21 N.Y.2d 440 (1968)
When an insurance policy covering a bailee’s liability for physical loss of goods is ambiguous, it should be construed in favor of the insured to provide coverage for losses the insured may have reasonably believed were covered.
Summary
Murray Oil Products sued Royal Exchange Assurance to recover for a loss of oil stored with Harbor Tank Storage Co., which was insured by Royal Exchange. Harbor Tank became insolvent and could not return all the oil it held, resulting in a loss to Murray Oil. The insurance policy covered physical loss of goods under Harbor Tank’s care. The court addressed whether the unexplained shortage of oil constituted a “physical loss” under the policy. The Court of Appeals held that the policy’s ambiguous language should be construed in favor of coverage, reversing the Appellate Division’s dismissal of the complaint and ordering a new trial. The court emphasized that the purpose of the policy was to cover a wide range of contingencies, and the term ‘physical loss’ should not be narrowly construed.
Facts
Murray Oil Products delivered 300,600 pounds of vegetable oil to Harbor Tank Storage Co. for storage.
Harbor Tank commingled the oil with that of other bailors in its tanks.
Harbor Tank became insolvent and was unable to return 70,000 pounds of oil to Murray Oil.
An insurance policy issued by Royal Exchange Assurance covered Harbor Tank against physical loss of commodities under its care, custody, or control.
Gauging measurements indicated a consistent shortage of 90,000 to 110,000 pounds over a ten-year period.
At the time of insolvency, a shortage of 85,000 pounds was discovered, but no explanation for the loss was provided.
Procedural History
The Supreme Court, New York County, entered judgment for Murray Oil Products based on a jury verdict.
The Appellate Division reversed the judgment and dismissed the complaint, holding that the policy covered only physical loss and that Murray Oil had not proven such a loss occurred during the policy period.
Murray Oil Products appealed to the Court of Appeals.
Issue(s)
1. Whether the unexplained loss of oil constituted a “physical loss” within the meaning of the insurance policy covering the bailee’s liability?
Holding
1. Yes, because the primary purpose of the policy was to cover every possible contingency under which the insured would be liable to the bailor if it was not able to deliver the oil due to a physical loss of any kind. Further, recovery would also be justified under the