Opinion
January 15, 1973
Appeal from the Civil Court of the City of New York, County of New York, BURTON SHERMAN, J.
Gwertzman, Sessler, Nagelberg Pfeffer ( Milton B. Pfeffer of counsel), for appellant.
Grossman Greenbaum and First First ( Lee B. First of counsel), for respondent.
The insurance contract upon which plaintiff has recovered judgment for an alleged loss by burglary of some $4,800 worth of ladies' watch bracelets, was issued on plaintiff's express written representation in the application for the policy that it kept "a detailed stock record" and took "a physical stock inventory semi-annually." The insurance policy issued to plaintiff upon that written application embodied that representation as a condition to be performed by plaintiff, in the following language: "It is a condition of the insurance that: (A) The insured will maintain a detailed and itemized inventory of his or their property * * * in such manner that the exact amount of loss can be accurately determined therefrom by the Company."
In the course of defendant's investigation of the claim of loss, as well as on the trial, plaintiff could produce no regularly kept business record detailing and itemizing its goods on hand before the burglary, from which the existence in stock of the stolen items could be established; nor could it produce any similar matching record of an inventory made after the burglary by which the loss of the items could be demonstrated; nor could it produce any such record from which replacement value, in terms of amount and cost of raw materials and cost of manufacture, of the stolen items could be determined.
Such records, purporting to fulfill the condition of the insurance contract as were produced, did not begin to approach the character of the records called for. They were mere generalized descriptions, dated six months apart, of the bulk character of less than a dozen categories of unitemized goods and materials carried by plaintiff, with lump sum statements of value for each category, and an unexplained gross decrease in total values of $4,865. There was no reference to any category of ladies' watch bracelets, no less any specified quantity of such articles, nor any notation from which the existence of such items in stock before or after the burglary, could in any way be even approximated. In the context of the condition of the insurance contract, they were the equivalent of no records.
The trial court erroneously found that plaintiff had substantially performed the express, material condition of the contract of insurance on its part to be performed, requiring the keeping of sufficiently itemized inventories from which the amount of loss could be determined, and erroneously awarded damages based on sale value, including a profit of 8% to 12%, rather than an award based on reproduction and replacement value.
While the condition requiring the insured to maintain inventory records from which a loss can be determined in insurance contracts, similar to the one here in suit, is not narrowly construed in New York to defeat an otherwise valid claim ( Licht v. New York Ind. Co., 250 N.Y. 211), and while no special or sophisticated system of bookkeeping is required ( Lenzner v. Nat. Sur. Co., 209 App. Div. 464), nevertheless the records in and of themselves should be sufficient to disclose to the insurer the extent of its liability, independently of any need to resort to evidence outside the records to explain the records other than might be necessary to disclose the bookkeeping methods employed ( Harris v. General Acc. Fire Life Assur. Corp., 187 N.Y.S. 291; 30 N.Y. Jur., Insurance, § 1041, pp. 417-418).
Proof of plaintiff's failure to keep reasonably adequate records from which the loss and replacement value of the missing items could be ascertained, in accordance with the express condition of the insurance contract, liberally construed, is fatal to plaintiff's cause.
The judgment should be reversed and complaint dismissed, with $30 costs.
The Trial Judge made two basic factual findings, substantiated by the record, which are dispositive and call for affirmance of the judgment.
The first finding is that there was no breach of the warranty to keep a detailed stock record: "The plaintiff introduced evidence showing that it did keep a card inventory record of its jewelry. In good faith, it could have affirmatively answered that it kept a detailed stock record". As called for by the authorities, the Trial Judge liberally construed what constitutes bookkeeping methods for small manufacturers and small retail shops ( Hartol Prods. Corp. v. Prudential Ins. Co., 290 N.Y. 44, 49; B H Mgt. Corp. v. Hardware Mut. Cas. Co., 9 A.D.2d 533, 535; D'Agostino Excavators v. Globe Ind. Co., 7 A.D.2d 483, 485). He properly resolved any ambiguity in favor of the insured.
To be vulnerable, plaintiff's books must have been intended to deceive. Honest books may be supplemented by oral testimony to supply the basis for an accurate estimate of the loss. ( Licht v. New York Ind. Co., 250 N.Y. 211, 214.)
In Licht ( supra, p 214), LEHMAN, J., thereafter Ch. J., wrote: "It has been said that the 'courts should not take a narrow and restricted view of the clause relative to the keeping of books and accounts to defeat a claim otherwise unassailable.' ( Mord v. New York Indemnity Co., 216 App. Div. 252; affd. 244 N.Y. 589, and cases there cited.) We accept that policy as a guiding principle. Within the meaning of the contract of insurance, honest books and vouchers, though the entries be made in a crude, unscientific manner and require explanation and even supplement by oral statement, may yet supply the basis for an accurate estimate of the loss. At least, however, the books must be intended to reflect truly the cost or value of the goods insured. Books intended to deceive are not in any true sense books of account."
Our statute mandates that no "breach of warranty shall avoid an insurance contract or defeat recovery thereunder unless such breach materially increased the risk of loss, damage or injury within the coverage of the contract." (Insurance Law, § 150, subd. 2).
Similarly, no "misrepresentation shall avoid any contract of insurance or defeat recovery thereunder unless such misrepresentation was material. No representation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such contract." (Insurance Law, § 149, subd. 2).
Defendant has not met the proviso in either of these sections of the Insurance Law.
Harris v. General Acc. Fire Life Assur. Corp. (187 N.Y.S. 291), cited by my brethren, is not controlling. In that case (p. 292) "plaintiff kept no books or records of any sort, which would in and by themselves indicate what merchandise had been sold during the year 1919 previous to the day of the loss." (Cf. Lenzner v. National Sur. Co., 209 App. Div. 464; Garten v. General Acc. Fire Life Assur. Corp. of Perth, Scotland, 206 App. Div. 154, 156, 158.)
In the case at bar, plaintiff did keep records which it could honestly believe complied with the policy (see Bronx Sav. Bank v. Weigandt, 1 N.Y.2d 545, 551). This included a detailed inventory of what plaintiff's officer took home, prepared by him before the loss. This being so, defendant's contention that these records were not enough to satisfy the condition in its policy must be resolved in favor of the insured ( Muller v. Sun Ind. Co. of N.Y., 302 N.Y. 634, 636, affg. 276 App. Div. 1028).
The second finding by the Trial Judge was that nothing was gained or lost by the failure to list the officer in the policy as a person who took property from the premises. I agree with his interpretation "that the very design of the policy was to cover the situation here involved". The intent of the policy was to give extra coverage, at a greater premium, to the traveling salesman or outside man who systematically toured a territory for an appreciable length of time with covered jewelry in his possession. As to an employee who occasionally took a small amount of jewelry from the premises, the policy limited liability to $5,000 (combination endorsement, § 2). The very language of the section is that the limit of the policy is $5,000 "unless the name of such individual is listed hereunder." (Emphasis supplied.) Plaintiff's employee involved in this case was not a salesman; he was an officer and inside man, who took jewelry home from time to time to show to friends and relatives. Hence, it was not necessary to list him in the policy.
No question is raised by defendant but that he was a good risk, and would have been insured had he been listed. Failure to keep proper records, and not listing the officer in the policy, were the only bases on which defendant denied liability. For the reasons stated, I find them wholly without merit.
Plaintiff had carried this, or similar burglary insurance with defendant for five years or more before the loss. Defendant does not attack the claim of burglary. It does not question the honesty of the officer. It does not charge fraud. It does not say that the officer testified falsely. It does not say that plaintiff failed to follow its instructions for keeping records. None of these elements are present in this case. Instead, having accepted premiums without audit or instructions for over five years, and a loss having finally occurred, defendant seeks to hang its hat on naked technicalities to avoid its side of the bargain. On this record it has not established its right to do so.
I therefore dissent and vote to affirm.
QUINN, J.P., and LUPIANO, J., concur in Per Curiam opinion; MARKOWITZ, J., dissents in memorandum.
Judgment reversed and complaint dismissed with $30 costs.