Synnex Corporation v. Axis Insurance Company

Background

Synnex Corporation had a crime-insurance policy with Axis Insurance Company covering losses from theft committed by an “Employee.” In August 2019, robbers emptied Synnex’s warehouse in Mexico City. The stolen property included computer hardware and devices with software preinstalled. Synnex later submitted a claim seeking the policy’s available recovery, subject to the policy’s deductible.

A security guard involved in the warehouse security worked for Servicios Profesionales de Vigilancia Metropolitana S.A. de C.V. (SPVM), the company Synnex hired to provide security. Synnex did not contract directly with the guard. The SPVM contract stated that SPVM was responsible for its personnel and that Synnex could not directly or indirectly order SPVM’s workers. The record also showed, however, that Synnex’s Logistics Director gave the guards schedules and instructions, created procedures for security rounds and checking doors, and received their nightly safety reports.

Axis denied the claim, arguing that the guards were not employees covered by the policy. Axis also argued that the independent-contractor endorsement did not apply because Synnex had no written agreement with the guard or his business. Synnex sued for breach of contract and breach of the implied promise of good faith and fair dealing. Synnex also moved to exclude expert testimony from Patrick C. Haley. The parties filed competing motions for summary judgment, which asks whether there is no genuine dispute about an important fact and one side is entitled to judgment under the law.

Expert testimony

Synnex moved to exclude Haley’s testimony under Federal Rule of Evidence 702 and the standards governing reliable expert evidence. Haley had extensive experience with crime-insurance policies and insurance disputes, although he had never served as a claims handler. The court held that this experience gave him a sufficient foundation to offer certain opinions.

The court found that portions of Haley’s report offered legal conclusions, including an opinion about whether Synnex’s interpretation of the policy was reasonable. Experts may not provide opinions that decide legal questions. The court therefore granted in part and denied in part Synnex’s motion to exclude: it denied the motion as to Haley’s expert opinion generally but granted it to the extent his testimony offered impermissible legal conclusions.

Coverage for the security guard

The court rejected Synnex’s argument that the independent-contractor endorsement covered the guard. That endorsement applied to a natural-person independent contractor who provided services under a written agreement with Synnex and the contractor or the contractor’s business. Because Synnex contracted with SPVM rather than the guard, and because the parties agreed that the guard was contractually an SPVM employee rather than self-employed, the court held that the endorsement did not provide coverage. Synnex’s motion was denied on this basis, and Axis’s cross-motion was granted.

The court reached a different result under the policy’s leased-employee provision. That provision covered a person leased to Synnex under a written contract with a labor-leasing firm, to perform services usual to an employee’s or officer’s duties, when Synnex directed the person’s labor.

The court held that SPVM qualified as a labor-leasing firm because it employed security guards and hired them out to Synnex for a fee under a written contract. It also held that the guards performed services usual to the duties of a Synnex employee because Synnex’s Logistics Director had warehouse-security responsibilities and supervised the guards. Finally, despite the SPVM contract’s language assigning responsibility to SPVM, the undisputed evidence showed that Synnex directed the guards’ day-to-day work. The court therefore held that the guard was covered under the leased-employee provision, granted Synnex’s motion on this issue, and denied Axis’s cross-motion.

Coverage for preinstalled software

The policy covered tangible property with intrinsic value and excluded loss involving intangible property or intellectual property. The court held that the preinstalled software was covered because the stolen items were physical computers and other devices sold or intended to be sold as integrated packages. Synnex lost physical products made more valuable by the installed software, rather than merely losing a right to obtain or download software. The court also held that the intellectual-property exclusion did not apply because the integrated items were tangible, not intangible.

Synnex’s motion for summary judgment on this issue was granted, and Axis’s cross-motion was denied. The court also stated that Axis had not shown that other policy exclusions for computer programs or electronic data applied.

Good-faith claim

Axis sought summary judgment on Synnex’s claim that Axis breached the implied covenant of good faith and fair dealing. Axis argued that it could not have acted improperly because the policy did not cover the loss or, alternatively, because its coverage decision was reasonable.

The court rejected Axis’s request. It had found that the policy covered the claim, and the record included evidence that Axis did not conduct a full and fair investigation. The court therefore found a material factual dispute about whether Axis acted in bad faith and denied Axis’s motion for summary judgment on that claim.

Disposition

The court granted in part and denied in part Synnex’s motion to exclude. It granted in part and denied in part Synnex’s motion for partial summary judgment, and granted in part and denied in part Axis’s cross-motion for summary judgment. The order held that the security guard was covered as a leased employee, that the preinstalled software was covered property, and that Synnex’s good-faith claim could proceed because a material factual dispute remained about Axis’s investigation.