Opinion
July 11, 1967
Judgment reversed, on the law and the facts, and the complaint dismissed, with $50 costs and disbursements to defendant. Plaintiff brings this action on an insurance policy issued to its warehouseman, Harbor Tank Storage Co., Inc., to recover for shortages of oil which were delivered to the warehouseman, as bailee. The policy insures Harbor Tank Storage Co., Inc., against " physical loss * * * resulting and/or arising from, through, or in connection with the Assured's legal liability as a warehouseman, or bailees * * * in respect to oils and similar commodities the property of others under their control * * * for which they may legally be liable". (Emphasis ours.) While Harbor Tank Storage Co., Inc., is the named insured, the policy provides, in effect, that in case of the insured's insolvency or bankruptcy, bailors may then sue the insurance company directly. It should be noted that the policy covered all of the oil of the warehouseman, which was stored in connecting tanks, and did not cover the oil in Tank No. 18, specifically, in which tank the plaintiff alleges its oil was placed. Therefore, in order to recover, the plaintiff in the circumstances of this case must show that the shortage, if any, in Tank No. 18, caused or contributed to an overall shortage. As indicated above, the policy insures against physical loss, and that the plaintiff must show in order to recover. Moreover, the plaintiff must show that such a loss occurred during the period covered by the policy. The policy does not insure the bailor against all defaults by the bailee. Contrary to plaintiff's contention, it is not enough for the plaintiff merely to show a delivery of a certain amount of oil, and failure of the warehouseman to return it on demand. That would be quite sufficient in a suit against the bailee, but not enough to recover against the defendant under the policy of insurance that it issued. It is essentially for these reasons that the case of National Dairy Prods. Corp. v. Insurance Co. of North America ( 24 A.D.2d 955, affd. 18 N.Y.2d 657) is not in point. The circumstances were quite different in that case, for not only was the plaintiff bailor a named insured in its own right, but the policy specifically covered nondelivery. We might add, that if the plaintiff Murray Oil can recover against the insurance company for the mere failure of the bailee to return the oil upon demand, then the policy in effect could be considered to insure against the wrongdoing of the warehouseman. Having in mind that the warehouseman is the insured, the policy cannot be so construed. The plaintiff failed to establish that there was a physical loss during the period of the policy. The proof did indicate that there were shortages over a period of a number of years, but there was no proof that the shortages occurred during the period of the policy coverage. Consequently, the complaint must be dismissed. In any event, the verdict of the jury may not stand in view of the inadequate charge. The court failed to make it clear that the jury was obliged to find that plaintiff could recover only if the shortages occurred during the period of policy coverage. Moreover, we find that the court should have compiled with defendant's request to charge that "if Harbor Tank could not have recovered had it sued here, Murray Oil cannot recover." The request was a correct statement of the law for, as indicated above, plaintiff was not the insured — Harbor Tank was. Plaintiff was, at best, a loss payee and could recover only if Harbor Tank could have recovered. (See Grosvenor v. Atlantic Fire Ins. Co., 17 N.Y. 391, 394.) These defects were substantial as they went to the core of the case. If the charge had been adequate, it is quite possible that the jury might have reached a different conclusion. In the circumstances, even if we were not to dismiss, we would be obliged to reverse and order a new trial.
The judgment herein should be affirmed. The action is on a policy of insurance issued by defendant to plaintiff's warehouseman, Harbor Tank Storage Co., Inc. (Harbor). The original issue was for the period December 31, 1961, to December 31, 1962. It was renewed for the following year. Its coverage is "against physical loss * * * arising from, through, or in connection with the Assured's legal liability, as warehouseman, or bailees * * * in respect of oils and similar commodities the property of others under their control and/or in their care, custody or possession and for which they may be legally liable in anyway * * *. This policy covers continuously from the time the Assured has any liability in respect to the above described property and covers continuously thereafter until their liability shall have ceased." There are a number of exclusions, none of which is here applicable. The evidence established and there are implicit in the verdict for the plaintiff the following facts: On November 20, 1963, plaintiff delivered to Harbor, subject to plaintiff's order, 300,600 pounds of tung oil, which was pumped into Harbor's tank number 18. In December, 1963, Harbor became insolvent. 69,457 out of the original 300,600 pounds of tung oil have not been returned to plaintiff after due demand. Harbor's failure to return said 69,457 pounds constitutes conversion on the part of Harbor. ( Procter Gamble Distr. Co. v. Lawrence Amer. Field Warehousing Corp., 16 N.Y.2d 344.) The gist of appellant's legal argument is stated in its brief as follows: "the policy does not insure Harbor Tank against its own conversion. * * *" Appellant is in error. The policy unambiguously covers Harbor's "legal liability as warehouseman, or bailees". Physical delivery of the oil to Harbor within the policy period is indisputable. Harbor's failure to return the 69,457 pounds of oil is a "physical loss" within the meaning of the policy. It was so held in National Dairy Prods. Corp. v. Insurance Co. of North America, ( 24 A.D.2d 955, affd. 18 N.Y.2d 657). There the policy covered "all risks of physical loss." Here the coverage is "against physical loss" arising from "Assured's legal liability, as warehouseman". Despite the uncontradicted proof of physical loss, defendant had the benefit of a charge enabling the jury to consider the evidence of shortages antedating Harbor's receipt of plaintiff's oil on the issue of physical loss. The record includes evidence of alleged shortages on the part of Harbor antedating its receipt of plaintiff's oil. This seems to suggest a possible cause for Harbor's conversion of plaintiff's oil; it does not disprove the fact of conversion. The trial court properly ruled that defendant failed to establish fraud in the inducement of the insurance. There were no representations by Harbor to defendant. Moreover, Harbor was under no duty to disclose to defendant its inventory records and tank gauge readings. ( Stecker v. American Home Fire Assur. Co., 299 N.Y. 1, 8.) Paragraph numbered "10" of defendant's policy provides for direct liability to a claimant such as plaintiff in the event of Harbor's insolvency or bankruptcy. In the light of this provision, plaintiff is entitled to prosecute this action on the policy. ( Lewis v. Home Ins. Co., 199 App. Div. 556, affd. 234 N.Y. 498.)