OH NUTS INC v. CINCINNATI INSURANCE COMPANY (2025)

The following papers efiled on NYSCEF were used on this motion:

By Defendant Cincinnati Ins. Co. in Support of Motion: Doc. Nos. 6-14

By Plaintiff in Opposition: Doc. No. 24

By Defendant Cincinnati Ins. Co. in Reply: Doc. No. 27-28

Upon the foregoing papers, having heard oral argument ¹ , and due deliberation having been had, the within motion by Defendant Cincinnati Ins. Co. is determined as follows.²

Question Presented

Has Plaintiff stated a cause of action for insurance coverage indemnification for loss resulting from damaged gift baskets and their contents packaged along with wine tubes which leaked out, taking into account a product damage exclusion?

Background

This action resulted from Defendant Cincinnati Ins. Co. (“Cincinnati Ins.”) disclaiming coverage for a claim made by Plaintiff Oh Nuts Inc. (“Oh Nuts”) wherein it sought indemnification for damage to gift baskets.

Oh Nuts is in the business of preparing and selling gift baskets (including boxes and trays as well as conventional baskets) that contain wines, fruits, nuts, chocolates, baked goods, snacks, and other products, in various assortments. On or about February 16, 2024, Oh Nuts purchased wine tubes from Defendant Rashbi Wines Corp. (“Rashbi”) to use as part of a new set of gift baskets that would include them along with other merchandise. Oh Nuts was not involved in any part of the development, production or use of the wine tubes themselves. The wine tubes were purchased by Oh Nuts as a finished product.

On or about March 14, 2024, after the wine tubes were incorporated into the new set of gift baskets, Oh Nuts discovered that the wine tubes were leaking, resulting in damage to the gift baskets and other items they were packed with.³ It is alleged that the leaking was the result of defects in the wine tubes, i.e., they were not sealed properly by Rashbi. Around the time of the loss, Oh Nuts and its business personal property were insured by Cincinnati Ins. under a policy. Oh Nuts submitted a claim for indemnification for the loss. Cincinnati Ins. reviewed the claim thoroughly but, in a letter dated April 11, 2025, it denied coverage.

The policy issued by Cincinnati Ins. to Oh Nuts provided coverage for loss to business personal property, which included stock. Stock was defined as “merchandise held in storage or for sale, raw materials and in-process or finished goods, including supplies used in their packing or shipping.” However, the policy included an exclusion from loss of the following:

Loss or Damage to Product

We will not pay for “loss” to Covered Property consisting of merchandise, goods or other product caused by or resulting from error or omission by any person or entity (including those having possession under an arrangement where work or a portion of the work is outsourced) in any stage of the development, production or use of the product, including planning, testing, processing, packaging, installation, maintenance or repair. This exclusion applies to any effect that compromises the form, substance or quality of the product. But if such error or omission results in a Covered Cause of Loss, we will pay for “loss” caused by that Covered Cause of Loss.

This exclusion was relied on by Cincinnati Ins. to disclaim coverage. After Oh Nuts commenced this action alleging breach of contract on the part of Cincinnati Ins., for refusing to indemnify Oh Nuts, Cincinnati Ins. moved for an order pursuant to CPLR 3211 (a) (1)⁴ and (7)⁵ seeking dismissal of Oh Nuts's complaint.⁶

Contentions

Cincinnati Ins. argues that the instant claim by Oh Nuts regarding the damaged gift baskets is encompassed by the above-quoted exclusion. Cincinnati Ins. explains its position concerning the verbiage in the exclusion as follows:

Parsing the language of the product damage exclusion shows it to be applicable here:

We will not pay for “loss” to Covered Property consisting of merchandise, goods or other product [i.e., Oh Nuts gift baskets] caused by or resulting from error or omission by any person or entity [i.e., Rashbi's error in providing leaking wine tubes] ․ in any stage of the development, production or use of the product, including planning, testing, processing, packaging, installation, maintenance or repair [i.e., packaging the leaking wine tubes in the gift baskets]. This exclusion applies to any effect that compromises the form, substance or quality of the product [i.e., the quality of the gift baskets was compromised as wine spilled on the other contents].

Put another way, the gift baskets were Oh Nuts' product and damage to them was caused by or resulted from Rashbi's error in sealing the wine tubes that were packaged in the gift baskets as part of their production; the leaking wine compromised the quality of the gift basket products [underlinings in original].

In opposition, Oh Nuts argues that the “Loss or Damage to Product” exclusion relied upon to bar coverage for Plaintiff's claimed damage is wholly ambiguous and does not apply to this claim. This includes the terms “product,” “development,” “production,” “planning,” “testing,” “processing,” “packaging,” “installation,” “maintenance,” and “repair.”

To the extent that the terminology is understandable, Oh Nuts applies the term “product” to the wine tubes, which were defective before it purchased them for inclusion in gift baskets. To the extent the product damage exclusion applies at all it would apply only to any claim to recover the cost of the defective wine tubes, and there would be coverage for the damage to the gift baskets and other contents caused by the leaking wine tubes.

Additionally, discovery should be conducted, argues Oh Nuts, to the extent that Oh Nuts's packaging is an issue of dispute and to aid in interpreting the subject exclusion.

Discussion

When a party moves pursuant to CPLR 3211 (a) (7) to dismiss an action, the standard is whether the pleading states a cause of action, not whether the proponent of the pleading has a cause of action (see Sokol v Leader, 74 AD3d 1180, 1180-1181 [2d Dept 2010]). In deciding the motion, the court must accept the facts as alleged by the plaintiff as true, accord plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory (see Leon v Martinez, 84 NY2d 83, 87-88 [1994]). Pleadings shall be liberally construed (see IKB Intl., S.A. v Wells Fargo Bank, N.A., 40 NY3d 277 [2023]); Moore Charitable Found. v PJT Partners, Inc., 40 NY3d 150 [2023]; Watkins v New York City Tr. Auth., 230 AD3d 538 [2d Dept 2024]); Wohlgemuth v Land Constr., LLC, 18 AD3d 650 [2d Dept 2005]).

While a defendant is permitted to submit evidentiary material in support of a motion to dismiss pursuant to CPLR 3211 (a) (7), “[i]f the court considers evidentiary material, the criterion then becomes ‘whether the proponent of the pleading has a cause of action, not whether he [or she] has stated one’ ” (Sokol v Leader, 74 AD3d at 1181-1182, quoting Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]). “Indeed, a motion to dismiss pursuant to CPLR 3211 (a) (7) must be denied ‘unless it has been shown that a material fact as claimed by the pleader to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it’ ” (Sokol v Leader, 74 AD3d at 1182, quoting Guggenheimer v Ginzburg, 43 NY2d at 275).

When moving for dismissal pursuant to CPLR 3211 (a) (1), the motion will only be granted “if the party submits documentary evidence that utterly refutes the factual allegations of the complaint and conclusively establishes a defense to the causes of action as a matter of law” (Meyer v New York-Presbyterian Hosp. Queens, 167 AD3d 996, 997 [2d Dept 2018]).

With respect to adjudicating a motion relying on CPLR 3211 (a) (1) and (7), it has been stated recently:

“In determining a dispute over insurance coverage, we first look to the language of the policy” (Conlon v Allstate Veh. & Prop. Ins. Co., 152 AD3d 488, 490 [2017]). “As with any contract, unambiguous provisions of an insurance contract must be given their plain and ordinary meaning, and the interpretation of such provisions is a question of law for the court” (Concordia Gen. Contr. Co., Inc. v Preferred Mut. Ins. Co., 146 AD3d 932, 934 [2017] [internal quotation marks omitted]). “The test for ambiguity is whether the provision is ‘susceptible of two reasonable interpretations’ ” (id., quoting State of New York v Home Indem. Co., 66 NY2d 669, 671 [1985]). “If the terms of a policy are ambiguous ․, any ambiguity must be construed in favor of the insured and against the insurer” (id. [internal quotation marks omitted]). (60 E. 196, LLC v Tokio Mar. Specialty Ins. Co., 242 AD3d 930, 931 [2d Dept 2025]; see Holtzman v Connecticut Gen. Life Ins. Co., 213 AD3d 918 [2d Dept 2023].)

“Insurance contracts are to be interpreted according to the reasonable expectations and purposes of ordinary businesspeople when making ordinary business contracts” (City of New York v Evanston Ins. Co., 39 AD3d 153, 156 [2d Dept 2007]).

Where the plain language of an exclusion applies, the insured's action should be dismissed (see Essex Ins. Co. v Mondone, 106 AD3d 1045 [2d Dept 2013]). However, the insurer bears a heavy burden to establish that the exclusion applies in a particular case and is subject to no other reasonable interpretation (see Frontier Insulation Contractors, Inc. v Merchants Mut. Ins. Co., 91 NY2d 169, 175 [1997] [“insurer bears the heavy burden of demonstrating that the allegations of the complaint cast the pleadings wholly within that exclusion, that the exclusion is subject to no other reasonable interpretation, and that there is no possible factual or legal basis upon which the insurer may eventually be held obligated to indemnify the insured under any policy provision”]; Jones v State Farm Fire & Cas. Co., 189 AD3d 1565, 1567 [2d Dept 2020]).

Objectively assessing the subject insurance policy exclusion, this Court discerns that there is only one interpretation of it, to wit, that the word “product” applies solely to the wine tubes. The word “product” in the exclusion is to be construed the same throughout the exclusion. “We may presume that the same words used in different parts of a writing have the same meaning (Matter of Albano v Kirby, 36 NY2d 526)” (Finest Invs. v Security Trust Co. of Rochester, 96 AD2d 227, 230 [4th Dept 1983], affd 61 NY2d 897 [1984]; see State v R.J. Reynolds Tobacco Co., 304 AD2d 379, 380 [1st Dept 2003]).

We discern that “product” refers to the wine tubes because at the outset it is discussed in terms of there being no payment for loss of the product where a person or entity caused the loss through error or omission. If the damage caused to the gift baskets was due to the error or omission by a person or entity with respect to the product, Cincinnati Ins. will not pay for the loss to the product. The only error or omission asserted by Oh Nuts to product is to the wine tubes. Therefore, there can be no indemnification for the loss of the wine tubes. The general provisions providing coverage then kick in — they apply to loss to stock; stock being the other items in the gift basket as well as the gift basket in which the items were placed.

Cincinnati Ins. misreads the word “product” in the course of parsing the text of the product damage exclusion. It is ascribing different definitions to “product”; in one instance, “product” is the gift baskets, but in another instance it is the wine tubes. This does not make sense from a linguistic perspective. The correct and obvious way to read the pertinent provisions of the exclusion is as follows, with the words “wine tubes” substituted for “product” and “other product”:

We will not pay for “loss” to Covered Property consisting of merchandise, goods or wine tubes caused by or resulting from error or omission by any person or entity (including those having possession under an arrangement where work or a portion of the work is outsourced) in any stage of the development, production or use of the wine tubes, including planning, testing, processing, packaging, installation, maintenance or repair. This exclusion applies to any effect that compromises the form, substance or quality of the wine tubes. But if such error or omission results in a Covered Cause of Loss, we will pay for “loss” caused by that Covered Cause of Loss.

The last sentence adds to our interpretation: “But if such error or omission results in a Covered Cause of Loss, we will pay for ‘loss' caused by that Covered Cause of Loss.” Indeed, there was an error or omission with respect to the wine tubes, at least as alleged in the complaint by Oh Nuts. Assuming that there was an error or omission with respect to the wine tubes, then Cincinnati Ins. “will pay for ‘loss' caused by that Covered Cause of Loss,” i.e., the stock that that was damaged by the wine tubes, which were the baskets themselves and the other items in them: fruits, nuts, chocolates, and other baked goods, snacks, etc. Of course, if the damage complained — ruined gift baskets — was not the result of leaking wine tubes, then the dispute over the product damage exclusion may take a different turn in this litigation. But as of now, the Court must determine Cincinnati Ins.'s motion with the presumption that that the alleged facts are accepted.

Even if this Court is wrong in its interpretation, for certain the product damage exclusion is not a modicum of clarity such that the complaint must be dismissed. Cincinnati Ins. has not met the heavy burden of establishing that its interpretation of the product damage exclusion is the correct one and that the exclusion is subject to no other reasonable interpretation (see Frontier Insulation Contractors, Inc. v Merchants Mut. Ins. Co., 91 NY2d at 175; Jones v State Farm Fire & Cas. Co., 189 AD3d at 1567). As noted above, if the terms of a policy are ambiguous, any ambiguity must be construed in favor of Oh Nuts, as the insured, and against Cincinnati Ins., as the insurer (see 60 E. 196, LLC v Tokio Mar. Specialty Ins. Co., 242 AD3d at 931; Holtzman v Connecticut Gen. Life Ins. Co., 213 AD3d 918).

Moreover, from the perspective of reasonable expectations and purposes of ordinary businesspeople, Cincinnati Ins.'s reading of the exclusion makes little sense. If negligence with respect to one product causes damage to other products but none of the products will be covered, then there is no purpose to having an insurance policy cover any merchandise. Logically, it makes sense to exclude only the product which was the subject of an error or omission (see City of New York v Evanston Ins. Co., 39 AD3d at 156).

With its documentary evidence — the insurance policy — Cincinnati Ins. has failed to “conclusively establish[ ] a defense to the cause[ ] of action as a matter of law” (Meyer v New York-Presbyterian Hosp. Queens, 167 AD3d at 997). Therefore, its motion fails under CPLR 3211 (a) (1). Based on this Court's analysis of the subject policy's product damage exclusion, Cincinnati Ins. has failed to establish that Oh Nuts's complaint did not state a cause of action.

The question posed at the outset, “Has Plaintiff stated a cause of action for insurance coverage indemnification for loss resulting from damaged gift baskets and their contents packaged along with wine tubes which leaked out, taking into account a product damage exclusion?” is answered in the affirmative.

Conclusion

It is hereby ORDERED that Defendant Cincinnati Insurance Company's motion to dismiss Plaintiff Oh Nuts Inc.'s complaint is DENIED.

FOOTNOTES

1.   Transcripts may be procured from the court reporter (see Matter of Lewandowski v Office of Ct. Admin., 173 Misc 2d 335 [Sup Ct, Albany County 1997]).

2.   Prior to oral argument the Court disclosed that it has patronized one of Oh Nuts's stores and offered the parties an opportunity to make a motion for recusal. Cincinnati Ins.'s attorney inquired of the Court whether the Court enjoyed what it purchased. The Court responded that while it enjoyed most of the components of the gift baskets there was one item it did not enjoy. Neither party made a motion for recusal. Even if a motion was made, the Court would deny it inasmuch as the Court can be fair (see Advisory Comm on Jud Ethics Op 88-60 [1988] [judge need not recuse in cases involving crimes committed at store where judge shops, unless special circumstances militate otherwise]).

3.   During oral argument, the Court noted that the complaint did not specify the particulars of the other inserts in the gift baskets. For example, in terms of nuts, the complaint did not identify whether the nuts were cashews, peanuts, almonds, pecans, or something else. While the composition of the inserts in the gift baskets might affect the amount of damages — some inserts costing more than others — this is a matter which can be inquired into during discovery.

4.   Dismissal based on documentary evidence, i.e., the insurance policy.

5.   Dismissal based on failure to state a cause of action.

6.   The complaint also includes causes of action against Rashbi which are not pertinent to this motion.

Aaron D. Maslow, J.