Fabrique Innovations, Inc. v. Federal Insurance Company

Background

Fabrique Innovations, Inc., doing business as Sykel Enterprises, brought a breach-of-contract action against Federal Insurance Company concerning an ocean-cargo insurance policy. Fabrique claimed that Federal Insurance improperly denied coverage for goods that Fabrique shipped to Hancock Fabrics, Inc.’s storage facility in Baldwyn, Mississippi, in 2015. Hancock later filed for bankruptcy, sold goods, and did not make all payments to Fabrique. Fabrique and Hancock settled a related bankruptcy proceeding for $250,000, with $70,261.60 allocated to the claimed loss of goods.

In an earlier ruling, the court denied Federal Insurance’s motion for summary judgment on liability and granted Fabrique’s cross-motion, finding that Fabrique had established a preliminary case for recovery under the policy. Fabrique then moved for summary judgment under Federal Rule of Civil Procedure 56 on the amount of damages.

Summary-judgment standard

Summary judgment is appropriate when there is no genuine dispute about a fact that could affect the result and the moving party is entitled to judgment under the law. The court must view the evidence favorably to the party opposing the motion, but that party must provide evidence rather than relying on speculation or unsupported allegations.

Coverage and value of the missing goods

The policy covered direct physical loss or damage to merchandise in transit caused by a covered peril while the merchandise was temporarily stored after leaving its origin or in anticipation of transit. The policy defined merchandise in transit to include certain business property shipped by or consigned to Fabrique or shipped for Fabrique’s account, including “intracompany shipments.”

Fabrique argued that the value of the missing goods was $998,618.40. That calculation started with $1,172,731.00 in goods and deducted $70,261.60 received through the Hancock settlement, $100,159.79 in payments Hancock made through January 2016, and $3,691.21 associated with later shipments or payments.

Federal Insurance argued that the goods were not “merchandise in transit” because they were sent to a third-party warehouse rather than a Fabrique-owned warehouse. It also argued that the quantity remaining at the warehouse when the loss occurred was uncertain. The court rejected both arguments. It found that the policy did not require ownership of the warehouses and that moving the goods from one covered warehouse to another fit the policy’s meaning of “intracompany shipments.” The court also found that Fabrique’s records sufficiently documented the sales and unpaid amounts, and that Federal Insurance had not provided a sufficient basis to dispute the calculation. The court therefore found that the goods were covered and that the value of the missing goods, after the listed credits, was $998,618.40.

Sue and Labor expenses

The policy’s “Sue and Labor” provision required Federal Insurance to reimburse charges reasonably incurred under the insured’s duty to take reasonable steps to prevent or minimize covered loss and preserve rights against third parties. Fabrique claimed $555,904.47 in legal fees and other expenses incurred while trying to recover the goods from Hancock in the bankruptcy proceeding.

Federal Insurance did not dispute that Sue and Labor expenses could be covered, but argued that Fabrique had not shown that all of the claimed expenses were connected to preventing or minimizing covered loss. The court relied on Second Circuit precedent holding that reasonable legal expenses incurred to reduce an insurer’s exposure may qualify as Sue and Labor expenses. It found that Fabrique’s expenses were reasonably related to its loss claim, were incurred to maximize its recovery from Hancock, and benefited Federal Insurance. The court held that Fabrique was entitled to the full $555,904.47.

Prejudgment interest and disposition

The court held that Fabrique was entitled to prejudgment interest under New York law. It identified January 3, 2017—the date Federal Insurance denied coverage—as the date from which interest would run.

Judge George B. Daniels granted Fabrique’s motion for summary judgment on damages. The court also denied Federal Insurance’s motion for leave to file a sur-reply and directed the clerk to close the motions.