When is a warehouse not a warehouse? When it is a temporary storage trailer parked outside a warehouse, according to the 2nd Circuit Court of Appeals in LaptopPlaza Inc. v. Starr Indemnity & Liability.1
In December 2013, LaptopPlaza, a computer company, installed new shelves in its Miami, Florida, warehouse. Stock was moved from the warehouse to a semi-trailer on site. A ramp was used as a bridge between the trailer and the warehouse dock doors. The trailer was not attached or connected to the warehouse, nor was it linked to the warehouse alarm system.
During the early morning hours of Dec. 15, 2013, a security guard hired by LaptopPlaza was lured from his post by two unknown women with car trouble. Thieves then drove up, hitched the semi-trailer to a tractor cab, and heisted $711,000 worth of laptops and other goods.
LaptopPlaza made a claim for coverage under a marine cargo policy issued by their insurer, Starr Indemnity. After the insurer rejected the claim, LaptopPlaza sued in the Southern District of New York.
LaptopPlaza alleged the trailer and loss fell within a warehouse endorsement covering “goods and merchandise … while temporarily detained in warehouses.” They alternatively claimed the trailer was “in due course of transit” and covered under a separate endorsement to the policy.2
The District Court disagreed3 that the storage trailer was covered under the warehouse endorsement. On appeal, the 2nd Circuit panel affirmed, stressing that the trailer was not deemed a warehouse at the time of loss.
Although “warehouse” was not defined in the policy, the panel observed that dictionary definitions of warehouse do not apply to an idle trailer parked outside of a warehouse. The trailer is not a building or structure designed for storage, the panel said. The court further explained that trailers are designed for transportation, not storage. Therefore, on these facts, the temporary storage facility could not be considered a covered warehouse.
This case reveals a mammoth coverage pitfall for the unwary, and provides a good reminder for policyholders to make sure your insurance matches your expectations and business activities—even temporary activities. Here are six takeaways from this case:
- Always read the policy. Make sure the physical property, business locations and/or company assets you expect to cover are, in fact, listed specifically on the declarations page or expressly identified by endorsement.
- Carefully consider whether temporary changes might impact your business or increase the risk of loss.
- Advise your agent/insurer about any changes to the business or premises, and update coverage as necessary.
- Be familiar with the definitions and specific terms used in the policy as they pertain to your business.
- Be aware that undefined terms may be interpreted differently than you might expect.
- When in doubt, discuss contemplated changes with coverage counsel before a loss happens.
1 Laptop Plaza Inc. v. Starr Indem. & Liab. Co., No. 16-cv-3223, 2017 WL 3833049 (2nd Cir. Sept. 1, 2017).
2 Under New York law, “in transit” implies the continuous action of moving goods from one point and delivering them to another, with reasonable deviation such as temporary stops incidental to the delivery. The true test of whether insured goods were in transit at time of loss is whether goods, even though temporarily at rest, were still on their way, with any stoppage merely incidental to main purpose of delivery. See Ore & Chem. Corp. v. Eagle Star Ins. Co., 489 F.2d 455, 457 (2d Cir.1973).
3 LaptopPlaza Inc. v. Starr Indem. & Liab. Co., No. 14-cv-7698, order issued (S.D.N.Y. Aug. 17, 2016).