Meaning of BPP Includes Consigned Property

Italian Designer Import Outlet, Inc. d/b/a Casa Italia (Casa) was a retail men's clothing store that leased its space. Casa was insured under a Businessowners Special Policy issued by New York Central Mutual Fire Insurance Company (NYC Mutual) that covered Business Personal Property.

On December 7, 2005, a steam pipe burst and caused more than $200,000 in water damage to Casa's inventory. That inventory consisted of clothing owned by Casa as well as clothing owned by Cantoni I.T.C. USA, Inc. (Cantoni), which Casa held under a consignment agreement. Casa filed a claim for the loss and, in response, NYC Mutual only offered to pay a total of $2,500. This was the amount its policy provided for Personal Property Belonging to Others (an additional, separate coverage provision). Casa filed suit, and the insurer filed its own motion, defending its position.

During litigation, Casa argued, NYC Mutual failed to offer adequate reasons for deciding the policy’s Business Personal Property coverage did not apply to the loss. Casa pointed out that no attempt was made to distinguish what property belonged to Casa and what was consigned. Casa also argued that, regardless of any distinction among the property, all items in their inventory qualified as eligible Business Personal Property.

On the other hand, NYC Mutual argued that only property owned by Casa was eligible. It believed there was no coverage obligation for consigned merchandise. As a result, the insurance company asked the court to dismiss all claims for damages made by Casa.

The court reviewed the lawsuit’s relevant aspects. It initially found the same issue as did Casa. The insurer weakened its argument by how it treated the property held by the retailer. There was no documentation on how the property was identified as owned or consigned. Further, NYC Mutual did not make an effort to determine a value for any of the property. An additional issue was that there was no specific denial of coverage for the merchandise. Rather, the insurer’s only full response was the attempt to apply the modest Personal Property Belonging to Others limit of $2,500.

The other matter examined by the court was the relevant policy language. One policy provision stated that personal property "includes…your interest in personal property of others to the extent of your labor, material and services." The court interpreted this passage to mean "business personal property" may not require ownership. Rather, (insurable) interest could be created by an insured’s contribution of labor, material, and services.

The court found the above to be particularly important because of an aspect of Casa’s consignment arrangement. Their agreement referred to sale or return transactions that created an obligation for Casa to assume the risk of loss or damage to consigned property. It also required Casa to insure itself against that risk. As a result of the court’s review, it ruled in favor of Casa, requiring the claim to proceed subject to Casa satisfying all other policy conditions for payment.

Editor’s Note: While this is a trial level opinion, rather than our preference to summarize cases that have gone through at least one appeal, it merited attention in light of the court’s decision on what may constitute business personal property.

Supreme Court, Kings County, New York. Italian Designer Import Outlet, Inc. d/b/a Casa Italia, Plaintiff, v. New York Central Mutual Fire Insurance Company and Island Holdings, LLC, Defendants. November 18, 2009. 26 Misc.3d 631, 891 N.Y.2d 260.