A major packer and dealer in spices stored a large quantity of black pepper in bags in a warehouse of a storage company. Approximately 300 of 430 bags of pepper that were stored could not be located when the packer sent a truck to pick up its property. It secured a substantial judgment against the storage company for the loss of the bags and then, pursuant to New York law, moved to enforce the judgment against the storage company’s Warehousemans Legal Liability insurer.

The subject policy purported to “pay on behalf of the Insured all sums which the insured shall become legally obligated to pay by reason of liability imposed upon him as a warehouseman or bailee for loss or destruction of or damage to personal property of others contained in the premises hereinafter specified, occurring while this policy remains in full force and effect.”

The insurer denied liability on the basis of an exclusion of “any liability or expense for…unexplained loss, mysterious disappearance, or loss or shortage disclosed on taking inventory.” As no explanation could be offered for the loss, the insurer contended it was an “unexplained loss” or “mysterious disappearance.” The insured stated that there had been no reports of forced entry or theft, that a night watchman was always on duty during off-hours, and that an effective alarm system was operating.

The court reasoned that the pepper had been stolen, that it had been released to a person not entitles to it, or that it was lost in the cavernous warehouse. It concluded that, as the property had been stored on bailment, the loss was covered by the policy. Judgment was rendered in favor of the packer and against the insurance company.

McCormick & Company, Inc., Plaintiff V. Empire Insurance Group Et Al., Defendants. United States District Court, Southern District of New York. No. 87 Civ. 4197(CLB). February 29, 1988. 690 F. Supp. 1212. CCH 1989 Fire and Casualty Cases, Paragraph 1599.