New Amsterdam Jewelry, Inc. v. Hartford Fire Ins. Co., 63 N.Y.2d 1018 (1984)
An insurer bears the burden of proving that a loss falls within a policy exclusion for dishonest acts by individuals to whom insured property was delivered or entrusted; mere employment by the consignee is insufficient to establish entrustment.
Summary
New Amsterdam Jewelry, Inc. sued Hartford Fire Insurance Co. to recover for the loss of diamonds under an all-risk policy. The policy excluded coverage for losses caused by dishonest acts of those to whom the property was delivered or entrusted. The diamonds were stolen by Sergio, an employee of International Diamond & Gem, the buyer. The New York Court of Appeals held that Hartford failed to prove the diamonds were entrusted to Sergio, merely showing his employment was insufficient. Therefore, the exclusion did not apply, and New Amsterdam could recover under the policy.
Facts
New Amsterdam Jewelry, Inc. (plaintiff) possessed an all-risk insurance policy issued by Hartford Fire Insurance Co. (defendant). The policy excluded losses from dishonest acts by employees or those to whom the insured property was delivered or entrusted. Sergio, a buyer for International Diamond & Gem, contacted New Amsterdam. After confirming Sergio’s employment, New Amsterdam shipped diamonds worth $102,428.50 to International. Postal receipts confirmed delivery to International. The diamonds were stolen by Sergio. New Amsterdam filed a claim, which Hartford rejected based on the policy’s exclusion.
Procedural History
New Amsterdam sued Hartford in the Supreme Court, New York County. The Supreme Court granted summary judgment for New Amsterdam. The Appellate Division reversed, holding the exclusion applied because the diamonds were no longer in the insured’s possession. The dissent argued that the stipulated facts did not demonstrate International entrusted the diamonds to Sergio. New Amsterdam appealed to the New York Court of Appeals.
Issue(s)
Whether the insurer, Hartford Fire Insurance Co., met its burden of proving that the loss of diamonds fell within the policy exclusion for dishonest acts “on the part of any person to whom the property hereby insured may be delivered or entrusted” when the diamonds were stolen by an employee of the consignee.
Holding
No, because the insurer failed to establish that the diamonds were delivered or entrusted to Sergio, the employee who stole them; his employment with the consignee, International Diamond & Gem, was insufficient to prove entrustment.
Court’s Reasoning
The Court of Appeals emphasized that the insurer bears the burden of proving that a loss falls within a policy exclusion, citing International Paper Co. v Continental Cas. Co., 35 NY2d 322, 327. The court focused on the policy language, which excluded losses resulting from dishonest acts “on the part of any person to whom the property hereby insured may be delivered or entrusted.” The court found the stipulation that Sergio was an employee of International insufficient to establish delivery or entrustment to him. The court noted, “Nor should it be inferred from the fact that Sergio was an employee of International that the diamonds were delivered or entrusted to him by International, in the face of the stipulated fact that they were stolen by Sergio, whether before or after or without entrustment to him we are not told.” The court distinguished the case from Abrams v Great Amer. Ins. Co., 269 NY 90 and David R. Balogh, Inc. v Pennsylvania Millers Mut. Fire Ins. Co., 307 F2d 894, where entrustment was established. The court also cited Glick v Excess Ins. Co., 14 NY2d 635, noting that even giving an employee a key to the store and the combination to the safe did not establish entrustment as a matter of law. The court concluded that the insurer failed to meet its burden of proving entrustment, thus the exclusion did not apply, and the insured could recover under the policy. The state of mind of the insured is relevant to determining entrustment, but only once some evidence of delivery or entrustment exists, which was lacking here.