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Insurance Coverage, the "Next Business Day" Rule and Fairness

Beauty Supplies.jpgLawyers often get the reputation of thinking about the "worst case" scenarios, no matter how unlikely they may be. It is a tricky game of "what if," where a potential situation is weighed against the likelihood that it will occur. Insurance companies similarly weigh these pros and cons and decide whether they will insure against a particular situation. 

Shipping and deliveries are especially fraught with these "what ifs." What if the delivery gets lost along the way? What if the shipment arrives damaged? What if the package never gets there? You may not realize it, but there are laws and insurance coverage to address each of these questions, when you get anything delivered to you. A key question is "who is responsible for paying for the loss when any of these mishaps occur?"

A New Jersey Appellate Court looked at some of these questions recently in Beauty Plus Trading Co., Inc. v. Nat'l Union Fire Insurance Co.  This case involved the shipment of hair extensions from China to Elizabeth, New Jersey. The suing party, a beauty supplies company, received the shipment at its warehouse in Elizabeth at 5:00 PM on a Friday with its original seal intact. The warehouse was closing at 6:00 PM and its warehouse manager decided that there was not enough time to unload the container. It would take longer than an hour to unload it completely, and he knew that the employees would be disgruntled and uninterested in working overtime. 

Instead, he had the container backed into the warehouse unloading bay and opened the original seal - it remained there until 7:00 AM the following Monday, when the warehouse employees could unload it. Over the weekend, the container was stolen. The goods inside were worth over $200,000. 

The beauty supplies company filed a claim under its insurance policy, which contained a "Warehouse to Warehouse" clause. This was intended to cover the shipment from the time when it left the warehouse it was stored in until the delivery to the final destination - or until "fifteen . . . days (or thirty . . . days if the destination . . . was outside the limits of the port) whichever [should] first occur." 

The policy also gave coverage when the shipments reached their final destination - by an "unloading" provision - but no more than 72 hours after they arrived, or 24 hours after the recipient knew of the delivery. The beauty supplies company claimed that New Jersey law's "next business day rule" - which extends a timeframe until the next business day in a contract applied - meaning that the insurance policy's extended coverage timeframe should have begun on the next business day and continue from there. 

But the Appellate Court agreed with the lower court - that the beauty supplies company's position was not based on a proper application of the law. When a party has an ability to perform an obligation, but is frustrated by the deadline falling on a weekend, the time will be stopped or "tolled" until the following business day. 

In this case, there was nothing the parties "had to do." The beauty supplies company was not obligated to do anything once it received the shipment, and thus, the time would not be tolled. The Court further added that the insurance policy was clear and unambiguous in its terms and that it would honor the "plain and ordinary meaning" of its terms. 

Unfair? Our Courts often make such rulings. Deadlines and time periods imposed by contracts and insurance policies can be adjusted or changed by law. The point of these "adjustments," though, is supposed to be to facilitate a fair outcome. Here, the beauty supplies company did not have to act once it received the shipment; its obligation was only to be the recipient of the package. The decision to unpack the container at a later time was its own decision, and extending insurance coverage for this reason would not have been fair to the insurance company, according to the two Courts. Maybe none of the judges ever ran a small to medium sized business. 

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