VINCENT L. BRODERICK, U.S.D.J.
These cases involve claims under maritime insurance policies by financial institutions for losses sustained because fraudulent documents concerning nonexistent coffee shipments became the bases for extensions of credit. After other defendants settled, there remain in litigation Affiliated FM Insurance Company (hereinafter "Affiliated" or "the insurer") as defendant, and Andina Coffee, Inc. and Andina Trading Corp. (collectively "Andina") together with several banks
as plaintiffs. The parties have submitted motions for partial summary judgment focusing on the interpretation of the insurance contracts.
The core issues follow:
(a) does a specific clause of the insurance contract covering fraudulent bills of lading ("FBOL") become ineffective because the balance of the policy relates solely to insuring actual goods;
(b) does a blanket provision making the policy applicable for "account of whom it may concern" become unavailable to a bank because a Banker's Endorsement describes some specific risks without mentioning the FBOL clause, while concluding as follows: "ALL OTHER TERMS . . . REMAINING UNCHANGED" (capitalization in original).
I answer these questions in the negative and grant partial summary judgment to the plaintiff banks pursuant to Fed.R.Civ.P. 56(d). I hold that the Affiliated policies covering purported shipments of coffee to Andina, which are being sued upon by the banks and which are quoted in part below, provided coverage to those banks which extended credit based on fraudulent bills of lading concerning what turned out to be nonexistent coffee shipments.
Because of this ruling and for additional reasons discussed below, I deny the motion of Affiliated for summary judgment.
I deny without prejudice Andina's motion for summary judgment; there has been incomplete development of the facts concerning its role in connection with the events in dispute.
The claims in these actions arise with respect to losses incurred in connection with purported purchases of Colombian coffee from Gonchecol Ltd. ("Gonchecol"), a Colombian exporting company. These "purchases" were financed by the plaintiff banks through issuance of letters of credit in favor of Gonchecol. Most of the losses involved here were sustained because Gonchecol drew down on letters of credit by presenting bills of lading referring to coffee that never existed.
Coffee was purchased from Gonchecol by Andina Coffee, Inc., then headquartered at 120 Wall St., New York City, during actual or purported shipment from the interior of Colombia to export destinations. In order to finance the purchase of coffee from the exporters, Andina borrowed from banks in New York City. Financing was provided by various banks including the plaintiffs in the cases before me through irrevocable letters of credit.
The letters of credit called for payment against shipping documents describing the merchandise, such as inland bills of lading
evidencing shipment from the interior of Colombia to a Colombian seaport, and copies of "beneficiaries letters" to port forwarders with instructions regarding the shipment of the coffee from Colombia and forwarding of documentation to the bank in New York.
The usual procedure was that when the coffee arrived from an inland point to a Colombian port, the port forwarder would arrange for transloading onto a vessel according to instructions and the inland bill of lading. The ocean bill of lading was consigned to one of the plaintiff banks, with specific reference to a specific letter of credit number. The ocean bill of lading was couriered by the port forwarder to Andina, which presented it to the bank involved for endorsement and release against a "Trust Receipt." Since the ocean bill of lading was consigned to one of the plaintiff banks, Andina could not take delivery until the bank endorsed the bill of lading. Andina then presented the endorsed bill of lading to the ultimate buyer, which normally paid Andina within 7 days. At that time Andina would pay off the loan created when the plaintiff bank had paid the exporter on the letter of credit.
For several years, it appears that Andina worked with the banks without incident. However, in 1986 in response to bank inquiries about the delay in coffee from Colombia arriving at its destination, Andina told the banks that the exporters had informed Andina that port congestion and increased export taxes were responsible. (Affidavit of John M. Toriello ["Toriello Aff."] P 5; Affidavit of Mark E. Gleason in Opposition to the Motions of Certain Defendants for Summary Judgment ["Gleason Aff."] P 10).
In order to investigate the situation, representatives from various banks traveled to Colombia during August, 1986 (Toriello Aff. P 5) and were informed that approximately 200,000 bags of coffee were not available for shipping, that the truckers' bills of lading presented to effect the draws on the letters of credit with respect to these bags of coffee were false and that the proceeds from the false bills of lading had been used by Gonchecol to pay off other debts (Toriello Aff. P 5; Affiliated Appendix, Exs. K P 7, L P 7, and M P 7).
After learning of the developments in Colombia, Andina and the plaintiff banks gave notice in August and September of 1986 to Affiliated and the London Insurers of their losses from Gonchecol's presentation of fraudulent inland/truck bills of lading. (Toriello Aff. P 5).
The plaintiffs were insured by Affiliated from 1980 to 1986 under a marine open cargo policy; in 1986 Affiliated was replaced as insurer by various London insurers.
A marine open cargo policy can remain in effect for an indefinite time, and is usually tailored to an assured's particular business, with a premium based on the assured's record and experience. See generally L.J. Buglass, Marine Insurance and General Average in the United States (2d ed. 1981).
The first item in the Affiliated open cargo policy was a notice describing procedures for filing a claim on the policy. Paragraph 2 of the notice stated: "This policy covers automatically all shipments which come within its scope. It is important that all shipments be reported as soon as known, and amounts declared as soon as ascertained."
The first section of the policy after the notice contained the policy's general provisions. The first paragraph of the general provisions designates Andina as the Assured, and paragraph 2 provides that the interest in the policy was "for account of whom it may concern." This broad definition of those protected by the policy is pertinent to the controversy before me: at the very outset of the policy it is proclaimed that the policy would cover losses to any parties (which would include the plaintiff banks) which are injured by the perils insured against.
Paragraph 4 of the general provisions designates the "Goods Insured" as "all lawful goods and merchandises consisting principally of coffee."
The second section of the Affiliated policy was entitled "INSURING CLAUSES". Paragraph 16, the "Perils Clause", described the maritime perils insured against. The Perils Clause provided:
Touching the adventures and perils which this Company is content to bear, and take upon itself, they are of the Seas, Fires, Assailing Thieves, Jettisons, Barratry of the Master and Mariners, and all other like perils, losses and misfortunes, that have or shall come to the hurt, detriment or damage of the said goods and merchandise or any part thereof, except as may be otherwise provided for herein or endorsed hereon.