In this lawsuit (Channel Fabrics, Inc. v. Hartford Fire Insurance Company. U.S. District Court, S.D. New York. No. 11 Civ. 3483. Aug. 13.), Channel Fabrics alleged Hartford had improperly denied its insurance claim.
On or about April 15, 2010, Channel shipped a number of bales of woven fabric from Shanghai to a buyer located in Guatemala aboard the vessel Maruba Angol, with an expected arrival in Puerto Quetzal 27 days later, on or about May 12, 2010.
The shipment did not arrive until June 8, 2010 and Channel said a portion of the fabric arrived damaged.
In 2009, Channel had purchased an “All Risk” Ocean Cargo Choice insurance policy from Hartford, effective from June 9, 2009 to June 9, 2010.
Sometime before June 8, 2010 Channel provided notice to Hartford of its claim for the shipment (which, at the time, had not yet arrived) pursuant to Clause 9, the non–delivery clause of the policy it had purchased.
Hartford acknowledged receipt of the claim in writing the following day.
On June 9, 2010, after the ship arrived, a representative of Channel sent an email to a representative of Hartford stating, “As we discussed we will not know the full cost of the damages for approximately 90 days as we work to mitigate the damages with our customers. Please confirm this is the correct protocol and procedure we should be following as we have never encountered a situation such as this before.”
A representative from Hartford responded, “You are doing the right thing by mitigating any loss or damage…. I have received some documents and will review within the next week or so and follow up with a status letter.”
In what Channel describes as an effort to mitigate the damages, it sold the fabric to the buyers for an amount less than the pre-arranged sale price.
Over the next few months, Hartford requested and received certain documents from Channel as it investigated the fabric company’s claim. In many of the emails between the parties, Hartford noted that it was reserving all of its rights under its policy and Channel informed Hartford it had learned some of the fabric in the shipment had been damaged.
On Sept. 16, 2010, in response to requests from Hartford for a detailed written claim, Channel submitted a chart showing a total loss from the discount provided to the buyer of $156,827.88 on the sale of 290,422 yards of fabric. The chart also listed an “Air Cost” of $22,076.25 and a “Fabric Cost” of $12,262.56 pertaining to 7,953 yards of fabric. The total loss claimed was $191,166.69.
The court said “presumably, the air and fabric costs were incurred in the course of purchasing and shipping fabric to replace the damaged cloth,” though it said the record was not completely clear on this fact.
Six days later, Hartford denied Channel’s claim, saying the discounts offered to the customers was considered a consequential loss and damage to the fabric was caused by the delay, which was also excluded.
Channel said it had met the prima facie requirement burden for summary judgment because the existence of an “all-risk” policy from Hartford was undisputed, and because it had experienced a fortuitous loss of property covered by the policy.
Channel said it effectively experienced a total loss of the shipment pursuant to a non-delivery clause in the insurance contract that said “if the property insured does not arrive at the intended destination within fifteen (15) days of the expected arrival date, the Assured may make claim on the basis that the property insured is deemed lost in transit.”
The court said “the right to ‘make claim’ under an insurance policy does not equate to a right to have that claim approved and paid in full.”
Instead, it said it allows a policyholder to assert a claim for a lost shipment, “rather than waiting until the ship itself is found at the bottom of the ocean (or for some other indefinite period of time). But, contrary to Plaintiff’s argument, the clause does not provide separate ‘coverage’ under which the insured may make a claim.”
The court said, however, its conclusion about the non-delivery clause did not mean Channel’s claim “must be denied in full. Indeed, it is not disputed that Channel Fabrics did experience losses in connection with the shipment at issue, although the record is not clear on the extent to which those losses constitute ‘physical loss or damage’ pursuant to the ‘all-risk’ coverage of the Policy.”
The court said it agreed with Hartford and the policy “unambiguously excludes losses caused by delay.”
But it added because the record was not clear on exactly how much of the loss was due to excluded causes, it would only grant Hartford’s motion for summary judgment in part and deny it in part.
The court said the record showed at least some portion of the fabric shipment was purportedly physically damaged, and it was not clear exactly how the claimed costs were allocated between physical damage and mere delay.
So the court denied Channel’s motion for summary judgment and Hartford’s cross-motion for summary was granted insofar as the court concluded the non–delivery clause does not provide that Harford would approve claims for a shipment that arrives more than 15 days late as if the ship were lost in transit. And Hartford was also granted insofar as the court concludes that any claimed losses that are due to delay, or are consequential losses, and excluded under the policy.
However, it said Hartford’s motion was denied insofar as the record is not clear on the amount of Channel’s losses that would fall under those exclusions.
Delay is not a loss
