United States District Court,

S.D. New York.

OSNAT GAD, INC. a/k/a OGI, Ltd. a/k/a OGI Wedding Bands Limited, Plaintiff,

v.

THOSE LEAD UNDERWRITERS OF INTEREST AT NAVIGA SA and other subscribing

Underwriters with Interest to Confirmation of Insurance No. 6606, Defendants.

March 2, 2005.

Opinion and Order

 

STANTON, J.

Plaintiff Osnat Gad, Inc. seeks compensation from defendant insurance interests for jewelry stolen while in the custody of plaintiff’s employee. Defendants move under Fed R. Civ. P. 12(b)(6) to dismiss for failure to state a claim upon which relief can be granted, and under Fed R. Civ. P. 12(c) for judgment on the pleadings. Defendants also move for a default judgment on their counterclaim.

1. The February 28, 2003 Loss of the Jewelry

Plaintiff employed Steven Traver as a salesperson for its jewelry line. One of his responsibilities was to travel to jewelry stores in order to demonstrate plaintiff’s line of jewelry. According to Mr. Traver’s April 16, 2003 statement, at 10:30 A.M. on February 28, 2003, he visited a store in Houston called Tootsies. Following that appointment:

I then drove to Charde on Kirby Blvd. I believe I arrived about noon. I parked in front of the store in the parking area near the road facing out. I then went into the store leaving my line of jewelry in the rear cargo area of my Lexus S.U.V. I said Hi to everyone in the store and I was waiting for the owner Cliff Hybarger to finish with a customer. I was in the front of the store looking out. I was going to ask Cliff to come outside with me to bring in the jewelry line. I felt I was being followed but didn’t specifically see another car enter the parking lot with me. I did take several extra turns before going to Charde. I had been in the store 5-10 minutes when a blue van pulled in facing south and stoped [sic] between my car & Charde blocking my view. I then saw the handle of one of my bags being lifted on the other side of the van. I ran outside as the van & an old sedan sped out of the parking lot heading south. The owner immediately called the police. They arrived in 2-3 minutes.

(November 23, 2004 Affidavit of Patrick J. Corbett, Ex. D).

In a March 3, 2003 e-mail, Mr. Traver described the incident further:

I drove over to Charde and started getting the feeling that I was being followed. Every car I saw was full of Latin looking men who looked menacing. I think that maybe I was being paranoid but so many people had warned me about how dangerous Houston was that I was freaking out as I watched ten year old Oldsmobiles and other sedans in my rear view mirror. I’m not sure whether I saw the perpetrators or not but I thought that I was being followed along Kirby Street as I traveled south to Charde.

When I pulled up to the store I was getting our [sic] of the car and could see that Cliff Hybarger was clearly visible in the store along with two female associates. I was thinking about Jolene’s telling me about friends of hers who were yanked out of their car in Houston in a theft and I thought that I shouldn’t be sitting in the car. But I also didn’t want to open the back of the car and get the line out as I felt for sure that it would be yanked as soon as I opened the trunk and that I’d be shot or pistol whipped if that were to happen. My car was maybe 15 feet from the store and clearly in view. I fled to the store to isolate myself from the situation and figured I’d wait a minute and see what happened and then ask Cliff to walk me to the car to retrieve the line.

I kept my eyes on the car the entire time and felt that I was doing the smart thing. But before Cliff was finished with his customer I watched the Colombians pull up and smash my windows. This was within a couple of minutes of my stopping. Unfortunately there was nothing I could do at that point; I ran towards the car at that point, probably stupid for me to do so, but I did run for the car. Lucky for me that I didn’t get shot then but I did get a view of the van and the sedan pulling out of the parking lot and down Kirby Street.

It happened so quick that I’m sure that they were right behind me. I’m sorry that the line got stolen but I feel that if I hadn’t gotten away I would have been assaulted.

(January 10, 2005 Affirmation of Martin I. Nagel, Ex. A).

The police apprehended three suspects a short distance from the scene of the crime, but did not recover the jewelry. Sgt. Macha of the City of West University Place police recorded a discussion with Houston PD Sgt. Terry Scoggins about the theft in the police report:

Scoggins told me the suspects are part of Colombian organized crime and they steal to make money for terrorist organizations in Colombia. There are training camps set up in Colombia and also safe houses in every major city in America. Jewelry salesmen are the usual targets. Scoggins told me the Colombians travel with several cars and communicate with the cellular phones and walkie-talkies. They follow jewelry salesmen all over the place and pick just the right time to commit the theft or robbery. Scoggins said they are very well trained, organized and very dangerous.

(Corbett Affidavit, Ex. H, p. 3).

Following the theft, plaintiff submitted a claim for the value of the stolen goods to defendants, its insurance carriers. Defendants denied coverage, claiming the jewelry was not in the “close personal custody and control” of plaintiff’s employee while in transit, and that coverage was excluded when he was not actually in the vehicle with the jewelry at the time of the loss.

2. The Insurance Policy

The insurance policy at issue states in relevant part:

Against all risks of Physical Loss or Damage to the subject matter insured from any cause whatsoever subject to Conditions, Exclusions and Clauses stated hereafter.

 

Personal Conveyance Clause

This Policy only covers the Insured interest in transit when in the close personal custody and control of the assured and/or assured’s employee(s) and/or representative(s) at all times whilst in transit subject to hotel/motel clause, excluding all losses due to infidelity.

 

EXCLUSIONS

Notwithstanding anything contained elsewhere herein this policy does not cover loss and/or damage resulting directly or indirectly from any of the following:

 

7. Loss of or damage to property while in or upon any automobile, motorcycle, or any other vehicle unless, at the time the loss or damage occurs, there is actually in or upon such vehicle, the Assured, or a permanent employee of the Assured, or a person whose sole duty it is to attend the vehicle, except as may be endorsed hereon….

(November 23, 2004 Aff. of Patrick J. Corbett, Ex. C, pp. 3, 6, 13-14).

3. The Application of Exclusion 7

Mr. Traver, the employee responsible for the insured jewelry, left the jewelry in his vehicle and entered the store of a client, just before the thieves broke into his vehicle and removed the jewelry. Thus, he was not (in the words of the exclusion) “in or upon such vehicle” at the moment the thieves took the jewelry into their hands. However, plaintiff alleges that Mr. Traver left the vehicle because he suspected that a robbery was imminent, feared that he would be in physical danger if he remained in the vehicle, and “felt for sure” that he’d be shot or pistol-whipped if he opened the car’s trunk to take the samples with him.

A narrow construction of the clause “the time the loss or damage occurs” would hold that it occurred only at the moment the jewelry was physically seized by the thieves. Under that interpretation, the employee would forfeit coverage unless he stayed in the vehicle until the jewelry was stolen. Another interpretation would allow that “the time the loss or damage occurs” refers to the whole course of the robbery, including (as plaintiff urges) the time when the robbers were following the salesman while he and his jewelry were both in the car, and made him “reasonably fearful for his personal safety, if not for his life.” (January 6, 2005 Affidavit of Osnat Gad, para. 11). Plaintiff, based on over twenty years’ experience in the jewelry industry, argues the latter construction is the more reasonable. Id. at ¶ ¶ 7, 12 (“I never expected that coverage could be denied unless the salesmen were willing to protect the merchandise with their lives in the course of a robbery”).

4. Legal Principles

“To negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case.” Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 652, 593 N.Y.S.2d 966, 972, 609 N.E.2d 506, 512 (1993) (citation omitted). “If there is ambiguity in the terminology used, however, and determination of the intent of the parties depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence, then such determination is to be made by the jury.” Hartford Acc. & Indem. Co. v. Wesolowski, 33 N.Y.2d 169, 172, 350 N.Y.S.2d 895, 898, 305 N.E.2d 907, 909 (1973) (citation omitted). “An exclusionary clause, moreover, can be ambiguous in one context and not in another.” Stoney Run Co. v. Prudential-LMI Commercial Ins. Co., 47 F.3d 34, 37 (2d Cir.1995).

Plaintiff’s construction of the phrase “the time the loss or damage occurs” as comprehending the whole course of the robbery is not so unreasonable that one can rule as a matter of law that it is unmistakably inapplicable. Construing “the time the loss or damage occurs” to refer only to the moment of seizure, with its concomitant requirement that the salesman must not leave the car for his personal safety, may be a harsher interpretation than the parties, or industry practice, foresaw. These issues must be resolved by trial.

Conclusion

Defendants’ motion for judgment on the pleadings, or to dismiss the complaint for failure to state a claim upon which relief can be granted, is denied.

Defendants’ motion for a default judgment on its counterclaim is also denied. The claims in the counterclaim are mere reciprocals of those in the complaint, and accordingly must be tried on their merits.

United States Court of Appeals,

Sixth Circuit.

Terry ROSS, Plaintiff-Appellant,

v.

WALL STREET SYSTEMS and GULF INSURANCE COMPANY, Defendants-Appellees.

Argued: Feb. 2, 2005.

Decided and Filed: March 14, 2005.

OPINION

 

DAUGHTREY, Circuit Judge.

The plaintiff, Terry Ross, was seriously injured in a four-vehicle chain-reaction collision on October 24, 2000, when his pickup truck was rear-ended by a tractor-trailer rig driven by Richard Martin, in which the ostensible owner/operator, Willie Conway, was a passenger. Because the Conway rig carried a placard indicating that it was leased to Wall Street Systems, a long-distance hauling company, Ross sued both Wall Street Systems and its insurance carrier, Gulf Insurance Company, in Kentucky state court, claiming negligence.

The defendants removed the case to federal court on the basis of diversity jurisdiction and filed a motion for summary judgment. In support of the motion, they produced evidence that the lease executed between Willie Conway and Wall Street Systems on September 19, 2000, had been unilaterally terminated by Wall Street Systems on September 25, 2000, a month before the accident involving plaintiff Ross. The termination process complied with a provision in the lease that permitted unilateral termination on one day’s notice sent in writing to the address provided in the lease agreement. There is no dispute that the notice sent by Wall Street systems complied with the terms of the lease. The dispute is over whether it was effective.

The decision to terminate came as a result of Willie Conway’s inability to produce proof of supplemental (“bobtail”) insurance for the tractor. Wall Street Systems offered to secure it for him, with the understanding that the company would be reimbursed when Conway checked in to pick up his first load. In the process of securing the supplemental insurance, however, company officials learned for the first time that Willie Conway’s vehicle was actually titled to his mother, Evelyn Conway. A call to the regional dispatch office also turned up information that Conway had never reported in to accept a load. As a consequence, Wall Street Systems sent a certified letter to Evelyn Conway at the address specified in the lease, giving notice of termination. The letter requested the immediate return of Wall Street Systems’s placard and the other documentation provided under the lease. The Conways had not complied with that demand at the time of the accident a month later, and the tractor still bore Wall Street Systems’s placard when the collision took place.

Although the plaintiff’s theories of recovery were not clearly stated in the complaint, the defense theory was obvious: the lease, if one had ever come into existence, had been terminated a month prior to the accident, and there was no basis on which to hold either Wall Street Systems or Gulf Insurance liable for Ross’s injuries. Ross nevertheless maintained that liability could be predicated on the “current leasing practices” of national trucking companies such as Wall Street Systems, arguing generally that the public should be able to rely on the fact that Conway appeared to be operating under the auspices of Wall Street Systems.

The plaintiff contended specifically that Wall Street Systems was liable due to the presence of its placard on the Conway vehicle at the time of the accident. In the past, some courts followed a doctrine of “logo liability,” under which the presence of a carrier’s government-issued placard created an irrebuttable presumption that the lease continued in effect. See, e.g., Rodriguez v. Ager, 705 F.2d 1229, 1236 (10th Cir.1983). However, the underlying ICC regulations have changed, and this rule is no longer in effect. In Jackson v. O’Shields, 101 F.3d 1083, 1088 (5th Cir.1996), for example, the Fifth Circuit held that “the presence of [carrier’s] placard on the [leased vehicle] and the lack of a termination receipt did not alone keep the otherwise-terminated agreement alive.” As was the case in Jackson, Wall Street System’s agreement with Willie Conway stipulated that Conway, as the independent contractor, bore the burden of removing the placards and returning them to Wall Street. Ross argued that Jackson should be interpreted as relieving the carrier of logo liability only if the carrier made “conscientious” efforts and “took reasonable steps” to reclaim the placards and insurance card. Jackson, 101 F.3d at 1088. InGraham v. Malone Freight Lines, Inc., 314 F.3d 7, 14-15 (1st Cir.1999), however, the First Circuit held that when the lease places the burden of retrieval on the independent contractor, a letter from the carrier terminating the lease and requesting return of the placards is enough to extinguish the carrier’s vicarious liability. We likewise hold that, where the lease provides that the contractor is responsible for the return of the placards, a letter demanding the return constitutes “reasonable steps.” “The absence of a valid lease precludes imposition of vicarious liability against” Wall Street Systems, and the presence of its placards on the Conway tractor at the time of the accident “does not constitute grounds for imposing vicarious liability”. Graham, 314 F.3d at 15.

In addition to claiming that the lease was still valid, Ross alleged that Wall Street Systems should be liable under what resembles a theory of negligent entrustment. He argued that because Conway “could not have been on the road” without the Wall Street placard and insurance card, Wall Street Systems should be liable. There is no evidence indicating that Wall Street Systems was negligent, but even if their original entrustment to Conway was negligent, any potential liability ended when the lease contract was terminated. See Graham, 314 F.3d at 14 (holding the cancellation of a lease relieves carrier of any liability under a negligent entrustment theory).

In the wake of the summary judgment grant against him, Ross brought a motion for reconsideration based on the theory that Conway’s coverage by Wall Street Systems’s insurance had a 35-day grace period. The federal government mandates that authorized carriers such as Wall Street Systems must assume full financial responsibility for any leased vehicles. 49 C.F.R. § 387.1. In order to assure that leased vehicles are covered by an authorized carrier’s insurance, the government requires carriers to add the form MCS-90 endorsement to their insurance policies. 49 C.F.R. § 387.15. The MCS-90 endorsement specifies that insurance coverage “will remain in effect continuously until terminated.” 49 C.F.R. § 387.15. The MCS-90 endorsement further requires a 35-day grace period after the termination of the insurance policy. At issue here is whether the 35-day grace period in insurance coverage applies to termination of a lease between the authorized carrier and the independent contractor, or only to cancellation of an insurance policy between the insurance company and the authorized carrier. The district court found that the 35-day grace period did not apply to the situation at hand because the grace period takes effect only when the insurance policy itself, not merely the lease, is terminated. We agree.

The MCS-90 endorsement is part of the insurance policy between the insurance company (GulfInsurance) and the carrier (Wall Street Systems). Although the endorsement extends coverage to the leased truck, the endorsement is not a part of any contract with the operator of the truck. The text of the MCS-90 clearly applies the 35-day grace period to the “cancellation of this endorsement,” i.e., the cancellation of the insurance policy itself. This interpretation is fully consistent with the provision in 49 C.F.R. § 387.7 that explicitly applies the grace period to terminations of “policies of insurance,” not to the termination merely of coverage.

Section 387.7 further provides that “cancellation may be effected by the insurer or the insured motor carrier.” There is no dispute that “insurer” refers to the insuring company, here Gulf Insurance, but Ross argues that the term “insured motor carrier” includes the leased vehicle. “Motor carrier” is defined as including, but “not limited to, a motor carrier’s agent, officer, or representative.” 49 C.F.R. § 387.5. If, arguendo, the operator of a leased vehicle is an “insured motor carrier,” then the operator would be able to terminate its policy with the insurance company. Here however, there was no policy between the insurance company and the Conways. The only contractual relationship involving insurance was between Gulf Insurance and Wall Street Systems. There was no contractual relationship between Gulf Insurance and Conway; therefore no policy was terminated, and there was no 35-day grace period applicable to the Conways’ rig.