Intern. Multifoods Corp. v. Commercial Union Ins.

Decision Date17 October 2002
Docket NumberDocket No. 01-9285.
PartiesINTERNATIONAL MULTIFOODS CORPORATION, Plaintiff-Appellee, and Indemnity Insurance Company of North America, Defendant-Cross-Defendant-Cross-Claimant-Appellee, v. COMMERCIAL UNION INSURANCE Co., Defendant-Cross-Claimant-Cross-Defendant-Appellant, and Ascop Corporation, m/v Ozark, her engines, boilers, tackle, etc., in rem, Eratira Navigation Co., Ltd., Eastwind Transport Ltd, Van Weelde Chartering B.V., Riomar Agencies, Inc., Roks, LLC, and Astep Corporation, Third-Party-Defendants.
CourtU.S. Court of Appeals — Second Circuit

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George R. Daly, Joseph A. Yamali, Bigham, Englar, Jones & Houston, New York NY, for Defendant-Cross-Claimant-Cross-Defendant-Appellant Commercial Union Insurance Co.

Paul D. Friedland, White & Case LLP, New York, NY, for Plaintiff-Appellee International Multifoods Corp.

Anthony J. Pruzinsky, Hill Rivkins & Hayden LLP, New York, NY, for Defendant-Cross-Defendant-Cross-Claimant-Appellee Indemnity Insurance Co. of North America.

Before: CARDAMONE, STRAUB, and KATZMANN, Circuit Judges.

KATZMANN, Circuit Judge.

This diversity action, governed by New York law, arises out of the seizure by Russian governmental authorities of a shipment of frozen food sent by plaintiff International Multifoods Corporation ("Multifoods") to Russia. It raises several issues of contract interpretation with respect to two insurance policies that protected Multifoods against risks associated with the shipment. The District Court granted summary judgment in Multifoods' favor on Multifoods' claim for indemnification against defendant Commercial Union Insurance Company ("CU"), and awarded damages in the amount of $6,662,557.43 plus applicable interest. It granted summary judgment to defendant Indemnity Insurance Company of North America ("IINA") on Multifoods' claim, and CU's cross-claim, seeking indemnification from IINA. For the reasons that follow, we affirm in part and vacate in part the grant of summary judgment to Multifoods, and remand for further proceedings. We affirm the District Court's grant of summary judgment to IINA.

Facts and Procedural Background

In September, 1997, Multifoods shipped a cargo of frozen chicken and meat products from Pascagoula, Mississippi to St. Petersburg, Russia aboard the M/V Ozark (the "Ozark"), pursuant to a $6,522,672.60 contract with ASCOP Corporation ("ASCOP"). The Ozark arrived in St. Petersburg on September 14, 1997. On September 24, 1997 and September 27, 1997, pursuant to an order of the Ministry of Internal Affairs of the Russian Federation, the Ozark and all tangible assets on board were arrested incident to a criminal investigation involving a different shipper. At some point thereafter, the local Russian authorities, over Multifoods' objection, discharged and appropriated Multifoods' cargo from the Ozark. Despite substantial efforts, including oral and written appeals to the Russian government, Multifoods was never able to recover the cargo or any part of its value, nor was it able to ascertain precisely what had happened to the cargo.

This litigation primarily centers on whether Multifoods can recover the value of its cargo under an "all-risks" insurance policy (the "CU Policy") procured by ASCOP from CU and certified by CU to Multifoods. The District Court's opinion offers a thorough and detailed canvass of the CU Policy's terms, see International Multifoods Corp. v. Commercial Union Ins. Co., 178 F.Supp.2d 346, 348-50 (S.D.N.Y.2001), and we therefore pause here only to note two provisions of the CU Policy that are essential to the determination of this case, both of which appear in a model boilerplate insurance form — the London Institute Frozen Meat Clauses (A)-24 Hours Breakdown Cl. 324 (1.1.86) (the "London Form") — that was incorporated into (and attached to the back of) the CU Policy.

First, Clause 6 (the "War Exclusion Clause") of the London Form, the meaning of which is central to this litigation, provides as follows:

6. In no case shall this insurance cover loss damage or expense caused by

6.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power

6.2 capture seizure arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat

6.3 derelict mines torpedoes bombs or other derelict weapons of war.

To the right of Clause 6.1 appears bold language identifying Clause 6 as the "War Exclusion Clause." Second, a "Special Note" at the end of the London Form states that "[t]his insurance does not cover loss damage or expense caused by ... rejection prohibition or detention by the government of the country of import." As we discuss in greater detail below, CU relies upon the War Exclusion Clause and the Special Note to argue that Multifoods' loss is excluded from coverage under the CU Policy.

On March 25, 1998, Multifoods made a claim under the CU Policy for the loss of its cargo. On April 28, 1998, CU disclaimed coverage, asserting inter alia that the "coverage terminate[d] upon the discharge of the goods from the overseas vessel" and that the seizure and disposal of the goods by the Russian authorities was in any event excluded from coverage by the War Exclusion Clause.

Multifoods then filed this action in the United States District Court for the Southern District of New York (Alvin K. Hellerstein, Judge) to recover the value of its loss from CU. In an oral decision rendered on December 2, 1999, and confirmed by a December 28, 1999 order, the District Court granted partial summary judgment to Multifoods on the War Exclusion Clause issue, holding that the War Exclusion Clause applied only to losses that were incurred in connection with an actual war, and did not exclude coverage for governmental seizures during peacetime. The District Court set forth its reasoning in a June 1, 2000 reported opinion denying CU's motion for reconsideration, International Multifoods Corp. v. Commercial Union Ins. Co., 98 F.Supp.2d 498, 500-06 (S.D.N.Y.2000).

Multifoods subsequently filed for summary judgment, arguing that CU had no defense other than the War Exclusion Clause. CU responded by arguing that Multifoods had not as a prima facie matter established that it incurred a "loss" within the meaning of the CU Policy because Multifoods could not prove what had happened to the cargo. In a November 1, 2000 decision rendered orally and confirmed by a written order, the District Court tentatively denied Multifoods' motion for summary judgment, holding that Multifoods had not yet demonstrated as a prima facie matter that it had incurred a "loss" covered by the CU Policy. The District Court ordered additional discovery relating to the circumstances surrounding the seizure of the cargo.

Following additional discovery, the parties were unable to determine what had happened to the cargo after its seizure by the Russian authorities, although it became clear that Multifoods had exerted substantial effort in attempting to recover the cargo. At this point, Multifoods again moved for summary judgment. CU argued that material issues of fact about the events in Russia precluded summary judgment. It also at this juncture asserted that the Special Note excluded coverage for Multifoods' loss. In an October 22, 2001 reported opinion, International Multifoods, 178 F. Supp.2d at 348-51, the District Court held that the facts adduced at discovery demonstrated that Multifoods had incurred a compensable loss under the CU Policy and that CU had no defense to Multifoods' claim. It rejected CU's "Special Note" argument, holding that only clauses 4-7 of the London Form were incorporated into the CU Policy as exclusions. International Multifoods, 178 F.Supp.2d at 349-50, 353-55. Accordingly, it granted summary judgment to Multifoods, and awarded full damages under the CU Policy of $6,662,557.43 plus appropriate interest.1

An additional insurance policy is involved in this litigation. Defendant Indemnity Insurance Company of North America ("IINA") had issued a policy (the "IINA Policy") directly to Multifoods covering, among other things, the Ozark shipment. In the District Court, Multifoods named IINA as a defendant, and CU asserted a cross-claim against IINA arguing that if both CU and IINA were liable for indemnification under their respective policies, IINA should be required to indemnify Multifoods. As a defense to the claims of Multifoods and CU, IINA asserted that the free-of-capture-or-seizure clause (the "FC & S clause") of the IINA Policy barred any recovery. That clause provides that "[n]otwithstanding anything herein contained to the contrary this insurance is warranted free from ... capture, seizure, arrest, restraint ... and the consequences thereof ... (whether in time of peace or war and whether lawful or otherwise") (emphasis added). As we discuss more fully below, Multifoods and CU contended in the District Court that while the FC & S clause would by its terms appear to exclude coverage, it was rendered inapplicable to these facts by other provisions of the IINA Policy. The District Court, however, rejected this argument. In an orally rendered decision confirmed by an order, the District Court granted summary judgment to IINA on this issue, holding that the FC & S clause excluded from coverage the seizure of Multifoods' cargo and dismissing all claims against IINA.

On appeal, CU argues that (i) the District Court erred in holding that Multifoods had as a prima facie matter demonstrated that it had incurred a covered "loss" under the CU Policy; (ii) even if Multifoods incurred a covered loss, the District Court erred in holding that neither the War Exclusion Clause nor the Special Note excluded the loss from coverage; and (iii) the District Court erred in granting summary judgment to IINA. Multifoods does not...

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