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Home / Insurance / Goods lost to Chapter 11 Closing sales, resulting in "Sue and Labor" expenses, covered by maritime and inland policies, according to Second Circuit Court of Appeals

Goods lost to Chapter 11 Closing sales, resulting in "Sue and Labor" expenses, covered by maritime and inland policies, according to Second Circuit Court of Appeals



Last month, the United States District Court of Appeals for the Second District Southern District of New York awarded over $ 2 million to policyholder Fabrique Innovations, Inc. against its maritime cargo insurance company, the Federal Insurance Company. [19659002] The Federal issued an "all-risk" insurance for sea freight to Fabrique for "temporarily stored" fabric and plush goods at a warehouse owed to Hancock Fabrics. Fabrique's goods were lost when Hancock liquidated its holdings – including Fabricque's goods – as part of Hancock's bankruptcy proceedings. Following the loss, Fabrique filed a claim under its policy with the Federal Government. The Federal denied the claim and cited various exceptions, including an exception for "loss, damage or expense caused by or as a result of willful misconduct, fraud or deception", which the insurer claimed was triggered by Hancock's sale of the goods in violation of the parties. "third party logistics agreement.

The second circuit confirmed the lower court's decision to the policyholder and concluded that the loss of goods was covered by the policy due to an approval and stated that the Federal would" pay for direct physical loss or damage to goods during transport caused by or to as a result of a covered hazard while such goods are temporarily stored. . . pending transit. The policy defined "goods in transit" as "personal merchandise" belonging to Fabrique which was "sent by or sent to others for [Fabrique’s] account" in "intra-company transports." The court used the usual everyday meaning of "deliveries within the company" to include Fabrique's goods because they were sent and stored at Hancock's warehouse. The Court thus agreed that the simple language of the policy covered the goods lost in the final sale.

The Court also dismissed the Federal & # 39 ;s reliance on intentional exclusion of maladministration on the well – balanced principle that the insurer bears the burden of proving that its interpretation of the exclusion is the only reasonable construct. New York law requires that "intentional acts" be harmful and extends "far beyond" a simple breach of contract. Since Hancock's liquidation of its holdings was merely intentional failure to fulfill a logistical agreement rather than genuinely guilty, harmful conduct, as justified by the Court, the Court found that the exception for willful misconduct did not apply. , The Second Circuit also rejected the Federal argument that the price of Fabrique's "litigation and labor costs" to try his claims in bankruptcy court should be reduced pro rata for Fabrique's recovery of lost profits. The Court returned to the simple language of the policy, which included "litigation and work coverage" for "reasonable expenses" in the policyholder who fulfilled his obligation to take "all reasonable measures to avert or minimize loss or damage." Fabrique's litigation and labor costs fall within this definition because they were a direct result of its loss of goods and saved federal money on storage coverage obligations, so that the insurer and not the policyholder would bear the cost of these savings.

Fabrique decision highlights two important principles. The first is that an insurance company must not only show that the exemption applies in a particular case, but that its preferred interpretation of the exclusion is the only reasonable construct to deny coverage based on an exemption. In the case of Federal exclusion of "intentional conduct", the insurer bore a heavy burden of establishing genuinely guilty conduct in addition to intentional failure to perform a contract, even if such failure to do so is justified by financial self-interest.

Secondly, policyholders should not underestimate the value of gross margins that allow for the recovery of loss-making costs, such as the "mood and labor provision" in question Fabrique . Companies may be familiar with standard property insurance provisions regarding "loss obligations", which often include obligations to notify in a timely manner and take reasonable steps to minimize loss. However, the police can also reimburse the policyholder for all costs, including legal costs, in connection with these trial-reducing efforts, which can be a valuable asset that protects policyholders who are vigorously fighting to preserve their rights in the event of loss.


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