Brooks v. ZURICH-AMERICAN INSURANCE GROUP

• Decision Date: 24 December 2002
• Citation: 753 N.Y.S.2d 454,300 A.D.2d 176
• Parties: STEVI BROOKS et al., Appellants,<BR>v.<BR>ZURICH-AMERICAN INSURANCE GROUP, Respondent, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

300 A.D.2d 176

753 N.Y.S.2d 454

STEVI BROOKS et al., Appellants,

v.ZURICH-AMERICAN INSURANCE GROUP, Respondent, et al., Defendants.

Decided December 24, 2002.

Concur — Tom, J.P., Ellerin, Lerner, Rubin and Gonzalez, JJ.

Plaintiff Brooks is a garment designer and president of plaintiff Beverly Hills Design Studio (BHDS). BHDS used independent sewing contractors to manufacture the garments, which it then sold to retailers. Between 1987 and 1990, finished goods were shipped to the BHDS warehouse in Georgia, where BHDS quality control managers inspected, and if necessary rejected, finished garments. During this period, many garments were found to be substandard. In fact, on at least five separate occasions, from December 1988 through May 1990, BHDS inventory was found to contain thousands of completed garments that were grossly undersized, distorted and incorrectly cut and sewn. On the assumption that the problem was caused by the suppliers and that the defects in the garments were missed by the quality control managers, Brooks terminated a contract with a major supplier. In May 1990, BHDS commenced its own manufacturing operation in Georgia. However, garments manufactured at the BHDS factory were also substandard, leading Brooks to believe that sabotage, and not defects in workmanship, might be involved in a May 1990 loss. In fact, she had hired private investigators to examine the cause of the losses from 1987 to early 1990. The investigator's February 1990 report concluded that the defective products were actually the result of intentional conduct. A particular plant manager whom she came to suspect resigned in June 1990, and the apparent vandalism ceased.

During the 1987 through 1991 time periods, insurance coverage in the form of "All Risk" property and liability policies was provided by defendant Zurich. Three policies were then in effect, each reflecting annual renewals, and each requiring prompt notification to the carrier in the event of an insured loss. Brooks filed claims in June 1990, shortly after the plant manager quit and the apparent vandalism ceased. The claims covered losses beginning in December 1988. Brooks also filed an incident report, relating to losses between June 1, 1990 and June 19, 1990, with local police on June 20, 1990. The actual proofs of loss were not prepared until February 15, 1991.

In connection with renewal of the policy, defendant Zurich had inspected the BHDS facility on April 4, 1990, finding generally no reported general liability or workers' compensation claims, and noting that Brooks had advised the carrier that there had been no claims made against the product. Of course, at this time, the possibility of vandalism seemed unclear and Brooks had concluded that poor workmanship was not covered by the policies, and hence, no insurance claims had been made at that time.

Defendant declined the claims on October 11, 1991, 15 months after they had been filed. The letter of declination asserted that the...