The opinion of the court was delivered by: Hurd, District Judge.
MEMORANDUM-DECISION and ORDER
Plaintiff Better Environment, Inc. ("plaintiff") commenced the
instant action on June 1, 1998, alleging that defendant Hartford
Insurance Company ("defendant") improperly denied coverage for
plaintiffs alleged theft loss and interruption of business
operations. Plaintiffs complaint sets forth causes of action
sounding in breach of contractual obligations, violation of
42 U.S.C. § 1981, tort, and punitive damages. Plaintiff moves for
partial summary judgment on its first cause of action for breach
of contractual obligations. Defendant opposes and cross-moves
for summary judgment dismissing plaintiffs action in its
entirety pursuant to Rule 56 of the Federal Rules of Civil
Procedure. Oral argument was heard on
December 17, 1999, in Utica, New York. Decision was reserved.
Plaintiff is a corporation whose purpose was the manufacture
of a product invented by its two principals, Charlene Marsh
("Marsh") and Viola Surgick ("Surgick"), and trademarked as
"FONECAP." The FONECAP is a material designed for placement over
the mouthpiece or earpiece of a telephone to prevent the
transmission of germs without affecting the sounds being
transmitted or received.*fn1
Plaintiffs production of FONECAPs was a new business venture,
and plaintiff entered into a lease agreement for premises
located at 3301 West Arthington, in Chicago, Illinois (the
"premises") for the period October 1, 1995, through September
30, 1996, for the purpose of manufacturing FONECAPs for sale. At
the same time, plaintiff arranged for property insurance
coverage from defendant, initially through its agent Amsure
Associates of Albany, New York, and later through Alexander &
Alexander, of Kansas City, Missouri. The policy upon which this
lawsuit is based was arranged through Alexander & Alexander and
became effective January 28, 1996, (the "policy"). According to
the complaint, a representative from Alexander & Alexander
visited the premises prior to issuing the policy.
The policy covers the "direct loss of or damage to covered
property at the premises described in the Declarations caused by
or resulting from a Covered Cause of Loss." Consistent with its
terms, the policy covers loss of goods due to theft (excluding
theft by employees). It also contains a provision stating:
We will pay for the actual loss of Business Income
you sustain due to the necessary suspension of your
"operations" during, the "period of restoration." The
suspensions must be caused by direct physical loss of
or damage to property, including personal property in
the open (or in a vehicle) within 100 feet, at
premises which are described in the Declarations and
for which a Business Income Limit of Insurance is
shown in the Declarations. The loss or damage must be
caused by or result from a Covered Cause of Loss.
The policy excludes coverage for:
Property that is missing, where the only evidence of
the loss or damage is a shortage disclosed on taking
inventory, or other instances where there is no
physical evidence to show what happened to the
A loss falling within the above exclusion would not constitute a
"Covered Cause of Loss" under the policy.
Plaintiff alleges in the complaint that on February 5, 1996,
upon arriving at the premises, Marsh and Surgick "immediately
noticed that several boxes of finished products were missing and
that the alarm was on." (Compl. ¶ 14.) Plaintiff also submits an
affidavit from Surgick stating that "[w]hen we entered [the
building] on the morning of February 5th, it was immediately
apparent that some of the bags [of FONECAPs] were missing."
Plaintiff alleges that following this visual observation, its
principals contacted the Chicago police and Alexander &
Alexander, reporting that they had been victims of a robbery.
According to plaintiff, an inventory calculation was then
performed in order to determine "the magnitude of what had been
stolen." (Compl. ¶ 15.) Based on a comparison with a previous
inventory count, plaintiff calculated that 88,000 FONECAPs were
missing.*fn2 In further support of its position, plaintiff
offers a copy of a
police report containing the language, "victim related to R/Os
that upon arrival to the work place, victim observed that some
of the merchandise that was produced was stolen."
Defendant, however, points to sworn testimony from plaintiffs
principals which indicates that no visual observation of missing
inventory preceded the inventory count. When defendant's agent
questioned Marsh under oath on June 14, 1996, in the presence of
an attorney, as to how the loss was discovered on February 5,
1996, Marsh responded that she had previously asked an employee
to do a count of the FONECAPs in stock on that day and he gave
her a number "much lower than what [Surgick] had told me we had
and when we had counted before ourselves." (Spetz Aff. Ex. G at
135.) Similarly, when Surgick was asked how she found out there
was a shortage on February 5, 1996, she replied, "When [Marsh]
told me the count was off." Id. at 247.
According to Marsh's testimony, the employee had been assigned
the task of counting the night before, February 4, 1996, in
order to prepare the FONECAPs for packaging and sterilization.
Id. at 141-142, 151. Further, it was only after Marsh and
Surgick determined the count was short, and calculated the
number of FONECAPs missing, that they called the police and
reported a theft. Id. at 158. When Marsh was asked what she
informed the police regarding how she discovered that the
FONECAPs were missing, she replied as follows:
Same thing I told you. I asked them to count and then
the count was short, and then I asked [Surgick], and
then [Surgick] went and checked it and, I guess,
deducted the amount from the count she had.
Id. at 165. Marsh also stated in her deposition that while the
alarm was on that day, it had been buzzing "since the last time
we had been there," and "was always going." (Plaintiff claims
that it had been having trouble with petty theft and vandalism
ever since setting up its operations). Id. at 137, 172. Marsh
was asked, "When you first walked into your space, did you
notice anything different about it?" Her answer was "No." Id.
at 141. In fact, Marsh expressly states that the only reason she
knew that bags of FONECAPs were missing was "from the
[inventory] count." Id. at 167. Plaintiff apparently does not
deny that it has no physical evidence to show what happened to
the allegedly missing stock.
Defendant sent a Senior Property General Adjuster, Gregory
DeBoer ("DeBoer"), to the premises shortly after the theft was
reported. According to the complaint, DeBoer asked plaintiffs
principals, Marsh and Surgick, who was in charge but when they
introduced themselves, DeBoer asked, "No, I mean who is really
in charge?" Id. ¶ 46. DeBoer was thereafter "openly disdainful
and refused to treat [Marsh and Surgick] with any respect."
Id. ¶ 47. Plaintiff alleges that in "words or substance,"
DeBoer suggested that the theft was staged based on the race or
gender of plaintiffs ...