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New York Cross Harbor Railroad Terminal Corp. v. Atlantic Mutual Insurance Co.

decided: June 14, 1988.


Appeal from an order of the United States District Court for the Eastern District of New York, I. Leo Glasser, Judge, entering a judgment for appellant, the owner of a sunken carfloat, against its insurer for $3,500. Held, appellant was insured as marine railroad and under terms of protection and indemnity policy was entitled to recover settlement amounts for lost or damaged cargo up to the limits of liability stated in appellant's Interstate Commerce Commission tariff and the $1 million policy limit. District court also erroneously excluded car-hire charges from coverage under the policy. Reversed and remanded.

Oakes, Newman, and Miner, Circuit Judges.

Author: Oakes

OAKES, Circuit Judge:

This case involves the liability of an insurer on a marine protection and indemnity insurance policy covering a barge fitted for the carriage of railcars where, under federal law, the insured is deemed a "railroad" governed by the Interstate Commerce Commission ("ICC"). In November 1984 the unfortunate barge sank alongside Pier 1 at the Brooklyn Army Terminal with fifteen cargo-filled railcars on it.

The case presents a potential conflict between limitation of liability language derived from the Carriage of Goods by Sea Act ("COGSA"), 46 U.S.C. app. §§ 1300-15 (Supp. III 1985), contained in the form marine insurance policy issued, and statutory provisions that prohibit a rail carrier from limiting liability to a shipper except by an agreement accompanied by a correspondingly lower freight rate, 49 U.S.C. §§ 10730(c), 11707(c)(1) (1982). In addition, we confront the more specific problem of resolving a conflict between two internally inconsistent limitation of liability provisions in the policy. The United States District Court for the Eastern District of New York, I. Leo Glasser, Judge, after a trial on stipulated facts, held for the insurer, Atlantic Mutual Insurance Co. ("Atlantic Mutual"), on the claim of the barge operator, New York Cross Harbor Railroad Terminal Corp. ("Cross Harbor"), for $305,388.34, the full amount of unpaid settlements with shippers who lost cargo in the submerged railcars. The court limited recovery instead to $250 per railcar lost or $3,500 and also held that "car-hire" charges assessed against the barge owner in the sum of $48,045.19 are not covered by the policy.


Cross Harbor operates a fleet of "carfloats," that is, barges fitted for the carriage of railcars, between terminals in Jersey City, New Jersey, and Brooklyn, New York. As such, Cross Harbor is considered a railroad and is subject to ICC regulation. 49 U.S.C.A. § 10102(21)(A) (West Supp. 1988). In industry parlance, Cross Harbor operates a "short-line" railroad which connects with "trunk-line" railroads, primarily Conrail, carrying railcars for Conrail across the upper New York Bay. Cross Harbor has no direct dealings with any of the shippers or consignees of the cargo carried aboard these railcars but merely receives a division of the freight rate charged by Conrail. Prior to the adoption of the Staggers Rail Act of 1980, Pub. L. No. 96-448, 94 Stat. 1895 (codified as amended in scattered sections of U.S.C. Titles 11, 45, and 49), Cross Harbor's predecessor had a contract with Conrail charging freight for all commodities at a rate per 100 pounds ("cwt."). The Staggers Rail Act, however, permitted Cross Harbor to compute its freight rate on a per-car basis in determining its proportional share of the overall transportation charges. An affidavit of Cross Harbor's president states that the company adopted this method of computing charges "[f]or the sake of accounting simplicity." Atlantic Mutual, however, contends that this per-car negotiation is a controlling fact.

In August 1984, Atlantic Mutual issued a policy insuring Cross Harbor for damage to cargo carried aboard its carfloats. The policy premiums were $61,000, with a $15,000 deductible for each occurrence. The policy is in part a preprinted standard marine insurance form typically used to insure carfloat operators. The policy also contains, however, a typewritten section entitled "Special Conditions" with nine particularized provisions.

While the policy was in effect, Cross Harbor's Carfloat 29, laden with fifteen railcars that it had received from--or, technically speaking, "interchanged" with--Conrail, sank in upper New York Bay causing loss or damage to all the railcars and the cargo in each. At the insistence of Atlantic Mutual, and in order not to jeopardize its insurance coverage, Cross Harbor commenced a limitation of liability action under 46 U.S.C. app. § 183 (Supp. III 1985). Claims for damage to the cargo and railcars, as well as claims for car-hire charges, totaling approximately $1 million were filed in the limitation action by the owners or beneficial owners of the property involved in the casualty. Settlement was made with all claimants, pursuant to which one claimant, Cargill, Inc., was to receive $90,582.51 for cargo damage. Atlantic Mutual paid Cargill's claim, along with Conrail's claim of $343,902.16 for loss of the railcars in full. As to the other six claimants for cargo damage, whose settled claims total $305,388.34,*fn1 Atlantic Mutual denied liability except on an extremely limited basis. Atlantic Mutual did, however, pay more than $200,000 to remove the sunken vessel and its cargo, as well as legal fees and expenses incurred in the limitation of liability action, the payments falling in part under Cross Harbor's hull policy with Atlantic Mutual, and in part under the subject protection and indemnity policy.

The provision in the insurance policy principally relied upon by Atlantic Mutual to limit its liability is Clause 8(bb), set forth in the margin.*fn2 In brief, the provision limits the insurer's liability, unless provided otherwise in writing or unless such a limitation would be contrary to law, to such as would exist if the insured's bill of lading limited liability for cargo damage to $250 per package or, for goods not shipped in packages, per customary freight unit. In addition, Clause 6 of the typewritten "Special Conditions" rider to the policy specifically covers "cargo liability" and reads as follows:

Any liability covered hereunder related to loss or damage to cargo for which the Assured may be legally liable shall not exceed the Assured's responsibility under the Assured's published tariff on file with Underwriter's [sic] unless said responsibility is increased by law. However, in no event shall these Assurers [sic] liability exceed the limitation of liability provided under this policy as respects any one occurrence.

The limitations of liability referred to are a $250,000 per shipment limit in Cross Harbor's tariff and the $1 million limit of the policy. Significantly, Cross Harbor, via its insurance broker, did forward to Atlantic Mutual, as required by Clause 6, copies of its ICC tariff. Pertinent portions thereof are set forth in the margin.*fn3

Cross Harbor issued no bills of lading to any of the shippers whose claims are involved here. Rather, it was Conrail that issued waybills identifying the shipper, consignee, and railcar number and describing the cargo. Conrail also prepared freight bills containing the same information as the waybills but adding Conrail's freight charges based upon the weight of the cargo. Figured into the rate quoted to shippers was an amount negotiated between Conrail and Cross Harbor for the "interchange" of railcars. When the railcars were loaded on the carfloat, Conrail gave Cross Harbor an "interchange receipt" showing only the railcar number and the time and place of the interchange. Cross Harbor does not and never has issued maritime bills of lading. Nor has it ever moved cargo pursuant to a bill of lading containing a "Jason Clause," the common name for a limitation of liability clause now standard in all bills covering carriage under COGSA. See, e.g., note 2 supra; see generally G. Gilmore & C. Black, The Law of Admiralty 266-68 (2d ed. 1975) (discussing history and meaning of Jason Clause).

Reviewing the disputed cargo claims, we observe that Conrail charged Bethelehem Steel Corp. $1.07 per 100 pounds (cwt.) for the entire carriage from Steelton, Pennsylvania, to Brooklyn, New York, of 903 steel rails lost or damaged in eight railcars that sank on Carfloat 29. That rate included $418.87 per railcar for Cross Harbor's portion of the trip. Dow Chemicals U.S.A., another cargo claimant, shipped a single railcar of polyethylene from St. Louis, Missouri, to Brooklyn, for which Conrail charged it $3.26 cwt., or a total of $6,311.36, with Cross Harbor agreeing to accept $418.87 from Conrail for its segment of the carriage. For transporting a railcar filled with plywood from Boise Southern Plywood Co., Conrail and other railroads divided freight charges of $4,148.45 based upon cwt. rates. Cross Harbor accepted $418.87 for its interchange, a fee negotiated in advance with Conrail. Cross Harbor also ...

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