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GREAT NORTHERN INS. CO. v. DAYCO CORP.

October 4, 1985

GREAT NORTHERN INSURANCE COMPANY, Plaintiff, against DAYCO CORPORATION, Defendant.


The opinion of the court was delivered by: DUFFY

MEMORANDUM & ORDER AMENDED

KEVIN THOMAS DUFFY, D.J.:

 Plaintiff, Great Northern Insurance Company ("Great Northern"), commenced this action against defendant, Dayco Corporation ("Dayco"), seeking a declaratory judgment that it is not liable under the insurance policy issued to Dayco which provided "All Risk, Excess and Difference in Conditions Property Damage coverage on all real and personal property of the insured." Great Northern moves pursuant to Fed. R. Civ. P. 56 for summary judgment on the issue of coverage and for dismissal of defendant's counterclaim for $6,188,343. Dayco moves for summary judgment on the seventh claim in Great Northern's complaint which alleges that Great Northern's liability, if any, is limited to $1,000,000 as Dayco's loss is a single, not multiple, loss. Finally, Dayco moves for an order striking certain portions of Great Northern's affidavit in support of its motion for summary judgment as well as Exhibits F, G, and H attached to the affidavit, for failure to comply with Fed. R. Civ. P. 56(e).

 FACTS

 Dayco, a Michigan corporation with its principal place of business in Ohio, is engaged in the manufacture and sale of rubber and plastic belts and hose used in automobiles, trucks and tractors. Apparently, when the Soviet Union purchases nondomestic goods from companies such as Dayco, it does so through government purchasing agents called Foreign Trade Organizations ("FTOs") which then distribute the goods to various Soviet industries. See Dayco Exh. 55. (Affidavit of Richard O. Christian P4.). From 1976 through January of 1979, Dayco sold between $1 and $1.5 million worth of "V-Belts" per year to an FTO called Tractoroexport. See id.

 During the spring and summer of 1979, Dayco began talking to Edith Reich about the possibility of having her companies, Foreign Transactions Corporation ("FTC") and Trachem Co. Ltd., become involved in the sale of Dayco products to the FTOs. In the fall of 1979, Reich made several trips to the Soviet Union. In November, Dayco was informed by Reich that another FTO, Raznoimport, had placed an order for Dayco's "Super Blue Ribbon V-Belts" totalling $1,656,680. See Dayco Exh. 26.

 Under the arrangement between Dayco and FTC, FTC entered into agreements with the FTOs. Dayco would receive a letter from FTC stating that a particular contract had been procured and Dayco would manufacture the goods described in the letter.For such sales and prior to the delivery of the goods, FTC received a commission, ranging from 10 percent to 15 percent of the gross selling price.

 During the years 1980 and 1981, FTC placed orders with Dayco totalling over $100 million and received commissions of approximately $14 million. In January of 1980, Reich confirmed to Dayco the receipt of a large contract for V-belts with Tractoroexport which, after amendment, totalled $11,087,255. See Dayco Exhs. 6 (Contract No. 61-09/0295 and addenda); 27 (letter confirming order). In June of 1980, Dayco received a second Tractoroexport contract for "SPC type V-belts" and other industrial belts totalling $2,027,860. See Dayco Exh. 29 (Contract No. 61-09/0509). Both orders were to be sent to Bremen, West Germany. In April of 1980, Reich confirmed to Dayco the procurement of six orders by Razno-import for hydraulic hose totalling $17,088,555. See Dayco Exh. 28. In July of 1980, Reich wrote to Jeanette Curry of Dayco that Reich received two orders for automotive belts for another FTO, Avtopromimport, totalling $10,146,500. See Dayco Exh. 30. In September of 1980, Dayco received a letter from Reich acknowledging the receipt of two large orders by Tractoroexport and Raznoimport totalling $46,298,500 and $25,221,750, respectively.See Dayco Exhs. 9 (Contract No. 81-09/087981) & 32.

 Between July 2, 1980 and September 15, 1980, Dayco received seven payments from Tractoroexport totalling $2,494,505. See Dayco Exh. 31. In the fall of 1980, Dayco began to express concern over the delays by the Soviets in picking up the goods in Bremen and in December of 1980, suspended the payment of commissions to FTC to prompt FTC to have the Soviets pick up the goods. In January, however, the payment of commissions resumed immediately followed by a pickup in Bremen. See Dayco Exhs. 13, 37.

 In mid-February of 1981, Reich transmitted another order for Tractoroexport for $883,378 (Contract No. 61-09/1324) but Dayco and Reich had a dispute over the prepayment of commissions before other orders were picked up. Ultimately, on February 28, 1981, Dayco asserts, the second shipment was picked up. See Dayco's Rule 3(g) Statement P11(b). During May and June of 1981, Reich and Dayco officials corresponded about payments and pick-ups by the FTOs, and Reich's commissions. See, e.g., Dayco Exhs. 40, 41, 42, 43, 44, 45, 46, 47.

 By mid-July 1981, Dayco had received wire transfers of approximately $4.1 million. See Dayco Exh. 31. Dayco claims that by the end of July, it paid Reich all of the commissions due her on the Tractoroexport business as a result of Reich's threats not to provide the "trans" numbers necessary for shipment. Dayco asserts that by November of 1981 all twelve of the shipments ot Bremen were picked up. See infra n.4.

 As a result of questions raised by Dayco's outside auditors, Ernst & Whinney, as to the accounting treatment of Dayco's sales to the Soviet Union, Dayco retained the law firm of Pisar & Huhs. In response to Pisar & Huhs' inquiry into the purported contracts procured by FTC, Tractoroexport and Razno-import responded that they had no knowledge of the existence of many of the contracts. See Dayco Exhs. 53, 54.

 On January 26-27, 1982, Dayco representatives met with Tractoroexport officials to discuss the status of certain contracts. Dayco was informed that only two contracts with Tractoroexport had been concluded through FTC, Contracts Nos. 61-09/0295 and 61-09/1324. Dayco's position is that all the remaining contracts claimed by Reich to exist were fictitious and that Contract No. 61-09/1324 was for $446,000 rather than $883,000.

 In May 1982, Dayco brought an action for fraud and breach of contract against Reich and her companies in the Southern District of New York. Dayco Corp. v. Foreign Transactions Corp., et al., 82 Civ. 3354 (S.D.N.Y.) (Lowe, J.) ("the Dayco/FTC action"). On October 12, 1984, a judgment for $19 million eas entered against Reich and FTC. Dayco also filed twelve proofs of loss with Great Northern under an All Risks Policy issued to Dayco in 1976, and renewed each year including in 1981. See Answer and Counterclaims, Exhs. A (Policy) 1-12 (Claims). The policy provided:

 Perils Insured Against: This policy covers against All Risks of Direct Physical Loss or damage to property insured including general average and salvage charges except as hereinafter excluded.

 Dayco's claims are premised on the argument that to the extent it did not receive full payment for the twelve shipments in 1981, the goods were lost and Dayco is entitled to reimbursement under the policy in the amount of $6,188,343. Paragraph 8 of Dayco's Counterclaims alleges thta Dayco suffered its loss when Edith Reich caused Dayco to manufacture and ship goods to and from its warehouse in Bremen by representing that certain contracts existed which did not in fact exist. Dayco claims that "FTC and Reich wrongfully appropriated the Dayco goods to their own use. . . ." ...


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