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NORTHWESTERN MUT. LIFE INS. CO. v. LINARD

June 4, 1973

The NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, Plaintiff,
v.
Harry Oliver LINARD, an Underwriter at Lloyd's; Edinburgh Assurance Co., Ltd., et al., Defendants


Robert J. Ward, District Judge.


The opinion of the court was delivered by: WARD

Robert J. Ward, District Judge.

On the night of March 14, 1969 there was an explosion aboard the motor vessel Vainqueur ("Vainqueur") while the vessel was in the Gulf of Mexico en route from Vera Cruz to New Orleans with a cargo of sugar. The vessel suffered rapid flooding and within one hour it sank beyond salvageable depths. This action, arising from the above incident, was originally commenced by the Northwestern Mutual Life Insurance Company ("Northwestern"), as mortgagee of the Vainqueur, against Vainqueur Corporation, the mortgagor of the Vainqueur, and Auxiliary Power Corporation ("Auxiliary"), the guarantor of a promissory note for which the mortgage on the Vainqueur was security. Northwestern, as loss payee of certain insurance policies, also sued the remaining defendants the insurers who subscribed to policies of hull and machinery insurance with respect to the Vainqueur. *fn1" Vainqueur Corporation cross-claimed against the Underwriters for the face amount of the hull and machinery policies less the amount the Corporation owed to Northwestern. A default judgment was entered against Auxiliary in favor of Northwestern on December 18, 1970.

 Prior to trial, Northwestern's claim against the Underwriters was settled. Pursuant to the settlement Northwestern assigned its rights under the mortgage, promissory note, and default judgment to Underwriters, and released them from further liability to Northwestern. Thus, the action proceeded to trial with cross-claimant Vainqueur Corporation, in effect the "plaintiff" and Underwriters the "defendant".

 Vainqueur Corporation contends that the cause of the explosion which resulted in the sinking of the Vainqueur was unknown and therefore an event covered by the machinery and hull insurance policies. Underwriters, however, rejected the insurance claims, and contend that the vessel was purposefully scuttled by her owners by detonating an explosive device placed in one of the wing tanks of the vessel.

 As additional defenses, Underwriters contend that Vainqueur Corporation, or its agents, concealed or misrepresented facts material to the risk, thereby precluding the insured from recovering under the policies. These defenses and their underlying facts need not be discussed since the Court has found that Vainqueur Corporation has not established that the loss of the Vainqueur was due to a peril covered by the insurance policies.

 I

 A. vainqueur Corporation is a Liberian company and the Vainqueur flew the Liberian flag. The vessel, displacing approximately 22,500 tons, was built in 1957 and 1958 in Montreal, Canada The ship was powered by an 8-cylinder, 2-cycle main propulsion diesel engine. Additional power was provided by two generators, each driven by a diesel engine.

 In 1967, the Vainqueur Corporation contracted to purchase the Vainqueur from a subsidiary of Northwestern. On January 23, 1968, the vessel was sold to Vainqueur Corporation for $412,500 in cash and a 7% promissory note in the amount of $1,287,500, signed by Vainqueur Corporation, guaranteed by Auxiliary, and secured by a Liberian preferred ship mortgage. The Corporation continued previously carried machine and hull insurance in the amount of $3,750,000. This insurance, subscribed to by Underwriters, was in force at the time of the sinking of the vessel. Although the Vainqueur Corporation paid a portion of the annual premium on the insurance four days before the sinking, pursuant to the policies the balance of annual premiums became immediately due upon the loss of the ship. These premiums were paid by Northwestern to Underwriters on March 19, 1969.

 At the time of the Vainqueur's loss, the vessel was operating under a bulk sugar charter which provided for two voyages from Vera Cruz to New Orleans. 20,000 long tons of sugar were to be transported on each voyage. The vessel was lost on the second voyage.

 With respect to the cause of the sinking of the Vainqueur, the parties agree only that an explosion was heard throughout the ship at about 11:40 P.M. on the night of March 14, 1969, in the vicinity of the engine room, which caused extensive flooding. The ship sank within one hour. Vainqueur Corporation asserts that the explosion was of unknown origin. It alleges, however, that the probable cause was either a starboard generator or main engine crankcase explosion which, combined with structural failure, created a hole in the vessel's hull sufficiently large to allow a massive influx of water. Vainqueur Corporation asserts that this loss was a risk insured by the insurance policies.

 Underwriters concede,

 
"That a fortuitous explosion of unknown cause not resulting from any act of omission or commission on the part of the owners or managers of the vessel is an 'accident' within the meaning of the American Hull Insurance Syndicate Liner and Negligence Clause in the policies. . . ."

 Nevertheless, Underwriters contend that no "fortuitous explosion of unknown cause" occurred. Rather, the loss of the vessel resulted from the detonation of an explosive device placed in a starboard wing tank. According to Underwriters, this device was placed with the "procurement" and "connivance" of the Vainqueur Corporation. Thus, Underwriters contend the sinking was not an insured event under the policies of marine insurance.

 B. At trial, Vainqueur Corporation opened its case by offering in evidence the policies of insurance. The Corporation also presented evidence of due diligence in keeping the Vainqueur seaworthy. *fn2" Underwriters then introduced evidence with regard to the scuttling of the ship.

 Auxiliary was the managing agent for the Vainqueur. It was an affiliate of Vainqueur Corporation and of Kervin Shipping Corporation, later Kervin Ship Agencies ("Kervin"), with offices in New York. Raoul Slavin was the principal in both Auxiliary and Kervin, and held a power of attorney for his mother who held the stock of the Vainqueur Corporation. While Slavin was associated with Kervin the Corporation suffered a series of constructive total losses of its vessels which led to large insurance recoveries. *fn3"

 During Vainqueur Corporation's ownership of the Vainqueur, the vessel experienced difficulties. A main engine breakdown occurred in 1968 and required new parts and repairs. In December of 1968, the port generator broke down near Honolulu. In early 1969, after the Vainqueur had arrived at New Orleans with her first sugar cargo, a longshoremans' strike prevented her from immediately discharging her sugar cargo. While waiting to discharge the cargo, the Vainqueur broke her anchor chain and collided with three other vessels. Minor damage was sustained and temporary repairs were made. These repairs were surveyed and approved by representatives of Lloyd's Register of Shipping. The damage appears to have had no relationship to the subsequent sinking.

 Marius Pieterse, who was employed by Vainqueur Corporation as a Port Captain, joined the vessel in New Orleans after the collision occurred. Vainqueur Corporation contends that he joined the ship in connection with her personnel, maintenance and repair problems. Underwriters assert that he joined the ship for the purpose of placing an explosive charge aboard her. They argue that Pieterse was not a marine engineer and had no experience with diesel engines. He was therefore of little value with respect to necessary repairs on the port generator. In addition, Underwriters point out that there was no credible evidence that Pieterse discussed or was interested in personnel problems, and the collision damage had been temporarily repaired before the vessel departed on her last voyage. During that voyage, however, Pieterse did engage in inspections of certain of the vessel's wing tanks.

 Pieterse had been discharged as Captain of a vessel in 1966 by her owners for loading his own cargo for profit against company orders. From that time on he worked in various capacities for Slavin companies. Apparently the relationship between Pieterse and Slavin was close. The telephone in Slavin's New York apartment is listed in Pieterse's name.

 Underwriters introduced certain circumstantial evidence at trial concerning Pieterse's actions prior to and after the explosion which they contend demonstrates that Pieterse deliberately detonated an explosive device aboard the Vainqueur. They assert that the evidence demonstrates that the explosion "probably" occurred in the No. 6 starboard wing tank of the vessel, and that on March 14, Pieterse had entered that tank and was "preoccupied" with it. Pieterse was also allegedly interested on the night of the sinking in the precise location of the Vainqueur and the depth of the water. Assuming the truth of these facts, they alone do not establish that the vessel was scuttled. There was no credible evidence that Pieterse purchased explosives, nor was there evidence that he had possession of explosives at any time during the final voyage.

 Underwriters also produced Gail D. Monroe, of Houston, Texas. She was a friend of Elaine Schaat, the wife-to-be of Pieterse, and apparently, acted as a "marriage counselor" to Pieterse and Miss Schaat. Pieterse made telephone calls to Mrs. Monroe from New Orleans and from Vera Cruz before the Vainqueur's last voyage. Mrs. Monroe testified that during the course of a call from New Orleans Pieterse told her that "they were going to make him blow up the Vainqueur and that he planned to do this and . . . that it would be done between New Orleans and Vera Cruz." *fn4" On a subsequent call from Vera Cruz before the sinking, Mrs. Monroe testified that Pieterse again told her that "they were going to make him do it," and

 
that he had to set a device whereby the ship would blow up and blow up in such a way as to penetrate the especially heavy iron plates, double iron plates that are used in the Vainqueur, and to do this so that he could get the crew where they wouldn't be hurt, send a radio message, and then try to get the whole crew off the ship.
 
And he mentioned that this had to be done in the deepest water. *fn5" ...

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