Court Refuses to Make Policy Better than that Purchased

Policy Wording Transferred the Risk of Loss to the Insured After Delivery

Marine insurance is very broad and usually applies to cargo from departure to delivery. After the merchandise is delivered the coverage stops since the risks of transit has ended.

In Beauty Plus Trading Company, Inc. v. National Union Fire Insurance Company Of Pittsburgh, PA, Docket NO. A-3380-16T3, Superior Court Of New Jersey Appellate Division (August 14, 2018) Beauty Plus Trading Company, Inc. appealed from the March 7, 2017 Law Division orders granting summary judgment to defendant National Union Fire Insurance Company of Pittsburgh, Pennsylvania, and denying its cross-motion for summary judgment.

FACTS

Plaintiff is a wholesale distributor of hair extensions and similar products with a warehouse and offices in Moonachie, New Jersey. Plaintiff’s warehouse is open Monday through Friday until 6:00 p.m.

On November 10, 2014, a shipping container with 487 cartons of “human hair weaves” left the port of Qingdao, China, for plaintiff’s warehouse in Moonachie. The container arrived at Port Elizabeth, New Jersey, on December 9, 2014. Harbor Express Trucking Company picked up the container from Elizabeth at approximately 11:37 a.m. on Friday, December 12, 2014, and delivered it to plaintiff’s warehouse at 5:00 p.m. that day with the original seal intact.

With only one hour left before closing, warehouse managers determined they did not have enough time to unload the container because it would take over an hour to unload, and their employees were “particularly reluctant to work overtime on Fridays.” Therefore, the workers cut the seal on the container, opened the doors, and backed the container into the warehouse unloading bay, where they left it until they returned to work on Monday. However, when the workers arrived at work at about 7:00 a.m. on Monday, the container was missing. Warehouse surveillance video revealed that on Saturday, December 13, 2014, at approximately 9:00 p.m., someone drove a white truck “up to the container, hooked a tractor to the chassis, and drove away” with it. Plaintiff reported the theft to the police, who later recovered the chassis and container with 397 cartons of goods missing.

Plaintiff filed a claim with defendant under their marine cargo policy. The policy insured plaintiff against perils “of the seas and inland waters, fires, assailing thieves, jettisons, barratry of the Master and Mariners, and all other like perils, losses and misfortunes . . . except as may be otherwise provided . . . or endorsed” in the policy.

Under the policy’s “Warehouse to Warehouse” clause, insurance coverage “attache[d] from the time the goods [left] the warehouse and/or store at the place named in the policy for the commencement of the transit” and continued until the goods were “delivered to final warehouse at the destination named in the policy or until the expiry of the fifteen . . . days (or thirty . . . days if the destination to which the goods [were] insured [was] outside the limits of the port) whichever [should] first occur.”

After delivery, the policy’s “Loading and Unloading” clause extended coverage not to exceed seventy-two hours after arrival of the delivering conveyance at final destination but not later than twenty-four hours after the receiver had knowledge of the arrival of the delivering conveyance.

Defendant hired Global Marine Surveys, Inc. to investigate plaintiff’s claim. Relying on Global Marine’s investigation and the policy’s provisions, defendant denied coverage for the theft under the “Warehouse to Warehouse,” “Loading and Unloading,” and “Storage Coverage” clauses.

According to defendant, because “the [Warehouse to Warehouse clause] provide[d] coverage for [plaintiff’s] goods while such goods were in transit and end[ed] when the goods [were] no longer in transit[,]” there was no coverage “because the subject shipment . . . had reached [its] final destination” at the time of the theft. Defendant explained further that coverage under the policy’s “Loading and Unloading clause had also terminated . . . at the time the loss occurred” because “the theft . . . occurred more than [twenty-four] hours after [plaintiff] had knowledge of the arrival of the container at its premises.” Additionally, according to defendant, because “the subject goods were not being temporarily stored in the warehouse at the time they were stolen[,]” but “were outside [plaintiff’s] warehouse” instead, the “Storage Coverage” endorsement did not apply.

TRIAL COURT DECISION

Plaintiff filed a complaint against defendant, alleging breach of contract and seeking a declaratory judgment that its marine cargo policy covered its claim for the stolen goods. In his written statement of reasons accompanying the orders, the trial judge determined that there was no coverage under the policy’s “Warehouse to Warehouse” clause because “[that] clause only applie[d] while the goods [were] in transit or awaiting transit. Here, the goods were delivered and [plaintiff] exercised dominion and control over them.”

Additionally, the judge determined that the “Loading and Unloading” clause did not provide coverage for the loss because the clause “unambiguously provide[d] coverage for up to [twenty-four hours] after the goods [were] received at their final destination. Here, [plaintiff] received the goods and chose not to secure them within the [twenty-four-hour] period.” The judge explained that there is nothing inequitable about having plaintiff assume the risk of loss from Saturday at 5 p.m. onward. Rather, it is clear that the policy was written so that the risk of loss would pass back to the insured after the twenty-four hours had elapsed.

ANALYSIS

The appellate court agreed substantially with the trial court because an insurance policy is a contract that will be enforced as written when its terms are clear in order that the expectations of the parties will be fulfilled. Courts should interpret an insurance policy in accordance with the plain and ordinary meaning of its terms. In the absence of an ambiguity, courts should not engage in a strained construction to support the imposition of liability. They should also avoid writing for the insured a better policy of insurance than the one purchased.

The plain language of the policy is unambiguous. Under the policy’s “Warehouse to Warehouse” clause, coverage attached when the goods left Qingdao, China, on November 10, 2014, and terminated when the goods arrived at their final destination, plaintiff’s warehouse in Moonachie, at approximately 5:00 p.m. on December 12, 2014. Under the policy’s “Loading and Unloading” clause, the policy extended coverage for seventy-two hours after delivery, “but not later than” twenty-four hours after plaintiff had notice of delivery. Thus, under the plain language of the policy, the goods were insured until 5:00 p.m. on Saturday, December 13, 2014. Because the theft occurred at approximately 9:00 p.m. that day, the policy did not cover plaintiff’s loss.

The policy did not require plaintiff to perform an act, such as unloading the goods, within the twenty-four hours of extended coverage. Nor did the contract require any other event to occur within the designated period. Plaintiff was free to leave the goods in the container as it chose to do. Plaintiff’s decision did not, however, prevent the policy from lapsing and transferring the risk of loss back to plaintiff at 5:00 p.m. on Saturday, December 13, 2014. To rule otherwise would grant plaintiff “a better policy of insurance than the one it purchased.

The policy language is unambiguous and the “Loading and Unloading” clause is an expansion, not a limitation, on coverage.

ZALMA OPINION

The refusal of the employees to work overtime on a Friday cost the plaintiff more than $200,000. The risk of loss of the goods ended at 5:00 p.m. on December 13, 2014 and the theft was established, by security video, to occur four hours later while the plaintiff held the risk of loss. A clear and unambiguous policy must be enforced and a court should never rewrite the policy to make it better – by four hours – than that which the plaintiff acquired.

 


© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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