Cozen O’Connor: Bailment Law in a New York Wonka Warehouse

Bailment Law in a New York Wonka Warehouse

September 9, 2019

In the beloved Roald Dahl tale, "Charlie and the Chocolate Factory", young Charlie and his Grandpa tour the magical and mysterious factory of eccentric candy-maker Willy Wonka.  Four other touring children are ejected from the warehouse in painful fashions and learn that candy storage facilities are not always safe places.

A recent New York trial court level case, MBNY LLC v. Larkin Cold Storage Co., Inc., examined another loss within a different candy storage facility that has two implications for cargo/marine subrogation clients.

The Loss

MBNY agreed to pay Larkin approximately $9,000 a month for warehouse storage of its merchandise. Pursuant to the storage contract, Larkin was responsible for preserving and protecting these products. At the beginning of July 2012, MBNY was storing approximately $900,000 worth of merchandise at Larkin’s warehouse, mainly assorted chocolate and candy. Approximately $500,000 of that amount required refrigeration. The remaining merchandise needed to be kept frozen. It was transferred to the defendant’s warehouse in good condition. However, on July 9, MBNY was advised by Larkin that there had been an incident wherein the freezer had shut down and a pipe burst. Predictably, the chocolate and candy melted and incurred water damage.

Key Points from the Decision

  1. The plaintiff, Liberty Mutual Insurance Company, filed only in the name of their insured, MBNY. The Court held that, in New York State Court at least, the insurance carrier can permissibly file suit in the name of the subrogor only.
  1. The carrier brought suit, arguing that this damage would not have occurred but for Larkin’s failure to maintain the adequate temperature in the warehouse. Indeed, the carrier moved for summary judgment on the basis that Larkin’s failure to return the merchandise in good condition created a presumption of negligence. The Court reaffirmed the longstanding principle that a bailee who fails to protect and preserve the goods in their care is indeed presumed negligent.  The Court observed that as a bailee, the owner of the warehouse is required to exercise reasonable care so as to prevent loss or damage to stored goods. The failure to return the stored goods creates a presumption of negligence, requiring the bailee to come forward with another explanation and demonstrate that it was not negligent. The court held in this case that the explanation of the power outage did not rebut the presumption of negligence. Merely identifying the cause of the damage does not absolve the defendant of responsibility for protecting the bailed goods. The defendant failed to establish that there were procedures in place, such as a backup generator, protecting the goods from a power outage.

Thus, the law of bailment in New York and a subrogated carrier’s ability to move for, and obtain, summary judgment can be powerful tools for bringing about the speedy resolution of particular marine cargo subrogation claims.

 

 


Authors

Robert W. Phelan

Member

rphelan@cozen.com

(212) 908-1274

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