Balfour MacLaine Intern. Ltd., In re

• Decision Date: 30 May 1996
• Docket Number: Nos. 327,BSI-B,536,D,s. 327
• Citation: 85 F.3d 68
• Court: U.S. Court of Appeals — Second Circuit
• Parties: , 44 Fed. R. Evid. Serv. 1088 In re BALFOUR MacLAINE INTERNATIONAL LIMITED, Debtor. ATLANTIC MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. BALFOUR MacLAINE INTERNATIONAL LIMITED; Van Ekris & Stoett Inc.; Amro Bank; Bank Brussels Lambert, S.A.; Banque Indosuez;anca Della Svizzera Italiana, Defendants-Appellees. INSURANCE COMPANY OF NORTH AMERICA, Plaintiff-Appellant, v. ARMENIA COFFEE CORPORATION, Defendant-Appellee, Rafael Espinosa & Hnos., Bankers Trust Company, National Westminster Bank, American Express Bank Ltd., Chase Manhattan Bank, N.A., French American Banking Corp., Chemical Bank, First Fidelity Bank, New Jersey, PBTC International Bank, Credit Agricole CNCA, BAII Banking Corporation, Defendants. ockets 95-5015(L), 95-7287(CON).

Page 68

85 F.3d 68

1996 A.M.C. 2266, 44 Fed. R. Evid. Serv. 1088

In re BALFOUR MacLAINE INTERNATIONAL LIMITED, Debtor.

ATLANTIC MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. BALFOUR MacLAINE INTERNATIONAL LIMITED; Van Ekris & Stoett

Inc.; Amro Bank; Bank Brussels Lambert, S.A.;

Banque Indosuez; BSI-Banca Della

Svizzera Italiana,

Defendants-Appellees.

INSURANCE COMPANY OF NORTH AMERICA, Plaintiff-Appellant, v. ARMENIA COFFEE CORPORATION, Defendant-Appellee, Rafael Espinosa & Hnos., Bankers Trust Company, National

Westminster Bank, American Express Bank Ltd., Chase

Manhattan Bank, N.A., French American Banking Corp.,

Chemical Bank, First Fidelity Bank, New Jersey, PBTC

International Bank, Credit Agricole CNCA, BAII Banking

Corporation, Defendants.

Nos. 327, 536, Dockets 95-5015(L), 95-7287(CON).

United States Court of Appeals Second Circuit.

Argued Oct. 30, 1995.

Decided May 30, 1996.

John A.V. Nicoletti, Donovan Parry Walsh & Repetto, New York City (John K. McElligott, Nooshin Namazi, Donovan Parry Walsh & Repetto, on the brief), for plaintiff-appellant.

Stanley McDermott III, Piper & Marbury, L.L.P., New York City (David P. Langlois, Piper & Marbury, L.L.P., on the brief), for defendant-appellee.

John M. Woods, Thacher Proffitt & Wood, New York City (Marilyn L. Lytle, John J. Kim, Thacher Proffitt & Wood, on the brief), for Amicus Curiae, American Institute of Marine Underwriters.

Before: NEWMAN, Chief Judge, and ALTIMARI, and McLAUGHLIN, Circuit Judges.

ALTIMARI, Circuit Judge:

The plaintiff-appellant Insurance Company of North America ("INA") appeals from a judgment of the United States District Court for the Southern District of New York (Sand, J.) awarding the defendant-appellee Armenia Coffee Corporation ("Armenia"), following a bench trial, $1,640,382 on its claim against INA for insurance coverage of coffee that allegedly disappeared from two warehouses in Mexico. See Atlantic Mutual Ins. Co v. Balfour Maclaine Int'l Ltd. (In re Balfour Maclaine Int'l Ltd.), 873 F.Supp. 862 (S.D.N.Y.1995). ¹ INA principally contends on appeal that the district court (1) imposed the wrong burden of proof on INA, (2) erred in concluding that the coffee physically existed at the warehouses during the period of coverage, (3) erred in ruling that the doctrine of uberrimae fidei (utmost good faith) did not apply, and (4) erred in ruling that Armenia's claim is otherwise covered by INA's policy because INA waived certain defenses of non-coverage. Because the district court's conclusions are fully supported by the record and are proper as a matter of law, we affirm the judgment of the district court.

Background

A. The Underlying Transactions

Armenia imports coffee to the United States from a variety of countries. At the time of the incidents underlying this case, its coffee supplier in Mexico was Cafetalera Zardain Hermanos, S.A. de C.V. ("Zardain"), one of Mexico's largest coffee exporters. Purchase of the coffee was accomplished pursuant to the terms of pre-export contracts between Armenia and Zardain. The process from initial purchase to final delivery essentially entailed Zardain first buying the unmilled, green coffee from growers, and storing it in 69-pound bags in warehouses that it owned or leased throughout Mexico. Zardain used the services of Almacenadora Somex S.A. ("Somex"), a Mexican warehousing authority, to operate the two warehouses where the coffee at issue in this case allegedly was stored. Upon delivery of the coffee into the warehouses, Somex issued warehouse receipts or "certificates of deposit" ("Certificates") to Zardain, which allegedly evidenced the amount of coffee deposited for storage at the warehouse. Zardain, in turn, tendered the Certificates to Armenia, which made a partial payment of the coffee's purchase price to Zardain. When Armenia was ready to import the coffee, it returned the Certificates to Zardain. Zardain presented them to Somex, which in turn cancelled the Certificates by releasing the amount of coffee they represented. Zardain then milled the coffee, and trucked it overland to Laredo, Texas. Armenia paid the remainder of the purchase price upon delivery of the coffee in Laredo.

The Certificates issued by Somex were not the only documents allegedly recording the coffee stored at the warehouses. Zardain also prepared a "receiving report" each time it purchased coffee from a grower (the "receiving reports"). Zardain's receiving reports allegedly contained, among other things, the actual amount of coffee purchased from the grower and deposited into a specific warehouse, and the quality of the coffee. In addition to Zardain's receiving reports, Somex kept reports of monthly inventory inspections it conducted of the coffee stored in the warehouses it operated. These inspections involved corroborating the amount of coffee listed on the outstanding Certificates through an actual physical count of the coffee on hand at the warehouses. During the summer of 1990, the frequency of Somex's inspections was increased to a weekly basis, due to an increase in coffee volume. Finally, until July 1989, the Instituto Mexicano del Cafe ("Inmecafe"), an agency of the Mexican government that regulated the coffee industry, conducted quarterly nationwide inventory counts of coffee in Mexican warehouses.

Effective September 6, 1989, Armenia became insured for physical loss or damage in the United States and in specified foreign locations of the coffee it purchased and shipped, under an "all risks" marine open cargo policy issued by INA (the "policy"). The policy contained a separate warehouse storage risk provision covering coffee stored at specified warehouses, including the two Mexican warehouses utilized by Zardain for Armenia's account. The relevant language in the warehouse storage provision, found at paragraph 55 of the policy, stated that the "[g]oods and/or merchandise covered hereunder are insured [against] all risks of physical loss or damage from any external cause, irrespective of percentage...." Other than the standard Free of Capture and Seizure ("FC & S") and Strikes Riots and Civil Commotions ("SR & CC") clauses, the warehouse storage provision did not include any other exclusions limiting the scope of the risk covered, and none of the other exclusions listed in the policy are relevant to this case. Significantly, neither the policy nor the warehouse storage provision contained exclusions for losses resulting from conversion, theft, or disappearance.

B. Armenia's Claim for Lost Coffee and the Instant Suit

On September 17, 1990, the principals of Zardain were jailed in Mexico for fraud in connection with obtaining financing from foreign exchange transactions. Two days later Zardain's warehouses were sealed. Shortly thereafter, Armenia discovered that there were 11,998 bags of coffee represented by outstanding Certificates that were unaccounted for at the two warehouses at issue in this case. The coffee had been purchased by Armenia prior to October 1, 1988. Of the total amount of allegedly missing coffee, 9500 bags were represented by Certificates still held by Armenia at the time the Zardain warehouses were sealed. The remaining 2498 bags were the undelivered portion of 14,000 bags of coffee represented by Certificates that previously had been returned to Zardain by Armenia in July, 1989.

Armenia submitted a claim to INA on October 23, 1990, stating that 11,998 bags of export quality coffee with a value of approximately $1.75 million had been lost from the warehouses in Mexico. INA denied the claim and on December 20, 1990, filed a declaratory judgment action under the district court's admiralty jurisdiction against Armenia and its lender banks, seeking non-coverage of Armenia's claim. INA asserted three grounds for denying the claim: (1) Armenia had failed to demonstrate or prove that the alleged missing coffee was ever physically deposited in the named warehouses covered by the policy; (2) Armenia's documents and records were insufficient to establish that a physical loss occurred at an insured warehouse; and (3) the policy was void ab initio, because by failing to disclose that it had suffered two previous substantial losses of coffee stored in Mexican warehouses, Armenia made a material misrepresentation to INA at the time it applied for the policy. INA's case was consolidated with Atlantic Mutual's, and tried before the district court from June 12, 1994 through June 30, 1994.

C. The District Court's Factual Findings and Legal Conclusions

At trial, INA principally contended that the coffee had not "disappeared" from the Mexican warehouses, because it was never physically present there. INA further contended that Zardain was corrupt, that the Certificates were fraudulent as to the amount of coffee available at the warehouses, and that the Somex inspectors had been bribed by Zardain to approve the false figures. The district court was not convinced by INA's case and found in favor of Armenia, ultimately awarding it $1,640,382.25, inclusive of interest.

Relying on this Court's earlier decision in Atlantic Mutual Ins. Co. v. Balfour Maclaine Int'l Ltd., 968 F.2d 196 (2d Cir.1992) ("Atlantic "), a predecessor to the case which ultimately became consolidated with the instant one, the district court first held that there was no admiralty and maritime jurisdiction over the claims in this case, and that New York law governed the rights of the parties. See Balfour, 873 F.Supp. at 866. In Atlantic we considered whether the district court lacked admiralty jurisdiction over the same coverage claim that is principally at issue in the instant case. We held that, because the coffee stored in the Mexican warehouses had never been in transit or otherwise entered the maritime stream of commerce, the coffee's connection to maritime commerce was "too speculative and attenuated to justify admiralty and maritime jurisdiction." Atlantic, 968 F.2d at 200.

Second, the district court...