UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
November 7, 2006
NORTH AMERICAN FOREIGN TRADING CORP., PLAINTIFF,
MITSUI SUMITOMO INSURANCE USA, INC., F/K/A MITSUI MARINE AND FIRE INSURANCE COMPANY OF AMERICA AND MSI CLAIMS (USA), INC., DEFENDANTS.
NORTH AMERICAN FOREIGN TRADING CORP., PLAINTIFF,
MITSUI SUMITOMO INSURANCE USA, INC., F/K/A MITSUI MARINE AND FIRE INSURANCE COMPANY OF AMERICA AND MSI CLAIMS (USA), INC., DEFENDANTS.
The opinion of the court was delivered by: Shirr A. Scheindlin, U.S.D.J.
OPINION AND ORDER
North American Foreign Trading Corp. ("NAFT") brings this action against Mitsui Sumitomo Insurance USA, Inc., formerly known as Mitsui Marine and Fire Insurance Company of America, and MSI Claims (USA), Inc. (collectively, "Mitsui") for breach of a marine insurance policy issued by Mitsui to NAFT. Mitsui now moves for summary judgment arguing that NAFT's claim is time-barred under the policy. For the following reasons, Mitsui's motion for summary judgment is denied.*fn1
NAFT is an importer of consumer electronic goods manufactured in Asia. Mitsui issued a marine insurance policy to NAFT covering shipments from Asia, effective March 1, 2001 (the "Policy").*fn2 The parties entered into an endorsement extending coverage under the Policy to goods temporarily stored in certain warehouses (the "Warehouse Endorsement"), including a facility owned by Lionda Technology Co., Ltd. ("Lionda") in Baoan, Shenzhen, China (the "Lionda Warehouse").*fn3
Between 2001 and 2004, NAFT purchased newly manufactured cordless telephones from Lionda in China, and returned certain of those telephones, known as "customer returned units" or "CRUs", to Lionda for refurbishment at the Lionda Warehouse.*fn4 In early 2004, NAFT determined that many of its CRUs that had been shipped to Lionda were never returned to NAFT.*fn5 NAFT ultimately determined that approximately 297,778 CRUs valued at $7,245,345 had been shipped to the Lionda Warehouse but were never returned to NAFT.*fn6 On March 8, 2005, NAFT wrote to Lionda claiming that Lionda was attempting to misappropriate NAFT's goods and that Lionda was violating its contractual obligations with NAFT by holding and not returning NAFT's CRUs.*fn7 On April 20, 2004, Lionda informed NAFT that all of NAFT's CRUs were secured in the Lionda Warehouse.*fn8 On the same day, Lionda e-mailed photographs to NAFT that purported to show NAFT's merchandise inside Lionda's facility.*fn9
On April 30, 2004, due to a separate dispute between Lionda and its creditors, the Shenzhen Intermediate People's Court, Guangdong Province, sealed the Lionda Warehouse.*fn10 On May 10, 2004, NAFT filed a Demand for Arbitration for "[b]reach of contract" against Lionda because of Lionda's "failure to repair or replace customer returned units."*fn11 Around this time, NAFT hired counsel in China, Anderson & Anderson LLP, to investigate whether NAFT's CRUs were still located in the Lionda Warehouse.*fn12 In June 2004, Anderson & Anderson initially suspected that NAFT's CRUs were stolen because Anderson & Anderson investigators observed a "gaping hole" in the wall of the Lionda Warehouse.*fn13 However, Anderson & Anderson did not confirm that NAFT's CRUs were actually removed from the Lionda Warehouse until July 26, 2004*fn14 At that time, one of Anderson & Anderson's employees, Wei Zhijun, learned that Lionda was repairing and selling NAFT's CRUs at its Wan Cheng Warehouse in the Futian Customs Zone ("Wan Cheng Warehouse"), which was not covered by the Policy.*fn15 Zhijun "estimated that there were several hundred thousand boxes . . . containing NAFT's CRUs" at the Wan Cheng Warehouse.*fn16 Anderson & Anderson was unable to gain access to the Lionda Warehouse until shortly after it was unsealed in December 2004.*fn17 On December 31, 2004, Zhijun visited the Lionda Warehouse and reported that "[t]here were no NAFT's [sic] CRUs in the warehouse that [she] could see."*fn18
On June 25, 2004, NAFT advised its insurance broker, Roanoke Trade Services, Inc. ("Roanoke"), of Anderson & Anderson's findings as of that time and requested that Roanoke notify Mitsui about NAFT's problem regarding the CRUs.*fn19 NAFT further stated that "it appears that there are large gaps in the inventory that should have been held in the Lionda warehouse."*fn20 On June 29, Roanoke forwarded NAFT's correspondence to Mitsui.*fn21
Mitsui retained forensic accountants, Meaden & Moore, LLP to investigate NAFT's claim.*fn22 Between June 2004 and May 2005, Meaden & Moore met with NAFT's Chief Financial Officer on several occasions, reviewed documentation regarding NAFT's shipments to Lionda and supporting letters of credit, and visited NAFT's office to discuss questions and concerns.*fn23
In response to an inquiry from NAFT regarding the status of the claim, Marvin Margolies, a Vice President and Marine Claims Manager for Mitsui, wrote in November 2004 that "due to the nature of this claim, the amount involved and the status of Meaden & Moore's review," Mistusi was "currently not in a position to respond affirmatively to your request."*fn24 Margolies informed NAFT that Mitsui would respond "[a]s soon as [it was] in a position to . . . do so."*fn25 On April 29, 2005, Meaden & Moore sent a draft of its report to Margolies, which stated that Meaden & Moore had "found no material difference between the $7,245,345 claimed as goods returned to Lionda for repair and never received and the documentation supporting the actual shipment to Lionda as well as the valuation of these goods at cost."*fn26 Margolies forwarded the report to Mitsui's counsel so that Mitsui's counsel could render a coverage opinion.*fn27
On May 24, 2005, Mitsui's counsel provided its opinion to Mitsui that the Policy did not provide coverage for NAFT's claim and attached a draft declination letter addressed to NAFT for Mitsui's review.*fn28 On May 25, 2005, in response to a telephone message inquiring about the status of NAFT's claim, Margolies sent an e-mail to NAFT's broker stating that Margolies had "requested and [was] awaiting Meaden & Moore's report, and [would] update [him] hopefully next week."*fn29 On the same day, Meaden & Moore forwarded its final report to Mitsui's counsel, which stated the same conclusion as that in Meaden & Moore's April 29 report.*fn30 NAFT did not review Meaden & Moore's report at that time.*fn31 On May 26, 2005, Margolies forwarded the opinion of Mitsui's counsel and the proposed declination letter to his superior "requesting authority to issue the letter of declination."*fn32
Under the Policy, Mitsui was required to make payment to NAFT "within thirty (30) days after proof of loss, proof of interest and adjustment."*fn33 In a letter dated June 16, 2005, Mitsui denied coverage for NAFT's claim, stating that the "loss was not due to any insured peril" and quoting paragraphs 1, 7(a), 7(b), and 13 of the Warehouse Endorsement, and paragraph 25 of the Policy, pertaining to the scope of coverage for goods on shore.*fn34
NAFT filed this action on June 23, 2005. Mitsui claims that the action is time-barred because the Policy provides for a one-year limitations period from the date of loss in which to file suit. NAFT argues that Mitsui has not carried its burden of proving NAFT's loss occurred before June 23, 2004, or alternatively that Mitsui should be equitably estopped from asserting a limitations defense because Mitsui lulled NAFT into withholding suit.
III. LEGAL STANDARD
A. Summary Judgment
Summary judgment is appropriate if the record "show[s] that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."*fn35 "An issue of fact is genuine 'if the evidence is such that a jury could return a verdict for the nonmoving party. "'*fn36 A fact is material when "it 'might affect the outcome of the suit under the governing law."'*fn37 The movant has the burden of demonstrating that no genuine issue of material fact exists.*fn38
In turn, to defeat a motion for summary judgment, the non-moving party must raise a genuine issue of material fact. To do so, it must do more than show that there is a "'metaphysical doubt as to the material facts,'"*fn39 and it "'may not rely on conclusory allegations or unsubstantiated speculation."*fn40 In determining whether a genuine issue of material fact exists, the court must construe the evidence in the light most favorable to the non-moving party and draw all justifiable inferences in that party's favor.*fn41
B. Time Bar
Under New York law, parties to a contract may designate a reasonable period of limitations within which a claim arising out of the contract is to be commenced, even if that period is shorter than the statutory period.*fn42 New York courts have held that a one-year time limitation to bring suit for breach of an insurance contract is reasonable and enforceable.*fn43 The defendant has the initial burden of establishing that the limitations period in the policy expired prior to the commencement of the action.*fn44
Once the defendant has met its burden, the plaintiff has the burden "to aver evidentiary facts establishing that the case at hand falls within an exception to the limitations period," such as waiver or estoppel.*fn45 In order to establish waiver, "plaintiff must present evidence from which the defendant's intent to relinquish the protection of the contractual limitations period can be reasonably inferred."*fn46 Waiver "should not be lightly presumed.*fn47 To establish estoppel, "plaintiff must offer evidence that it was misled or lulled by the defendant into failing to bring its claim in a timely manner.*fn48 Such conduct must occur within the limitations period.*fn49
"In contrast to when an insured is 'promised repeatedly by agents for the insurer that the loss would be adjusted without litigation,' steps taken by an insurer to investigate a claim do not constitute waiver or estoppel."*fn50 Failure to "respond to inquiries posed by plaintiff's counsel regarding the status of the investigation" does not "suggest that defendant misrepresented the status of the investigation or otherwise lulled plaintiff into inaction."*fn51 An insurer has no duty to advise an insured of the limitations period.*fn52 "Evidence of communications or settlement negotiations between an insured and its insurer either before or after expiration of a limitations period contained in a policy is not, without more, sufficient to prove waiver or estoppel."*fn53
Mitsui argues that NAFT's claim is barred by paragraph 49 of the Policy, which provides that "[n]o suit, action or proceeding against this Company for the recovery of any claim shall be sustainable unless commenced within one year from the date of the happening of the accident out of which the claim arises."*fn54 NAFT argues that the loss of the CRUs occurred less than one year prior to the commencement of this suit, or alternatively, that Mitsui lulled NAFT into failing to file suit with its year-long investigation.*fn55 Mitsui has not carried its burden of demonstrating that the loss of the CRUs occurred over a year before NAFT filed suit.
First, Mitsui argues that because the Lionda Warehouse was sealed on April 30, 2004 and did not contain any of NAFT's CRUs when it was unsealed in December 2004, NAFT's CRUs must have been removed from the Lionda Warehouse before it was sealed.*fn56 Mitsui's argument relies on the assumption that the seal on the Lionda Warehouse remained airtight until December 2004. On June 23, 2004, Anderson & Anderson reported that there was a "gaping hole" in the wall of the Lionda Warehouse.*fn57 Even if the hole in the Lionda Warehouse wall existed prior to June 23, 2004, Mitsui has not submitted evidence that proves NAFT's CRUs were removed from the warehouse prior to that date. The earliest date that Mitsui has shown NAFT's CRUs appeared outside of the Lionda Warehouse was on July 26, 2004, when Zhijun reported that NAFT's CRUs were housed at Lionda's Wan Cheng Warehouse.*fn58 Interpreting this evidence in the light most favorable to NAFT, this evidence does not prove NAFT's loss occurred prior to June 23, 2004, it only shows that NAFT's loss occurred prior to July 26, 2004, which is within the limitations period.
Second, Mitsui argues that NAFT's CRUs must have been removed from the Lionda Warehouse prior to June 23, 2004 because prior to that date, NAFT alleged to Chinese authorities that NAFT's CRUs were removed from the Lionda Warehouse and Anderson & Anderson speculated that NAFT's CRUs were missingi For example, NAFT signed a letter addressed to the Baoan Public Security Bureau on May 17, 2004 (the "May 17 Letter") alleging that "before the warehouses were sealed," Lionda stole NAFT's merchandise and moved it "to another public warehouse."*fn59 Mitsui cites an Anderson & Anderson report as evidence that the May 17 Letter was submitted to the Economic Crime Investigation Brigade of the Baoan District Public Security Bureau on May 19, 2004.*fn60 NAFT argues that the May 17 Letter was only a draft exchanged between NAFT and Anderson & Anderson, that there is no evidence the letter was submitted to the Chinese authorities, and that the Anderson & Anderson Report describes a different letter from NAFT to the Baoan Public Security Bureau "requesting the prevention of [Lionda] from stealing NAFT's property."*fn61 In addition, the Anderson & Anderson Report states that on May 18, 2004, Anderson & Anderson investigators learned from the Shenzhen Intermediate People's Court that the "Lionda Company was sealed and closed down at the request of its major creditors" and recommended that NAFT "need[ed] to apply to preserve [its] goods" so the CRUs would not "be detained by the court when the case is over."*fn62 The Anderson & Anderson Report further states that on May 19, 2004, Anderson & Anderson investigators entered the Lionda premises and confirmed with Lionda personnel that the warehouse that had been sealed and closed down was "the one where NAFT merchandise was placed."*fn63
On these facts, it is unclear what allegation NAFT actually made to the Chinese authorities. The Anderson & Anderson Report suggests that at the time the report was written, Anderson & Anderson investigators believed the CRUs were sealed inside the Lionda Warehouse, which would explain why NAFT's May 19 letter to the Chinese authorities referenced in the Anderson & Anderson Report was concerned with preventing the theft of the CRUs. However, even if NAFT did in fact allege that the CRUs were removed by Lionda before the Lionda Warehouse was sealed, it is only an allegation it is not proof of loss.*fn64 Mitsui's only evidence that the CRUs were removed from the Lionda Warehouse prior to when it was sealed was that the Lionda Warehouse did not contain the CRUs when it was unsealed, which as discussed above, is not sufficient to grant Mitsui's motion. NAFT's allegation to the Chinese authorities, without more, is also not sufficient to grant Mitsui's motion. "[T]he year-for-suit clause is triggered by the date of the loss," not when NAFT became suspicious that a loss occurred.*fn65
Mitsui also cites Anderson & Anderson's June 17 report to NAFT as evidence that NAFT's CRUs were removed from the Lionda Warehouse prior to June 23, 2004.*fn66 The report stated that Anderson & Anderson had "been informed by others [that] large quantities of NAFT's CRUs have been removed from [the Lionda] warehouse and are missing."*fn67 Anderson & Anderson's statement only describes second-hand information supplied by unidentified witnesses and does not prove that the CRUs were removed from the Lionda Warehouse prior to June 23, 2004. In any event, even if Anderson & Anderson's statement proves NAFT's loss occurred prior to June 23, 2004, the statement does not prove that NAFT's loss occurred prior to May 25, 2004. As discussed below, Mitsui is estopped as a matter of law from asserting a limitations defense if the trier of fact determines that NAFT's loss occurred after May 25, 2004.*fn68
Finally, Mitsui argues that because NAFT filed a demand for arbitration on May 10, 2004 against Lionda, the loss of the CRUs must have occurred prior to that date.*fn69 However, NAFT commenced an arbitration for "[b]reach of contract" against Lionda because of Lionda's "failure to repair or replace customer returned units."*fn70 NAFT's arbitration demand does not assert or provide any evidence that the CRUs were removed from the Lionda Warehouse. In fact, during the arbitration proceedings that took place after June 23, 2004, NAFT claimed that Lionda still possessed the CRUs.*fn71 NAFT's arbitration demand only demonstrates that NAFT sought relief in arbitration because Lionda had not returned NAFT's CRUs.
Mitsui only has established that NAFT's loss occurred at some point prior to July 26, 2004. Because Mitsui has failed to carry its burden of proving that the loss must have occurred prior to June 23, 2004, Mitsui's summary judgment motion based on time-bar is denied. Of course, the trier of fact may very well conclude based on a review of all the evidence that NAFT's claim is indeed time-barred.
B. Waiver and Estoppel
Depending on when the trier of fact determines NAFT's loss occurred, Mitsui may be estopped as a matter of law from asserting a limitations defense at trial. Although NAFT failed to preserve its rights under the Policy by entering into a standstill agreement or by filing an action prior to June 23, 2005, Mitsui misrepresented to NAFT the status of NAFT's claim on May 25, 2005, which lulled NAFT into delaying the filing of its suit. Therefore, if the trier of fact determines NAFT's loss occurred after May 25, 2004, Mitsui is estopped from asserting a limitations defense.
On May 25, 2005, in response to an inquiry from NAFT's broker regarding the status of its claim, Margolies stated that he "requested and [is] presently awaiting Meaden & Moore's report, and will update [NAFT] hopefully next week."*fn72 NAFT has shown that Margolies's statement was a misrepresentation of fact. Not only had Margolies already received a draft report from Meaden & Moore dated April 29, 2005, but he forwarded that report to Mitsui's counsel so that Mitsui's counsel could render a coverage opinion regarding NAFT's claim.*fn73 In addition, on May 24, 2005, one day prior to Margolies's statement to NAFT, Mitsui's counsel rendered its opinion to Margolies that Mitsui should deny coverage for NAFT's claim and proposed a draft declination letter that Mitsui could use for denying coverage.*fn74 On May 26, one day after the inquiry from NAFT's broker, Margolies forwarded the May 24 letter from Mitsui's counsel, together with the proposed declination letter to his superior and requested the authority to deny NAFT's claim.*fn75 In fact, Margolies knew on May 24 that he would request such authority because he testified that he "certainly would not have made a recommendation to [his superior] and senior management which was contrary to coverage counsel's legal opinion."*fn76 Therefore, Margolies's statement to NAFT on May 25, 2005 was misleading at best and very possibly false. At the very least, Margolies should have informed NAFT that although Mitsui had not yet reached a final decision, he was requesting authority to deny NAFT's claim and in all likelihood, Mitsui would deny NAFT's claim.
Mitsui argues that "the final Meaden & Moore report of May 25, 2005 was addressed to counsel and would not have been received by counsel until after May 25, 2005 and Mr. Margolies after that. As such Mr. Margolies' e-mail to NAFT's broker was entirely truthful."*fn77 Mitsui's argument is disingenuous. Not only was the Meaden & Moore April 29 Report addressed to Margolies, but on May 25, Margolies had already received the May 24 letter from Mitsui's counsel recommending that Mitsui deny coverage. It is unclear why Meaden & Moore did not send its final report to Mitsui's counsel until May 25, 2005, but it is also irrelevant to Mitsui's argument. NAFT has shown that Margolies's statement to NAFT's broker on May 25, 2005 regarding the status of NAFT's claim was misleading if not false. Thus, if the trier of fact determines that NAFT's loss occurred after May 25, 2004, Mitsui is estopped as a matter of law from asserting a limitations defense at trial.*fn78
For the foregoing reasons, Mitsui's motion for summary judgment is denied. The Clerk of the Court is directed to close this motion [#37 on the Docket]. A conference is scheduled for November 22, 2006 at 4:30 p.m.