The Claim

After the December 2015 theft, Berrylane filed a claim with Transportation, which was unfortunately denied. Transportation pointed out that coverage was unavailable under the policy because the theft had occurred at a warehouse in Florida, not the Ohio warehouse listed in the policy Declarations. Coverage was likewise unavailable through the “Newly Acquired or Constructed Property” endorsement because the Florida warehouse was neither newly acquired nor newly constructed.

Berrylane ultimately filed a lawsuit against Transportation for breach and bad faith. Transportation sought dismissal of Berrylane’s claims, arguing the company did not have an actual claim because coverage did not and would not apply to the theft of the iPhones. The judges agreed and ruled in favor of Transportation. Berrylane filed an appeal.

Nothing New, Nothing Covered

According to Berrylane, the “newly acquired” part of the “Newly Acquired or Constructed” endorsement referred to the business personal property–in this case, the iPhones–not the actual warehouse. The circuit judges were not convinced. They pointed out that, in the context of corporate coverage, the “Newly Acquired or Constructed” endorsement was intended to support corporate growth without exposing either policyholders or insurers to excessive risks. Whenever a corporation acquired new real or personal property, the “Newly Acquired or Constructed” endorsement would provide limited coverage to that newly acquired property until the policyholder “acquired more permanent insurance coverage.”

The operative term for Berrylane was “acquire.” Berrylane, however, argued that “acquisition” implied a sense of physical control; the Florida warehouse had been purchased several months before the inception of the Transportation policy, but Berrylane had not begun using the actual physical property until after the policy became effective, shortly before the theft of the iPhones. Therefore, the theft should be covered.

The judges were skeptical of this interpretation. According to Merriam-Webster, “acquire” meant “to get as one’s own” or “to come into possession or control of often by unspecified means,” which only showed that “acquire” could apply to either physical or legal possession. While using the verb in the past tense would have clearly indicated the intent for the endorsement to include real or personal property acquired shortly before policy inception, the endorsement used the present tense, which wasn’t quite as clear.

The judges looked to Spike Industries, Inc. v. Midwestern Indemn. Co., 2007 Ohio App. LEXIS 5451 (Ohio Ct. App. 2007), where the Court of Appeals of Ohio had determined that the “Newly Acquired Property” provision of a policy referred only to “covered personal property at newly acquired locations, not newly acquired personal property at any location” (emphasis added).

Berrylane likened the situation to auto insurance, where “acquiring” a vehicle requires physical possession due to the nature of auto coverage. In Artisan & Truckers Cas. Co. v. JMK Transp., LLC, 994 N.E.2d 528 (Ohio Ct. App. 2013), the appellate court had determined that ownership of a vehicle, for coverage purposes, meant “physical possession of the automobile.”

The judges were still skeptical. While it made sense that “acquisition” required physical possession in terms of auto coverage, the same principle was not necessarily true for real property. The turning point in buying a house “is the conveyance of title.” The timing of when a house’s new owner actually moves in is not entirely relevant because that new owner already owns the house.

In this sense, Berrylane could have “acquired” the warehouse on either January 8, 2015, when the lease was signed, or on February 1, 2015, when the lease became effective. The “Newly Acquired or Constructed” endorsement supported one of these dates, because it specifically stated that it “applied to newly acquired property that Berrylane ‘acquired by purchase or lease…’” (italics original). The businessowners policy, unfortunately, was not effective until April 2015, well after both potential acquisition dates. Berrylane had acquired the warehouse before the policy was effective, and therefore the theft was not covered.

A “Reasonable” Interpretation

Berrylane argued that, in the alternative, use of the term “acquire” made the policy ambiguous, and ambiguity was always interpreted against the insurer and in favor of the insured. The court acknowledged that, if the policy were found ambiguous, it would behoove the judges to rule in favor of the insured, Berrylane. The judges pointed out, however, that this deference only applies when the insured proposes a reasonable alternative interpretation.

First of all, the court’s preceding analysis of the policy and endorsement showed no ambiguity. Perhaps it was not written as well or as clearly as it could have been, but a policy provision can be poorly drafted without being ambiguous.

But, even if the policy were ambiguous, Berrylane’s interpretation of the policy was not entirely reasonable. As stated above, coverage under a policy’s “Newly Acquired” clause is intended as “a temporary safeguard to cover new property acquired during the policy period that would otherwise be uninsured.” Otherwise, there would be no point to a list of scheduled properties to which coverage applied. The core of insurance is the risk paid and absorbed by each party: the policyholder pays the premium, hoping the coverage will be worth it in the face of a loss; and the insurer bets that “the risk will never come to fruition.” Interpreting a “Newly Acquired” policy to include new property at any location owned by the policyholder would remove the mutuality of the risk. Therefore, the judges said, Berrylane’s interpretation was unreasonable.

Conclusion

The policy Transportation had issued to Berrylane was not effective until after Berrylane’s acquisition of the Florida warehouse. Therefore, the policy precluded coverage for the December 2015 loss by theft. Berrylane’s arguments for interpreting the policy as ambiguous and construing the policy in favor of coverage failed because the policy was not ambiguous, and Berrylane’s argument was not a reasonable interpretation of the policy. The trial court’s verdict was affirmed.

Editor’s Note: Like the court said, “newly acquired” coverage is “a temporary safeguard to cover new property acquired during the policy period that would otherwise be uninsured.” It gives insureds peace of mind that, if they can’t find the correct coverage immediately, their new property is still covered for a short time–typically two to four weeks–while the insured tries to find more permanent coverage.

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Newly Acquired or Constructed Property

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