Ope Shipping, Ltd. v. Allstate Ins. Co., Inc.
| Decision Date | 30 August 1982 |
| Docket Number | D,No. 693,693 |
| Citation | 687 F.2d 639 |
| Parties | OPE SHIPPING, LTD. and El Porvenir Shipping Company, Inc., Plaintiffs-Appellants, v. ALLSTATE INSURANCE COMPANY, INC., United States Fidelity & Guaranty Companies, Inc., Various British Underwriters and Underwriters at Lloyds, Defendants-Appellees. VADOR SHIPPING, LTD., and Cia. de Navegacion La Libertad, S.A., Plaintiffs-Appellants, v. ALLSTATE INSURANCE COMPANY, INC., United States Fidelity & Guaranty Companies, Inc., Various British Underwriters and Underwriters at Lloyds, Defendants-Appellees. AGUA SHIPPING, LTD., and Cia. De Navegacion Corinto, S.A., Plaintiffs-Appellants, v. ALLSTATE INSURANCE COMPANY, INC., United States Fidelity & Guaranty Companies, Inc., Various British Underwriters and Underwriters at Lloyds, Defendants-Appellees. DURAS SHIPPING, LTD., and Nicaraguense, S.A., Plaintiffs-Appellants, v. ALLSTATE INSURANCE COMPANY, INC., United States Fidelity & Guaranty Companies, Inc., Various British Underwriters and Underwriters at Lloyds, Defendants-Appellees. ocket 81-7701. |
| Court | U.S. Court of Appeals — Second Circuit |
Joseph F. De May, Jr., New York City (Victor S. Cichanowicz, Alfred F. Koller, Jr., and Cichanowicz & Callan, New York City, on the brief), for plaintiffs-appellants.
Michael J. Ryan, New York City (Frank H. Loomis and Hill, Betts & Nash, New York City, on the brief), for defendants-appellees Marine Risk Underwriters.
Brendan J. Connolly, New York City (Mendes & Mount, New York City, on the brief), for defendants-appellees War Risk Underwriters.
Before WATERMAN, VAN GRAAFEILAND and MESKILL, Circuit Judges.
Plaintiffs appeal from orders and a judgment of the United States District Court for the Southern District of New York, 521 F.Supp. 342, Pollack, J., denying them recovery of the insured value of four ships. We affirm in part and reverse in part.
In June, 1979, the El Salvador, the Hope, the Managua and the Honduras were owned respectively by three Panamanian corporations and one Nicaraguan corporation, all apparently under the control of General Anastasio Somoza. The ships were registered under the Nicaraguan flag. The four vessels were lost to their owners during the 1979 Nicaraguan revolution which resulted in the overthrow of the Somoza government by Sandinista forces. The chronology of events leading to the demise of the Somoza regime is set forth in the opinion of the court below, reported in 521 F.Supp. at 342.
On June 17, 1979, the Hope was taken over by four armed crew members who identified themselves as Sandinistas and ordered the ship's captain to proceed to Cuba. In Puerto Nuevita, Cuba, Cuban authorities came aboard the Hope and sailed it to Mariel, Cuba, where it remained until it was returned to Nicaragua.
On June 22, the El Salvador was removed from the Canal Zone to Panamanian waters while its captain was ashore. The chief mate stated that five armed crew members, who identified themselves as Sandinistas, ordered the transfer and hoisted the Sandinista flag. The Panamanian Maritime National Guard took control of the ship. The Honduras and the Managua suffered similar fates around June 22. The Honduras was taken from the Canal Zone into Panamanian waters, while the Managua slipped out of El Salvador in contravention of orders and also was taken to Panama.
On June 24 and 28, 1979, Somoza informed his longtime business associate Joseph Baittiner about the fate of the ships. At Somoza's request, Baittiner then undertook to transfer title of the ships to Cayman Islands corporations. On July 9, papers were executed for the transfer of the Hope from El Porvenir Shipping Co., Inc. to OPE Shipping, Ltd., the El Salvador from Cia. de Navegacion La Libertad, S.A., to Vador Shipping, Ltd., the Honduras from Marina Mercante Nicaraguense, S.A. to Duras Shipping, Ltd. and the Managua from Cia. de Navegacion Corinto, S.A. to Agua Shipping, Ltd.
On or before July 10, the marine risk coverage on the ships was cancelled, either for non-payment of premiums or because of the change in ownership. On July 11, the war risk insurers authorized the assignment of their policy to the Cayman Islands corporations. On July 13, the vessels were registered under the British flag in the Cayman Islands.
The ships remained in Cuba and Panama until after the Sandinistas gained complete control of the Nicaraguan government. The vessels were returned to Nicaragua in August, 1979, and on September 28, 1979, plaintiffs sued in the court below to recover their insured value.
In the summer of 1980, the Empresa Nacional de Puertos, an agency of the Sandinista government, commenced actions in the First District Court of Managua, Nicaragua, to recover port charges for the four ships which had accrued while they were laid up in Corinto, Nicaragua. The ships were attached pursuant to judicial orders, and, following the entry of judgments, were offered for sale at public auction and purchased by Empresa for the amount of the charges owed.
Plaintiffs claimed that their losses were covered by both the marine risk and war risk policies. The district court held that they were covered by neither. For the reasons discussed below, we affirm as to the marine risk but reverse as to the war risk.
At the time the ships were diverted from their courses, the marine risk insurance was in effect. The marine policy covered loss due to barratry of the master and mariners and other like perils, but specifically excluded loss resulting from civil war, revolution, rebellion, insurrection or civil strife arising therefrom, hostilities or warlike operations, whether or not there was a declaration of war.
Barratry has been defined as "an act committed by the master or mariners of a ship, for some unlawful or fraudulent purpose, contrary to their duty to their owners, whereby the latter sustain an injury." Marcardier v. Chesapeake Insurance Co., 12 U.S. (8 Cranch) 39, 49, 3 L.Ed. 48 (1814). It consists of serious misconduct or dishonest breach of trust resulting in prejudice to the owner, Gilmore and Black, The Law of Admiralty 73 (2d ed. 1975); Couch on Insurance 2d § 43:38 (1963), and may take place even though the disobedient crew or master did not act with an intent to derive personal benefit from the wrongful act, id. § 43:39.
There can be little question that the four crews were guilty of barratrous conduct. Uncontradicted testimony established that they forced the masters to relinquish control of their ships and then sailed the vessels to the waters of nations hostile to Somoza and friendly to the Sandinista cause. These actions were in clear derogation of the crews' duties to the shipowners.
However, because of the policy exclusions, the barratrous acts cannot be viewed in isolation without consideration being given to causative and motivative factors. When ascertaining the legal cause of loss for insurance purposes, a court must look to the "real efficient cause" of the occurrence rather then the single cause nearest in time to the loss. Blaine Richards & Co. v. Marine Indemnity Insurance Co., 635 F.2d 1051, 1054 (2d Cir. 1980) (quoting Lanasa Fruit Steamship & Importing Co. v. Universal Insurance Co., 302 U.S. 556, 565, 58 S.Ct. 371, 375, 82 L.Ed. 422 (1938)). Determination of proximate cause is a matter of "applying common sense and reasonable judgment as to the source of the loss alleged." Blaine Richards & Co. v. Marine Indemnity Insurance Co., supra, 635 F.2d at 1054-55.
From a common sense standpoint, it is quite obvious that the unlawful conduct of the four crews was a direct result of the Nicaraguan civil war. The barratrous mariners took control of the ships in the name of the Sandinistas, professed to the acting under orders from the Sandinista regime and, in at least one case, hoisted the Sandinista flag over the ship. The commandeered vessels were taken into the waters of nations known to be friendly to the revolutionary cause and were returned to Nicaragua only after Somoza was ousted and the Sandinistas were in control. Moreover, it is evident, from the concerted nature of the activities, that the seamen acted under orders from a central authority. The district court did not err, therefore, in holding that the conduct of the crews fell squarely within the exclusions of the marine policy so as to relieve the marine underwriters from liability.
The war risk policy complemented the marine risk policy by providing coverage for the risks excluded from coverage in the latter policy under the "War, Strike and Related Exclusions" clause. At first blush, therefore, it would seem that the very facts which relieved the marine underwriters from liability imposed liability upon the war risk underwriters. However, the war risk underwriters argued successfully below that they, too, were relieved of liability, because their own policy excluded coverage for losses due to "(c) apture, seizure, arrest, restraint, detainment, or confiscation by the Government ... of the country in which the Vessel is owned or registered." We believe the district court should have rejected this argument.
Prior to July 9, 1979, title to the El Salvador, the Hope, and the Managua was, in each case, in a Panamanian corporation. Although the stock of these corporations may have been substantially or...
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