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AMERICAN HOME ASSURANCE COMPANY v. MERCK & CO. INC.

August 5, 2004.

AMERICAN HOME ASSURANCE COMPANY, Plaintiff,
v.
MERCK & CO. INC., Defendant.



The opinion of the court was delivered by: VICTOR MARRERO, District Judge

DECISION AND ORDER

Plaintiff American Home Assurance Company ("American Home"), a commercial insurance provider, brings this action for declaratory judgment against Merck & Co. Inc. ("Merck"), a manufacturer and distributor of pharmaceutical products. The dispute revolves around American Home's refusal to indemnify selected Merck product losses under a transit insurance policy (the "Policy") that American Home issued to Merck in 2000. In the underlying action, American Home seeks a declaratory judgment that it is entitled to deny the subject claims in whole or in part, while Merck counterclaims for breach of contract, negligence, fraud*fn1 and breach of fiduciary duty, and other common law and statutory claims. The parties' respective motions endeavor to identify the appropriate jurisdictional grounds and controlling law governing their dispute. Merck urges dismissal or partial summary judgment on the issue of admiralty jurisdiction, and American Home requests partial summary judgment on the issue of choice of law. For the reasons discussed below, Merck's motion for partial summary judgment is granted and American Home's motion is denied. Accordingly, the Court will consider this case under diversity jurisdiction and apply Pennsylvania law.

I. FACTS AND PROCEEDINGS

  A. THE UNDERLYING DISPUTE

  Early in 2000, Merck's insurance broker, Aon Risk Services of Pennsylvania, Inc. ("Aon"), contacted American Home's New York office to discuss coverage for the risk of loss associated with product transportation. Following this initial contact, Aon and American International Marine Agency of New York, Inc. ("AIMA"),*fn2 American Home's agent, began to negotiate the terms of a universal transit policy. Aon and AIMA used a manuscript Aon policy form as their first draft, and met regularly in New York throughout 2000 to revise specific terms and premiums. The drafting discussions were held in New York to accommodate the physical locations of both American Home and AIMA. A local Aon representative, Robert DeMotta, attended the negotiations in person and reported their developments to Joan O'Brien, Merck's primary contact, who was based in Aon's Philadelphia office.

  On or about December 15, 2000, American Home executed the Policy from its New York office. The Policy's coverage was retroactively effective for a three-year term beginning July 1, 2000 and continuing through July 1, 2003. Among other things, the Policy covered any losses involving the domestic or international shipment of goods by land, air or sea. The Policy's signature block stated that it was "issued in Philadelphia," and the document incorporated Pennsylvania's Statute of Limitations as its guideline for timely suit.

  Following its execution, the original Policy was first sent to Aon's Philadelphia office and then forwarded to Merck's New Jersey headquarters. From then on, the Aon Philadelphia office managed Merck's premium payments (Aon forwarded payments to New York at the conclusion of its own Merck billing cycle), while the bulk of Merck's claims and adjustments were processed by a third-party adjuster (AI Marine) in New York.

  Between July 2000 and March 2003, Merck submitted several claims for payment under the Policy. During that period, American Home rejected payment of 35 of these claims. American Home informed Merck, and this Court in connection with this litigation, that these refusals were prompted directly by Merck's failure to provide accurate proof of the damage involved and to accurately segregate damaged product from salvageable material, as required by the Policy. The total value of these 35*fn3 contested claims is approximately $18 million.

  Following its decision not to reimburse the contested losses, American Home filed the complaint in the instant action requesting a declaratory judgment confirming its right to withhold payment. Merck responded with sixteen counterclaims, alleging breach of contract, negligence, fraud and breach of fiduciary duty, bad faith conduct and violation of the New York Consumer Protection From Deceptive Acts and Practices Act. Merck seeks a declaratory judgment obligating American Home to pay for the remaining, outstanding product losses.

  B. THE INSTANT MOTIONS

  Pursuant to Fed.R.Civ.P. 9(h), American Home identified its suit as an admiralty action properly before this Court under 28 U.S.C. § 1333. Merck has filed a motion contesting American Home's statement of jurisdiction. Merck contends that the Policy is not a maritime contract, and that Merck's coverage under the Policy is completely attenuated from the business of maritime commerce. Merck now moves the Court to dismiss American Home's complaint for lack of admiralty jurisdiction, or alternatively to grant partial summary judgment on the issue of admiralty jurisdiction alone. Notwithstanding this motion, Merck concedes that the case may properly be brought before the Court under diversity jurisdiction: American Home is a New York corporation with its principal place of business in New York and Merck is a New Jersey corporation with its principal place of business in New Jersey.

  Ultimately, the source of the Court's jurisdiction over this case will control the parties' right to a jury, should the matter proceed to trial. In short, admiralty cases are customarily tried to the Court without a jury, see Fed.R.Civ.P. 38(e), Fitzgerald v. U.S. Lines Co., 374 U.S. 16, 20 (1963), while in a diversity action the parties are entitled to a jury trial should they so demand

  In a separate motion, American Home seeks partial summary judgment on the issue of choice of law. American Home contends that, given the Policy's substantial contacts with the State of New York, New York State law must govern the Policy, regardless of whether the interpreting court sits in admiralty or diversity jurisdiction. Merck counters that the Policy's language dictates that Pennsylvania law applies to any claims arising under it. In addition, Merck argues that the Policy was signed and executed by sophisticated ...


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