Petition for Writ of Certiorari — Bernard v. Ingersoll Milling Machine Co.
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87997)
In The Ee
Supreme Court of the United States
@ctober Cerm, 1987
J.E. BERNARD & CO.,
Petitioner,
Vv.
THE INGERSOLL MILLING MACHINE COMPANY,
M/V BODENA, her engines, boilers, etc.,
EXCELLENT MARINE, INC., TAIWAN
INTERNATIONAL LINE LIMITED and
FIREMAN’S FUND INSURANCE CO.,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Of Counsel:
H. Roperic HEARD JERALD P. EsRICK
SusaN L. WALKER Counsel of Record
CAROL J. GERNER WILDMAN, HARROLD, ALLEN
SUSAN J. FLIEDER & DIXoNn
WILDMAN, HARROLD, ALLEN One IBM Plaza - Suite 3000
& DIxon Chicago, Illinois 60611
One IBM Plaza - Suite 3000 (312) 222-0400
Chicago, Illinois 60611 Counsel for Petitioner
(312) 222-0400
December __ , 1987
"BEST AVAILABLE COPY
i
QUESTIONS PRESENTED
1. Whether a dispute involving documentation ser-
vices performed under an agency agreement and ancillary
to a maritime contract falls outside the scope of admiralty
jurisdiction pursuant to 28 U.S.C. § 1333.
2. Whether an -ocean bill of lading containing the
phrase “ON DECK SHIPPER’S RISK” is a clean bill of
lading as a matter of law.
ii
LIST OF PARTIES
The parties to the proceedings below were the peti-
tioner J.E. Bernard & Company and the respondents M/V
Bodena, her engines, boilers, etc., Excellent Marine, Inc.,
Taiwan International Line Limited, Fireman’s Fund Insur-
ance Co., and The Ingersoll Milling Machine Company.
The parties before this Court are the same as those below.
RULE 28.1 LIST
Petitioner J.E. Bernard & Co., states, pursuant to Rule
28.1, that Roanvke Insurance Co. and Radix Group Inter-
national are corporate parents of J.E. Bernard & Co.
iii
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED .................... i
ES re ii
as iy bss ob eee de eva deeeys 1
TSS eT eee eer ee eee 2
es 2
STATEMENT OF THE CASE ................... 2
REASONS FOR GRANTING THE WRIT .......... 5
I. THE SECOND CIRCUIT’S ATTEMPT TO EX-
PAND ADMIRALTY JURISDICTION TO IN-
CLUDE WITHIN ITS SCOPE GENERAL A-
GENCY CONTRACTS CONFLICTS WITH DE-
CISIONS OF THIS COURT AND OTHER
Ce CC EEE Cee 5
Il. THE DEFINITION OF “CLEAN BILL OF LAD-
ING” HAS AN ESTABLISHED MEANING
IN INTERNATIONAL TRADE AND, IN THE
INTERESTS OF UNIFORMITY, THIS COURT
SHOULD DECIDE THIS IMPORTANT, UNDE-
CIDED QUESTION OF FEDERAL LAW ....... 9
ee eee 11
OE ne ae eee ae la
Ingersoll Milling Machine Co. v. M/V Bodena, 829
Gs er ee ee la
Ingersoll Milling Machine Co. v. M/V Bodena, Slip op.
aa 35a
Ingersoll Milling Machine Co. v. M/V Bodena, 619 F.
ee 38a
iv
TABLE OF AUTHORITIES
Cases: Page
Aldinger v. Howard, 427 U.S. 1 (1976). ............ 8
David Crystal, Inc. v. Cunard Steam-ship Co., 223 F.
Supp. 273 (S.D.N.Y. 1963), affd, 339 F.2d 295 (2d
Cir. 1964), cert. denied, 380 U.S. 976 (1965) ....... 8
The Delaware, 81 U.S. (14 Wall.) 579 (1872) ..... 9,10
E.S. Binnings, Inc. v. M/V Saudi Riyadh, 815 F.2d
ee ee es ED 2 ss ee aR Aes 6, 8
Hadjipateras v. Pacifica, S.A., 290 F.2d 697 (5th C:r.
Ep ee ee nea, Wee 7,8
Hinkins Steamship Agency, Inc. v. Freighters, Inc.,
498 F.2d 411 (9th Cir. 1974) .............. 4,7,8
Leather’s Best, Inc. v. S.S. Mormaclynz, 451 F. 2d 800
EE ns a a wae eS ack a ae oe oe a oo 8
Minturn v. Maynard, 58 U.S. (17 How.) 477
IS a aca ose a eee eee 5, 6, 7, 8
Peralta Shipping Corporation v. Smith & Johnson
(Shipping) Corporation, 470 U.S. 1031, 105 S. Ct.
1405 (1985) (Blackmun, J., dissenting) ......... 6, 7
Peralta Shipping Corporation v. Smith & Johnson
(Shipping) Corporation, 739 F.2d 798 (2d Cir. 1984),
cert. denied, 470 U.S. 1031 (1985)........... 6, 7, 8
United Mine Workers v. Gibbs, 383 U.S. 715 (1966) ... 8
Page
STATUTES:
re eee ee eee ra re 8
ee SE Ss ik ck Sa > 00 ee eee ed 2,3
MISCELLANEOUS:
G. Gilmore & C. Black, The Law of Admiralty 29 (2d ed.
Sc bs Oe oe ees tee eee ee eee 5
No.
Inu The
Supreme Court of the United States
@ctober Term, 1987
J.E. BERNARD & CO.,
Petitioner,
v.
THE INGERSOLL MILLING MACHINE COMPANY,
M/V BODENA, her engines, boilers, etc.,
EXCELLENT MARINE, INC., TAIWAN
INTERNATIONAL LINE LIMITED and
FIREMAN’S FUND INSURANCE CoO.,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
The Petitioner J.E. Bernard & Co. respectfully prays
that a writ of certiorari issue to review the judgments
and opinions of the United States Court of Appeals for the
Second Circuit, entered in the above-entitled proceeding on
September 14, 1987, and October 23, 1987.
OPINIONS BELOW
The opinion of the Court of Appeals for the Second
Circuit is reported at 829 F.2d 293, and is reprinted in the
appendix hereto, at la, infra.
2
The memorandum decision of the United States Dis-
trict Court for the Southern District of New York (Robert
L. Carter, D.J.) is reported at 619 F. Supp. 493, and is
reprinted in the appendix hereto at 38a, infra.
JURISDICTION
Improperly invoking federal jurisdiction under 28
U.S.C. § 1333, the respondent brought this suit in the
Southern District of New York. On September 4, 1985, the
district court rejected the petitioner’s challenge to jurisdic-
tion under 28 U.S.C. § 1333. See appendix at 53a, infra.
On petitioner’s appeal, the Second Circuit entered a
judgment and an opinion affirming the district court’s order
on September 14, 1987, finding that jurisdiction pursuant
to 28 U.S.C. § 1333 was properly invoked. See appendix at
13a, infra. On October 23, 1987, the Second Circuit denied
a petition for rehearing.
The jurisdiction of this Court to review the judgment
of the Second Circuit is invoked under 28 U.S.C. § 1254(1).
STATUTE INVOLVED
28 U.S.C. § 1333. Admiralty, Maritime and prize cases.
The district courts shall have original jurisdiction, exclu-
sive of the courts of the States, of:
(1) Any civil case of admiralty or Maritime jurisdic-
tion, saving to suitors in all cases other remedies to which
they are otherwise entitled.
(2) Any prize brought into the United States and all
proceedings for the condemnation of property taken as
prize.
STATEMENT OF THE CASE
Respondent Ingersoll Milling Machine Company
(“Ingersoll”) manufactures heavy equipment in Rockford,
Illinois. Respondent’s sister corporation, Waldrich Siegen,
3
GmbH, contracted to sell several orders of specially
designed machinery to Hyundai International and engaged
respondent as a subcontractor to manufacture one of the
orders and arrange for its transportation to Korea. To
this end, respondent contracted with Gryphon Shipping
Services to secure a vessel to ship the cargo, :.nd with
petitioner J.E. Bernard & Company (“Bernard”), to obtain
clean bills of lading and documentation for the voyage.
Taiwan International Line Ltd. time chartered the vessel
which was to carry respondent’s cargo from New Orleans
to Pusan, Korea.
In accordance with its contract, Bernard’s documen-
tation clerk prepared a master ditto form and shipper’s
export declaration at Bernard’s office in Elk Grove Vil-
lage, Illinois and forwarded these to Taiwan Internation-
al’s agent, Mid Gulf in New Orleans. Bernard also used
the master ditto form to prepare an advance notice of ship-
ment and forwarded this to Ingersoll. All services provided
by Bernard were strictly “shoreside” in Illinois. Mid Gulf
prepared the original bill of lading directly from the master
ditto except for one deviation. Mid Gulf altered the mas-
ter ditto by adding, in bold letters, the phrase, “ON DECK
SHIPPER’S RISK.” After the M/V Bodena sailed, the ship’s
master mailed the original bills of lading to Gryphon Ship-
ping Services in the Chicago area.
In accordance with the final bill of lading, 17 of the
20 boxes comprising respondent’s shipment were stored on
the deck of the M/V Bodena. After suffering a stormy,
month-long voyage to Pusan, the portion of the shipment
stored on deck was significantly damaged. As a result,
respondent commenced one action in the Southern District
of New York anc a second action in the Northern District
of Illinois, grounding jurisdiction for both on 28 U.S.C.
§ 1333. The first action was againt the ship, its owner and
the company that time chartered the ship from its owner.
The second action was against petitioner and Fireman’s
4
Fund Insurance Company, respondent’s insurance carrier,
and was subsequently transferred to the Southern District
of New York, on Ingersoll’s motion, pursuant to 42 U.S.C.
§ 1404(a). The two actions were consolidated in the district
court for all purposes.
Bernard challenged admiralty jurisdiction in the dis-
trict court, arguing that Bernard’s documentation services
were preliminary in nature and merely lead to the mar-
itime contract and thus did not fall within the scope
of admiralty jurisdiction. Relying on Hinkins Steamship
Agency, Inc. v. Freighters, Inc., 498 F.2d.411 (9th Cir.
1974), however, the court rejected Bernard’s challenge and
found instead that the “preparation and processing of the
bill of lading, the export declarations and payment of
the ocean freight ‘were clearly maritime and necessary’
for the shipment by ocean voyage to Korea.” Ingersoll
Milling Machine Co. v. M/V Bodena, 619 F. Supp. 493, 503
(S.D.N.Y. 1985). Bernard appealed.
The Second Circuit similarly rejected Bernard’s juris-
dictional challenge, holding that “Bernard’s freight for-
warding contract with Ingersoll involved enough tasks of a
nonpreliminary nature to support admiralty jurisdiction.”
Ingersoll Milling Machine Co. v. M/V Bodena, 829 F. 2d at
301 (2d Cir. 1987). The court, relying on Hinkins, looked to
the nature of the services performed by Bernard and found
that the preparation and processing of export declarations,
delivery orders, dock receipts, bills of lading and advance
notice of shipment were essential to the voyage. The court
concluded that these services related to the ship in its use
as such, and therefore the contract could fairly be said to
constitute a maritime contract. Jd. at 302-03.
In determining whether Bernard had breached its con-
tract to provide Ingersoll with a clean bill of lading, the
Second Circuit refused to consider evidence of the parties’
or international usage of the term “clean bill of lading.”
Instead, the court concluded that a bill of lading is unclean,
5
as a matter of law, if it bears the notation “ON DECK
SHIPPER’S RISK.” The court therefore held Bernard liable
for the damage to Ingersoll’s cargo.
Bernard petitioned the Second Circuit for reconsider-
ation, with a request for rehearing en banc, arguing that
the court’s decision conflicted with both Supreme Court and
Second Circuit precedent. The court denied the petition
without comment.
REASONS FOR GRANTING THE WRIT
- *
The Second Circuit’s Attempt To Expand
Admiralty Jurisdiction To Include Within Its
Scope General Agency Contracts Conflicts
With Decisions Of This Court And Other Cir-
cuits.
The Second Circuit has held that a contract to per-
form documentation services prior to a shipment by sea,
services of the type traditionally held not to give rise to a
maritime contract, here fall within the scope of admiralty
jurisdiction. This expansion of admiralty jurisdiction risks
“that the actual concerns of the shipping industry may [be
held to) reach as far as the last ranch that sends cattle to
port.... ” G. Gilmore & C. Black, The Law of Admiralty
29 (2d ed. 1975). The Second Circuit’s improper expansion
of admiralty jurisdiction warrants this Court’s attention.
The Second Circuit’s decision conflicts with the long-
standing rule that general agency contracts are not cog-
nizable in admiralty. Minturn v. Maynard, 58 U.S. (17
How.) 477 (1855). Under this long-established rule,
contracts to perform services which are preliminary and
end when the cargo is delivered to the pier are outside
the scope of admiralty jurisdiction. The Second Circuit
was aware of this Court’s consistent “refus[al] to extend
admiralty jurisdiction to disputes involving general agency
contracts ...that is, arranging for the performance of the
various services that are preliminary to maritime move-
6
ment.” Peralta Shipping Corporation v. Smith & Johnson
(Shipping) Corporation, 470 U.S. 1031, 105 S. Ct. 1405
(1985) (Blackmun, J., dissenting). Nevertheless the Sec-
ond Circuit avoided the rule by characterizing the perfor-
mance of documentation services related to shipment to be
essential to the voyage. The time is ripe for this Court
to take the opportunity to reaffirm the continued validity
of the Minturn rule proscribing admiralty jurisdiction over
general agents.
Also in conflict with the Second Circuit’s decision
below is the Eleventh Circuit’s recent decision in £.S.
Binnings, Inc. v. M/V Saudi Riyadh, 815 F.2d 660 (11th
Cir. 1987). The agency contract in Binnings required the
appellee to, among other things: coordinate vessel hus-
banding services; collect documents and provide the nec-
essary cargo-related documents for the cargo including
bills of lading; solicit cargo; respond to requests regarding
freight rates; handle the flow of funds; perform account-
ing and documentation services; and arrange tug ser-
vices. Although the district court held that the contract
fell within admiralty jurisdiction, the appellate court dis-
agreed. The Eleventh Circuit held that, since all of these
services were clearly “shoreside” and preliminary to the
voyage, the case fell outside the admiralty jurisdiction
under Minturn. Id. at 664.
The Second Circuit’s decision below similarly conflicts
with a previous decision from its own circuit, Per-
alta Shipping Corporation v. Smith & Johnson (Shipping)
Corporation, 739 F.2d 798 (2d Cir. 1984). In Peralta a
shipping corporation provided vessel husbanding services,
such as: arranging for entrance and clearance at cus-
toms; executing all customs documents; arranging for fuel,
water, provisions, emergency repairs, and port charges;
and, arranging for tug service. The Peralta court “faith-
fully adhered” to the Minturn rule by refusing to include
7
this husbanding general agency contract within the scope
of admiralty jurisdiction. Jd. at 802.
Decisions in two other circuits contribute to the confu-
sion because the courts there carved out their own excep-
tions to the Minturn rule. The Ninth Circuit, in Hinkins
Steamship Agency, Inc. v. Freighters, Inc., 498 F.2d 411
(9th Cir. 1974), affirmed the district court’s holding, 351 F.
Supp. 373 (W.D. Cal. 1972), that a husbanding agency con-
tract fell within the scope of admiralty jurisdiction. The
district court had distinguished Hinkins from others like
it since there the contract required the plaintiff to procure
and directly supervise husbanding activities. The Fifth
Circuit, in Hadjipateras v. Pacifica, S.A., 290 F.2d 697 (5th
Cir. 1961), seemed to express the opinion that the Minturn
rule excluding general agents from admiralty jurisdiction
applies only to an action for an accounting. The court rea-
soned:
It concerns a ship. It relates not only to a ship;
its very purpose is to effectuate the physical, eco-
nomic operation and employment of a vessel. And
what is here in controversy are the fruits of such
operation.
Id. at 703. The Supreme Court has referred to these two
decisions as “questionable exceptions to the [Minturn] rule
that have created confusion and disagreement.” Peralta,
470 U.S. at 1033-34, 105 S. Ct. at 1407. (Blackmun, J.,
dissenting.) The Second Circuit’s decision in this case adds
to that confusion.
Unfortuntely, “predicat{ing] jurisdiction on such hair-
splitting distinctions...blur{s], if not obliterate[s], a
rather clear admiralty demarcation.” Peralta, 739 F.2d at
804. The approach taken by the courts below subverts the
policy behind admiralty jurisdiction, that maritime law be
developed along uniform lines.’
1In the Second Circuit, Ingersoll unsuccessfully attempted to
(Footnote continued on the following page)
8
The Second Circuit, in Peralta, and the Eleventh Cir-
cuit, in Binnings, followed this Court’s rule in Minturn and
supported a uniform application of admiralty jurisdiction.
The case at bar, the Ninth Circuit’s decision in Hinkins,
and the Fifth Circuit’s decision in Hadjipateras, however,
conflict with the prevailing precedent of Minturn and cre-
ate an ambiguity of law which should be settled by this
Court.
1 (Continued)
invoke diversity and pendant jurisdiction. The district court
lacked diversity jurisdiction under 28 U.S.C. § 1332(c). At the
time the underlying action was filed, both Ingersolll and Bernard
were incorporated under the laws of the state of Illinois. The
parties were therefore not diverse. Moreover, the doctrine of pen-
dant jurisdiction should not now be employed to bring Ingersoll’s
common law claim against Bernard within the district court’s
jurisdiction. Ingersoll has no federal claims against Bernard
and the liability of the parties who are named in the federal
claims did not turn upon the conduct of Bernard. See Aldinger v.
Howard, 427 US. 1, 2-3 (1976); Leather’s Best, Inc. v. S.S. Mor-
maclynx, 451 F.2d 800, 811 (2d Cir. 1971). In addition, since the
district court was never faced with the issue of pendant juris-
diction, it is unclear whether the court would have exercised
such jurisdiction after considering judicial economy, convenience
and the fairness to the litigants. United Mine Workers v. Gibbs,
383 U.S. 715, 726. (1966). Should this Court now decide that
the exercise of pendant jurisdiction would have been proper, this
will effectively deny Bernard its right to a jury trial. See David
Crystal, Inc. v. Cunard Steam-ship Co., 223 F. Supp. 273, 292
(S.D.N.Y. 1963), aff'd, 339 F.2d 295 (2d Cir. 1964), cert. denied,
380 U.S. 976 (1965). Bernard detrimentally relied upon Rule
38(e) of the Federal Rules of Civil Procedure in assuming that,
under admiralty jurisdiction, it would be fruitless to demand a
jury. It therefore cannot be argued that Bernard waived its right
to a jury trial pursuant to Fed. R. Civ. P. 38 (d), since under Fed.
R. Civ. P. 38(b), Bernard’s right to a jury trial never ripened due
to Ingersoll’s erroneous attempt to invoke admiralty jurisdiction.
Had the issue of pendant jurisdiction been raised in the district
court, Bernard would have exercised its right to demand a jury.
See Leather’s Best, 451 F.2d at 811 n.12.
9
II.
The Definition of “Clean Bill of Lading”
Has an Established Meaning in International
Trade and, in the Interests of Uniformity,
This Court Should Decide This Important,
Undecided Question of Federal Law.
The Second Circuit has held that an ocean bill of lad-
ing cannot be “clean” as a matter of law if it bears a nota-
tion that goods are to be transported “ON DECK SHIP-
PER’S RISK.” The request for a “clean” bill of lading, the
court held as a matter of law, “is an implied request for
stowage below deck.” 829 F.2d at 304, and the court there-
fore refused to consider the parties’ reliance upon the Inter-
national Chamber of Commerce definition of a clean bill of
lading which the parties incorporated into their contract
to secure a clean bill of lading. Evidence of the parties’
usage must be considered in order to determine whether a
contract to secure clean bills of lading has been satisfied.
This Court has never addressed the precise question
of whether a bill of lading can only be considered clean if
it bears no notation regarding stowage. In The Delaware,
81 U.S. (14 Wall.) 579, 602 (1872), the Supreme Court
addressed the issue of whether a trial court had properly
refused to admit evidence regarding the shipper’s consent
to stow cargo on deck. Although there this Court stated
that a clean bill of lading without a notation as to stowage
generally implies that goods will be stowed under deck, the
Court did not go so far as to suggest that a bill of lading
containing a phrase about stowage could never be defined
as clean. The precise issue of the definition of “clean” in
this context has never been resolved by this Court.
The Delaware holds that evidence of a contrary usage
in a particular trade is admissible to rebut an implication
that stowage is to be below deck. /d. at 605. Despite
this instruction, the Second Circuit refused to consider evi-
dence of the parties’ and the trade’s contrary meaning in
the underlying suit. Bernard presented evidence that a
10
clean bill of lading is defined by the International Cham-
ber of Commerce, in Article 18 of its Uniform Customs and
Practices for Documentary Credits, as “one which bears
no superimposed clause or notation that expressly declares
a defective condition of the goods and or the packaging.”
Consequently, the notation “ON DECK SHIPPER’S RISK”
only affects a bill of lading’s negotiability, not its status as
“clean.”
The International Chamber of Commerce has also for-
mulated “Incoterms” to provide the shipping industry with
a set of rules of define the chief terms used in foreign trade
contracts. These Incoterms were incorporated into the con-
tract in this case and defined a clean bill of lading as “one
which bears no superimposed clauses expressly declaring a
defective condition of the goods or packaging.” In addition,
the Incoterms specified that:
The following clauses do not convert a clean to an
unclean bill of lading:
(a) clauses which do not expressly state that the
goods or packaging are unsatisfactory, e.g., “sec-
ond-hand cases,” “used drums,” etc.;
(b) clauses which emphasize the carrier’s nonliabil-
ity for risks arising through the nature of the
goods or the packaging;
(c) clauses which disclaim on the part of the car-
rier knowledge of contents, weight, measure-
ment, quality, or technical specification of the
goods
Nothing in this, or any other definition employed by the
Interational Chamber of Commerce, prohibits a notation
on a clean bill of lading that cargo will be stowed on deck
at the shipper’s risk. The Second Circuit’s refusal to con-
sider evidence of the parties’ and the trade’s customary use
of this term, in violation of The Delaware, deserves this
Court’s attention.
11
CONCLUSION
For the reasons discussed above, this petition for cer-
tiorari should be granted. This dispute, which centers
around an agreement to perform documentation services
prior to a voyage by sea, does not fall within admiralty
jurisdiction. Should this Court agree, this matter should
be remanded to the District Court and dismissed for lack of
jurisdiction. Should this Court determine that Ingersoll’s
claim against Bernard fell within the scope of admiralty
jurisdiction, Bernard urges this Court to reverse the Sec-
ond Circuit’s holding that a bill of lading with a notation
regarding stowage is unclean as a matter of law. This issue
should be remanded to the District Court for its consider-
ation of Bernard’s evidence of contrary custom.
Respectfully submitted,
JERALD P. EsRICK
Counsel of Record
WILDMAN, HARROLD, ALLEN
& DIxon
Of Counsel: One IBM Plaza - Suite 3000 ~
H. Roperic HEARD Chicago, Illinois 60611
Susan L. WALKER (312) 222-0400
CaROL J. GERNER
SUSAN J. FLIEDER
WILDMAN, HaRROLD, ALLEN
& DIXxon
One IBM Plaza - Suite 3000
Chicago, Illinois 60611
(312) 222-0400
APPENDIX
la
United States Court of Appeals
Second Circuit
The INGERSOLL MILLING MACHINE CO., Plaintiff-Appellee
in 85-7941, 85-7945, and 86-7405, Plaintiff-Appellant in 86-7413,
Plaintiff-C ross-Appellant in 86-7413 re: 85-7941, 85-7945, and 86-
7405.
Vv.
M/V BODENA, her engines, boilers, etc., Excellent Marine, Inc.,
Taiwan International Line Limited, J.E. Bernard & Co., and
Fireman’s Fund Insurance Co., Defendants,
Excellent Marine Inc.
Defendant-Appellee in
86-7413
Taiwan International Line Limited, Defendant-Third Party Plain-
tiff-Appellee in 85-7941, Defendant-Appellant in 86-7405, Defen-
dant-Cross-Appellant in 86-7405 re: 85-7941, Defendant-Cross-
Appellee in 86-7413
J.E. Bernard & Co., Defendant-Third Party Defendant-Appellant
in 85-7941, Defendant-Cross-Appellee, in 86-7405 and 86-7413,
Fireman’s Fund Insurance Co., Defendant-Appellee in 85-7941
and 86-7405, Defendant-Appellant in 86-7945, Defendant-Cross-
Appellee in 86-7413.
Nos. 219-221 and 311, Dockets 85-7941,
85-7945, 86-7405 and 86-7413.
Argued Oct. 6, 1986.
Decided Sept. 14, 1987.
829 F.2d 293
2a
Before CARDAMONE and PIERCE, Circuit Judges,
and BONSAL, Senior District Judge.”
PIERCE, Circuit Judge.
These appeals are from a final judgment filed in
the United States District Court for the Southern Dis-
trict of New York on April 28, 1986, following a
bench trial before Judge Robert L. Carter. The judg-
ment (1) awarded plaintiff-appellee The Ingersoll Milling
Machine Co. (“Ingersoll”) damages and prejudgment inter-
est against defendants-appellants Taiwan International
Line Ltd. (“Taiwan”), J.E. Bernard & Co. (“Bernard”), and
Fireman’s Fund Insurance Co. (“Fireman’s Fund” or the
“Fund”) jointly and severally, (2) awarded Ingersoll attor-
ney’s fees and litigation expenses against Fireman’s Fund,
(3) awarded Fireman’s Fund a right of subrogation against
Taiwan and Bernard, and (4) dismissed claims of Taiwan
and Bernard against each other.
Ingersoll cross-appeals seeking to increase its award of
damages and prejudgment interest.
Appellants each raise a number of issues on appeal.
We consider them seriatim, and we affirm the determina-
tions of the district court except with regard to the award
of attorney’s fees and litigation expenses.
BACKGROUND
This case arises from the shipment of certain cargo
from the United States to South Korea. The cargo, which
was insured, and consisted of 20 packages, 18 of which
were stowed on the deck of the ship, was damaged in tran-
sit. Simply stated, we must determine whether the district
court properly decided who is responsible for the damage
and that the insurer improperly refused to cover the loss.
* Honorable Dudley B. Bonsal, Senior District Judge, United
States District Court for the Southern District of New York,
sitting by designation.
3a
We set forth the essential evidence in this section, as found
by the district court, 619 F.Supp. 493 (S.D. N.Y.1985), with
details to be provided later as necessary.
In January 1978, Waldrich Siegen, GmbH
(“Waldrich”) of West Germany contracted to sell heavy,
special design machines to Hyundai International, Inc., in
Korea. Waldrich engaged its affiliate, Ingersoll, a man-
ufacturer of specially design machinery, as a subcontractor
to manufacture Shop Order 24441 (“Order # 24441”) and
to arrange for its shipment to Korea. Order # 24441 con-
sisted of a ram type, horizontal spindle, traveling column
machinery center, and was valued in excess of $2 million.
In the summer of 1979, Ingersoll, located in
Rockford, Illinois, contacted Gryphon Shipping Service,
Inc. (“Gryphon”), a broker and steamship agent in
Chicago, to arrange for shipment of Order #24441 to
Korea.’ Gryphon, in turn, contacted Taiwan, which had
time chartered the M/V Bodena from its owner Excel-
lent Marine, Inc. (“Excellent Marine”). Gryphon arranged
with Taiwan in August 1979 for the cargo to be shipped
in September 1979 from New Orleans aboard the M/V
Bodena. A contract of carriage arose between Ingersoll
and Taiwan in August 1979 when Ingersoll accepted the
terms arranged by Gryphon and informed Gryphon that
the shipment of Order # 24441 would be in twenty box-
es. The district court found that, at the time of booking,
there was no evidence that Ingersoll had agreed to on deck
stowage. Gryphon’s commission was to be paid by Taiwan,
and Gryphon was found by the district court to be Taiwan’s
agent.
In connection with the shipment, Ingersoll also
retained Bernard, a freight forwarder doing business in
Elk Grove Village, Illinois, to perform various freight for-
‘ Gryphon is not a party to this action.
ee
4a
warding tasks. In addition to other duties to be performed
by Bernard, Ingersoll, by letter dated September 10, 1979,
requested that Bernard secure “three originals and four
copies of clean on-board bills of lading” (emphasis added).
In response to this letter, Bernard prepared two master
ditto forms of the bill of lading and also the shipper’s export
declaration. One of the master ditto forms was sent to
Mid-Gulf Shipping, Inc. (“Mid-Gulf”), Taiwan’s agent in
New Orleans, to be used in the preparation of the orig-
inal bills of lading; the other was sent to Gryphon. In
addition, the master ditto was used to prepare an advance
notice of shipment which was sent by Bernard to Ingersoll
on September 25, 1979. Neither the master ditto, nor
the advance notice, contained any notation as to stowage.
Ingersoll informed Bernard that all the information on the
advance notice was correct except that the port of discharge
should be changed.
The Ingersoll cargo, which had arrived in New Orleans
from [llinois by truck and rail, was loaded on board the
M/V Bodena on September 26 and 27, 1979. Of the twenty
boxes which comprised Order # 24441, eighteen were ini-
tially stowed on deck and two were stowed below deck.
Mid-Gulf, Taiwan’s agent, was responsible for the issuance
of bills of lading. Prior to sailing, Mid-Gulf took the ditto
form supplied by Bernard and added the phrase “on deck
shipper’s risk” to its face. Mid-Gulf then used the altered
ditto to run off three original bills of lading and mailed the
originals with thirteen copies to Gryphon in Chicago.
Ingersoll received the originals and four copies on
October 1, 1979. Fred Woywod, Ingersoll’s contract admin-
istrator, saw the documents that day but either did not
notice the addition of the works “on deck shipper’s risk” or
if he did notice them, did not understand their legal signifi-
cance. Bernard, too, received copies of the bills of lading
on October 1 but failed to examine the issued bills to deter-
mine whether they were in fact clean, and, consequently,
5a
failed to inform Ingersoll that Taiwan had not followed the
instructions to issue clean bills of lading.
The M/V Bodena, which had made several intermedi-
ate stops at various East Coast ports, set sail from Savan-
nah, Georgia, for Korea on October 14, 1979. At the time
of sailing, seventeen of Ingersoll’s boxes were stowed on
deck, one of the boxes initially stowed on deck having been
moved below deck. The voyage to Korea lasted more than
one month and was beset with storms, heavy seas, and
high winds. As a result of heavy rolling and pitching
during the voyage, the seventeen boxes on the deck were
severely damaged. Some boxes were broken; others were
thoroughly soaked by sea water. Because of the damage,
Order # 24441 had to be sent from Korea to Waldrich in
Germany for repair. None of the three boxes stowed under
deck was damaged.
Ingersoll maintained an all risk insurance policy with
Fireman’s Fund. That policy had been issued as an open
cargo policy, designed to cover all of Ingersoll’s shipments.
In other words, a particular shipment would become cov-
ered under the policy either when Ingersoll filled out and
sent to Fireman’s Fund a certificate of insurance for each
shipment, indicating the contents, value, destination, and
carrier of the cargo, or when Ingersoll sent to the Fund a
monthly declaration of shipments. As testified to by Fire-
man’s Fund officials, such a policy was designed to pro-
vide automatic coverage such that even if the certificate or
monthly declaration was sent after a loss had occurred, the
shipment would nevertheless be covered.
The particular policy in question contained separate
clauses for insuring under deck shipments and on deck
aE een
6a
shipments.? Clause 17(a) insured under deck shipments
2 The pertinent provisions of the policy are set forth below in
full:
17. (a) UNDER DECK shipments-Including con-
tainerized shipments under optional On Deck & /Or
Under Deck bill(s) of lading are insured. Warranted
free from Particular Average unless the vessel or craft
be stranded, sunk, or burnt, but notwithstanding this
warranty this Company is to pay any loss of or dam-
age to the interest insured which may reasonably be
attributed to fire, collision or contact of the vessel
and/or craft and/or conveyance with any external sub-
stance (ice included ) other than water, or to discharge
of cargo at port of distress. The foregoing warranty,
however, shall not apply where broader terms of Aver-
age are provided for hereinafter.
BROADER TERMS: -
Insured against all risks of physical loss or dam-
age from any external cause irrespective of percent-
age, including theft, pilferage and/or non-delivery, but
excluding nevertheless, the risks of war. strikes, riots
seizure, detainment, confiscation requisition, nation-
alization and other risks excluded by the “F.C. & S.
and/or S.R. & C.C.” warranties in the printed portion
of the policy except to the extent that such risks may
be specifically covered by endorsement, also warranted
free from any claims arising out of the inherent vice
of the goods insured or consequent upon loss of time
and/or market.
(b) ON DECK shipments are insured: —
Warranted free of particular average unless caused by
the vessel and/or interest insured being strained, suck,
burnt, on fire or in collision with another ship or ves-
sel or with ice or with any substance other than water,
but liable for jettison and/or washing overboard, irre-
spective of percentage. The foregoing warranty, howev-
er, shall not apply when broader terms of Average are
provided for hereinafter
BROADER TERMS: - [None provided]
(Footnote continued on the following page)
7a
and specifically contained broader terms of coverage. Those ~
terms provided coverage against all risks of physical loss
or damage. Clause 17(b), which did not contain broader
terms, provided coverage for on deck shipments known as
free of particular average (“FPA”). FPA coverage does not
cover a partial loss of the subject matter insured unless
certain contingencies not relevant herein occur. Another
provision of the policy, clause 8(B)(2), limited coverage
to $175,000 for shipments subject to an on deck bill of
lading or shipments stowed on deck with the consent of
the insured.®
In August 1979, Ingersoll sent to Fireman’s Fund a
certificate of insurance to cover Order # 24441. The cer-
tificate, whichytook effect before the boxes were actually
loaded aboard the M/V Bodena, stated that the machinery
was laden under deck. When Ingersoli learned of the dam-
age to the cargo in December 1979, it notified Fireman’s
Fund of its loss. After an investigation, Fireman’s Fund,
on May 23, 1980, denied Ingersoll’s claim under its policy
for full indemnity for the repairs undertaken by Ingersoll.
The district court found that Taiwan and Bernard
were jointly and severally liable for Ingersoll’s damages,
and accordingly, awarded Ingersoll $977,899 plus prejudg-
ment interest. Fireman’s Fund too was found jointly and
2 (Continued)
Fireman’s Fund Insurance Company, Marine Open Cargo Policy
No. WB 20737, (italics in original), also quoted in 619 F.Supp.
493, 498-99 (S.D.N.Y.1985).
3 Clause 8(B)\(2) reads in full as follows:
B. Of the limit of liability expressed above, this Com-
pany shall not be liable for more than
(2) $175,000.00 in respect of cargo shipped subject to
On Deck ocean bill(s) of lading or stowed On Deck with
consent of the Assured.
8a
severally liable to Ingersoll in the same amount under the
insurance policy; and it was ordered that to the extent
that Fireman’s Fund makes payment to Ingersoll for dam-
ages assessed, it will be entitled to recover such payment
from Taiwan and Bernard, including taxable costs but not
including attorney’s fees and litigation expenses. Addi-
tionally, the district judge ruled that Ingersoll was enti-
tled to recover attorney’s fees and litigation expenses from
Fireman’s Fund. Finally, the district court dismissed the
claims of Taiwan and Bernard against each other, as well
as Ingersoll’s claim against Excellent Marine. This appeal
followed.
DISCUSSION
I,
TAIWAN
Ingersoll’s claim against Taiwan can be character-
ized simply as a claim for breach of contract. There is
no dispute that a contract of carriage existed between
Ingersoll and Taiwan. Telephone conversations in August
1979 between representatives of Ingersoll, Gryphon, and
Taiwan, in which the cargo was booked, led to a binding
contract when Ingersoll informed Gryphon that it accepted
Taiwan’s terms. As the district court found, this con-
tract constituted the contract of carriage. The open ques-
tion then was what were the terms of the contract. More
specifically, did the contract call for on deck or below deck
stowage.
Absent an express agreement by the shipper permit-
ting cargo to be stowed on deck or a general port custom
permitting on deck stowage, a shipper is entitled to expect
below deck stowage under a clean bill of lading. St. Johns
N.F. Shipping Corp. v. S.A. Companhia Geral Commercial
Do Rio de Janeiro, 263 U.S. 119, 123-24, 44 S.Ct. 30, 30-
31, 68 L.Ed. 201 (1923); English Elec. Value Co. v. M/V
Hoegh Mallard, 814 F.2d 84, 89 (2d Cir. 1987); Encyclopae-
9a
dia Britannica, Inc. v. S.S. Hong Kong Producer, 422 F.2d
7, 14 & n. 5 (2d Cir.1969), cert.denied, 397 U.S. 964, 90
S.Ct. 998, 25 L.Ed.2d 255 (1970); accord Calmaquip Eng’g
West Hemisphere Corp. v. West Coast Carriers Ltd., 650
F.2d 633, 639 (5th Cir. Unit B 1981); see 2A E. Bene-
dict, Benedict on Admiralty § 123, at 12-11 (7th ed. 1987)
(“[gloods stowed on deck without the shipper’s consent are
at the ship’s risk, the shipowner being liable for any loss
or damage thereto.”) To reiterate, a shipper’s reasonable
expectation on booking cargo for shipment is that it will
be stowed below deck, unless the shipper agrees to the con-
trary or a general port custom permits above deck stowage.
The burden is on the carrier to prove that the shipper con-
sented to something other than the usual and customary
arrangement. See Gemini Navigation, Inc. v. Philipp Bros.
Div. of Minerals & Chemicals Philipp Corp., 499 F.2d 745,
751 (2d Cir.1974).
Although the district court found that “[t]here is no
evidence that Ingersoll specified below deck stowage,” 619
F.Supp. at 500, it also found that “there is no credible
evidence that Ingersoll agreed to an on deck shipment,” id.
Thus, the terms of the contract of carriage were established
by the industry custom that stowage would be below deck.
The district court correctly found that Taiwan had failed
to meet its burden of proof that Ingersoll agreed to on deck
stowage and that Taiwan was liable for not performing its
contract obligations.
Taiwan presents a number of arguments in sup-
port of its contention that it is not liable for breach of
contract.‘ First, Taiwan argues that Ingersoll waived its
*Taiwan’s argument that the district court improperly inter-
preted the meaning of “clean” on board bills of lading is not rel-
evant. The contract of carriage between Ingersoll and Taiwan
was formed in August 1979 when the cargo was booked. It did
not contain any reference to bills of lading. Interpretation of the
(Footnote continued on the following page)
| '
10a
right to below deck stowage of its cargo. Specifically,
Taiwan claims that by receiving the bill of lading on
October 1, 1979 with the notation “on deck shipper’s risk,”
Ingersoll had constructive notice that its goods had been
stowed on deck. Therefore, Taiwan argues, Ingersoll had a
duty to notify Taiwan that on deck stowage was unaccept-
able so that Taiwan could have either shifted the cargo to a
below deck location or unloaded the cargo at another port
of call at which the M/V Bodena docked prior to embanking
for Korea on October 14, 1979.
The district court did indeed find that Ingersoll had
constructive notice that its goods were being carried on the
deck of the M/V Bodena at Ingersoll’s risk. 619 F.Supp. at
501. However, a party asserting a waiver defense bears
the burden of proof in establishing that defense. Taiwan,
in our view, cannot make out a defense of waiver. Waiver
is generally defined as an intentional relinquishment of a
known right. Shearson Hayden Stone, Inc. v. Leach, 583
F.2d 367, 370 (7th Cir. 1978); Fustok v. Conticommodity
Services, Inc., 577 F.Supp. 852, 859 (S.D.N.Y.1984) See
generally 5S. Williston, A Treatise on the Law of Contracts
§ 678 (3d ed. 1961). An intent to waive a contractual
right must be manifest in a surty’s failure to object. See
Saverslak v. Davis-Cleaver Pru.uce Co., 606 F.2d 208, 213
(7th Cir.1979), cert.denied, 444 U.S. 1078, 100 S.Ct. 1029,
62 L.Ed.2d 762 (1980).
Ingersoll’s contract with Taiwan, as the district court
interpreted it, called for under deck stowage. We find no
basis in the record upon which to conclude that Ingersoll
intentionally relinquished its right to under deck stowage.
Ingersoll’s silence after receiving constructive notice of the
on deck shipment lacks the requisite manifest intent to
4 (Continued)
meaning of “clean” bills of lading is relevant only in assessing
Ingersoll’s claims against Bernard. See infra section IIB.
lla
constitute a waiver. Ingersoll’s silence and failure to act
can better be characterized as an oversight or carelessness
rather than as a waiver of a contractual right. The mere
fact that Ingersoll can be deemed to have been informed
that its machinery was being shipped to Korea on deck
does not mean that the conclusion must be drawn that
it knowingly consented to a modification of the original
contract.
Next, Taiwan contends that Gryphon was Ingersoll’s
agent and therefore that Ingersoll was bound by the con-
tracts entered into by Gryphon. Taiwan claims that if
Gryphon was aware during booking that Order # 24441
was going to be shipped on deck, Ingersoll would be bound
by that knowledge. However, the district court specifically
found that Gryphon was Taiwan’s agent.° This finding may
not be reversed unless clearly erroneous. O'Connell Mach.
Co. v. M.V. “Americana”, 797 F.2d 1130, 1133 (2d Cir.
1986). It appears that there is sufficient evidence in the
record to support this finding. For instance, Gryphon
paid Bernard its brokerage commission on Taiwan’s behalf.
Bernard also sent a copy of the master ditto bill of lading
to Gryphon to prepare the bill of lading, which Gryphon
would be likely to do if it was Taiwan’s agent. More-
over, Taiwan paid Gryphon a finder’s fee for obtaining the
5 Taiwan asserts that the agency issue had already been decided
in a related action in the Northern District of Illinois. Ingersoll
Mill. Mach. Co. v. JE. Bernard & Co., 508 F.Supp. 907
(N.D.I1L.1981). However, that court concluded only that Gryphon
was more likely Ingersoll’s agent than Taiwan’s. Id at 912. More-
over, the district judge was not bound by that decision because
it was rendered on a motion to dismiss for lack of jurisdiction
before discovery, and without the benefit of testimony and the
emergence of all the evidence. We do not believe the issue had
been fully and fairly litigated so as to preclude the district judge
from making his own independent finding. Saylor v. Lindsley,
391 F.2d 965, 968 (2d Cir.1968); see also Saez Rivera v. Nissan
Mfg. Co., 788 F.2d 819, 821 (1st Cir. 1986).
Ne SaaS ..00S
12a
Ingersoll cargo for Taiwan.
Taiwan also contends that even if the initial oral con-
tract called for below deck stowage, Ingersoll’s receipt of
the bill of lading with the new terms changed the parties’
obligations. As Taiwan would have it, only the bill of lad-
ing, even if it contains unauthorized terms, represents the
contract of carriage. In other words, Taiwan contends it
is solely the bill of lading which governs and determines
the proper stowage of the cargo. While it is true that
a bill of lading may under certain circumstances consti-
tute the contract of carriage between the parties. see CJA.
Platamon de Navegacion, S.A. v. Empresa Colombiana de
Petroleos, 478 F.Supp. 66, 67 (S.D.N.Y.1979); see gener-
ally 2A Benedict on Admiralty § 34, at 4-13 (7th ed.1987),
Taiwan’s argument is not at all persuasive on the evidence
in this case. A carrier such as Taiwan may not unilater-
ally alter a bill of lading so as to bind the shipper without
the authorization of the shipper. See West India Indus.
v. Tradex, Tradex Pertroleum Services, 664 F.2d 946, 949-
50 & n. 5 (5th Cir.1981). A carrier cannot impose on deck
stowage on a shipper merely by including a notation in the
bill of lading which it delivers after the voyage commences.
To allow a carrier after the fact to impose on the shipper
an unauthorized change of terms would run counter to the
general proposition that without its contrary agreement, a
shipper is entitled to expect below deck stowage. See St.
Johns N.F. Shipping Corp., 263 U.S. at 124, 44 S.Ct. at
30; Encyclopaedia Britannica, Inc., 422 F.2d at 14 & n.
5. Under the circumstances presented herein, the contract
of carriage which governed the obligations of Ingersoll and
Taiwan was the one orally entered into in August 1979 and
not the altered bill of lading.
Finally, Taiwan argues that Ingersoll had the burden
of showing that the damage was caused by Taiwan’s neg-
ligence and, in any case, that its liability should be lim-
ited to $500 per package pursuant to the Carriage of Goods
13 a
by Sea Act (“COGSA”), 46 U.S.C. § 1300 et seg. (1982 &
Supp.1983), which the bill of lading incorporated by refer-
ence. We reject both of these contentions. First, as shown
above, Taiwan’s stowage of Ingersoll’s cargo on deck with-
out Ingersoll’s permission was a breach of the contract of
carriage. A showing the Taiwan was negligent by such
stowage is not relevant to or necessary for establishing a
breach of contract. Second, where, as here, a carrier had
materially deviated from the terms of the contract of car-
riage, monetary limits contained in COGSA and in bills
of lading are inapplicable; rather, the carrier is liable in
full as an insurer of the cargo. General Elec. Co. Int'l
Sales Div. v. S.S. Nancy Lykes, 706 F.2d 80, 87 (2d Cir.),
cert. denied, 464 U.S. 849, 104 S.Ct. 157, 78 L.Ed.2d 145
(1983); Calmaquip Eng’g West Hemisphere Corp., 650 F.2d
at 638-39; Encyclopaedia Britannica, Inc., 422 F.2d at 18.
Therefore, because Ingersoll’s cargo was stowed on deck in
breach of the contract of carriage, Ingersoll’s recovery is
not contingent upon a showing of negligence, and Taiwan
cannot benefit from the limits of liability in the bill of lad-
ing or in COGSA.
Il.
BERNARD
A. Admiralty Jurisdiction
As a preliminary matter, Bernard challenges the dis-
trict court’s assertion of subject matter jurisdiction. Since
there does not appear to be diversity or federal question
jurisdiction, subject matter jurisdiction must reside, if at
all, under 28 U.S.C. § 1333, which provides for admiralty or
maritime jurisdiction in the federal courts. Bernard, seek-
ing to avoid the application of admiralty jurisdiction, char-
acterizes its contract with Ingersoll as one for preliminary
brokerage services only incidentally related to the mar-
itime contract between Ingersoll and Taiwan. The district
court, after observing that “[f]ederal courts have tradition-
ally exercised admiralty jurisdiction over shipper’s claims
a
l4a
against freight forwarders,” 619 F.Supp. at 503, held that
the services Bernard performed were not vreliminary in
nature. While we decline to lay down a general rule that
freight forwarders are always subject to admiralty jurisdic-
tion, we do hold, for reasons discussed below, that in this
instance, Bernard’s freight forwarding contract with Inger-
soll involved enough tasks of a non-preliminary nature to
support admiralty jurisdiction.
We have recognized that ‘[t]he precise categorization
of the contracts that warrant invocation of the federal
courts’ admiralty jurisdiction has proven particularly elu-
sive.” CTI-Container Leasing Corp. v. Oceanic Operations
Corp., 682 F.2d 377, 379 (2d Cir. 1982). The Supreme
Court has cautioned that “[tJhe boundaries of admiralty
jurisdiction over contracts as opposed to torts or crimes
— being conceptual rather than spatial, have always been
difficult to draw.” Kossick v. United Fruit Co., 365 U.S.
731, 735, 81 S.Ct. 886, 890, 6 L.Ed.2d 56 (1961). A long
recognized principle for determining whether a contract is
maritime is that agreements preliminary to maritime con-
tracts are not cognizable in admiralty. Peralta Shipping
Corp. v. Smith & Johnson (Shipping) Corp., 739 F.2d 798,
801 (2d Cir.1984), cert. denied, 470 U.S. 1031, 105 S.Ct.
1405, 84 L.Ed.2d 791 (1985); 1 Benedict on Admiralty § 184,
at 11-8 (7th ed. 1985). Applying this principle, our Court,
despite questioning its continuing validity, has recently
affirmed the longstanding, well settled rule laid down by
the Supreme Court in Minturn v. Maynard, 58 U\S. (17
How.) 477, 15 L.Ed. 235 (1854), that general agency con-
tracts are not cognizable in admiralty. Peralta Shipping,
739 F.2d at 804. General agency contracts are those that
call for a “husbanding” of a vessel, that is, arranging for
performance of a variety of services preliminary to mar-
itime contracts, such as soliciting cargo or passengers, and
procuring supplies, crews, stevedores, and tugboats. Thus,
in Peralta Shipping, this Court held that a contract which
irene
15a
included a duty to supervise the performance of maritime
contracts did not warrant admiralty jurisdiction. Jd. at
803.
Bernard argues that freight forwarding contracts fall
within the ambit of general agency contracts and are
therefore excluded from admiralty consideration. Courts
that have specifically dealt with admiralty jurisdiction
over freight forwarders appear to have arrived at differ-
ent conclusions. Compare Outbound Maritime Corp. v.
P.T. Indonesian Consortium of Constr. Indus., 575 F. Supp.
1222, 1223-24 (S.D.N.Y.1983) (freight forwarder subject to
admiralty jurisdiction) with Johnson Products Co. v. M/V
La Molinera, 619 F.Supp. 764, 767 (S.D.N.Y.1985) (freight
forwarder not subject to admiralty jurisdiction). Howev-
er, the focus of our inquiry must be not on the name
assigned to the contract, but rather on the nature of the
services to be performed. It is the character of the work
to be performed under the contract that is determinative
of whether the agreement was maritime. Hinkins S.S.
Agency, Inc. v. Freighters, Inc., 498 F.2d 411, 412 (9th
Cir.1974); see also North Pac. S.S. Co. v. Hill Bros. Marine
Ry. & Shipbld. Co., 249 U.S. 119, 125, 39 S.Ct. 221, 222,
63 L.Ed, 510 (1919); James Richardson & Sons v. Conners
Marine Co., 141 F.2d 226, 228 (2d Cir.1944). If the sub-
ject matter of the contract “ ‘relat[es) to a ship in its use as
such, or to commerce or to navigation on navigable waters,
or to transportation by sea or to maritime employment’”
it is fairly said to constitute a maritime contract. CT7/-
Container Leasing Corp., 682 F.2d at 379 (quoting 1 Bene-
dict on Admiralty § 183, at 11-6 (7th ed. 1981)). Accord-
ingly, we turn to an examination of the services to be per-
formed by Bernard under its contract with Ingersoll.
Of the thirteen services listed by the Federal Maritime
Commission which a freight forwarder may perform at the
request of the shipper, 46 C.F.R. § 510.2(h), Ingersoll asked
Bernard to undertake six. Bernard was obligated to pre-
eT
16a
pare and process export declarations; to prepare and pro-
cess delivery orders or dock receipts; to prepare and pro-
cess ocean bills of lading, including the preparation and
forwarding of a master ditto; to prepare and send advance
notification of shipments or other documents to banks,
shippers, or consignees; to handle freight or other monies
advanved by the shipper or to remit or advance freight or
other monies or credit in connection with the dispatching
of shipments; and together with Ingersoll, to coordinate the
movement of shipments from origin to vessel.
Although Bernard’s services may not have included all
the services a freight forwarder traditionally performs for a
shipper, it is not upon the number of services that we focus
but rather on their nature. The preparation and process-
ing of export declarations, delivery orders, dock receipts,
bills of lading, and advance notification of shipment are
not services rendered preliminary to a voyage, rather they
are essential to it. Without these, there can be no voy-
age. Specifically, we note that the district court found that
Bernard’s obligation with regard to the bills of lading was
twofold. First, Bernard was engaged to secure clean on
board bills of lading. Additionally, on receipt of the bills of
lading, Bernard was to review the copies it received and to
advise Ingersoll if in fact they were not clean. 619 F.Supp.
at 502. Bernard’s duty to secure clean bills of lading is akin
to the issuance of bills of lading themselves. An obligation
to procure a bill of lading for an ocean shipment, in our
view, is a contract relating to transportation by sea. The
procurement of the proper papers and documents relating
to shipment by sea is an essential and integral part of the
shipping process; a contract to obtain those papers, there-
fore, falls squarely within the admiralty jurisdiction of the
federal courts.
Bernard relies heavily on Johnson Products, which
held that the forwarding of a bill of lading does not in
itself create a maritime contract. We believe that Johnson
17a
Products is distinguishable from this case. In that case,
the obligation of the freight forwarder was merely to pass
along the bill of lading that was issued by the carrier. 619
F.Supp. at 767. Herein, Bernard’s obligation to Ingersoll
was to do more than merely transfer documents. Bernard
had an affirmative obligation to secure clean bills. Its
responsibilities did not begin when the completed bills of
lading first arrived on its desk. Bernard was engaged to
ensure that Ingersoll’s cargo would be properly loaded on
board the M/V Bodena so that the proper bills of lading
would be issued. Thus, having undertaken to arrange for
the proper loading of the cargo onto the vessel, as well as
other tasks of a nonpreliminary nature, we conclude that
Bernard’s contract with Ingersoll can fairly be character-
ized as a maritime contract supportive of admiralty juris-
diction.
B. Breach of Contract
Bernard’s contract with Ingersoll called for Bernard to
perform a number of services typically associated with a
general freight forwarder. Bernard’s contention that its
duties were more limited in scope than those generally
performed by freight forwarders is not pivotal in determin-
ing whether Bernard breached its contract with Ingersoll.
Our focus must be on the specific obligations involved and
whether Bernard satisfactorily performed them. As noted,
the district court found that two of the tasks to be per-
formed by Bernard related to the bills of lading. Bernard
was bound initially to secure clean on board bills of lading
for Ingersoll. Moreover, Bernard was bound to examine the
bills of lading once they had been issued by Taiwan and to
inform Ingersoll of any imperfections. The district court
held that Bernard failed in both respects: it failed in its
obligation to procure clean bills, and it failed to examine
the copies it received and to advise Ingersoll that in fact
they were not clean. 619 F.Supp. at 502. We find no clear
error in the district court’s finding that Bernard failed in
ee
18a
its primary duty, namely, to supply the clean bills. We
therefore find it unnecessary to reach the secondary ques-
tion, whether Bernard also failed to review the bills for
imperfections.
1. “Clean” on Board Bills of Lading
Bernard contends that the bills of lading that it sup-
plied were in fact clean. According to Bernard, the nota-
tion of the words “on deck shipper’s risk” did not render the
bills unclean. In Bernard’s view, a “clean” bill of lading
requires only that the shipping document bear no notation
on its face that expressly declares a defective condition of
the goods. In other words, it contends, a “clean” bill of
lading indicates that the goods were not received by the
carrier in damaged condition at the time of shipment. The
phrase “on deck shipper’s risk,” Bernard argues, is a clause
which does not describe the physical condition of the goods
at the time of receipt by the carrier, but rather relates
instead to who bears the risk during voyage. So interpret-
ed, a notation declaring that the shipper bears the risk of
damage during the voyage would not affect the cleanliness
of the bills. We disagree with Bernard’s interpretation.
It is no doubt true, as Bernard claims, that a “clean”
bill of lading refers to the undamaged condition of the cargo
at the time it is received by the carrier. Vana Trading Co.
v. S.S. ‘Mette Skouw”, 556 F.2d 100, 103 n. 4 (2d Cir.), cert.
denied, 434 U.S. 892, 98 S.Ct. 267, 54 L.Ed.2d 177 (1977);
C. Gilmore & C. Black, Jr., The Law of Admiralty § 3-13, at
122 (2d ed. 1975). However, a “clean” bill of lading refers to
more than just the condition of the goods. It has long been
recognized in admiralty custom and practice that a “clean”
bill of lading refers also to the place on a ship where cargo
is to be stowed.® “[A] clean bill of lading imports that the
The meaning of a “clean” bill of lading is one firmly estab-
lished by the custom and practice of the maritime industry.
(Footnote continued on the following page)
19a
goods are to be safely and properly stowed under deck.” The
Delaware, 81 U.S. (14 Wall.) 579, 602, 20 L.Ed. 779 (1871)
(emphasis added); see Seguros Banvenez, S.A. v. S/S Oliver
Drescher, 761 F.2d 855, 859 (2d Cir.1985). Noted admiralty
commentators agree that a “clean” bill of lading denotes a
bill that is either silent as to stowage, thereby imputing
that the cargo is to be stowed below deck, or provides for
under deck stowage. 2A Benedict on Admiralty § 97, at 9-
12 (7th ed. 1987) (“[tJhe issuance of a clean bill of lading —
one which does not specifically provide for on-deck stowage
— obligates the carrier to stow the cargo under deck”); id.
§ 123, at 12-10(“[a) clean bill of lading imputes under-
deck stowage”); A. Knauth, Ocean Bills of Lading 237 (2d
ed. 1941) (“{a] ‘clean’ bill of lading is an unwritten rep-
resentation that the cargo would be carried under deck”).
Thus, when a shipper requests a “clean” bill of lading it
expects to receive from the carrier a document which either
specifically notes that stowage is under deck, see Thyssen,
Inc. v. S.S. Fortune Star, 777 F.2d 57, 59 (2d Cir.1985),
or is silent as to stowage, see The Idefjord, 114 F.2d 262,
266 (2d Cir.) cert. denied, 311 U.S. 707, 61 S.Ct. 175, 85
L.Ed. 459 (1940). If the document is silent as to stowage,
the assumption is that the goods have been stowed below
deck. In other words, a request for a “ciean” bill of lading
is an implied request for stowage below deck.
Ingersoll’s instruction to Bernard in its letter of
September 10, 1979, was to provide “clean” on board bills
of lading. Bernard therefore, was duty bound to supply
bills that noted or implied that stowage was below deck.
Contrary to Ingersoll’s instructions, the bills actually pro-
6 (Continued)
Its meaning is not ambiguous, and, therefore, the parties’ inten-
tion in using that term does not govern, as Bernard argues it
should. The district court properly did not employ contractual
rules of construction, such as the intent of the parties at the time
of contracting, in interpreting its meaning.
20a
vided by Bernard contained a notation indicating that the
goods had been stowed on deck. Thus, Bernard plainly
breached its contract with Ingersol.
2. Causation
Bernard also contends that even if it failed to sup-
ply “clean” bills of lading to Ingersoll, its breach of con-
tract was not causally connected to the damage to Order
# 24441. Essentially, Bernard argues that even if it had
reviewed the bills and found the notation, the damage to
the cargo would still have occurred. By the time the nota-
tion was detected, the cargo was already on deck and at
sea. Therefore, according to Bernard, its failure to advise
Ingersoll that the bills bore the clause “on deck” did not
cause or contribute to the damage.
Bernard’s contention might have some merit were its
only contractual duty to review the bills after they had
been issued. In such case, given that Bernard received
the documents on October 1 and that the M/V Bodena
did not actually leave the United States bound for Korea
until October 14, the feasibility of unloading the cargo
at another U.S. port prior to sailing would be a crucial
issue. The district court did not decide whether unload-
ing was a viable option because of a dearth of evidence.
619 F.Supp. at 502. However, the question of whether the
cargo could have somehow been saved between October 1
and October 14 is not determinative of Bernard’s liability.
Bernard’s contractual obligation was not only to review the
bills of lading for defects but also to secure clean bills in the
first instance. Having failed to ensure that the cargo was
placed below deck, thereby breaching its contract by caus-
ing a bill that was not “clean” to be issued, Bernard can be
said to have proximately caused Ingersoll’s damages.
We reject Bernard’s contention that all it was obligated
to do was transmit faithfully to Taiwan Ingersoll’s request
for “clean” bills of lading, and once having relayed those
instructions, to transfer the issued documents upon receipt
2la
to Ingersoll. It is reasonable to assume that the hiring of
Bernard as a freight forwarder contemplated not simply
the handling of documents and the removal of any mark-
ings which would render the bills unclean should such
markings appear; rather, Bernard was retained to assure
in advance that proper documents would be provided. It
was Bernard’s responsibility to see that Ingersoll received
the requested documents and thus to assure the safe jour-
ney Ingersoll anticipated as a result of its request. Bernard
did not take preventative or corrective action to assure this
result. Bernard should have monitored the loading process
in New Orleans to assure that the proper bills could be
issued. Its failure to do so was a breach of contract result-
ing in damages to Ingersoll.
It.
CROSS-CLAIMS OF TAIWAN AND BERNARD
The district court properly dismissed the claims
asserted by Taiwan and Bernard for indemnity against
each other. Indemnity rests upon the principle that the
true wrongdoer should bear the ultimate burden of pay-
ment. Ross v. Penn Cent. Transp. Co., 433 F.Supp.
306, 309 (W.D.N.Y.1977). There can be no indemnity
as between parties that each bear primary responsibility
for a wrong regardless of their relative degrees of fault.
Philadelphia Elec. Co. v. Hercules, Inc., 762 F.2d 303,
318 (3d Cir.), cert. denied, __U.S.__, 106 S. Ct. 384,
88 L.Ed.2d 337 (1985). Having concluded that Taiwan
and Bernard each breached their separate contracts with
Ingersoll, the district court properly held them jointly and
severally liable and dismissed their respective claims for
indemnity.
iii iii
22a
IV.
FIREMAN’S FUND
A. Liability on the Policy
Fireman’s Fund contends that the district court erred
in finding that Ingersoll’s policy covered the damage sus-
tained by Order # 24441. Essentially, the Fund contends
on appeal that clause 17(b) of the policy, which denies cov-
erage for partial loss of on deck shipments, should apply to
deny coverage because part of Ingersoll’s cargo was actu-
ally stowed on deck. We disagree. As we discuss below, the
district court was justified in finding the policy ambiguous,
construing it against Fireman’s Fund, and applying clause
17(a) of the policy, which covers all risks of loss in cases of
under deck shipments.
Ingersoll’s policy with Fireman’s Fund was an open
cargo policy. Such a policy is a master policy which cov-
ers all of an insured’s shipments. An insured declares a
particular shipment either by sending the Fund a copy of
an insurance certificate or a monthly declaration of ship-
ments. One of the advantages of this type of policy is that
an insured has automatic coverage for a shipment even if it
neglects to declare the shipment, or if the certificate is not
issued until the cargo has arrived and a loss has already
occurred. Under the subject policy, different types of ship-
ments were accorded different types of coverage. Certain
shipments were insured on an all risk basis (clause 17(a)),
that is, against all risks of physical loss or damage from
any external cause; other types of shipments were insured
free of particular average (clause 17(b)), that is, partial
losses were not covered; still others were subject to mone-
tary limits (clause 8(B(2)).
In August 1979, before shipping order # 24441,
Ingersoll sent Fireman’s Fund an insurance certificate to
declare and insure the machine. The certificate stated
that the goods were stowed under deck and were insured
against all risks. The certificate became effective on
23 a
August 31, 1979. In fact, the bulk of the shipment was
stowed on deck and the bill of lading was marked “on
deck shipper’s risk” without Ingersoll’s consent. Ingersoll
notified Fireman’s Fund of the damage to the cargo in
December 1979. The Fund deried Ingersoll’s claim by let-
ter dated May 23, 1980.
Marine insurance contracts are governed by federal
admiralty law when there is an established federal rule,
and by state law when there is not. Wilburn Boat Co. v.
Fireman’s Fund Ins. Co., 348 U.S. 310, 313-14, 75 S.Ct.
368, 370-71, 99 L.Ed. 337 (1955); Ionian Shipping Co. v.
British Law Ins. Co., 426 F.2d 186, 190 (2d Cir.1970). The
parties do not dispute that to the extent that federal admi-
ralty rules do not exist, the interpretation of the policy is
governed by Illinois law.
The starting point in interpreting an insurance policy
is to determine whether the policy terms are ambiguous.
As a general rule, plain or unambiguous language will
be given its ordinary meaning and effect, and the need to
resort to rules of construction arises only when an ambigu-
ity exists. National Fidelity Life Ins. Co. v. Karaganis, 811
F.2d 357, 361 (7th Cir.1987); Chicago Bd. Options Exch.,
Inc. v. Connecticut Gen. Life Ins. Co., 713 F.2d 254, 257-58
(7th Cir.1983). Courts may not create an ambiguity where
none exists. Simmons Refinding Co. v. Royal-Globe Ins.
Co., 543 F.2d 1195, 1197 (7th Cir.1976); State Farm Mut.
Auto. Ins. Co. v. Berke, 123 Tll.App.2d 455, 258 N.E.2d 838,
841 (1970). If an insurance contract is ambiguous it will
generally be construed against the insurer who drafted it
in order to promote coverage for losses to which the policy
relates. Karagansis, 811 F.2d at 361; FSC Paper Corp. v.
Sun Ins. Co. of N.Y., 744 F.2d 1279, 1282 (7th Cir.1984).
This principle applies to all types of insurance policies
including maritime policies. Kalmbach, Inc. v. Insurance
Co. of Pa., 529 F.2d 552, 555 (9th Cir.1976) (citing Mli-
nois cases). The rule that insurance policies are to be con-
24a
strued in favor of the insured is most rigorously applied
in construing the meaning of exclusions incorporated into
a policy of insurance or provisions seeking to narrow the
insurer’s liability. Sears, Roebuck & Co. v. Reliance Ins.
Co., 654 F.2d 494, 499 (7th Cir.1981). Accordingly, we
turn first to the question of whether Ingersoll’s policy is
ambiguous.
Fireman’s Fund’s argument that the policy provisions
are unambiguous has surface apneal. Clause 17)a) is
encaptioned ‘UNDER DECK shipments” and clause 17(b)
is encaptioned “ON DECK shipments.” At first glance,
these captions would seem to indicate that it is the actual,
physical place of stowage which governs the applicability
of the clauses. Cargo actually stowed under deck would
be governed by clause 17(a), and cargo actually stowed on
deck would fall within clause 17(b). However, a closer,
more careful reading of the policy reveals that the provi-
sions at issue are in fact ambiguous.’
Looking at the insurance contract as a whole, as we
must, Michigan Chem. Corp. v. American Home Assurance
Co., 728 F.2d 374, 377 (6th Cir.1984) (applying [linois
law), we fund clauses 17(a) and 17(b) subject to varying
interpretations. A contract that is reasonably and fairly
susceptible of more than one meaning is said to be ambigu-
ous. Karaganis, 811 F.2d at 361; Sunstream Jet Express,
7Fireman’s Fund contends that the district court improperly
considered parol evidence (testimony of Fund officials to the
effect that cargo on deck without the insured’s consent but with
an under deck bill of lading would be covered by clause 17(a)) in
finding an ambiguity in the policy. We disagree. As explained,
the district court could properly have found the policy ambigu-
ous on its face. Moreover, under Illinois law, ‘[iJn determin-
ing whether an ambiguity exists, as a matter of law, the trial
court may consider parol and extrinsic evidence.” Sunstream Jet
Express, Inc. v. International Air Serv. Co., 734 F.2d 1258, 1268
(7th Cir.1984) (citing cases).
25a
Inc. v. International Air Serv. Co., 734 F.2d 1258, 1269
(7th Cir.1984). Neither clause 17(a) or 17(b) makes refer-
ence on its face to the bills of lading or to the contract of
carriage under which the shipments were to travel.* Nor do
clauses 17(a) or 17(b) refer to the consent of the insured in
deciding where its cargo is to be placed. However, another
provision of the policy, clause 8(B(2), specifically places a
monetary ceiling on shipments that travel either “subject
to On Deck ocean bill(s) of lading” or are “stowed On Deck
with consent of the Assured.” Where one part of the policy
is specific and another general, it is incumbent upon the
court to resolve the question of what relationship each part
bears to the other. Clauses 17(a) and 17(b) could conceiv-
ably refer to any one or to a combination of many possible
situations. Coverage under these clauses might be deter-
mined by the actual physical place of stowage, the bill of
lading under which the cargo traveled, the contract of car-
riage for the shipment, or the consent of the insured as to
where its cargo should be stowed. It simply is not clear
from the face of the policy when coverage under clauses
17(a) or 17(b) would be in effect.
Having concluded that the policy terms are ambigu-
ous, we turn next to the construction of those terms. In
our view, the district court properly construed the policy
in favor of the insured. We think a fair and reasonable
interpretation of the policy suggests that “UNDER DECK
shipments” of clause 17(a) refers to shipments that were
supposed to travel under deck. In other words, when an
insured has contracted with its carrier for shipment of
cargo below deck, clause 17(a) applies. It is irrelevant
whether the cargo actually traveled below deck or whether
8 Clause 17(a) does refer to the bills of lading under which con-
tainerized shipments travel. It does not, however, mention bills
of lading with regard to other types of shipments. Mentioning
one type of shipment and not other types, in our view, only adds
to the ambiguity of the clause.
26a
the cargo was shipped pursuant to an under deck bill of
lading, or, as in this case, pursuant to an unauthorized on
deck bill of lading. The place of physical stowage or the
bill of lading is not determinative of coverage; it is the
contract of carriage that governs. As long as the shipper
intended the cargo to be stowed below deck and so man-
ifested its intent in its contract of carriage, clause 17(a)
applies. Similarly, “ON DECK shipments” of clause 17(b)
refers to all shipments that were supposed to travel on
deck. In such an instance, a lesser degree of coverage is
provided. In those cases, coverage is provided only for a
total loss and only when that loss occurs as a result of
certain perils. No coverage whatsoever is provided for for-
tuitous partial losses caused even by an insured-against
peril. Furthermore, clause 8(B)(2) would appear to pro-
vide an additional limitation on clause 17(b), limiting the
maximum possible recovery to $175,000 if the cargo was
shipped subject to an on deck bill of lading or stowed on
deck with the insured’s consent. Construction of the pol-
icy in this manner comports with the logical assumption
that an insurance company would provide, and an insured
would buy, greater protection for shipments that were sup-
posed to travel under deck than for shipments intended to
be placed on deck. Accordingly, applying this construction
to the facts herein, we believe it is clear that clause 17(a) is
the operative provision. As discussed, Ingersoll’s contract
of carriage with Taiwan required under deck stowage. This
being so, the provision which relates to shipments that
were intended to travel below deck, namely clause 17(a),
must govern.
Under clause 17(a), Ingersoll’s loss would have been
covered. Clause 17(a) insures against “all risks of phys-
ical loss or damage from any external cause.” All risk
coverage covers all losses which are fortuitous no matter
what caused the loss, including the insured’s negligence,
unless the insured expressly advises otherwise. Goodman
v. Fireman’s Fund Ins. Co., 600 F.2d 1040, 1042 (4th
27a
Cir.1979). A loss is fortuitous unless it results from an
inherent defect, ordinary wear and tear, or intentional mis-
conduct of the insured. Jd. An insured satisfies its burden
of proving that its loss resulted from an insured peril if
the cargo was damaged while the policy was in force and
the loss was fortuitous. Atlantic Lines Ltd. v. American
Motorists Ins. Co., 547 F.2d 11, 12 (2d Cir.1976); accord
Morrison Grain Co. v. Utica Mut. Ins. Co., 632 F.2d 424,
430-31 (5th Cir. 1980). The circumstances surrounding the
placement of the Ingersoll cargo on deck and the resultant
loss can fairly be characterized as fortuitous. It was the
carrier that breached the contract of carriage by placing
the cargo on deck. Ingersoll certainly did not engage in
any intentional misconduct to cause the misplacement of
its cargo. Moreover, even if the carrier was negligent in
placing the cargo outside the area of the ship’s hold, all
risk coverage would still apply.
Construing Ingersoll’s policy as providing full cover-
age for shipments stowed on deck without the shipper’s
consent is consistent with the purpose for which the policy
was issued. All risk open cargo policies, such as the one
issued to Ingersoll, provide broad coverage for shippers.
See, e.g., Green v. Cheetham, 293 F.2d 933 (2d Cir.1961);
Groban v. S.S. Pegu, 331 F.Supp. 883 (S.D.N.Y.1971), aff’d
sub nom. Groban v. American Casualty Ins. Co., 456 F.2d
685 (2d Cir.1972). A shipper not located near a port has
no practical control over how a steamship line may ulti-
mately carry and protect its cargo. Even if it issues clear
instructions as to stowage directly to the carrier, it has no
guarantee that the carrier will comply. A carrier may neg-
ligently or inadvertently place cargo intended to be stowed
below deck, above deck. A shipper may reasonably seek to
avoid exposing itself to the potential risk of damage and
to consequential losses by procuring insurance. To hold
that Ingersoll’s loss was not covered would be to render the
insurance that it purchased from Fireman’s Fund meaning-
less. It is not at all unreasonable to assume that Ingersoll
procured insurance precisely to cover itself in situations
: )
28a
such as this one—where the carrier placed its cargo on deck
without Ingersoll’s consent.
Fireman’s Fund also argues that it should not be held
liable under the policy because Ingersoll has a duty to
inform the Fund after it learned of the on deck placement of
its cargo on October 1, 1979. The Fund contends that had
it been so advised, it would have instructed Ingersoll to get
the cargo under deck or off the ship before the M/V Bodena
sailed for Korea on October 14. Violations of this duty
to disclose, the Fund claims, voids the policy under the
doctrine of uberrimae fidei.
The doctrine of uberrimae fidei requires a party
seeking marine insurance to disclose all circumstances
known to it which materially affect the risk. Knight v.
U.S. Fire Ins. Co., 804 F.2d 9, 13 (2d Cir.1986), cert.
denied, _. U.S. __, 107 8.Ct. 1570, 94 L.Ed.2d 762 (1987);
Puritan Ins. Co. v. Eagle S.S. Co. S.A., 779 F.2d 866,
870 (2d Cir.1985). If a party omits to disclose mate-
rial information applicable to the risk involved, the pol-
icy is void. Knight, 804 F.2d at 13; Thebes Shipping,
Inc. v. Assicurazioni Ausonia SPA, 599 F.Supp. 405, 426
(S.D.N. Y.1984) (quoting McLanahan v. Universal Ins. Co.,
26 U.S. (1 Pet.) 170, 185-86, 7 L.Ed. 98 (1828)). However,
in our view, the doctrine is not applicable in the instant
case. As discussed, clause 17(a) of Fireman’s Fund’s pol-
°Fireman’s Fund makes a similar argument with regard to
mitigation of damages. The Fund argues that Ingersoll failed
to take any steps to remove the cargo from danger despite its
knowledge as of October 1 that the cargo was stowed on deck
and likely to incur damage. However, the burden of proving a
failure to mitigate damages falls on the insurer. Emmco Ins.
Co. v. Wallenius Carribbean Line, S.A., 492 F.2d 508, 514 (5th
Cir.1974). The district court concluded that there was a “dearth
of evidence” to show that unloading was a real and viable option
and that appellants failed to meet their burden. 619 F.Supp. at
502.
Te
29a
icy provided coverage for shipments traveling pursuant to
upper deck contracts of carriage. As interpreted herein-
above, Ingersoll’s contract of carriage with Taiwan was one
for under deck stowage. The fact that Ingersoll’s cargo
was actually stowed on deck, in breach of the contract of
carriage, did not change the terms of the contract. Sim-
ilarly, the fact that Ingersoll had constructive notice as
of October 1 of that breach also did not change the terms
of the contract of carriage or Ingersoll’s rights thereun-
der. See section I, supra. Ingersoll’s contract remained
one for under deck shipment throughout the voyage. Since
there was never any change in Ingersoll’s contract of car-
riage, there was no change in circumstances affecting the
risk insured which Ingersoll might have been required to
disclose. The subject open cargo policy does not distin-
guish between under deck contracts of carriage that are
performed and those that are breached. Coverage is pro-
vided for all shipments traveling pursuant to under deck
contracts of carriage. Consequently, Ingersoll had no duty
to inform Fireman’s Fund that its cargo had been stowed
on deck in breach of the contract of carriage. Indeed, it was
to protect against just such an occurrence that Ingersoll
most likely contracted for insurance in the first place.
B. Fireman’s Fund’s Right of Subrogation
Against Bernard and Taiwan
The district court properly ordered that to the extent
Fireman’s Fund makes payments to Ingersoll under its pol-
icy, it is entitled to recover such payments from Taiwan
and Bernard, including taxable costs but excluding attor-
ney’s fees and litigation expenses. It is well settled that
an insurer has an equitable right of subrogation as a mat-
ter of law upon making payment to its insured for a cargo
loss. Meredith v. The Ionian Trader, 279 F.2d 471, 474
(2d Cir.1960). Bernard errs in contending that the Fund’s
failure to fulfill its contractual obligation to Ingersoll pre-
cludes it from being granted equitable subrogation. An
30a
insurance company retains its right of subrogation even
after it litigates coverage and suffers a judgment requir-
ing payment to the insured. /d.; see also Bunge Corp. v.
London and Overseas Ins. Co., 394 F.2d 496, 497 (2d Cir.),
cert. denied, 393 U.S. 952, 89 S.Ct. 376, 21 L.Ed.2d 363
(1968).
C. Attorney’s Fees and Litigation Expenses
The district court awarded Ingersoll attorney’s fees
($590,381.96) and litigation expenses ($226,250.96) against
Fireman’s Fund for costs it incurred in prosecuting its
suit against Fireman’s Fund and the other defendants.
Although the district court did not specifically apportion
the fees and expenses allocable to the various defendants,
it did advance two different theories to support the award.
First, Ingersoll’s fees and expenses incurred in suing
Bernard, Taiwan, and Excellent Marine were awarded as
compensatory damages, to make Ingersoll whole. Second,
the fees and expenses incurred in suing the Fund were
awarded because of the Fund’s apparent bad faith in deny-
ing Ingersoll’s claim.
Apropos the fees and expenses attributable to
Ingersoll’s suit against Bernard, Taiwan, and Excellent
Marine, those fees were a direct and foreseeable conse-
quence of Fireman's Fund’s breach. As a result of the
refusal of Fireman’s Fund to cover the loss, Ingersoll was
forced to sue third parties and to bear the burdens of com-
plex litigation. Where a breach of contract has caused
a party to maintain a suit against a third person, courts
have permitted recovery from the breaching party of coun-
sel fees and other litigation expenses incurred in the suit.
Artvale, Inc. v. Rugby Fabrics Corp., 232 F.Supp. 814,
826 (S.D.N.Y.1964), aff'd, 363 F.2d 1002 (2d Cir. 1966);
accord Ranger Constr. Co. v. Prince William County School
Bd., 605 F.2d 1298, 1301 (4th Cir.1979); see Freed v.
Travelers, 300 F.2d 395, 399 (7th Cir.1962) (attorney’s
fees and expenses of litigation incurred in action against
—— —<<e
3la
third parties proper elements of damage in action against
insurer). Therefore, since the Fireman’s Fund’s breach
necessitated Ingersoll’s suit against other defendants, the
Fund was properly held responsible for Ingersoll’s attor-
ney’s fees and litigation expenses. Fireman’s Fund may
not recover those costs from the other defendants, as it
argues it should, because in the ordinary course, it could
have paid Ingersoll’s claim and then commenced its own
litigation against the other defendants as Ingersoll’s sub-
rogee. In such an action, the Fund would have had to bear
its own fees and expenses.
Second, apropos the fees and expenses attributable to
Ingersoll’s suit against Fireman’s Fund, the general rule
is that the award of fees and expenses in admiralty actions
is discretionary with the district judge upon a finding of
bad faith. Seguros Banvenez, S.A., 761 F.2d at 861-62.
As a party subject to admiralty jurisdiction, Big Lift Ship-
ping Co. (N.A.) v. Bellefonte Ins. Co., 594 F.Supp. 701,
704 (S.D.N.Y.1984), marine insurers also are subject to
this rule. See Puritan Ins. Co., 779 F.2d at 873. We
acknowledge an awareness of the district judge’s dissatis-
faction with Fireman’s Fund for refusing to pay Ingersoll’s
claim. Judge Carter characterized explanations given by
Fireman’s Fund as “contrived, concocted solely to keep from
paying” its obligations under the policy. 619 F.Supp. at
506 (emphasis added). Moreover, noting conflicting and
inconsistent testimony among Fund officials, he observed
that “Fireman’s Fund had conjured up its strained reading
of the insurance policy solely in an effort to avoid accept-
ing the liability the policy imposed.” Jd. at 507 (empha-
sis added). However, we note that the district court never
explicitly found that Fireman’s Fund acted in bad faith in
denying Ingersoll’s claim. In light of the ambiguity inher-
ent in the Fund’s policy and our lengthy discussion herein
necessary to analyze the ambiguity, we cannot conclude
that the Fund was unjustified in rejecting Ingersoll’s claim.
Whether the damage to Order # 24441 was covered under
ee
32a
the Fireman’s Fund open cargo policy seems to us to be
a difficult issue, one which constitutes a perfectly valid
basis for contest and litigation. Accordingly, we reverse
the award of attorney’s fees and litigation expenses insofar
as they are allocable to Ingersoll’s suit against Fireman’s
Fund. We remand to the district court to determine, using
the method it deems appropriate, how much of the sum
total of Ingersoll’s attorney’s fees and litigation expenses
is attributable to its suit against Fireman’s Fund and how
much to its suit against each of the other defendants and
to apportion accordingly.
In its final judgment, dated April 25, 1986, the dis-
trict court apparently included only those attorney’s fees
and litigation expenses incurred through August 31, 1985,
leaving subsequent expenditures for calculation after any
appeal. While we decline to impose attorney’s fees and
litigation expenses against Fireman’s Fund in this Court
for prosecuting either a frivolous appeal, Fed.R.App.P.38,
or one calculated to achieve delay, 28 U.S.C. $1912, we
do note that in calculating expenditures after August 31,
1985, the district court, in its discretion, in order to make
Ingersoll whole, might include those amounts that prop-
erly can be attributed to Ingersoll’s defending the appeal
taken by Bernard and Taiwan. Of course, those fees and
expenses that relate to Ingersoll’s defense of Fireman’s
Fund’s appeal, as well as those attributable to Ingersoll’s
cross-appeal, are beyond the scope of the compensatory
damage rationale.
V.
DAMAGES and PREJUDGMENT INTEREST
A. Damages
Both Fireman’s Fund and Ingersoll dispute the district
court’s computation of total damages of $977,899. Fire-
man’s Fund seeks to reduce the total award by $90,970
which was awarded as damages representing the interest
for delay in Ingersoll’s receiving contract payments from
33 a
Hyundai. The Fund claims that interest for delay is not
properly recoverable under its policy. On the other hand,
Ingersoll seeks to increase its award by $48,287 which rep-
resents Waldrich’s expense of financing the costs of repair-
ing Order # 24441 and by $157,585 which is said to repre-
sent Waldrich’s corporate overhead and profit.
Ordinarily, a district court’s computation of damages
in a cargo case is a factual determination that will not be
disturbed on appeal unless it is clearly erroneous. Seguros
Banvenez, S.A., 761 F.2d at 861. In our view, the district
judge carefully considered all items submitted to him by
the parties as elements of damages; he awarded some, and
rejected others. As to Fireman’s Fund’s claim that dam-
ages should be reduced, under its policy it was obligated
to indemnify Ingersoll in full for its loss which includes
Ingersoll’s damage for the loss of use of contract payments.
As to Ingersoll’s claim that damages should be increased,
financing costs can reasonably be viewed as a part of over-
head; what amount of overhead and profits to award was
specifically considered by the district court and included in
the final calculation. We find no error in the computation
of damages.
B. Interest Rate on Prejudgment Interest
In accordance with our direction that in admiralty
cases prejudgment interest “should be granted in the
absence of exceptional circumstances,” Mitsui & Co. v.
American Export Lines, 636 F.2d 807, 823 (2d Cir.1981),
the district court calculated prejudgment interest from the
date of payment for the repairs through the date of judg-
ment. Ingersoll objects to the rate of interest used, con-
tending that the proper rate should have been the rate at
which Ingersoll actually invested its excess cash during the
periods in question, or alternatively, a single, uniform, con-
stant rate based on the rate for federal paper, as specified
in 28 U.S.C. § 1961, which sets forth the method for com-
putation of postjudgment interest. The rule in this Circuit,
however, is that the rate of interest used in awarding pre-
judgment interest rests firmly within the sound discretion
of the trial court. Independent Bulk Transp., Inc. v. the
Vessel “MORANIA ABACO”, 676 F.2d 23, 26 (2d Cir.1982).
A “(plaintiff is entitled to the income which the mone-
tary damages would have earned, and that should be mea-
sured by interest on short-term, risk-free obligations.” Jd.
at 27. In exercising its discretion, the district court deter-
mined that rather than using a single Treasury Bill rate
applied retroactively over the relevant periods as initially
proposed, using an average rate for each period would be
fairer because the rate on Treasury Bills was subject to
wide fluctuation during those periods. Accordingly, the
district court applied rates ranging between 9.676% and
10.112%. We cannot say that in determining prejudgment
interest based upon an average of prevailing Treasury Bill
rates, which are short-term, risk-free obligations, the dis-
trict court abused its discretion.
34a
CONCLUSION
To summarize: we hold that (1) Taiwan, Bernard,
and Fireman’s Fund all breached their respective con-
tracts with Ingersoll and are therefore jointly and severally
liable to Ingersoll for damages and prejudgement interest
as determined by the district court; (2) Fireman’s Fund
was properly held responsible only for Ingersoll’s attorney’s
fees and litigation expenses allocable to its suit against
Bernard, Taiwan, and Excellent Marine but not for those
allocable to its suit against Fireman’s Fund; (3) Fireman’s
Fund may recover from Bernard and Taiwan, to the extent
it actually pays Ingersoll’s damages (excluding attorney’s
fees and litigation expenses); and (4) the claims of Bernara
and Taiwan against each other for indemnification were
properly dismissed.
The judgment of the district court is affirmed in part
and reversed in part, and the case is remanded to the
district court for the apportionment of attorney’s fees and |
litigation expenses.
35a
UNITED STATES COURT OF APPEALS
SECOND CIRCUIT
At a stated term of the United States Court of Appeals,
in and for the Second Circuit, held at the United States
Courthouse, in the City of New York, on the 23rd day of
October on thousand nine hundred and eighty-seven.
THE INGERSOLL MILLING MACHINE CoO.,
Plaintiff-Appellee in 85-7941, 85-7945 and
86-7405,
Plaintiff-Appellant in 86-7413,
Plaintiff-Cross-Appellant in 86-7413 re:
85-7941, 85-7945 and 86-7405,
v.
M/V BODENA, her engines, boilers, etc., EXCEL-
LENT MARINE, INC., TAIWAN INTERNATIONAL
LINE LIMITED, J. E.. BERNARD & CO. and FIRE-
MANS FUND INSURANCE CoO.,
Defendants,
EXCELLENT MARINE, INC.,
Defendant-Appellee in 86-7413,
TAIWAN INTERNATIONAL LINE LIMITED,
Defendant-8rd Party Plaintiff-Appellee
in 85-7941
Defendant-Appellant in 86-7405
Defendant-Cross-Appellant in 86-7405 re:
85-7941
Defendant-Cross-Appellee in 86-7413,
J.E. BERNARD & CO.,
Defendant-8rd Party Defendant-Appel-
lant in 85-7941,
Defendant-Cross-Appellee in 86-7405 and
86-7413,
36a
FIREMANS FUND INSURANCE CoO.,
Defendant-Appellee in 85-7941 and
86-7405,
Defendant-Appellant in 85-7945,
Defendant-Cross-Appellee in 86-7413.
Docket Nos. 85-7941
85-7945
86-7405
86-7413
UNITED STATES COURT OF APPEALS
FILED
OCT 23 1987
ELAINE B. GOLDSMITH,
CLERK
SECOND CIRCUIT
37a
A petition for rehearing containing a suggestion that
the action be reheard in banc having been filed herein by
counsel for the Defendant-Appellant in 85-7941 Defendant
Cross-Appellee in 86-7405 and 86-7413 J.E. BERNARD &
CO.
Upon consideration by the panel that heard the appeal
it is
Ordered that said petition for rehearing is DENIED.
It is further noted that the suggestion for rehearing
in banc has been transmitted to the judges of the court in
regular active service and to any other judge that heard
the appeal and that no such judge has requested that a
vote be taken thereon.
/s/ ELAINE B. GOLDSMITH
Elaine B. Goldsmith,
Clerk
————
38 a
The INGERSOLL MILLING MACHINE
COMPANY, Plaintiff,
v.
M/V BODENA, her engines, boilers, etc.,
Excellent Marine, Inc., and Taiwan International
Line Limited, Defendants.
TAIWAN INTERNATIONAL LINE
LIMITED, Third-Party Plaintiff,
Vv.
J.E. BERNARD, & CO.,
Third-Party Defendant.
The INGERSOLL MILLING MACHINE
COMPANY, Plaintiff,
v.
J.E. BERNARD & CO. and Fireman’s
Fund Insurance Co., Defendants.
Nos. 80 Civ. 6729 (RLC), 81 Civ.
4744 (RLC).
United States District Court,
S.D. New York.
Sept. 4, 1985.
619 F.Supp. 493
39a
OPINION
ROBERT L. CARTER, District Judge.
I
The Facts
Plaintiff, the Ingersoll Milling Machine Co.
(“Ingersoll”), is principally engaged in the business of
manufacturing special design machinery. It is privately
owned and operates out of Rockford, Illinois. Plaintiff has
.. brought two actions, 80 Civ. 6729, against the M/V Bodena
(“the Bodena”), her engines, etc., Excellent Marine, Inc.
(“Excellent Marine”) and Taiwan International Line Ltd.
(“Taiwan”), and 81 Civ. 4744, against J.E. Bernard & Co.
(“Bernard”) and Fireman’s Fund Insurance Co. (“Fireman’s
Fund”). The cases have been consolidated for all purposes.
Defendant Excellent Marine is a foreign corporation
doing business in Hong Kong and is the owner of the
Bodena. Defendant Taiwari is a corporation doing business
in Taiwan and has time chartered the Bodena from Excel-
lent Marine pursuant to the terms and conditions of a char-
ter party dated May 9, 1979. Both Excellent Marine and
Taiwan are engaged in the business of common carriers of
merchandise by water for hire and operated, managed or
otherwise controlled the Bodena as a common carrier of
merchandise by water for hire between New Orleans and
Pusan, Korea, during the period relevant to this litigation.
Defendant Bernard is a freight forwarder doing business in
Elk Grove Village, Illinois, and other parts of the United
States. Defendant Fireman’s Fund is a wholly owned sub-
sidiary of the American Express Co., having its principal
place of business in San Francisco, California, and doing
business throughout the United States.
In January, 1978, Waldrich Siegen, GmbH. (“Waldrich
Siegen”) a sister corporation to plaintiff and, like plain-
tiff, a wholly owned subsidiary of Ingersoll Internation-
al, contracted to sell heavy specially designed machines
to Hyundai International, Inc. (“Hyundai”) in Korea.
eae
40a
Waldrich Siegen engaged Ingersoll as subcontractor to
manufacture Shop Order 24441 (“SO24441”), a ram type,
horizontal spindle, traveling column machinery center for
Hyundai at a purchase price of $2,108,000 and to arrange
for its transportation to Korea.
Sometime in July or August, 1979, John Mellon of
Ingersoll contacted Bernard and Gryphon Shipping Ser-
vices, Inc. (“Gryphon”), a broker and steamship agent in
Chicago. He asked William J. Brokamp of Bernard to
shop around for freight rates on shipments of machinery to
Korea, and asked Michael Malarski of Gryphon about the
type of service available on Jin Yang Line for the shipment
of machinery to Korea. He gave Malarski an estimate of
the sizes of the expected shipments. Both Brokamp and
Maiarski made the requested inquiries.
Malazski spoke to Arnold Larsen, Vice President of
Cathay Pacific Maritime, Taiwan’s General Agent in New
York, in about mid-August. Larson offered space on
the Bodena scheduled to leave New Orleans at the end
of September for Korea. Larsen advised Malarski that
another Taiwan vessel would also be available in early
October, and Larsen agreed that if Malarski secured the
Ingersoll cargo for shipment by Taiwan, Gryphon would
receive a commission from Taiwan of 1.25-2.50%. and the
freight forwarder would receive a commission of 1.25%.
Malarski informed Mellon of the availability of the
Taiwan Bodena in September and of an»ther vessel in Octo-
ber. Mellon advised Malarski that he accepted the terms
quoted for the Bodena, that the shipment would consist of
20 pieces which accorded with his initial estimate and that
Bernard would be the freight forwarder. Malarski advised
Brokamp that Taiwan would pay Bernard a commission of
1.25%.
Larsen testified at trial that he told Malarski that the
shipment would be on deck since the Bodena had no avail-
able cargo space below deck. Malarski disputes being told
4la
or agreeing that the cargo was to be shipped on deck, or
being advised that space was a problem on the Bodena. No
booking notes were made by either Malarski or Larsen.
Neither Larsen’s notebook, which contained a chronolog-
ical record of his booking communications, nor his work-
sheets noted that the Ingersoll cargo had been booked on
deck. Moreover, the evidence at trial showed that there
was space below deck when the Ingersoll cargo was stowed.
The shipments of the 20 boxes to New Orleans com-
menced on August 29, 1979. One box cames from Detroit,
and the others left Rockford at various dates and were
delivered to New Orleans by truck and rail to the custody
of the Cooper Stevedoring Company at Julia Street Wharf
in New Orleans. The machinery was packed by Inger-
soll employees. Bernard was notified when the boxes left
Rockford.
The Ingersoll cargo was loaded on September 26 and
27, 1979. Eighteen of the boxes were stowed on deck when
the Bodena left New Orleans on September 27, 1979. When
the Bodena left Savannah on October 14, 1979, three boxes
of the Ingersoll shipment were stowed below deck.
By letter dated September 10, 1979, Fred Woywod of
Ingersoll asked Bernard to secure three original and four
copies of clean on board bills of lading, listing ocean freight
prepaid. Georgette Seipler, the documentation clerk at
Bernard, pursuant to Ingersoll’s letter, prepared a master
ditto form and the shipper’s export declarations. Bernard
by letter requested Taiwan to provide three original clean
on board bills of lading and at least 10 copies, and on
September 25, Bernard sent one master ditto form for the
bills of lading and three export declarations to Mid Gulf,
Taiwan’s agent in New Orleans, and another master ditto
form and a copy of the export declarations to Gryphon.
Bernard used the master ditto form to prepare its
advance notice of shipment, which was sent to Woywod on
September 25, 1979. Bernard’s advance notice was simi-
42a
lar to a bill of lading in format and contained the same
shipping information that appears on the top half of a bill
of lading. The advance notice which Woywod received on
September 26, contained no notation as to stowage. Accom-
panying the advance notice was the following message:
“the shipment described above is scheduled for exportation
as indicated above...” Woywod called Bernard to advise
that all the data on the advance notice was correct except
the port of discharge should be changed to Pusan. As
Woywod recalls his conversation with Seipler, she advised
him that the port would be changed to Pusan and shipping
charges would be added but that otherwise the bill of lad-
ing would mirror the advance notice.
On September 26, Woywod called Brokamp asking for
the quickest way to get the bills of lading other than hav-
ing to wait to have them come by mail. Brokamp suggested
that Woywod might pick up the bills of lading at Gryphon
in Chicago. On September 28, 1979, Woywod sent a mes-
senger to Gryphon to pick up the documents, but they were
not ready. An Ingersoll messenger returned to Chicago on
October 1, 1979, picked up the originals and four copies and
delivered them to Woywod who saw the documents at the
end of the day. Bernard also received copies the same day.
The bills of lading contained the words “on deck at shippers
risk”. Woywod did not know that these words rendered the
bills of lading unclean. He did not notice them. However,
the phrase was in bold letters for him to see.
The phrase “on deck at shipper’s risk” was added to
the bills of lading on September 27, 1979, by Mid Gulf,
Taiwan’s agent. After the vessel sailed, the master of the
Bodena mailed the originals and 13 copies to the Chicago
area.
Woywod sent copies of the bills of lading to Waldrich
Siegen. Apparently, no one at Bernard, Gryphon, Ingersoll
or Waldrich Siegen who saw the copies of the bills of lading,
at least until preparation for this litigation began, took
43a
note of or recognized the significance of the “on deck at
shipper’s risk” legend on the bills of lading.
The voyage to Korea was beset with storms, heavy
seas and wind. The ship experienced heavy rolling and
pitching during parts of the voyage, and ocean water was
constantly on deck. Some of the boxes on deck were broken.
Substantial quantities of water penetrated the boxes, and
sometimes the boxes sat in water to their top.
The Bodena arrived at Pusan on November 29,
1979, and unloaded. Ingersoll’s cargo was discharged to
Hyundai’s stevedore, Kukji Transportation Co. The fore-
man found one on deck box discolored, some boxes broken
and ali the bands on the on deck boxes rusty. None of the
under deck boxes were in this condition. On November 30,
1979, 17 Ingersoll boxes on deck were entered in the excep-
tional column on the damage report prepared by the fore-
man. The cargo was placed on four barges, subsequently
discharged and moved to Changwon. K.M. Lee, Hyundai’s
assistant manager for heavy machinery, observed the dis-
coloration, broken boxes, loose boards and rust on the parts
of the machinery he could see. No pictures were taken at
that time. At Hyundai’s request a survey was taken by H.
Lee, a licensed surveyor. The surveyor found discoloration,
broken boxes, loose boards, and rust on the bands. He
looked inside the boxes and described the surfaces seen as
heavily rusted. He took 6 photographs to illustrate the con-
ditions he found. In his report the surveyor described the
damage to the cargo as irreparable because of widespread
corrosion from sea water and exposure during the voyage.
Ronald Humphries was a service manager in the heavy
division at Ingersoll at the time of these events. His assign-
ment was to oversee the erecting of the machine at Chang-
won, and he went to Korea in December for that purpose.
He arrived in Changwon on December 14, 1979. The cargo
was located in the Hyundai’s heavy fabrication shop. The
structure of the building was completed, but some windows
44a
and doors were missing, and the floors were unfinished.
The plant itself was about 500 yards from the river estuary.
He found the cargo in similar condition to that found by
the stevedore foreman on inspecting the cargo on discharge
at Pusan, by K.M. Lee, Hyundai’s assistant manager for
heavy machinery on the cargo’s arrival at Changwon and
by H. Lee, the surveyor, when he inspected the cargo.
Humphries returned to Changwon in March, 1980, and
found the machinery in the same condition he had noted
in December, 1979.
Plaintiff has an all risk policy with Fireman’s Fund.
This is an open marine cargo policy which covered all of
Ingersoll’s shipments. Ingersoll filled out a certificate of
insurance for each shipment, indicating the contents of the
cargo, its value, destination and the carrier. A particular
shipment became covered under the policy when Ingersoll
sent Fireman’s Fund a copy of the certificate of insurance,
or when Ingersoll issued a monthly declaration covering all
shipments for that month. All shipments were automati-
cally covered even if the certificate or monthly declaration
was sent after a loss had occurred.
The pertinent provisions of the policy are set out
below:
INSURING CLAUSES
PERILS CLAUSE 16.
Touching the adventures and perils which this Com-
pany is content to bear, and take upon itself in
this voyage, they are of the Seas, Fires, Assail-
ing Thieves, Jettisons, Barratry of the Master and
Mariners, and all other like perils, losses and mis-
fortunes, that have or shall come to the hurt, detri-
ment or damage of the said goods and merchandise
or any part thereof.
45a
AVERAGE CLAUSES 17.
(a) UNDER DECK shipments—Including con-
tainerized shipments under optional On Deck &/or
Under Deck bill(s) of lading are insured. Warranted
free from Particular Average unless the vessel or
craft be stranded, sunk or burnt, but notwithstand-
ing this warranty this Company is to pay any loss
of or damage to the interest insured which may rea-
sonably be attributed to fire, collision or contact of
the vessel and/or craft and/or conveyance with any
external substance (ice included) other than water,
or to discharge of cargo at port of distress. The
foregoing warranty, however shall not apply where
broader terms of Average are provided for here-
inafter.
BROADER TERMS:
Insured against all risks of physical loss or dam-
age from any external cause irrespective of percent-
age, including theft, pilferage and/or non-delivery,
but excluding, nevertheless, the risks of war, strikes,
riots, seizure, detainment, confiscation, requisition,
nationalization and other risks excluded by the
“F.C.&S. and/or S.R. & C.C.” warranties in the printed
portion of the policy except to the extent that such
risks may be specifically covered by endorsement, also
warranted free from any claims arising out of the
inherent vice of the goods insured or consequent upon
loss of time and/or market. (b) ON DECK shipments
are insured:—
Warranted free of particular average unless caused by
the vessel and/or interest insured being stranded, sunk,
burnt, on fire or in collision with another ship or ves-
sel or with ice or with any substance other than water,
but liable for jettision and/or washing overboard, irre-
spective of percentage. The foregoing warranty, howev-
er, shall not apply when broader terms of Average are
provided for hereinafter.
46a
Clause 17(a) of the policy provides for full coverage of
up to $2.5 million for all under deck shipments. Clause
17(b) negates coverage for partial loss of on deck shipments
and, if covered, these shipments are insured only to a limit
of $175,000 pursuant to clause 8(B)(2).
Fireman’s -Fund has interpreted clause 17(a) to cover
losses suffered from on deck stowage where there is an
under deck bill of lading or a bill of lading not specify-
ing stowage but the cargo is stowed on deck without the
insured’s consent. It applies 17(b), however, where the
cargo is stowed on deck and there is an on deck bill of
lading without regard to the insured’s consent.
Robert Donovan, Fireman’s Fund’s Marine Secretary
and senior underwriter in the midwest, whose department
had responsibility for writing the Ingersoll policy, testifed
that the contract terms of this insurance were not con-
tained solely in the four corners of the policy. Donovan’s
initial reaction was that there should be coverage on the
all risk policy. After he contacted John Stewart on the
west coast and other senior Fireman’s Fund officials, he
changed his mind. Fireman’s Fund officials seem to agree
that the policy covers losses resulting from the insured’s
negligence since the policy was intended to cover fortuitous
circumstances. While Robert Burke, Assistant Vice Presi-
dent and Nationwide Manager for Ocean Marine Claims,
agreed that some negligence of the insured was covered,
he was unable to define when such negligence was covered
and when it was not.
Il
Discussion
A. Bernard, Taiwan and Excellent Marine
There is no evidence that Malarski told anyone at
Ingersoll that on deck shipment was to take place if the
Bodena was booked. No booking notes were made by
either Malarski or Larsen, and the various indications that
eT M
47a
Larsen relied on to support his version of what he told
Malarski were at best inconclusive. Taiwan discounts the
evidence at trial that there were available stowage below
the deck of the Bodena when Ingersoll’s cargo was loaded
on board. Taiwan argues that the evidence presented did
not take into account access; that cargo must be stowed
in relation to time and ports of discharge. While this is
true, Taiwan has not shown that the available space evi-
denced at trial could not have been used for plaintiff’s
cargo because the cargo in that space would have to be
discharged before the Bodena reached Pusan. More impor-
tantly, it has not established that when the vessel arrived
at New Orleans, stowage below deck could not have been
so organized that plaintiff’s cargo could have been stowed
pursuant to a rational discharge plan based on time and
port of discharge.
Defendants, certainly Excellent Marine, Taiwan and
Bernard, vehemently argue that Gryphon was Ingersoll’s
agent. The record, however, does not support that con-
tention. Taiwan paid Gryphon a commission in connec-
tion with this transaction, while Ingersoll paid Gryphon
nothing. That fact alone makes Gryphon more clearly
Taiwan’s agent than Ingersoll’s. Gryphon contacted carri-
ers servicing the Far East at Ingersolil’s request for infor-
mation on the availability of vessels to carry three ship-
ments of machinery to the Far East. Malarski found out
from Larsen that the Bodena was available in September,
1979. He told Larsen of Ingersoll’s needs and was offered a
commission if he succeeded in getting Ingersoll’s business
for Taiwan. Gryphon became Taiwan’s agent, not Inger-
soll’s. In addition, the only authority Malarski had from
Ingersoll was to secure the information Mellon asked for
and report back.
A shipper’s normal expectation on booking cargo for
shipment is that it will be stowed below deck, unless
the shipper expressly agrees to have the cargo stowed on
nteitentieeee
48a
deck. Encyclopaedia Britannica, Inc. v. S.S. Hong Kong
Producer, 422 F.2d 7, 14 (2d Cir.1969), cert. denied, 397
U.S. 964, 90 S.Ct. 998, 25 L.Ed.2d 255 (1970). Accord,
Calmaquip Engineering West Hemisphere Corp. v. West
Coast Carriers, Ltd., 650 F.2d 633, 639 (5th Cir.1981).
Since this would be the normal expectation and custom
and usage of the business, any deviation therefrom would
have to be established by those claiming it. St. John’s
N.F. Shipping Corp. v. S.A. Companhia Geral Commercial
Do Rio De Janiero, 263 U.S. 119, 124, 44 S.Ct. 30, 31,
68 L.Ed.201 (1924). Even proof that Malarski and Larsen
agreed that the Ingersoll shipment was to go on deck would
be insufficient to show that Ingersoll knew or agreed to on
deck shipment prior to or at the time of the booking or
loading of the cargo.
There is no evidence that Ingersoll specified below deck
stowage either. Nor was the contention that Ingersoll
always shipped below deck established. Indeed, the record
shows that subsequent to this shipment, some Ingersoll
machinery was carried on deck on another vessel. All of
this beside the point, however, since our concern is only
with the Bodena’s voyage to Pusan, Korea, leaving New
Orleans on September 27, 1979. As to that voyage there
is no credible evidence that Ingersoll agreed to an on deck
shipment. Stowage on deck is the unexpected, which the
carrier cannot do without the express permission of the
shipper. It clearly would make no sense for Ingersoll to
expose its $2 million machinery to on deck shipment at its
own risk. rs
Plaintiff engages in extensive discussions in its post
trial brief of the validity under the maritime law of oral
contracts of carriage and argues that the arrangements in
this case were such. However, ‘hat question need not be
explored in any depth. There is no dispute that a contract
of carriage existed. Taiwan contends that there was an
oral agreement to allow the Bodena to carry the cargo on
49a
deck, and that such a contract was evidenced by the on
deck at the shipper’s risk bills of lading. Since Taiwan and
anyone making that contention has the burden of proving
such agreement, and Taiwan’s proof does not meet that
burden, we have a contract of carriage without evidence of
any agreement by the shipper to allow the carrier to stow
the cargo on deck.
Defendents argue that Mellon was present in New
Orleans at the loading of the Ingersoll cargo on September
26 and 27. The evidence shows that Mellon wes in New
Orleans on September 21, but there is no evidence that
he or any other Ingersoll representative was present when
cargo was loaded on September 26 and 27.
The form of Bernard’s advance notice would tend to
give the recipient the idea that the notice contained all
the vital information as it would appear on the bills of lad-
ing. Bernard seeks to discount Woywod’s recollection of
his September 26, 1979 conversation with Seipler to the
effect that, except for the change of the port of discharge
and shipping charges, the bills of lading would be the same
as the advance notice, but it has the ring of truth. Nothing
was ever said to Bernard or Seipler by Mid Gulf or Taiwan
about on deck stowage of the Ingersoll machinery. Stowage
is not usually specified on a clean bill of lading. Seipler
had every reason to believe that the bills of lading, with
the port of discharge corrected and the shipping charges
added, would not differ from the advance notice. However,
Woywod’s failure to examine the bills of lading when he
received them on October 1, 1979, cannot be justified on
the basis of his September 26 conversation with Seipler.
Ingersoll’s apparent position that it had no knowledge that
its machinery was carried on deck until the damage was
discovered in Korea has no merit. It had constructive
notice that its goods were being carried on deck at Inger-
soll’s risk on October 1, 1979, when the bills of lading were
delivered to Woywod. The fact that he did not understand
the legal significance of the legend on the bills of lading
is immaterial for the purpose of establishing when Inger-
soll was on notice that its machinery was being shipped to
Korea on deck and at its risk.
50a
Bernard, Taiwan, and Excellent Marine spent an inor- .
dinate amount of time contending at trial and in their
briefs that the bills of lading were clean. That argument is
without merit and is wholly inconsistent with the purpose
and meaning of a clean bill of lading.
Under the Carriage of Goods by Sea Act (“COGSA”),
46 U.S.C. §1300 et seq., a prima facie case of carrier liabil-
ity is established by proof of delivery of the cargo to the
carrier in good condition and discharge at destination in a
damaged state. A clean on board bill of lading as a general
rule satisfies the showing of good order at the time of ship-
ment. Emmco Insurance Co. v. Wallenius Caribbean Line,
S.A., 492 F.2d 508, 513 (5th Cir.1974). The very purpose
of clean on board bills of lading is to provide the shipper
with documentation that the damage to his goods, if any
occurs, cannot be attributed to him. In short, its purpose is
to relieve the shipper of risk during the voyage. The bills of
lading in this case maintain liability on Ingersoll through-
out the voyage. Such bills cannot be clean. In any event,
Judge Werker, who first handled this case in this court,
and I have no trouble finding these bills of lading providing
for on deck stowage at the shipper’s risk unclean. As Judge
Werker stated in disposing of the motions for summary
judgment. “It iong has been recognized that a clean bill of
lading either is silent on the method of stowage, thereby
portending that goods are to be stowed under deck, or does
not specifically provide for on-deck stowage. There is no
doubt that a reference to the poor condition of the cargo
would make a bill of lading unclean. Even in the absence of ;
such a reference, however, a... bill of lading that specifi-
cally calls for on-deck stowage is not clean.” Memorandum
Decision, June 23, 1983, slip op. at 6 (citations omitted).
5la
Taiwan argues that since Woywod thought the bills of
lading were clean, as did Bernard and Taiwan, there was
a meeting of the minds and a valid bargain was struck.
That argument makes no sense. Woywod may not have
recognized a clean bill of lading when he saw one in 1979,
but he asked in clear, unambiguous language for Bernard
to supply clean bills of lading. Bernard and Taiwan are
in the business of dealing with bills of lading constantly.
Bernard held itself out as knowingh what a clean bill of
lading was. At any rate, Bernard and Taiwan should have
known what constitutes a clean bill. That they were igno-
rant in this regard will not suffice to free them from respon-
sibility. Whatever Bernard’s and Taiwan’s view about on
deck shipment being consonant with instructions top pro-
vide clean bills of lading, they had to know that shipper’s
risk notation rendered the bills of lading unclean.
Bernard argues that because it performed some but
not all of the duties of a freight forwarder, it shouid not be
held accountable for any damage to plaintiff’s shipment.
Bernard points out that it did not engage the Bodena, and
it did not pick up the original bills of lading or deliver them
to Ingersoll. That is beside the point. Bernard was engaged
to secure clean on board bills of lading, and it failed to
do so. Additionally, on receipt of the bills of lading on
. October 1, 1979, it failed to examine the copies it received
and failed to advise Ingersoll that Taiwan had not followed
instructions to issue clean bills of lading.
The testimony, which at trial and in its brief counsel
for Bernard seek to distort, is that when Woywod spoke to
Brokamp about obtaining the bills of lading more quickly
than awaiting their delivery by mail to Rockford, Woywod
decided that Ingersoll would pick up the documents directly
on his own. That is not true. Brokamp suggested that
Woywod pick the bills of lading from Gryphon in Chicago.
The suggestion did not originate with Woywod. While
there was no testimony to this effect, the court’s surmise is
52a
that Brokamp suggested Gryphon in Chicago rather than
Bernard in Elk Grove Village, because Brokamp assumed
that the mail from New Orleans would reach Gryphon’s
office in Chicago before it would reach Bernard’s office in
Elk Grove Village.
Bernard contends that Woywod’s decision to secure
the bills of lading directly from Gryphon rather than from
Bernard relieved Bernard of any further responsibility. I
disagree. Bernard was requested to secure clean on board
bills of lading. It took on that assignment as Ingersoll’s
agent. Its responsibility included examining the issued
bills of lading to determine whether they were in fact clean.
Bernard failed to do that.
Plaintiff has introduced evidence tending to establish
that Bernard did not have well trained or knowledge-
able personnel but this, as with so much of the evidence
and contentions in this case, constitutes gratuitous sur-
plusage. Whether incompetence, sloth or lack of attention
was the cause, Bernard did not perform its part of the bar-
gain. That failure, for whatever reason, suffices to render
Bernard liable.
Taiwan has failed to show that it put plaintiff’s mer-
chandise on deck with the latter’s permission. The evi-
dence discloses that Mid Gulf added the legend to the bill
of lading without consultation with plaintiff or anyone au-
thorized to act for the plaintiff. Under such circumstances,
the bills of lading cannot be said to represent the contract
of carriage between the parties.
Taiwan contends that Ingersoll’s failure to act between
October 1, 1979, when it received the bills of lading and
October 14, 1979, when it could have intercepted the ves-
sel and off shored the merchandise before the Bodena left
United States ports, should be construed as acceptance of
its unilateral act. That contention is rejected.
The record indicates that Ingersoll was of the impres-
sion that the Bodena was proceeding directly from New
53 a
Orleans to Korea. By checking shipping information,
plaintiff could have discovered that the Bodena was sched-
uled to stop at various United States ports before proceed-
ing to Korea. Plaintiff, however, should not be penalized
for failure to take such steps when the carrier acts unlaw-
fully and unilaterally in stowing the cargo on deck. and,
contrary to the shipper’s instructions, issued unclean on
deck at the shipper’s risk bills of lading. While the off
shoring of the merchandise at some United States port is
presented as an option plaintiff failed to exercise, there
was no evidence to show the consequences of such a course
of action. Could plaintiff have readily secured space on
another vessel bound for Pusan? When was such passage
available? What costs would plaintiff have had to incur to
exercise that option? The court cannot determine from the
dearth of evidence on the issue that off shoring was a real
option that could have been exercised. The burden was on
defendants to establish that such a real option existed.
Bernard for the first time asserts in its post trial brief
in chief (pp. 3-8) that the court lacks subject matter juris-
diction because Ingersoll’s claims as to Bernard do not
come within the admiralty jurisdiction of the court. Fed-
eral courts have traditionally exercised admiralty jurisdic-
tion over shipper’s claims against freight forwarders. See,
e.g., Reid v. Fargo, 241 U.S. 544, 545-46, 36 S.Ct. 712,
713, 60 L.Ed. 1156 (1916); The Cayo Mambi, 1 F.Supp. 116,
117 (E.D.N.Y.1932), aff’d, 62 F.2d 791 (2d Cir.1933); A.P.
Moller Steamship Co. v. Bromhead & Dennison, Lid., 1982
AMC 1455 (S.D.Tex.1981). See also A. Murr, Export/Im-
port Traffic Management and Forwarding 49 (6th ed. 1979)
(federal district courts have original jurisdiction in admi-
ralty in practically all civil and/or criminal actions brought
by, or against, foreign freight forwarders).
The cases cited by Bernard are distinguishable.
Maher v. Newtown Creek Towing Co., 190 F.Supp. 933
(S.D.N.Y.1961) (Weinfeld, J.), involved the question of
54a
jurisdiction under general maritime law of a cause of
action asserted against a non-diversity defendant by virtue
of its joinder with the Jones Act. P.D. Marchessini
& Co. v. Pacific Marine Corp., 227 F.Supp. 17, 18
(S.D.N.Y.1964) (Weinfeld, J.), involved “preliminary ser-
vice leading to maritime contract.” The same is true of
The Thames, 10 F. 848 (S.D.N.Y.1891) (Brown, J.), and of
The Harvey and Henry, 86 F. 656, 658 (2d Cir.1898). David
Crystal, Inc. v. Cunard Steamship Co., 223 F.Supp. 273,
293 (S.D.N.Y.1963) (Levet, J.), aff'd, 339 F.2d 295 (2d
Cir.1964), cert. denied, 380 U.S. 976, 85 S.Ct. 1339, 14
L.Ed.2d 271 (1965), involved services performed after the
voyage had been completed. In this case, the services
Bernard performed were not preliminary or rendered after
completion of the voyage.
“The character of the work is determinative of the
question whether the agreement was maritime and the
jurisdiction properly laid in admiralty.” The Hinkins
Steamship Agency v. Freighters, Inc., 498 F.2d 411, 412
(9th Cir.1974). Services such a “supervising dockage,
pilotage, tug assisting... cleaning of holds...and han-
dling operating details pertaining to the vessel’s call [at
a port of discharge]” were held to be “clearly maritime in
nature.” Jd. Preparation and processing the bill of lading,
the export declarations and payment of the ocean freight
“were clearly maritime and necessary” for the shipment by
ocean voyage to Korea. Jd. Moreover, as the court stated
in the above case referring to authorities, at least one of
which Bernard relies on, “[uJnder more modern decisions,
appellant’s cases are of doubtful validity.” Jd. The juris-
dictional contention has no merit.
Nor does the argument that the small print on
Bernard’s invoice to Ingersoll, dated September 28, 1979,
operates to limit Bernard’s liability to $50. This invoice
was received by Ingersoll on October 4, 1979. This was
after the Bodena had sailed with Ingersoll’s cargo improp-
i iceiaiiliiaetaieaieaiaial
55a
erly stowed. A post hoc presentation containing a clause
unilaterally purporting to indemnify one of the parties
against liability does not operate to modify the origi-
nal agreement unless the terms are agreed to by the
other party and consideration therefor received. Tanker
& Tramps Corp. v. Tugs Jane McAllister and Margaret M.
McAllister, 358 F.2d 896, 899-900 (2d Cir. 1966). The argu-
ment that the invoice complied with custom and usage also
has no merit. There was no evidence at trial that use of the
invoice with the limitation clause was such as to establish
it as custom and usage of the trade. Tankers & Tramps
Corp. v. Tugs Jane McAllister and Margaret M. McAllister,
supra, at 899 (there must be evidence presented to estab-
lish sufficient frequency of use of the restrictive clause to
warrant a finding of custom and usage).
While a clean on board bill of lading always estab-
lishes that unpackaged goods were in good order at the
time of shipment, Emmco Insurance Co. v. Wallenius
Caribbean Line, S.A., supra, when the goods are packaged
such clean bills of lading merely attest to the apparent
good condition of the cargo based on external inspection.
See, e.g., Vana Trading Co. Inc. v. S.S. Mette Skow, 556
F.2d 100 (2d Cir.1977); Midwest Nut and Seed Co., Inc. v.
S.S. Great Republic, 1979 AMC 379, 383-84 (S.D.N.Y.1978)
(Carter, J.), cited with approval in Caemint Food Inc. v.
Brasileiro, 647 F.2d 347, 353 and n. 5 (2d Cir.1981). Where
a hidden vice or defect may be the cause of cargo damage,
the shipper must establish that the goods were delivered in
good condition. See Midwest Nut & Seed Company, Inc. v.
S.S. Great Republic, supra. There is no evidence that the
Ingersoll cargo had a hidden defect or was delivered to the
Bodena in a rusted or deteriorated condition. Nor is there
any credible evidence that the machinery was inadequately
or carelessly packed. The testimony was that the packing
and crating, except for one item, was done at Rockford, and
that the machinery was packaged in Ingersoll’s customary
manner. That the packaging did not withstand exposure
56a
to turbulence and storms to which the machinery and its
packaging were exposed on open deck is not proof of negli-
gent or improper packaging by Ingersoll. The evidence is
clear that the rust which afflicted the machinery stowed on
the deck of the Bodena was not present in the three crates
stowed below deck.
Plaintiff has established that the rust damage to the
machinery resulted from exposure on deck to sea water,
and has met its burden of showing that the rust did not
result from exposure in Korea. The rust was the result
of sea water and condensation. The cargo on deck was
exposed to heavy storms and wind turbulence. There is
no credible evidence that the rusting was present before
loading of the cargo at New Orleans, or that the rusting
did not occur until after discharge at Pusan or that there
was any material additional rusting while the cargo was
in Korea. The court is satisfied that the rusting to the
on deck cargo resulted from the Bodena sailing through a
turbulent ocean and several severe storms.
Both Taiwan and Bernard are held liable jointly and
severally in full to Ingersoll for damages it suffered in
respect to SO 24441.
I cannot see any liability, however, on the part of
Excellent Marine. It owns the Bodena, but control of the
vessel in regard to making a contract of carriage of cargo
was in Taiwan’s hands under a time charter. The master
of the Bodena and the crew were under Excellent Marine’s
control. The form of the bills of lading was the responsi-
bility of Taiwan. T’ master accepted the bills of lading
as presented. He dia not authorize or require that they
be issued under his authority. I see no connection what-
soever between Excellent Marine and plaintiff for the pur-
pose of holding Excellent Marine liable for any damages to
Ingersoll’s cargo.
Plaintiff sought to establish that the crew was incom-
petent and negligent in the handling of the ship so as to
ut}
a Te
57a
render the Bodena unseaworthy. The court is not persuad-
ed. The claims against Excellent Marine are dismissed.
B. Fireman’s Fund
Fireman’s Fund seems to argue that the burden is
on plaintiff in respect of this all risk insurance policy to
establish that its loss resulted from an insured peril. This
is so, it contends, because Fireman’s Fund is not arguing
“an exclusion or exception ‘all risk’ coverages. Rather it
is the very question of whether ‘all risks’ or ‘limited risk’
coverage is afforded this loss which is at issue. Hence the
burden remains on Ingersoll to prove that this loss resulted
from an insured peril.” Fireman’s Fund Post Trial Brief
at 9. That convoluted statement can only mean precisely
what Fireman’s Fund says it does not mean, i.e. that this
loss is excluded or excepted from “all risk” coverage.
The rule as I understand it, is that an all risk policy
places the burden on the insured to establish only the exis-
tence of the all risk policy and its loss. Then the burden
shifts to the insurer to show that the coverage of the loss
comes within one of the exceptions. Pan American Worid
Airways, Inc. v. Aetna Casualty & Surety Co., 505 F.2d
989, 999 (2d Cir.1974). Fireman’s Fund argues that the
loss is covered by clause 17(b) which would mean no cover-
age on a partial loss and a limit of $175,000 recovery as per
clause 8(B)(2) of the policy in any event. Under Pan Amer-
ican and cognate cases, Fireman’s Fund has the burden to
establish that clause 17(b) is applicable, that its exception
or exclusion applies. See also Holiday Inns, Inc. v. Aetna
Insurance Co., 571 F.Supp. 1460, 463-64 (S.D.N.Y.1983)
(Haight, J.); Redna Marine Corp. v. Poland, 46 F.R.D.81,
86 (S.D.N.Y.1969) (Mansfield, J.). Ingersoll has made out
a prima facie case by establishing that/it is the insured
under the policy with its all risks p ions and that it
suffered a loss of cargo. |
In construing the policy, the court is to be guided by
federal admiralty law where there is an established rule.
58a =
federal admiralty law where there is an established rule.
Walter v. Marine Office of America, 537 F.2d 89, 94, reh.
denied, 542 F.2d 1174 (5th Cir.1976). Only in the absence
of established federal rules will state law govern. Wilburn
Boat Co. v. Fireman’s Fund Insurance Co., 348 U.S. 310,
316, 75 S.Ct. 368, 371, 99 L.Ed. 337 reh. denied, 349 U.S.
907, 75 S.Ct. 575, 99 L.Ed. 1243 (1955). In that regard
in applying New York’s choice of law tenets, the law of
the state having the most contacts and interest in the con-
troversy, would govern. J. Zeevi & Sons, Lid. v. Grind-
lays Bank (Uganda), Ltd., 37 N.Y.2d 220, 371 N.Y.S.2d
892, 333 N.E.2d 168 (1975), cert. denied, 423 U.S. 866,
96 S.Ct. 126, 46 L.Ed.2d 95 (1975). Both California and
Dlinois would seem to qualify as the state with the great-
est interest: California because it is the state where Fire-
man’s Fund has its principal place of business; and [linois
because of its interest in having citizens and residents of
the state collect what is due them from out of state insur-
ance companies. I believe New York courts would find
Tllinois has the greatest interest in this controversy. The
issue, however, seems academic since on matters material
to determination of this controversy, federal maritime law
is firmly established, and Illinois law appears to be consis-
tent with federal law.
A marine insurance policy, as well as other types of
insurance policies, is to be liberally construed in favor of
the insured. Kalmbach, Inc. v. Insurance Co. of the State of
Pennsylvania, 529 F.2d 552, 555 (9th Cir.1976); Fogelmark
v. Western Casualty & Surety Co., 11 Ill.App.2d 551, 556,
137 N.E.2d 879, 882 (1956). Where the terms are clear and
unambiguous, they are given appropriate effect. United
States Fire Ins. Co. v. Schnackenberg, 88 [T11.2d 1, 4, 57
Ill.Dec. 840, 842, 429 N.E.2d 1203, 1205 (1981); Zipf v.
Allstate Insurance Co., 514 011.App.3d 103, 11 Ml.Dec. 798,
369 N.E.2d 252 (1977).
The language in the policy originated with Fireman’s
59a
Fund. Therefore, if the provisions are ambiguous or equiv-
ocal, they must be construed “most favorably to the insured
and most strictly against the insurer.” Index Fund, Inc.
v. Insurance Co. of North America, 580 F.2d 1158, 1162
(2d Cir.1978), cert. denied 440 U.S. 912, 99 S.Ct. 1226,
59 L.Ed.2d 461 (1979), cited with approval in Vargas v.
Insurance Co. of North America, 651 F.2d 838, 839-40 (2d
Cir.1981).
Continuing at 840, the Vargas court said: “The insurer
bears a heavy burden of proof, for it must ‘ “establish that
the words and expressions used [in the insurance policy]
not only are susceptible of the construction sought by [the
insurer] but that it is the only construction which may be
placed on them.”’ Filor, Bullared & Smyth v. Insurance Co.
of North America, 605 F.2d 598, 602 (2d Cir.1978), cert.
denied, 440 U.S. 962 [99 S.Ct. 1506, 59 L.Ed.2d 776] (1979)
(quoting Lachs v. Fidelity & Casualty Co. of New York,
306 N.Y. 357, 365-66, 118 [118 N.E.2d 555] (1954)). The
insurer is ‘obliged to show (1) that it would be unreason-
able for the average man reading the policy to [construe
it as the insured does) and (2) that its own construction
was the only one that fairly could be placed on the policy.’
Sincoff v. Liberty Mutual Fire Insurance Co., 11 N.Y.2d
386, 390, 230 N.Y.S.2d 13, 16, 183 N.E. 899, 901 (1962).
Thus the question in this case is narrow: is the insurer’s
interpretation of the contract the only reasonable and fair
construction as a matter of law?” (Emphasis in the origi-
nal.)
There is no mention of bills of lading in clause 17(a)
or 17(b) of the insurance policy. They speak of under deck
and on deck shipments. The officials of Fireman’s Fund
testified that Ingersoll’s failure to realize or its slowness in
realizing that it had an on deck bill of lading caused Fire-
man’s Fund no prejudice. Although Burke did testify that
if he found that a shipper has been issued an on deck bill of
lading after the vessel sailed and the insured had diligently
60a
done all it could, he might find coverage. I do not under-
stand why this situation does not meet that criterion. On
the one hand, he, Donovan and Stanley Krasula, Claims
Manager of the Ocean Marine Claims Department, seem to
view the bill of lading as controlling without regard to the
fact that the shipper was not at fault. On the other hand
Burke sometimes seems to be saying that other factors
might govern. In any event, the policy has been rendered
ambiguous by the gloss Fireman’s Fund has engrafted on
17(a) and 17(b).
Fireman’s Fund officials accepted Ingersoll’s version
of the events that it booked an under deck shipment and
on deck stowage was unauthorized. If under deck ship-
ments in clause 17(a) to which full coverage is accorded the
insureds means on deck shipments without the insured’s
assent with under deck bills of lading, it also can be reason-
ably read to cover on deck shipments without the insured’s
assent with on deck bills of lading issued contrary to its
instructions. It was agreed that Fireman’s Fund’s interpre-
tation of clauses 17(a) and (b) requires one to go beyond the
words in the clauses. The interpretation Fireman’s Fund
has adopted is not written in the policy itself, nor in any
interpretive Fireman’s Fund manual or document. It was
decided upon apparently ad hoc, among Burke, Stewart,
Donovan and Krasula to deal with this unusual situation.
The reason for not applying clause 17(b) to on deck
cargo with an under deck bill of lading was explained by
Burke as based on equitable considerations. Even though
the cargo is physically on deck, “there was a contract for it
to go under deck.” That the cargo is on deck he regarded
as fortuitous. The same analysis justifies 17(a) coverage to
cargo which it placed on deck with an on deck bill of lading
without the owner’s consent. In these circumstances the
contract is for under deck carriage. The circumstances to
the shipper are just as fortuitous in the one case as in the
other.
6la
Fireman’s Fund sought to justify the interpretation
given the court on the basis of their and Ingersoll’s under-
standing of what the policy meant. But the interpreta-
tions offered constituted the subjective views of Fireman’s
Fund officials, never communicated to Ingersoll until this
litigation. The proffered explanation of the policy’s mean-
ing, therefore, cannot be used to establish that Fireman’s
Fund and Ingersoll had such intent and understanding
when they entered into the insurance contract. Lubrica-
tion Maintenance, Inc. v. Union Resource Co., Inc., 522
F.Supp. 1078, 1081 (S.D.N.Y.1981)(Weinfeld, J).
This is an all risks policy which covers “all losses that
are fortuitous no matter what caused the loss.” Goodman
v. Fireman’s Fund Insurance Co., 600 F.2d 1040, 1042 (4th
Cir.1979). A loss is not fortuitous “only if it results from an
inherent defect, ordinary wear and tear or from the inten-
tional misconduct of the insured.” Jd. Fireman’s Fund offi-
cials conceded that the insured’s negligence was considered
a fortuitous event. Burke sought to limit this to certain
circumstances, but he could not give any clear parameters
as to what negligent circumstances, were fortuitous and
those that were not. According to him the question had to
be decided on a case by ¢ase basis. This approach is not
appropriate. The meaning of an insured’s negligence as
embraced within fortuity must be clear to both the insured
and the insurer. The carrier here breached the contract
of carriage by placing the cargo on deck, and the loss to
Ingersoll necessarily became fortuitous.
The explanations given by Fireman’s Fund seems con-
trived, concocted solely to keep from paying up to $2.5 mil-
lion which was the extent of Ingersoll’s coverage under
this policy. Because the policy covered fortuitous circum-
stances, officials at Fireman’s Fund must have realized
that without the gloss of the under deck bills of lading
engrafted on 17(a), that the phrase under deck shipments
had to embrace on deck shipments without the shipper’s
62a
strained interpretation of 17(a) to cover only under deck
bills of lading no matter where the cargo was physically
stowed, Fireman’s Fund official sought to defeat Ingersoll’s
legitimate claims. This has caused Ingersoll to have to
undertake the cost of suing all other parties involved—a
task which more properly should be assumed by the insur-
ance company after having paid Ingersoll’s claim.
There was conflicting testimony among the officials
concerning the basis for denying coverage, and Donovan
and Burke’s deposition testimony was in direct conflict
with critical statements they made on the witness stand.
Thus, in depositions Burke and Donovan would appear to
take one position which each would alter, modify or con-
tradict at trial. These conflicts and inconsistencies helped
convince the court that Fireman’s Fund had conjured up its
strained reading of the insurance policy solely in an effort
to avoid accepting the liability the policy imposed.
Plaintiffs pursuit of the other defendants for the dam-
age sustained was a direct and forseeable consequence of
the Fireman’s Fund breach. Mitsui v. American Export
Lines, 636 F.2d 807, 824 (2d Cir.1981). Hence the litigation
expenses Ingersoll incurred are recoverable. Artvale Inc. v.
Rugby Fabrics Corp., 232 F.Supp. 814, 826 (S.D.N.Y.1964)
(Levet, J.), affd, 363 F.2d 1002 (2d Cir.1966).
Plaintiff also relies on clause 25 of the policy as requir-
ing Fireman’s Fund to reimburse plaintiff for all the liti-
gation costs it has incurred. That clause provides:
In case of any loss or misfortune, it shall be law-
ful and necessary for the Assured, his or their fac-
tors, servants and assigns, to sue, labor and travel for,
in and about the defense, safeguard, and recovery of
the aforesaid subject matter of this insurance, or any
part, thereof, without prejudice to this insurance, the
charges whereof this Company shall bear in proposi-
tion to the sum hereby insured.
That clause, however, seems principally invoked to
63a
That clause, however, seems principally invoked to
obtain reimbursement for those expenses incurred in an
effort to mitigate damages, see, e.g., Blasser Brothers Inc.
v. Northern Panamanian Line, 628 F.2d 376, 378 (5th
Cir.1980), and has no application to plaintiff’s litigation
and attorneys’ fees claims here.
As a rule attorneys’ fees are awarded in maritime
cases in order to make the insured whole, Hamilton v.
Canal Barge Co., 395 F.Supp. 978, 990 (E.D.La. 1975), and
attorneys’ fees are recoverable in this instant case in view
of the fact that plaintiff's recovery against Fireman’s Fund
will be reduced by whatever the former recovers from the
other defendants. However, the reduction of Fireman’s
Fund’s liability to plaintiff is the net of such recovery,
less Ingersoll’s expenses incurred in prosecuting this litiga-
tion. Those expenses necessarily embrace attorneys’ fees.
McDonald v. E.J. Lavino Co., 430 F.2d 1065, 1073 n. 7 (5th
Cir.1970); Baier v. State Farm Insurance Co., 28 Ill. App.3d
917, 329 N.E.2d 543 (1st Dist.1975), affd 66 I1l.2d 119, 5
11l.Dec. 572, 361 N.E.2d 1100 (1977).
In light of the purpose in awarding attorneys’ fees in
admiralty case, see Mitsui & Co., Ltd. v. American Export
Lines, supra; Artvale, Inc. v. Rugby Fabric Corp., supra,
the limitation of $5,000 argued for by Fireman’s Fund as
being required under Dlinois law, Fireman’s Fund Post
Trial Brief at 71, has no application to this case. The award
of attorneys’ fees is in keeping with the admiralty rule
which is to make the aggrieved party whole. See Mitsui
& Co., Ltd. v. American Export Lines, supra; Artvale, Inc.
v. Rugby Fabric Corp., supra.
Within one month of the issuance of this opinion, coun-
sel for Ingersoll is to submit evidence of the litigation
expenses it incurred in this case. These expenses should be
shown by affidavits, time sheets and other data pertinent
to the matter, with a memorandum supporting recovery
for what is claimed. Fireman’s Fund should file its oppos-
64a
ing papers three weeks after plaintiff’s submission. The
court will determine the matter on such submissions or,
if deemed necessary, set a hearing prior to making a final
decision.
No other punitive award will be made. While
defendant should have paid plaintiff under clause 17(a), its
action in refusing to do so awaiting the outcome of this lit-
igation does not constitute such egregious conduct to war-
rant an award of punitive damages other than attorneys’
fees and litigation expenses, in addition to compensatory
damages.
C. Damages
Plaintiff’s damages are the costs incurred in repair to
the machinery. To these costs a claimed 43% is added for
overhead expenses and profits. While overhead costs and
profits are legitimate items, the markup plaintiff seeks is
not warranted.
Plaintiff seeks $1,149,647.57 for the costs of repair of
the rusted machine, plus $90,969.65 for delay in contract
payments by Hyundai caused by the damage and necessary
repairs.
There is no dispute as to $153,818.10 for freight and
insurance charges. There is no dispute as to the $70,337
C & F cost for transporting the repaired machine from
Germany to Korea. Those items, therefore, are allowed.
The other items ere disputed.
There is resistance to the claim of $90,969.65 for inter-
est for delay in receiving payment from Hyundai for the
machine. This is a legitimate item. The interest is calcu-
lated from the date payment is due to the date payment is
received. Interest is calculated daily and averages about
12%. Interest calculated at the market rates for this item
is appropriate. Black Sea & Baltic Insurance Co., Ltd. v.
S.S. Hellenic Destiny, 575 F.Supp. 685, 695 (S.D.N.Y. 1983)
(Lasker, J.). During the period required for repair plain-
65a
tiff lost use of the funds which it would have otherwise
received. Accordingly, $90,670.00 is allowed (I am only
calculating to the nearest whole dollar figure).
For items bought and for labor costs, plaintiff seeks
an extremely liberal markup for overhead expenses and
profits. The court sees no justification for any markup
being added to the cost for parts taken from Ingersoll-
Rockford inventory or purchased by it. These items listed
as $9,532 and $18,471 are allowed without markup. Labor
costs for parts built by Ingersoll-Rockford are arrived at
by computing the basic cost of labor which is $6,713.73,
adding overhead costs in excess of 30% and then applying
a 40% profit. That seems excessive. A markup of 40%
should be adequate to cover overhead and profits on this
item. Accordingly, $30,853.00 is allowed. Reimbursements
including salaries of $46,635 and $32,000 are allowed.
Total repair and repackaging costs of $525,284 are allowed.
Overhead and profits have been included in this figure.
Thus the total allowed for damages for repair, repackaging
and delivery of the machine to Korea is $977,899.
Prejudgment interest in admiralty cases is to be
granted in the discretion of the trial court and “should be
granted in the absence of extraordinary circumstances.”
Mitsui & Co., Ltd. v. American Export Lines, 636 F.2d
807, 823 (2d Cir.1981). The latest case in this circuit
to deal with the subject, Jn the Matter of the Complaint
of Rio Grande Transport, Inc. v. Rio Grande Transport
and Embarsay of Tunisia, 770 F.2d 262 (2nd Cir.1985),
reached the same conclusion. As I read this rule, prejudg-
ment interest must be allowed unless good cause warrants
denial. To do otherwise would constitute an abuse of dis-
cretion. Socony Mobil Oil Co. v. Texas Coastal and Inter-
national, Inc., 559 F.2d 1008, 1014 (5th Cir.1977).
The rate of interest rests in the court’s broad dis-
cretion, Independent bulk Transport, Inc. v. The Vessel
“Morania Abaco”, 676 F.2d 23, 27 (2d Cir.1982). Plaintiff
66 a
“is entitled to income which the monetary damages would
have earned and that should be measured by interest on
short term risk free obligations.” Jd. In this circumstance
plaintiff has lost income that would have been made on
money spent to make these repairs. Thus interest should
run “from date repairs were paid for until the date of reim-
bursement”. Jd., (Newman, J., concurring). The interest
rate to be applied is the rate associated with federal paper
as found in the Federal Reserve Bulletin covering the time
in question.
The parties are to calculate prejudgment interest
under this formula and submit same in plaintiff’s proposed
final order and in defendants’ proposed counter orders.
Judgment is awarded against Taiwan, Bernard and
Fireman’s Fund jointly and severally in the amount of
$977,899, plus prejudgment interest pursuant to the for-
mula outlined in this memorandum. In addition, judg-
ment is awarded against Fireman’s Fund in the amount of
piaintiff’s litigation expenses and attorneys’ fees. Plaintiff
is to recover its costs.
IT IS SO ORDERED.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.