The Importance of Discovery in Insurance Coverage Disputes

Discovery can be expensive, but choosing to skip it can lead to even greater costs, according to law firm Morris, Manning & Martin. In Ezrasons Inc. v. Travelers Indemnity Co., a garment trader purchased a marine cargo policy to cover goods temporarily stored by a warehouse operator.

A fire occurred at the location where the goods were stored, destroying the garments. When the insurer denied coverage for goods lost, the insured filed a lawsuit. The policy specified coverage for goods at “approved locations.” Although the declarations stated the warehouse operator’s official address as the approved location, the goods were stored elsewhere.

During proceedings at the district court level, both parties agreed to forgo discovery regarding whether the secondary warehouse qualified as an “approved location” under the policy. The only evidence presented during summary judgment was the policy itself and affidavits detailing facts, including one from the insured asserting that the two warehouses, despite being at different addresses, were on the same parcel of land due to their frontage.

The district court ruled in favor of the insurer, determining that the address for the secondary location was not considered “approved” under the policy. However, the Second Circuit reversed this decision on appeal, deeming the question of whether the warehouses were in different locations as ambiguous within the policy. Consequently, the insured’s belief that the two warehouses comprised a single approved location was deemed reasonable.

The attorneys highlight that the choice to forego discovery likely influenced the case’s outcome, as it prevented the insurer from challenging coverage, a situation that experienced counsel might have avoided.