Solway v. Lloyd’s Underwriters

In this matter the Plaintiffs arranged for a motor carrier to move and store their personal belongings. The truck was stolen and the Plaintiffs’ belongings were never recovered. The Plaintiffs obtained a judgment against the carrier which was not satisfied. The Plaintiffs then commenced this direct action against the carrier’s primary and excess liability underwriters. Both underwriters agreed that the Plaintiffs’ loss was covered but disagreed as to how the loss should be apportioned between them. The primary underwriter argued that the limit of its policy was $500,000 as provided for in the transportation section of its policy. The excess underwriter argued that the applicable limit was that in the warehouse and storage section of the primary policy of $1,000,000. The issue was then one of interpretation of the primary policy. The Court noted that the normal rule for construction of insurance contracts requires a search for an interpretation which, from the whole of the contract, advances the true intent of the parties at the time the contract was entered into. The Court further noted that the general principles of interpretation of insurance contracts include: 1) the contra proferentum rule; 2) the principle that coverage provisions should be construed broadly and exclusion clauses narrowly; and 3) the desirability, at least where the policy is ambiguous, of giving effect to the reasonable expectations of the parties. The Court then considered in detail the provisions of the primary policy and ultimately concluded that the applicable limit depended on the proper characterization of the claim against the carrier either as breach of a transportation contract or breach of a storage contract. The Court held that since liability was imposed on the carrier at the trial for breach of a term relating to storage of the Plaintiffs’ goods, the limitation of $1,000,000 for warehousing or storage was applicable.