The U.S. Court of Appeals for the Sixth Circuit, affirming a district court decision, has found that a businessowners special insurance policy did not provide coverage for the defense of a fraud counterclaim asserted against the shipper of a missing 5.56-carat pink diamond.

The Case
John Stafford and U.S. Diamond & Gold, doing business as Stafford's Jewelers (together, “Stafford”), shipped a 5.56-carat pink diamond to Julius Klein Diamonds (“JKD”). Stafford packaged the diamond and arranged for The Brinks Company to provide secured transportation from Dayton, Ohio, to New York City. JKD received the package the same day Stafford shipped it. JKD claimed that upon opening the package, however, the diamond was missing.

Stafford sued JKD for damages related to the loss of the diamond. JKD counterclaimed, alleging that Stafford had made false representations concerning the shipment (in particular, JKD contended that Stafford never had shipped the pink diamond at all).