878 F.2d 27 (2nd Cir. 1989), 1332, McCormick & Co., Inc. v. Empire Ins. Group

Docket Nº:1332, Docket 88-7259.
Citation:878 F.2d 27
Party Name:McCORMICK & COMPANY, INC., Plaintiff-Appellee, v. EMPIRE INSURANCE GROUP, Allcity Insurance Company, Empire Mutual Insurance Company, Defendants-Appellants.
Case Date:June 06, 1989
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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878 F.2d 27 (2nd Cir. 1989)

McCORMICK & COMPANY, INC., Plaintiff-Appellee,

v.

EMPIRE INSURANCE GROUP, Allcity Insurance Company, Empire

Mutual Insurance Company, Defendants-Appellants.

No. 1332, Docket 88-7259.

United States Court of Appeals, Second Circuit

June 6, 1989

Argued July 19, 1988.

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John P. D'Ambrosio, Elmsford, N.Y. (John P. D'Ambrosio, P.C., Elmsford, N.Y.), for plaintiff-appellee.

Robert A. Lubitz, New York City, for defendants-appellants.

Before ALTIMARI and MAHONEY, Circuit Judges, and DEARIE, [*] District Judge.

MAHONEY, Circuit Judge:

Defendants-appellants Empire Insurance Group, Allcity Insurance Company and Empire Mutual Insurance Company (collectively "Empire") appeal from a summary judgment entered in the United States District Court for the Southern District of New York, Charles L. Brieant, Chief Judge, in favor of plaintiff-appellee McCormick & Company, Inc. ("McCormick"). 690 F.Supp. 1212 (S.D.N.Y.1988).

This diversity action, governed by New York law, was brought by McCormick seeking to enforce a judgment previously obtained against Jay Storage & Packing Corp. ("Jay Storage") for reimbursement for 290 bags of McCormick's pepper that was lost while stored in Jay Storage's warehouse. McCormick brings this action under New York Insurance Law Section 3420(a)(2) (McKinney 1985) against Empire, which had issued an insurance policy to Jay Storage insuring against liability incurred by Jay Storage as a warehouseman or bailee. Section 3420(a)(2) provides in substance for a direct action by a judgment creditor against the debtor's insurer.

Empire disclaimed any coverage, relying on a clause in the insurance policy that excluded from coverage "[u]nexplained loss" or "mysterious disappearance." The district court ruled that the exclusionary clause relied on by Empire was ambiguous, because it could be read to exclude only such loss or disappearance disclosed on taking inventory, and therefore must be construed against the insurer and in favor of the insured. We agree, and accordingly affirm the summary judgment entered in favor of McCormick.

Background

On May 16, 1984, Jay Storage received from Jantzen & Deeke, Inc. 430 bags of black pepper for storage in its warehouse in Brooklyn, New York. On August 21, 1984, Jantzen & Deeke sold the pepper to McCormick, a dealer in spices. When McCormick sent a truck to claim a portion of the pepper on February 15, 1985, Jay Storage could not locate 290 bags of the pepper. These missing bags of pepper have never been found, and no party to this action has offered any explanation for their loss. Empire submitted affidavits in support of its motion for summary judgment below that tended to rule out burglary as a valid explanation for the loss.

After discovering that the pepper was lost, McCormick made a claim against Jay Storage and Empire, but no payment was forthcoming. McCormick thereafter sued Jay Storage in the United States District Court for the Southern District of New York, and was granted summary judgment in the amount of $68,989.36, representing damages plus prejudgment interest. 1

Notice of the judgment was served upon Jay Storage and Empire. After thirty days passed with no part of the judgment being paid, McCormick commenced the instant action against Empire under N.Y.Ins. Law

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Sec. 3420(a)(2) (McKinney 1985). 2 Section 3420(a)(2) provides for a direct action by a judgment creditor against the debtor's insurer. Under the statute, the creditor's rights are no greater or less than those of the insured debtor, and recovery cannot exceed the policy limits. Id. Thus, the judgment creditor, here McCormick, is placed in the shoes of the insured, Jay Storage, in this action against Jay Storage's insurer, Empire.

Both parties agree that Empire provided Jay Storage with "warehousemen's legal liability insurance" which was in full force and effect during the period in which the loss took place. McCormick based its motion for summary judgment upon section 1(a)(1) of the policy, in which Empire agreed:

To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay by...

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