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OCCIDENTAL PETROLEUM CORP. v. NEW HAMPSHIRE INS. C

January 30, 1981

OCCIDENTAL PETROLEUM CORPORATION, Plaintiff,
v.
NEW HAMPSHIRE INSURANCE COMPANY, Centennial Insurance Company, United States Fire Insurance Company, Continental Insurance Company, Fireman's Fund Insurance Company, St. Paul Fire and Marine Insurance Company, Northwestern National Insurance Company, American Motorists Insurance Company, Highlands Insurance Company and American International Marine Agency of New York, Inc., Defendants



The opinion of the court was delivered by: SOFAER

This case turns upon the proper construction of the terms of a marine insurance contract a contract so ineptly drafted as to defy clear comprehension. Counsel have advanced various clever readings of the contested provisions, but the choice among the proposed meanings cannot turn solely on grammatical analysis; too many contrary readings are logically acceptable. The result, therefore, must turn on the background and purposes of this particular policy. Some consolation for the uncertainty that remains can be derived from the fact that a policy so infelicitously drawn is unlikely to plague the admiralty bar soon again.

Plaintiff Occidental Petroleum Corporation was the assured under a policy (J & H JP 74/1013) issued by the defendant insurance companies. During the period covered by the policy, 146 pieces of casing (used to line oil wells) were lost while plaintiff was barging them from Iquitos, Peru to Teniente Lopez, Peru. The casing was to have been carried by helicopter from Teniente Lopez to the oil-drilling sites.

The parties agree that the loss was covered by the insurance policy, but they disagree as to the amount of the claim that defendants must pay. Plaintiff contends that, under Clauses 6(b) or 15 of the policy, it is entitled to the actual cost of purchasing and transporting replacement casing to the destination ($ 314,228.19, less $ 10,000 deductible) referred to as "replacement cost." Plaintiff contends that, alternatively, it is entitled under Clause 6(a) to the cost of purchasing goods at the nearest available market and transporting them to the point of loss on the day that the goods should have arrived ($ 222,178.96, less $ 10,000 deductible) referred to as "market value." Defendants contend that plaintiff is entitled only to the actual cost of acquiring and transporting the goods to the point of loss ($ 53.950, less $ 10,000 deductible, plus interest) referred to as the "C. & F. Iquitos cost." Defendants also advance a conditional counterclaim, contending that, if plaintiff recovers more than the C. & F. Iquitos cost, it must recompute all premiums paid pursuant to the policy.

 The parties have submitted the case to this Court for judgment "in lieu of a formal trial of facts," Plaintiff's Memorandum at 3, and have presented extensive stipulations of fact and exhibits. Neither party seeks to present live testimony on any issue. The precedents cited by the parties are of little use, for generalities cannot control the interpretation of these peculiar provisions. On balance, defendants' interpretation of the policy (supported by an especially capable brief) is the more reasonable one. Plaintiff is entitled to recover the C. & F. Iquitos cost. No need exists, therefore, to reach defendants' conditional counterclaim. This opinion constitutes the Court's findings of fact and conclusions of law.

 The policy in question is a "valued" policy, and Professors Gilmore and Black's discussion of such policies is instructive:

 
Most marine insurance policies are "valued." This means that the assurer and the assured have agreed in advance on the total value of the insured subject matter. In the absence of fraud, concealment or an intent to wager, this stipulation is binding on both of them, whatever the true worth of the insured property may be. The "valuation" is to be distinguished carefully from the "sum insured"; it is entirely possible that a policy may be written valuing a ship at $ 1,000,000, but insuring only $ 500,000 of that amount.
 
The bindingness of the valuation has many consequences. The most obvious is that, where the valuation and the insured sum are the same, that amount is the amount payable in the event of a total loss, regardless of "actual value" at the time of loss or at any other time. Where the insured sum is, say, only one-half of the stipulated value, the underwriter pays only the insured sum; the assured may have to make up the difference out of his own pocket, or there may be other policies in force.
 
The practice of "valuation" may, of course, turn out in the event to be advantageous to one party or the other, depending upon whether an over- or an under-valuation is stipulated for, and on the trend of the market between the issuance of the policy and the loss. But the courts have firmly refused to allow the chance hardship or windfall to produce an exception to the binding effect given to the valuation. The practice of valuation, supported by this firm judicial attitude, is of high utility; it obviates the necessity of wrangling, in or out of court, over matters that are notoriously difficult of ascertainment.

 G. Gilmore & C. Black, The Law of Admiralty ยง 2-16, at 86-87 (2d ed. 1975) (emphasis added) (footnotes omitted).

 The policy was also an "open" policy, covering not a single shipment, but rather all future shipments. Because the policy was valued and open, it necessarily contained a provision for ascertaining the insured value of each shipment. That provision was Clause 6:

 
6. Valued at amount of invoice, including all charges therein, including any prepaid and/or advanced and/or guaranteed freight, plus 10% until declared and then at amount declared, provided such declaration is made prior to any known or reported loss or accident, but in no event to be less than the foregoing.
 
Notwithstanding the above, the following valuations shall apply where applicable:
 
(a) Market value at destination on the first market day following completion of discharge or in the event of non-arrival of the vessel the market value on the date which the vessel should have arrived.
 
(b) cost, or
 
(c) sales price, plus prepaid and/or advanced and/or guaranteed freight payable "vessel lost or not lost", if any, and all other charges not included in the sales price plus the percentage of advances, if any, required by ...

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