| Q&A of the Week |
Flood Definition Clarified
A Texas subscriber recently asked the following question:
A commercial endorsement defines "flood" as follows:
A general and temporary condition of partial or complete inundation of two or more acres of normally dry land or of two or more properties (at least one of which is your property) from
b. Unusual or rapid accumulation or runoff of surface waters from any source
Insured had building water intrusion from surface runoff of less than two acres of water inundation of normally dry land, but another property not adjacent or contiguous—not directly connecting or neighboring but several properties away from insured—also sustained dwelling loss by runoff of water from the same storm. To qualify as flood, do the two properties that sustain damage need to be connected properties or directly next to each other?
ANSWER: Unfortunately, the definition does not make it clear whether the properties must be connected. Our inclination is that they do not need to be adjacent because the definition does not say so. However, that leaves a lot up to interpretation, such as how far away can two properties be to qualify?
We contacted the Federal Emergency Management Agency for clarification, and they said, "The two or more properties and/or acres referenced in the definition of a 'flood' must be neighboring (contiguous) properties. The properties/acres may not be separated."
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| Litigation Watch |
Carrier for Hire Exception Applicability
The insured sued its insurer after the insurer denied coverage for a claim for stolen product. This case is Warehouse Wines & Spirits v. Travelers Property Casualty Company of America, 2015 WL 1454883.
The insured operates a wine and spirits retail store and utilizes public warehouses to store excess inventory. The insured entered into a business relationship with Ceseretti to warehouse merchandise at a facility in New York. Ceseretti owned two companies: Bestway Logistics Transportation and Bestway Warehouse & Transportation.
Over time, Warehouse Wines discovered a loss from the warehouse of about 4,000 cases of liquor estimated to be worth about $1,200,000. Ceseretti was arrested and charged with theft. He pled guilty to grand larceny. Warehouse Wines filed a claim with its property insurer, Travelers, for the loss. Travelers denied coverage based on policy's dishonest acts exclusion. The insured filed this lawsuit seeking a motion for summary judgment against the insurer.
The United States District Court for the Southern District of New York noted that the property policy has a dishonest acts exclusion that precludes coverage for loss caused by dishonest acts by the named insured or anyone entrusted with the property. The court also noted an exception to the exclusion for loss to property in the custody of a carrier for hire. The policy did not defined a carrier for hire, so the court looked to a law dictionary that defined the term as an individual or organization that contracts to transport passengers or goods for a fee.
There was no dispute as to the existence of an insurance policy issued by Travelers to Warehouse Wines wherein the insurer agreed to pay for loss to covered property. Moreover, there was no dispute that Ceseretti stole the property that he was entrusted with in his warehouse. The dispute centered on whether the carrier for hire exception to the dishonest acts exclusion applied to the loss. The court ruled that it did not apply.
The court said that Ceseretti separated the warehouse and the delivery functions of his business into two different companies sharing the same Bestway names. Also, he billed Warehouse Wines separately for warehousing fees and delivery services. Even though the insured relied upon the use of similar names for its claim that the carrier for hire exception applied, the court found that the warehouse operation of Ceseretti was not a carrier and that Ceseretti stole the goods while they were in storage at his warehouse, not while they were in any stage of transportation.
It was undisputed, said the court, that Warehouse Wines entrusted its goods to Ceseretti and the exclusion in the Travelers' policy clearly and unambiguously denied coverage for a loss to property entrusted to others. Moreover, the insured did not demonstrate that the carrier for hire exception applied. Warehouse tried to connect the trucking operations of Ceseretti to the warehouse operations by claiming that the operator of the warehouse was responsible for the custody of the property from the time of its storage until its delivery thereby making the warehouse a carrier for hire. The court said that simple logic compels the conclusion that the company that owned the trucks, Bestway Logistics Transportation, was responsible for transportation, and the company that did not own the trucks but did own the warehouse, Bestway Warehouse & Transportation, was responsible for storage. The court said that the argument put forth by Warehouse Wines was too far removed from the reality of the facts to be upheld.
The court ruled that the property must be in the custody of a carrier for hire at the time of the loss for the exception to apply and at the time of the theft, the goods were in storage at the warehouse, not in transit. The motion of the insured for summary judgment was denied and the motion of the insurer was granted.
Editor's Note: The U.S. District Court rules that the facts of the loss showed that the theft of the property occurred while they were stored in the warehouse. The argument by the insured that the carrier for hire exception to the dishonest acts exclusion applied because the person that owned the warehouse used the same name for his warehouse operations and his transportation operations was not logical to the court based on the facts of the loss.
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