Lien Ho Hsing Steel Enterprise Co., Ltd. v. Weihtag

• Decision Date: 31 July 1984
• Docket Number: No. 83-2171,83-2171
• Parties: LIEN HO HSING STEEL ENTERPRISE CO., LTD., Plaintiff-Appellant, v. Klaus WEIHTAG, Von Rauchhaupt & Senftleben, Transportassekuranzkontor Friedrich Barkman & Co., Carl C. Peiner, Burmester, Duncker & Jolly, and Wilhelm Muller & Co., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1455

738 F.2d 1455

LIEN HO HSING STEEL ENTERPRISE CO., LTD., Plaintiff-Appellant, v. Klaus WEIHTAG, Von Rauchhaupt & Senftleben Transportassekuranzkontor Friedrich Barkman & Co. Carl C. Peiner, Burmester, Duncker &amp Jolly, and Wilhelm Muller &amp Co., Defendants-Appellees.

No. 83-2171.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 16, 1984.

Decided July 31, 1984.

Carlton E. Russell, Ackerman, Ling, Russell, Linsley & Mirkovich, Long Beach, Cal., for plaintiff-appellant.

John R. Lacy, Honolulu, Hawaii, for defendants-appellees.

On Appeal from the United States District Court For the District of Hawaii.

Before FARRIS and PREGERSON, Circuit Judges, and WHELAN ^*, District Judge.

WHELAN, District Judge.

Lien Ho Hsing Steel Enterprise Co., Ltd., appeals from dismissal of its complaint for bad faith denial of a marine insurance claim, which was filed in the United States District Court for the District of Hawaii. The issues involved are whether a clause in the policy designating Rotterdam as the exclusive forum for any disputes under the policy should prevail, whether it was error for a district court judge who did not hear argument on a motion to dismiss to grant it and vacate an order of another judge, and whether conditions may be imposed on the dismissal by this court where the district court made no such conditions.

Late in 1979, Lien Ho Hsing sought insurance on cargo it owned aboard the vessel Star K. The owner of the corporations operating the Star K, a Mr. Wirth, asked Portland, Oregon, broker Gene Sause & Co. to arrange this insurance for Lien Ho Hsing. Not all the risk could be underwritten in London, where Gene Sause initially sought to place it, so Gene Sause's corresponding London brokers contacted European brokers, seeking to place the rest of the coverage. The remaining 50 percent of the risk was thus placed by Hamburg broker Agte Gebrueder in the German market with appellees. In doing so, Agte Gebrueder used the usual insurance policy form of the Rotterdam brokers, Hudig-Langeveldt, which contains a clause specifying Rotterdam as the forum for any disputes arising under the contract.

The Star K left Portland, Oregon, on December 22, 1979, under tow for Taiwan, and after stopping to load more scrap steel in Hilo, Hawaii, it sank on March 26, 1980, 24 days out of Hilo. Although placement of 50 percent of the risk on the German market had been confirmed to Gene Sause by telex on October 31, 1979, the actual policy was not issued until after the Star K sank. Gene Sause was not aware of the forum selection clause, nor did it communicate it to Mr. Wirth or Lien Ho Hsing, prior to the loss.

Lien Ho Hsing filed its complaint in the United States District Court in Hawaii on July 7, 1981. Appellees moved to dismiss on the grounds that the Hawaii court lacked personal jurisdiction over the German defendants, that service of process by mail did not comply with the 1969 Hague Convention, and that the insurance policy's forum selection clause gave exclusive jurisdiction over disputes arising from the insurance contract to the courts of Rotterdam. The motion was argued on May 20, 1983, before Judge David W. Williams, who was temporarily assigned to the Hawaii District Court. Judge Williams, in his order of June 7, 1983 (filed June 10, 1983) stated he did not reach any part of the motion except that regarding service of process.

On June 9, 1983, Judge King of the Hawaii District Court dismissed the suit, holding that the forum selection clause prevailed, and that service of process was inadequate pursuant to the Hague Convention. The next day, Judge Williams caused his said order to be filed; in it, he found and held that service of process was inadequate. His order, however, granted 30 days' leave to perfect service of process, and held that there was no need at that time to reach the other issues raised by defendants. On June 17, 1983, Judge King vacated Judge Williams' order filed June 10, in light of his June 9 dismissal of the action. This appeal is taken from the orders filed June 9, 10, and 17, 1983.

Lien Ho Hsing argues that it should not be held to the terms of the clause in the policy of insurance issued by the appellees which designates Rotterdam as the exclusive forum for disputes arising from the contract. The United States Supreme Court has held that, "a freely negotiated private international agreement, unaffected by fraud, undue influence, or overweening bargaining power ... should be given full effect." The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12-13, 92 S.Ct. 1907, 1914-1915, 32 L.Ed.2d 513 (1972). The correct approach for a district court faced with a challenge to such a clause, is to enforce it unless the objecting party can make a strong showing that the forum selection clause is invalid, or that its enforcement would be unreasonable or unjust. Id. at 15, 92 S.Ct. at 1916.

Lien Ho Hsing claims the clause at issue is invalid due to overweening bargaining power on the part of appellees because, rather than having been freely negotiated, it was the result of arrangements made between brokers who were all acting as agents of the insurers, appellees.

Lien Ho Hsing claims that even Gene Sause was the insurers' agent, pointing out that Lien Ho Hsing did not hire the Oregon broker directly. Rather, Gene Sause was approached by Mr. Wirth, the vessel manager. But in paragraph four of its complaint, Lien Ho Hsing charges appellees with participating, "in the extension and provision to plaintiff a policy (sic) of cargo insurance ...." The affidavit of Zu Chen Yu, half owner of Lien Ho Hsing, says that Lien Ho Hsing, "arranged for cargo insurance through Gene Sause." Therefore, regardless of Wirth's intermediary status, Lien Ho Hsing has acknowledged that it was Lien Ho Hsing and not Wirth to whom appellees provided insurance, via Gene Sause, the broker hired by Lien Ho Hsing.

Marine insurance brokers are technically agents of the assured, even though they are compensated by commissions deducted from the underwriters' premiums, and they act as intermediaries both in placing the risk and handling claims. G. Gilmore & C. Black, Jr., The Law of Admiralty, 56-57 (1975), citing Eagle Star & British Dominions v. Tadlock, 22 F.Supp. 545, 548, 1938 A.M.C. 499 (S.D.Cal.1938), aff'd sub nom. Walsh v. Tadlock, 104 F.2d 131 (9th Cir.), cert. denied, 308 U.S. 584, 60 S.Ct. 107, 84 L.Ed. 489 (1939); Connecticut Fire Ins. v. Davidson Chemical Corp., 54 F.Supp. 2, 6, 1944 A.M.C. 384 (D.Md.1944); Winter, Marine Insurance 110 et seq. (3d ed. 1952).

Although it is the generally accepted custom and usage for marine underwriters to deal with insurance brokers as agents of the insured, this practice was not established by an act of Congress nor has it risen to the stature of a judicially established federal admiralty rule. See Centennial Ins. Co. v. Parnell, 83 So.2d 688, 1956 A.M.C. 406 (Fla.1955); Hauser v. American Central Ins. Co., 216 F.Supp. 318, 1964 A.M.C. 526 (E.D.La.1963). In the absence of federal admiralty law on the issue, the law of the state with the greatest interest in the issue controls. Wilburn Boat Co. v. Fireman's Ins. Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955); Ahmed v. Am. S.S. Mut. Protection & Indem. Ass'n, 640 F.2d 993 (9th Cir.1981); Edinburgh Assur. Co. v. R.L. Burns Corp., 479 F.Supp. 138 (C.D.Cal.1979), aff'd in relevant part, 669 F.2d 1259 (9th Cir.1982). The parties in their briefs both argued that Oregon law is controlling on the issue of the principal-agent relationship between Lien Ho Hsing and Gene Sause.

Lien Ho Hsing seeks exemption from the general practice that brokers are agents of the assured under its interpretation of Oregon Revised Statute 744.165 (1977), which states:

"Any person who solicits or procures an application for insurance shall in all matters relating to such application for insurance and the policy issued in consequence thereof be regarded as the agent of the insurer issuing the policy and not the agent of the insured. Any provisions in the application and policy to the contrary are invalid and of no effect whatever."

Case law shows that this statute does not, as Lien Ho Hsing contends, constitute all Oregon brokers agents of the insurers. In Arley v. United Pacific Ins. Co., 379 F.2d 183 (9th Cir.1967), cert. denied, 390 U.S. 950, 88 S.Ct. 1039, 19 L.Ed.2d 1140 (1968), this court held that an agent retained by, and in order to procure coverage for, the prospective insured may not be treated as the agent of the insurer. The Arleys, residents of Oregon, requested their local agent, Chaney, to obtain fire insurance for their Nevada property. Not having a nonresident Nevada license, Chaney made several attempts to induce licensed agents to procure the policy, while assuring the Arleys they were covered. On January 16, 1963, the Arleys' property burned down; the next day Chaney induced United Pacific Insurance to issue a policy backdated to January 12. The court held that even though Oregon law makes several references to agents, and none to resident brokers, it could not be construed to constitute all intermediaries in the procurement of insurance agents of the insured. Chaney, who was acting on behalf of the Arleys, was acting as a broker, which "as distinguished from an agent, does not represent an insurance company but places insurance with whatever company he can induce to insure the risk. He is not the agent of the insurer, but rather the agent of the one seeking insurance." Id. at 187 n. 5.

Appellant relies on Paulson v. Western Life Ins. Co., 292 Or. 38, 636 P.2d 935 (1981), which applied O.R.S. 744.165 to hold that an employer offering group life insurance was the agent of the insurance company whose policies the employer sold. Paulson did not, however, hold that this statute eliminates brokers in the State of Oregon. O.R.S. 744.165 can create an agency relationship where no formal agency has...