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February 26, 1992


The opinion of the court was delivered by: ROBERT W. SWEET

Plaintiff Philips Consumer Electronics Company ("Philips") commenced this action against the Arrow Carrier Corporation ("Arrow") for wrongful conversion and for breach of contract. Philips has now moved for summary judgment on its claims against Arrow. Intervenor Royal Insurance Company of America ("Royal") has moved for summary judgment against Philips declaring that Arrow's liability to Philips is not a covered loss under the insurance policies issued by Royal to Arrow. Philips has cross-moved for summary judgment against Royal seeking to recover against the policies. For the following reasons, Philips's motion is granted; Royal's motion is granted; and Philips's cross-motion is denied. Philips's additional motion seeking an order permitting it to amend its complaint to add a cause of action against Kemper Insurance Company is granted.

 The Parties

 Philips is a division of North American Philips Corporation, a corporation organized and existing under the laws of the State of Delaware with offices in Knoxville, Tennessee. Philips manufactures electronic equipment, including camcorders.

 Arrow is a motor common carrier in interstate commerce subject to the provisions of the Interstate Commerce Act and the regulations of the Interstate Commerce Commission. Arrow is a corporation organized and existing under the laws of the State of New Jersey with a principal place of business in New Jersey. In addition to operating as a common carrier, Arrow also provided distribution services for its customers which involved the receipting of truckload shipments at its main terminal in North Bergen, New Jersey and disbursal as directed by its customers to various consignees. Philips was a regular customer of Arrow's and also utilized Arrow's distribution services for delivery of electronic equipment to designated consignees.

 On or about December 14, 1989, Arrow filed for bankruptcy under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey. As a result of the bankruptcy filing, all actions and/or claims against Arrow were stayed pursuant to 11 U.S.C. § 362. Philips obtained a consent order modifying the stay so as to permit it to institute this suit against Arrow so that it could then proceed to recover against Arrow's insurance carrier.

 Royal is an Illinois stock company with a principal place of business in North Carolina. Royal provided insurance coverage to Arrow.

 The Facts

 The following facts are undisputed. On August 21, 1989, Philips delivered to Arrow a full shipment of 718 cartons of camcorders, which Arrow was to transport to a consignee in New York State. Arrow interlined the goods to its Newburgh, New York terminal and made delivery on August 22, 1989. At destination on that date, the receiving clerk for the consignee acknowledged receipt of the shipment as full and without exceptions. It was later discovered, however, that the delivery was in fact short by 432 cartons. The invoice value of the 432 cartons short at destination was $ 387,763.20.

 According to Connizzo's deposition testimony, the normal procedure when unclaimed cargo is held at an Arrow facility is to notify the shipper that the cargo is in Arrow's possession. It is undisputed that Arrow did not advise Philips that Arrow was in possession of 432 camcorders which it could not apply to any shortage in other shipments. According to Connizzo, the cartons were clearly labeled.

 Approximately seven to ten days later, Matarazzo directed that the camcorders be moved from the secured facility and placed in a trailer that held cargo to be salvaged. Sometime during the first week of September 1989, Matarazzo decided to sell the 432 cartons as salvage. Connizzo arranged for the sale, although he knew that Arrow was not entitled to sell the camcorders. The sale took place in three installments for which Arrow received $ 180,000 in cash. No attempt was made to notify Philips prior to the sale.

 Philips discovered the shortage when it received a warranty from someone who had purchased a camcorder, bearing a serial number that identified it as part of the shipment in question, in New York City. Since that shipment of camcorders was to be delivered to a consignee near Newburgh, New York, the receipt of the warranty indicating purchase in New York City triggered an investigation, by the Federal Bureau of Investigation and others, to determine whether there had been a theft from the consignee's warehouse. Connizzo received a telephone call from the state police, and, according to his deposition testimony, then realized that the 432 camcorders were a shortage in the shipment to that consignee.

 By a series a letters to Philips, Arrow accepted responsibility for the shortage and agreed to entertain a claim from Philips for the wholesale invoice price of the 432 cartons of camcorders, to be paid in a series of installments. See Letter from N. Connizzo to B. McKenzie, Claims Manager of Philips, Sept. 20, 1989 (acknowledging responsibility); Letter from E. Schatz, Claims Manager of Arrow, to B. McKenzie, Oct. 20, 1989 (agreeing to reimburse Philips in the amount of 387,763.20 over eight months); Letter from J. Gordon, Sen. Vice Pres. of Arrow, to B. McKenzie, Nov. 15, 1989 (accepting responsibility for loss). The terms of this arrangement were not accepted and finalized between the parties prior to the filing of the bankruptcy petition, and Arrow has made no payments.

 Royal issued a commercial marine policy to Arrow covering the period from January 13, 1989 to January 13, 1990 (the "Policy"). *fn1" The Policy consists of two separate types of coverage: a Truckers Cargo Comprehensive Coverage Form ("Cargo Form") and a Transportation Comprehensive Coverage Form ("Shipper's Interest Form"). The issue to be resolved in determining Royal's motion and Philips's cross-motion is whether the loss of the camcorders is covered under the Policy.


 The Second Circuit has recently re-articulated the well-known standard to be applied in determining motions for summary judgment.

 Bay v. Times Mirror Magazines, Inc., 936 F.2d 112, 116 (2d Cir. 1991) (citations omitted). As is often stated, "viewing the evidence produced in the light most favorable to the nonmovant, if a rational trier could not find for the nonmovant, then there is no genuine issue of material fact and entry of summary judgment is appropriate." Binder v. Long Island Lighting Co., 933 F.2d 187, 191 (2d Cir. 1991); see also Bay, 936 F.2d at 116.

 To defeat a motion for summary judgment, the party opposing the motion must "do more than simply show that there is some metaphysical doubt as to the material facts" as to issues on which the moving party has carried its burden or those on which the non-moving party bears the burden of proof. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 1355, 89 L. Ed. 2d 538 (1986). Rather, he must establish the existence of enough evidence such that a jury could return a verdict in his favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-51, 91 L. Ed. 2d 202, 106 S. Ct. 2505, 2509-11 (1986).

 I. Philips's Motion for Summary Judgment against Arrow

 The liability of a common carrier for loss or damage to goods transported in interstate commerce is governed by federal law. Adams Express Co. v. Croninger, 226 U.S. 491, 504-06, 57 L. Ed. 314, 33 S. Ct. 148, 151-52 (1913); Eastman Kodak Co. v. Johnson Motor Lines, Inc., 123 A.D.2d 515, 516, 507 N.Y.S.2d 565, 566 (4th Dept. 1986). Thus, although jurisdiction over this case is predicated on diversity of citizenship pursuant to 28 U.S.C. § 1332, the rule of decision is drawn from the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C.A. § 11707 (1991 Rev. Supp.), which governs cargo loss and damage by ...

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