MEMORANDUM DECISION AND ORDER Plaintiff Fabrique Innovations, Inc. d/b/a Sykel Enterprises (“Fabrique”) brings this action alleging that Defendant Federal Insurance Company (“Federal”) breached its contractual obligations by denying coverage for a claim made under an Ocean Cargo Insurance Policy (the “Policy”) arising from Fabrique’s business dealings with a third party, Hancock Fabrics, Inc. (“Hancock”). (See Compl., ECF No. 1.) The parties cross-move for summary judgment on the issue of Federal’s liability under the terms of the Policy. (ECF Nos. 38, 44.) Federal’s motion for summary judgment is DENIED. Fabrique’s cross-motion for summary judgment is GRANTED.I. FACTUAL BACKGROUND1A. Fabrique’s Business Arrangement with Hancock Fabrics, Inc.Fabrique has licenses to manufacture and sell finished fabrics and plush goods, such as pillows, dolls, and blankets, bearing the logos of professional sports teams and universities. (Stmt. of Undisputed Material Facts (“Def. 56.1 Stmt.”), ECF No. 40-1,2; P1. Stmt. Pursuant to Local Rule 56.1 (“PI. 56.1 Stmt.”), ECF No. 48,13.) Hancock purchased Fabrique’s fabrics for sale in its retail stores for more than forty years. (Id.3.) Prior to October 2015, Hancock picked up the fabrics from Fabrique’s California warehouse. (Id.4.) In October 2015, Fabrique and Hancock met to discuss a new arrangement, under which Hancock would store Fabrique’s goods at Hancock’s distribution center in Baldwyn, Mississippi (the “Distribution Center”) and ship the goods to fill orders from other Fabrique customers. (Id.5.) As part of this arrangement, Hancock and Fabrique entered a Scan Based Trading Agreement (the “Agreement”) concerning certain Fabrique plush goods (the “Goods”), which identified Hancock as “Purchaser” and Fabrique as “Vendor.” (Id.6.)The Agreement provides, among other things, that “[t]itle to the Goods remains with Vendor until the Goods are sold by Purchaser in the regular course of business, except that Purchaser shall bear the risk of Shrink.” (Id.7 (quoting Deck of Philip C. Silverberg dated Mar. 9,2018 (“Silverberg Deck”), Ex. M (“Agmt.”), ECF No. 39-13,9.) The term “Shrink” is defined as “loss or damage to Vendor’s Goods caused by vandalism, theft, pilferage, or unexplained loss on Purchaser’s premises.” (Agmt.2.) The Agreement further provides that “Vendor…shall maintain insurance on the Goods while the Goods are in transit to [Distribution [C]enter…and while such Goods are located at the [D]istribution [C]enter.” (Id.5.)In October 2015, Fabrique requested that Federal add the Distribution Center as a covered location to the Policy that Fabrique had purchased from Federal. (PI. 56.1 Stmt.1.) In addition to the Goods covered by the Agreement, pursuant to a verbal agreement between Hancock and Fabrique, the Distribution Center was used to store other goods that Hancock shipped to third party retailers. (Def. 56.1 Stmt.10.)B. Fabrique’s Insurance Policy with FederalThe Policy provided coverage on an “all risk” basis, subject to certain exclusions. (PI. 56.1 Stmt.4 (citing Deck of Andrew N. Bourne dated Apr. 6, 2018 (“Bourne Deck”), Ex. 2 (“Dubak Depo. Tr.”), ECF No. 46-2, at 108:2-109:1); Def. Resp. to PI. Stmt, of Undisputed Material Facts (“Def. Resp. to P1. 56.1 Stmt.”), ECF No. 56,4.) One such exclusion (the “Willful Misconduct Exclusion”) provides, in relevant part, “This insurance does not apply to loss, damage or expense caused by or resulting from willful misconduct, fraud or deceit by you, your partners, officers or employees…or willful misconduct, fraud or deceit by other parties involved in the sale or purchase of merchandise[.]” (P1. 56.1 Stmt.10 (quoting Bourne Decl., Ex. 3 (“Policy”), ECF No. 46-3, at Federal_001323).)The Policy was later modified by an endorsement (the “Storage Endorsement”) that added “Additional Coverages,” including coverage for “direct physical loss or damage to merchandise in transit caused by or resulting from a covered peril while such merchandise is temporarily in storage…subsequent to leaving the point of origin for commencement of transit; or…in anticipation of transit.”2 (Policy at Federal_001362.) The Storage Endorsement is subject to certain exclusions, including one (the “Dishonest Acts Exclusion”) for “loss, damage or expense caused by or resulting from…any dishonest or fraudulent acts committed alone or in collusion with others by any proprietor, partner, director, trustee, or elected officer of any organization…engaged by you to provide services in connection with the storage of merchandise.” (Id. at Federal_001362-63).)Additionally, under a section entitled “Notice of Claim,” the Policy states, “It is a condition of this insurance that you or your assignee promptly report any loss or damage which may give rise to a claim under this insurance in accordance with the instructions shown on the How to Report a Loss form of this policy.” (Id. at Federal_001371.) The “How to Report a Loss” form states, “[i]f an Insured has a loss, please contact us by telephone as soon as possible for further assistance” and provides a telephone number, fax number, mailing address, and email address to which the loss report may be faxed, emailed, or mailed. (Id. at Federal_001296.)C. The Hancock Adversary ProceedingOn February 2, 2016, Hancock filed a voluntary Chapter 11 bankruptcy petition in the United States Bankruptcy Court for District of Delaware. (Def. 56.1 Stmt.21.) When Hancock filed a motion in the Bankruptcy Court seeking leave to conduct store closing sales, Fabrique objected to Hancock’s retention of the proceeds from any sales of Fabrique’s goods. (P1. 56.1 Stmt.24.) In February 2016, the Bankruptcy Court entered an Order authorizing Hancock “to continue and conduct Store Closing Sales” under certain terms and conditions. (Silverberg Decl., Ex. G (“Store Closing Sale Order”), ECF No. 39-7, at 5B(7).) The Order states, in pertinent part:[N]othing in this Order shall constitute or be construed to be a decision or ruling by this Court on the validity, priority or extent of the putative consignment arrangements as may be asserted by…[Fabrique]…or any of [its] right, title or interest in any goods provided by [it] to [Hancock], and all rights and claims asserted by [Fabrique] in the reservation of rights filed with this Court and any defenses thereto by [Hancock] are hereby preserved.(Def. 56.1 Stmt.23 (quoting Store Closing Sale Order at 3H).)Hancock later commenced an adversary proceeding (the “Hancock Adversary Proceeding”) against Fabrique seeking, among other things, a declaration that Hancock’s interest in the goods was superior to Fabrique’s. (PI. 56.1 Stmt.26.) Fabrique answered and counterclaimed, seeking a declaration that the goods were the subject of a bailment (rather than a consignment) and consequential damages from the sale of the goods. (Def. 56.1 Stmt.28 (citing Silverberg Decl., Ex. I (“Adv. Pro. Ans.”), ECF No. 39-9).) In its counterclaims, Fabrique alleged that “[i]n willful breach of the Agreement, Hancock has sold Goods at prices well below what was agreed to by the parties and without [Fabrique's] consent to such reduced prices.” (Adv. Pro. Ans. at 1024.) Fabrique further alleged that “[i]n willful breach of the Agreement, Hancock has sold Goods and retained all proceeds from the sale of such Goods without remitting anything [sic] proceeds to [Fabrique] in accordance with the Agreement.” (Id. at 1025.)In October 2017, Hancock and Fabrique entered into a Settlement Agreement resolving the Hancock Adversary Proceeding. (See Silverberg Deck, Ex. J (“Settlement Order”), ECF No. 39-10, at 1-2.) Under the terms of the Settlement Agreement, Hancock disclaimed liability but agreed to pay Fabrique $250,000, which was to be “allocated proportionally to [Fabrique's] claims for (a) loss of goods valued by [Fabrique] at $1,172,731.00 based on their wholesale price, and (b) lost profits and consequential damages valued by [Fabrique] at $3,000,000.” (Id. at Ex. 1
1, 4.)D. Fabrique’s Insurance ClaimIn addition to seeking damages from Hancock for the lost goods, Fabrique also filed a claim for the goods under the Policy. (See Silverberg Deck, Ex. S (“Property Loss Notice”), ECF No. 39-19).) Fabrique contends Federal became aware of Fabrique’s loss when Fabrique’s CEO, Simon Garfinkel, told Michael Abrams of Lawley Westchester Group, LLC (“Lawley”), Federal’s agent, about Hancock’s bankruptcy filing in February 2016. (Decl. of Simon Garfinkel dated April 3, 2018 (“Garfinkel Deck”), ECF No. 45,2; PI. Resp. to Def. 56.1 Stmt., ECF No. 47,36.3) Fabrique asserts that by March 2016, Garfinkel had informed Abrams that Hancock was in possession of Fabrique’s goods and was claiming a superior interest in the goods, and that Abrams and Garfinkel had numerous discussions about whether the Policy may provide coverage for the goods. (Id.
