Court Sustains Coverage Denial Based on Unexplained Loss Exclusion of Jewelers Block Policy

JEWELER'S BLOCK INSURANCE – UNEXPLAINED LOSS EXCLUSION
E. Chabot, Ltd. v Lead Underwriters of Great Lakes Reinsurance (U.K.) Plc.
(Sup. Ct., New York Co., decided 4/15/2009)

Plaintiff Manhattan jewelry company obtained a jewelers block insurance policy from the defendants, which, under its "Insuring Conditions" section, contained the following exclusions:

(i): Loss or damage to property while in or upon any automobile, motorcycle, or any other vehicle unless, at the time the loss or damage occurs, there is actually in or upon such vehicle, the Assured, or a permanent employee of the Assured, or a person whose sole duty is to attend the vehicle, except as may be endorsed hereon[.]

(m): Unexplained loss, mysterious disappearance or loss or shortage disclosed on taking inventory[.]

While visiting plaintiff's customers in Brooklyn, Baroukh Shabot, the father of the plaintiff's principal shareholder, placed jewelry valued at over $150,000 into the locked trunk of his car. While waiting in the car as another employee of plaintiff went to collect money from a customer, Shabot was approached by a man who said that Shabot's car was leaking. The man offered to show Shabot the source of the leak, and Shabot got out of the car, taking the car keys with him. He then opened the hood, and the man indicated several holes in the radiator. Shabot stated that he immediately closed the hood and reentered the vehicle. He further testified that when he got back in the car, the trunk was closed and he did not see a “trunk ajar light” or
my other warning light on. He also stated that the trunk could be released from inside the vehicle, but the release makes a noise, and that while he was outside he did not hear the trunk release, that the area was quiet, and that he did not see anyone approach the car. When the other employee returned, he and Shabot drove back to Shabot’s home, at which time they opened the trunk and discovered that the jewelry was missing.

After Shabot and the other employee discovered that the jewelry was missing, they did not immediately call the police, the plaintiff, or the insurance broker. At his deposition, when asked what happened to the property, Shabot said; “I don’t know. I wish I knew.” The other employee also testified that he did not know what happened to the property or where or when it was lost.

Plaintiff made a claim to defendants for $90,000, the policy's $100,000 limit less its $10,000 deductible. Defendants denied coverage based on the policy's automobile and unexplained loss exclusions, and plaintiff commenced this action. Following discovery, defendants moved for summary judgment based primarily on the policy's unexplained loss exclusion.

In support of their motion, defendants relied heavily on Maurice Goldman & Sons, Inc. v Hanover Insurance Company, 179 AD2d 388 (lst Dept), affd 80 NY2d 986 (1992), which involved an exclusionary clause identical to that set forth in Condition 5(m). In that case, the Appellate Division wrote:

Plaintiff insured, a jewelry company, brought this action to recover on contracts of primary and excess 'jewelers block' insurance entered into with defendants. During a business trip, plaintiffs president realized that a bag containing jewelry was missing but he could not say where or how the loss occurred. We agree with the IAS court that the claim is outside the ambit of coverage on the basis of the policies' exclusionary clause for "unexplained loss, mysterious disappearance or loss or shortage disclosed on taking inventory." ... Clearly, these words ("unexplained loss") are meant to apply to losses, such as this, for which the insured can furnish no explanation whatsoever and, set off as they are from the rest of the sentence, are not limited by the phrase mysterious disappearance or loss or shortage disclosed on taking inventory.

In affirming the First Department's decision, the Court of Appeals held:

Where the provisions of an insurance contract are clear and unambiguous, the courts should not strain to superimpose an unnatural or unreasonable construction (see, e.g., Government Employees Ins. Co. v Kligler, 42 NY2d 863; Ambassador Assocs. v Corcoran, 79 NY2d 871, affg 168 AD2d 281). Contrary to plaintiff's argument, the clause in issue here is susceptible of only one interpretation. Each of the enumerated casualties, i.e., "unexplained loss," "mysterious disappearance," and "loss or shortage discovered on taking inventory," is plainly an independent basis for exclusion. There is nothing in the grammar or syntax of the exclusionary clause to suggest that the phrase "discovered on taking inventory" was intended to modify to each one.

In granting defendants' summary judgment motion in this case, New York County Supreme Court Justice Edward Lehner distinguished this matter from reported cases in which insureds had created triable questions of fact on the applicability of the unexplained loss exclusion, and concluded:

Further, courts have held that the mere fact that the insured property is no longer where the insured placed it does not warrant the inference that the property was lost, much less that it was stolen. General Credit Corp. v Travelers, 288 AD2d 66 (1st Dept 2001); WestCom Corp. v Greater New York Mutual Insurance Company, 41 AD3d 224 (1st Dept 2007).

In light of plaintiffs failure to offer any evidence to explain what happened to the jewelry, other than its employees' speculation unsupported by any specific facts that reasonably support the contention, its claim is clearly an "unexplained loss," and thus not covered by the Policy in light of the said exclusionary clause contained therein.