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GIBBS v. HAWAIIAN EUGENIA CORP.

September 4, 1991

CARYL ANTONY VAUGHAN GIBBS, INDIVIDUALLY AND AS REPRESENTATIVE OF ALL MEMBERS OF THOSE SYNDICATES AT LLOYD'S LONDON SEVERALLY SUBSCRIBING TO LLOYD'S POLICY NO. 601/BS 11654, PLAINTIFF,
v.
HAWAIIAN EUGENIA CORPORATION, DEFENDANT.



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

This case presents issues concerning the rights of an insurer who has honored a claim under a Marine Insurance policy when the insured releases a third party allegedly liable for the loss. The question presented is whether the indemnified insured party has a duty to establish in the release that the insurer's subrogated rights have been reserved.

On October 14, 1980, defendant, the Hawaiian Eugenia Corporation, owner of the vessel Poet, entered into a charter party with the Egyptian Company of Maritime Transport (the "Charterers") agreeing to carry a shipment of corn from the United States to Egypt. Plaintiff, Caryl Antony Vaughan Gibbs, represents members of a syndicate at Lloyds (the "Underwriters") who, on October 23, 1980, insured Hawaiian's interest in the remuneration to be paid by Charterers for the hire of the ship (the "freight").

On October 24, 1980, the Poet departed Philadelphia bound for Alexandria. While en route to Egypt, the ship was lost at sea. No trace of the vessel, its crew or cargo was ever found. Subsequently, on March 13, 1981, the Underwriters settled Hawaiian's claim for the loss of the remuneration that was to be paid by the Charterers. The Underwriters indemnified Hawaiian by paying in full the insured amount of $1,096,825.34.

In the meantime, Hawaiian had instituted an action for limitation of liability on the cargo in the United States District Court for the Eastern District of Pennsylvania. See 1982 A.M.C. 1388 (E.D.Pa. 1982). The Charterers made a claim against Hawaiian for $3,281,481.94 in damages for the loss of the corn shipment. Hawaiian settled this claim by paying $1,047,500 in damages and by delivering a general release of the Charterers with respect to all claims Hawaiian might have against the Charterers.

Before signing the release, Hawaiian informed the Underwriters' counsel that Hawaiian intended to release the Charterers from any liability for freight charges and requested Underwriters' approval of the release. A few weeks prior to the execution of the release, the New York attorney of the London-based Underwriters wrote to Hawaiian asking for a copy of the policy to assess the impact of the release. Hawaiian did not respond to this request until after the release was executed. The Underwriters never consented to the release of their subrogated rights.

Underwriters have commenced this action against Hawaiian to recover 90% of the insured amount which had been paid to Hawaiian. Plaintiff claims that by delivering the release to the Charterers, Hawaiian destroyed Underwriters' subrogated rights against the Charterers. The rights allegedly destroyed by the release are those contained in clause 32(B) of the charter party between Hawaiian and the Charterers which provides that the Charterers must pay 90% of the remuneration for the hire of the Poet if the ship fails to arrive at its destination "because of damage caused by the perils of the sea."

The Underwriters, in Hawaiian's name, attempted to exercise their subrogated rights by seeking a court order compelling Charterers to arbitrate the claim under clause 32(B). However, because of the release granted by Hawaiian to Charterers, Judge Brieant denied the petition. In The Matter of The Arbitration between Hawaiian Eugenia Corporation, Petitioner, and The Egyptian Commercial and Economic Office of Washington, D.C., as Agents for The Ministry of Supply, Cairo, Arab Republic of Egypt, Respondents, 82 Civ. 7381 CLB, Memorandum and Order (S.D.N.Y. Jan. 17, 1983).

In this action both the Underwriters and Hawaiian move for summary judgment. In the alternative, Hawaiian moves for an order dismissing the action for failure to prosecute pursuant to Fed.R.Civ.Pro. 41(b).

Hawaiian offers two arguments in support of its position. In the first place, it contends that the Underwriters waived any theoretical right of subrogation they might have had. According to Hawaiian, the Underwriters waived their subrogated rights either by omitting to give instructions to Hawaiian regarding the release until after it was executed or by failing to pursue recovery against the Agency for International Development ("A.I.D.")*fn1.

Hawaiian's second argument is that the release did not destroy Underwriters' subrogated rights because, even absent a release, Hawaiian did not have a right of recovery against the Charterers.

For reasons discussed below Hawaiian's motions are denied, while the Underwriters' motion for summary judgment is granted.

I

Hawaiian contends that, under New York law, the Underwriters waived their rights by failing to respond within twenty days to Hawaiian's request for instructions regarding the release. In support of this proposition it cites Huth v. Nationwide Ins. Co., 148 Misc.2d 1003, 560 N.Y.S.2d 724 (Sup.Ct. 1990), which ruled that an insurer, who has not yet indemnified the insured, must choose, within twenty days, whether to accept the settlement proposed by a tortfeasor and waive its subrogated rights or reject the settlement, pay the insured and pursue its subrogated rights.

Huth is inapplicable, however, because in the instant case the Underwriters had already indemnified Hawaiian. Moreover, Huth seems to be predicated particularly upon The New York State Insurance Law covering uninsured or underinsured motorists, the applicable provisions ...


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