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United States District Court, Southern District of New York

April 12, 1991


The opinion of the court was delivered by: Kram, District Judge.


This marine insurance case arises from the destruction of several large shipments of fruit as a result of a United States and Canadian government embargo of fruit from Chile. The question presented is whether defendant insurer may deny coverage based on certain exclusions that were named but not set forth in the policy issued to the insured.


Plaintiff Bacchus Associates ("Bacchus") imports fresh produce into the United States and Canada on a consignment basis. On March 16, 1987 it purchased an all-risk policy of marine insurance (the "Policy") from defendant Hartford Fire Insurance Company ("Hartford"). Bacchus' principal, John Mangia, procured that Policy through an insurance broker, defendant A.B. Guari (hereinafter "Guari"). Coverage commenced on February 14, 1987 and was to run continuously thereafter.

During the period February 19 through March 10, 1989, Bacchus shipped from Chile to Philadelphia, Pennsylvania approximately $1 million worth of honeydew melons, grapes, peaches, pears, nectarines, plums, and Granny Smith apples. On or about March 13, 1989, the United States Food and Drug Administration issued orders detaining and embargoing Chilean fruit as a result of a finding that certain fruit from that country had been tampered with.*fn1 The government then directed that all such fruit then in the hands of importers, wholesalers and retailers would be destroyed. Although no Bacchus product was found to contain cyanide, all of the fruit it had in transit to the United States at that time either decayed or had to be dumped under the terms of the embargo.

Bacchus made a claim under the Hartford policy to recover damages for the fruit that spoiled or had to be destroyed. Hartford denied reimbursement under the policy, on the basis that three provisions in Clause 9 of the policy operated to exclude coverage of such losses as occurred here. Those provisions are entitled "Free of Capture and Seizure Warranty," (hereinafter "F.C. & S."), "Endorsement for Open Policies (Cargo) Strikes, Riots & Civil Commotions" (the "S.R. & C.C. Endorsement"), and "Delay Warranty."

The general risk provision of the policy affords insurance for

  Fruits and Produce, shipped under deck . . .
  against all risks of Physical Loss or damage from
  any external cause, excluding loss damage or
  expense caused by or resulting from Decay,
  deterioration, and/or spoilage of the goods, and
  excepting such risks as are excluded by the F.C. &
  S. and Strike Clauses.

Marine Open Cargo Policy, attached as Exhibit G to Affidavit of Helen M. Benzie, dated September 14, 1990 (hereinafter "Benzie Aff."), at ¶ 5(d).

The F.C. & S. Clause provides in relevant part:

  Notwithstanding anything herein contained to the
  contrary this insurance is warranted free from:

    (a) capture, seizure, arrest, restraint,
    detainment, confiscation, preemption,
    requisition or nationalization, and the
    consequences thereof or any attempt thereat,
    whether in time of peace or war and whether
    lawful or otherwise. . . .

Policy, ¶ 9(M)(I). The S.R. & C.C. warranty provides that:

  Notwithstanding anything herein contained to the
  contrary this insurance is warranted free from
  loss, damage or expense caused by or resulting

  (b) vandalism, sabotage or malicious act, which
  shall be deemed also to encompass the act or acts
  of one or more persons, whether or not agents of a
  sovereign power, carried out for political,
  terroristic or ideological purposes and whether
  any loss, damage or expense resulting therefrom is
  accidental or intentional.

Id. at ¶ 9(M)(II). This provision is also subject to an S.R. & C.C. Endorsement. That endorsement reads in relevant part:

This insurance also covers:

  (2) destruction of, or damage to, the property
  insured directly caused by vandalism, sabotage or
  malicious act, which shall be deemed also to
  encompass the act or acts of one or more persons,
  whether or not agents of a sovereign power,
  carried out for political, terroristic or
  ideological purposes and whether any loss, damage
  or expense resulting therefrom is accidental or
  intentional; PROVIDED that any claim to be
  recoverable under this subsection (2) be not
  excluded by the FC & S warranty in the policy to
  which this endorsement is attached.

    Nothing in this endorsement shall be construed
  to include or cover any loss, damage,
  deterioration or expense caused by or resulting

(a) change in temperature or humidity.

(c) delay or loss of market.

Form No. 9, attached to the Policy annexed as Exhibit G to the Affidavit of Helen M. Benzie.

The Delay Warranty provides:

  Warranted free of claim for loss of market or for
  loss, damage or deterioration arising from delay,
  whether caused by a peril insured against or

Policy at ¶ 9(M)(III).

However, an attachment to the contract provides for the substitution of another group of clauses for these paragraphs 9(M)(I), 9(M)(II), and 9(M)(III), reproduced above (the "Clause 9 provisions"). Endorsement No. 2, supplied by Hartford, deletes the Clause 9 provisions and replaces them with the American Institute Cargo Clauses (February 1949) with F.C. & S. Warranty (April 3, 1980) and the Strikes Riots and Civil Commotions Clause (April 3, 1980).*fn2 Endorsement No. 2 reads in relevant part as follows:

  It is hereby agreed by and between the insured and
  the Company that Clause 9 of the policy of which
  this endorsement forms a part is deleted and the
  following clauses are substituted therefor:

  (1) American Institute Cargo Clauses (February
  1949) with F.C. & S. Warranty (April 3, 1980) and
  Strikes, Riots and Civil Commotions Warranty
  (April 3, 1980).

  (2) American Institute Marine Extension Clauses
  (April 1943).

(3) The South American 60-Day Clause.

Policy, Endorsement No. 2.

Endorsement No. 2 clearly states that Clause 9 is deleted and replaced by new clauses. However, for reasons that are not clear, the replacement clauses are not actually attached to Endorsement No. 2, nor are their terms stated therein. Endorsement No. 2 moreover does not contain any language purporting to incorporate these clauses by reference.

When Bacchus put in its claim for the losses it sustained, Hartford denied coverage on the basis of the exclusions contained in Endorsement No. 2. Bacchus then filed this lawsuit. Presently before the Court is Hartford's motion for summary judgment.

The parties to this action are essentially in agreement about the critical facts. Plaintiff claims in its Complaint that its loss is due to the goods becoming "unmarketable and/or worthless" (Complaint ¶ 19), and has also stated on at least one occasion that the fruits were "spoil[ed]" and "unsalable." Letter of Gary Meyer, Esq. to Edward G. Martano, Manager, Ocean Marine Claims Dept., Hartford Fire Ins. Co., dated May 8, 1989 (attached as Exhibit B to Benzie Aff.). Defendant Hartford in turn appears to concede that it failed to attach to its policy those provisions allowing for the exclusion of such items of loss from its coverage. However, Hartford maintains nonetheless that the mention of those "specific, identifiable clauses" issued by the American Institute of Marine Underwriters serves to incorporate those clauses into the contract by reference. Reply Mem. at 1. Alternatively, Hartford argues that the language of the clauses to which it intended to refer in the Endorsement No. 2 is identical to the language that appears in Clause 9 of the printed policy but which Endorsement No. 2 purports to delete. Accordingly, it asserts, these clauses should be applied to preclude Bacchus from recovering under the policy for the losses associated with the embargo.

The juicy questions before the Court are: (1) whether, as a matter of law, Hartford is entitled to the benefit of incorporation of these clauses as a matter of law, despite the fact that they were not attached to the policy; (2) if Hartford is not, whether the Court should go beyond the four corners of the document and inquire into the intent of the parties; and (3) if the Court does so, whether there are triable issues as to the parties' intent surrounding the disputed exclusions.


Standards for Summary Judgment

Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In testing whether the movant has met this burden, the Court must resolve all ambiguities against the movant. Lopez v. S.B. Thomas, Inc., 831 F.2d 1184, 1187 (2d Cir. 1987) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962)).

The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Adickes v. S.H. Kress and Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). The movant may discharge this burden by demonstrating to the Court that there is an absence of evidence to support the non-moving party's case on which that party would have the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).*fn3 The non-moving party then has the burden of coming forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The non-movant must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538 (1986). Speculation, conclusory allegations and mere denials are not enough to raise genuine issues of fact. To avoid summary judgment, enough evidence must favor the non-moving party's case such that a jury could return a verdict in its favor. See Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) (interpreting the "genuineness" requirement).

Incorporation of the Clauses by Reference

Documents may be incorporated into insurance policies by explicit reference or by annexation or attachment to the policy. See Couch on Insurance 2d at § 4:46 (rev. ed.) (hereinafter "Couch"). However, such reference must be "in plain terms." Id. Judge Weinfeld has stated the point similarly: "A reference in a contract to another writing, sufficiently described, incorporates that writing." Lowry & Co. Inc. n. S.S. Le Moyne D'Iberville, 253 F. Supp. 396, 398, 399 (S.D.N.Y. 1966), appeal dismissed, 372 F.2d 123 (2d Cir. 1967). In Lowry, Judge Weinfeld found that certain strike and arbitration clauses were incorporated into the charter party, despite their not being expressly set forth, because of the inclusion of the following language: "Clauses 16 to 33 both included as attached as well as * * * centrocon strike and arbitration clauses to be deemed fully incorporated in this charter party and form part of same." Id. at 397. The Court then found that the terms of the charter party were in turn incorporated into the bill of lading. Judge Weinfeld held that while the words used — "all conditions and exceptions as per charter party dated Paris 17th September 1963" — were not as precise as if the parties had used the words "incorporated by reference" in haec verba, they were nonetheless sufficiently explicit to warrant a finding of incorporation. Id. at 398-399.

Lowry is distinguishable from the instant case because nowhere on Endorsement No. 2 is it stated, precisely or otherwise, that the terms of the clauses listed thereon are to be incorporated by reference into the policy.

The other cases cited by Hartford are similarly inapposite. For example, in Brandyce v. Globe & Rutgers Fire Ins. Co., 252 N.Y. 69, 168 N.E. 832 (1929), defendant issued to Brandyce three certificates of insurance, while retaining the actual policy in its office.*fn4 The certificates clearly stated on their face that they were "subject to the conditions of the policy and contract of insurance," and omitted many terms critical to an insurance policy, including which risks were insured and whether the insurance was an open policy or a valued one. At issue was the one year statute of limitations, which was clearly stated in the policy itself but not mentioned in the certificates. After suffering a casualty loss, plaintiff filed suit more than one year later. Defendant moved to dismiss on the basis of time bar. The court granted the motion, finding that the policy kept in the insurer's office constituted the contract between the parties. The certificates standing alone, with their absence of a limitation period, did not create a different contract between the parties, because the certificates did not purport to be insurance policies, nor did they state all of the conditions of a policy.

Brandyce is also distinguishable from the case at bar. Here, the policy did purport to be a contract, signed by both parties, with recitals of definite terms, conditions, and consideration exchanged. The policy as it stands is a contract, unlike the certificates of insurance issued to Brandyce, which, because of the absence of critical terms, could not have been so construed.

Hartford also cites Hamdi & Ibrahim Mango Co. Ltd. v. Reliance Ins. Co., 291 F.2d 437 (2d Cir. 1961), in support of its position. It claims that this case stands for the proposition that an exclusionary clause in the American Institute of Marine Under-writers War Risk Form, which was only referred to by name in the certificates of insurance, but the terms of which were not spelled out in either the certificates or the open policy, is fully applicable against the insured party. The Court disagrees with Hartford's interpretation of the case. First, it is not evident from the facts as stated in the Court's opinion that the actual War Risk Form was not supplied to plaintiff insured. Moreover, even if it was not, the Court refers to the policy as having a "provision for written amendments." The Court did not give the wording of the Amendments clause, but it is possible that that clause operated as an agreement between the parties to refer to such forms by title rather than by spelling out the provisions.*fn5 Accordingly, this Court does not read Hamdi & Ibrahim Mango Co. to stand for the general proposition that insurance firms need not supply the terms of exclusions to their coverage so long as they refer to an American Institute of Marine Underwriters exclusion clause by name.

Hartford's mere reference to the clauses in Endorsement No. 2 fails to "sufficiently describe" the terms of the exclusions sought to be incorporated. See Lowry, 253 F. Supp. at 398. Perhaps Hartford's invocation of these clauses by name would be sufficient to a person in the marine insurance business, but the clauses are not necessarily part of the daily vocabulary of a consigner of fruit.*fn6 It would not necessarily be clear to such a reader of the policy what are the terms encompassed by those clauses in Endorsement No. 2. Under New York law,*fn7 the ambiguity in the contract will be construed against the insurer, which supplied it. See Westchester Resco Co., L.P. v. New England Reinsurance Corp., 818 F.2d 2, 3 (2d Cir. 1987) (citing Breed v. Insurance Co. of North America, 46 N.Y.2d 351, 353, 413 N.Y.S.2d 352, 354, 385 N.E.2d 1280, 1281-82 (1978)) (other citations omitted). Accordingly, the Court finds that Hartford is not necessarily entitled, as a matter of law, to the benefit of incorporation by reference of the clauses contemplated by Endorsement No. 2.

Relevance of Parties' Intent

The parties disagree as to what route the Court should take in the event it finds the contract ambiguous. Hartford argues that the Court should look to the intent of the parties, as illuminated by their actions in forming the contract, to determine whether the exclusions in Endorsement No. 2 were contemplated by the parties. Reply Br. at 11 (citing Buckeye Cellulose v. Atlantic Mutual, 643 F. Supp. 1030, 1042-43 (S.D.N.Y. 1986)). Bacchus argues to the contrary that Hartford's deletion of the original exclusions found in Clause 9, taken together with Hartford's failure to include the new version of the exclusions referred to in Endorsement No. 2, as a matter of law renders both sets of exclusions ineffective. Under this theory, Hartford would be precluded from asserting these exclusions as a defense and would not be permitted to deny coverage under the exclusions.*fn8 In support of this proposition, Bacchus cites Hartford Accident & Indemnity Co. v. Shaw, 273 F.2d 133 (8th Cir. 1959); Industrial Risk Insurers v. New Orleans Public Service, Inc., 666 F. Supp. 874 (E.D.La. 1987); American Family Mutual Insurance Co. v. Claggett, 472 S.W.2d 669 (Mo.Ct.App. 1971); and Moore v. Home Indemnity Co., 274 A.2d 705 (Del.Super.Ct. 1971).*fn9

As between the above theories, the Court regards Hartford's approach as fairer and more consistent with New York's general principles of contractual interpretation and construction. Under New York law, when a written instrument is ambiguous, "the problem of analysis of the instrument is to determine `what is the intention of the parties as derived from the language employed.'" Mallad Construction Corp. v. County Federal Savings & Loan Ass'n, 32 N.Y.2d 285, 291, 344 N.Y.S.2d 925, 930, 298 N.E.2d 96, 100 (1973) (citing 4 Williston, Contracts, § 600, at p. 280)). When the words of the policy do not clearly describe the nature and interest of the parties, courts applying New York law are to look to extrinsic evidence to discern the intent of the parties. See Bank of Rockville Centre v. Baldwin, 238 A.D. 354, 265 N.Y.S. 343, 344 (1st Dept. 1933).

Bacchus cites four cases for the proposition that when an insurer neglects to attach the terms of an exclusion to a policy, the exclusion should not, as a matter of law, be applied as against the insured. However, only two of them, Industrial Risk Insurers and American Family Mutual Insurance Co., explicitly address the question of whether the court should consider the intent of the parties in that situation. Of those, one court answers in the affirmative, the other in the negative.

In Industrial Risk Insurers, the court found that an insurance contract's reference to "Code 93111," denoting a certain modification of an insurance policy issued to the City of New Orleans, was insufficient to incorporate that provision as a matter of law. The court determined after a bench trial, however, that the modification denoted by the code 93111 would apply against the City nonetheless. The court found that the City of New Orleans was a sophisticated bargaining party, represented by its Insurance Advisory Committee, the City Attorney, and an experienced insurance agent, and that it was therefore on equal footing with the insurers. 666 F. Supp. at 881. The court further found that the representatives and agents of the City fully understood and intended for the policy to read as modified by the code 93111. Id. The court took as another indication of the parties' intent the fact that the amount of the premium that would have been charged in the absence of the code 93111 exclusion would have been five times greater than the premium the City actually paid. Id.

By contrast, the court in American Family Mutual expressly decided in a similar situation that it would not consider the parties' intent and notice. In that case, defendant sought automobile liability insurance from plaintiff insurer, and orally requested that her son, Carl Claggett, be excluded from coverage. The insurer typed the mother's name and address on the "facing sheet" of the policy, along with a description of her automobile. Below that was typed "Excluded driver on End. 43: Carl L. Claggett." Other endorsements were attached to the policy, but none bore a number 43, nor referred to an excluded driver. The son subsequently drove the insured car, with the mother's permission, and was involved in a collision, injuring his two passengers. The insurer sued for a judicial declaration freeing it from liability under the excluded driver clause. The Missouri Court of Appeals held that "the words `Excluded driver on End. 43' made the purported exclusion meaningless in the absence of any such endorsement." 472 S.W.2d at 670. The court reasoned that "[s]uch an endorsement might have fully excluded Carl Claggett under all conditions, or only under certain described circumstances. Without the endorsement no one can say." Id.

Addressing the issue of Mrs. Claggett's intent to exclude her son, the court further held:

  Plaintiff [insurer] further contends that when the
  policy was issued Mrs. Claggett orally agreed Carl
  Claggett was an excluded driver. Mrs. Claggett
  knew only that the face of the policy carried the
  notation `Excluded driver on End. 43: Carl L.
  Claggett.' She knew nothing of any endorsement
  issued or to be issued giving life to that
  notation. Absent the endorsement the insurer
  cannot now graft it onto the policy.


This Court favors the Industrial Risk Insurers approach because it is more equitable. Although an insured should not be held accountable for an exclusion of which it was unaware and for which it had not bargained, it would similarly be unfair to put the insured in a better position than it would have been, had the insurer actually attached the terms of the exclusion to the policy. There is the possibility in this case, as in Industrial Risk Insurers, that the insured or its authorized agent in this case did bargain for the exclusions represented by the notations on Endorsement No. 2, and perhaps paid a lower premium as a result. Under those circumstances, the Court would not reward Bacchus with a benefit exceeding its bargain. The doctrine of contra proferentem is strong enough to enable plaintiff to survive Hartford's summary judgment motion, but it does not take plaintiff all the way to summary judgment in its favor.

Therefore, under established principles of fair dealing under New York law, the Court will inquire whether, on defendants' motion for summary judgment, there is disputed evidence going to the parties' intent. Mallad, supra, 344 N.Y.S.2d at 930, 298 N.E.2d at 100; see Hartford Accident & Indemnity Co. v. Weslowski, 33 N.Y.2d 169, 350 N.Y.S.2d 895, 898, 305 N.E.2d 907, 909 (1973); Bank of Rockville Centre, 265 N.Y.S. at 344.

Evidence of the Parties' Intent

Summary judgment is normally inappropriate when a contract term is ambiguous, because a triable issue of fact usually exists as to its interpretation. See Leberman v. John Blair & Co., 880 F.2d 1555 (2d Cir. 1989); Rothenberg v. Lincoln Farm Camp, Inc., 755 F.2d 1017, 1019 (2d Cir. 1985). Thus if there is conflicting evidence regarding the parties' intent, the district court may only identify the issues at the summary judgment stage, not resolve them. See Schering Corp. v. Home Ins. Co., 712 F.2d 4, 9-10 (2d Cir. 1983). When the parties' intent is unclear, summary judgment may nevertheless be warranted when the parties do not present conflicting evidence of intent or when the movant presents evidence which is uncontradicted. Burger King Corp. v. Horn & Hardart Co., 893 F.2d 525 (2d Cir. 1990).

In the present case, Hartford, the moving party, has the burden of showing the absence of genuine issues of material fact going to the intentions of the parties with respect to the exclusions contained in Endorsement No. 2. As to the issue of Bacchus' intent, Hartford has produced uncontradicted evidence showing that an insurance brokerage firm called D.J. Colby, Inc. requested and procured from Hartford, on Bacchus' behalf, an all-risk policy exclusive of decay, deterioration and spoilage coverage. See Exhibit I, Exhibit I-1, and Exhibit I-2 (Carr-Doran letter, dated February 13, 1987), attached to Benzie Aff.*fn10

However, this uncontradicted evidence does not suffice to demonstrate Bacchus' intent, because Bacchus denies knowing D.J. Colby, Inc. or doing business with Hartford through such a firm. Bacchus Rule 3(g) Counterstatement, ¶ 8. Mangia, in the deposition excerpt supplied to the Court, denies any familiarity with a company known as D.J. Colby. Mangia Dep. at 34. He further indicates that all of his communications with Hartford took place through defendant Guari or Guari's partner Zelig Wynn. Id. at 31.

Of the documents Hartford has introduced, purporting to show that Bacchus itself requested exclusion for decay, spoilage and deterioration, every one of them lists the name of the broker purporting to represent Bacchus as D.J. Colby, Inc. Id.*fn11 Because there is an issue as to whether the Colby firm was authorized to represent Bacchus, the Court may not, on a summary judgment motion, impute the intentions of D.J. Colby, Inc., to its purported principal. See Cantor v. Life Alert, Inc., 655 F. Supp. 673, 680 (S.D.N.Y. 1987) (agent acts "for the benefit of, with the knowledge and consent of, and under some control by, the principal") (citing Grove Press, Inc. v. Angleton, 649 F.2d 121, 122 (2d Cir. 1981)); In re Shulman Transport Enterprises, Inc., 744 F.2d 293, 295 (2d Cir. 1984).

The Court finds that Mangia's deposition testimony raises a genuine factual issue surrounding this purported agency relationship. This issue is material to the question of the parties' intent, a question that is central to the resolution of this case. Accordingly, the Court holds that summary judgment is inappropriate at this time.

The Court sincerely hopes that this pear of litigants will not be melon-choly about the outcome of this motion. In the end, the Court is confident that the parties will receive their just desserts.


The disputed exclusions were not, as a matter of law, incorporated into the policy by reference. However, the intent of the parties is relevant to determining whether those exclusions are applicable. There are genuine issues of material fact as to the parties' intent surrounding the disputed exclusions.

For the aforementioned reasons, Hartford's motion for summary judgment is denied.


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