On July 7, 2016, WCM won summary judgment on behalf of London market insurers in a $2.5 million valuation dispute involving the loss of two valuable diamonds at an international jewelry trade show in Hong Kong.

In Certain Underwriters at Lloyd’s, London v. Essex Global Trading, a New York jeweler used Ferrari Express to ship finished jewelry and loose diamonds to Hong Kong for a week-long exhibition.  To cover the transit and exhibition risk, the jeweler purchased $50 million in coverage from London market insurers.  Before the goods were shipped, the jeweler prepared and submitted to U.S. Department of Homeland Security and U.S. Customs, via its customs broker Ferrari, a series of itemized memoranda specifically identifying each piece of jewelry and assigning a monetary value to each piece.  The sum of the assigned values in the declaration totaled $50 million, the amount of insurance coverage purchased.

At the Hong Kong show, two loose diamonds, with a combined declared value of $2.6 million, were stolen in an apparent distraction theft.  The insured promptly submitted a claim to Underwriters.  The policy’s Basis of Valuation clause provided that losses were to be valued in accordance with the values declared to Ferrari and thus, to Homeland Security and U.S. Customs.  Ultimately, after a careful investigation, Underwriters concluded a fortuitous loss took place and paid the jeweler for the declared value of the two stones.

But after payment of this undisputed amount, the insured claimed it was entitled to an additional $2.5 million because its private inventory records indicated that the two stolen diamonds were actually worth more than the declared values.  To make this argument tenable, the insured cited the policy’s Books and Records clause, which required the insured to keep detailed books and records so that the quantum of a loss could be determined from its private (internal) records.  According to the jeweler, the reference to the duty to maintain private books and records from which the amount of loss could be determined was, in effect, a separate valuation provision.  It followed, the jeweler claimed, the conflicting clauses created a policy ambiguity that ought to be construed against Underwriters.

In rejecting the jeweler’s claim, Judge Kornreich ruled that the policy’s Basis of Valuation clause was clear and unambiguous.  The Court also recognized that the policy’s Books and Records clause served an audit function – – but did not trump the clear mandate of the Valuation Clause.  Judge Kornreich also refused to consider extrinsic evidence (affidavits from the jeweler, a broker unrelated to the placement at issue, and the Customs broker) offered to undermine clear policy wording.

In sum, despite the jeweler’s detailed efforts, including the submission of extrinsic evidence, to create an ambiguity where none existed, Judge Kornreich adhered strictly to the policy wording.  While recognizing that a legitimate ambiguity ought to be resolved against insurers, Judge Kornreich held, in essence, the law in New York does not require the judiciary to ignore common sense or to accept a strained interpretation of the King’s English.

Dennis Wade and Michael Gauvin of WCM represented Underwriters.  If you have any questions about this decision or its import, please call or email Dennis.