UNITED STATES COURT OF
COMMERCIAL UNION INSURANCE
Plaintiff - Appellee,
v. No. 99-3393
SEA HARVEST SEAFOOD
Defendant - Appellant.
June 11, 2001
Appeal from the United
States District Court
for the District of Kansas
(D.C. No. 99-CV-2007-KHV)
Jess B. Millikan, Derby, Cook, Quinby
& Tweedt, LLP, San Francisco, California (John M. Duggan
and Deron A. Anliker, Duggan, Shadwick & Doerr, Overland
Park, Kansas, with her on the brief) for Plaintiff - Appellee.
Lindsay L. Wood (Rebecca S. Bihr,
Swanson Midgley, LLC, Kansas City, Missouri, with him on the
briefs) for Defendant - Appellant.(*)
Before HENRY, Circuit Judge,
MURPHY, Circuit Judge, and MILLS, District Judge.(2)
We deal here with 36,000 pounds
of decomposed frozen shrimp.
This appeal is taken from an order
granting summary judgment to Plaintiff-Appellee Commercial Union
Insurance Company ("Commercial Union") on its action
for a declaratory judgment pursuant to 28 U.S.C. § 2201
and denying partial summary judgment to Defendant-Appellant Sea
Harvest Seafood Company ("Sea Harvest") on Count I
of its counterclaim which alleged breach of contract.(1)
I. FACTS AND PROCEDURAL
On July 30, 1996, Commercial Union
issued a policy of ocean marine cargo insurance to Sea Harvest.
The policy provided that shipments of frozen shrimp would be
insured pursuant to the refrigeration clause. The refrigeration
insurance endorsement provided:
Perishable Cargo requiring temperature
control is insured against:
(1) All Risks of physical loss or
damage from any external
cause but excluding:
A. Deterioration, decay or spoilage
unless the Assured
can demonstrate that such damage
was directly caused
by derangement or breakdown of the
or directly caused by the vessel
stranding, sinking, burning
or in collision.
On October 30, 1998, Sea Harvest
declared a shipment of 3,600 cartons of frozen shrimp under the
policy. Sea Harvest contracted with Sea-Land Service Inc. ("Sea-Land")
to transport the shrimp from Bangkok, Thailand, to Philadelphia,
Pennsylvania. Sea-Land agreed to maintain the shrimp at -4 degrees
F in the cargo container during shipment. The shrimp shipment
arrived in California on November 2, 1998. Several days later,
the shrimp was sent to Chicago via Union Pacific Rail. The shipment
arrived in Chicago on November 16, 1998. It was then transferred
to the CSX terminal before departing for Philadelphia. At some
point during the transfer, Sea-Land failed to attach a gen-set
to the cargo container with the shrimp. The gen-set is a device
which provides electrical power to the refrigeration unit on
the cargo container. Before the shipment arrived in Philadelphia,
Sea Harvest was notified by a Sea-Land representative that the
cargo container left Chicago without a gen-set attached.
On November 18, 1998, Sea Harvest
made a claim to Commercial Union pursuant to the ocean marine
cargo insurance policy for the value of the shrimp. The claim
under the policy was for $230,005.79, which represented the entire
value of the shipment based upon Sea Harvest's contention that
it was damaged in transit and rendered a total loss. The following
night, the shrimp arrived in Philadelphia. At the direction of
Commercial Union, Scott Esslinger of Luard & Company inspected
the shipment. He concluded that the shipment had been without
refrigeration for two and one half days. His report stated as
In the single carton opened for
examination of the contents (taken from the
top tier of the rear row) we noted
no apparent heavy ice or frost inside the
plastic bags. Individual shrimp
had well defined ridges. They appeared to
be fairly evenly distributed throughout
the bags, and did not appear to be
frozen together in large clumps
at the bottom of the bags, as we might expect
had they thawed out and been refrozen.
When Esslinger examined the container,
the temperature ranged from 4 degrees below Fahrenheit to 1.5
Testing was done on selected portions
of the shipment by both Certified Laboratories and Michelson
Laboratories. Both laboratories found some degree of decomposition
in the shrimp samples tested. Under FDA guidelines, any decomposition
of frozen shrimp is unacceptable and renders the shrimp unfit
for human consumption. The shipment was therefore eventually
ordered to be destroyed.
On January 7, 1999, Commercial Union
denied the Sea Harvest claim, except for the value of seven cartons
that were not included in the shipment.(2)
Commercial Union subsequently notified Sea Harvest of its decision.
On January 8, 1999, Commercial Union commenced an action for
declaratory judgment, contending that it does not owe Sea Harvest's
claim under the maritime insurance policy. Commercial Union alleged
that the claim was denied for two reasons: (1) Sea Harvest did
not establish that the shipment was in good condition when the
coverage attached as required by the policy; and (2) the policy
excluded coverage of the claim.
Sea Harvest warranted in the policy
that "the interest insured hereunder is in good condition
at the commencement of the coverage." The parties dispute
whether Commercial Union requested that Sea Harvest provide proof
that the shrimp shipment was in good condition at the commencement
of coverage. It is clear that Commercial Union did not conduct
its own independent investigation to determine whether the shrimp
was in good condition when coverage attached. Commercial Union
points out, however, that Sea Harvest had the burden of demonstrating
that the shrimp was in good condition when coverage commenced.
Sea Harvest president Shin Quo Lee asserts that Sea Harvest provided
proof that the shipment was in good condition from the outset
of coverage in the form of quality control certifications from
the supplier. Rebecca Galloway, Commercial Union's regional claims
manager, denies that quality control certifications were provided
by Sea Harvest. She notes that she did not see the certifications
until her deposition on August 11, 1999.
On August 13, 1999, Commercial Union
moved for summary judgment on its action for declaratory relief.
Sea Harvest moved on August 27, 1999, for partial summary judgment
on its breach of contract claim. On November 2, 1999, the district
court entered an order granting Commercial Union's motion and
denying Sea Harvest's motion. The district court determined that
under admiralty law, the failure to attach a gen-set did not
constitute a "derangement or breakdown of the refrigeration
machinery" and therefore was excluded pursuant to the policy.
Because the court determined that the policy precluded coverage,
it did not reach Commercial Union's other proffered justification
that Sea Harvest failed to establish that the shipment was in
good condition when coverage attached.
II. STANDARD OF REVIEW
This Court reviews the district
court's grant of summary judgment de novo, applying the same
legal standard used by the district court. See Byers
v. City of Albuquerque, 150 F.3d 1271, 1274 (10th
Cir. 1998). Summary judgment is appropriate "if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Pursuant
to this standard, we review the evidence and draw reasonable
inferences therefrom in a light most favorable to the nonmoving
party. See Byers, 150 F.3d at 1274.
Sea Harvest asserts that the district
court erred in determining that admiralty law applies to the
interpretation of the insurance policy and in granting Commercial
Union's motion for summary judgment. Sea Harvest further contends
that Kansas law should apply to this matter. Sea Harvest argues
that the word "derangement" as used in the insurance
policy is ambiguous and that the policy therefore does provide
coverage for the railroad's failure to attach the gen-set to
the container. While Sea Harvest concedes that the result would
be questionable pursuant to admiralty law, it alleges that there
is no question that the loss of the shrimp would be covered under
the applicable state law because of rules governing the construction
of ambiguous contracts. Commercial Union maintains that the district
court was correct in applying admiralty law. Nevertheless, Commercial
Union asserts that the result would have been the same under
the applicable state law.
We will first address the choice
of law issue. In seeking declaratory relief, Commercial Union
invoked the district court's admiralty jurisdiction pursuant
to 28 U.S.C. § 1333. Sea Harvest's counterclaim alleged
that jurisdiction was proper pursuant to 28 U.S.C. § 1332
in that there is complete diversity between the parties and the
amount in controversy exceeds $75,000.00. The district court
eventually concluded that admiralty jurisdiction was proper in
Initially, Sea Harvest contends
that the bill of lading terminated at the "port of discharge"
at Los Angeles. Thus, transportation beyond this point was subject
to a separate inland bill of lading. Sea Harvest also notes that
the warehouse to warehouse clause of the Marine Open Cargo Insurance
Policy provides that "the insurance continues whilst the
goods are in transit and/or awaiting transit delivered to final
warehouse at the destination named in the Special Policy or Declaration
or until the expiry of 15 days." Sea Harvest therefore notes
that this clause emphasizes that the policy consists of both
maritime and non-maritime obligations and coverage. At the very
least, Sea Harvest contends that the Court should view the transaction
as a "mixed contract" which included both maritime
and non-maritime obligations. Sea Harvest maintains that admiralty
jurisdiction is generally not present in such instances. Moreover,
the loss at issue clearly occurred during the inland portion
of the shipment and because of the significance of the land transportation,
it cannot be said that this portion was incidental to an otherwise
maritime contract. Thus, Sea Harvest contends that the insurance
policy should be analyzed according to the applicable state law
pursuant to diversity of citizenship jurisdiction.
Commercial Union emphasizes that
the contract at issue is maritime in nature. Thus, Sea Harvest's
arguments concerning the terms of the bill of lading are irrelevant.
Rather, this dispute concerns the obligations assumed in the
insurance policy. Moreover, Commercial Union notes that the policy
expressly applies to shipments between the Far East and the United
States. The premium is calculated to reflect this. While it is
true that the policy also insures cargo during transportation
from a vessel to a final inland destination, this does not rise
to the level of a completely separate coverage to which non-maritime
law should apply. Additionally, Commercial Union notes that Sea
Harvest submitted its claim under a "Refrigeration Insurance"
endorsement that does not specifically pertain to losses on land.
In any event, Commercial Union contends that the warehouse to
warehouse clause which governed the inland portion of the shipment
was merely incidental to the overall maritime nature of the policy.
Moreover, Commercial Union emphasizes that there is no evidence
in the record which indicates that it was aware that the shipment's
ultimate destination was Philadelphia. The premium was calculated
solely on the basis of the transportation of the shrimp from
Thailand to California which involved only ocean carriage. Commercial
Union alleges that this shows that the warehouse to warehouse
clause was merely incidental to the overwhelmingly maritime nature
of the policy. The fact that the shrimp was transported by rail
after its shipment by sea does not negate the overall maritime
nature of the policy. Accordingly, Commercial Union contends
that the district court properly applied admiralty law.
The Tenth Circuit has not addressed
the issue of whether admiralty law applies to the interpretation
of a marine insurance policy when the loss occurs during the
inland portion of the shipment. Other circuits have concluded
that disputes pursuant to marine insurance contracts are governed
by federal admiralty law when an established federal rule addresses
the issues raised. See Kiernan v. Zurich Co., 150
F.3d 1120, 1121 (9th Cir. 1998); Ingersoll Milling
Machine Co. v. Bodena, 829 F.2d 293, 305 (2d Cir. 1987);
All Underwriters v. Weisberg, 222 F.3d 1309, 1312 (11th
Cir. 2000). In the absence of a controlling federal rule, a federal
court may fashion a rule in certain circumstances. SeeWilburn
Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 314 (1955).
However, this practice is not favored. Seeid. at 316.
State law controls disputes involving maritime insurance policies
only "in the absence of a federal statute, a judicially
fashioned admiralty rule, or a need for uniformity in admiralty
practice." Bohemia, Inc. v. Home Ins. Co., 725 F.2d
506, 510 (9th Cir. 1984).
It is clear that there is no federal
statute that is applicable to the instant situation. Commercial
Union contends that there does exist a judicially-fashioned admiralty
rule that is directly on point. Specifically, it cites two Ninth
Circuit cases, Larsen v. Ins. Co. of North America, 252
F. Supp. 458 (W.D. Wash.) ("Larsen I"), aff'd,
363 F.2d 261 (9th Cir. 1966) ("Larsen II");
Suma Fruit Int'l v. Albany Ins. Co., 122 F.3d 34 (9th
Cir. 1997), that have reviewed the very language that is at issue
here as it appears in marine insurance policies. These cases
were the basis for the district court's order granting summary
judgment to Commercial Union.
Initially, we note that Sea Harvest
does not contest on appeal that the decomposition of the shrimp
constituted "[d]eterioration, decay or spoilage" within
the meaning of the policy. Rather, Sea Harvest contests the propriety
of admiralty jurisdiction and the district court's interpretation
of "derangement or breakdown of the refrigeration machinery."
It is this language that is the subject of the Ninth Circuit's
judicially-fashioned admiralty rule. Resolution of this case
therefore turns on this language.
In Larsen II, the Ninth Circuit
interpreted the meaning of "derangement or breakdown of
the refrigerating machinery" as that language appeared in
a marine insurance policy. 362 F.2d at 262. That case concerned
a cargo of salmon, a portion of which was determined to be spoiled.
See Larsen I, 252 F. Supp. at 461. Apparently,
the refrigeration machinery was in good working order and would
have functioned properly had the crew not been negligent in failing
to monitor the temperature. Seeid. at 474. Nevertheless,
the insured asserted that this constituted a "derangement"
of the refrigerating machinery and should therefore be covered
under the policy. The district court interpreted the language
in the following manner:
[I]n order to be deranged, machinery
must have some functional disorder
in its own operation, as distinguished
from a simple failure to operate at
all or an operation at an improper
or insufficient rate of production or
operation, due solely to the manner
in which human beings in charge of
the same choose to operate or not
to operate it.
The court therefore concluded that
there was no derangement of the machinery and that the loss was
not covered. Seeid. The Ninth Circuit upheld the determination
of the district court. SeeLarsen II, 362 F.2d at 263.
In Suma, the Ninth Circuit
addressed language in a marine cargo insurance policy that is
almost identical to the language found in the policy at issue
in this case.(3) That case
involved a portion of a shipment of sweet onions that had deteriorated
in transit when the carrier did not properly set the fresh air
vents on the refrigeration units of the storage containers. See
id. at 35. The insurer rejected the insured's claim, determining
that the carrier's failure to set the fresh air vents correctly
was not a "derangement" of the refrigeration machinery.
See id. The court held that because human failure
to operate the equipment at the proper capacity was the reason
for the loss, it could not be said that the damage was caused
by the "derangement or breakdown of the refrigerating machinery."
Seeid. at 36, quoting Larsen II, 362 F.2d at 263.
The Ninth Circuit went on to hold that "Larsen constitutes
a judicially-fashioned admiralty rule that uniformly provides
that the term 'derangement or breakdown of the refrigerating
machinery,' as the term is used in marine insurance contracts,
applies to losses caused by mechanical disorders of refrigeration
equipment." Id. at 36, quoting Larsen II,
362 F.2d at 263. It therefore determined that the district court
correctly applied the rule in Larsen to conclude that
the insured's losses were not covered by the insurance policy.
Seeid. at 36.
The district court adopted the Ninth
Circuit's reasoning in Suma, concluding that under established
admiralty law the term " 'derangement or breakdown of the
refrigerating machinery,' as the term is used in marine insurance
contracts, applies to losses caused by mechanical disorders of
refrigeration equipment." Commercial Union v. Sea Harvest,
75 F. Supp.2d 1264, 1270-71 (D. Kan. 1999), quoting Suma,
122 F.3d at 36. The court therefore granted Commercial Union's
motion for summary judgment on its declaratory judgment action
and denied Sea Harvest's motion for partial summary judgment.
See id. at 1271.
We agree with the district court
and the Ninth Circuit and hold that the term "derangement
or breakdown of the refrigeration machinery" as used in
marine insurance contracts does not apply to the failure to operate
the refrigeration equipment. Rather, it refers to "losses
caused by mechanical disorders of refrigeration equipment."
Suma, 122 F.3d at 36. We therefore adopt this judicially-fashioned
admiralty rule. Here, it is undisputed that the reason for the
decomposition of the shrimp is the human error in failing to
attach the gen-set to the container. It is clear that there were
no mechanical disorders with the refrigeration equipment. Accordingly,
the loss of the shrimp falls within the policy's exclusion.
We are mindful that there is one
major distinction between the instant matter and the two Ninth
Circuit cases on which we rely. Here, the decomposition of the
shrimp clearly occurred in Chicago on the overland portion of
the transportation. Conversely, the loss in both Larsen
and Suma occurred during the marine portion of the shipment.
See Larsen II, 362 F.2d at 262; Suma, 122
F.3d at 35. It was once the case that admiralty jurisdiction
was said to be reserved to "contracts, claims, and services
purely maritime." Rea v. The Eclipse, 135 U.S. 599,
608 (1890). Courts have since recognized exceptions to this general
rule. Today, some courts allow for the presence of admiralty
jurisdiction in the following instances: (1) when there is a
dispute over a contract that is not entirely maritime provided
the non-maritime elements are "incidental" to a primarily
maritime purpose; or (2) when the severable maritime portions
of a mixed contract that is not primarily maritime can be separately
litigated without prejudice to the overall contract. SeeSirius
Ins. Co. Ltd. v. Collins, 16 F.3d 34, 36 (2d Cir. 1994);
Berkshire Fashions, Inc. v. M.V. Hakusan II, 954 F.2d
874, 880 (3d Cir. 1992); Kuehne & Nagel v. Geosource,
Inc., 874 F.2d 283, 290 (5th Cir. 1989); Simon
v. Intercontinental Transport (ICT) B.V., 882 F.2d 1435,
1442 (9th Cir. 1989). Because the decomposition of
the shrimp did not occur during the maritime portion of the shipment,
it is clear that the second exception would not apply.
Sea Harvest argues that this is
a mixed contract and that the first exception is also inapplicable.
In making this argument, Sea Harvest relies in part on the Second
Circuit's decision in Atlantic Mutual Ins. Company v. Balfour
Maclaine Int'l Ltd., 968 F.2d 196 (2d Cir. 1992). The claim
in Balfour involved the loss of 165,564 bags of coffee
that had allegedly been stored at various warehouses in Mexico.
Seeid. at 197. Although the insurance policy was called
a "Marine Open Cargo Policy," its coverage extended
to goods which were stored at Mexico warehouses and goods being
transported within the United States. Seeid. at 197-98.
The insurer contended that the overall maritime nature of the
contract implicated the court's admiralty and maritime jurisdiction.
Seeid. at 198. The Second Circuit concluded that barring
the presence of the aforementioned two exceptions, admiralty
jurisdiction is not proper unless the contract is wholly maritime
in nature. See id. at 199. The court went on to
note that in assessing the propriety of admiralty jurisdiction,
a federal court must first ascertain whether the subject matter
of the dispute is so attenuated from maritime commerce that it
does not implicate the interests underlying admiralty and maritime
jurisdiction. See id. at 200, citing Exxon Corp.
v. Central Gulf Lines, Inc., 500 U.S. 603, 608 (1991). The
Second Circuit emphasized the fact that the goods never "became
marine cargo and never entered the maritime stream of commerce."
Id. at 200. The court therefore determined that the coffee's
connection with maritime commerce was "too speculative and
attenuated" to support admiralty and maritime jurisdiction.
We are not persuaded by Sea Harvest's
reliance on Balfour. Like Balfour, the instant
case involved a "Marine Open Cargo Policy." However,
this case involved significant maritime travel. Indeed, the shipment
from Bangkok to Los Angeles was clearly the predominant part
of the transaction. This contrasts with the situation in Balfour
in which the coffee did not even enter the maritime stream of
commerce. See id. at 200. Thus, unlike Balfour,
the shrimp shipment's connection to maritime commerce is not
too speculative to justify admiralty and maritime jurisdiction.
The shipment crossed the Pacific Ocean on its way from Bangkok
to Los Angeles before reaching its ultimate destination of Philadelphia
via train. Moreover, as Commercial Union notes, Sea Harvest submitted
its claim under the "Refrigeration Insurance" endorsement
which does not distinguish between losses on land and losses
at sea. It is true that the warehouse to warehouse clause of
the policy contemplates that there may be land travel. The relevant
part provides that "the insurance continues whilst the goods
are in transit and/or awaiting transit until delivered to final
warehouse at the destination named in the Special Policy or Declaration
or until the expiry of 15 days." Thus, it is clear that
the insurance coverage did not terminate when the shrimp reached
the "port of discharge" as indicated on the bill of
lading of Los Angeles. However, because of the key factual distinctions
between the present case and Balfour, we are not persuaded
by the Second Circuit's reasoning.
Relying on Berkshire Fashions,
Sea Harvest argues that when the inland portion of a mixed maritime
and non-maritime contract is significant, as it is here, it will
not be considered incidental and admiralty law will not apply
to losses on land. See id. at 881. However, as Commercial
Union notes, the record does not indicate that it was aware that
the shipment's ultimate destination was Philadelphia. Commercial
Union emphasizes that its premium was calculated on the basis
of the transportation of the shrimp from Thailand to California
via cargo ship. It notes that no separate premium was charged
for the land transportation. Thus, Commercial Union argues that
from its perspective, it made no difference whether the shrimp
was being transported across country or across town. It was insured
as marine cargo for transportation by cargo ship. It is clear
that Sea Harvest entered into a separate contract with Sea-Land
for transportation of the shrimp from Los Angeles to Philadelphia.
However, because of the warehouse to warehouse clause, the shipment
was insured by Commercial Union. The question therefore becomes
whether the warehouse to warehouse clause of a marine open cargo
insurance policy will take the instant dispute out of a court's
admiralty jurisdiction when the loss occurs during the inland
portion of the shipment.
We do not think that the warehouse
to warehouse clause is enough to take this dispute out of the
court's admiralty jurisdiction in this instance. As Commercial
Union notes, the shipment was insured as "Ocean Cargo."
Moreover, the warehouse to warehouse clause is found in the portion
of the policy entitled "Marine Open Cargo Policy."
It is true that the shipment was subject to a "thru (sic)
bill of lading." A "through bill of lading" is
one in which the carrier transports the goods from the point
of origin to destination, even though different carriers may
be used to perform the various portions of the shipment. See
Hartford Fire Ins. Co. v. Orient Overseas Containers Lines
(UK) Ltd., 230 F.3d 549, 552 n. 2 (2d Cir. 2000), citing
Mannesman Demag Corp. v. M/V Concert Express, 225 F.3d
587, 588 n. 3 (5th Cir. 2000). However, the bill of
lading does not indicate that the shrimp's ultimate destination
was Philadelphia. Instead, it designates "Los Angeles, CA,
USA" as the "port of discharge" and "place
of delivery by on-carrier." Thus, it appears from the bill
of lading that Los Angeles was the point of destination. The
only indication that the shipment would ultimately be transported
to Philadelphia is an invoice faxed to Sea Harvest from Sea-Land
on October 27, 1998. It indicates the destination of "Philadelphia,
PA." However, the record reflects that Commercial Union
calculated its premium based solely on the bill of lading which
provided only for ocean carriage. No separate premium was charged
for the cross-country land transportation. The policy was therefore
of an overwhelmingly maritime nature with the shipment from Bangkok
to Los Angeles clearly being the predominant part of the transaction.
Because the bill of lading contemplates only maritime travel,
Sea Harvest's claim sounds only in the warehouse to warehouse
clause. Although the warehouse to warehouse clause clearly provides
that the insurance continues during the land travel, it is nevertheless
incidental to the overall maritime nature of the policy.
Recently, the Second Circuit addressed
the issue of what law to apply to the loss of cargo during shipment
that includes both water and land transportation on a single
bill of lading. SeeHartford, 230 F.3d at 552. In Hartford,
the "through bill of lading" involved the shipment
of goods from Oconomowoc, Wisconsin, to Spijkenisse, The Netherlands.
See id. The bill of lading indicated that the container
would travel by land from Oconomowoc to Montreal, by sea from
Montreal to Antwerp, Belgium, and by land from Antwerp to Spijkenisse.
See id. at 555. Moreover, the bill specifically
designated the carrier for the maritime portion of the shipment
and noted that other carriers would transport the container for
the land portions of the carriage. See id. at 552.
The court emphasized the significance of the overland transportation,
noting that the bill of lading required land travel through four
countries using multiple modes of transportation. Seeid.
at 556. The court took judicial notice that the overall land
travel under the bill of lading amounted to at least 850 miles.
See id. The Second Circuit determined that this
was more than "incidental" to the maritime portion
of the carriage and was therefore not within its admiralty jurisdiction.
The instant matter differs significantly
from the situation in Hartford. As we have noted, it is
not clear from the bill of lading that any land transportation
is necessary. Here, the bill contemplates only ocean carriage.
The only indication of the shrimp's ultimate destination is an
invoice faxed to Sea Harvest from Sea-Land. Presumably, Sea Harvest
had informed Sea-Land that the shrimp was to be transported to
Philadelphia prior to its arrival in Los Angeles. Sea-Land then
sent the invoice on October 27, 1998, notifying Sea Harvest of
the shipping charges. Nevertheless, there is no indication from
the bill of lading that any land transportation is required.
Conversely, the bill of lading in Hartford specifically
noted that significant land transportation would be necessary.
See Hartford, 230 F.3d at 555-56. In determining that
the land portion was not merely "incidental" to the
sea carriage, the Second Circuit emphasized the land segment
pursuant to the bill of lading. See id. Here, because
the bill of lading contemplates only maritime travel, we decline
to follow Hartford.
We are not persuaded by the cases
relied upon by Sea Harvest in arguing that the contract contained
significant non-maritime elements. Sea Harvest cites The Ciano,
63 F. Supp. 892 (E.D. Pa. 1945) for the proposition that when
a contract involves both maritime and non-maritime subjects and
is divisible, only the maritime portion of the contract is governed
by maritime law. See id. at 894. However, as we
have noted, the only non-maritime portion of the contract that
is relevant here is the warehouse to warehouse clause which merely
contemplates the possibility of inland transportation. Moreover,
the facts of The Ciano are easily distinguishable from
the instant matter. In The Ciano, the bill of lading which
covered the cargo was issued from Port of Cadiz, Spain, to Minneapolis,
Minnesota, via Philadelphia. See id. at 893. Thus, as
in Hartford, the bill of lading specifically indicated
that land transportation would be required. It was clear that
the loss occurred while the merchandise was being transported
from Philadelphia to Minneapolis and that the asserted cause
of action was maintained against the rail carrier pursuant to
its own bill of lading. See id. The court concluded
that the inland transportation was not merely incidental to the
maritime portion of the transaction, emphasizing that the only
relevant contract was the railroad's bill of lading which did
not involve any maritime transportation. See id.
at 895. This obviously contrasts with the instant matter. Here,
it is not clear from the bill of lading that any inland transportation
would be required. Although Sea Harvest entered into a separate
contract with Sea-Land for the cross-country transportation of
the shrimp, the record is clear that Commercial Union based its
premium on the shipment from Bangkok to Los Angeles pursuant
to the marine insurance contract. We are therefore not persuaded
by The Ciano.
Sea Harvest next cites Berkshire
Fashions in contending that a bill of lading in a "mixed
contract" case does not give rise to the application of
admiralty law when cross-country transportation of goods is involved.
954 F.2d at 881. The Third Circuit reasoned that such extensive
inland transportation of goods could not be considered an "incidental"
portion of the contract. See id. In Berkshire
Fashions, the bill of lading indicated that the goods would
be transported from Taiwan to New York. See id. at 877.
It was not clear, however, whether the goods would be transported
merely by sea or by both rail and sea. See id.
The Third Circuit concluded that if only sea transportation was
contemplated by the bill of lading, then admiralty jurisdiction
would be appropriate. See id. at 877-78. However, if the
contract called for land and sea carriage, admiralty jurisdiction
would not arise. See id. The facts with which we are faced
are easily distinguishable from those in Berkshire Fashions.
Here, the bill of lading on its face contemplates only maritime
travel in transporting the shrimp from Bangkok to Los Angeles
via cargo ship. The marine insurance contract makes no mention
of the shrimp's ultimate destination of Philadelphia. If the
contract had indicated that the shipment's destination was from
Bangkok to Los Angeles to Philadelphia, then it would clearly
be a "mixed contract" of the type noted in Berkshire
Fashions. However, only the warehouse to warehouse clause
contemplates the possibility of land travel. We are therefore
not persuaded by Sea Harvest's reliance on Berkshire Fashions.
Sea Harvest next relies on Luvi
v. Sea-Land Service, Inc., 650 F.2d 371 (1st Cir.
1981), in arguing that land transportation contracts do not fall
within admiralty jurisdiction. In Luvi, an oral contract
to transport semitrailer cargo containers overland was at issue.
See id. at 372. The First Circuit emphasized that
the hauler had no contact with a ship and simply picked up the
vans at a terminal and drove them to another terminal. Seeid.
at 373-74. It therefore concluded that there was no basis to
characterize the contract as maritime. See id.
at 374. The nature of the marine insurance contract at issue
here obviously differs significantly from the contract at issue
in Luvi. We therefore find Luvi to be inapposite.
Because of the overwhelmingly maritime
nature of the insurance contract, we therefore hold that the
district court correctly determined that admiralty jurisdiction
was proper. We agree with the Ninth Circuit which held that "Larsen
constitutes a judicially-fashioned admiralty rule that uniformly
provides that the term 'derangement or breakdown of the refrigerating
machinery,' as the term is used in marine insurance contracts,
applies to losses caused by mechanical disorders of refrigeration
equipment." See Suma, 122 F.3d at 36, quoting
Larsen II, 362 F.2d at 263. The language does not apply
to the human failure to operate the refrigeration machinery at
the proper capacity. See id. The relevant language
in the "Refrigeration Insurance" endorsement in the
instant matter is almost identical, the only difference being
the term "refrigeration machinery" rather than "refrigerating
machinery" is used. Moreover, Sea Harvest does not contest
on appeal that the district court properly held that the decomposition
of the shrimp falls under the exclusion for "[d]eterioration,
decay or spoilage." Thus, pursuant to the language of the
policy(4), the loss of the shrimp would be
covered only if Sea Harvest could demonstrate that the "damage
was directly caused by derangement or breakdown of the refrigeration
machinery." It is clear that the damage resulted from the
human failure to connect the gen-set. Because this does not constitute
a mechanical disorder of the refrigeration equipment under the
Ninth Circuit's judicially-fashioned admiralty rule which we
adopt, the policy exclusion applies. Having determined that this
reason precludes coverage, we will not address Commercial Union's
other proffered justification for denying coverage? that Sea
Harvest failed to establish that the shipment sustained damage
For the reasons stated above, the
district court's grant of Commercial Union's motion for summary
judgment is AFFIRMED.
*.In an Order filed March 7, 2001, this
Court granted the motion of Lindsay L. Wood and Rebecca S. Bihr
to withdraw as counsel.
2.The Honorable Richard Mills, United
States District Judge for the Central District of Illinois, sitting
1.Count II of Sea Harvest's counterclaim
has since been dismissed. Accordingly, the district court's judgment
appealed from disposed of all issues as to all parties.
2.Commercial Union tendered Sea Harvest
a check for $446.61 to cover the value of the seven short cartons.
The check included a restrictive endorsement. Because Sea Harvest
interpreted the restrictive endorsement as a waiver of all claims,
it did not endorse the check. Commercial Union contended that
the endorsement applied solely to the claim for the shortage
of the seven cartons and offered to reissue the check. It is
unclear as to whether the check was reissued and endorsed.
3.The policy in Suma insured against:
"All risks of physical loss
or damage from any external cause but excluding:
1. Deterioration, decay, or spoilage
unless the assured demonstrates that such damage is caused by
derangement or breakdown of the refrigeration equipment, or the
vessel stranding, sinking, burning, or being in collision."
122 F.3d at 35.
4.Once again, the relevant part of the
Perishable Cargo requiring temperature
control is insured against:
(1) All Risks of physical loss or
damage from any external cause
A. Deterioration, decay or spoilage
unless the Assured can
demonstrate that such damage was
directly caused by
derangement or breakdown of the
refrigeration machinery or
directly caused by the vessel stranding,
or in collision.