Foregoing Discovery Leads to Adverse Judgment Against Insurer

Morris, Manning & Martin, LLP

Morris, Manning & Martin, LLP

Although discovery is costly, skipping it altogether can be far costlier. Indeed, in a recent case in the Second Circuit, an insurer’s decision to skip discovery likely led to it paying more than the insurer bargained for. 

In Ezrasons Inc. v. Travelers Indemnity Co., 89 F.4th 388 (2d Cir. 2023), an insured in the business of trading garments purchased a marine cargo policy to cover goods being stored temporarily by a warehouse operator. The policy covered goods only at “approved locations,” and the declarations listed the warehouse operator’s official address as that location. But, as it turns out, the warehouse operator was storing the insured’s goods at a secondary location when it suffered a fire there, resulting in the destruction of the insured’s goods.  The insured sued after the insurer denied coverage for the goods lost at a non-approved location.

At the District Court level, the parties agreed to forego discovery as to whether the secondary warehouse was an “approved location” under the policy. Instead, at summary judgment, the only evidence submitted by the parties was the policy and affidavits as to the facts, including an affidavit from the insured that the two warehouses were actually a part of the same parcel of land and merely had different addresses because of their frontage. The District Court granted summary judgment to the insurer, ruling that the address for the secondary location was not “approved” under the policy.  

On appeal, the Second Circuit reversed.  It found that the policy was ambiguous as to whether the warehouses were in different locations. Construing the ambiguity against the insurer, the Second Circuit found the insured could reasonably understand that the two warehouses were part of one “approved location” based on the insured’s affidavit. The Second Circuit noted that while the insurer could have presented evidence that would resolve the ambiguity in its favor, the insurer’s decision to waive discovery prohibited it from doing so, costing it the outcome of the case.

In Ezrasons, the decision to waive discovery was likely outcome-determinative for the insured because it cost the insurer the opportunity to dispute coverage. Retaining experienced counsel to assist in evaluating strategy can help an insurer make the best decisions possible, both in terms of avoiding unnecessary costs but also unnecessary risk. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morris, Manning & Martin, LLP | Attorney Advertising

Written by:

Morris, Manning & Martin, LLP

Morris, Manning & Martin, LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide