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OSCAR L. ARONSEN, INC. v. COMPTON

July 19, 1973

OSCAR L. ARONSEN, INC., Plaintiff,
v.
Norman Philip COMPTON et al., Defendants



The opinion of the court was delivered by: LUMBARD

Oscar L. Aronsen, Inc. sues to recover $250,000 on two policies of marine insurance. Aronsen, a New York corporation, was the charterer of the vessel M/V Megara which was stranded, with cargo on board, in the Sulu Sea on August 17, 1966. Defendants represent the London insurance underwriters that wrote the two anticipated charter profits policies on which plaintiff seeks to recover. The only issue is whether the settlement agreement between the owner of the M/V Megara and the underwriters on the hull and machinery policies involved an "arranged" or "compromised" total loss. If it did, then plaintiff is entitled to recover. *fn1"

I

The two anticipated charter profits policies at issue covered the expected charter profits of the M/V Megara for one year from 11:00 P.M. on August 9, 1966 to 11:00 P.M. on August 9, 1967. Under such policies the charterer of a vessel is insured against the loss of the profits that he anticipates realizing from use of the vessel during the insured period. The underwriters accept the face amount of the policies, in this case $250,000, as being the charterer's anticipated profits, and if a claim is made, no proof is required of the actual charter profits lost.

 One policy issued by Lloyd's of London covered 84.4 per cent of the total $250,000 risk; the remaining 15.6 per cent was covered by a policy of the Institute of London Underwriters Companies. Defendant Norman Philip Compton appears individually and as representative of the underwriters on the Lloyd's policy, while defendant Eagle Star Insurance Co., Ltd. appears individually and as representative of the underwriters on the Institute of London Underwriters Companies policy.

 These anticipated charter profit policies do not insure against partial loss of the vessel, but they do cover, among other things, "total or constructive total or compromised or arranged total loss of vessel only caused by or arising from perils under the American Institute Time (Hulls) January 1, 1964 Form." *fn2" The policies also contain the following clause:

 
It is understood and agreed that if the policies on Hull and Machinery contain provisions with respect to the method of ascertaining whether the vessel is a constructive total loss similar to or having the same effect as the American Institute Time (Hulls) January 1, 1964 Form, the settlement of a claim for total or constructive total loss under the Hull and Machinery policies shall be accepted as proof of the total loss of the vessel under this policy.

 Hull and machinery policies are insurance policies taken out by the owner of a vessel to insure against damage to the hull and machinery. The parties are agreed that the owner of the M/V Megara *fn3" did have hull and machinery policies with provisions for "ascertaining whether the vessel is a constructive total loss . . . having the same effect as the American Institute Time (Hulls) January 1, 1964 Form." That form provides in pertinent part:

 
No recovery for a Constructive Total Loss shall be had hereunder unless the expense of recovering and repairing the Vessel shall exceed the insured value.
 
In ascertaining whether the Vessel is a Constructive Total Loss the insured value shall be taken as the repaired value, and nothing in respect of the damaged or break-up value of the Vessel or wreck shall be taken into account.

 Thus, the anticipated charter profits policies provide coverage in the event of (1) a total loss, (2) a constructive total loss, (3) a compromised total loss, or (4) an arranged total loss. They also provide, in effect, that if there is a settlement of a claim made by the owner under the hull and machinery policies which falls into one of the above four categories, that settlement will be taken as proof of total loss of the vessel under the anticipated charter profits policies. After the stranding of the M/V Megara the owner did make a claim under the hull and machinery policies for the constructive total loss of the vessel. Aronsen asserts that the owner's claim was compromised or arranged and that it is therefore entitled to recover the full amount of the anticipated charter profits policies. Consequently, we look to what transpired between the owner of the M/V Megara and the underwriters on the hull and machinery policies to determine defendants' liability under the anticipated charter profits policies.

 II

 The only testimony introduced at trial was plaintiff's deposition of Richard Rutherford, Adjuster of Claims and Manager, Lloyd's Underwriters' Claims Office. According to Rutherford the M/V Megara was stranded on Bancoran Island in the Sulu Sea on August 17, 1966. Plaintiff's anticipated charter profits policies were in full force at this date and the stranding resulted from a cause covered by plaintiff's policies. The vessel was eventually refloated under contract salvage and was towed to Manila for survey of damage and transshipment of cargo. Both the shipowner and the underwriters sent representatives to estimate the cost of repairing the M/V Megara.

 Under the hull and machinery policies *fn4" a total constructive loss occurs only if the "expense of recovering and repairing the Vessel" exceeds its insured value. The insured value of the M/V Megara was $: 140,000. The shipowner's marine superintendent, a Mr. N. Soutos, estimated the cost of repairs at $: 122,500. Certain additional items, which are lumped under the categories of particular and general average expenses, also come within the definition of repair and recovery in determining if a total constructive loss has occurred. These expenses were estimated by Richard Arnold & Son, the owner's average adjusters, to total $: 20,039. Thus, the shipowner's estimated total cost of repair and recovery came to $: 142,539, which was $: 2,539 more than the insured value.

 The shipowner, promptly after receipt of this estimate, notified the underwriters that he was claiming a total constructive loss under the hull and machinery policies. The shipowner also sent a written notice of abandonment, dated February 11, 1967, *fn5" as is the practice when claiming a constructive total loss. As the underwriters' representative had estimated that the cost of repairs, if they were done in a Japanese repair yard, would only be $: ...


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