Omnisource Corp. v. Ncm Americas, Inc.

• Decision Date: 19 March 2004
• Docket Number: No. 1:02-CV-036.,1:02-CV-036.
• Citation: 313 F.Supp.2d 880
• Parties: OMNISOURCE CORPORATION, Plaintiff, v. NCM AMERICAS, INC., d/b/a Maryland Netherlands Credit Insurance Company, Defendant.
• Court: U.S. District Court — Northern District of Indiana

Page 880

313 F.Supp.2d 880

OMNISOURCE CORPORATION, Plaintiff, v. NCM AMERICAS, INC., d/b/a Maryland Netherlands Credit Insurance Company, Defendant.

No. 1:02-CV-036.

United States District Court, N.D. Indiana, Fort Wayne, Division.

March 19, 2004.

COPYRIGHT MATERIAL OMITTED

Cathleen M. Shrader, John F. Lyons, Thomas Andrew Herr, Barrett and McNagny, Fort Wayne, IN, for Plaintiff.

Diana Carol Bauer, Richard P. Samek, Miller Carson Boxberger & Murphy LLP — FW/IN, Fort Wayne, IN, for Defendant.

C. Erik Chickedantz, Hawk, Haynie, Kammeyer & Chickedantz LLP, Fort Wayne, IN, Pro Se.

MEMORANDUM OF DECISION AND ORDER

COSBEY, United States Magistrate Judge.

I. INTRODUCTION¹

In this factually rich but ultimately straightforward case, Plaintiff OmniSource Corporation ("OmniSource") claims entitlement to $1,600,000 on a credit insurance policy issued by Defendant NCM Americas, Inc. ("NCM"), because one of OmniSource's customers, LTV Steel Company, Inc. ("LTV"), declared bankruptcy, leaving Omnisource with some unpaid accounts receivable.² For its part, NCM says there is no coverage because: (1) OmniSource made material misrepresentations about its relationship with LTV in its application for insurance; and (2) a specially added provision, the "Back Sales Coverage Endorsement," prohibits recovery.

This Order addresses and GRANTS OmniSource's motion for summary judgment, DENIES NCM's motion for summary judgment, and DENIES OmniSource's motion to strike some testimony as moot.³

II. FACTS

OmniSource sells processed scrap metal, and for many years LTV was a big customer, buying for example, almost $24,000,000 worth of scrap metal in just the last six months of 2000. (Compl. ¶ 8; Answer ¶ 8; Dep. of Robert Reeves, Ex. A, ¶ 18.)

Like approximately 80% of OmniSource's customers, LTV was "self-invoicing," (Dep. of Julie Schultz, Part I, at 71-72), meaning that upon receipt and unloading of each shipment, LTV faxed OmniSource an acknowledgment reporting the weight received (id.; Reeves Dep. at 80-81). The fax thus became the invoice and triggered LTV's payment terms. (Reeves Dep. at 46.) While OmniSource generated its own invoice at the time of shipment, those invoices were only for internal bookkeeping and tracking purposes and were never sent to LTV. (Schultz Dep., Part I at 59-60, 71-73; Dep. of Donna Messick at 63.)

OmniSource and LTV had a longstanding, unwritten agreement regarding payment terms.⁴ (Schultz Dep., Part II at 48-50.) LTV processed payments twice a month, on the 7th and the 22nd. (Id.) Goods unloaded between the 1st and 16th of the month were paid for on the 22nd of the following month. (Id.) Goods unloaded between the 16th and the end of the month were paid for on the 7th of the month after next.⁵ (Id.) Under this system, payment could occur anywhere between thirty-seven and fifty-two days after receipt of the goods. (Id.)

In 1999 and 2000, while engaged in merger discussions with another company, OmniSource decided to obtain credit insurance. (Schultz Dep., Part I at 29-30.) On the recommendation of its proposed merger partner, OmniSource worked with Craig Bonnell ("Bonnell"), an independent credit insurance broker who regularly works with NCM, the second largest credit insurer in the world. (Dep. of Craig Bonnell at 9, 12-13; Dep. of Mark Felmar at 12.) Bonnell provided quotes and application forms to Julie Schultz ("Schultz"), OmniSource's Credit Manager, and assisted OmniSource in preparing two essentially identical applications for NCM insurance, submitted on August 22, and October 12, 2000. (Schultz Dep., Part I at 3, 37-38, 66; see Mem. of Law in Supp. of Def.'s Mot. for Summ. J., Exs. A, B.)

NCM's application asked for the terms of sale between OmniSource and its customers, to which OmniSource responded, "[n]ormal terms of sale" are "net 30, 45, 60-various" with the "[l]ongest terms of sale (including dating)" being "net 90 from receipt of material." (Mem. of Law in Supp. of Def.'s Mot. for Summ. J., Ex. A ¶ 2.)

The application also requested information about OmniSource's past due accounts. (Id. ¶ 7.) When prompted to "[l]ist ALL accounts proposed for insurance that are more than 60-days past due from ORIGINAL DUE DATE," OmniSource listed only two: "R. Lavin" and "Decatur Casting Division." (Id.) The next question asked OmniSource to "[l]ist ALL accounts currently causing you concern, even if not 60 days past due," and OmniSource responded: "see above." (Id.)

Cindy Tikiob ("Tikiob"), an NCM underwriter, reviewed OmniSource's application and researched the financial condition of OmniSource's customers, including LTV. (Dep. of Cindy Tikiob at 8-9, 15-16.) Tikiob and Mark Felmar ("Felmar"), NCM's vice president of claims underwriting and recovery, decided not to issue any coverage for LTV, due to longstanding concerns about its viability. (Felmar Dep. at 60, 64-65.) However, Bonnell, obviously interested in salvaging the account, urged NCM to provide coverage for LTV. (See, e.g., Bonnell Dep. 62-65, 75, 82-83; Tikiob Dep. at 42.) Eventually, after much discussion, and apparently with considerable misgivings, NCM finally agreed to provide $2,000,000 of coverage for LTV, subject to 20% coinsurance. (Dep. of Arjan van de Wall at 23; Mem. of Law in Supp. of Def.'s Mot. for Summ. J., Ex. D at NCM 124.) According to Neil Leary ("Leary"), NCM's president, both Tikiob and Felmar ultimately made the decision to extend coverage to the LTV risk. (Dep. of Neil Leary at 28-29.)

NCM issued a credit insurance policy ("Policy") to OmniSource, effective November 1, 2000, in return for OmniSource's $323,382 premium payment. (Mem. of Law in Supp. of Def.'s Mot. for Summ. J., Ex. D at NCM 103; Bonnell Dep. at 94, Ex. 53.) The Policy provides coverage to OmniSource against "LOSS due to INSOLVENCY of BUYERS [i.e., LTV and several other listed OmniSource customers]." (Mem. of Law in Supp. of Def.'s Mot. for Summ. J., Ex. D at NCM 109, 112.) The Policy then goes on to define a "LOSS" as "the unpaid and undisputed INVOICE PRICE, in part or in full, of sales of goods ... by the Insured, delivered to a BUYER, as of the date of INSOLVENCY." (Id. at NCM 110.) Of course, the term "INSOLVENCY" includes a filing for bankruptcy. (Id. at NCM 109.)

However, beyond these fundamental terms, NCM also thinks two of the Policy's "conditions" play a role here:

C. Limit Obligations of Insured

It is the duty of the Insured to request the Company to establish named limits of coverage for BUYERS under the conditions of the Policy. When requesting named limits of coverage, the Insured shall fully disclose all known facts concerning the BUYER and the risk.

D. Warranties and Representations

The Warranties and Representations made in the Application for this Policy of Credit Insurance are the basis for this Policy and are material to the risk assumed by the Company under this Policy. Any false warranty, concealment, fraud or material misrepresentation made in obtaining this Policy or in any claim for LOSS under this Policy, shall void this Policy from its beginning.

(Id. at NCM 105.)

OmniSource also bargained for and purchased additional special coverage under what NCM calls a Back Sales Coverage Endorsement ("BSCE"), insuring any losses on deliveries made to LTV in the sixty days prior to the Policy's effective date. (Id. at NCM 114.) However, notwithstanding OmniSource's efforts to expand coverage, NCM now actually relies on some language in the BSCE to defeat coverage altogether:

No coverage is afforded under this POLICY where the BUYER [e.g., LTV] was INSOLVENT at the effective date of this POLICY [i.e., November 1, 2000] or where, at the effective date of this POLICY, the BUYER was past due under the original terms of sale, or the time for the payment by the BUYER had been extended by the INSURED beyond the original due date.

(Id.)

On December 29, 2000, less than two months after NCM's Policy became effective, LTV filed for bankruptcy, owing OmniSource well over $2,000,000. (Compl. ¶ 21; Answer ¶ 21.)

On April 23, 2001, OmniSource filed with the Bankruptcy Court a Proof of Claim for $3,328,893.43 (later amended to $2,843,743), for scrap metal sold to LTV between December 23, 1998, and December 28, 2000. (Mem. of Law in Supp. of Def.'s Mot. for Summ. J., Ex. E.) Attached to OmniSource's Proof of Claim was an internal aged accounts receivable report concerning LTV. (See id.)

About two weeks later, on May 7, 2001, OmniSource made a claim on NCM under the Policy, seeking Policy limits of $1,600,000 ($2,000,000 less the 20% coinsurance). (See id., Ex. F.) OmniSource attached to its Policy Claim the Proof of Claim from LTV's bankruptcy, including the aged accounts receivable report. (See id.)

As a result of OmniSource's claim, NCM hired Aaron Songer ("Songer"), a certified public accountant, to audit LTV's account with OmniSource. (See id., Ex. G.) Songer found that on September 30, 2000, just twelve days before OmniSource's final application for credit insurance, Omnisource was carrying $310,974 in "over 120 days receivables" from LTV. (Id. at 3.)

On October 31, 2001, NCM issued a denial letter on OmniSource's claim contending that OmniSource's internal invoices were "misleading because the terms of sale on the invoice (net 15 or net 30 days) are not adhered to." (Compl., Ex. D at 1.) NCM further alleged, with little analysis, that OmniSource's aged accounts receivable report showed $940,055 to be sixty days "past due" on September 30, 2000, a point not disclosed in OmniSource's October 12, 2000, application. (Id.) NCM also stated that LTV was past due on the effective date of the Policy, November 1, 2000, thus negating coverage under the BSCE.⁶ (Id.) Finally, NCM claimed that it did not become aware of OmniSource's 37/52 day payment terms with LTV until after underwriting the Policy, and "[t]his withheld information may have altered our underwriting decision." (Id. at 2.) Notwithstanding these contentions, NCM...