Opinion
No. 98 Civ. 7840 (HB)
February 24, 2003
OPINION ORDER
The United States Court of Appeals for the Second Circuit remanded this case to determine whether a marine cargo insurance policy remained in effect at the time water damaged a portion of a diammonium phosphate shipment, which was stored in a shore-side silo at Jawaharlal Nehru Port Trust, India ("JNPT"). At the commencement of this litigation, plaintiff New York Marine General Insurance Co. ("NY Marine") sought a declaratory judgment that it is not liable to defendants for the cargo damaged at the JNPT port. Defendants Tradeline (L.L.C.) ("Tradeline") and Deepak Fertilisers and Petrochemicals Corp. Ltd. ("Deepak") counterclaimed against N.Y. Marine for breach of the insurance policy for failing to pay Deepak's claim. For the foregoing reasons, I find that the insurance policy did not extend to cover the water damage to the DAP at JNPT, and therefore N.Y. Marine is not liable to defendants.
I. INTRODUCTION
The Court assumes familiarity with the discussion of the background facts as set forth in New York Marine General Ins. Co. v. Tradeline, 266 F.3d 112 (2d Cir. 2001) and 2000 WL 739567 (S.D.N.Y. June 7, 2000), thus only facts relevant to decide the remand are set forth here. Parenthetically, were one to put this "tail" on this much more complicated lawsuit in perspective, the parties could and should have resolved this matter long ago.
On or about April 18, 1998, Deepak purchased from Tradeline two shipments of diammonium phosphate ("DAP") which were to be transported to Kandla, India. Deepak Mem. at 3-4. To cover the transit risks associated with transporting the DAP, Tradeline procured insurance from N.Y. Marine, on a warehouse-to-warehouse basis. Deepak Mem. at 3. The policy included industry standard forms entitled Institute Cargo Clauses (A) and (C) ("ICC(A)" and "ICC(C)" respectively). Only LCC(C) contains a duration clause that sets forth the temporal scope of coverage.
To handle the discharge of the DAP at Kandla, Deepak hired Rishi Shipping ("Rishi") as the handling agent. Nicoletti Aff. Exh. 12 (Deshpande Decl.) at ¶ 7. Some time between late April and May of 1998, Rishi advised Deepak to ensure that all risks, including the risk of rainwater damage, was covered by insurance. Nicoletti Exh. 13 (Balamaran Depo.) at 66. The upgraded policies changed the port of destination from "Kandla (India)" to "Kandla/JNPT, India," cf. Nicoletti Aff., Exh. 5 (Special Marine Policy ("SMP") 367 and 368) to Hourican Aff., Exhs. C and D (SMP 377 and 378), and amended clause 1 of the ICC(C) provision to include rainwater coverage. No alterations were made to the duration clause in the ICC(C), i.e., Clause 8.
On June 9, 1998, while the DAP was being discharged at Kandla, a cyclone struck, closing the port. Nicoletti Aff. Exh. 14, Baralaman Decl. at ¶ 8. The vessel, still pregnant with approximately 36,500 metric tons of DAP on board, was diverted from Kandla to JNPT. The vessel arrived at the port of JNPT on June 22, 1998 and unloading of the DAP began immediately. Nicoletti Aff. Exh. 10 at T000295; Hourican Aff. Exh. G. The unloading process used a conveyor belt and was, compared to the manual unloading operations at Kandla, largely automated. Nicoletti Aff. Exh. 13 (Baralaman Depo.) at 126. Deepak hired South India Corporation (Agencies) Ltd. ("South India") as the handling agent at JNPT and except for the stevedoring, performed "similar" services as Rishi at Kandla. Hourican Aff. Ex. H (Deshpande Depo.) at 131. At JNPT, Indian government port employees undertook whatever manual labor was required, which Deepak paid for, to unload and bag the DAP. Nicoletti Aff. Exh. 12 (Deshpande Decl.) at ¶¶ 10-12.
On June 27, 1998, V.M. Deshpande, Deepak's chief general manager of marketing fertilizer, visited the silo at JNPT and noticed that the ceiling was leaking and causing damage to the DAP. The parties agree that 566.53 metric tons of DAP was damaged by the rainwater in the JNPT silo and that, after salvage, the calculated loss to Deepak from the water damage amounted to U.S. $100,454.48. Nicoletti Aff. Exh. 1 (Stip. Facts) at ¶¶ 65 and 67.
II. DISCUSSION
Clause 8 of the ICC(C) sets forth the duration of insurance coverage. It states in pertinent part:
8.1 This insurance attaches from the time the goods leave the warehouse or place of storage at the place named herein for the commencement of the transit, continues during the ordinary course of transit and terminates either
8.1.1 on delivery to the Consignees' or other final warehouse or place of storage at the destination named herein,
8.1.2 on delivery to any other warehouse or place of storage, whether prior to or at the destination named herein, which the Assured elect to use either
8.1.2.1 for storage other than in the ordinary course of transit or
8.1.2.2 for allocation or distribution, or
8.1.3 on the expiry of 60 days after completion of discharge overside of the goods hereby insured from the oversea vessel at the final port of discharge, whichever shall first occur.
Nicoletti Aff. Exh. 16.
1. Delivery to "final warehouse or place of storage"
Under section 8.1.1 of clause 8 in the ICC(C), insurance coverage over the DAP terminates when delivered "to the Consignees' or other final warehouse or place of storage at the destination named herein." Nicoletti Aff. Exh. 16. No one disputes that the silo where the DAP was stored at JNPT is a "warehouse or place of storage." Moreover, Deepak cannot refute that it agreed to name the port of JNPT as an alternative destination to Kandla, and that JNPT was specifically added to the special marine policy after Deepak's handling agent at Kandla advised it to obtain rainwater coverage. See Nicoletti Aff. Exh. 13 (Balaraman Depo.) at 95 (noting that JNPT was listed to be an alternative to Kandla); cf. Nicoletti Aff. Exh. 5 (SMP 367 and 368) and Hourican Aff. Exhs. C and D (SMP 377 and 378). Moreover, Deepak presents no evidence that it had any intent to further transport by marine vessel the DAP, which might suggest that the silo was not intended to be the "final" warehouse or place of storage within the meaning of the special marine policy. Indeed, the special marine policy did not include any provision to cover in-land destinations. Additionally, although the port of Kandla reopened early July, Deepak elected to store, bag, and distribute the DAP from the port of JNPT rather than relocate the cargo, further evidencing that the DAP had reached the "final warehouse or place of storage" at JNPT. Nicoletti Aff. Exh. 13 (Balaraman Depo.) at 125.
To test whether goods have reached their "final" destination, courts have often focused on whether the consignee exercised dominion and control over the shipment. See, e.g., Lumber Woods Prods., 807 F.2d 916, 920 (11th Cir. 1987); M.J. Federman Co. v. American Ins. Co., 196 N.E. 297, 298 (N.Y. 1935); Donald T. Rave, Jr. and Stacey Tranchina, Marine Cargo Insurance: An Overview, 66 Tul. L. Rev. 371, 377 (1991). In the instant case, the DAP, after it arrived at JNPT, was discharged directly into the silo via conveyer belt, Hourican Aff. Exh. K (Tata Marine Survey Report) at 1, and then bagged and prepared for delivery to other inland destinations. Hourican Aff. Exh. G (South India Corporation Daily Reports). South India, which Deepak hired as the "handling agent" at JNPT, did not actually physically handle the DAP during unloading, unlike Rishi at Kandla. Based on this distinction, Deepak contends it never exercised custody or control over the DAP before water damaged the cargo in the silo at JNPT. Deepak also notes that government port workers, and not South India employees, dealt with unloading and bagging the DAP, further reflecting that the DAP was not within its dominion and control, and that South India allegedly only served to record the daily discharge of DAP from the cargo vessel and to coordinate the onward shipment of the DAP once it was bagged. Deepak Mem. at 11; Hourican Aff. Ex. H (Deshpande Depo.) at 131. Deepak's attempt to disavow having any dominion or control over the DAP through its so-called "handling agent," i.e., South India, misses the mark. Deepak's disavowal is belied by the presence and role of its chief general manager of marketing, V.M. Deshpande, at JNPT. Deshpande had discovered the water leakage at the silo and was the sales executive at JNPT apparently responsible for acting as Deepak's "eyes and ears." Nicoletti Aff. Exh. 12 (Deshpande Decl.) at ¶ 12; Hourican Aff. Exh. F (Balaraman Depo.) at 222. According to testimony from Deshpande, he had also worked out the details of how to geographically distribute the DAP. Nicoletti Aff. Exh. 11 (Deshpande Depo.) at 14-15. As Deepak's "eyes and ears," Deshpande "generally supervise[d] the things that [were] going on" and notified Deepak of any problems. Hourican Aff. Exh. F (Balaraman Depo.) at 222; Nicoletti Aff. Exh. 14 (Balaraman Decl.) at 7. In a memo issued by Deepak on June 29, 1998, for instance, Deshpande authorized JNPT to deploy an "escavator" to facilitate faster discharge of the DAP, requested JNPT to "take immediate actions to seal the leakages," and reported that Deepak would advise its "stevedoring agent to segregate the wet/damaged cargo." In light of such communication and Deshpande's role at JNPT, it is clear that Deepak, through its agent, Deshpande, supervised the disposition of the DAP at JNPT, and thus Deepak exercised dominion and control over the goods in the silo. See Jomark Textiles, Inc. v. Int'l Fire and Marine Ins. Co., 771 F. Supp. 577, 580 (S.D.N.Y. 1989). Accordingly, the DAP was no longer in transit and no longer covered by the disputed marine cargo insurance policy. See Nicoletti Aff. Exh. 16 (ICC(C)) at § 8.1.1; Lumber Wood Prods. Inc. v. New Hampshire Ins. Co., 807 F.2d at 920 (finding owner to have exercised dominion and control over goods when it had the ability to make decisions concerning unloading, processing and distribution of the cargo); see also Federman Co. v. American Ins. Co., 267 N.Y. 380, 383-384 (1935) (noting that an insured may not extend indefinitely the duration of insurance company's policy risk once the goods had reached the chosen final destination).
2. Use of the Port of JNPT for Storage Allocation or Distribution
Assuming, arguendo, that the silo at JNPT did not come within the meaning of "final warehouse or place of storage" under section 8.1 of the ICC(C), insurance coverage of the DAP would have nonetheless lapsed under sections 8.1.2 and 8.1.2.2 of clause 8 of the ICC(C). According to these sections, coverage terminates if Deepak elects to use the port of JNPT for "allocation or distribution." Deepak insists that it used JNPT out of necessity rather than choice, and therefore there is "absolutely no evidence" that it "elected" to use the distress port of JNPT. Deepak Mem. at 13. Contrary to Deepak's assertion, Deepak agreed, as evidenced by the revised special marine policy, to make the port of JNPT an alternative delivery site in the event inclement weather prevented Deepak from unloading the shipment at the preferred Kandla port. See Nicoletti Aff. Exh. 13 (Balaraman Depo.) at 95 (noting that JNPT was listed to be an alternative to Kandla); cf. Nicoletti Aff., Exh. 5, SMP 367 and 368 and Hourican Aff., Exhs. C and D, SMP 377 and 378. Consistent with this plan, Deepak in conjunction with Tradeline "decided that the vessel [holding the DAP] should be diverted to the distress port of JNPT" after the cyclone hit Kandla and caused that port to shut down. Nicoletti Aff. Exh. 14 (Baralaman Decl.) at ¶¶ 8-9; Exh. 13 (Baralaman Depo.) at 124, 212, 301. Out of concern that the shipment may endure additional damage and uncertainty over whether the DAP would be unloaded and distributed in time for the peak fertilizer season, defendants "elected" to divert the DAP to the safer port of JNPT. Nicoletti Aff. Exh. 13 (Balaraman Depo.) at 125.
As shown by the records kept by its handling agent, South India, and the supervisory role Deepak played in the disposition of the DAP at JNPT, large quantities of the DAP were, under Deepak's direction, dispatched and bagged to be distributed to inland destinations in India for delivery to its customers. Hourican Aff. Exh. K (Tata Marine Survey Report) at 5-6; Hourican Aff. Exh. F (Baralaman Depo.) at 283; Nicoletti Aff. Exh. 12 (Deshpande Decl.) at ¶ 10 (showing invoices issued to Deepak for services rendered by JNPT government employees in connection with unloading and bagging of the DAP); Hourican Aff. Exh. G (South India reports) (tallying the amount of DAP discharged from the cargo vessel, placed into bags, and dispatched inland). Plainly, Deepak used the port of JNPT as a staging area for the further distribution of DAP, and thus JNPT was a warehouse, which Deepak used for "allocation or distribution" within the meaning of the in-transit clause. Jomark, 771 F. Supp. at 580 (holding that under a duration clause [exactly like the one at hand], goods that arrived at a "staging place" for distribution were no longer considered in transit).
III. CONCLUSION
Having determined for the foregoing reasons that the DAP was not "in-transit" when it was damaged in the silo at JNPT, plaintiff is not liable to defendants under the insurance policy, and defendants' claim against New York Marine seeking insurance coverage for 566.3 metric tons of damaged DAP is dismissed. The clerk of the court is instructed to close this case as well as any open motions.