Bijan Designer For Men, Inc., Respondent-Appellant, v. Fireman’s Fund Insurance Company, Appellant-Respondent.
Supreme Court Of New York, Appekkate Division, First Department
264 A.D. 2d 48; 705 N.Y.S. 2d 30; 2000 N.Y. App Div. LEXIS 2589
March 9, 2000, Decided
March 9, 2000, Entered
SUBSEQUENT HISTORY: As Amended July 7, 2000
PRIOR HISTORY: Cross appeals from a judgment of the Supreme Court (Paula Omansky, J.), entered December 30, 1998 in New York County, which, inter alia, granted plaintiff recovery on its claim to collect on an insurance policy loss of certain stock.
Headnotes
Insurance –Fire Insurance – Valuation of Damaged Designer Clothing – Construction of Phrase “Finished Goods… Manufactured By” Insured
In an action seeking a declaration of whether inventory destroyed in a fire at plaintiff insured’s retail clothing store was “manufactured” by plaintiff, a designer and retailer of high-fashion men’s clothing , in which case plaintiff would be entitled to recover to resale value of the damaged stock under the terms of the commercial insurance policy covering the store, or merely constituted “finished goods” that plaintiff “purchased from others for resale,” in which case plaintiff would only be entitled to recover the replacement value of the damaged stock, plaintiff is only entitled to recover the replacement value, not the resale value of the stock, as a matter of law under the unambiguous valuation provisions of the insurance policy. Although plaintiff may be considered to be the “manufacturer” of its clothing as that term is used in the fashion and apparel business because it conceives and designs the clothing it sells, selects the materials from which such clothing is made, and provides detailed specifications for the manufacture if the clothing, it cannot be deemed to be the ‘manufacturer” for purposes of the policy where the actual physical production of its clothing line is carried out by foreign clothing factories and title to the goods does not pass to plaintiff until it receives and accepts the finished product. The reference in the policy to “finished goods… manufactured by you,” when read in its contextual setting as one of four possibilities of valuing an insured’s stock, plainly contemplates the concept of manufacturing in its ordinarily understood sense as goods resulting from actual , physical work performed on raw materials. The construction of the policy advocated by plaintiff’s stick would fall within the parameters of both “finished goods… manufactured by you” and “finished goods that you have purchased from others for resale,” a result that could not have been intended by the parties.
COUNSEL: Robert M. Horkovich and John Gasior of counsel (Anderson Kill & Olick, P.C., attorneys), for respondent-appellant.
Frederic R. Mindlin and Mark J. Weber of counsel (Mound, Cotton & Wollan, and Clausen Miller, P.C., attorneys), for appellant-respondent.
JUDGES: Sullivan, P.J., Nardelli, Wallach and Saxe, JJ. concur
Opinion
[*49] [**31] Friedman, J.
The question presented by this appeal concerns the meaning of the phrase “manufactured by you” in the context of a commercial insurance policy. We conclude that under the terms of the policy plaintiff did not manufacture the clothing destroyed by a fire, notwithstanding that a designer such as plaintiff may be loosely considered a manufacturer within the parlance of the fashion industry.
Plaintiff (Bijan) is a designer and retailer of high-fashion men’s clothing. It operates two retail stores, one at the St. Regis [***2] Hotel in Manhattan and the other in Beverly Hills, California. On June 1, 996, fire at the St. Regis location caused extensive damage to Bijan’s inventory consisting primarily of clothing it designed.
At the time of the fire, Bijan was insured under a commercial insurance policy (the policy) issued by defendant (Fireman’s Fund), which covered this loss. During the adjustment of Bijan’s claim, a dispute arose concerning the valuation of Bijan’s stock. This dispute was centered around paragraph K.3 of the policy, which provides the following.
“Stock will be valued as follows:
“a. Stock that is supplies or raw materials will be valued at Replacement Cost
“b. Stock that is work-in-progress will be valued at the cost of materials, labor, supplies, and overhead incurred.
“c. Stock that is finished goods and manufactured by you will be valued at the price for which it could have been sold if there had been no loss, less discounts [**32] and uncured expenses.
“d. Stock that is finished goods that you have purchased from others for resale will be valued at Replacement Cost” (emphasis added)
[**50] According to Bijan, its stick constituted [***3] finished goods that Bijan, itself had manufactured. Therefore, Bijan claimed entitlement to approximately $10,000,000, which, pursuant to subparagraph c, is the price for which the goods could have been sold had there been no loss. Fireman’s Fund, on the other hand, argued that, while the damaged stock constituted finished goods, the stock was purchased by Bijan from others for resale, not manufactured by it. Hence, pursuant to subparagraph d, Fireman’s Fund asserted that it was only required to pay Bijan the replacement cost, namely $1,600,000. Fireman’s Fund paid such amount and then commenced this action seeking a declaration that the stock destroyed in the fire was not manufactured by Bijan. In turn, Bijan asserted counterclaims seeking to recover the resale value of the stock.*
During trial the caption of the action was amended to style Bijan as the plaintiff and Fireman’s Fund as the defendant.
Prior to trial, Fireman’s Fund moved for summary judgment asserting that the stock at issue [***4] had not been manufactured by Bijan. Fireman’s Fund pointed to Bijan essentially uncontroverted role in the production of its clothing line. Thus, Bijan conceives and designs the clothing it sells, selects the materials from which such clothing is made, and provides detailed specifications for the manufacture of the clothing. However, the actual physical production of the clothing is carried out, not by Bijan, but by Italian clothing factories with which Bijan contracts, although Bijan’s personnel sometimes visit the factories to provide oversight. It is further undisputed that title to the goods does not pass to Bijan until it receives and accepts, in the United States, the finished product, with the accompanying invoice. Therefore, Fireman’s Fund argued that under the unambiguous terms of the insurance policy, Bijan was only entitled to recover the replacement value, not the resale value of the stock.
Bijan opposed the motion based on the opinion of Professor Irwin A. Kahn of the Fashion Institute of Technology, who maintained that Bijan is considered o be a “manufacturer” of clothing as that term is colloquially used in the fashion and apparel business. In this connection, [***5] he noted that “the most significant activity related to the manufacture of fashion merchandise is conception and specification of garment styles.”
Professor Kahn further relied on two textbooks used to teach courses at the Fashion Institute. By way of example, one textbook indicated that, although the United States Census [*51] classified apparel manufacturers as business that buy fabric and assemble garments in factories that they own, in reality today few large firms commonly considered apparel manufacturers would qualify as such under the census terminology (Jarnow & Dickerson, Inside the Fashion Business, at 495 [Merrill/Prentice Hall, 6th ed 1997])
Fireman’s Fund countered that it is irrelevant whether or not Bijan may be loosely characterized as a manufacturer in the fashion industry. The term used in the relevant contractual provision, that is paragraph K.3 (c) of the policy, was “manufactured by you”, and that term unambiguously referred to the physical manufacturing of the stock, which Bijan admittedly did not perform.
Supreme Court decline to decide the summary judgment motion. Instead the court announced that it would reserve decision on the motion until [***6] after hearing the trial testimony of Bijan’s expert on the [**33] meaning of the term manufacturer as used in the apparel industry. At the close of the evidence, which included testimony by industry experts for both parties, Supreme Court denied Fireman’s Fund’s motion for summary judgment, as well as its motion for a directed verdict. In so doing, Supreme Court determined that paragraph K.3 (c) was ambiguous as to whether the term “manufactured by you” was a reference to manufacturing in its commonly understood sense, or a reference to manufacturing in the sense advocated by Bijan.
The sole interrogatory submitted to the jury at the conclusion of the trial, which had been bifurcated into liability and damage phases, asked, “was the stock damaged in the fire in [Bijan’s St. Regis] location manufactured by Bijan…?” The jury answered “Yes.” After the verdict was rendered, Fireman’s Fund moved for judgment in its favor as a matter of law, or, in the alternative, for a new trial, pursuant to CPLR 4404 (a). This motion, like the summary judgment motion and motion for a directed verdict, was denied.
We conclude that Supreme Court erred and that judgment, [***7] as a matter of law, should have been entered in favor of Fireman’s Fund based upon the unambiguous terms of the insurance policy.
It has long been the rule that a “contract must be read as a whole in order to determine its purpose and intent, and … single clauses cannot be construed by taking them out of their context and giving them an interpretation apart from the contract of which they are a part. (Atwater & Co. v. Panama [*52] R.R. Co., 246 N.Y. 519; Becker v. Frasses & Co., 255 N.Y. 10.) Words considered in isolation may have many and diverse meanings. In a written document the word obtains it meaning In a written document the word obtains its meaning from the sentence, the sentence from the paragraph, and the latter from the whole document” (Eight Ave. Coach Corp. v City of New York, 286 NY 84, 88-89). Bearing these fundamental principles in mind, it is evident that the ambiguity perceived by Supreme Court arose as a result of a restrictively focused and isolated analysis of paragraph K.3 (c). Supreme Court failed to recognize that the purported ambiguity, [***8] if it exist, withers when subparagraph c is read in its contextual setting.
Examination of paragraph K.3 of the policy shows that it sets forth a menu representing the spectrum of possibilities in valuing an insured’s stock. That menu commences with the valuation of stock consisting of raw materials (subparagraph a), progresses to stock consisting of work-in-progress, which, of course, consists of raw materials in the process of being assembled but which are not yet in finished form (sub-paragraph b), and culminates with finished manufactured by the insured, namely Bijan (subparagraph c).
What this reveals is that the reference in sub-paragraph c to “finished goods… manufactured by you,” plainly contemplated the concept of manufacturing in its ordinarily understood sense. i.e., the fabrication of a final product through the use of raw materials (see, Merriam-Webster’s Collegiate Dictionary 709, 936 [10th ed 1997] defining “manufacture” inter alia, as “something made from raw materials by hand or by machinery”]). This follows because sub-paragraph c is contextually the culmination of the two preceding sub-paragraphs, which as noted speak of raw materials and [***9] work-in-progress on those raw materials. It necessarily develops, therefore, that “finished goods… manufactured by you” is a reference to goods resulting from actual, physical work performed on raw materials.
Further, support for this conclusion emerges from the juxtaposition of sub-paragraph c with sub-paragraph d. As previously indicated, sub-paragraph d provides” “Stock that is finished goods that you have purchased from others for resale will be valued at Replacement Cost.” The construction advocated by Bijan would create an anomalous situation in which Bijan’s [*34] stock would fall within the parameters of both sub-paragraph c and d.
In this regard, applying Bijan’s loose definition of manufacturing its stock would fall under sub-paragraph c because, as [*53] explained by Professor Kahn, it is a manufacturer as that term is colloquially used in the apparel industry. However, since Bijan has effectively conceded that the clothing it designs are “finished goods” at the time it receives and accepts the clothing from foreign manufacturers, the stock would also be “finished goods… purchased from others” under sub-paragraph d. Hence, the construction advocated by [***10] Bian would create a conflict between sub-paragraphs c and d. We cannot accept that the parties intended such a result or that such a result is required by virtue of the colloquial reference to Bijan as a manufacturer in apparel industry circles. Moreover, the outcome Bijan advocates would violate the rule that “where two seemingly conflicting contract provisions reasonably can reconciled, a court is required to do so and to give both effect” (Proyecfin de Venezuela v Banco Indus. De Venezuela, 760 F2d 390, 395-396; see G&B Photography v Greenberg, 209 AD2d579, 581).
Bijan nevertheless claims that at the end it must be considered to have manufactured the subject clothing because designing a garment, selecting the materials to be used, and providing specifications to factories, are the most important aspects of creating clothing. The level of importance of an activity, however, is not what defines that activity. By way of analogy, an architect’s role is the [***11] construction of a building is obviously of central importance. Beyond designing a building that is structurally sound and aesthetically pleasing, the architect will often be required to conduct site visits to assure that the building is being constructed in accordance with the plans. However, no matter how central the architect’s role to the successful completion of the building, it could not reasonably be argued that the architect is a builder. By a parity of reasoning, Bijan, as the “architect” of its clothing line, does not manufacture the clothing.
Finally, it must be recognized that Bijan did not appear to consider itself the manufacturer of its clothing line. Thus, Bijan’s financial statements for 1994 and 1995 describe it as an “exclusive retail apparel and accessory boutique;” for the two years prior to the fire Bijan did not claim that any of its inventory consisted of raw materials, plant, equipment or labor with regard to the goods sold and claimed no deduction for [***12] depreciation of manufacturing plant or equipment; [*54] and, for the 13 years prior to the instant fire loss, Bijan identified itself on all tax filings as a retailer. Interestingly, it was not until after the fire that Bijan changed its identification on tax filings to that of a manufacturer.
In sum, the insurance contract at issue was clear and unambiguous. Finished goods that were purchased by Bijan from others are compensable under the policy at replacement cost. As Bijan did not manufacture its stock, judgment should have been entered as a matter of law in favor of Fireman’s Fund.
Accordingly, the judgment of the Supreme Court, New York County (Paula Omansky, J.) , entered December 30, 1998 on a jury verdict for plaintiff Bijan after trial, should be reversed, on the law, without cost, that judgment vacated and a declaration entered in favor of defendant Fireman’s Fund, declaring that Bijan’s stock damaged in the 1996 fire was not manufactured by Bijan within the meaning of the subject insurance policy, and the [**35] matter remanded to Supreme Court for an assessment of damages, if any. Cross appeal by Bijan from the same judgment to the extent that the judgment failed to [—13} award attorney’s fees should be dismissed, without costs, as academic.
Sullivan, P.J., Nardelli, Wallach and Saxe, JJ. concur.
Judgment, Supreme Court, New York County, entered December 30, 1998, on a jury verdict for plaintiff Bijan after trail, reversed, on the law, without cost, that judgment vacated, and a declaration entered in favor of defendant Fireman’s Fund, declaring that Bijan’s stock damaged in the 1996 fire was not manufactured by Bijan within the meaning of the subject insurance policy, and the matter remanded to Supreme Court for an assessment of damages, if any. Cross appeal by Bijan from the same judgment to the extent that the judgment failed to award attorney’s fees dismissed, without cost, as academic.