Because ‘Location’ Is Ambiguous in Marine Cargo Policy, Travelers Must Pay Fire Loss

A New York-based apparel company is entitled to its claim for the full $600,000 limit on its marine cargo insurance policy because the policy was ambiguous as to whether a warehouse fire that destroyed its goods was at an approved location.

According to a recent opinion by the 2nd Circuit Court of Appeals, neither the insured, Ezrasons Inc., nor the insurer, Travelers Indemnity, was able to resolve the ambiguity over the location thus the policy must be interpreted in the insured’s favor.

The appeals court overruled the U.S. District Court for Southern New York, which had ruled for Travelers that the warehouse in North Carolina was “unambiguously not within the policy’s definition” of an approved location.

After the Ezrasons warehouse was consumed by fire in August 2019, Travelers paid $250,000, but declined to pay more. The insurer contended that coverage was limited to $250,000 because the warehouse building where the goods were destroyed was not an “approved location” under the policy. If the warehouse qualified as an approved location, the coverage limit would have been $600,000.

The fire destroyed more than $600,000 of goods and merchandise in one of three warehouses owned by Chamad Warehouse, Inc. The parties disputed the address of the sole warehouse that was destroyed by the fire. Neither party contended that the fire took place at 371 Branch Street, which was an address for Chamad listed in the policy. Travelers argued that Chamad owns and operates three warehouse buildings located at three different addresses: 56 Branch Street (formerly numbered as 371 Branch Street), 160 Branch Street, and 1386 Virginia Road, and that the fire took place at the 1386 Virginia Road warehouse.

Ezrasons asserted that the address for all three Chamad warehouses is 56 Branch Street (formerly numbered as 371 Branch Street), which represents a single 19.03-acre parcel of land on which all three warehouses sit.

Ezrasons cited public records showing that the three Chamad warehouses sit on a single parcel of land and contended that news agencies and county officials, as well as Chamad itself, refer to all three warehouses as Chamad Warehouse regardless of their street address.

But the lower court said Ezrasons’ argument failed because such extrinsic evidence “is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face.’

However, the appeals court said that was in error. In its view, the policy was ambiguous as to whether the warehouse where the fire occurred was an approved location and the district court erroneously excluded admissible evidence from Ezrasons.

It was undisputed that Chamad operates its warehousing business in three buildings on a 19.03-acre parcel of land and that the lot is surrounded by a continuous chain link fence. One side of the irregularly shaped parcel borders Branch Street, where one of its three warehouses is located. A second warehouse on the parcel, the one that burned, fronts on Virginia Road.

As some of its evidence, Ezrasons submitted a deed of trust that gave Chamad’s address as 56 Branch Street for the 19.03 acres of “together with all existing or subsequently erected or affixed buildings.”

Travelers cited a fire department report stating that the fire occurred at 1386 Virginia Road in its evidence, along with a county tax department map showing each building had its own address.

The appeals court rejected Travelers’ argument that the policy unambiguously names only the warehouse physically located at 56 Branch Street as an approved location and not the other two warehouses. “The word ‘location,’ without further explanation, does not communicate that it necessarily means a single building, as opposed to two or more buildings on the same parcel of land,” the court stated.

The court cited an affidavit of a managing director of Travelers implicitly acknowledging that it is not unusual that companies in the warehousing business are identified by a single address that includes multiple warehouse buildings.

But the appeals court also found that Ezrasons’ argument, while reasonable, failed to prove that all three warehouses are covered. “When one considers that there is a Chamad warehouse that is publicly identified as bearing the address 56 Branch Street, the designation could also be reasonably read to identify only that warehouse as an ‘approved location,'” the court commented.

The court said that while both parties offered admissible extrinsic evidence, neither side submitted evidence that effectively rebutted the other side’s evidence.

The court added that when insurance is sought classifying multiple buildings, each building must be separately identified to dispel ambiguity. “It would be an easy matter for Travelers to insert such a clarifying limitation into the documentation of a policy. But it did not do so. It drafted an ambiguous policy as to the scope of approved locations,” the court added.

When a contract of insurance is ambiguous and the evidence furnishes no basis for resolving the ambiguity, New York law provides that the court’s decision must favor the insured over the insurer as long as the insured’s interpretation is reasonable.

“Because the insured’s interpretation of an ambiguity in the policy is reasonable and unrebutted, judgment must be awarded to the insured,” the court concluded.