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Ingersoll Milling Machine Co. v. Bodena

decided: September 14, 1987.

THE INGERSOLL MILLING MACHINE CO., PLAINTIFF-APPELLEE IN 85-7941, 85-7945, AND 86-7405, PLAINTIFF-APPELLANT IN 86-7413, PLAINTIFF-CROSS-APPELLANT IN 86-7413 RE: 85-7941, 85-7945, AND 86-7405,
v.
M/V BODENA, HER ENGINES, BOILERS, ETC., EXCELLENT MARINE, INC., TAIWAN INTERNATIONAL LINE LIMITED, J. E. BERNARD & CO., AND FIREMAN'S FUND INSURANCE CO., DEFENDANTS, EXCELLENT MARINE, INC., DEFENDANT-APPELLEE IN 86-7413, TAIWAN INTERNATIONAL LINE LIMITED, DEFENDANT-THIRD PARTY PLAINTIFF-APPELLEE IN 85-7941, DEFENDANT-APPELLANT IN 86-7405, DEFENDANT-CROSS-APPELLANT IN 86-7405 RE: 85-7941, DEFENDANT-CROSS-APPELLEE IN 86-7413, J. E. BERNARD & CO., DEFENDANT-THIRD PARTY DEFENDANT-APPELLANT IN 85-7941, DEFENDANT-CROSS-APPELLEE, IN 86-7405 AND 86-7413, FIREMAN'S FUND INSURANCE CO., DEFENDANT-APPELLEE IN 85-7941 AND 86-7405, DEFENDANT-APPELLANT IN 86-7945, DEFENDANT-CROSS-APPELLEE IN 86-7413



Appeals from a judgment of the United States District Court for the Southern District of New York, Carter, Judge, awarding the Ingersoll Milling Machine Co. damages and prejudgment interest against Taiwan International Line, Ltd., J.E. Bernard & Co., and Fireman's Fund Insurance Co. jointly and severally; awarding Ingersoll attorney's fees and litigation expenses against Fireman's Fund; awarding Fireman's Fund a right of subrogation against Taiwan and Bernard; and dismissing claims of Bernard and Taiwan against each other. Cross-appeal by Ingersoll seeking to increase its award of damages and prejudgment interest. Affirmed in part, reversed in part, and remanded.

Cardamone and Pierce, Circuit Judges, and Bonsal, Senior District Judge.*fn*

Author: Pierce

PIERCE, Circuit Judge :

These appeals are from a final judgment filed in the United States District Court for the Southern District of New York on April 28, 1986, following a bench trial before Judge Robert L. Carter. The judgment (1) awarded plaintiff-appellee The Ingersoll Milling Machine Co. ("Ingersoll") damages and prejudgment interest against defendants-appellants Taiwan International Line Ltd. ("Taiwan"), J.E. Bernard & Co. ("Bernard"), and Fireman's Fund Insurance Co. ("Fireman's Fund" or the "Fund") jointly and severally, (2) awarded Ingersoll attorney's fees and litigation expenses against Fireman's Fund, (3) awarded Fireman's Fund a right of subrogation against Taiwan and Bernard, and (4) dismissed claims of Taiwan and Bernard against each other.

Ingersoll cross-appeals seeking to increase its award of damages and prejudgment interest.

Appellants each raise a number of issues on appeal. We consider them seriatim, and we affirm the determinations of the district court except with regard to the award of attorney's fees and litigation expenses.

BACKGROUND

This case arises from the shipment of certain cargo from the United States to South Korea. The cargo, which was insured, and consisted of 20 packages, 18 of which were stowed on the deck of the ship, was damaged in transit. Simply stated, we must determine whether the district court properly decided who is responsible for the damage and that the insurer improperly refused to cover the loss. We set forth the essential evidence in this section, as found by the district court, 619 F. Supp. 493 (S.D.N.Y. 1985), with details to be provided later as necessary.

In January 1978, Waldrich Siegen, GmbH ("Waldrich") of West Germany contracted to sell heavy, specially designed machines to Hyundai International, Inc., in Korea. Waldrich engaged its affiliate, Ingersoll, a manufacturer of special design machinery, as a subcontractor to manufacture Shop Order 24441 ("Order # 24441") and to arrange for its shipment to Korea. Order # 24441 consisted of a ram type, horizontal spindle, traveling column machinery center, and was valued in excess of $2 million.

In the summer of 1979, Ingersoll, located in Rockford, Illinois, contacted Gryphon Shipping Service, Inc. ("Gryphon"), a broker and steamship agent in Chicago, to arrange for shipment of Order # 24441 to Korea.*fn1 Gryphon, in turn, contacted Taiwan, which had time chartered the M/V Bodena from its owner Excellent Marine, Inc. ("Excellent Marine"). Gryphon arranged with Taiwan in August 1979 for the cargo to be shipped in September 1979 from New Orleans aboard the M/V Bodena. A contract of carriage arose between Ingersoll and Taiwan in August 1979 when Ingersoll accepted the terms arranged by Gryphon and informed Gryphon that the shipment of Order # 24441 would be in twenty boxes. The district court found that, at the time of booking, there was no evidence that Ingersoll had agreed to on deck stowage. Gryphon's commission was to be paid by Taiwan, and Gryphon was found by the district court to be Taiwan's agent.

In connection with the shipment, Ingersoll also retained Bernard, a freight forwarder doing business in Elk Grove Village, Illinois, to perform various freight forwarding tasks. In addition to other duties to be performed by Bernard, Ingersoll, by letter dated September 10, 1979, requested that Bernard secure "three originals and four copies of clean on-board bills of lading" (emphasis added). In response to this letter, Bernard prepared two master ditto forms of the bill of lading and also the shipper's export declaration. One of the master ditto forms was sent to Mid-Gulf Shipping, Inc. ("Mid-Gulf"), Taiwan's agent in New Orleans, to be used in the preparation of the original bills of lading; the other was sent to Gryphon. In addition, the master ditto was used to prepare an advance notice of shipment which was sent by Bernard to Ingersoll on September 25, 1979. Neither the master ditto, nor the advance notice contained any notation as to stowage. Ingersoll informed Bernard that all the information on the advance notice was correct except that the point of discharge should be changed.

The Ingersoll cargo, which had arrived in New Orleans from Illinois by truck and rail, was loaded on board the M/V Bodena on September 26 and 27, 1979. Of the twenty boxes which comprised Order # 24441, eighteen were initially stowed on deck and two were stowed below deck. Mid-Gulf, Taiwan's agent, was responsible for the issuance of bills of lading. Prior to sailing, Mid-Gulf took the ditto form supplied by Bernard and added the phrase "on deck shipper's risk" to its face. Mid-Gulf then used the altered ditto to run off three original bills of lading and mailed the originals with thirteen copies to Gryphon in Chicago.

Ingersoll received the originals and four copies on October 1, 1979. Fred Woywod, Ingersoll's contract administrator, saw the documents that day but either did not notice the addition of the words "on deck shipper's risk" or if he did notice them, did not understand their legal significance. Bernard, too, received copies of the bills of lading on October 1 but failed to examine the issued bills to determine whether they were in fact clean, and, consequently, failed to inform Ingersoll that Taiwan had not followed the instructions to issue clean bills of lading.

The M/V Bodena, which had made several intermediate stops at various East Coast ports, set sail from Savannah, Georgia, for Korea on October 14, 1979. At the time of sailing, seventeen of Ingersoll's boxes were stowed on deck, one of the boxes initially stowed on deck having been moved below deck. The voyage to Korea lasted more than one month and was beset with storms, heavy seas, and high winds. As a result of heavy rolling and pitching during the voyage, the seventeen boxes were broken; others were thoroughly soaked by sea water. Because of the damage, Order # 24441 had to be sent from Korea to Waldrich in Germany for repair. None of the three boxes stowed under deck were damaged.

Ingersoll maintained an all risk insurance policy with Fireman's Fund. That policy had been issued as an open cargo policy, designed to cover all of Ingersoll's shipments. In other words, a particular shipment would became covered under the policy either when Ingersoll filled out and sent to Fireman's Fund a certificate of insurance for each shipment, indicating the contents, value, destination, and carrier of the cargo, or when Ingersoll sent to the Fund a monthly declaration of shipments. As testified to by Fireman's Fund officials, such a policy was designed to provide automatic coverage such that even if the certificate or monthly declaration was sent after a loss had occurred, the shipment would nevertheless be covered.

The particular policy in question contained separate clauses for insuring under deck shipments and on deck shipments.*fn2 Clause 17(a) insured under deck shipments and specifically contained broader terms of coverage. Those terms provided coverage against all risks of physical loss or damage. Clause 17(b), which did not contain broader terms, provided coverage for on deck shipments known as free of particular average ("FPA"). FPA coverage does not cover a partial loss of the subject matter insured unless certain contingencies not relevant herein occur. Another provision of the policy, clause 8(B)(2), limited coverage to $175,000 for shipments subject to an on deck bill of lading or shipments stowed on deck with the consent of the insured.*fn3

In August 1979, Ingersoll sent to Fireman's Fund a certificate of insurance to cover Order # 24441. The certificate, which took effect before the boxes were actually loaded aboard the M/V Bodena, stated that the machinery was laden under deck. When Ingersoll learned of the damage to the cargo in December 1979, it notified Fireman's Fund of its loss. After an investigation, Fireman's Fund, on May 23, 1980, denied Ingersoll's claim under its policy for full indemnity for the repairs undertaken by Ingersoll.

The district court found that Taiwan and Bernard were jointly and severally liable for Ingersoll's damages, and accordingly, awarded Ingersoll $977,899 plus prejudgment interest. Fireman's Fund too was found jointly and severally liable to Ingersoll under its insurance policy in the same amount, and to the extent that it makes payment to Ingersoll for damages assessed, it was ordered that Fireman's Fund would be entitled to recover such payment from Taiwan and Bernard, including taxable costs but not including attorney's fees and litigation expenses. Additionally, the district judge ruled that Ingersoll was entitled to recover attorney's fees and litigation expenses from Fireman's Fund. Finally, the district court dismissed the claims of Taiwan and Bernard against each other, as well as Ingersoll's claim against Excellent Marine. This appeal followed.

I. TAIWAN

Discussion

Ingersoll's claim against Taiwan can be characterized simply as a claim for breach of contract. There is no dispute that a contract of carriage existed between Ingersoll and Taiwan. Telephone conversations in August 1979 between representatives of Ingersoll, Gryphon, and Taiwan, in which the cargo was booked, led to a binding contract when Ingersoll informed Gryphon that it accepted Taiwan's terms. As the district court found, this contract constituted the contract of carriage. The open question then was what were the terms of the contract. More specifically, did the contract call for on deck or below deck stowage.

Absent an express agreement by the shipper permitting cargo to be stowed on deck or a general port custom permitting on deck stowage, a shipper is entitled to expect below deck stowage under a clean bill of lading. St. Johns N. F. Shipping Corp. v. S. A. Companhia Geral Commercial Do Rio De Janeiro, 263 U.S. 119, 123-24, 68 L. Ed. 201, 44 S. Ct. 30 (1923); English Elec. Valve Co. v. M/V Hoegh Mallard, 814 F.2d 84, 89 92d Cir. 1987); Encyclopaedia Britannica, Inc. v. S.S. Hong Kong Producer, 422 F.2d 7, 14 & n.5 (2d Cir. 1969), cert. denied, 397 U.S. 964, 25 L. Ed. 2d 255, 90 S. Ct. 998 (1970); accord Calmaquip Eng'g West Hemisphere Corp. v. West Coast Carriers Ltd., 650 F.2d 633, 639 (5th Cir. Unit B 1981); see 2A Benedict on Admiralty ยง 123, at 12-11 (7th ed. 1987) ("goods stowed on deck without the shipper's consent are at the ship's risk, the shipowner being liable for any loss or damage thereto.") To reiterate, a shipper's reasonable expectation on booking cargo for shipment is that it will be stowed below deck, unless the shipper agrees to the contrary or a general port custom permits above deck stowage. The burden is on the carrier to prove that the shipper consented to something other than the usual and customary arrangement. See Gemini Navigation, Inc. v. Philipp Bros. Div. of Minerals & Chemicals Philipp Corp., 499 F.2d 745, 751 (2d Cir. 1974).

Although the district court found that "[t]here is no evidence that Ingersoll specified below deck stowage," 619 F. Supp. at 500, it also found that "there is no credible evidence that Ingersoll agreed to an on deck shipment," id. Thus, the terms of the contract of carriage were established by the industry custom that stowage would be below deck. The district court correctly found that Taiwan had failed to meet its burden of proof ...


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