Court Finds Property Insurer Liable Without Proof Of Physical Loss Or Damage To Covered Property
April, 2007
The United States District Court for the Northern District of Illinois (Gettleman, J.) has found liability under a property insurance policy without proof of any physical loss or damage to covered property. Frigon v. Pacific Indemnity Co., 2007 WL 756384 (N.D. Ill.).
Facts
Henry and Anne Marie Frigon sued Pacific Indemnity Company for an alleged loss to 11 paintings insured under defendant’s “Masterpiece Policy.” The policy covered “all risk of physical loss to valuable articles.”
Plaintiffs acquired the paintings for just over $1,000,000.00. After deciding to sell the paintings, they were placed on consignment at the R.H. Love Galleries (“Gallery”) in Chicago for an aggregate minimum sales price of $1,600,000.00.
The Frigons were blissfully unaware that the Gallery was insolvent and had been for years. The Gallery sold the paintings for less than the agreed upon minimum sales price and then failed to remit the proceeds to the Frigons. Finally, the Gallery admitted that all of the paintings had been sold, but that the Gallery had spent the proceeds. The Frigons then made claim for the value of the 11 paintings.
Analysis
In finding coverage, the court stated that “the conduct of the Gallery toward the paintings is no different than had the Gallery taken the paintings on consignment and destroyed them.” That, however, is clearly not what happened. Coverage under the policy, of course, is dependent upon physical loss to valuable articles, and the paintings were not destroyed. To the contrary, it appears that all 11 were in the same condition as the day they were delivered to the consignee Gallery.
By glossing over the physical loss prerequisite, the court has seemingly transformed the property policy into a guarantee that the Gallery would faithfully perform its obligations under the consignment agreement. Clearly, that is not what property insurance is intended to do.
Learning Point
Now that the court has denied reconsideration, this case may end up on appeal in the Seventh Circuit. We suggest that the issue presented is so significant to the insurance industry that other insurers may want to consider filing amicus briefs if an appeal ensues. We will continue to monitor the progress of this matter and report further in future issues.
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