China Union Lines, Ltd. v. American Marine Underwriters, Inc.

Citation755 F.2d 26
Decision Date07 February 1985
Docket NumberD,Nos. 167,239,168,s. 167
PartiesCHINA UNION LINES, LIMITED and International Union Maritime Insurance Company, Limited, Plaintiffs-Appellees-Cross-Appellants, v. AMERICAN MARINE UNDERWRITERS, INC., Calvert Fire Insurance Co., Canadian Marine Underwriters Limited, and CNA Assurance Company, Inc., Defendants, CNA Assurance Company, Inc., Defendant-Appellant. AMERICAN MARINE UNDERWRITERS, INC., and Calvert Fire Insurance Co., Defendants-Third Party Plaintiffs, Calvert Fire Insurance Co., Defendant-Third Party Plaintiff-Appellant, v. I.R. POSGATE AND OTHER UNDERWRITERS AT LLOYD'S SUBSCRIBING TO REINSURANCE CONTRACT "GHL NO. 1039-61", Third Party Defendants. CHINA UNION LINES, LIMITED and International Union Maritime Insurance Company, Limited, Plaintiffs-Appellees-Cross-Appellants, v. ALEXANDER & ALEXANDER, INCORPORATED and C.E. Heath & Co. (Marine) Ltd., Defendants-Cross-Appellees. Cal.ockets 84-7394, 84-7396, 84-7398.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

John M. Townsend, New York City (Hughes Hubbard & Reed and Bruce R. Kelly, New York City, of counsel), for plaintiffs-appellees-cross-appellants China Union Lines, Ltd. and Internl. Union Maritime Ins. Co., Ltd.

John J. Palmeri, New York City (Palmeri & Gaven, New York City, of counsel), for defendant-cross-appellee Alexander & Alexander, Inc.

Joseph F. DeMay, Jr., New York City (Cichanowicz, Callan, Carcich & Keane, and Victor S. Cichanowicz, New York City, of counsel), for defendant-cross-appellee C.E. Heath & Co. (Marine) Ltd.

Raymond S. Jackson, Jr., New York City (Thacher, Proffitt & Wood, Sheldon A. Vogel, Joan H. Hillenbrand, and Paul V. Nunes, New York City, of counsel), for defendant-third party plaintiff-appellant Calvert Fire Ins. Co.

Geoffrey W. Gill, New York City (Walker & Corsa, LeRoy S. Corsa, and Kathleen V. McQuilling, New York City, of counsel), for defendant-appellant CNA Assur. Co., Inc.

Before OAKES and VAN GRAAFEILAND, Circuit Judges, and TENNEY, District Judge. *

VAN GRAAFEILAND, Circuit Judge:

Calvert Fire Insurance Co. (Calvert) and CNA Assurance Company, Inc. (CNA) appeal from a judgment of the United States District Court for the Southern District of New York (Broderick, J.) holding them liable under contracts of marine insurance in the total amount of $2,892,502 because of the loss at sea on February 12, 1975 of the ship UNION EAST. China Union Lines, Limited (China Union), the Taiwanese shipowner, and International Union Maritime Insurance Company, Limited (International), China Union's wholly-owned subsidiary, cross-appeal from that portion of the judgment dismissing the complaint as to the other defendants, intending thereby only to preserve their rights in the event of reversal on the primary appeal.

At issue herein is a somewhat complex plan of insurance, designed by C.E. Heath & Co. (Marine) Ltd. (Heath) to reduce the cost to China Union of insuring the hulls and machinery of its fleet of ships. The insurance was to take effect on January 14, 1975. Because Taiwan requires ships bearing its flag to be insured in the first instance by Taiwanese companies, Heath's plan called for China Union to place part of the risk of its fleet with International, its captive company, and the remainder with various other Taiwanese insurance companies. International's policy would insure China Union for up to $150,000 per claim, subject to a $10,000 deductible on all claims except total loss. The other Taiwanese policies would provide total coverage of $9 million, subject to a $150,000 deductible per claim including total loss. The companies issuing these policies would reinsure 80% of their coverage with International, which, in turn, would reinsure its entire insurance package at various places around the world. As a result of this arrangement, Heath ended up handling the placement of a substantial portion of the package.

A money-saving component of Heath's plan was the placement of 55% of its share on the less expensive, non-London, "overseas" market. Heath offered overseas insurers an optional premium that would be either the insurer's proportionate share of a total premium of $675,000 less 20% brokers' commissions or its proportionate share of $600,000 less 10% brokers' commissions.

The instant case involves only the 15% share Heath offered to Alexander & Alexander, Incorporated (Alexander), a United States marine insurance broker, on January 9, 1975. Heath first telephoned its offer to Alexander, then followed with a telex setting forth the terms and describing the ships to be covered. Upon receiving Heath's offer, Alexander's agent, Thomas Degnan, telephoned Alex Carter, vice-president of American Marine Underwriters, Inc. (American Marine), which represented a number of United States insurance companies including Calvert. Degnan told Carter the terms of Heath's offer, sent Carter a copy of Heath's telex, and, responding to Carter's inquiry, secured information from Heath as to the renewal date. Degnan then assigned the task of placement to a fellow employee, Charles Nutter.

Nutter called Carter to give him the renewal date, and the two men went over the terms of Heath's original telex, which, they decided, required some clarification. After agreeing to secure the clarification, Nutter requested that American Marine lead Alexander's participation, as it had done with past offerings. On behalf of Calvert, Carter agreed to accept two-thirds of the 15% placement on the $600,000 premium basis.

Nutter then called Peter Smith, vice-president of Canadian Marine Underwriters, Ltd. (Canadian Marine), seeking to place the remaining one-third of the China Union offering. Smith agreed that Canadian Marine would take the 5% on the $600,000 premium basis, and thereafter placed the 5% with CNA.

Seeking to place more of the China Union risk, Nutter also contacted an agent of New York Marine Managers, who inquired, among other things, whether Alexander's offering was on the same terms and conditions as the London market and, if so, who were the lead London underwriters. Nutter promptly telexed Heath seeking this

and other information. On the next day, January 14, Nutter received a telex from Heath, which read in part as follows:

LONDON PARTICIPATION SAME BASIS BUT DIFFERENT PREMIUM AS ADVISED PREVIOUSLY PER TELEPHONE RISK LEAD BY HOME INSURANCE COMPANY AND H.G. CHESTER.

During a conversation with Carter regarding other matters on January 17, Nutter read him Heath's January 14 telex. Shortly thereafter, Alexander sent American Marine and Canadian Marine proposed binders, which, in due course, were signed and returned.

On February 19, American Marine and Canadian Marine were informed that the UNION EAST had sunk. Heath notified Alexander on February 28 that it would be filing a claim for total loss of the ship and asked whether American Marine and Canadian Marine would agree to deduct the premiums owed them from their liability on the loss. Because appellants have never conceded liability, no agreement was reached as to the offsetting of premiums.

Coincidently, Alexander also received on February 28 Heath's slip describing the insurance to be furnished by American Marine and Canadian Marine. In contrast to the binder which listed China Union as assured, the slip described the coverage as "Reinsurance of International Union Marine Insurance Co." Subsequently, the American underwriters also learned that Heath had placed other portions of the risk on the London market on a premium basis of $885,600, which, of course, was more favorable than the terms offered the American underwriters.

Recognizing that there may have been "some confusion" concerning the terms of the risk, Heath invited Alexander's clients to amend their agreements to conform to the London terms. However, both American Marine and Canadian Marine declined Heath's offer, contending that their agreed coverage was void from its inception because they had not been informed of the disparity in the terms offered London and American underwriters. They rejected claims for payment of the loss, and this litigation followed.

The panel is in accord with respect to the district court's holding on liability. The amount of the award has the approval of only two panel members.

THE LIABILITY

Calvert's principal contention on appeal is that it was misinformed concerning the payment of higher London premiums. The district court found, however, that there were no representations or misrepresentations concerning London premiums prior to the time appellants bound themselves on the risk. This finding...

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