an armored truck
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Editors’ Note: This article has been updated to reflect a Correction.

An insurance policy on cash being transported in armored cars for a check-cashing business covers theft by the car company’s executives while the money was in their vault, a state appeals panel has ruled, reversing a lower court judge’s ruling.

A unanimous Appellate Division, First Department, panel ruled Tuesday in CashZone v. Vigilant, 653245/11, that the policy’s “in transit” clause covered everything that happened while the cash was en route from the Federal Reserve Bank of New York to the check cashing company’s storefronts and ATMs, even if it wasn’t physically being transported by car.

The decision, written by Justice David Saxe (See Profile), reversed Manhattan Supreme Court Justice Jeffrey Oing, who sits in the Commercial Division. It was joined by Justices Angela Mazzarelli (See Profile), Rolando Acosta (See Profile), Rosalyn Richter (See Profile) and Paul Feinman (See Profile).

CashZone Check Cashing Corp., which is owned by Metropolitan National Bank, entered into a contract with Mount Vernon Money Center (MVMC), an armored car transportation company, in 2006, according to the decision. Under the agreement, Mount Vernon picked up money from the Federal Reserve bank, transported it by armored car to one of its own vaults to be sorted and bundled, and then transported it to CashZone’s facilities.

Tens of millions of clients’ dollars passed through the car company’s hands every week, according to the opinion. The company’s president, Robert Egan, and its chief operating officer, Bernard McGarry, devised a scheme taking advantage of the constant influx of cash from different clients, stealing from clients and then covering what they stole by stealing more money from other clients. They were indicted by the Southern District U.S. Attorney’s Office in 2010 for stealing close to $50 million from clients. Egan and McGarry both pleaded guilty to fraud, and were sentenced to 11 and 5 years in prison, respectively.

Following the indictment, CashZone and Metropolitan calculated that they had lost about $447,000 to the scheme and submitted a claim for the loss to their insurer, Vigilant Insurance Co. They pointed to the “in transit” section of their insurance policy, which provided that the insurer would cover any loss incurred while cash was being transported in an armored car, including being loaded and unloaded, or while it was “in the custody of a Transportation Company and being transported in a conveyance other than” an armored car.

Vigilant denied the claim, saying that the money was stolen while being held in a vault, not while being transported. CashZone and Metropolitan sued for declaratory judgment that the loss was covered. Oing agreed with Vigilant’s reasoning and ruled that the loss was not covered. The plaintiffs then appealed.

The First Department, reversing, said that New York has consistently interpreted “in transit” insurance language more broadly.

Vigilant relied on a single unreported Southern District case from 2012, Actors Fed. Credit Union v. CUMIS Ins. Soc., Inc., 11 Civ 2129, as well as cases from other jurisdictions, Saxe said.

In fact, he said, the controlling case in New York was a 1927 Court of Appeals decision, Underwood v. Globe Indem. Co., 245 NY 111. In that case, a bond seller sought coverage under “in transit” language after a buyer obtained the bonds by paying a forged certified check. The court ruled that the loss was covered, saying that to “hold that transit means actual movement, and not a period of rest, is too narrow a construction to give to this undertaking, and is contrary to its full meaning and scope.”

That principle was upheld in a 1970 Manhattan Supreme Court decision, Franklin v. Washington Gen. Ins. Corp., 62 Misc 2d 965, which held that insured goods are “in transit” if “the goods, even though temporarily at rest, were still on their way, with the stoppage being merely incidental to the main purpose of delivery.” That decision was affirmed by the First Department.

In CashZone’s case, Saxe wrote, the cash was “in transit” at all times while the car company was carrying out the service that it was contracted to do, namely, getting the cash from the Federal Reserve bank to CashZone. Everything in between was “one continuous shipment process,” he said.

Alan Lyons, counsel at Herrick, Feinstein, represents CashZone and Metropolitan.

“The decision confirms New York courts’ broad interpretation of ‘in transit’ clauses, in contrast to other states like California that have narrowly interpreted those clauses,” he said. “The court took a practical approach and refused to get bogged down in semantics.”

“This decision is important because, for the first time, the court focused on what the insured and the transportation company had agreed to in their contract,” Lyons added.

Vigilant is represented by John Nocera, a partner at Rosner, Nocera & Ragone, and by Joseph Goljan and John Foudy, associates at the firm. Goljan referred a request for comment to a spokesman for Vigilant, which declined to comment.