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BERNS & KOPPSTEIN, INC. v. ORION INS. CO.

January 23, 1959

BERNS & KOPPSTEIN, INC., Plaintiff,
v.
ORION INSURANCE CO., Ltd. and Kenneth Walter Stone, Defendants



The opinion of the court was delivered by: HERLANDS

This is an action upon eight so-called Lloyd's valued marine cargo insurance policies. The policies, in the total face amount of$ 269,517, covered cargoes of 'handpicked, selected' Indian peanuts amounting to 1,753,267 pounds, imported from India to the United States in 1955 on four steamers.

Plaintiff, the firm that imported the peanuts, is the insured. The defendants represent certain members of two insurance syndicates *fn1" known as Underwriters at Lloyds and The Institute of London Underwriters, who issued the policies through the Corporation of Lloyds.

In 1955, the domestic peanut crop having failed, the United States, Government permitted the importation of a certain amount of peanuts from India. Appropriate custom duties and importation fees were promulgated.

 The policies herein contain the traditional 'sue and labor' clause, the usual 'all-risk' clause, and a special 'full rejection' clause.

 Upon being landed at the Port of New York, it was discovered by the inspectors of the United States Food and Drug Administration that the cargoes were infested by certain species of dead and live beetles and moths. Pursuant to the applicable statutory provisions (21 U.S.C.A. § 381), the Food and Drug inspectors analyzed samples of the cargoes; found that they were 'adulterated' i.e., insect-infested; and ordered the peanuts detained. The defendants' agents and expert confirmed the findings of the Food and Drug Administration. The defendants obtained permission to bring the peanuts into compliance with the Federal Food, Drug and Cosmetic Act by reconditioning them.

 In the course of the reconditioning operation, all peanuts were reconditioned by fumigation, blowing, brushing, sifting and re-bagging the nuts. Upon completion of the reconditioning operation, the Food and Drug Administration released the greater part of the goods for importation and distribution in the United States. The balance was destroyed under the supervision of the United States Customs authorities.

 1,644,926 pounds were released. 108,341.25 pounds were lost or destroyed. Through the reconditioning process, the handpicked, selected peanuts were mutilated; and they lost their characteristics. They showed an abundance of split, broken and damaged kernels. Defendants' agents acknowledged the deterioration.

 Defendants paid all costs of the reconditioning operation and paid for the greater part of the lost peanuts. Defendants paid a total of $ 105,827.62.

 In the present lawsuit, plaintiff seeks to recover $ 21,354.52 with interest thereon since September 15, 1955, together with costs and disbursements of this action.

 The claim for $ 21,354.52 consists of two items: an item of $ 19,345.63 for depreciated value of the peanuts, for which the plaintiff has not been indemnified; and $ 2,008.89 for additional shortages or lost peanuts, amounting to 12,937.25 pounds.

 The complaint alleges that jurisdiction of the court is founded upon diversity of citizenship and requisite amount. Paragraph '8' of the complaint alleges: 'Plaintiff complied with all warranties stipulated in the insurance certificates and performed all conditions to be performed on its part.'

 The original answer of the defendants contained certain admissions, certain denials and separate and distinct defenses. Among the admissions contained in the original answer, paragraph 'First,' was an admission as to paragraph '8' of the complaint, i.e., the defendants admitted that the plaintiff complied with all warranties stipulated in the insurance certificates and performed all conditions to be performed on its part. Upon the trial, the defendants moved to amend the answer by adding an additional separate and complete defense, now represented by paragraphs 'Twenty-Fourth' and 'Twenty-Fifth' of the amended answer. The defendants' motion to amend was granted. Apparently through a typographical error, paragraph 'First' of the amended answer still contains an admission with respect to paragraph '8' of the complaint. It is clear that the purpose of the amendment was to withdraw that admission and to substitute a separate and complete defense which now alleges that, contrary to the warranties and conditions precedent imposed on the plaintiff, no surveys were made immediately prior to the various shipments from India, and that surveys and reports were not made by F. S. Hardcastle & Company, the Indian firm whose survey and certifications were permissibly granted in the certificates of insurance.

 Each of the insurance policies involved herein contained a provision certifying 'that Lloyds' agent at the port of' New York 'has been authorized to adjust and settle on behalf of the Underwriters, and to purchase on behalf of the Corporation of Lloyd's in accordance with the Standing Regulations for the Settlement of Claims Abroad, any claim which may arise on this Policy.' A similar provision is contained on the face of each certificate of insurance.

 Each policy, as already noted, contains the traditional 'sue and labor' clause and clauses generally called 'all-risk'. In addition, each of the policies and certificates contained what are identified as 'Clause 504' and 'Clause 505', and which constitute 'full rejection' insurance with 'additional warranties and exclusions'.

 Clause 504 reads as follows:

 'Rejection Insurance -- Additional Warranties And Exclusions (rejection insurance full). In the event of rejection, i.e., rejection and/or condemnation at port of entry by the United States Government or Departments thereof including U.S. Food & Drug Administration, for any reason whatsoever, the settling Agents to advance the insured amount until such time as it is possible to dispose of the rejected interest and obtain salvage for the underwriters.'

 Clause 504 is annexed to each of the policies as a rider.

 Clause 505, likewise annexed to each of the policies as a rider, reads as follows:

 "Rejection' Insurance -- Additional Warranties And Exclusions.

 'A. Warranted survey immediately prior to shipment by Lloyd's Agents or by the Agents of the Institute of London Underwriters and a separate certificate of sound condition in respect of each vessel, each account, be obtained. Fees in this respect payably by the Assured.

 'B. Warranted direct shipments, or held covered at a premium to be arranged.

 'C. Warranted that packing and labeling conforms with the regulations in force at time of despatch in the countries to which the goods are destined.

 'D. Warranted that any regulations made by the Government or Authorities in country of shipment containing the interest insured, including regulations as to fumigation or any other similar process if applicable, are complied with.

 'E. It is warranted that in the event of the interest insured being rejected or not being passed within normal time on arrival at U.S., Messrs. Toplis & Harding, Wagner & Glidden, Inc., of New York are to be notified immediately, and any requirements or instructions they may issue are to be complied with. Fees in this respect payable by Underwriters, by only in event of claim for rejection hereunder.

 'F. This insurance does not cover claims for Loss of Market, nor claims based on rejection by reason of misdescription of the goods hereby insured or from any error or omission in the contract of sale or other documents.'

 The rejection insurance provisions, as set forth in a typical certificate of insurance, provide, among other things: 'Survey to comply with Warranty (A) in attached clause may be by F. S. Hardcastle & Co., Bombay.'

 Each certificate of insurance contains the following typewritten notation:

 'Including Full Rejection as per clause and subject to warranties and exclusions as per clause attached.'

 Lloyds' agent in New York is the firm of Toplis & Harding, Wagner & Glidden, Inc. (referred to hereafter as Toplis & Harding). They are also the settling agents referred to in the notations on the certificates of insurance and policies already referred to.

 The decisive question in this case will be spotlighted by first disposing of miscellaneous contentions advanced by the parties.

 The defendants contend, with respect to the Hardcastle & Co. surveys and survey reports, that the plaintiff has failed to comply with warranties and conditions in that the surveys were not made by Hardcastle & Company; secondly, that the survey reports were not in fact made by Hardcastle & Co.; and, thirdly, that the plaintiff failed to show compliance with the provisions of Warranty E which required a survey 'immediately' prior to shipment.

 With respect to the defendants' contentions concerning the surveys and survey reports by Hardcastle & Co., the Court has already ruled during the course of this trial that the surveys and survey reports submitted herein represented full and complete compliance with the warranty. The Court reiterates that conclusion for the same reasons that are already set forth in the trial minutes.

 Hardcastle & Co., a company of good repute, apparently operated its business by having its surveys and other related work done by other firms as subcontractors. This method of operation has been going on for some time. There is no suggestion of bad faith, collusion or fraud on the part of anybody connected with this litigation. The survey reports were submitted by Hardcastle & Co. and certified to by them. They are not now subject to impeachment or collateral attack, for reasons noted by the Court in the record.

 With respect to the warranty that the goods were 'surveyed immediately prior to shipment', the Court rules that that warranty has been complied with.

 The dates involved with respect to each of the shipments vary from several days to about two weeks. These dates appear in the various Madras and Bombay survey reports. In the 'statements of claims' prepared by the defendants' agents, it is stated: 'All warranties were complied with.' Moreover, the Court is of the view that the word 'immediately' is not to be construed as 'forthwith,' for to do so would be unrealistic and would overlook the actual operating conditions under which goods are surveyed and shipped. Although warranties in marine insurance are to be strictly construed, the word 'immediately' must be given a reasonable interpretation.

 The Court will now consider the contention advanced by the plaintiff that its claim against the defendants were settled and compromised by representatives of Toplis & Harding. Plaintiff contends that the purported agreement of settlement can be inferred from certain remarks made by Capt. J. S. Parry (a surveyor for Toplis & Harding) and R. V. Corsgreen (an assistant vice-president of that organization). Capt. Parry's remarks were made in August, 1955, while he and Max Berns (the plaintiff-corporation's president) were negotiating with Curtiss Candy Co., one of the plaintiff's vendees, to arrive at an allowance which would make the peanuts in their deteriorated state acceptable to Curtiss Candy Co. R. V. Corsgreen's remarks occurred on or about August 15, 1955, while he and the plaintiff ...


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