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Federal Insurance Company, As Subrogee of Transammonia, Inc., As Charterer v. Bergesen D.Y. Asa Oslo

September 7, 2012

FEDERAL INSURANCE COMPANY, AS SUBROGEE OF TRANSAMMONIA, INC., AS CHARTERER, PETITIONER,
v.
BERGESEN D.Y. ASA OSLO, AS AGENTS OF THE NORWEGIAN FLAG LPG/C "HUGO N" AND ITS OWNER, GENERAL GAS CARRIER CORPORATION, LIMITED, RESPONDENTS.
GENERAL GAS CARRIER CORPORATION, LIMITED, CROSS-PETITIONER,
v.
FEDERAL INSURANCE COMPANY, CROSS-RESPONDENT.



The opinion of the court was delivered by: Paul A. Engelmayer, District Judge:

OPINION & ORDER

Claimant Federal Insurance Company ("Federal"), as subrogee of Transammonia, Inc., filed this petition to confirm an arbitration award pursuant to § 9 of the Federal Arbitration Act, 9 U.S.C. § 9 ("FAA" or the "Act"). Respondent Bergesen d.y. ASA, Oslo ("Bergesen"), as agent for the vessel LPG/C Hugo N and its owner, General Gas Carrier Corp., Ltd. ("GenGas") has opposed that petition and cross-moved to vacate the arbitration award. For the reasons that follow, the petition to confirm the arbitration award is granted, and GenGas's cross-petition to vacate is denied.

I. Background*fn1

The underlying claim relates to a shipment of refrigerated anhydrous ammonia aboard a tanker ship, the Hugo N, from Saudi Arabia to the United States. The shipment was made pursuant to a purchase agreement for the sale of the ammonia from Transammonia, a Delaware corporation, to non-party PCS Sales (USA), Inc. ("PCS"). Pursuant to a June 13, 2003 Charter Party, Transammonia contracted with Bergesen, a Norwegian corporation, as agent for the owner of the Hugo N, to transport the ammonia aboard the Hugo N to Savannah, Georgia, and Geismar, Louisiana ("Charter Party"). Federal, an insurance company registered in New York and incorporated under the laws of Indiana, was Transammonia's primary liability insurer. GenGas, a Panamanian corporation, owned and operated Bergesen.

The Charter Party included a clause providing for arbitration of disputes arising out of the agreement. Paragraph 24 provided:

Any and all differences and disputes of whatsoever nature arising out of this Charter shall be put to arbitration in the City of New York . . . pursuant to the laws relating to arbitration there in force, before a board of three persons, consisting of one arbitrator to be appointed by the Owner [Bergesen], one by the Charterer [Transammonia], and one by the two so chosen. The decision of any two of the three on any point or points shall be final. . . . Until such time as the arbitrators finally close the hearings either party shall have the right by written notice served on the arbitrators and on an officer of the other party to specify further disputes or differences under this Charter for hearing and determination. Awards made in pursuance to this clause may include costs, including a reasonable allowance for attorney's fees, and judgment may be entered upon any award made hereunder in any Court having jurisdiction in the premises.

Pet'r's Br. Ex. D ¶ 24.

In October 2003, following delivery of the ammonia, PCS notified Transammonia that the shipment of ammonia had been contaminated, and had resulted in damage to PCS's equipment. Transammonia thereafter notified its primary liability insurer, Federal, of the alleged loss. On February 11, 2005, Transammonia notified the tanker ship's owner and managing agent, Bergesen, of the alleged contamination. The parties subsequently engaged in limited settlement negotiations.

On July 12, 2005, Transammonia made a demand against Bergesen and GenGas for arbitration under paragraph 24 of the Charter Party. In accordance with the Charter Party, Transammonia designated its party-appointed arbitrator in the demand for arbitration; Bergesen provided its party-appointed arbitrator in the response.

In April 2007, Transammonia and its insurers, including Federal, reached a settlement with PCS. Transammonia's insurers agreed to pay $1.1 million to PCS to settle its claims related to the contaminated ammonia, of which Federal paid $1 million.

In the spring of 2009, Federal revived the arbitration as subrogee of Transammonia, seeking reimbursement, through indemnification, of its $1 million payment to PCS. Federal and Bergesen then appointed the third arbitrator in accordance with paragraph 24 of the Charter Party.

In its submissions to the arbitral panel, Federal alleged that GenGas had breached its contract with Transammonia when it delivered two contaminated cargos of ammonia on the Hugo N, which severely damaged PCS's physical plant. In its submissions to the arbitral panel, it urged the arbitrators to focus on evidence that Transammonia (and, as subrogee, Federal) was entitled to indemnification from GenGas for the $1 million settlement payment paid by Transammonia to settle PCS's claim. See Award at 33. GenGas argued that, in fact, PCS was unable to point to sufficient evidence showing that the ammonia transported on the Hugo N was the cause of the alleged damages to its plant. See id. at 34. It asserted that Federal failed to produce evidence showing that anything about the Hugo N had given rise to the presence of contaminants, that the Hugo N had actually delivered contaminated ammonia, that the delivered ammonia contained substances not usually found in industrial grade ammonia, or that the substances found in the ammonia were in amounts different than are regularly found in such ammonia. GenGas also argued that, as a matter of law, Federal's claim was precluded on the ground that Federal was not a lawful subrogee of Transammonia and thus not entitled to indemnification by GenGas.

On October 24 and 25, 2011, after full briefing of the issues in dispute, the parties appeared before the panel for an arbitration hearing.

On April 11, 2012, the panel majority issued its final award. In a 59-page opinion, it ruled that Transammonia is entitled to recover from GenGas $1 million, plus interest at a rate of 4.2807%, on its claim for the breach of the Charter Party. The decision in support of the award reflected the position of two of the three arbitrators; the third arbitrator dissented from the judgment, and issued a dissenting opinion. The arbitrators calculated the final award to ...


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