
    Murray Oil Products, Inc., Appellant, v. Royal Exchange Assurance Co., Respondent.
    Argued January 16, 1968;
    decided February 22, 1968.
    
      Copal Mintz for appellant.
    I. Plaintiff’s loss was, within the meaning and coverage of the policy, a ‘‘ physical loss * * * or expense ” which resulted and/or arose “ from, through or in connection with the Assured’s legal liability as warehousemen * * * in respect to oils * * * under their control and/or in their care, custody, or possession and for which they may legally [be] liable ”. Factually, between November 20, 1963 and December 10,1963, 69,457 pounds of plaintiff’s oil physically disappeared from Harbor Tank’s Tank No. 18, were not in any other tank of Harbor Tank, were unaccounted for and were part of an unaccounted for over-all shortage of 85,398 pounds. (Curacao Trading Co. v. Federal Ins. Co., 137 F. 2d 911; National Dairy Prods. Corp. v. Insurance Co. of North America, 24 A D 2d 955, 18 N Y 2d 657; Garnac Grain Co. v. Insurance Co. of North America, 27 A D 2d 905; Procter & Gamble Distr. Co. v. Lawrence Amer. Field Warehousing Corp., 16 N Y 2d 344.) II. Defendant’s liability to plaintiff under the policy is rendered absolutely indubitable when the words ‘ ‘ physical loss ’ ’ are considered, as they must be, in the context of the coverage provisions in their entirety. (Lewis v. Home Ins. Co., 199 App. Div. 556, 234 N. Y. 498; Waring v. Indemnity Fire Ins. Co., 45 N. Y. 606; General Ins. Co. of America v. Goldstein, 182 Misc. 419, 267 App. Div. 898; American Fabrics Co. v. Benedict, 166 Misc. 449, 255 App. Div. 957; Sincoff v. Liberty Mut. Fire Ins. Co., 11 N Y 2d 386; Johnson Corp. v. Indemnity Ins. Co. of North America, 7 N Y 2d 222; Doyle v. Allstate Ins. Co., 1 N Y 2d 439; Bronx Sav. Bank v. Weigandt, 1 N Y 2d 545; Lachs v. Fidelity & Cas. Co. of N. Y., 306 N. Y. 357; Morgan v. Greater N. Y. Taxpayers Mut. Ins. Assn., 305 N. Y. 243; Lewis v. Ocean Acc. & Guar. Corp., 224 N. Y. 18.) III. There is no defect or insufficiency in the proof. (National Dairy Prods. Corp. v. Insurance Co. of North America, 24 A D 2d 955, 18 N Y 2d 657.) IV. No error was committed by the Trial Justice in refusing to charge that “if Harbor Tank could not have recovered had it sued here, Murray Oil cannot recover ”. Nor was there any other error in the charge or any error in the exclusion of evidence. V. As impliedly held by the Appellate Division majority and explicitly by the dissenting Justice, the defense of fraud at the inception of the policy was correctly dismissed. That is so for a number of reasons, each sufficient sn itself. (Sebring v. Fidelity-Phenix Fire Ins., Co. of N. Y., 255 N. Y. 382; Stecker v. American Home Fire Assur. Co., 
      299 N. Y. 1.) VI. By deliberately electing, after it had acquired all the information which later it adduced at the trial, to retain the $12,000 of premiums, defendant ratified the policy. (Harris v. Equitable Life Assur. Soc. of U. S., 64 N. Y. 196; Mincho v. Bankers’ Life Ins. Co., 124 App. Div. 578; McClelland v. Mutual Life Ins. Co. of N. Y., 151 App. Div. 264; New York Tel. Co. v. Jamestown Tel. Corp., 282 N. Y. 365; E. T. C. Corp. v. Title Guar. & Trust Co., 271 N. Y. 124; McNamara v. Eastman Kodak Co., 232 N. Y. 18; Flynn v. Equitable Life Ins. Co., 78 N. Y. 568; Perry v. Metropolitan Life Ins. Co., 168 App. Div. 275.) VII. Defendant affirmed the policy also by the contents of its notice rejecting the claims herein. (Appell v. Liberty Mut. Ins. Co., 22 A D 2d 906; Shapiro v. Employers Liab. Assur. Corp., 139 Misc. 454; Brink v. Hanover Fire Ins. Co., 80 N. Y. 108; Littlejohn v. Shaw, 159 N. Y. 188; Titus v. Glens Falls Ins. Co., 81 N. Y. 410; Lampke v. Metropolitan Life Ins. Co., 279 N. Y. 157; Tyrnauer v. Travelers Ins. Co., 15 A D 2d 293.) VIII. Plaintiff herein is, in essence and effect, an innocent additional insured, against whom the alleged fraud of Harbor Tank is not assertable. (National Dairy Prods. Corp. v. Insurance Co. of North America, 18 N Y 2d 657; Morgan v. Greater N. Y. Taxpayers Mut. Ins. Assn., 305 N. Y. 243; Wenig v. Glens Falls Ind. Co., 294 N. Y. 195; Bobrow v. United States Cas. Co., 231 App. Div. 91; Stromblad v. Hanover Fire Ins. Co., 121 Misc. 322.)
    
      Abraham J. Asche and S. E. Gross for respondent.
    I. Plaintiff failed to establish a prima facie case that the insured sustained a physical loss of oil or that such loss occurred during the life of the policy. (Dean v. Fidelity & Deposit Co. of Maryland, 233 App. Div. 392, 259 N. Y. 520; Van Schaick v. American Sur. Co., 252 App. Div. 489; Curacao Trading Co. v. Federal Ins. Co., 137 F. 2d 911; Garnac Grain Co. v. Insurance Co. of North America, 27 A D 2d 905; National Dairy Prods, v. Insurance Co. of North America, 24 A D 2d 955, 18 N Y 2d ,657; Procter & Gamble Distr. Co. v. Lawrence Amer. Field Warehousing Corp., 16 N Y 2d 344.) II. Harbor Tank was the insured—not plaintiff. Plaintiff’s rights are, therefore, derivative and it cannot recover if Harbor Tank could not have recovered. (Fields v. Western Millers Mut. Fire Ins. Co., 290 N. Y. 209 ; Hessian Hills Country Club v. Home Ins. Co., 
      262 N. Y. 189; Moore v. Hanover Fire Ins. Co., 141 N. Y. 219; Syracuse Sav. Bank v. Yorkshire Ins. Co., 301 N. Y. 403; Grosvenor v. Atlantic Fire Ins. Co. of Brooklyn, 17 N. Y. 391; First Westchester Nat. Bank of New Rochelle v. New England Ins. Co., 11 A D 2d 192; Lewis v. Home Ins. Co., 199 App. Div. 556, 234 N. Y. 498; Clinckett v. Casseres, 205 App. Div. 710.) III. The concealment by the insured that repeated gauges invariably showed shortages before the policy was written established the defense of concealment as a matter of law. The trial court should therefore have dismissed the complaint. Certainly, the defense should not have been dismissed. (Hanover Fire Ins. Co. v. Morse Dry Dock & Repair Co., 152 Misc. 111, 244 App. Div. 780, 270 N. Y. 86; Sebring v. Fidelity-Phenix Fire Ins. Co. of N. Y., 255 N. Y. 382; Stecker v. American Home Fire Assur. Co., 299 N. Y. 1; Rothmiller v. Stein, 143 N. Y. 581; Nasaba Corp. v. Harfred Really Corp., 287 N. Y. 290; Millar v. New Amsterdam Cas. Co., 248 App. Div. 272; Jackson v. State of New York, 210 App. Div. 115, 241 N. Y. 563; Angerosa v. White Co., 248 App. Div. 425, 275 N. Y. 524; Sabo v. Delman, 3 N Y 2d 155; Crowell-Collier Pub. Co. v. Josefowitz, 5 N Y 2d 998.) IV. The failure of the insured to give timely notice of the shortages which it found periodically over a long period of time voided the policy. The complaint should have been dismissed on this additional ground as a matter of law. (American Stevedores v. Sun Ins. Off., 42 Misc 2d 516, 23 A D 2d 966; Deso v. London & Lancashire Ind. Co., 3 N Y 2d 127; Haas Tobacco Co. v. American Fid. Co., 226 N. Y. 343; Gullo v. Commercial Cas. Ins. Co., 226 App. Div. 429.) V. The trial court’s charge was confusing, contradictory and inadequate on the central issue in the case. The charge also was erroneous in failing to outline defendant’s position, although it fully explained plaintiff’s position. The court should also have charged defendant’s other requests. (Moore v. Crestwood Manor, 286 App. Div. 851; U. S. Vitamin & Pharm. Corp. v. Capitol Cold Stor. Co., 21 A D 2d 661; Weber v. Philadelphia Fire & Mar. Ins. Co., 267 App. Div. 370; Pat Hartly, Inc. v. American Reciprocal Insurers, 21 A D 2d 761.)
   Keating, J.

On November 20, 1963, the plaintiff delivered 300,600 pounds of vegetable oil to the Harbor Tank Storage Co. for storage in its tanks. The following month the storage company became insolvent and was found to have insufficient oil in its possession to return all the oil the plaintiff had deposited. As a result, the plaintiff lost 70,000 pounds of oil, the value of which it now seeks to recover from Harbor Tank’s insurance carrier.

An insurance policy had been issued by the defendant to Harbor Tank on December 31, 1961, and renewed the following year. It covered the storage company against ‘ ‘ physical loss, physical damage or expense resulting and/or arising from, through, or in connection with the Assured’s legal liability * * * in respect to oils and similar comodities the property of others under their control and/or care, custody or possession and for which they may be legally liable in any way.” (Emphasis added.) The plaintiff is not named as an insured in the policy but brings this suit under a clause providing for direct payment to any claimants in the event of the storage company’s insolvency.

The oil with which we are concerned was, of course, a fungible commodity and the deposits of the various bailors, including the plaintiff, were not kept segregated but were commingled in the several large tanks of Harbor Tank. The entire amount of oil was treated as a community pool, from which all of the depositors would withdraw discrete amounts as they desired but in which it could not be determined whose oil was in any tank at a particular time. The only physical measurement of the amount of oil in this pool was by “ gauging ”—measuring the depth of the oil in the tanks and then by multiplying by various mathematical factors. Over a 10-year period, this method indicated a consistent shortage of 90,000 to 110,000 pounds. At the time of the insolvency, the oil was actually weighed, and a shortage of 85,000 pounds was discovered. No evidence was presented to explain this shortage.

The Supreme Court, New York County, entered judgment for $24,000 for the plaintiff upon a jury verdict. On appeal, the Appellate Division reversed, one Judge dissenting, and dismissed the complaint. The court held that the insurance policy covered only a physical loss of the oil by the storage company and that the plaintiff had failed to show that such a loss had occurred within the policy period.

The plaintiff argues, as did the dissenting Justice at the Appellate Division, that physical delivery of the oil in question was made during the period in which the policy was in effect and that the failure to return the oil on demand was a ‘ ‘ physical loss ” within the meaning of the policy. The defendant argues on the other hand that this policy was, in essence, a casualty policy, that the term ‘ ‘ physical loss ’ ’ refers to such loss as destruction by fire and that the plaintiff has failed to establish that a loss of this kind took place here.

Essential, of course, to the construction of the phrase in question is an examination of the entire contract to determine its purpose and effect and the apparent intent of the parties (Kurek v. Port Chester Housing Auth., 18 N Y 2d 450; Matter of Schmith, 19 N Y 2d 398; see, also, 13 Appleman, Insurance Law and Practice, § 7383). In making such an examination, we note first that the provision immediately following the clause in question excepts specifically from coverage some eight different contingencies under which the bailee would not have been liable to the bailor. None of these contingencies is alleged to or could reasonably have accounted for the loss in question. In addition, the contract, unlike an ordinary casualty policy, provides coverage if the bailee is induced by fraud to give the property of the bailor to a third party.

These clauses demonstrate that the primary purpose of the policy was to cover .every possible contingency under which the insured would be liable to the bailor if it was not able to deliver the oil due to a physical loss of any kind. Under these circumstances we cannot say that the loss of the oil delivered by the bailor to the insured was not a physical loss within the meaning of the policy (cf. Employers Cas. Co. v. Holm, 393 S. W. 2d 363, 367 [Texas Ct. of Civ. App.]; Harman v. American Cas. Co., 155 P. Supp. 612, 614 [S. D., Calif.]). While it may reasonably be argued that the term ‘ ‘ physical loss ’ ’ should be read as the insurer would have us read it here, such a construction is by no means clear from either the language or purpose of the policy. An insurer may not accept premiums under the provisions of an ambiguous policy which the insured may be justified in believing provides a particular form of coverage and then avoid liability by arguing that the policy is inapplicable to the contingency. To do so would permit the insurer * * * [to take] an unjust and unfair advantage of the insured and weaken the purpose for which the policies were issued.” (Harman v. American Cas. Co., supra, p. 614.)

In addition to the ‘ ‘ physical loss” provision, we believe that recovery would be justified here under the ‘‘ expense ’ ’ provision in the clause in question. If the bailee had remained solvent and was unable to deliver the oil, a suit would have been commenced against it, and the bailee would have been ultimately required to reimburse the bailor for the value of the nondelivered oil. This payment would have been an “ expense ” to the bailee “ resulting and/or arising from, through or in connection with the [its] legal liability * * * in respect to * * * the property of others under [its] control * * * for which [it was] * * * legally liable ”. This is clearly “a claim for which the policy would be liable ” but for the bankruptcy of the insured. As such the plaintiff may recover.

The order of the Appellate Division should be reversed and a new trial granted, with costs to abide the event.

Chief Judge Fuld (dissenting).

Although Harbor Tank Storage Co., the bailee in this case, would be responsible as a warehouseman to its bailors for its failure to deliver their oil to them on demand, there can be no doubt that an insurer could not be held liable for such nondelivery under the policy beforé us unless it was one of the risks insured against.

We are here concerned with a Scheduled Property Floater Policy ” which insures the bailee only against damage to, or loss of, property in its possession for which it would ultimately be liable to its bailors. In order to recover under such a policy, it must be shown that all or some of the property which had been placed on the premises was damaged or lost during the term of the policy. It is my view—as it was the Appellate Division’s — that the plaintiff has failed to establish this essential fact. Indeed, as the majority opinion points out, the only evidence adduced herein indicates that, although the policy had been in effect for but 2 years, a shortage in the quantity of oil had existed for at least 10 years and “ [n]o evidence was presented to explain this shortage ” (opinion, p. 444).

Quite obviously, not every possible contingency was covered. The policy specifically provides that it does not encompass loss due to “ wear and tear or gradual deterioration ” or “ inherent vice ”, either of which could have accounted for the ultimate shortage. Other risks clearly not insured against include wrongdoing on the part of the warehousemen or bookkeeping errors in its records indicating the receipt of oil never actually delivered.

In sum, all that the plaintiff has shown is that, at a particular point in time, there was insufficient oil in the tanks to satisfy the warehouseman’s obligations to all of its bailors. Even if the shortage had been caused by one of the risks which the policy insured against—and, as I have said, there is absolutely no warrant for such an assumption—the shortage could not constitute & basis for a claim against the insurer if the loss had occurred before the policy was issued. The insurance company was certainly not assuming responsibility for the consequences of events which may have happened years before it issued its policy. I would affirm the order appealed from.

Judges Scileppi, Breitel and Jasen concur with Judge Keating; Chief Judge Fuld dissents and votes to affirm in a separate opinion in which Judges Burke and Bergan concur.

Order reversed, etc.  