632 F.2d 424 (5th Cir. 1980), 78-2163, Morrison Grain Co., Inc. v. Utica Mut. Ins. Co.

Docket Nº:78-2163.
Citation:632 F.2d 424
Party Name:MORRISON GRAIN COMPANY, INC., a corporation, Plaintiff-Appellee, v. UTICA MUTUAL INSURANCE COMPANY, a corporation, Defendant-Appellant.
Case Date:December 08, 1980
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 424

632 F.2d 424 (5th Cir. 1980)

MORRISON GRAIN COMPANY, INC., a corporation, Plaintiff-Appellee,

v.

UTICA MUTUAL INSURANCE COMPANY, a corporation, Defendant-Appellant.

No. 78-2163.

United States Court of Appeals, Fifth Circuit

December 8, 1980

Page 425

[Copyrighted Material Omitted]

Page 426

Jack C. Rinard, Tampa, Fla., Bigham, Englar, Jones & Houston, Joseph J. Magrath, III, New York City, for defendant-appellant.

David G. Hanlon, Tampa, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before TUTTLE, BROWN and TATE, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

This lawsuit arose out of an insurance company's refusal to pay an insurance claim

Page 427

for loss of and damage to a cargo of bagged urea being shipped from Romania to Mississippi. Although the subject matter of this action would undoubtedly not be considered too glamorous by most laymen, the matter is of obvious consequence to the parties involved and raises significant legal questions as well. The principal legal question involved in this case concerns the respective burdens of proof under a marine insurance policy insuring against "all risks of physical loss or damage to property from any external cause." Utica Mutual Insurance Co., Insurer, contends that the District Court, 446 F.Supp. 415, improperly allocated the burden of proof with respect to the insurance claim and then confounded matters further by making an erroneous fact finding under the improper legal standard. Insurer further contends that the District Court made multiple errors in its damages award to the Insured, Morrison Grain Company (Morrison). Finally, Insurer argues that the Court improperly granted attorneys' fees to Morrison. Because we find that the Court properly allocated the burden of proof, the fact findings of the Court were not clearly erroneous, the attorneys' fees award to Morrison was proper, but that certain of Insurer's contentions with respect to damages have merit, we affirm in part and remand in part.

Urea and Water Do Mix

Our saga begins on October 26, 1973 when Kearney Chemicals, Inc. (Kearney), a Delaware corporation with its corporate headquarters in Florida, contracted to sell a quantity of bagged urea to Morrison, a Kansas corporation with its principal place of business in Kansas. The urea was to be shipped from Constantza, Romania to Gulfport, Mississippi. Prior to delivery, various terms were amended as to price, quantity and packaging. Ultimately, Morrison agreed to purchase a shipload cargo of 5,500 net metric tons 1 of urea packaged in 50 kilo polyethylene bags on C.I.F. Gulfport terms. 2

Prior to its contract with Morrison, Kearney had executed a binder on an open cargo insurance policy with Insurer, a New York Corporation with its principal office in New York. 3 The policy provided for coverage against "All risks of physical loss or damage from any external cause whatsoever ...". In accordance with its agreement with Morrison, on March 20, 1974, Kearney obtained a special marine policy from Insurer covering the shipment of urea. The special marine policy was subject to the "all risks" coverage provision of the open cargo policy and any loss under the policy was payable to the assured or order. The policy was delivered to Kearney at its corporate headquarters in Tampa, Florida and was subsequently assigned by Kearney to Morrison.

Kearney bought the urea to be supplied to Morrison from International Affiliates, Inc., which in turn had purchased the urea from Azoexport Bucharest, Romania. Azoexport packaged the urea into polyethylene bags. To transport the cargo, International Affiliates, Inc., chartered the M/V AIDA which proceeded to load at Constantza. A clean on-board bill of lading was signed for 110,000 bags of urea and the AIDA set sail from Constantza on March 6, 1974, arriving in Gulfport on April 9, 1974.

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The AIDA was discharged by Ryan-Walsh Stevedoring Company. Upon discharge it was discovered that many of the bags were ruptured, distorted and damaged. Additionally, there was loose, caked and partially dissolved urea on bags in several holds. Additional damage occurred during the discharge operation due to the hydroscopic nature of the loose urea which caused the bags to be wet and slippery and therefore difficult to handle. A large quantity of urea in the number four lower hold, starboard side had simply dissolved and melted away.

After discharge, Insurer declined the insurance claim for damage to and shortage of the urea and a flurry of claims and cross-claims ensued. Morrison initiated this action against Insurer for recovery under the insurance contract and against Kearney for breach of the sales contract. Kearney then tendered the defense of the Morrison suit to Insurer and upon Insurer's refusal to accept tender cross-claimed against Insurer for attorney's fees for its defense costs. Finally, Insurer cross-claimed against Kearney alleging that Kearney had misrepresented the quality of the bags to be shipped, thus voiding coverage of the insurance contract.

The matter was tried to the judge without a jury. The court ruled against Insurer on its misrepresentation cross-claim against Kearney and Insurer does not challenge that portion of the court's decision on appeal. The court, 446 F.Supp. 415, held that Kearney was not liable to Morrison under its sale contract but that Insurer was liable to Morrison under the insurance contract for a total amount of $165,485.36. The court further held that Insurer was liable to Morrison for attorneys fees totaling $27,450.00. Finally, the court held that Insurer was liable to Kearney for attorney's fees incurred in defense of the Morrison suit. This final matter has been resolved by the parties, and Kearney, therefore, is no longer a party to this appeal.

Although the complex issues presented by this case have been somewhat narrowed on appeal, there still remain a number of serious contentions to be reviewed by this court. Specifically, Insurer contends that the Court improperly construed the law with respect to the allocation of the burden of proof under an "all risk" insurance contract of the type involved in this case. Insurer further maintains that the Court made an erroneous fact-finding in determining that the damage to the bags of urea arose from improper stowage rather than from inherent defect in the bags. Insurer next contends that certain findings of the District Court with respect to damages arising from the loss of urea were erroneous. Finally, Insurer maintains that the Court was in error in granting attorneys' fees to Morrison.

Whose Law?

Before reaching the substantive questions raised by Insurer on its appeal, we must first determine which law is to govern the interpretation of the marine insurance policy involved in this case-federal maritime law, 4 New York law, 5 or Florida law. 6 This choice of law question apparently troubled neither the parties nor the trial court as we find no reference to this issue in either the briefs or the opinion below. Nevertheless, we deem the question to be of sufficient importance to at least address, though we need not be stranded long on this legal shoal.

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With respect to this choice of law issue, we are directly confronted with Wilburn Boat Company v. Firemen's Fund Insurance Company, 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337, 1955 AMC 467 (1955), and the case law left in Wilburn Boat's somewhat choppy wake. 7 We do not find Wilburn Boat to present a significant obstacle to the application of maritime law in this case, however, as we find the law of neither New York nor Florida to be materially different from maritime law. 8 We find further support for our decision to apply maritime law in the fact that neither New York nor Florida appears to have such a substantial and legitimate interest in this case as to compel the application of state law. 9

The Shifting Burden

We turn now to Insurer's first of many points of error, 10 that the Court improperly allocated the burden of proof with respect to Morrison's claim under the insurance policy. The Court concluded that under an "all risk" insurance policy "the insured (has the initial burden of proving) that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel." 11 The burden then shifts to the insurer to show exception to coverage. 12

Insurer argues that the District Court opinion correctly states the law with respect to those cases in which the insurer asserts affirmative defenses based upon policy exclusions, but that such law has no bearing on this case. Insurer claims that its defense is based not upon an exception to coverage, but rather on Morrison's failure to bring itself within the affirmative insuring language of the policy which protects "against all risks of physical loss or damage to the property insured from any external cause." In this regard, Insurer argues that Morrison should have had the burden of showing that (i) the loss or damage to the urea was occasioned by an external cause, (ii) the loss or damage to the urea was fortuitous, and (iii) the event producing the loss or damage to the urea occurred while the policy was in force. We find these contentions unpersuasive.

(i)

Insurer argues first that Morrison should have had the burden of bringing itself within the express coverage of the insurance policy by showing that the loss of or damage to the urea was occasioned by an external cause. It is true that the burden of proof generally is upon the insured to show that a loss arose from a covered peril. S. Felicone & Sons Fish Co. v. Citizens Casualty Co. of N.Y., 430 F.2d 136 (5th Cir. 1970), cert. denied, 401 U.S. 939, 91 S.Ct. 936, 28...

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