Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.


United States District Court, S.D. New York

May 24, 2004.


The opinion of the court was delivered by: JOHN KEENAN, Senior District Judge


Procedural Background

This maritime insurance action was brought by a group of underwriters seeking a declaratory judgment that hull and machinery insurance contracts they entered into with the defendants should be deemed void ab initio and that the underwriters are not liable for any claims under those contracts. Pretrial discovery having been conducted, a host of motions are presently before the Court. The defendants seek to have certain orders issued by the magistrate judge overseeing discovery set aside or modified pursuant to Rule 72 of the Federal Rules of Civil Procedure and 28 U.S.C. § 636. In addition, each side has moved for summary judgment. For the reasons set forth herein, each of these motions is denied.


  On May 27 and 28, 2002 at Xiangang, China, the M/V SATURN II wais loaded with a substantial cargo of coal. From Xiangang, the SATURN II traveled to Singapore where she received fresh water, fuel and diesel fuel during a stop from June 8, 2002 to June 10, 2002. After the brief layover, the SATURN II headed for Dahej, India. On June 25, 2002, the vessel grounded off the west coast of India.

  Defendants Endeavour Navigation S.A. ("Endeavour") and Masters' Ships Management S.A. ("MSM"), respectively the SATURN II's owner and manager, had entered into hull and machinery insurance agreements with American Home Assurance Co., New York Marine & General Insurance Co., Bluewater Insurance ASA, Generali France Assurances, Hamburger Versicherung WAG VERS A (CONVERIUM), Hamburger Versicherung WAG VERS B (r) V), Gothaer VAG, ING Insurance, and "The Ethniki" Hellenic General Insurance Co. S.A. (collectively "the Underwriters" or "plaintiffs"). Endeavour and MSM, as the named assureds under the policy with the Underwriters, and defendant The Royal Bank of Scotland Plc. ("Royal Bank"), the mortgagee bank and assignee of and loss payee under the policy, claim the vessel is a constructive total loss and demand payment under the policy from the Underwriters. The Underwriters claim, however, that the policy should be ruled void ab intio because the defendants failed to disclose a material fact when negotiating the placement of the policy. According to the Underwriters, they entered into the contracts with the belief that they were covering a fleet of ships, when in fact the coverage was for only one ship. Defendants seek the $6 million the policy promises in the event of a constructive total loss.

  Defendants' Rule 72 Motion

  By Order of this Court, the supervision of all general pretrial discovery was referred to Magistrate Judge Peck. On March 24, 2003, Magistrate Judge Peck issued a Case Management Plan complete with a scheduling order setting forth dates by which aspects of the discovery process were to be completed. The dates selected by Magistrate Judge Peck were ones that had been agreed to and proposed by the parties. Among the pertinent dates, all fact discovery was to be completed by September 17, 2003. Expert disclosures required by Rule 26 of the Federal Rules of Civil Procedure were to have been made by October 17, 2003, with depositions of those experts to be completed by November 17, 2003.

  Endeavour and MSM retained New York Ship Surveyors Corp. ("NYSS") to serve as vessel surveyors and marine engineering experts on their behalf. According to the defendants, NYSS prepared detailed survey reports covering issues relating to the SATURN II's seaworthiness, the cause of the casualty and the extent of the damage to the vessel. Unfortunately for the defendants, they and NYSS substantially disagreed as to the amount of fees to be paid. As a result of this fee dispute, the defendants were unable to use NYSS's reports or offer their employees as experts to be deposed by the plaintiffs. Because defendants had focused exclusively on resolving the fee dispute with NYSS, they were not in a position to comply with the October 17, 2003 deadline for expert disclosure.

  In response to Endeavour and MSM's failure to make timely disclosure, Magistrate Judge Peck ordered on October 21, 2003 ("Order"): 1. Defendant MSM/Endeavour expert report re N.Y.S.hip Surveyors extended to 10/28 but no further extensions will be granted. Also plaintiff will have priority to depose defendant's experts, so this delay may cost defendants from being able to depose plaintiff's experts.


2. Defendant MSM/Endeavour did violate a Court order, however. Defendant MSM/Endeavour is sanctioned $1,000 payable to the Clerk of Court by 10/28/03. (If plaintiff wishes to move for costs for its 10/20 letter, it can do so, or perhaps defendant will voluntarily work it out.)
O'Regan Decl. Ex. 3. It is this Order that is the primary subject of defendants' Rule 72 motion. Defendants wish to have Magistrate Judge Peck's October 28, 2003 deadline for expert disclosure set aside in order to allow them to submit a substitute expert's report. Defendants also want the sanctions imposed vacated. In addition, Endeavour and MSM object to a decision by Magistrate Judge Peck preventing them from engaging in additional discovery relating to communications between NYSS arid plaintiffs' counsel.

  Rule 72(a) empowers a magistrate judge to whom a pretrial matter not dispositive of a claim or defense of a party is referred to issue orders as necessary. Fed.R.Civ.P. 72(a). Parties to the litigation may object to an order of the magistrate judge within 10 days and seek relief from the order from the district judge assigned to the case. Id. The standard of review that a district judge is to apply to a magistrate judge's order is deferential, however. The language of Rule 72(a) instructs district courts to modify or set aside a magistrate judge's rulings only when the rulings are "clearly erroneous or contrary to law." Id. A ruling is clearly erroneous if "the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948).

 Request to Set Aside October 28, 2003 Deadline

  Endeavour and MSM filed their motion to modify and set aside the magistrate judge's decision on October 29, 2003. At that time the defendants sought a clarification of the Order with respect to whether the deadline applied only to NYSS or to any expert defendants hoped to enlist. In the event the Court deemed the Order to apply to any and all experts, the defendants requested that this Court modify the deadline to allow them time to find and substitute new experts for NYSS. On November 3, 2003, shortly after this motion was filed, Magistrate Judge Peck clarified at a pretrial conference that the Order applied to all experts. In addition, Magistrate Judge Peck provided his reasoning underlying his decision.

  Magistrate Judge Peck found that there was significant evidence that the defendants had known for months that it was highly unlikely that they would be able to submit NYSS's reports or use them at trial as experts. Rather than begin to look for substitute experts, defendants decided to simply wait until the deadline for disclosure came and went and then requested additional time to find substitutes. Magistrate Judge Peck was also troubled by the fact that the defendants' request sought to extend the time for disclosure of the experts reports beyond the deadline set for all of discovery. See O'Regan Decl. Ex. 4, pp. 6-16.

  In support of their request, both before Magistrate Judge Peck and this Court, defendants rely on two Second Circuit cases: Cody v. Mello, 59 F.3d 13, 15 (2d Cir. 1995) and Outley v. City of New York, 837 F.2d 587 (2d Cir. 1988). As Magistrate Judge Peck correctly noted, see O'Regan Decl. Ex. 4, pp. 12-13, those case are inapposite. The Cody decision expressed the Circuit's preference that cases be decided on their merits rather than by default. See Cody, 59 F.3d at 15. The Outley decision was based on the Circuit's concern that the lower Court had precluded testimony simply out of a motivation to clear its docket. See Outley, 837 F.2d at 590. Neither of the issues cited in those two cases are implicated in the instant matter. Considering this reality and finding that Magistrate Judge Peck's decision was the product of careful reasoning and based in logic, there is no reason to overturn his decision.

 Request for Discovery into Actions of Plaintiff's' Counsel

  Defendants want the Court to set aside prior decisions by Magistrate Judge Peck and allow them to engage in discovery into the actions of plaintiffs and their counsel. Plaintiff's contend that a packet of confidential documents representing communications among the defendants, defense counsel and NYSS were faxed from A.I. Marine Adjusters ("AIMA"), a representative of the plaintiffs, to Waesche, Sheinbaum & O'Regan, plaintiffs' counsel. Defendants believe that plaintiffs' possession of these documents indicates the possibility of improper conduct by plaintiffs' counsel. In order to flesh out this hunch, defendants want to depose both a representative of AIMA and plaintiffs' counsel.

  Magistrate Judge Peck considered defendants' request and denied it on the basis that defendants had provided no evidence of any improper communications between NYSS and the plaintiffs. Magistrate Judge Peck did offer defendants a further opportunity to provide the evidence necessary to justify allowing the requested discovery. The defendants were told at the November 3, 2003 conference that if they submitted an affidavit from either of the two representatives of NYSS involved in the survey of the SATURN II indicating that plaintiffs had contacted them inappropriately, the decision to deny the requested discovery would be reconsidered. Alternatively, Magistrate Judge Peck told the defendants they could allow for a video teleconference deposition of their client. Were that deposition to reveal evidence of misconduct, defendants would then be permitted to depose plaintiffs' representative and counsel. This approach was suggested as a method meant to address Magistrate Judge Peck's concern that the defendants were seeking "a one-way fish[ing expedition]." Defendants did not submit an affidavit, nor did it hold the video teleconference they seemed to indicate would occur. Instead, on November 4, 2003, defendants filed a request for reconsideration of the ruling. This motion was denied by an order dated November 6, 2003. Magistrate Judge Peck found the motion to be "frivolous" and lacking "new info that was not already before the Court."

  It is clear from reviewing the record that this Court is being asked to retrace steps on a rather well-traveled path. Despite considering all that defendants put before him and giving them every opportunity to present more evidence, Magistrate Judge Peck could not find any justification for allowing the additional, one-way discovery requested by Endeavour and MSM. Based on the record, this Court is in agreement with Magistrate Judge Peck and sees no reason to find the decision clearly erroneous or contrary to law.

 Request to Set Aside Sanctions

  Endeavour and MSM object to the imposition by Magistrate Judge Peck of a $1,000 sanction and his invitation to plaintiffs to seek costs from them. Rule 37 of the Federal Rules of Civil Procedure invests magistrate judges with the authority to impose sanctions for noncompliance with discovery orders. As with the other nondispositive decisions of magistrate judges, the standard of review is whether the ruling is clearly erroneous or contrary to law. See Thomas E. Hoar. Inc. v. Sara Lee Corp., 900 F.2d 522, 525 (2d Cir. 1990).

  There is no indication, as defendants suggest, that Magistrate Judge Peck abused his discretion. Nor can his decision to impose sanctions in face of a failure to comply with a discovery order be deemed erroneous or contrary to law. Magistrate Judge Peck spent a considerable amount of time overseeing the discovery process of this litigation. He held numerous conferences and issued several orders. As such, he was in a position to determine whether sanctions were warranted. Certainly, he was in a far better position to make that determination than is this Court. The fact is that defendants missed a deadline and the record indicates that it was not the first deadline missed by them. Magistrate Judge Peck's decision is, therefore, justified. The sanctions stand and the request to set them aside is denied.

  Cross-motions for Summary Judgment

  This Court may grant summary judgment only if the moving party is entitled to judgment as a matter of law because there is no genuine dispute as to any material fact. See Silver v. City Univ. of New York, 947 F.2d 1021, 1022 (2d Cir. 1991); Montana v. First Fed. Sav. & Loan Ass'n, 869 F.2d 100, 103 (2d Cir. 1989); Knight v. U.S. Fire Insur. Co., 804 F.2d 9, 11 (2d Cir. 1986). The role of the Court on such a motion "is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Knight, 804 F.2d at 11; see also First Fed. Sav. & Loan Ass'n, 869 F.2d at 103 (stating that to resolve a summary judgment motion properly, a court must conclude that there are no genuine issues of material fact, and that all inferences must be drawn in favor of the non-moving party).

  The movant bears the initial burden of informing the court of the basis for its motion and identifying those portions of the "pleadings, depositions, answers to interrogatories, and admissions to file, together with affidavits, if any," that show the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If the movant meets this initial burden, the party opposing the motion must then demonstrate that there exists a genuine dispute as to the material facts. See id.; Silver, 947 F.2d at 1022.

  The opposing party may not solely rely on its pleadings, on conclusory factual allegations, or on conjecture as to the facts that discovery might disclose. See Gray v. Darien, 927 F.2d 69, 74 (2d Cir. 1991). Rather, the opposing party must present specific evidence supporting its contention that there is a genuine material issue of fact. See Celotex Corp., 477 U.S. at 324; Twin Lab. Inc. v. Weider Health & Fitness, 900 F.2d 566, 568 (2d Cir. 1990). To show such a "genuine dispute," the opposing party must come forward with enough evidence to allow a reasonable jury to return a verdict in its favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Cinema North Corp. v. Plaza at Latham Assocs., 867 F.2d 135, 138 (2d Cir. 1989). If "the party opposing summary judgment propounds a reasonable conflicting interpretation of a material disputed fact," then summary judgment must be denied. Schering Corp. v. Home Insur. Co., 712 F.2d 4, 9-10 (2d Cir. 1983). The Court will analyze the instant motion in accordance with these principles.

 Plaintiff's' Motion

  The Underwriters' purpose in filing this action is to secure a declaratory judgment from the Court that in spite of the hull and machinery insurance contracts they entered into with the defendants, they are not liable for the $6 million coverage provided for under the policy. The plaintiffs' request for a declaratory judgment rests on its claim that MSM misrepresented the size of its fleet when it was negotiating placement of the policy with the various Underwriters or that it failed to disclose a change in the fleet size prior to the effective date of the policy. This misrepresentation or failure to disclose, the Underwriters argue, should result in a finding by the Court that the policy is void ab initio.

  Issues stemming from marine insurance contracts fall within a district court's federal admiralty jurisdiction. As such, district courts must apply federal admiralty law to an issue if there is a federal rule relevant to the issue at hand. See Thomas v. NASL Corp., 2000 WL 1725011, at * 4 (S.D.N.Y. Nov. 20, 2000). The doctrine of uberrimae fidei, or utmost good faith, is just such a rule.*fn1 This well-established doctrine which dates back at least as far as 1883, see Sun Mut. Ins. Co. v. Ocean Ins. Co., 107 U.S. 485 (1883), stringently requires each of the parties to a marine insurance contract to afford the other the highest level of good faith. With respect to the party seeking insurance, this requirement mandates the disclosure of any and all circumstances known to the party that would materially affect the risk being assumed by the insurer. Puritan Ins. Co. v. Eagle S.S. Co. S.A., 779 F.2d 866, 870 (2d Cir. 1985). Failure to live up to this standard of utmost good faith may result in the contract being voided ab initio. Id.

  A fact is considered to be material if it would have controlled the underwriter's decision with respect to accepting the risk. See W.A. Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 13 (2d Cir. 1986). This standard includes not only the acceptance of the risk itself, but also the decision to do so at a particular premium. N.Y. Marine & Gen. Ins. Co. v. Tradeline (L.L.C.), 266 F.3d 112, 123 (2d Cir. 2001). When evaluating the materiality of a fact, the standard is an objective one: would a reasonable person in the assured's position recognize the fact as material. W.A. Knight, 804 F.2d at 13. In addition, in order to be deemed material, the misrepresented fact must either have been relied upon or somehow misled the insurer. See Puritan Ins. Co., 779 F.2d at 871.

  The Underwriters contend that defendants misrepresented the size of the fleet they were being asked to insure. The insurance policy purchased by MSM and relied on by Endeavour was for coverage of MSM's fleet of ships. At the time the policy was negotiated and placed, MSM's fleet consisted of the SATURN II and a bulk carrier named SILVERTOY. In addition, MSM informed the Underwriters of a strong possibility that a third vessel, the DOO YANG HOPE, would soon be added to the fleet. On May 24, 2002, nearly a month prior to the effective date of the hull and machinery policy, MSM entered into a separate contract to sell the SILVERTOY for scrap. Pursuant to that contract, the SILVERTOY was delivered to a scrap yard in China on or about June 6, 2002. The DOO YANG HOPE was never acquired by MSM.

  Plaintiff's argue that they were not informed prior to the policies effective date that SILVERTOY had been sold and was no longer a part of the fleet. The duty of disclosure extends beyond the date of purchase to cover any material facts learned subsequent to the placement of the policy. See Puritan Ins. Co., 779 F.2d at 870. The sale of the vessel, combined with the failure to acquire the DOO YANG HOPE, rendered MSM's fleet, in maritime parlance, a "singleton" — a fleet consisting of only one vessel. Had they known they were being asked to insure a singleton, the Underwriters now contend they may well have balked at the request or, at the least, demanded a significantly higher premium.*fn2 The failure to disclose the sale of the SILVERTOY and the change in the nature of the fleet, they claim was a breach of the defendants' disclosure duty under the doctrine of utmost good faith and, therefore, a breach justifying voiding the policy ab initio. MSM and Endeavour dispute that any misrepresentation was made or that they failed to disclose a fact they were obligated to disclose. To the extent there was a misrepresentation with respect to the nature of the fleet, the defendants argue it was not of a material fact relied on by the Underwriters. Thus, defendants do not believe the voidance of the hull and machinery policy is justified.

  Defendants argue that the Underwriters would have insured the fleet regardless of whether it was temporarily a singleton. As support for this position they point out that for some of the Underwriters the policy was not a new one, but rather a renewal of an existing one. During the course of the prior contracts the size of MSM's fleet had fluctuated and at times included only one vessel. On those prior occasions, defendants point out, plaintiffs did not object to providing coverage for a singleton. Furthermore, MSM and Endeavour dispute the very characterization of the fleet as a singleton. The defendants claim that the fleet size was always fluctuating and the fact that at that particular moment it consisted of only the SATURN II did not render the fleet a singleton. As such, the fact that the fleet was temporarily only one vessel deep was not a material fact worthy of disclosure.

  In addition, MSM and Endeavour dispute the fact that they did not disclose the sale of the SILVERTOY. The defendants allege that they informed one of the Underwriters on June 13, 2002, prior to the effective date of the policy, that the SILVERTOY had been sold and asked the Underwriters to pass the information on to the other Underwriters. See Christodoulatos Decl. Ex. C. Thus, MSM and Endeavour argue they satisfied their duty of disclosure.

  The unescapable reality is that there are at least a handful of issues of material fact in dispute. Did the defendants disclose the sale of the SILVERTOY? Did the sale of the SILVERTOY render the fleet a singleton? If the fleet was a singleton, was that a material fact? Issues of materiality are typically reserved for the trier of fact. In very rare circumstances, the materiality of a fact is so blatantly obvious that a Court can so rule on its own. See Mut. Benefit Life Ins. Co. v. JMR Elecs. Corp., 848 F.2d 30, 32 (2d Cir. 1988). This, however, is most certainly not one of those instances. As such, summary judgment in favor of the plaintiffs is inappropriate.*fn3

 Defendants' Motion

  Defendants*fn4 maintain that the Underwriters are estopped as a matter of law from disclaiming liability under the policy because they demonstrated bad faith and engaged in unethical tactics in investigating defendants' claim for coverage. According to the defendants, the Underwriters' representatives paid witnesses to change their testimony; conducted ex parte interviews of key employees of the assureds; colluded with adverse parties to develop evidence against the assureds; offered a $40,000 bonus for evidence undermining the assureds' claim for coverage; and manipulated survey reports to delete significant comments relating to whether the SATURN II was a constructive total loss. It is the defendants' contention that plaintiffs' improper conduct has irretrievably tainted the evidence in this case and thereby prevents the Underwriters from denying coverage liability.

  Defendants' objections are primarily with interviews conducted by counsel for the plaintiffs and the investigator employed by the lead underwriter. The interviews were conducted with four crew members of the SATURN II while they were still aboard the grounded vessel. The interviews led to the crew members signing statements that plaintiffs intend to rely upon to demonstrate that the vessel was never seaworthy. According to the defendants, they were not informed that the Underwriters were going to interview their employees. Defendants suggest that as employees of the assured, the employees were represented by the assured's counsel. That counsel was not informed of the interviews. The defendants also allege that the crew members were offered thousands of dollars and guaranteed future salaries in order to persuade them to give and change statements.

  In addition, the defendants contend that plaintiffs' counsel had a duty to represent them in disputes with the cargo receivers. Defendants claim the cargo receivers had interests adverse to theirs and that by aligning with them, counsel for the Underwriters disregarded their obligation to provide a conflict free defense. Defendants further allege the purpose of this alliance with the cargo receivers was to unethically collect evidence to be used against them.

  In support of their claim, the defendants offer the same duty of uberrimae fidei advanced by the plaintiffs in their motion for summary judgment. Defendants argue that the tactics they allege plaintiffs engaged in violated the Underwriters' duty to afford them nothing but the utmost good faith in discharging their obligations under the contract. As discussed, the assureds have a duty of full disclosure with respect to material facts impacting the risk incurred by the insurers. Insurers, likewise, owe a reciprocal duty of good faith to the assureds. The insurer must not construe the policy or act in a manner "so as to render coverage mere gossamer." Contractors Realty Co. v. Ins. Co. of N. Am., 469 F. Supp. 1287, 1294 (S.D.N.Y. 1979). Defendants allege that through their tactics the plaintiffs have violated this reciprocal duty and are, therefore in breach of the contracts.

  In order to advance their estoppel argument defendants attempt to reason by analogy to a handful of other cases in various states. In chief, defendants rely on an Alaska state case, Lloyd's & Inst. of London Underwriting Cos. v. Fulton, 2 P.3d 1199 (Alaska 2000), and a case from the Southern District of New York, K. Bell & Assocs., Inc. v. Lloyd's Underwriters, 827 F. Supp. 985 (S.D.N.Y. 1993). Each of these cases recognize the possibility that an insurer may be estopped from denying coverage if the insurer acts in bad faith. Neither case supports granting summary judgment in this case, however.

  Although both cases support a proposition critical to the defendants' argument, each case is distinguishable from the current situation. The claims and arguments advanced by the assured in Lloyd's v. Fulton are analogous to those offered by the defendants in the present matter. Namely, that the underwriters demonstrated bad faith by conducting ex parte interviews of represented witnesses, acting in a manner that impaired the assured's right to a conflict-free defense and implying that the assured would be covered while secretly seeking evidence to support a denial of coverage. The procedural and factual posture of that case were different, however. In that case by the time the decision relied on by defendants was issued, a trial had been held and the facts established by the trier of fact. As a result, there was no dispute that (1) the witnesses were represented by counsel; (2) the underwriter had a contractual duty to defend; and (3) that the underwriter had failed to issue a letter to the assured reserving its right to contest coverage. Such cannot be said in the context of this motion. The instant Underwriters dispute the fact that the witnesses interviewed were represented by counsel; do not believe they had a contractual duty to defend defendants against the cargo receivers and other adverse interests; and claim to have informed the assureds that they were reserving their right to contest coverage. Moreover, plaintiffs object to many of the characterizations ascribed to their actions and investigative procedures by the defendants. In particular, they object to the notion that they conducted ex parte interviews and paid witnesses to offer or change statements.

  In K. Bell & Assocs., Inc. v. Lloyd's Underwriters, Judge Duffy was confronted with a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The standard of review that controlled that court is significantly different than the one controlling this Court on a summary judgment motion. Judge Duffy found that the plaintiffs pleadings sufficiently raised facts which might support a claim of estoppel. Judge Duffy did not rule, and was not asked to do so, that the insurers were actually estopped from denying coverage. Similar to the situation in K. Bell, the assureds have offered facts and arguments sufficient to raise the possibility that the Underwriters might be estopped from denying coverage. Thus, as in K. Bell, the Court will not prevent the defendants from pursuing a claim of estoppel. But, with so many facts in dispute defendants have not proven that they are entitled to a grant of summary judgment that the Underwriters are estopped from denying coverage.


  For the reasons set forth herein, the defendants' motion to set aside or modify Magistrate Judge Peck's Order of October 21, 2003 is hereby denied. Also denied are both plaintiffs' and defendants' motions for summary judgment. All discovery having been completed and the motions for summary judgment having been denied, a ready for trial date of October 4, 2004 is hereby set.


Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.