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ZEN CONTINENTAL CO. INC. v. INTERCARGO INSURANCE COMPANY

March 22, 2001

ZEN CONTINENTAL CO., INC., PLAINTIFF,
v.
INTERCARGO INSURANCE COMPANY, AND INTERNATIONAL ADVISORY SERVICES, INC., TRADE INSURANCE SERVICES, INC., DEFENDANTS.



The opinion of the court was delivered by: Gerard E. Lynch, District Judge:

OPINION AND ORDER

Plaintiff Zen Continental Company, Inc. ("Zen") brought this declaratory judgment action against its insurer, Defendant Intercargo Insurance Company ("Defendant" or "Intercargo"), and certain other parties,*fn1 in the wake of two misadventures on the high seas involving cargo originating from the People's Republic of China. The primary issue in the case is whether Intercargo has a duty to defend certain claims brought against Zen, under a maritime insurance policy.*fn2

Zen and Intercargo (joined by an affiliated company, International Advisory Services, Inc. ("[AS")) have filed cross-motions for summary judgment, pursuant to Fed. R. Civ. P. 56(c). Defendant Trade Insurance Services, Inc., ("TIS") has moved to dismiss the action as to it on various grounds. For the reasons that follow, Intercargo's motion for summary judgment and TIS's motion to dismiss are granted, and Zen's motion is denied.

BACKGROUND

Unless otherwise specifically noted, the following facts are not controverted by the parties.

The Insurance Policy

Zen's business involves a variety of shipping-related activities. Most notably for purposes of this litigation, until 1999 it acted as a non-vessel owning common carrier ("NVOCC") of goods shipped from Asia to the United States. (Yen Decl. ¶¶ 2-3.) An NVOCC in effect acts as a middleman in the shipping process. Among other things, an NVOCC facilitates the delivery of cargo from its shipper to the vessel that will be responsible for transporting the cargo to its ultimate destination, and issues a bill of lading to the ship's captain.*fn3 (Yen Decl. ¶ 3.) An NVOCC often assists shippers in booking cargo space on vessels by consolidating several smaller lots together. By doing this, the NVOCC obtains much lower prices for a constituent shipper than the shipper would otherwise be able to find if it were to engage in one-on-one negotiations with the vessel owner. Prima U.S. Inc. v. Panalpina. Inc., 223 F.3d 126, 129 (2d Cir. 2000).*fn4

In 1992, defendant TIS acted as a broker for both Zen and Sunway Line, Inc. ("Sunway") (apparently one of Zen's subsidiaries),*fn5 by assisting in procuring a liability policy (the "Policy") from Intercargo to cover certain risks attendant on Zen's business as an NVOCC. The parties first executed the Policy, styled an "International Transit Liability Insurance Policy," on April 15, 1992, and, following three consecutive annual renewals, it remained in effect until at least April 15, 1996. (Second Amended Compl. ¶¶ 19-20; Llaneta Aff. Ex. 1.)*fn6

The Policy specified that Zen would receive coverage for the following occurrences:

(a) physical loss or damage to customers' cargo arising out of the issuance of your bill of lading when conducting your business as a consolidator (principal), or;
(b) financial loss resulting from your negligence committed in conducting your business as an International Transportation Specialist.

(Llaneta Aff. Ex. 1 at 1.) Additionally, the Policy contained a standard provision that required Intercargo to defend Zen under certain scenarios:

We will defend a suit for a covered claim even if the suit is groundless or fraudulent. We have the right to adjust, investigate, negotiate and settle any suit or claim. We will pay all costs of investigating and defending the suit, including interest on any covered part of any judgment provided that the amount does not exceed the applicable limit of coverage. . . . The term "claim" means any oral or written demand received by you or a suit against and served upon you for money damages. . . . We have no duty to defend any claim that is not covered by this agreement and we will not pay you or any protected persons for any loss of earnings.

(Id.; original italics, other emphasis added).

As is characteristic of most insurance policies, however, Intercargo incorporated numerous exclusions in the Policy that operated to deny coverage for certain risks. With regard to the instant litigation, the most significant such exclusion (captioned "Hazardous Materials/Pollution/Contamination") reads as follows:

We will not cover any claims for environmental damage, pollution, or contamination of any kind however caused, including but not limited to: claims arising out of accidental, sudden or gradual, foreseeable or unforeseeable, intentional or unintentional occurrences.
We will not cover any claims arising out of any activity, transaction, incident or occurrence involving any explosives; pressurized gases; nuclear parts, fuels, materials or devices; hazardous, radioactive, toxic;[sic]*fn7 or flammable materials; any weapons or armaments; or any means of biological or chemical warfare.
Further, we will not cover claims arising out of the actual, alleged or threatened discharge, disposal, release or escape of pollutants in any stage of storage, handling or transportation; whether accidental, sudden or gradual, foreseeable or unforeseeable, intentional or unintentional.
Pollutants mean but are not limited to: any solid, liquid, gaseous, thermal, radioactive, sonic, magnetic, electric or organic irritant; contaminant; or anything which causes or contributes to damage, injury, adulteration, or disease. This includes, but is not limited to smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste.

(Id. at 6; emphasis added.)

Additionally, the Policy contains a clause that precludes Zen from commencing a court proceeding against Intercargo if Zen were to bring the action "after one (1) year after the accident/incident" that gives rise to, for example, a putative duty to defend. (Id. at 14.)

The Accidents Aboard the Cho Yang Park and the Tokyo Senator

On February 13, 1994, Zen issued a bill of lading to the captain of the vessel Hanjin Bangkok to transport eighty drums of salicylaldehyde from Tianjin in the People's Republic of China to the port of Busan in the Republic of Korea. (Intercargo Rule 56.1 Statement ¶ 6 & Ex. 1.) Salicylaldehyde is a liquid chemical that can be used innocuously in low doses as a constituent ingredient of perfumes. However, it becomes corrosive in much higher concentrations, and upon exposure can cause a variety of skin, eye and respiratory ailments.*fn8 (Green Aff. ¶¶ 12-13; Intercargo Rule 56.1 Statement ¶ 18 & Ex. 7 at 2.) Zen's cargo of salicylaldehyde arrived without incident in Busan, and, following Zen's issuance of another bill of lading, was loaded onto the Cho Yang Park for transport to New York City.

The Cho Yang Park set sail from Busan on February 23, 1994. (Yen Decl. Ex. H.) On March 13, 1994, apparently while en route to Savannah, Georgia (the ship's first port of call in the United States), at least one of the drums containing the chemical leaked into the ship's hold, supposedly because the drum had been loaded improperly. (Intercargo Rule 56.1 Statement ¶ 8; Yen Decl. Ex. J.) Consequently, the Cho Yang Park's owners incurred approximately $20,000 of expenses, including, among other things, cleanup costs and fines and penalties imposed by certain governmental authorities. (Amended Verified Compl. ¶ 7.)*fn9

Another Zen shipment made later in 1994 sustained an even worse fate. On March 25, 1994, Zen issued another bill of lading to the captain of the Hanjin Bankgok to transport 300 drums of thiourea dioxide from Tianjin to Busan. (Intercargo Rule 56.1 Statement ¶ 9 & Ex. 3.) Thiourea dioxide is a solid chemical that exists as a whitish crystal and is sometimes referred to as formamidinesulfinic or aminoiminomethanesulfinic acid. It is commonly used in manufacturing processes as a reducing agent.*fn10 (Green Aff. ¶ 4.) Thiourea dioxide is widely regarded by chemists as a hazardous and toxic compound, and various federal agencies, including the United States Department of Transportation and the United States Environmental Protection Agency, enumerate it on hazardous substances lists. Rats exposed to the chemical in laboratory experiments have suffered damage to various internal organs, including their lungs and spleens.*fn11 (Green Aff. ¶¶ 5-6.) Other experiments performed on animals indicate that thiourea dioxide may be a human carcinogen. (Intercargo Rule 56.1 Statement ¶ 19 & Ex. 8 at 1.) It can be highly volatile when exposed to temperatures close to the boiling point of water (212 degrees Farenheit), often emitting poisonous gases such as sulfur dioxide and ammonia. (Id. ¶ 7-8.)


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