decided: September 22, 1988.
ARMADA SUPPLY INCORPORATED, PLAINTIFF-APPELLEE-CROSS-APPELLANT,
PHILIP GAYBELL WRIGHT, INDIVIDUALLY AND ON BEHALF OF ALL OTHER UNDERWRITERS AT LLOYD'S AND NEW HAMPSHIRE INSURANCE CO., LTD., INDIVIDUALLY AND ON BEHALF OF ALL OTHER INSURANCE COMPANIES, SUBSCRIBING TO POLICIES OF MARINE INSURANCE SET FORTH IN WILLIS FABER & DUMAS, LTD., COVER NOTE NO. CS 5527, DEFENDANTS-APPELLEES, BANORTE SEGURADORA S.A., ITAU SEGURADORA S.A., ATLANTICA CIA. NACIONAL DE SEGUROS, BAMERINDUS CIA. DE SEGUROS, SUL AMERICA TERRESTRES, MARITIMOS E ACIDENTES CIA. DE SEGUROS, SUL AMERICA CIA. NACIONAL DE SEGUROS, CIA. DE SEGUROS ALIANCA DA BAHIA, NACIONAL COMPANHIA DE SEGUROS, CIA. INTERNACIONAL DE SEGUROS, COMIND COMPANHIA DE SEGUROS, BRASIL CIA. DE SEGUROS GERAIS, CIA. BANDEIRANTE DE SEGUROS GERAIS, COMPANHIA PAULISTA DE SEGUROS, PATRIA-CIA. BRASILEIRA DE SEGUROS GERAIS, BOAVISTA CIA. DE SEGUROS DE VIDA E ACIDENTES, SASSE CIA. NACIONAL DE SEGUROS GERAIS, CIA. DE SEGUROS DO ESTADO DE SAO PAULO, VERA CRUZ SEGURADORA S.A., SKANDIA-BOAVISTA CIA. BRASILEIRA DE SEGUROS, UNIBACO SEGURADORA S.A., YORKSHIRE-CORCOVADO CIA. DE SEGUROS, CIA. REAL BRASILEIRA DE SEGUROS, CIA. UNIAO DE SEGUROS GERAIS, CIA. DE SEGUROS MINAS BRASIL, GENERALI DO BRASIL CIA. NACIONAL DE SEGUROS, SEGURADORA BRASILEIRA MOTOR UNION AMERICANA S.A., PORTO SEGURA CIA. DE SEGUROS GERAIS, INTERAMERICANA CIA. DE SEGUROS GERAIS, BEMGE CIA. DE SEGUROS DE MINAS GERAIS, CIA. DE SEGUROS DA BAHIA, AMERICA LATINA CIA. DE SEGUROS, CIA. DE SEGUROS AMERICA DO SUL YASUDA, CIA. UNIAO CONTINENTAL DE SEGUROS, ALLAINZULTRAMAR CIA. BRASILEIRA DE SEGUROS, REAL SEGURADORA S.A., SAO PAOLO CIA. NACIONAL DE SEGUROS, FORTALEZA CIA. NACIONAL DE SEGUROS, BANERJ SEGUROS, S.A., NOVO HAMBURGO CIA. DE SEGUROS GERAIS, PHOENIX BRASILIERA CIA. DE SEGUROS GERAIS, ARGOS COMPANHIA DE SEGUROS, COMPEMI SEGURADORA S.A.-CAPESA, AJAX CIA. NACIONAL DE SEGUROS, FINASA SEGURANDORA S.A., FARROUPILHA CIA. NATIONAL DE SEGUROS, SANTA CRUZ CIA. DE SEGUROS GERAIS, CIA. COLINA DE SEGUROS, CIA. DE SEGUROS CRUZ-EIRO DO SUL, CIA. DE SEGUROS MARITIMOS E TER. PHOENIX DE PORTO ALEGRE, ITATIAIA CIA. DE SEGUROS, UNIVERSAL CIA. DE SEGUROS GERAIS, PARANA CIA. DE SEGUROS GERMANO-BRASILEIRA, A MARITIMA CIA. DE SEGUROS GERAIS, SEGURADORA INDUSTRIAL E MERCANTIL S.A., BALOISE-ATLANTICA CIA. BRASILEIRA DE SEGUROS, CIA. ADRIATICA DE SEGUROS GERAIS-C.A.S., FEDERAL DE SEGUROS S.A., SUL BRASILEIRO SEGUROS GERAIS S.A., PRUDENTIAL-ATLANTICA CIA. BRASILEIRA DE SEGUROS, CIA. SUL BRASILEIRO SEGUROS GERAIS S.A., PRUDENTIAL-ATLANTICA CIA. BRASILEIRA DE SEGUROS, CIA. SUL BRASIL DE SEGUROS TERRESTRES E. MARITIMOS, CIA. EXCELSIOR DE SEGUROS, A INCONFIDENCIA CIA. NACIONAL DE SEGUROS GERAIS, MAUA CIA. DE SEGUROS GERAIS, BANREAL SEGURADORA S.A., COMMERCIAL UNION DO BRASIL SEGURADORA S.A., CIA. PATRIMONIAL DE SEGUROS GERAIS, CIA. DE SEGUROS MONARCA, LONDON SEGURADORA S.A., BRASILEIRA SEGURADORA S.A., LLOYD INDUSTRIAL SUL AMERICANO-COMPANHIA DE SEGUROS, CONCORDIA CIA. DE SEGUROS, CIA. RENASCENCA DE SEGUROS, AUXILIAR SEGURADORA S.A., ITAU WINTERTHUR SEGURADORA S.A., GB-CONFIANCA CIA. DE SEGUROS, INDIANA CIA. DE SEGUROS GERAIS, SAFRA SEGURADORA S.A., KYOEI DO BRASIL-CIA. DE SEGUROS, GERLING SUL AMERICA S.A. SEGUROS INDUSTRIALS, HANNOVER INTERNACIONAL DE SEGUROS S.A., COMPANHIA SOL DE SEGUROS, BANESTES SEGUROS S.A., CIA. DE SEGUROS PREVIDENCIA DO SUL, CIA. ANGLO AMERICANA DE SEGUROS GERAIS, CIA. DE SEGUROS SUL AMERICANA INDUSTRIAL-S.A.I., NOROESTE SEGURADORA S.A., PAN AMERICANA DE SEGUROS S.A., DELFIN SEGURADORA S.A., CIA. DE SEGUROS RIO BRANCO, CIA. DE SEGUROS INTER-ATLANTICO, SDB CIA. DE SEGUROS GERAIS, AND THE REINSURANCE INSTITUTE OF BRASIL, DEFENDANTS-APPELLANTS-CROSS-APPELLEES.
Appeal and cross-appeal from a judgment of the United States District Court for the Southern District of New York, Docket Nos. 87-7788, 87-7852, (Thomas P. Griesa, Judge) awarding plaintiff-appellee $1,462,722.64 plus interest from Brazilian under-writers and dismissing complaint against London underwriters. We hold that the district court had personal jurisdiction over the lead Brazilian underwriter; that the increased-value clause of the plaintiff-appellee's open cargo policy with the London underwriters insured cargo loss and damage, but not the loss of a profitable contract; that the contingency cover clause of the London policy was not applicable on these facts and that this clause was not waived by the London underwriters; and that the district court correctly calculated the plaintiff-appellee's shortage and contamination losses. We reverse on the cross-appeal, however, as to some of the sue and labor claims.
Timbers, Winter and Altimari, Circuit Judges.
This appeal and cross-appeal concern claims under two insurance policies for losses incurred by Armada Supply Incorporated ("Armada") arising out of a shipment of fuel oil from Rio de Janeiro to New York. Following a bench trial, Judge Griesa awarded Armada $1,462,722.64, plus interest at the three month rate for Treasury bills, against the lead underwriter, Banorte Seguradora, S.A. ("Banorte"), individually and on behalf of the other Brazilian underwriters. He further ruled that Philip Gaybell Wright and the other participating underwriters at Lloyd's and elsewhere in London (the "London underwriters") were liable for $85,808.34.*fn1 Judge Griesa's opinion is reported at 665 F. Supp. 1047 (S.D.N.Y. 1987).
Banorte has appealed from the judgment, contending that the district court lacked personal jurisdiction over it or, alternatively, that certain shortage losses, contamination losses, and "sue and labor" expenses incurred in reconditioning a shipment of contaminated oil allowed by the district court, should be disallowed and/or reduced. Armada has cross-appealed, claiming that the London underwriters, who insured Armada under an open-cover marine policy, were liable for that portion of Armada's loss on its contract to sell the oil to Sun Oil Trading Co. ("Sun") not covered by Banorte ($1,298,813.03) and, at least contingently, for the same losses--an amount alleged on appeal to be $2,794,315.35--insured by Banorte. Armada also disputes the district court's calculation of contamination loss, shortage loss, and sue and labor expenses.
We hold that the district court had personal jurisdiction over Banorte, and that the increased-value clause of Armada's open policy of marine insurance with the London underwriters insured cargo loss and damage, but not the loss of Armada's profitable contract with Sun. We further hold that the contingency-cover clause of the London policy was not applicable on these facts, that the London underwriters did not waive their position that this clause was inapplicable, and that the district court correctly calculated most of Armada's losses. However, we reverse on the cross-appeal as to some of the sue and labor claims.
The facts are relatively straightforward. Armada, a Texas corporation, entered a contract in April 1982 to purchase four shiploads of oil from Petrobras, a Brazilian oil company, to be delivered over a period of four months. The sales were to be C.I.F. (cost, insurance, freight) port of delivery, meaning that Armada would take title in Rio de Janeiro but Petrobras would pay freight to New York (or Rotterdam) and purchase marine insurance. The contract provided that the price would be based on the spot oil price at the point and time of delivery.
The cargo at issue here was the last shipment under the April 1982 contract. On November 16, 1982, it was onloaded to the AGIOS NIKOLAS at Rio de Janeiro. The bill of lading specified that 348,000 barrels (52,066 metric tons) were to be onloaded, although only 340,000 barrels were actually onloaded. At some point during the voyage to New York, the crew of the AGIOS NIKOLAS apparently used part of the cargo for fuel and then pumped sea water into the cargo tanks, thereby contaminating the fuel tanks and creating a shortfall of oil. The vessel arrived in New York on December 9, 1982, but shortly thereafter left temporarily to evade legal process. After the conclusion of complex negotiations among the parties in which Armada agreed to pay the freight and not to arrest the vessel, the vessel returned. Armada has since obtained a damage award, uncollectable to date, against the ship's owners for $4,130,900. See Armada Supply, Inc. v. S/T Agios Nikolas, 613 F. Supp. 1459 (S.D.N.Y. 1985).
On October 29, 1982, prior to the AGIOS NIKOLAS's departure from Rio de Janeiro, Armada entered into a contract with Sun Oil providing for a sale of approximately 330,000 barrels (49,000 metric tons), plus or minus ten percent at Armada's option. This sale was to be on a delivered basis, meaning that until Sun took title in New York, the oil would be at Armada's risk. Since the contract price was fixed at $30.55 per barrel, Armada would earn a substantial profit if oil prices fell before the oil reached New York. As it turned out, the New York spot oil price had fallen to $25.70 per barrel when the AGIOS NIKOLAS arrived in New York. Due to the contamination, however, Sun refused to accept the oil. Sun later agreed to buy only 49,000 barrels at $27.40 per barrel. If the Sun contract had not been lost, Armada would have made $4.85 per barrel or a total profit of approximately $1.6 million. Instead, Armada had to recondition the oil and then try to sell it. Armada eventually made six separate sales, the last on March 16, 1983, to various oil companies.
Petrobras had an open marine-insurance policy with Banorte and ninety-four other Brazilian underwriters covering the oil. Open marine policies are widely used in the United States. See L. Buglass, Marine Insurance and General Average in the United States 10 (2d ed. 1981). Under such policies, the assured has automatic coverage subject to the terms set forth in the cover letter. Id. The Brazilian policy was subject to the London Institute Cargo Clauses (All-Risks), and thus covered the shortage and contamination losses involved in the instant case. The amount of coverage was equal to $28.27 per barrel ($25.70 New York spot price on date of shipment plus ten percent). Total coverage was $9,855,333.
Armada also had an open policy of marine insurance with the London underwriters for the period April 20, 1982 to April 19, 1983. This insurance was purchased through Johnson & Higgins ("J&H"), a Houston broker, who in turn dealt with Willis Faber & Dumas, Ltd., a broker in London. The cover note for this insurance provided for "continuous cover" for shipments within the one-year period. It further specifically provided that the interest covered was "CRUDE OIL IN BULK." No mention was made of loss of profit or loss of a contract as a risk. The London policy contemplated that Armada might purchase oil on various terms. It might, for example, purchase F.O.B. (free on board) a foreign port, which meant that it would take title in the foreign port and have to purchase its own insurance for the voyage, or, as was done in the instant case, make a C.I.F. purchase.
Two clauses in the cover letter of the London policy are relevant to this litigation. The increased-value clause covered cases where Armada purchased C.I.F. and resold non-C.I.F., with the result that Armada did not provide insurance to its buyer but was itself the beneficiary of insurance during the voyage.*fn2 This clause insured Armada for the increased value arising from the non-C.I.F. resale, and the increased-value arising from a rising market without a resale. Judge Griesa found that the increased-value coverage was only for physical loss or damage, and that the function of such coverage was to increase the insured value over what it was under the Brazilian coverage. 665 F. Supp. at 1066. Armada claims on appeal that the increased-value provision provided it with insurance against loss of profits on the Sun transaction, less what was recovered on the primary Brazilian insurance. Moreover, Armada contends on appeal that, even if the increased-value clause would normally provide insurance only against physical loss, the parties agreed to coverage of lost profits at a meeting between representatives of Armada and J&H in Houston on November 30, 1982. Judge Griesa rejected this claim after a detailed examination of the events of this meeting, which we need not repeat. Id. at 1059-61.
The second clause concerned "contingency coverage."*fn3 Such coverage was necessary when Armada purchased on C.I.F. terms and resold on C.I.F. terms, and Armada would be obligated to provide insurance to its purchaser. Contingency coverage would make the London underwriters liable if the Brazilian underwriters failed to pay on their primary coverage. Judge Griesa found that the London underwriters were not liable for contingency coverage because Armada did not comply with the requirements of the cover note for such coverage, namely back-to-back C.I.F. sales. Id. at 1067. On appeal, Armada argues that the provisions of the policy were changed by Armada and J&H and waived by J&H's billing and collection of a premium. Judge Griesa found that: (i) J&H did not clearly understand the situation and mistakenly billed Armada for the premiums on the contingency coverage; (ii) it was apparently not until February 1983 that the London underwriters received documents permitting resolution of the question of whether the London coverage had been increased-value or contingency insurance, and (iii) the receipt of the premium by the London underwriters was an obvious mistake. Id. at 1063, 1067-68.
An assured typically has a duty to mitigate damages. In this case, Armada mitigated by reconditioning the oil for the six sales. The expenses an assured incurs in mitigating damages are called "sue and labor" expenses. See Seaboard Shipping Corp. v. Jocharanne Tugboat Corp., 461 F.2d 500, 503 (2d Cir. 1972); L. Buglass, supra, at 332-39. Judge Griesa awarded a total of $1,116,791.42 in such expenses. 665 F. Supp. at 1075-77. The district court found that only the Brazilians were liable for such expenses because the London cover note did not provide for such expenses. On appeal, Armada does not raise this issue. Instead, both Armada and Banorte dispute various amounts of sue and labor expenses allowed and disallowed.
A. The District Court's Personal Jurisdiction Over Banorte
Banorte's chief claim on appeal is that the entire judgment against it should be set aside for lack of personal jurisdiction. Banorte does not dispute that if jurisdiction properly attached, it would be subject as lead underwriter to a judgment for the full amount owed to Armada by the Brazilian underwriters. Banorte can of course seek to recover from the other Brazilian underwriters.
Banorte's activities in New York were more than sufficient to render it subject to the in personam jurisdiction of the district court. Banorte, at the request of Petrobras, a company doing business in New York, issued a certificate of insurance to Armada, another corporation qualified to do business in New York. The certificate stated that the cargo's destination was "New York-USA," and was delivered to Armada's New York bank in order to obtain payment on a letter of credit while the cargo was located at Stapleton Anchorage in New York. These facts alone would be sufficient under Section 1213 of the New York Insurance Law to subject Banorte to the district court's jurisdiction. Section 1213 provides that:
the issuance or delivery of contracts of insurance to residents of this state or to corporations authorized to do business therein, . . . is equivalent to and constitutes its appointment of the superintendent, and his successors in office, to be its true and lawful attorney upon whom may be served all lawful process in any proceeding instituted by or on behalf of an insured or beneficiary arising out of any such contract of insurance, and shall signify its agreement that such ...
Buy This Entire Record For