completing a non-waiver form and taking a recorded statement are
standard procedures in an on-site investigation. (Spetz Aff. ¶
Sworn testimony by plaintiffs principals reveals that
plaintiff had outstanding loans of approximately $172,000 on the
date of the reported theft. Plaintiff had made no income from
sales of FONECAPs by that date nor had any orders been placed
(plaintiff had purportedly only sent samples out to one company
for marketing purposes). Plaintiff concedes that the FONECAPs
had no street or market value at the time they were stolen. In
addition, plaintiff had not paid rent in over four months, and
owed approximately $11,000.00 to its landlord.*fn4 Although
plaintiff concedes that no equipment was taken in the alleged
theft, plaintiff produced no additional FONECAPs after February
5, 1996, (plaintiff offers reasons including its decision to
return some of the sewing machines purchased because they did
not function properly, as well as the decision to vacate the
premises). After the theft, plaintiff had approximately
20-25,000 FONECAPs remaining in stock.
Plaintiff made a claim to defendant for the sum of $387,500,
considering the $500.00 theft deductible and $300,000 coverage
limit for business interruption loss. Plaintiff testified that
88,000 FONECAPs were missing and would have been sold at the
price of $1.00 per unit. Defendant denied plaintiffs claim of
loss due to theft based on the exclusion quoted above, stating
that the loss was disclosed upon the taking of inventory and
therefore was not covered by the policy. Defendant likewise
denied plaintiffs claim for loss of business income on grounds
it did not result from a peril covered by the policy, and
because plaintiff had no business income, thereby failing to
suffer a loss as defined by the policy. Spetz sent a letter to
plaintiff on August 12, 1996, denying its claim.
Plaintiff seeks $387,500 for breach of contract and $387,500
for violation of 42 U.S.C. § 1981. Plaintiff also seeks
$2,500,000 in damages in tort, stating that defendant's racist
and sexist denial of coverage was "reprehensible, utterly
intolerable and atrocious." (Compl. ¶¶ 59-60.) Finally, plaintiff
seeks $2,500,000 in punitive damages, ostensibly pleaded as a
separate cause of action.
This Court has original jurisdiction arising from plaintiffs
claim under 42 U.S.C. § 1981, as well as diversity jurisdiction.
Plaintiff and defendant dispute whether the applicable law
should be that of Illinois or New York on the breach of contract
action. Plaintiff concedes, however, that the relevant
substantive law of each jurisdiction is substantially the same,
with the exception of the issue as to whether attorney's fees
would be available in the event plaintiff can establish improper
claims practices by defendant. Because the Court does not reach
the issue of attorney's fees on this motion and cross-motion, it
will consider the laws of both New York and Illinois.
B. Summary Judgment Standard
Summary Judgment must be granted when the pleadings,
depositions, answers to interrogatories, admissions, and
affidavits show that there is no genuine issue as to any
material fact, and that the moving party is entitled to summary
judgment as a matter of law. Fed.R.Civ.P. 56; Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91
(1986); Richardson v. New York State Dep't of Correctional
Service, 180 F.3d 426, 436 (2d Cir. 1999). The moving party
carries the initial burden of demonstrating an absence of a
genuine issue of material fact. Fed.R.Civ.P. 56; Celotex Corp.
v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265
(1986); Thompson v. Gjivoje, 896 F.2d 716, 720 (2d Cir. 1990).
Facts, inferences therefrom, and ambiguities must be viewed in a
light most favorable to the nonmovant. Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348,
89 L.Ed.2d 538 (1986); Richardson, 180 F.3d at 436; Project
Release v. Prevost, 722 F.2d 960, 968 (2d Cir. 1983).
Once the moving party has met the initial burden of
demonstrating the absence of a genuine issue of material fact,
the nonmoving party must "must set forth specific facts showing
that there is a genuine issue for trial." Fed.R.Civ.P. 56;
Liberty Lobby, Inc., 477 U.S. at 250, 106 S.Ct. 2505; Celotex
Corp., 477 U.S. at 323, 106 S.Ct. 2548. At that point the
nonmoving party "must do more than simply show that there is
some metaphysical doubt as to the material facts." Matsushita
Elec. Indus. Co., 475 U.S. at 586, 106 S.Ct. 1348. To withstand
a summary judgment motion, sufficient evidence must exist upon
which a reasonable jury could return a verdict for the
nonmovant. Liberty Lobby, Inc., 477 U.S. at 248-49, 106 S.Ct.
2505; Matsushita Elec. Indus. Co., 475 U.S. at 587, 106 S.Ct.
C. Breach of Contract
Plaintiff argues that defendant breached an insurance contract
as a matter of law when it denied coverage for the alleged theft
of 88,000 FONECAPs based on an exclusionary provision in the
policy, and also denied coverage for loss claimed under the
"business interruption" provision. The parties do not dispute
that a valid contract existed between them, nor that such policy
contained an exclusion of coverage pertaining to:
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
While the insured has the burden of proving that a valid
policy was in existence on the relevant date and that a loss of
property occurred, the insurer has the burden of showing that a
claim falls within a policy exclusion. International Paper Co.
v. Continental Cas. Co., 35 N.Y.2d 322, 327, 361 N.Y.S.2d 873,
320 N.E.2d 619 (1974); Reedy Indus., Inc. v. Hartford Ins.
Co., 306 Ill. App.3d 989, 240 Ill.Dec. 41, 715 N.E.2d 728,
731-32 (1999). In addition, "[t]he ambiguities in an insurance
policy are  to be construed against the insurer, particularly
when found in an exclusionary clause." Ace Wire & Cable Co. v.
Aetna Casualty & Surety Co., 60 N.Y.2d 390, 398, 469 N.Y.S.2d 655,
457 N.E.2d 761 (1983) (citation omitted). Nevertheless,
"[w]here the provisions of an insurance contract are clear and
unambiguous, the courts should not strain to superimpose an
unnatural or unreasonable construction." Maurice Goldman &
Sons, Inc. v. Hanover Ins. Co., 80 N.Y.2d 986, 987,
592 N.Y.S.2d 645, 607 N.E.2d 792 (1992).