Schwabach & Company v. Gulf Shipside Storage Corp.

• Decision Date: 15 April 1959
• Docket Number: Civ. A. No. 6734.
• Citation: 173 F. Supp. 105
• Court: U.S. District Court — Eastern District of Louisiana
• Parties: SCHWABACH & COMPANY, Plaintiff, v. GULF SHIPSIDE STORAGE CORPORATION et al., Defendants.

173 F. Supp. 105

SCHWABACH & COMPANY, Plaintiff, v. GULF SHIPSIDE STORAGE CORPORATION et al., Defendants.

Civ. A. No. 6734.

United States District Court E. D. Louisiana, New Orleans Division.

April 15, 1959.

Monroe & Lemann, Nigel Rafferty, Ralph N. Jackson, New Orleans, La., for plaintiff.

Deutsch, Kerrigan & Stiles, Malcolm W. Monroe, New Orleans, La., Mendes & Mount, J. J. Killea, New York City, for Underwriters at Lloyd's, etc.

Cahn & Provensal, Sidney W. Provensal Jr., New Orleans, La., for Gulf Shipside Storage Corp.

J. SKELLY WRIGHT, District Judge.

This case involves a phantom certificate of insurance issued, according to its face, by authority of certain unnamed "Underwriters, at Lloyd's, London and/or Companies." It demonstrates that anyone relying on such or similar certificates may find himself without insurance because, contrary to public belief, Lloyd's is not an insurer¹ and certificates issued using its name are but hunting licenses to find who the unnamed insurers are, if indeed they do exist. Here Lloyd's denies their existence.

Schwabach and Company was the owner of cotton stored in the warehouse of the Gulf Shipside Storage Corporation. In this action it sues Gulf and its alleged liability insurer, "Underwriters, at Lloyd's, London and/or Companies" for damage to the cotton while in storage. Gulf has cross-claimed against Lloyd's as its liability insurer. The only issue before the Court at this time is the validity of Certificate of Insurance No. WA-1994 covering warehouseman's legal liability and issued to Gulf "In accordance with authorization granted to J. K. Seear (U.S.A.), Ltd., by certain Underwriters, at Lloyd's, London and/or Companies whose names and the proportions underwritten by them are or will be on file in the office of said J. K. Seear (U.S.A.), Ltd. and also on file in London, England."

J. K. Seear (U.S.A.), Ltd., a corporation chartered in Colorado, is a surplus line brokerage firm engaged in forwarding risks to J. K. Seear & Co., Ltd., London, Lloyd's insurance brokers. Although both Seear firms are incorporated, the individual, J. K. Seear, seems to be the principal figure in each. Seear (U.S.A.) has no floor privileges at Lloyd's. When there is a risk to be covered, it is forwarded to Seear, London, which offers it on the floor at Lloyd's unless cover authority² for such risk is already available. Underwriters at Lloyd's deal only through Lloyd's brokers, such as Seear, London. Coverage of a risk at Lloyd's consists of the subscribing underwriters signing a slip indicating the amount of their participation. Once this slip is signed, covering a particular risk or for broker authority covering certain risks generally, a Lloyd's broker may issue the certificate of insurance.

In addition, a Lloyd's broker may give surplus line brokers in various countries, such as Seear (U.S.A.), authority to issue the certificate. The certificate, like the one in suit, is on a Lloyd's form. The certificate shows that it is issued in behalf of certain "Underwriters, at Lloyd's, London and/or Companies" who "bind themselves, each for his own part and not one for another, in favor of" the assured to cover the risk described therein. The names of the subscribing underwriters are not shown on the certificate but their names, according to the certificate, should be on file with the issuing broker or with the Lloyd's broker in London. Here there is no documentary information concerning negotiations for, or the issuance of, the certificate in suit, nor of underwriters thereon, the subpoena duces tecum being returned unsatisfied because all files concerning the matter had been shipped to London.³

In August 1955, Bodet, an insurance broker generally handling the insurance problems of the defendant Gulf Shipside Storage Corporation, applied to J. K. Seear (U.S.A.) for Combined Warehousemen's Legal Liability and Fidelity Coverage for his client.⁴ Seear (U.S.A.) advised Bodet that it would endeavor to have the risk accepted by underwriters at Lloyd's. In December 1955, Seear (U.S. A.) advised Bodet that it had succeeded in placing the risk and on January 11, 1956 Certificate WA-1994 insuring Gulf was sent from the office of Seear (U.S. A.) to Bodet.

Certificate No. WA-1994 is a broker's certificate issued by Seear (U.S.A.) on the customary Lloyd's form certifying that it is authorized to, and does thereby, bind, in accordance with the terms of the certificate, certain unnamed "Underwriters, at Lloyd's, London and/or Companies." As far as this record shows, no slip subscribed to by underwriters at Lloyd's covering this risk was ever issued. It should be stated again that a subpoena duces tecum served on Seear (U.S.A.) to produce the documents which would indicate whether this risk had been placed was returned unsatisfied because the Seear (U.S.A.) file which would have contained the names of the underwriters, if any, had been shipped to London.

By letter dated February 9, 1956 Seear (U.S.A.) advised Bodet that "the negotiations which we had completed regarding this risk have entirely fallen through" and that "inadvertently policies were issued for part of the risk which had been arranged tentatively and also your account was debited in error with the premium of this part of the risk." The letter ended stating "we should be very glad if you would reply to this letter confirming that you understand that no coverage whatsoever is in force on this risk." Bodet replied to the Seear (U.S.A.) letter of February 9, 1956 on February 16, 1956 as follows: "Thank you for your letter of February 9th which as stated to Mr. Stern is most disappointing. We have no alternative but to cooperate with you in your dilemma by accepting your no coverage advice."

Bodet testified that he advised the president of Gulf Shipside of the February 9th letter from Seear (U.S.A.) and that he was authorized by his principal to accept the no coverage advice contained therein. The president of Gulf Shipside, Weil, denies that he was so advised, insisting that he was under the impression throughout 1956 that the insurance was in effect. Unfortunately, there is no decisive documentary evidence which would resolve this conflict between Bodet and his principal. There is nothing in writing in which Bodet advised Weil, nor is there anything in the written communications of Weil which would indicate that he was unaware, that the certificate in suit had been cancelled. An analysis of the account books of Bodet and Gulf is also unavailing. In May 1956 Gulf's open account with Bodet was credited with the return of the premium, but Gulf's books reflect no corresponding entry.

The defendants, "certain Underwriters, at Lloyd's, London and/or Companies," first maintain that this Court does not have jurisdiction over them and that the service of process is deficient. Since an insurance company which accepts a risk in a state subjects itself to the jurisdiction of the courts of that state as well as to service of process provided by the laws thereof, this defense is without merit.⁵ The second defense is simply that Certificate No. WA-1994 was never in force since no subscribers to the risk have been shown, at Lloyd's or elsewhere. Finally, underwriters say that, in any event, the certificate was "cancelled, rescinded and/or withdrawn ab initio by J. K. Seear (U.S. A.) Ltd. in February of 1956," months before the damage in suit occurred.

The position of plaintiff Schwabach & Company, as well as the cross-claimant, Gulf Shipside, is also a model of simplicity. Citing authorities,⁶ they state that since the certificate was issued by one having apparent authority, the principal is bound thereon irrespective of actual assent thereto. They say further that the underwriters at Lloyd's cannot avoid their responsibility on the certificate by remaining incognito. As to the alleged cancellation, they maintain that the laws of Louisiana prescribe certain formalities for the cancellation of insurance such as written notice "to the insured or to his representative in charge of the subject of the insurance"⁷ and that these requirements have not been complied with.

It is indeed unfortunate that the records of Seear (U.S.A.) concerning the negotiation for and placement of the risk in suit are not available. These records would doubtless disclose which, if any, underwriters subscribed to the risk. Absent these records, Schwabach and Gulf Shipside are relegated to an attempt to show apparent authority to bind "certain Underwriters, at Lloyd's London and/or Companies" by Seear (U.S.A.). The certificate in suit itself indicates that the risk was covered by such underwriters, and it is further shown that Seear (U.S.A.) habitually used the Lloyd's certificate form to certify coverage of risk to assureds without showing thereon who the subscribing underwriters are, all in accordance with standard Lloyd's practices. These facts, according to Schwabach and Gulf, make out a case of apparent authority which estops the defendant insurers from denying coverage on the risk in suit. Defendant, outlining at length the manner in which Lloyd's does business, states that the certificate in suit is but a scrap of paper and that the unnamed underwriters shown thereon as binding themselves to the risk simply do not exist.

Certificate No. WA-1994 is on the usual Lloyd's form and is indistinguishable from thousands of other such certificates binding unnamed insurers at Lloyd's. For years the insurance business of the world has been conducted on the basis of such certificates. It is a little late in the day to refer to them as scraps of paper. Unquestionably, as this case demonstrates, for the security of...