HRD Corp. v. National Union Fire Ins. Co., 87 N.Y.2d 987 (1996)

When the terms of an insurance policy are unambiguous, courts must enforce the plain meaning of the contract and should not create strained interpretations.

Summary

HRD Corp. filed a claim under its jewelers block insurance policies after the company president discovered a bag of jewelry missing during a business trip. The insurers, National Union Fire Insurance Co., denied the claim based on policy exclusions for “unexplained loss, mysterious disappearance or loss or shortage disclosed on taking inventory.” HRD Corp. argued the exclusion only applied to losses found during inventory. The New York Court of Appeals affirmed the lower courts’ dismissal, holding that the exclusion unambiguously applied to any unexplained loss or mysterious disappearance, regardless of how discovered, and that the insurer met its burden of proving the exclusion applied.

Facts

HRD Corp.’s president, while on a business trip, noticed a bag containing jewelry was missing. The president could not determine the place or manner of the loss. HRD Corp. submitted a claim to National Union Fire Insurance Co., the issuer of its primary and excess jewelers block insurance policies. The insurance policies contained exclusionary clauses that precluded coverage for “[u]nexplained loss, mysterious disappearance or loss or shortage disclosed on taking inventory.” The insurance company denied the claim, citing the exclusionary clause.

Procedural History

HRD Corp. sued National Union Fire Insurance Co., arguing the exclusionary clause was ambiguous. The trial court granted summary judgment to the insurance company, dismissing the complaint. The Appellate Division affirmed the trial court’s decision. The New York Court of Appeals granted further review.

Issue(s)

1. Whether the exclusionary clause in the insurance policy, which excludes coverage for “unexplained loss, mysterious disappearance or loss or shortage disclosed on taking inventory,” is ambiguous and applies only to losses discovered during inventory.
2. Whether the lower courts improperly shifted the burden of proof from the insurer to the insured by requiring the insured to prove the loss was not an unexplained loss or mysterious disappearance.

Holding

1. No, because the clause is unambiguous, and each of the enumerated casualties is an independent basis for exclusion.
2. No, because the insurer met its burden by showing that the claim concededly involved an “unexplained loss” or “mysterious disappearance.”

Court’s Reasoning

The Court of Appeals reasoned that the exclusionary clause was not ambiguous. The court stated, “Where the provisions of an insurance contract are clear and unambiguous, the courts should not strain to superimpose an unnatural or unreasonable construction.” The Court found that the clause listed “[u]nexplained loss,” “mysterious disappearance,” and “loss or shortage discovered on taking inventory” as independent bases for exclusion. The court noted that there was nothing in the clause’s grammar or syntax to suggest that the phrase “discovered on taking inventory” was meant to modify each of the preceding terms. The court explicitly disapproved of a contrary conclusion reached in McCormick & Co. v Empire Ins. Group Co., deeming it an inaccurate interpretation of New York law.

Regarding the burden of proof, the court acknowledged that insurers generally bear the burden of proving that a loss falls within a policy exclusion. However, the court found that the insurers in this case satisfied that burden by demonstrating that HRD Corp.’s claim involved an “unexplained loss” or “mysterious disappearance.” The court emphasized that HRD Corp. itself conceded the loss was unexplained. Thus, the burden was met because the facts, as presented by the claimant, triggered the exclusion.