Navegacion Goya, SA v. Mut. Boiler & Mach. Ins. Co.

• Decision Date: 12 December 1975
• Docket Number: No. 69 Civ. 4170.,69 Civ. 4170.
• Parties: NAVEGACION GOYA, S. A. and American Bulk Carriers, Inc., Plaintiffs, v. MUTUAL BOILER & MACHINERY INSURANCE CO., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

411 F. Supp. 929

NAVEGACION GOYA, S. A. and American Bulk Carriers, Inc., Plaintiffs, v. MUTUAL BOILER & MACHINERY INSURANCE CO., et al., Defendants.

No. 69 Civ. 4170.

United States District Court, S. D. New York.

December 12, 1975.

COPYRIGHT MATERIAL OMITTED

Robert Thomajan, George L. Graff, Milgram, Thomajan & Jacobs, P.C., New York City, for plaintiffs.

Sheldon A. Vogel, John H. Parker, Bigham, Englar, Jones & Houston, New York City, for defendants.

PIERCE, District Judge.

OPINION

Plaintiffs herein, Navegacion Goya, S.A. (Goya) and American Bulk Carriers, Inc. (ABC), sue pursuant to the admiralty and maritime jurisdiction of this Court, 28 U.S.C. § 1333, to recover under a contract of marine insurance for damage by fire to the S/T KENT (Kent), a vessel owned by Goya and operated by ABC. The complaint demands judgment from the five defendant insurance companies¹ (collectively, the insurers or underwriters) in an amount totaling $84,500 together with interest thereon.

The defendants do not dispute the execution and delivery of the insurance contract, nor the damage to the Kent. Rather, defendants deny liability under the policy, claiming that the policy was voided by the action of the plaintiffs in changing the flag of the vessel from United States to Panamanian on or about August 4, 1968, during the period of coverage.

The parties have stipulated that the following facts are not in dispute in this action:

1. Plaintiff Goya was from and after August 4, 1968, the owner of the Kent.

2. Plaintiff ABC was at all times relevant to this action the operations manager of the Kent.

3. Corsair Transportation Corp. (Corsair) was at all relevant times prior to August 4, 1968, the owner of the Kent.

4. The defendants are corporations engaged in the insurance business each with a principal place of business in the United States of America.

5. For the period commencing September 1, 1967, and ending August 31, 1968, Corsair and ABC, as Managers, through John P. Tilden Ltd., insurance brokers of 100 William Street, New York, N.Y., caused the Kent, her hull, machinery, etc., to be partially insured under Policy No. JPT 67-252 to the extent of the fraction of the amount insured thereunder, $262,500 over the agreed valuation of vessel $1,750,000, against the risks specified in said policy. The defendants' subscriptions to the said policy were as follows:

                Mutual Boiler & Machinery
                Insurance Company                   $52,500
                American Manufacturers Mutual
                Insurance Company                    52,500
                Stuyvesant Insurance Company         43,750
                St. Louis Fire & Marine
                Insurance Company                    43,750
                Jefferson Insurance Company          35,000
                                                   ________
                        Total amount insured
                        by defendants              $227,500
                                                   ========
                

The remaining $35,000 of Policy No. JPT 67-252 was subscribed by Maryland National Insurance Company. Policy No. JPT 67-252 was issued through the said brokers John P. Tilden, Ltd. in New York. It bears the date October 10, 1967 and the assureds named therein are Corsair and ABC, as Managers for account of themselves, but subject to the provision of this Policy with respect to change of ownership. The remaining $1,487,500 of the agreed valuation of the $1,750,000 was insured in London by British underwriters.

6. All premiums with respect to Policy No. JPT 67-252 have been paid.

7. On or about August 4, 1968, ownership of the Kent was transferred to plaintiff Goya and her flag was changed from United States to Panamanian.

8. Corsair and Goya were affiliated and/or interrelated companies within the meaning of JPT 67-252 in that, inter alia, the ultimate shareholder of each corporation was Samuel H. Wang.

9. On August 14, 1968, New York time Goya and ABC sent John P. Tilden, Ltd. a letter stating that the Kent had been sold from Corsair to Goya on August 4, 1968, and flag changed from U.S. to Panamanian.

10. On August 15, 1968, at 0915 local time in Bombay, India, a fire occurred aboard the Kent.

11. The loss occasioned by the fire was an event of loss covered by the policy conditions for which payment would be due if policy number JPT 67-252 was in force and effect on August 15, 1968.

12. As a result of the fire on August 15, 1968, at 0915 Bombay time the Kent sustained damage in the total amount of $650,000.

13. British Underwriters have made payment of $552,500 representing their proportionate share of the total amount of $650,000, and Maryland National Insurance Co., one of the "American" Underwriters, has paid $13,000 representing its proportionate share of the $650,000.

14. JPT 67-252 does not contain a clause which provides for cancellation or cessation of insurance in the event of a change in flag of the vessel Kent.

In addition, the Court finds the following relevant facts to have been established by the evidence:

15. The Affiliated Companies Clause in Policy No. JPT 67-252 provides that the policy shall cover affiliated companies of the assured (Corsair) as owners of the vessels insured. It is stipulated that Corsair and Goya are affiliated companies within the meaning of Policy No. JPT 67-252. (See Finding 8, supra.) No issue has been raised in this case as to Goya being the party entitled to recover under the policy should plaintiffs succeed in this lawsuit.

16. The defendant insurers' policy contained a provision requiring these underwriters to "follow", in certain respects, the decisions and actions of the London insurers who were the "lead" underwriters on this policy.²

17. Nowhere in the Policy of Insurance itself (Plaintiff's Ex. 6) or in the Hull Application itself (Ex. 2) — a document supplied by the broker which also embodies the written binder of insurance — is the flag of the Kent described. Nor is there any question asked concerning flag on either form.

18. Defendants' Exhibit A represents a questionnaire prepared by the American Hull Syndicate and used by many American underwriters, including Syndicate members, at the time the policy in suit was written. Plaintiff's Exhibit 5 represents the written answers to the questions contained in Exhibit A.

19. Exhibit 5 was submitted to defendant Mutual Boiler by plaintiff's broker, Tilden, at the request of John N. Blackman (Blackman), President of Mutual Boiler, but it was not submitted to any of the other defendants. (Tr. 62-64, 125-32)³

20. Exhibit 5 included the answer to a question (Ex. A, question 13) concerning the flag of the vessel and stated that the flag of the Kent was American, which was true at that time.

21. Although when Blackman received Exhibit 5 he did not have before him the printed questionnaire to which the written answers referred, he understood, based on his extensive experience in the marine insurance business, that the item on the answer sheet numbered 13 referred to the flag of the vessel. (Tr. 316)

22. Exhibit 5 was submitted to Mutual Boiler along with Exhibit X, a copy of the Hull Application. Blackman had received Exhibit X before the risk was bound on behalf of Mutual Boiler, as evidenced by his handwritten questions appearing thereon. Therefore, the Court finds that Blackman received Exhibit 5 before the risk was bound on behalf of Mutual Boiler for 3% of the total.

23. None of the defendants, other than Mutual Boiler, offered evidence concerning whether they considered the flag of the vessel material to the risk, or considered it at all.⁴

24. The expert testimony offered by the defendants to the effect that flag is customarily viewed as a material consideration in the writing of marine insurance (Tr. 274-75, 317-18) was uncontradicted by any evidence offered by the plaintiff.

25. Blackman testified that the fact that the flag of the Kent was represented as being American at the time the risk was bound by Mutual Boiler was considered material by him, and the Court credits this testimony. (Tr. 318-19)

26. The Policy of Insurance (Ex. 6) does contain two provisions specifically dealing with cancellation of coverage. The Brokers Cancellation Clause provides that the insurance may be cancelled for non-payment of premiums. The Change of Ownership Clause provides (with certain exceptions, see Findings # 1, 3, 8, 15) for automatic cancellation of the policy if the ownership of the vessel is changed without the written agreement of the underwriters.

Discussion

The first question to be considered is that of the applicable law. Where, as here, a case involves a marine insurance policy, state law governs unless there is a well-settled federal admiralty rule applicable to the particular issues of the case. Wilburn Boat Co. v. Fireman's Ins. Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955); Ionian Shipping Co. v. British Law Ins. Co., 426 F.2d 186 (2d Cir. 1970); Purofied Down Products Corp. v. Travelers Fire Ins. Co., 278 F.2d 439 (2d Cir. 1960). Applying this principle, this Court has previously determined that in this case New York law is the governing law. See Navegacion Goya, S.A., et al. v. Mutual Boiler & Machinery Ins. Co., et al., 1972 A.M.C. 650, 653 (S.D.N.Y.1972).

Plaintiffs' arguments that English law should govern must fail. Plaintiffs have not shown that it was the intent of the parties that the inclusion of the London Following Clause meant that English law should apply. Nor is the Court persuaded by the plaintiffs' argument that the provisions of substantive English law — particularly Section 37 of the British Marine Act of 1906⁵ — were "terms and conditions" of the London "lead" policy and were therefore incorporated into the American policies by the London Following Clause. The cases cited by the plaintiffs are inapposite. Both involved incorporation into "following" policies of clauses which had been specifically set forth in the "lead" policies. See Bank of Rockville Centre Trust Co. v. Baldwin, 238 App.Div. 354, 265 N.Y.S. 343 (1st Dept. 1933); National Factors, Inc. v....