The First Circuit recently affirmed summary judgment granted to an insurer who had denied coverage to its insured, despite the insured's allegation that there was a "possibility of coverage" under the complaint.
The insured, Narragansett Jewelry Company Inc., d/b/a C&J Jewelry ("Narragansett") was sued by Slane & Slane Designs LLC ("Slane") in the Southern District of New York for various theories, including breach of contract, negligence, negligent misrepresentation, and breach of express and implied warranties.
The suit arose out of the contract between the parties, which provided that Narragansett was to develop molds and models for jewelry and then produce jewelry from the molds for Slane. Slane claimed that Narragansett's models were defective such that they could not be used to manufacture the final products. Slane also claimed that Narragansett damaged models belonging to Slane and failed to deliver the goods in a timely manner.
Narragansett was insured under a CGL Policy that provided that the insurer would pay for damage to the property of others. The policy, however, excluded coverage for property damage to personal property "in the care, custody, or control of [Narragansett]." Accordingly, the insurer excluded coverage for the Slane suit based on this "control of property" exclusion.
The U.S. District Court for the District of Rhode Island granted summary judgment to the insurer, agreeing that the "control of property" exclusion barred coverage. On appeal, Narragansett argued that Slane's property could have been damaged during the shipping process. Accordingly, Narragansett argued that it was "possible" that the damage did not occur when the property was in Narragansett's control. Narragansett relied upon a case in which the Rhode Island Supreme Court held in favor of the insured because the insured had alleged in the underlying matter that an "Act of God" could have caused the damage (rather than the insured), and therefore there was a "possibility" of coverage.
The First Circuit affirmed the decision of the district court. The First Circuit held that such a mere "possibility" was not enough to establish coverage when the complaint specifically alleged that Narragansett caused the damage. The First Circuit distinguished Narragansett's allegations regarding third party fault from the case relied upon by Narragansett because, unlike that case, none of the underlying pleadings between Narragansett and Slane referenced the theory that the damage to Slane's property was caused by a third party. According the the court, such "post-hoc speculation" did not avoid the application of the control of property exclusion.