Phx. Ins. Co. v. Norfolk S. R.R. Corp.
| Decision Date | 16 May 2014 |
| Docket Number | Civ. No. 11-00398 (KM) |
| Parties | The Phoenix Insurance Co., Limited as subrogator underwriter of Enerco Enterprises Limited, Plaintiff, v. Norfolk Southern Railroad Corp. and Kavanagh Logistics Inc. Defendants. |
| Court | U.S. District Court — District of New Jersey |
NOT FOR PUBLICATION
OPINIONAppearances by:
Kevin J. Bruno
BLANK ROME LLP
Attorney for Plaintiff
Christopher J. Merrick
KEENAN COHEN & HOWARD P.C.
Attorneys for Defendant Norfolk Southern Railway Company
Alan C. Milstein
Michael Dube
SHERMAN, SILVERSTEIN, KOHL, ROSE & PODOLSKY, P.A.
Attorneys for Defendant Kavanagh Logistics, Inc.
This case arises out of a claim raised by an insurance company as the subrogated underwriter of its insured. Plaintiff Phoenix Insurance Co. Limited ("Phoenix") argues that its insured, Enerco Enterprises Limited ("Enerco"), was not notified of its right to full insurance liability pursuant to the Carmack Amendment, 49 USC 11706, thus entitling it to damages on various grounds. Phoenix brings a cause of action against Defendant Norfolk Southern Railway Company ("Norfolk Southern") for breach of contract, negligence, and disregard of duties and obligations under the Carmack Amendment for damage which occurred to Enerco's electrical transformer (the "Transformer") while en route from New Jersey to Canada. Phoenix brings a second cause of action against Defendant Kavanagh Logistics ("Kavanagh") for breach of contract, negligence, and breach of its obligation as an agent of Enerco, for its role in arranging the shipment of the Transformer.
The Court is presented with Phoenix's motion for partial summary judgment on limitation of liability; Norfolk Southern's motion for partial summary judgment on limited liability and preemption of the state law claims against it for breach of contract and negligence; and Kavanagh's motion for summary judgment on all claims brought against it: breach of contract, negligence, and breach of its obligation as an agent of Enerco. For the reasons set forth below, Phoenix's motion is denied, Norfolk Southern's motion is granted in full, and Kavanagh's motion is granted in part to the extent that the subrogation action may proceed up to the limitation of liability. There remain the Carmack Amendment claim against Phoenix subject to the limitation of liability, and the state law claims against Kavanagh, also subject to the limitation of liability.
A. Factual History Plaintiff Phoenix brings this suit as the subrogated insurance underwriter of Enerco, an Israeli business which sells large electrical transformers. Phoenix and Enerco maintained a floating policy agreement which provides all-risk coverage by which Phoenix is notified prior to each shipment, and by which Phoenix is notified on a monthly basis of shipments already shipped. Phoenix covers loss or damage to the shipment based on the contractual obligation of the delivery at issue. It is undisputed that Phoenix charged Enerco no more than $15,000 to cover shipment of the Transformer at issue which was worth approximately $2,000.000, for its shipment from the country of manufacture, Israel, to its destination in Canada, regardless of the method of transportation used.
On or about June 5, 2007, Mr. Gideon Muscatel of Enerco contacted Mr. Larry Pharr of Kavanagh, a transportation logistics company, for a price quote for the rail transportation of the Transformer from Port Elizabeth, New Jersey to Ontario, Canada. Specifically, the request covered delivery of the containers by rail from the port to Canada, and back. (Pl.'s Ex. G.) When Mr. Muscatel arranged for the transportation of the Transformer, he was aware that Phoenix covered Enerco for any risk of loss. This was not the first goods arrangement between Enerco and Kavanagh. Indeed, the Transformer was the seventh or eighth manufactured by Enerco for which Kavanagh arranged transport.
All communications with Kavanagh regarding the details of the transportation arrangements of the Transporter were conducted between Mr. Pharr and Mr. Muscatel. Mr. Pharr began working for Kavanagh in 2002 after working in the trucking industry since 1970. Mr. Pharr had been employed by Kavanagh for five years before the transportation of the transformer was arranged. At the time transportation for the transformer was arranged, Mr. Pharr had dealt with Norfolk Southern for over five years.
It is undisputed that Kavanagh performed more services on behalf of Enerco than simply ordering rail transportation. Kavanagh also coordinated the rail carrier to ensure that the rail car was available at the port of arrival, arranged for the lashing of the transformer to the rail car, and coordinated offload of the Transformer with its final purchaser and destination.
On or about June 18, 2007, Mr. Pharr requested a quote from Norfolk Southern to perform the relevant rail carriage. On June 27, 2007, Norfolk Southern sent an email to Mr. Phar offering a freight rate of $44,123, offer open until December 31, 2007. Norfolk Southern's email also stated: (emphasis added). Kavanagh did not forward this email detailing Norfolk Southern's price quote and availability of greater liability coverage to Enerco.
Norfolk Southern subsequently sent Kavanagh a Rail Authority NSSQ 44504 Transmittal (the "Rate Transmittal") which reiterates the freight rate, and notes "limited railroad liability to a maximum of $25,000 per car for loss or damage to commodity." The Rate Transmittal additionally provides that the pricing is "subject to the rules and provisions published in Norfolk Southern Railway Conditions of Carriage - Series or successor publication."1 Kavanagh did notforward the Rate Transmittal to Enerco, although the Conditions of Carriage referenced therein is available to the public on the Internet. The record does not support a factual finding that Enerco had notice of the existence of the Norfolk Southern's Conditions of Carriage, although Kavanagh clearly did.
On June 27, 2007, Kavanagh emailed Enerco its own quote of $66,960 which included the cost of rail transportation, the cost of specialized railcars, the cost of the securement of the Transformer to the railcar, and Kavanagh's markup. Of import here, Kavanagh provided no notice of the availability of a rate for full liability, an alternative freight rate, the statement contained in Norfolk Southern's June 27 email concerning the availability of greater liability coverage, or the Rate Transmittal itself which internally referenced the Conditions of Carriage which itself limitedly references levels of liability. Rather, Kavanagh informed Enerco that the rail shipment and container shipment was subject to "$25,000 limited liability per car."
Norfolk Southern has an internal value policy which estimates full Carmack liability coverage at twenty-five percent of the total value of the item. Here, the Transformer was valued at two-million dollars, and thus the rail-carrier would have provided full Carmack coverage for $500,000. (Achimasi Dep., 123:19-124:5; 125:6-22.)2
According to Mr. Muscatel, based on his dealings, transportation logistics companies always provide a $25,000 limited liability cap with regard to use of different rail companies, and"there is no other option" and the cap is "not something that you can even negotiate." (Muscatel Dep. 69:2 - 70:9; 72:4-6.) Indeed, Mr. Muscatel was under the impression that (Id.) Moreover, Mr. Muscatel testified:
[T]his issue of being able to bypass the limitation of liability only came up later, much later, pursuant to this lawsuit and investigation afterwards by The Phoenix that this question even came up and the ability to actually do it came up. Before that, that wasn't an issue at all. It was not even an option.
(Id. at 74:1-8.) Importantly, Mr. Muscatel testified that it is "impossible" to know whether Enerco would have actually purchased full Carmack coverage had it known of its availability. (Muscatel Dep. at 103:10-106:10.)
Mr. Pharr testified that he did not provide information regarding the option of greater liability to Enerco because he knew that Enerco was already insured with Phoenix. Further, Mr. Muscatel instructed Mr. Pharr to obtain the lowest freight rates possible for the rail transportation of the Transformer. Mr. Pharr had previously arranged for the transportation of Enerco's freight many times prior to this shipment, and Mr. Muscatel had always requested the lowest rate available. Indeed, Mr. Pharr testified that he understood that the rail-carrier could offer Enerco higher liability insurance at a greater rate (Pharr Dep. 38:9 - 39:5, 45:5-11), although the record is not clear as to Mr. Pharr's knowledge of the availability of full Carmack Coverage. Specifically, his deposition testimony sets forth:
Q. But you don't know on the railroad side if they could obtain full coverage, do you?
A. No.
Q. Do you know whether the customer could make a declared value and fully, as you've used the word, insure with the railroad that declared value?
A. My understanding is yes.
(Pharr Dep. 45:20 - 46:1.)
It is undisputed that no Kavanagh customer has ever chosen to purchase full Carmack coverage. Indeed, Mr. Kavanagh testified that Enerco never did so during the entirety of Mr. Kavanagh's thirty years of experience in the business. Consistently, Ms. Achimasi had no recollection of a Norfolk Southern customer accepting any Carmack liability rates. (Milstein Cert., Ex. F.)
Relatedly, Norfolk Southern never advised Enerco directly of any alternative freight rate or any rate based on full liability. Kavanagh never received any instructions from Norfolk Southern about providing alternative or full freight...
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