It is well-settled that the mysterious disappearance exclusion in an all-risk policy does not exclude from coverage the loss of property caused by theft[1]; rather, it precludes coverage for missing property where there is no physical evidence to show what happened to the property.[2]  Where an insured’s loss involves the disappearance of large and heavy objects, however, New York courts will infer that the disappearance of such property was caused by theft even in the absence of physical evidence showing that the property was stolen, thereby rendering the mysterious disappearance exclusion inapplicable.[3]  By contrast, New York courts will generally hold that the exclusion precludes coverage where there is no physical evidence showing what happened to missing property that is small and easily transportable.[4]

Recently, in Inter-Governmental Philatelic Corp. v. Aspen American Insurance Co.,[5] the New York Supreme Court analyzed the mysterious disappearance exclusion in a case involving the disappearance of a cabinet of valuable stamps, and concluded that it was sufficiently large to raise questions of fact concerning whether its loss was the result of theft.[6]  Accordingly, the court denied the insurer’s motion for summary judgment based on the mysterious disappearance exclusion.[7]  By focusing on the size and weight of the cabinet, however, the court did not consider the circumstances of the disappearance, which occurred during a move of company property from one warehouse to another.[8] These circumstances were such that the cabinet could have “disappeared for any number of reasons,”[9] demonstrating the propriety of the insurer’s denial of coverage.

The Insurance Claim

Plaintiffs Inter-Governmental Philatelic Corp. (“IGPC”) marketed wholesale and commemorative stamps, and Ideal Stamp Company (“Ideal”) bought and sold collectible stamps.[10] They shared office space and many of the same employees, and were owned by the same individuals.[11]  In 2014, the two companies submitted an application for insurance that included both IGPC and Ideal as insureds.[12]  Defendant Aspen American Insurance Company (“Aspen”) issued a policy that only listed IGPC as the policyholder and the named insured.[13]

In the summer of 2016, IGPC and Ideal moved from a warehouse in New Jersey to a warehouse in Brooklyn; during the move, they discovered that a cabinet containing valuable stamps was missing.[14]  The police were notified, but there was no specific evidence of theft and the cabinet was never found.[15] IGPC and Ideal submitted a claim for the missing stamps to Aspen, which denied coverage on grounds, inter alia, of the mysterious disappearance exclusion.[16]

Plaintiffs IGPC and Ideal sued Aspen and their insurance brokers, and following discovery, Aspen and the other defendants moved for summary judgment seeking dismissal of the action.[17]

The Mysterious Disappearance Exclusion

The mysterious disappearance exclusion in the Aspen policy provided that there was no coverage for “missing property where the only proof of loss is unexplained or mysterious disappearance of covered property . . . or any other instance where there is no physical evidence to show what happened to the covered property.”[18]  In determining whether Aspen was entitled to summary judgment on the ground that it properly denied coverage by reason of the mysterious disappearance exclusion, the court analyzed several cases interpreting this language, including the decisions of the Appellate Division for the First Department in Moneta Dev. Corp. v. Generali Ins. Co. of Trieste & Venice, 212 A.D.2d 428 (1st Dept. 1995) and WestCom Corp. v. Greater New York Mutual Ins. Co., 41 A.D.3d 224 (1st Dept. 2007).[19]

Moneta involved the disappearance of heavy equipment weighing approximately 22 tons from a facility over a period of six days.[20] Interpreting a mysterious disappearance exclusion similar to the one in the Aspen policy, the Moneta court found that the term “physical evidence” was ambiguous, and should be interpreted to “include the depiction by plaintiff’s officer of the physical presence of the property and of its subsequent physical absence.”[21]  The Moneta court concluded that to “hold otherwise would mean that even a theft which was actually observed by eyewitnesses, who watched as the thieves physically remove the property, would be excluded, merely because the thieves were skilled enough to leave no signs of forced entry behind them.[22]

The Moneta court, however, distinguished the situation before it, in which “a very large amount of heavy equipment disappeared in a short period of time[,]” from a situation in which “pieces of jewelry or other small items, easily subject to being misplaced or accidentally lost, disappear without explanation.”[23] According to the Moneta court, the disappearance of a large amount of heavy equipment in a short period of time creates a sufficient inference of theft to withstand an insurer’s summary judgment motion on the issue of whether the evidence showed what happened to the missing property.[24]

As the court in Inter-Governmental Philatelic Corp. observed, the First Department’s decision in Moneta has been criticized. In C.T.S.C. Boston, Inc. v. Continental Ins. Co.,[25] a case involving a claim for coverage for the disappearance of 57 laptop computers, the insured cited Moneta to argue that the mysterious disappearance exclusion did not bar recovery under the policy, even in the absence of physical evidence to show what happened to the laptops.[26] In affirming the district court’s judgment in favor of the insurer, the Sixth Circuit stated that it disagreed with the Moneta court’s holding that the term “physical evidence” was ambiguous, and rejected the insured’s argument that a description of the laptops as “missing” is physical evidence of what happened to them.[27]  According to the court, “[u]nder this interpretation, there would always be ‘physical evidence’ of what happened to missing property because the insured’s mere description of the property as ‘missing,’ and presumed stolen, would count as ‘physical evidence’ of what happened to it.”[28]

In its 2007 decision in WestCom, the First Department recognized the tension between Moneta and C.T.S.C. Boston, and clarified that the holding in Moneta was limited to cases involving the unexplained loss of “massive” objects:

As the Sixth Circuit further opined in C.T.S.C. Boston, if testimony that property once in the insured’s possession could no longer be found sufficed in every case to satisfy the requirement of “physical evidence to show what happened to the [property],” then “all missing property would be covered by the policy when there is no physical evidence of what happened to it, based on the ‘missing property’ exclusion itself.”  This would render the exclusion self-cancelling and hence, meaningless surplusage.  Accordingly, we construe Moneta’s holding to be limited to cases involving the unexplained loss of heavy equipment or other massive items of personal property.[29]

In Inter-Governmental Philatelic Corp., the court followed Moneta and WestCom to conclude that “the disappearance of large items and the claim of a theft can satisfy the physical evidence requirement necessary to succeed on a claim of such stolen property.”[30]  Because “the cabinet that was reported stolen was large enough that it required three people to successfully move it[,] the court held that its “sheer size and weight necessarily impact[ed] its very disappearance.”[31]  The court observed that the cabinet was “not the sort of item such [as] a diamond ring or a wristwatch which could have disappeared for any number of reasons.”[32]  Therefore, the court held that there were questions of fact “whether the cabinet [was] missing due to a theft” and denied Aspen’s summary judgment motion.[33]

Factors Other than the Size of the Missing Property

Are there other factors than the size of missing property that a court should consider when determining whether the mysterious disappearance exclusion applies in a situation in which there is no physical evidence showing what happened to the property?  In Stella Jewelry Manufacturing, Inc. v. Naviga Belgamar International, Inc.,[34] a federal court applying New York law analyzed the circumstances of the disappearance of a nylon bag containing jewelry, and concluded that the bag could only have been stolen, even though there was no physical evidence—or eyewitness testimony, for that matter—to show what had happened to it.

In Stella Jewelry, the president of the insured alleged that he placed the bag of jewelry on the ground next to his foot as he made room in the trunk of his car for the bag.[35]  He claimed that when he bent down to pick up the bag approximately ten seconds after he had placed it on the ground, it was gone.[36]  He asserted that he did not see or hear anything while he was clearing space in the trunk.[37]

The insured sued its insurer after the insurer denied coverage for the loss by reason of an exclusion for “[l]oss resulting from mysterious disappearance.”[38]  The court granted the insured’s motion for summary judgment seeking the dismissal of the insurer’s affirmative defense based on the mysterious disappearance exclusion, holding that “there [was] no evidence from which one could deduce that the nylon bag had blown away or been lost in any other manner than by theft.  Under those circumstances no reasonable jury could reach the conclusion that the loss occurred otherwise.”[39]

In Inter-Governmental Philatelic Corp., the circumstances of the loss of the missing cabinet were such that it “could have disappeared for any number of reasons.”[40]  In this regard, the cabinet was lost during a move of two companies that were in the business of buying and selling stamps, from a warehouse in New Jersey to a warehouse in Brooklyn.[41]  The disappearance of such property during transit with other similar items would appear to bring the loss within the exclusion for “missing property where the only proof of loss is unexplained or mysterious . . . or any other instance where there is no physical evidence to show what happened to the covered property.”[42]  After all, a cabinet that requires three people to move is heavy, but not so massive that its disappearance could only be attributed to theft, particularly where the circumstances are such that even large objects can plausibly be lost without explanation.

In determining whether a mysterious disappearance exclusion precludes coverage for lost property, courts should consider the circumstances of the loss as well as the size of the missing property.  Focusing solely on the size of the property would have the effect of rendering that exclusion “self-cancelling”[43] and “meaningless surplusage”[44] in situations where there is no physical evidence, and no eyewitness description, indicating how large property disappeared.

 

If you have any questions regarding this client alert, please contact partner Sanjit Shah or the Mound Cotton attorney with whom you regularly work.  

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[1] Inter-Governmental Philatelic Corp. v. Aspen Am. Ins. Co., 152 N.Y.S.3d 548, 552 (N.Y. Sup. Ct. Kings Cnty. 2021).
[2] WestCom Corp. v. Greater N.Y. Mut. Ins. Co., 41 A.D.3d 224, 226-27 (1st Dep’t 2007).
[3] See Moneta Dev. Corp. v. Generali Ins. Co., 212 A.D.2d 428, 430 (1st Dep’t 1995).
[4] See WestCom Corp., 41 A.D.3d at 227.
[5] 152 N.Y.S.3d 548 (N.Y. Sup. Ct. Kings Cnty. 2021).
[6] Id. at 555.
[7] Id.
[8] Id. at 549.
[9] Id. at 555.
[10] Id. at 549.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] Id.
[16] Aspen also denied coverage on the ground that Ideal was the owner of the stamps in the missing cabinet, and the policy did not list that company as a named insured.  Id. at 550.
[17] Id. at 550. The first issue that the court addressed in connection with the parties’ summary judgment motions was whether the policy should be reformed to include Ideal as a named insured. Finding that a mutual mistake existed with respect to the status of Ideal as a separate company from IGPC, and Aspen’s failure to insure Ideal, id. at 550, 551, the court reformed the policy to include Ideal as an insured.
[18] Id. at 552.
[19] Id. at 552, 554..
[20] Moneta, 212 A.D.2d at 429.
[21] Id. at 429.
[22] Id.
[23] Id. at 430.
[24] Id.
[25] 25 F. App’x 320 (6th Cir. 2001).
[26] Id. at 325.
[27] Id. at 326.
[28] Id.
[29] WestCom, 41 A.D.3d at 228 (quoting C.T.S.C. Boston, 25 F. App’x at 325-26.)
[30] Inter-Governmental Philatelic Corp., 152 N.Y.S.3d at 555.
[31] Id.
[32] Id. (citations omitted).
[33] Id.
[34] 885 F. Supp. 84 (S.D.N.Y. 1995).
[35] Id. at 84.
[36] Id.
[37] Id.
[38] Id. at 85.
[39] Id. at 86.
[40] Inter-Governmental Philatelic Corp., 152 N.Y.S.3d at 555.
[41] Id. at 549.
[42] Id. at 552.
[43] WestCom, 41 A.D.3d at 228.
[44] Id.

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