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United States District Court, Southern District of New York

March 21, 2003


The opinion of the court was delivered by: Ronald L. Ellis, United States Magistrate Judge



On February 14, 2001, plaintiff Venator Group, Inc. ("Venator") filed this action against defendant and third-party plaintiff Voyager Express, Inc. ("Voyager"), for loss of a cargo of footwear transported by Voyager in interstate commerce. On April 26, 2001, Voyager filed a third-party complaint against Lexington Insurance Company ("Lexington") alleging breach of contract, bad faith, equitable indemnification and unfair competition/trade practices. In an opinion dated October 31, 2001, The Honorable Richard M. Berman granted Lexington's motion to dismiss the claims of bad faith and unfair competition/trade practices, applying Colorado law. By stipulation of the parties, the Court entered a judgment on January 25. 2002, against Voyager and in favor of Venator in the amount of $125,000, which Venator shall forebear from executing until the resolution of the third-party claims against Lexington.

Now before the Court is a motion for summary judgment filed by Voyager on June 7, 2002. In opposition, Lexington asserts that the Court should enter summary judgment sua sponte in its favor. For the reasons which follow, I recommend that Voyager's motion be DENIED and that summary judgment be entered in favor of Lexington.


A. The Undisputed Facts

On June 11, 1999, Venator hired Voyager to transport a shipment of footwear from Downey. California, to Junction City, Kansas. Rule 56.1 Statement of Third Party Plaintiff Voyager ("Pl. Stmt.") at ¶ 1-2; Third-Party Defendant Lexington's Counter-Statement of Undisputed Facts ("Def. Stmt.") at ¶ 1. The shipment of 732 cases of footwear was loaded at the Hudd Distribution Center in Downey, California. Pl. Stmt. at ¶ 3. Voyager's driver, Curtis Johnson ("Johnson"), was told that the pick-up was for Venator. Def. Stmt. at ¶ 3. According to the bill of lading, the shipper was Converse/Hudd Distribution Center, and the shipment was consigned to and destined for Foot Locker and Woolworth (Venator). See Declaration of Barry N. Gutterman ("Gutterman Decl."), attached to Voyager's Notice of Motion, at Exh. M; Pl. Stmt. at ¶ 17. Voyager billed Venator for the freight charges. Def. Stmt. at ¶ 5.

On June 11, 1999, between 5:30 p.m. and 6:30 p.m., Johnson parked the tractor-trailer with the shipment in Voyager's storage yard in Wheatridge, Colorado. Pl. Stmt. at ¶ 4. Voyager's storage yard was fenced and lighted, and after Johnson parked the vehicle, he closed and locked the gate. Id. at ¶¶ 26-28; Def. Stmt. at ¶ 8. He returned at approximately 8:00 a.m. on June 14, 1999. Pl. Stmt. at ¶ 4. That morning, it was discovered that the trailer portion of the tractor-trailer containing the shipment had been stolen from Voyager's storage yard. Def. Stmt. at ¶ 7.

At all relevant times, Voyager was insured by Lexington through policy number 8799421 ("the Policy"). Pl. Stmt. at ¶ 6-7. Following the disappearance of the trailer, Voyager put Lexington on notice of the theft. Id. at ¶ 8. On August 27, 1999, Lexington sent a Proof of Loss form, which Voyager signed on August 31, 1999. Id. at ¶ 9; Gutterman Decl. at Exh. H. On September 1, 1999, Lexington notified Voyager that it was rescinding the Proof of Loss. Gutterman Decl. at Exh. I; Pl. Stmt. at ¶ 10. Following Judge Berman's October 31, 2001 order granting Lexington's motion to dismiss, Voyager seeks summary judgment on its remaining claims for breach of contract, duty to indemnify and defend, and judgment for defense expenditures.

B. The Policy

The Policy provides that Lexington will pay for loss to covered property from any of the covered causes of loss. See Gutterman Decl. at Exh. G. Specifically it states, in part:

1. Covered Property, as used in this Coverage Form, means property of others under a tariff, bill of lading, contract of carriage or other shipping receipt while:
a. In your care, custody or control; and

b. In the due course of transit, including while:

(3) In or at a terminal or storage location, depot or garage;
See Id. The Policy also includes a Protective Warranties endorsement, which provides, in relevant part:

In consideration of the reduced premium for which this policy is issued, it is warranted by the Insured that they will comply [with] the [following] warrant[y] . . .
The company will not pay for loss or theft or attempted theft from a covered vehicle left unattended more than one hour unless parked in a fenced, lighted and guarded lot.
See Id. The Transportation/Motor Truck Cargo Supplemental Declarations to the Policy indicate as follows:

[a] limit per vehicle of $1,000,000 is applicable to loads hauled for Footlocker and Woolworth's [, i.e. Venator]. Further, the Protective Warranties form, PWX, is applicable to these loads.
See Id.; Affidavit of Truman G. Hix ("Flix Aff.") at Exh. 5. Finally, Endorsement #001 of the Policy provides that:

In consideration of the premium charged . . . It is agreed and understood that the Protective Warranties endorsement, form PWX, is applicable only to loads for Footlocker and Woolworth (Venatore) [sic].
See Gutterman Decl. at Exh G.


A. Standard for Summary Judgment

Summary judgment should not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED.R.CIV.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the party moving for summary judgment has met its initial burden of showing the absence of a genuine issue of material fact, the burden shifts to the nonmoving party to bring forth specific facts to show that there is a factual question that must be resolved at trial. See FED.R.CIV.P. 56(e); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). Additionally, the court is required to construe the evidence in the light most favorable to the nonmoving party, and draw all reasonable inferences in its favor. Id. at 252; see also Pauling v. Sec. of the Dept. of the Interior, 160 F.3d 133, 136 (2d Cir. 1998).

In considering the motion, the court's responsibility is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party. Chambers v. TRM Copy Centers Corp., 43 F.3d 29, 36-37 (2d Cir. 1994); see also Knight v. United States Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932 (1987). Summary judgment should be granted where no reasonable trier of fact could find in favor of the nonmoving party, H. L. Hayden Co. of New York, Inc. v. Siemens Med. Sys., Inc., 879 F.2d 1005, 1011 (2d Cir. 1989), thereby "dispos[ing] of meritless claims before becoming entrenched in a frivolous and costly trial." Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 58 (2d Cir. 1987). District courts may also enter summary judgment sua sponte in the absence of a motion, as long as the losing party was on notice that it should come forward with all of the evidence. Celotex Corp. v. Catrett, 477 U.S. at 326; First Financial Ins. Co. v. Allstate Interior Demolition Corp., 193 F.3d 109, 114 (2d Cir. 1999).

B. Waiver and Estoppel

Voyager argues that by sending a Proof of Loss, Lexington demonstrated that coverage existed under the Policy and waived any exceptions to coverage. Defendant and Third-Party Plaintiff's Motion for Summary Judgment ("Pl. Mem.") at 5. Lexington, however, cites relevant authority for "the long-standing principle that a waiver `cannot have created liability where none existed under the policy.'" Compass Ins. Co. v. City of Littleton, 984 P.2d 606, 620 (Colo. 1999) (quoting Empire Casualty Co. v. St. Paul Fire & Marine Ins. Co., 764 P.2d 1191, 1198 (Colo. 1988)); Hartford Livestock Ins. Co. v. Phillips, 150 Colo. 349, 352 (Colo. 1962); Memorandum in Opposition to Motion of Voyager ("Def. Opp.") at 6. Voyager argues that liability did exist under the policy, and therefore this body of case law does not apply. However, the issue of whether the Protective Warranties endorsement in the Policy exempted Lexington from liability is central to this case. It would therefore be inappropriate to imply that Lexington's act amounted to a waiver and an acceptance of liability. "Waiver is the intentional relinquishment of a known right . . ." Vanderbeek v. Vernon Corp., 25 P.3d 1242, 1248 (Colo. App. 2000), aff'd, 50 P.3d 866 (Colo. 2002). Lexington did not evidence any intention to relinquish its rights under the Policy. The Proof of Loss that it sent to Voyager contained the following provision: "the furnishing of this blank to the insured or the assistance of the adjuster, or any agent of the insurer in making this proof, is not a waiver of any rights of said insurer or of any of the conditions of this policy." Gutterman Decl. at Exh. H; Def. Opp. at 7. Voyager's assertion of waiver runs counter to the logic of case authority and the facts of this case. Accordingly, the Court finds no evidence of voluntary waiver by Lexington.

Voyager also asserts that it relied to its detriment upon Lexington's alleged acceptance of coverage, and therefore the doctrine of estoppel should bar Lexington from denying coverage. Pl. Mem. at 5; Defendant and Third-Party Plaintiff's Reply to Opposition Memorandum ("Pl. Repl.") at 3. The party asserting estoppel carries the burden of establishing that it applies. Continental Western Ins. Co. v. Jim's Hardwood Floor Co., Inc., 12 P.3d 824, 828 (Colo. App. 2000); Shell Western E & P, Inc. v. Bd. of County Comm'rs, 923 P.2d 251, 254 (Colo. App. 1995), aff'd, 948 P.2d 1002 (1997). "To establish an estoppel, which is not favored in the law, plaintiff would be required to show that: (1) [defendant] knew the pertinent facts; (2) it intended that its conduct be relied upon or that plaintiff, as a reasonable person, had a right to believe that that conduct was so intended; (3) plaintiff was ignorant of the true facts; and (4) plaintiff reasonably relied upon [defendant's] conduct to his injury." Flickinger v. Ninth Dist. Production Credit Ass'n of Wichita, Kan., 824 P.2d 19, 25 (Colo. App. 1991) (emphasis in original); Bolz v. Security Mut. Life Ins. Co., 721 P.2d 1216, 1219 (Colo. App. 1986) ("Estoppel requires that a [party] . . . induce another to change his position detrimentally in reasonable reliance thereon."). Voyager has not shown that, by sending the Proof of Loss, Lexington intended to induce Voyager into believing the theft was covered. Voyager also fails to establish that it was reasonable to rely on Lexington's act. Finally, Voyager puts forth no evidence that it actually incurred a detriment. There was a span of only four or five days during which it could have relied on there being coverage. The Proof of Loss was forwarded on August 27, 1999, Voyager signed it on August 31, 1999, and Lexington notified Voyager on September 1, 1999, that it was being rescinded.

Accordingly, summary judgment should be GRANTED to Lexington and DENIED to Voyager on the issues of waiver and estoppel.

C. Coverage Under the Policy

1. Contract Interpretation

Colorado courts*fn1 interpret and apply insurance contracts like all other contracts by looking at "the plain and ordinary meaning of the words used." Novell v. Am. Guarantee and Liab. Ins. Co., 15 P.3d 775, 777 (Colo. App. 1999); Terranova v. State Farm Mut. Auto. Ins. Co., 800 P.2d 58, 60 (Colo. 1990). The terms of an insurance contract must be construed "as they would be understood by a person of ordinary intelligence[, and the Court] must avoid strained constructions of the language used." Cruz v. Farmers Ins. Exchange, 12 P.3d 307, 309 (Colo. Ct. App. 2000).

"[I]f the contract is ambiguous, it must be construed against the insurer." Novell v. Am. Guarantee and Liab. Ins. Co., 15 P.3d at 778; Prudential Prop. and Cas. Ins. Co. v. LaRose, 919 P.2d 915, 916 (Colo. App. 1996). However, an unambiguous contract should be enforced according to its terms. State Farm Mut. Auto. Ins. Co. v. Stein, 940 P.2d 384, 387 (Colo. 1997); Griffin v. United Bank, 599 P.2d 866, 868 (Colo. 1979). Ambiguity does not arise simply from the disagreement of the parties. Terranova v. State Farm Mut. Auto. Ins. Co., 800 P.2d at 60; State Farm Auto. Ins. Co. v. Stein, 940 P.2d at 387. Determining whether a contract provision is ambiguous is a question of law, not of fact. Novell v. Am. Guarantee and Liab. Ins. Co., 15 P.3d at 778. "A policy term is ambiguous if it is reasonably susceptible to more than one meaning." Terranova v. State Farm Mut. Auto. Ins. Co., 800 P.2d at 60. The Court should look to all parts of the contract in making such a determination. Griffin v. United Bank, 599 P.2d at 868.

2. Burden of Proof

"[W]hen an exception to coverage contained in a policy of insurance is raised as an affirmative defense the burden of proof is then upon the insurer to establish that the exception is applicable." West v. Credit Life Ins. Co., 494 P.2d 601, 602 (Colo. App. 1972); Novell v. Am. Guarantee and Liab. Ins. Co., 15 P.3d at 778. Lexington has asserted as an affirmative defense that Voyager failed to comply with the Protective Warranties endorsement of the Policy. See Answer to Third Party Complaint at 4. The endorsement provides that Lexington "will not pay for loss or theft or attempted theft from a covered vehicle left unattended more than one hour unless parked in a fenced, lighted and guarded lot." Lexington argues that this provision is a "condition" of coverage, not an exclusion or exception to coverage. Def. Opp. at 9-10. However, this distinction is merely semantic. The effect of the Protective Warranties endorsement would be to exclude Voyager from coverage for losses in certain circumstances, and Lexington does not dispute that, in its absence, the loss claimed by Voyager would be covered. Furthermore, the underwriter of the Policy testified that a protective warranty is indeed an exclusion. See Gutterman Decl. at Exh. A, Deposition of Truman Hix, p. 12. Lexington therefore has the burden of showing that the Protective Warranties endorsement bars Voyager from coverage for the loss. As explained herein, the Court finds that this burden has been satisfied.

3. Loads "Hauled For" Venator

Voyager first argues that the Protective Warranties endorsement was not applicable to the shipment in this case. Both Endorsement 11001 and the Transportation/Motor Truck Cargo Supplemental Declarations to the Policy indicate that the Protective Warranties endorsement is applicable to loads "hauled for" Venator. See Gutterman Decl. at Exh G. Voyager argues that because the shipper of the goods in this case was Converse/Hudd Distribution, the load was not "hauled for" Venator, and the Protective Warranties endorsement is not triggered. Lexington, on the other hand, argues that the endorsement unambiguously applies to the shipment.

For the reasons herein, the Court concludes that the shipment in question was clearly being "hauled for" Venator. Venator hired Voyager to pick up the load from Hudd Distribution Center in Downey, California. According to the bill of lading, Voyager was responsible for delivering the shipment to Venator in Junction City, Kansas. Pl. Stmt. at ¶ 2; Affidavit of Francis A. Montbach ("Montbach Aff") at Exh. 2. p. 12. Voyager's driver Johnson testified that he was directed to go to Hudd Distribution Center for "a pick-up for Venator Group," Montbach Aff. at Exh. 2. p. 10, and Venator was the consignee of the load. Id. at Exh. 6. Thus, the shipment was arranged by, consigned to, billed to, and intended to be delivered to, Venator. Converse and Hudd functioned simply as the shipper and distributor of the goods, and made no claims regarding the lost shipment. In addition, the underwriter of the Policy testified that he and Voyager's representative, Susan Cook, mutually understood that the Protective Warranties endorsement applied to loads containing "high value goods destined for and/or carried on behalf of Venator." Hix Aff. at ¶ 5. A finding that the load was being "hauled for" Venator is warranted by the weight of the evidence, and therefore, the Protective Warranties endorsement is triggered.

4. Interpretation of Protective Warranties Endorsement

Voyager argues that the theft of its trailer carrying the load in question does not qualify as "theft or attempted theft from a covered vehicle." Voyager cites two cases in which theft of an entire vehicle was not considered theft from a vehicle for the purpose of a policy exclusion. See Sally Chain Stores, Inc. v. Ace Bonded Carriers, Inc., 30 N.E.2d 966, 969 (Ill.App. Ct. 1940); Security Finance Co. v. Aetna Ins. Co., 269 N.E.2d 592, 594 (Ohio 1971). In Sally Chain Stores., Inc., 30 N.E.2d at 967, 969, the policy provision excluded coverage for "theft from automobiles or trucks when left unattended," and the court found that because the vehicle itself was stolen, the loss did not involve a theft from an unattended vehicle. The court in Security Finance Co., 269 N.E.2d at 594, followed Sally Chain Stores, Inc. and held that a theft of collector's coins, occurring at the time the vehicle with its contents was stolen, was not a theft "from the vehicle" within the contract language.

However, as noted by Lexington, other courts have declined to apply this strict interpretation of similar contract language. The Supreme Court of Rhode Island in Gorman & Son, Inc. v. American Surety Co., 206 A.2d 460, 461 (R.I. 1965), found that where the policy excluded coverage for theft of property "left unattended" in a vehicle, it made no difference whether the theft of the property preceded or followed that of the vehicle. In Universal Coffee Co. v. Am. Ins. Co., 125 N.E.2d 643, 644-45 (III. App. Ct. 1955), the court declined to follow Sally Chain Stores., Inc. and found that a policy excluding theft of property from an unlocked vehicle also excluded theft of the entire vehicle occurring after a door was left unlocked. In Hellert v. Travelers Ins. Co., 382 N.Y.S.2d 203 (N.Y. App. Div. 1976), the insurance contract excluded coverage for "theft from any unattended automobile," and the court found it would be contrary to the parties' intentions not to apply it to a theft of the unattended vehicle containing the property. The court reasoned that the contract was designed to protect the insurance company from liability any time that plaintiff left the property in an unattended automobile. The Court here is persuaded that this line of authority embodies the most reasonable interpretation of the contract language.

Voyager warranted that Lexington would not have to pay for "theft from a covered vehicle left unattended more than one hour unless parked in a fenced, lighted, and guarded lot." The plain meaning of this contract is that Lexington was to be protected from liability for theft of a load in a covered vehicle, regardless of the trailer being stolen with it. Common sense dictates that the theft of a trailer, which contained the load and was attached to the Voyager tractor, qualifies as "theft from a covered vehicle."

Voyager argues that even if the theft was from a covered vehicle, the requirement that the vehicle be in a "guarded lot" is ambiguous and should be construed in its favor. In support of its position, Voyager argues that if the term "guarded" required a human sentry, Lexington should have specifically instructed Voyager, since a guard would be more costly than a fence, gate, and lock. Pl. Mem. at 8-9. Furthermore, Voyager notes that, according to the testimony of Commander Chism of the Wheatridge Police Department, the area surrounding Voyager's lot was "patrolled regularly during nighttime hours." Gutterman Decl. at Exh. N. Voyager further argues that because the lot was fenced, locked, and police patrolled the vicinity, it has satisfied the terms of the Protective Warranties endorsement.

Voyager correctly asserts that the Court may consider the dictionary meaning of words when interpreting an insurance contract. City of Arvada v. Colo. Intergovernmental Risk Sharing Agency, 988 P.2d 184, 187 (Colo. App. 1999). The Court notes that both Webster's New World Dictionary, 1988, and the American Heritage Dictionary of the English Language, 2000, define "guarded" to mean "watched over," "protected," "defended," and "supervised." In the Court's view, a locked gate and periodic police patrols in the vicinity are not conditions that can plainly be equated with "watched over" or "supervised."

Lexington argues that the endorsement required that when a Venator load was left unattended for more than one hour, Voyager must have a guard, whether human, canine or security cameras monitored from a remote location. Def. Mem. at 15-16. The underwriter, Truman Hix, testified that based upon his years of experience with motor cargo liability, the term "guarded" required the presence of a human being while Venator loads were left in a parked vehicle. Hix Aff. at 4. Lexington also asserts that if having a yard which was fenced and lighted were sufficient, the provision would not have included "fenced, lighted and guarded lot." Id. at 14. The Court finds merit in this position. In the context of the endorsement, the term "guarded" is not at all ambiguous, nor is it reasonably susceptible to the interpretation urged by Voyager. On the contrary, to interpret the policy as requiring a fenced, gated, lighted lot, even with intermittent patrols by the Wheatridge police, would be a strained construction of the language. Based on a reasonable interpretation of the Policy, the Court finds that Voyager did not conform with the requirement of a "guarded lot." Accordingly, summary judgment should be DENIED to Voyager and GRANTED to Lexington regarding the applicability of the Protective Warranties endorsement.


For the foregoing reasons, I recommend that Voyager's motion for summary judgment be DENIED, and that the Court enter summary judgment for Lexington.

Pursuant to Rule 72, Federal Rules of Civil Procedure, the parties shall have ten (10) days after being served with a copy of the recommended disposition to file written objections to this Report and Recommendation. Such objections shall be filed with the Clerk of the Court and served on all adversaries, with extra copies delivered to the chambers of the Honorable Richard M. Berman, 40 Centre Street, Room 201, and to the chambers of the undersigned, 500 Pearl Street, Room 1970. Failure to file timely objections shall constitute a waiver of those objections both in the District Court and on later appeal to the United States Court of Appeals. See Thomas v. Arn, 474 U.S. 140, 150 (1985); Small v. Secretary of Health and Human Services, 892 F.2d 15, 16 (2d Cir. 1989) (per curiam); 28 U.S.C. § 636 (b)(1) (West Supp. 1995); Fed.R. Civ. P. 72, 6(a), 6(e).

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