering the pasteurization equipment was denied by the insurer. An ensuing lawsuit resulted in a judgment in favor of the insured. The insurer appealed.

The policy covered loss or damage to property "solely caused by or resulting from....mechanical breakdown...." Loss caused by or resulting from water damage was specifically excluded. Corrosion was excluded, but it was provided that ensuing damage from an insured peril was covered.

The appeal court agreed with the trial court's finding that "mechanical breakdown" characterized not only the complete stopping of a machine's function but also failure to function correctly. Thus: "A reasonable party might....believe that the heat exchanger unit suffered a mechanical breakdown when, by reason of holes resulting from corrosion, it admitted contaminated water into the dairy product."

The court also concluded, as did the trial court, that the terms "water damage" and "corrosion" were subject to more than one interpretation in their application to the damage that occurred. The terms were not defined in the policy, and convincing arguments could be made for coverage, notably that a covered peril ensued from their occurrence.

The judgment of the trial court was affirmed in favor of the insured and against the insurer.

Ready Food Products, Inc., Appellee v. Great Northern Insurance Company ET AL., Appellants. Pennsylvania Superior Court. No. 00415, 1992. September 18, 1992. CCH 1992 Fire and Casualty Cases, Paragraph 3932.