Recovery Reduced In Accordance With Safe Warranty

Commercial Property	Jewelers Block
Commercial Inland Marine

A jewelers block policy was purchased by a retail jewelry company on the stock of its stores, subject to the information contained in an application or proposal attached to and incorporated in the policy. A pertinent paragraph in the proposal was labeled "Warranties As To Property During Terms of Insurance At All Times When Premises Are Closed." It stated that, after store hours, the proportion of property on premises kept in safes would be 70%; that on premises (including window display), it would be 30%. Over the insured's signature, this statement and others in the proposal were acknowledged as warranties under a policy if issued.

One of the insured's stores was burglarized. The insured acknowledged that, at the time of the burglary, somewhat more than 30% of the inventory was outside the store safe; the insurer disagreed with the percentage reported by the insured. When the insured filed a claim for its entire loss, the insurer refused any recovery based on the described warranty. In the course of legal action, the insured appealed a trial court judgment upholding the insurance company's contention that it had no obligation.

The insurance company maintained that the pertinent provisions was a material warranty which, when breached, entitled it "to avoid or rescind the policy altogether." The insured argued that it was not a material warranty and that, if it was, "it is unenforceable based on its ambiguity."

The appeal court determined that the paragraph in question was a material warranty but that the breach of it did not justify total forfeiture of coverage under the policy. It said: "Plaintiff's promise to keep 70 percent of its inventory by value in a safe is material as to that part of the inventory only. It is not material as to the remaining 30 percent. This is necessarily so because, while an agreement to keep 70 percent of one's inventory in a safe reduces the risk of insuring that portion of the inventory, it does not reduce the risk of insuring the remaining 30 percent which may or may not be kept in the safe."

The court concluded that the breach on the part of the insured did not affect the insurer's obligation to cover the loss of 30 percent of the insured's inventory by value at the time of the burglary. Accordingly, the trial court's judgment in favor of the insurance company was reversed and the case remanded for further proceedings consistent with the appeal court's opinion.

The Chainery, Inc., Plaintiff, Appellant v. Fireman's Fund Ins. Company, Defendant, Respondent. California Court of Appeal, First District, Division Three. No. A042303. June 28, 1989. 211 Cal. App. 3d 1236. CCH 1989 Fire and Casualty Cases, Paragraph 1991.