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October 21, 1991


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


This is an admiralty action that arises out of a dispute between defendant Neptunia Insurance Company ("Neptunia"), a marine insurer, and plaintiff American Marine Insurance Group ("American Marine"), its reinsurer. American Marine has brought suit under the Declaratory Judgment Act, 28 U.S.C. § 2201, seeking a declaration that it is not liable under its reinsurance contract with Neptunia. Plaintiff and defendant now cross-move the Court for summary judgment. For the reasons that follow, plaintiff's motion for summary judgment is denied, and defendant's cross-motion for summary judgment is granted.


In 1982, Neptunia, a Swiss marine insurance company, issued a hull and machinery insurance policy to Lunmar SA ("Lunmar") to cover its vessel, the M/V SPES, for an insured value of $5.6 million. Neptunia subsequently reinsured this risk with diverse British and American reinsurers, with American Marine, a New York City based association of underwriters, accepting 6.5% of the risk. These insurance and reinsurance contracts included two provisions that form the basis for the instant dispute. Insurance for the M/V SPES was provided "warranted free from particular average absolutely," and the reinsurance contract incorporated this limitation on coverage by reference. In addition, American Marine's reinsurance obligation required plaintiff to "in all respects follow the fortunes of the Reassured and pay as may be paid in connection with the original insurance."

As a result of heavy weather encountered during a voyage from Aruba to Boston in November 1982, the M/V SPES suffered severe hull damage. Lunmar, as the owner of the vessel, subsequently made a claim for a constructive total loss under the policy. A series of contested estimates of the damage to the vessel followed, leading Neptunia to conclude that Lunmar had not adequately demonstrated that a constructive total loss had occurred. Lunmar thereafter filed a suit in the High Court of Justice in London, England, claiming a constructive total loss and seeking the full insured value of the vessel, along with interest and costs.

Based on anticipated difficulty with its case against Lunmar, and facing the possibility of a $9 million liability (including accrued interest, costs and attorneys' fees), Neptunia, in consultation with its London reinsurers, subsequently settled the claim with Lunmar for $4 million. During the course of the investigation of Lunmar's claim and the negotiation of the settlement, there was extensive contact between Neptunia and American Marine concerning the Lunmar claim. However, the parties dispute the position taken by American Marine throughout these discussions. Neptunia claims that American Marine was mindful of its obligation to participate in the settlement that was ultimately reached. In contrast, American Marine asserts that it made clear throughout the process that it intended not to participate in any settlement with Lunmar.

Once notified of the ultimate settlement, American Marine refused to pay Neptunia the 6.5% share called for under the reinsurance policy. American Marine claims that the "free from particular average" clause in the insurance contract bars recovery for compromised total loss. Neptunia responds that compromised total loss is covered by the insurance and reinsurance contracts, and that American Marine is obligated to pay the 6.5% risk it shouldered by undertaking the reinsurance of Neptunia. Accordingly, American Marine brought this declaratory judgment action, seeking a declaration of non-liability under the policy.


A. Standard for Summary Judgment

Federal Rule of Civil Procedure 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the 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." "Summary judgment is appropriate if, `after drawing all reasonable inferences in favor of the party against whom summary judgment is sought, no reasonable trier of fact could find in favor of the non-moving party.'" United States v. All Right, Title & Interest in Real Property, etc., 901 F.2d 288, 290 (2d Cir. 1990) (quoting Murray v. National Broadcasting Co., 844 F.2d 988, 992 (2d Cir.), cert. denied, 488 U.S. 955, 109 S.Ct. 391, 102 L.Ed.2d 380 (1988)). Summary judgment may be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).

The substantive law governing the case identifies which facts are material, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986); Herbert Constr. Co. v. Continental Ins. Co., 931 F.2d 989, 993 (2d Cir. 1991). "[T]he judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there does indeed exist a genuine issue for trial." Anderson, supra, 477 U.S. at 249, 106 S.Ct. at 2511; see also R.C. Bigelow, Inc. v. Unilever N. V., 867 F.2d 102, 107 (2d Cir.), cert. denied, 493 U.S. 815, 110 S.Ct. 64, 107 L.Ed.2d 31 (1989). The party seeking summary judgment "always bears the initial responsibility of informing the district court of the basis for its motion" and identifying which materials it believes "demonstrate the absence of a genuine issue of material fact." Celotex, supra, 477 U.S. at 323, 106 S.Ct. at 2553. "[T]he burden on the moving party may be discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex, supra, 477 U.S. at 325, 106 S.Ct. at 2554; see Binder v. Long Island Lighting Co., 933 F.2d 187, 191 (2d Cir. 1991).

Once a motion for summary judgment is properly made, the burden then shifts to the nonmoving party, which "`must set forth specific facts showing that there is a genuine issue for trial.'" Anderson, supra, 477 U.S. at 250, 106 S.Ct. at 2511 (quoting Fed.R.Civ.P. 56(e)). "Conclusory allegations will not suffice to create a genuine issue. There must be more than a `scintilla of evidence,' and more than `some metaphysical doubt as to the material facts.'" Delaware & H. Ry. v. Consolidated Rail Co., 902 F.2d 174, 178 (2d Cir. 1990) (quoting Anderson, supra, 477 U.S. at 252, 106 S.Ct. at 2512-13, and Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986)), cert. denied, ___ U.S. ___, 111 S.Ct. 2041, 114 L.Ed.2d 125 (1991). "The non-movant cannot `escape summary judgment merely by vaguely asserting the existence of some unspecified disputed material facts,' or defeat the motion through `mere speculation or conjecture.'" Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990) (quoting Borthwick v. First Georgetown Sec., Inc., 892 F.2d 178, 181 (2d Cir. 1989) and Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir. 1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987)).

B. Plaintiff's Motion for Summary Judgment

The Court first turns to plaintiff's summary judgment motion, which claims that American Marine is not obligated to reimburse Neptunia for compromised total loss under the reinsurance policy. Plaintiff bases this claim on the inclusion of a "warranted free from particular average absolutely" clause in the reinsurance policy. See Affidavit of Harry A. Gavalas, Esq., sworn to on February 15, 1991, Ex. 1, at I cl. 11. In essence, plaintiff asks the Court to adopt the following chain of inferences as a matter of law: by compromising the total loss claim, Neptunia "paid for something other than a ...

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