Northwestern Mutual Life Insurance Co. v. Linard, 614

• Decision Date: 06 June 1974
• Docket Number: No. 614,Docket 73-2085.,614
• Parties: The NORTHWESTERN MUTUAL LIFE INSURANCE CO., Plaintiff, v. Harry Oliver LINARD, an Underwriter at Lloyd's, et al., Defendants-Appellees, and Vainqueur Corporation, Defendant-Appellant and Cross-Claimant.
• Court: U.S. Court of Appeals — Second Circuit

498 F.2d 556 (1974)

The NORTHWESTERN MUTUAL LIFE INSURANCE CO., Plaintiff, v. Harry Oliver LINARD, an Underwriter at Lloyd's, et al., Defendants-Appellees, and Vainqueur Corporation, Defendant-Appellant and Cross-Claimant.

No. 614, Docket 73-2085.

United States Court of Appeals, Second Circuit.

Argued March 6, 1974.

Decided June 6, 1974.

Richard Gyory, New York City (Robert R. Kreis, Levin, Kreis, Ruskin & Gyory, New York City, of counsel), for defendant-appellant and cross claimant.

William G. Symmers, New York City (Symmers, Fish & Warner, New York City, of counsel), for defendants-appellees.

Before MOORE, MANSFIELD and OAKES, Circuit Judges.

OAKES, Circuit Judge:

Vainqueur Corporation, the shipowner, appeals from the dismissal of its cause of action on three Time Hull policies of marine insurance, against the underwriters. The suit was commenced by a mortgagee, Northwestern Mutual Life Insurance Co. ("Northwestern"), and the shipowner cross-claimed against the underwriters; before the case was tried a settlement was agreed upon between Northwestern and the underwriters so that the trial related only to the shipowner's cross claim.

The insurance was on the vessel "Vainqueur," which sank following an explosion on March 14-15, 1969. The underwriters, appellees here, claimed that the sinking was due to sabotage and that the ship was scuttled. The district court heard all the evidence and concluded that the "circumstantial evidence of deliberate scuttling is insufficient to establish by a preponderance of the evidence that the Vainqueur was scuttled." The court held, however, that there was sufficient evidence of scuttling to satisfy what it called the underwriters' burden of producing evidence, so that in effect "the evidence of scuttling is in balance or equipoise." It then went on to hold, purporting to follow English scuttling cases dealing with burden of proof, that the basic burden of persuasion in an action on marine insurance to show that a loss arose from a covered peril is on the plaintiff; while Vainqueur Corporation made out a prima facie case, the underwriters then met their burden of going forward with evidence of scuttling. Since, the trial court held, the burden of persuasion remained on Vainqueur Corporation and the evidence was in equipoise, judgment was against the shipowner. Scuttling was thus not an exception under an exclusionary clause, as to which the underwriters would have had the burden of proof. See Prashker v. United States Guarantee Co., 1 N.Y.2d 584, 592, 154 N.Y.S.2d 910, 916, 136 N.E.2d 871, 875 (1956). Rather, the court held, the insured had not persuaded the trier that the event came within the insurance policy in the first instance.

The Vainqueur flew the Liberian flag and was owned by appellant Vainqueur Corporation, a Liberian company. The stock of this company was owned by the mother of Raoul Slavin, who held a power of attorney for her in respect to it. Slavin was the principal also of Auxiliary Power Corporation, which was the managing agent for the Vainqueur, with offices in New York. The vessel, displacing about 22,500 tons, was built in 1957 and 1958 in Montreal, Canada. It was powered by an 8-cylinder, 2-cycle main propulsion diesel engine, with additional power provided by two generators each driven by a diesel. The ship had been purchased in 1967 by Vainqueur Corporation from a subsidiary of Northwestern for $412,500 in cash and a seven per cent promissory note in the amount of $1,287,500, secured by a Liberian ship mortgage. Vainqueur Corporation continued previously carried machine and hull insurance in the amount of $3,750,000. During the Vainqueur Corporation's ownership the vessel had a number of problems including a main engine breakdown in 1968, a port generator breakdown in December of 1968, and an anchor chain break with a consequent minor collision with three other vessels after arrival at New Orleans in early 1969. At the time of the sinking, the vessel was operating under a bulk sugar charter providing for two voyages from Vera Cruz to New Orleans and was carrying 20,000 long tons of sugar on the second voyage.

With respect to the cause of the sinking, the evidence below showed that an explosion was heard throughout the ship at about 11:40 p. m. on the night of March 14, 1969, in the vicinity of the engine room, causing extensive flooding and causing the ship to sink within an hour. The underwriters' expert evidence indicated that the detonation of an explosive device in the No. 6 starboard wing tank sank the vessel. The underwriters' expert also contradicted the Vainqueur Corporation's expert that a starboard generator engine crank case explosion or a main engine crank case explosion combined with structural failure could have sunk the ship. The court noted, but did not give great probative weight to, the uncontradicted testimony of the underwriters' expert that there were no known instances of the loss of a merchant vessel as a result of a diesel engine crank case explosion.

There was further circumstantial evidence adduced by the underwriters from which scuttling could have been inferred. One Marius Pieterse was employed by Vainqueur Corporation as a Port Captain, having lost his previous job for self-dealing; he was sufficiently close to Slavin that the telephone in Slavin's New York apartment was listed in Pieterse's name and he worked quite closely with various Slavin corporations. He joined the vessel in New Orleans after the anchor chain break and did engage during the voyage in question in an inspection of certain of the vessel's wing tanks. The evidence below indicated that on March 13 and 14, he entered the No. 6 starboard wing tank of the vessel, where the explosion apparently subsequently may have occurred, upon more than one occasion. There was some evidence from which it could have been found that Pieterse was then interested in the precise location of the Vainqueur and the depth of the water. While the court noted that there was no credible evidence that Pieterse purchased explosives or had possession of them at any time during the final voyage, there was evidence from Gail D. Monroe, a friend of Pieterse's wife-to-be, that during the course of a telephone call from New Orleans to Houston Pieterse told her "they are making me blow up the Vainqueur," and that he planned to do this and that it would be done between New Orleans and Vera Cruz, together with a subsequent call from Vera Cruz in which he told her, she said,

that he had to set a device whereby the ship would blow up and blow up in such a way as to penetrate the especially heavy iron plates, double iron plates that are used in the Vainqueur, and do this so that he could get the crew where they wouldn\'t be hurt, send a radio message, and then try to get the whole crew off the ship.

And he mentioned that this had to be done in the deepest water.

Finally, he allegedly told Mrs. Monroe that after the sinking he had $75,000 to $85,000 coming to him as "his portion of the Vainqueur." Pieterse denied the incriminating statements and explained that he had said "what do you want me to do, you want me to blow up the goddamned ships?" because he "couldn't get it through . . . their heads those of Mrs. Monroe and her close friend, Pieterse's fiancee that he had to do a job, that he had many responsibilities . . . ." The court said that it could not find "on the basis of the testimony of Mrs. Monroe that the Vainqueur was purposefully scuttled."

Appellees adduced considerable evidence of Slavin's motive¹ to sink the Vainqueur to collect the insurance proceeds. Slavin was in financial difficulty; he was experiencing trouble in meeting the mortgage payments and had requested in writing several extensions from Northwestern. The Vainqueur was having trouble obtaining freight charters, although it may have had two lined up, and the owner had little cash available for payment of the insurance premiums and had taken out bank loans. There was a history of major insurance losses occurring to Slavin-connected vessels. In early March of 1969 the value of the Vainqueur was less than had been paid for it, i.e., the value was $1,535,000, while the insurance remained in the total sum of $3,750,000.²

Much of the argumentation in the briefs relates to the facts and whether or not scuttling was proven. We take it for purposes of this appeal that the findings made by the district court were supported by the evidence and in no instance have they been shown to be clearly erroneous. Compania Martiartu v. Royal Exchange Assurance Corp., 1924 A.C. 850 (H.L.). The shipowner argues that the testimony of Mrs. Monroe should not have been received since it included hearsay of Pieterse and that there was no evidence that Pieterse was speaking as the shipowner's agent within the scope of his authority, either actual, apparent or implied. Cf. Northern Oil Co. v. Socony Mobil Oil Co., 347 F.2d 81, 84-86 (2d Cir. 1965). Whatever the validity of that evidentiary rule—which plainly does not apply to statements of a coconspirator made in the furtherance of a conspiracy, United States v. Anunziato, 293 F.2d 373, 378 (2d Cir.), cert. denied, 368 U.S. 919, 82 S.Ct. 240, 7 L.Ed.2d 134 (1961), and may be thought not to apply to a "Port Captain" supposedly a trouble-shooter, in close relationship to the principal—the fact is that Pieterse himself here testified as a witness and was subject to cross-examination as to his declarations inconsistent with his testimony. In such a case his declarations cannot be considered hearsay. 3A Wigmore, Evidence § 1018, at 996 (Chadbourn rev. 1970); Model Code of Evidence Rule 503(b); Uniform Rule 63(1); Letendre v. Hartford Accident & Indemnity Co., 21 N.Y.2d 518, 289 N.Y. S.2d 183, 236 N.E.2d 467 (1968). See also United States v. De Sisto, 329 F.2d 929 (2d Cir.), cert. denied, 377 U.S. 979, 84 S.Ct. 1885, 12 L.Ed.2d 747 (1964).

We come then to the principal question on this...