The opinion of the court was delivered by: LEONARD B. SAND
HONORABLE LEONARD B. SAND, U.S.D.J.
There have been tried to the Court two declaratory judgment actions brought by insurers, Atlantic Mutual Insurance Company ("Atlantic") and Insurance Company of North America ("INA"), against two insured coffee traders, Van Ekris & Stoett, Inc. ("VES"), a wholly owned subsidiary of Balfour Maclaine International, Ltd., and Armenia Coffee Corporation ("Armenia") which they respectively insured.
Although the main controversy in the case, relating to the mysterious disappearance of substantial quantities of coffee from various Mexican warehouses, is substantially the same in both actions, certain defenses and claims are peculiar to each insurer and insured and will be treated separately herein. The following constitutes our findings of fact and conclusions of law.
A. The Parties and Policies
At all relevant times for purposes of this litigation, VES and Armenia were New York corporations engaged in the business of buying and selling green coffee, including Mexican green coffee for resale to American roasters. These purchases were financed by various American banks. Pretrial Order ("PTO") at 2-3.
Effective January 1, 1985, Atlantic issued to the parent of VES and its subsidiaries an "all risks" open cargo insurance policy covering many commodities, including green coffee purchased by VES in Mexico. This policy contained no exclusions for losses caused by conversion, theft, misappropriation or "mysterious disappearance" of coffee and imposed no obligations on VES to inspect its inventory stored in Mexican warehouses. Ex. 71.
Effective September 6, 1989 INA bound for the account of Armenia an "all risks" open cargo insurance policy covering coffee purchased by Armenia in Mexico. This policy similarly contained no exclusions for theft, misappropriation or "mysterious disappearance" of coffee. Ex. 92.
The coffee which is the subject of this litigation was purchased from Cafetalera Zardain Hermanos S.A. de C.V. ("Cafetalera Zardain"), a Mexican corporation the principals of which were Carlos Zardain Herrerias and his younger brother, Ricardo. In its normal business operation, Cafetalera Zardain purchased coffee from growers, owned or leased storage warehouses and mills, and exported coffee to countries throughout the world. PTO at 3.
Cafetalera Zardain utilized the facilities of two warehousing authorities, Almacenadora Somex S.A. ("Somex") and Almacenadora Creditzam S.A. ("Creditzam"). Somex and Creditzam are Mexican corporations authorized to operate warehouses and to issue certificates of deposit representing coffee deposited in those warehouses. Id.2
It was on the strength of these certificates of deposits, or warehouse receipts, that VES and Armenia obtained pre-export financing from their bank lenders. Zardain would convey these certificates to the purchasers, who would make interim payments for the coffee at that time. Transcript of Trial Proceedings Dated June 13-15, 20-23, 27-30, 1994 ("Tr.") 1180-81. Meanwhile, the coffee represented by these certificates would remain stored in the Mexican warehouses. When the purchasers eventually wished to have the coffee brought into the United States, the warehouse receipts would be returned to Mexico and transmitted to Somex or Creditzam, who would release the amount of coffee represented by the receipts and cause their cancellation. Zardain would subsequently mill the coffee and truck it to the purchasers in Laredo, Texas or another United States port of entry. Tr. 717, 1181-82.
During the relevant periods, Zardain tendered to VES warehouse receipts for coffee in three direct and five habilitated Somex warehouses, as well as one Creditzam habilitated warehouse. VES duly declared these nine warehouses as insured locations under the warehouse risks cover of the Atlantic policy. Zardain similarly tendered to Armenia warehouse receipts for coffee stored primarily at two Somex direct warehouses, and Armenia declared this coffee under its INA policy. Plaintiff-insurers maintain that these warehouse receipts tendered by Zardain to VES and Armenia were fraudulent and that the coffee these receipts supposedly represented never was deposited in the Mexican warehouses.
The coffee industry in Mexico at all relevant times was subject to the authority and governance of the Instituto Mexicano del cafe ("Inmecafe"), an agency of the Mexican government. Prior to July 1989, Inmecafe conducted quarterly surveys of coffee in all warehouses throughout Mexico. The results of the surveys were reported to the International Coffee Organization ("ICO"), an international cartel which, until early July 1989, established quotas on exports of coffee. Tr. 634-35, 658-59.
C. The Insurance Claims at Issue
On October 26, 1990, VES and its lender banks filed a claim under its Atlantic policy for the loss of the equivalent of 165,564 69-kilo bags (25,185,165.21 pounds) of prima lavado export quality Mexican green coffee or its equivalent in pergamino,
which were discovered to be missing from storage warehouses in Mexico. On November 2, 1990, Atlantic in effect denied this claim by filing a declaratory judgment action alleging that VES had "failed to demonstrate or prove that the alleged stolen, lost and/or missing coffee was ever physically deposited in the named warehouse covered under the Policy."
On October 23, 1990, Armenia submitted a claim to INA for some 11,998 bags (1,825,105 pounds) of Mexican green coffee that were discovered to have mysteriously disappeared from at least two of the Somex warehouses from which VES also claims to have lost coffee. On December 20, 1990, INA denied this claim by filing a declaratory judgment complaint alleging, similar to Atlantic's complaint, that the insured failed "to establish that the coffee alleged to have been stolen, lost or missing was at any time actually physically placed in warehouses at insured locations in Mexico."