780 F.2d 1082 (2nd Cir. 1986), 1133, Luria Bros. & Co., Inc. v. Alliance Assur. Co., Ltd.

Docket Nº:1133, 1187, Dockets 85-7002, 85-7004 and 85-7028.
Citation:780 F.2d 1082
Party Name:LURIA BROTHERS & COMPANY, INC., Ogden Metals Inc., Ogden Corporation and Luria International Division, Plaintiffs-Appellants, Cross-Appellees, v. ALLIANCE ASSURANCE CO., LTD., Commercial Union Assurance Co., Assmij Nieuw Rotter Dam, Eagle Star Insurance Company, Londo & Hull Maritime Insurance Company, Urbaine UAP, Assicur-Azioni D'Italia, La Belgi
Case Date:January 10, 1986
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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780 F.2d 1082 (2nd Cir. 1986)

LURIA BROTHERS & COMPANY, INC., Ogden Metals Inc., Ogden

Corporation and Luria International Division,

Plaintiffs-Appellants, Cross-Appellees,


ALLIANCE ASSURANCE CO., LTD., Commercial Union Assurance

Co., Assmij Nieuw Rotter Dam, Eagle Star Insurance Company,

Londo & Hull Maritime Insurance Company, Urbaine UAP,

Assicur-Azioni D'Italia, La Belgique S.A., Assurances

Abelle-Paix, Mutuamar-Societa De Ass. Per Azioni, Levante,

Comar, Siat (Societa Italiana Assicuracioni Trasporti),

Riunione Adriatica, Sicurta Fra Armatori, Tokio Fire &

Marine Ins. Co., Ltd., Taisho Marine & Fire Ins. Co., Ltd.,

Neuchateloise Compagne Suisse, Europa, Assurances Generales

de France, L'Assurances Liegeoise, Boreas, Pacific Employers

Insurance Co., American International Underwriters, Italia

Assicurazioni Kemper, Languedoc Societe d'Assurancas,

Cornhill Insurance Co., Ltd., Scottish Lion Ins. Co., Ltd.,

De Vaderlandsche, Phoenix Continental S.A., L'Alsacienne,

Block Sea & Baltic General Ins. Co., Ltd., Le Monde,

S.A.A.G. 1857 Bruxelles, Riunione Adriatica, L'Independance,

Providentia, Atlas, Allianz, and any and all underwriters

subscribing to Marine Liability Policy numbered 3110 and

Mari Excess Liability Policy numbered 3111, City Insurance

Company, Defendants-Appellees, Cross-Appellants.

Nos. 1133, 1187, Dockets 85-7002, 85-7004 and 85-7028.

United States Court of Appeals, Second Circuit

January 10, 1986

Argued April 29, 1985.

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Patrick V. Martin, New York City (Douglas R. Burnett, Hill, Rivkins, Carey, Loesberg, O'Brien & Mulroy, New York City, of counsel) for plaintiffs-appellants, cross-appellees.

Richard E. Repetto, New York City (John A.V. Nicoletti, James P. Krauzlis, Donovan Maloof Walsh & Kennedy, New York City, of counsel), for defendants-appellees, cross-appellants.

Before VAN GRAAFEILAND and PRATT, Circuit Judges, and MORRIS E. LASKER, Senior District Judge for the Southern District of New York, sitting by designation.

GEORGE C. PRATT, Circuit Judge.

This case arises out of the sinking of a cargo ship on the high seas with the loss of all crew members and passengers. The issues, of course, are over money: to what extent shall plaintiffs Luria Brothers & Company, Inc., et al., hereinafter collectively referred to as "Luria", who were charterers of the ill-fated vessel, recover from defendants Alliance Assurance Co., Ltd. et al., hereinafter collectively referred to as "underwriters", for financial burdens resulting from the loss and the events leading up to it. Luria, having settled with the cargo owners and the personal representatives of those who lost their lives in the sinking, sought in the court below indemnity from the underwriters for the settlement payments made and for attorneys fees incurred in the settled cases. The underwriters denied any obligation to Luria.

The district court, after a nonjury trial, found Luria to be entitled to the claimed indemnity. But, for reasons soon to be explained, it also sua sponte ordered restitution to the underwriters of a $900,000 ex gratia payment they had earlier made to Luria.

Luria appeals from the order of restitution. The underwriters cross-appeal from

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the award to plaintiffs of indemnity and legal fees.


Luria, an international dealer in scrap metal, regularly charters vessels to export the scrap. In connection with its export business, Luria purchased various insurance policies to cover its liability as a charterer and loading stevedore ("liability policies") as well as possible loss or damage to its cargo ("cargo policies"). Frank B. Hall & Co. of New York, Inc., ("Hall"), a New York insurance broker, placed and serviced these policies for Luria through Luria's Belgian broker, Henrijean & Cie of Brussels ("Henrijean").

Three insurance policies are relevant here: the primary liability policy, H/L 3110, the first excess liability policy, H/L 3111, and the cargo policy, H/L 3222. J. Haenecour & Co. of Brussels and Antwerp ("Haenecour") acted as underwriting agent and lead underwriter on behalf of the underwriters who subscribed to one or more of the three policies. As lead underwriter Haenecour was entrusted with authority to deal with all matters of rating, conditions, and settlement of claims in connection with the policies.

In July 1979 Luria entered into a time charter with Evimeria Compania Naviera, S.A., Panama, ("shipowner"), owner of a 17-year-old bulk carrier, Agios Giorgis. Under the terms of the charter party, Luria could employ the vessel to carry "[s]crap, excluding motor blocks and including turnings which, if loaded shall be chemically treated."

On August 22, 1979, the Agios Giorgis commenced loading 14,586 long tons of Luria's metal turnings at the port of Chicago. Luria admits that the cargo was loaded against the advice of its loading inspector, without being chemically treated, and that the vessel sailed with the turnings temperature in excess of permitted regulations. Further, Luria concedes that this resulted in breach of certain warranties in the cargo and liability policies that rendered coverage on those policies null and void for the voyage from Chicago to Newark, New Jersey.

On September 17, 1979, the vessel arrived at New Haven, Connecticut, to load additional scrap cargo on top of the turnings. The next day a fire was discovered in the turnings in the No. 5 hold of the vessel. Since the port of New Haven is devoted primarily to the discharge and storage of petroleum products, the harbor master ordered the burning Agios Giorgis to leave New Haven to avert potential disaster. She did so, and arrived at Luria's terminal at port Newark, New Jersey, on September 22. In these few days, the fire had spread throughout all of the vessel's holds, and despite attempts to extinguish the fire, temperatures eventually reached in excess of 1100 degrees fahrenheit.

After discussions among Luria, the shipowner, and other parties, it was decided to discharge all the turnings and scrap, an operation that was completed on November 9, 1979.

While the discharge was proceeding, representatives of Luria, Hall, Henrijean, and Haenecour met in Belgium in October. All present conceded that in view of the breach of warranties, the policies did not cover Luria's liability for loss and discharge of the cargo, for consequent delays, for damage to the vessel, or for possible third-party claims. Nevertheless, Luria requested from the underwriters an ex gratia payment--a voluntary contribution not required by the policies--to help Luria bear the loss.

In support of its request, Luria specifically dwelt upon the extensive business relationship between the parties over the past twenty years and suggested that it could direct additional future insurance business at profitable rates to the underwriters, if Haenecour would make the requested ex gratia payment. Although no agreement to make such a payment was reached at the October meeting, Haenecour told Luria to come back with a business proposition at a future meeting.

After discharge of the cargo and cleanup of the vessel, Luria decided to send the

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Agios Giorgis on a second voyage, this time to Japan with a cargo of heavy scrap from port Newark. Luria had a good reason to send the vessel to Japan since repairs for the damage caused by the fires, for which Luria was liable to the shipowner, could be had more cheaply in Japan.

Luria sought liability coverage for the voyage, and Henrijean negotiated a limited reinstatement of insurance with Haenecour on a new policy; on November 13, the reinstatement was made subject to "no aggravation of risk" by the proposed addendum to the charter party that would cover the second voyage.

Three days later, Luria and the shipowner formally agreed, by executing the addendum to the existing charter party, to employ the Agios Giorgis for the second scrap voyage to Japan. The shipowner warranted that "the vessel [was] in class ready to commence loading". Henrijean reviewed the addendum and forwarded it to the underwriters on November 26, 1979.

Loading of the scrap for the second voyage was completed on November 29, 1979, and the vessel set sail for Japan the following day. On board was a crew of 27, including the captain's wife, infant son, and three other members of his family. The vessel passed through the Panama Canal, bunkered at Los Angeles, and continued across the Pacific.

On January 7, 1980, the vessel M/S Nichirin Maru received an urgent distress call from the Agios Giorgis, reading in relevant part: "Indicate crack at hold No. 5 stop water under control stop * * * please attend master." The Nichirin Maru hastened to aid the vessel and sighted the Agios Giorgis the following day. The Agios Giorgis advised that she intended to continue her voyage under the escort of the Nichirin Maru, that she had sustained two large cracks in the plates at her No. 5 hold, that she was listing from four to five degrees, and that her pumps had the sea water coming through the cracks under control.

Several hours later, the Agios Giorgis sent a distress message indicating that one crack had enlarged to between four and five feet. But after the Nichirin Maru indicated the next day that it must soon abandon escort due to diminishing bunkers and supplies, the Agios Giorgis responded that conditions on the damaged vessel had stabilized and authorized the cessation of rescue efforts. The Nichirin Maru then altered her course and returned to Japan.

The following day, the vessel Hoegh Miranda received an emergency distress signal from the Agios...

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