One of the most common types ofbreach of contract lawsuitsinvolves insurance companies declining coverage for one or more reasons. Insurance is a contract after all, and under New York law it is up to the court to determine the “intentions of the parties” regarding any disputed terms. As a general rule, when an insurance company drafts a contract, any ambiguity in its terms should be resolved in favor of the insured party.
A Recent New York Case
In 2008, a Manhattan wine store hired a Long Island-based warehouse to store some of its inventory. Shortly afterwards, the wine store also purchased an insurance policy. This policy was designed to cover “the risks of direct physical loss” at the Long Island warehouse and two other locations. The policy excluded coverage in cases of “dishonest acts” by the insured or “anyone entrusted with the property” by the insured. But there was also an exception to this exclusion for “property in the custody of a carrier for hire.”
Starting in early 2011, the warehouse failed to deliver several bottles of liquor owned by the wine store and recorded in its inventory. By the end of 2011, these ongoing shortages led the wine store owner to take physical inventory at the warehouse, where he discovered about 4,000 cases were missing. As it turned out, the warehouse owner had stolen the liquor. Earlier this year, he pleaded guilty to grand larceny in Suffolk County Supreme Court.
This left the wine store to file an insurance claim for the more than $1 million in stolen inventory. The insurer denied coverage, however, citing the dishonest acts exclusion. The wine store sued for breach of contract, arguing the carrier-for-hire exception to the dishonest acts exclusion applied here.
After initially granting summary judgment for the insurer, the judge assigned to the case reconsidered her position and subsequentlyentered a new judgment for the wine store. There was no question the wine store's loss was the result of a “dishonest act.” So the key issue was whether the warehouse constituted a “carrier for hire.”
The insurance company argued the warehouse was not a “carrier” because it was not actually transporting or delivering wine at the time of the theft. The warehouse was simply storing inventory. But as the judge noted, nothing in the insurance contract actually excludes “goods that the carrier for hire stores for a period of time.” The warehouse here also provided transportation services.
This led to another issue. The insurer argued the warehouse and trucking operations were actually separate businesses. In fact, the judge said, both businesses were alter egos of the same person—the thief who stole the liquor in the first place. He “contracted to transport goods for a fee,” making him a carrier-for-hire, notwithstanding his efforts to segregate the shipping and storage aspects of his operations.
Need Help With a Contract Dispute?The fact the judge changed her mind in this case illustrates the importance of working with a qualified New York civil litigation attorney. Even a simple breach of contract case can raise complex legal issues, and even the best judges make mistakes which can be corrected at the urging of experienced counsel. Contact the offices of Waldhauser & Nisar, LLP, if you would like to speak with an attorney today.