388 F. Supp. 3d 304
S.D. Ill.2019Background
- Starr issued a continuous marine cargo Policy to Brightstar (effective Mar. 26, 2011) with warehouse coverage endorsements (No. 2, 17, 40). Unscheduled/unnamed locations carried a $3,000,000 limit; scheduled locations could have $25,000,000 subject to procedures.
- Endorsement No. 17 (effective Mar. 26, 2012) required an "affirmative representation" that listed "minimum standards" were met for automatic $25M coverage; locations were normally added via endorsements after Gallagher (broker) provided COPE/underwriting data to Starr.
- Endorsement No. 40 (effective Mar. 26, 2013) replaced the embedded schedule with coverage "as per schedule on file with underwriters" and a $25M limit for newly reported locations ("maximum 90 days to report") if they met listed minimum standards; it also provided Starr would order a loss-control survey upon notification.
- Brightstar opened operations at a German warehouse (run by 3PL getgoods) in early March 2013. Brightstar performed an internal security assessment and Gallagher received COPE-type data, but Gallagher did not timely forward required underwriting information to Starr before the loss.
- Late Oct.–Nov. 2013 Brightstar discovered large misappropriation of inventory at the German warehouse; Brightstar notified Gallagher and Starr. Starr investigated under reservation of rights and sued for declaratory relief; Brightstar counterclaimed. Both parties moved for partial summary judgment.
Issues
| Issue | Plaintiff's (Starr) Argument | Defendant's (Brightstar) Argument | Held |
|---|---|---|---|
| Choice of law | Apply New York law; no material conflict with Florida law | Florida law (on extrinsic evidence) could differ; but no conflict shown | No conflict; New York law applied |
| Limit of liability for German warehouse (automatic or scheduled $25M v. unnamed $3M) | German warehouse was not on the incorporated "schedule on file" and did not satisfy minimum standards or required affirmative representations; thus it was an unnamed location with $3M limit | O'Brien's notice and internal survey, broker communications, industry practice or "held coverage" could support $25M coverage or that Starr waived/estopped the insurer from denying $25M | German warehouse was an unnamed/unscheduled location; $3M limit applies (no automatic $25M under Endorsements 17 or 40) |
| Errors & Omissions clause (can it create/extend coverage post-loss?) | Clause cannot be used to add or extend coverage that was not previously agreed | Clause should prevent forfeiture for inadvertent omissions and thus preserve coverage | Clause cannot be construed to add or extend coverage to property not previously insured |
| Misappropriation exclusion (does exclusion bar recovery?) | Exclusion bars loss if warehouse was "owned, leased or controlled by the Assured" or an "other party of interest" | Brightstar: "controlled by" means physical dominion over the facility; Brightstar did not control the warehouse; exclusion inapplicable | Exclusion inapplicable as a matter of law; Brightstar did not "control" the warehouse within the clause's meaning; exclusion does not bar recovery |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Anderson v. Liberty Lobby, 477 U.S. 242 (genuine issue for trial standard)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (choice-of-law for federal diversity courts)
- Morgan Stanley Grp. Inc. v. New England Ins. Co., 225 F.3d 270 (2d Cir.) (insured bears burden to show coverage; extrinsic evidence and ambiguity principles)
- Universal Am. Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 25 N.Y.3d 675 (N.Y.) (New York rules on contract/insurance interpretation)
- Lightfoot v. Union Carbide Corp., 110 F.3d 898 (2d Cir.) (defining insurance contract ambiguity inquiry)