Despite never taking physical possession of a vertical lathe, an insured was entitled to coverage for its destruction because a policy provision for "Newly Acquired or Constructed Property" was ambiguous, the 8th U.S. Circuit Court of Appeals recently decided.
Amera-Seiki imports computerized industrial equipment for United States customers. The company purchased a vertical lathe from a manufacturer in Taiwan and arranged to have it shipped to the U.S. The lathe arrived by ship at the Port of Los Angeles on June 29, 2010. Amera-Seiki paid $1,950 to store the lathe before it was transported to Iowa. However, on July 13 a longshoreman moving the lathe for delivery dropped it, destroying the lathe.
Amera-Seiki turned to its insurer, The Cincinnati Insurance Co., seeking coverage for the total loss of the lathe. Cincinnati paid $10,000 for transportation coverage and denied the loss claim, pointing to a provision in the policy for "Newly Acquired or Constructed Property." The provision provided coverage for a loss to business personal property "including such property that you newly acquire, at any location you acquire other than at fairs, trade shows or exhibitions." Significantly, the policy did not include a definition of the term "acquire."
Cincinnati sought a narrow interpretation of the term, arguing that the temporary storage of the lathe was too passive and transient to qualify the terminal as a location where Amera-Seiki had acquired it, because the company did not own, lease, possess, or exercise any element of control, authority, or decision-making ability for the terminal.
For its part, Amera-Seiki embraced a broad reading of the term "acquire" and argued that it obtained, possessed, and controlled the lathe at the terminal because it had to pay for the right to store it there.
Confronted with the unique circumstances that both the insured's and insurer's respective interpretations were reasonable, the Court was left with no recourse but to rule in the policyholder's favor. In essence, a tie goes to the policyholder.
To read the decision in Amera-Seiki Corp. v. The Cincinnati Insurance Co., click here.
Why it matters: In the Amera-Seiki decision, the 8th Circuit recognized the general principle that an ambiguous policy provision must be construed in favor of the policyholder. Significantly, ambiguity is found when the language is susceptible to two reasonable interpretations, one favoring the policyholder and one favoring the insured. If the insured presents a reasonable interpretation, it should prevail regardless of the alternative interpretations relied on by the insurer. The power of general principles could not be clearer.