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Oscar L. Aronsen Inc. v. Compton

decided: April 9, 1974.


Appeal from a judgment for defendants entered in the United States District Court for the Southern District of New York, J. Edward Lumbard, Senior Circuit Judge, sitting by designation, after trial without a jury, dismissing plaintiff's complaint seeking recovery of $250,000 on policies of marine insurance. Affirmed.

Kaufman, Chief Judge, Smith and Anderson, Circuit Judges.

Author: Kaufman

KAUFMAN, Chief Judge:

A phrase may be clear and unambiguous in one setting; fuzzy and imprecise in another. "Words," Justice Holmes once said, "[are like] the skin of a living thought and may vary greatly in color and content according to the circumstances and time in which . . . [they are] used." Towne v. Eisner, 245 U.S. 418, 425, 62 L. Ed. 372, 38 S. Ct. 158 (1918). In this instance, the factual context clarifies, not beclouds, the language of a marine insurance policy we are called upon to interpret. Accordingly, we have little difficulty in affirming the sound construction of the terms of policy coverage adopted by the court below.

Oscar L. Aronsen, Inc. (Aronsen) was charterer of the vessel M/V Megara, which was stranded, with cargo on board, in the Sulu Sea on August 17, 1966. The ship was refloated and towed to Manila for survey of damages and trans-shipment of cargo. The owner, Acres Shipping Co., declined, however, to repair the vessel and it was eventually sold for scrap.

On June 2, 1967, Aronsen submitted a claim for $250,000, the face amount of his two Anticipated Charter Profit policies,*fn1 to the marine insurance underwriters in London. Payment was declined on the ground that Aronsen's policies did not cover the type of damage suffered by the M/V Megara. Aronsen then brought suit against the underwriters in the Southern District of New York*fn2 to recover $250,000, the amount it claimed was due under the policies. On January 4, 1971, Aronsen moved for summary judgment, but its motion was denied.*fn3 Thereafter, following a trial before Judge Lumbard, sitting by designation, without a jury, judgment was rendered for the defendants, and the complaint was dismissed.

At trial, the issue presented was a narrow one. The parties agreed that Aronsen's policies insured against the total loss of the chartered vessel, but did not cover a partial loss. It was undisputed, moreover, that total loss was comprised of three principal categories:*fn4 (1) an actual total loss; (2) a constructive total loss -- where the expense of recovering and repairing the vessel exceeds its insured value; (3) a compromised total loss -- where a claim for constructive total loss is settled by agreement between the insured and the underwriters. In determining whether a compromised total loss had occurred, the parties further agreed that the settlement reached between the owner of the M/V Megara and the underwriters of the owner's Hull and Machinery policies*fn5 would be dispositive of the charterer's claim under the Anticipated Charter Profits policies. Accordingly, since Acres Shipping Co. did submit and subsequently settle a claim with the hull underwriters, the decision below turned on whether this settlement was in discharge of a claim for constructive total loss or for a claim of partial loss of the M/V Megara.

The only testimony introduced at trial was Aronsen's deposition of Richard Rutherford, Adjuster of Claims, and Manager, Lloyd's Underwriters' Claims Office, who had negotiated on behalf of the hull underwriters with the representatives of Acres Shipping. Through Rutherford's deposition and the documentary exhibits introduced in evidence, a clear description of the negotiations surrounding the settlement under the Hull and Machinery insurance policies emerges.

Acres Shipping initially submitted a claim, on February 11, 1967, for a constructive total loss, based on the repair cost estimate of its marine superintendent, N. Soutos. This claim was immediately rejected by the underwriters on the strength of a repair estimate, prepared by their agent, substantially below the insured value of the M/V Megara.*fn6 Thereafter, on February 23, Richard Arnold & Son, representing Acres Shipping, tendered a claim for either a constructive total loss or, in the alternative, a partial loss based on unrepaired damage, requesting at the same time an immediate payment of $: 60,000 on account. Arnold was promptly informed by Rutherford that the underwriters adamantly refused to negotiate unless and until Acres Shipping withdrew its claim for a constructive total loss. Thus, on February 24, Arnold cabled the shipowner in pertinent part as follows:

Underwriters further state that if the shipowner is prepared to withdraw his right to claim CTL [constructive total loss] (should this be ultimately proved which is doubtful) and elect to treat claim as a partial loss then they will be willing to make an offer in full and final settlement of unrepaired damage claim . . . .

The choice is yours. Either elect for partial loss and obtain early payment of unrepaired damage or elect for CTL and await settlement until claim proved to satisfaction of underwriters which could take six months or more.

The shipowner responded to this choice in the following telegram to Arnold dated February 27:

Please inform our underwriters of Megara that if they will be agreeable to make us a satisfactory offer for settlement of unrepaired damage claim we shall withdraw our claim for constructive total loss and treat this matter as partial loss. (emphasis added)

Accordingly, in light of this exchange of telegrams, it is not surprising that the final settlement agreement, concluded March 2, 1967, explicitly stated that the sum agreed upon was "in full and final settlement of all claims for unrepaired damage . . . ...

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