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NORTHERN FEATHER INTL., INC. v. CERTAIN LONDON UND

February 22, 1989

NORTHERN FEATHER INTERNATIONAL, INC., Plaintiff,
v.
THOSE CERTAIN LONDON UNDERWRITERS SUBSCRIBING TO POLICY NO. JWP108 THROUGH WIGHAM POLAND, LTD., Defendants



The opinion of the court was delivered by: BISSELL

 This civil action was filed on June 23, 1986 and alleges that the defendants, Those Certain London Underwriters, have failed to make payments under an "Open Cargo" insurance policy on two shipments of cotton cloth destroyed in a warehouse fire on February 21, 1985. Plaintiff, Northern Feather International, Inc. (Northern Feather) has attempted to invoke the diversity jurisdiction of this court pursuant to 28 U.S.C. § 1332. The Court is satisfied that complete diversity is lacking inasmuch as defendant, Sea Insurance Company, Ltd., like the plaintiff, is a citizen of New Jersey. This Court does, however, have original jurisdiction over this action pursuant to the admiralty or maritime jurisdiction set forth in 28 U.S.C. § 1333.

 Presently before the Court is defendants' motion for summary judgment and plaintiff's cross-motion for summary judgment.

 STATEMENT OF FACTS

 Northern Feather purchases cotton cloth from C & L Enterprises Limited, Hong Kong, which is imported by Northern Feather's Danish parent company Nordisk Fjer. (Pretrial Order at 2-3; Defendants' Br. in Support, Exh. A). Defendants issued Northern Feather an "Open Cargo" insurance policy effective October 1, 1984 which insured shipments of plaintiff's goods and merchandise "against all risks of physical loss or damage from any external cause" with certain exceptions to be discussed later in this opinion. (Pretrial Order at 8; Defendants' Br. in Support, Exh. F). Northern Feather had paid all premiums and had an insurable interest in the destroyed shipments of cloth. Defendants have made no payment for the loss. (Pretrial Order at 8).

 The following are the relevant stipulated facts contained in the "Pretrial Order" dated May 6, 1988: *fn1"

 
Prior to the two shipments which are the subject of this claim, plaintiff had for some time been entering similar imports through United States Customs, under a tariff schedule category known as Visa Classification 320, covering dyed cloth. The tariff schedule sets forth the rate of duty for the described product and quota restrictions, if anu. (There are no quota restrictions for Visa Classification 320.)
 
On November 24, 1982, there were published in the Federal Register revisions to the textile category system in the tariffs which were effective January 1, 1983. A new visa category No. 315 covering printed cloth was established at such time, and this category was quota restricted. This visa category was cross-indexed with the same item number and description under the Tariff Schedules of the United States, Annotated (T.S.U.S.A.), containing the appropriate duty rates for various commodities including printed cloth.
 
Although most shipments of plaintiff were routinely released by Customs officials in New Jersey, and allegedly all such shipments were routinely released by Customs officials in New York, plaintiff began experiencing problems in entering these printed cloth shipments under category 320, at least as early as October, 1984.
 
On July 19, 1984, C & L ENTERPRISES, plaintiff's supplier, shipped 59 rolls of the comforter cloth from Hong Kong to plaintiff. The goods arrived in Newark, New Jersey on August 21, 1984, and Customs released the goods for delivery under a regular Consumption Entry prepared by plaintiff's agent which reflected that the goods were being entered under Visa Category 320.
 
However, on October 16, 1984, the United States Customs Office in Newark issued a Notice for Re-delivery of the 59 rolls because, upon review, it was alleged by Customs that the correct Visa Category had not been used. Customs noted that the correct visa number should have been 315, as the fabric was considered printed cloth. [ See Defendants' Br. in Support, Exh. B]. Once the Notice for Re-delivery had been issued, the plaintiff was required to deliver the goods to Customs or risk a fine. The goods having been delivered and consumed by that time, plaintiff was unable to redeliver to Customs.
 
On August 10, 1984, another shipment of plaintiff, consisting of 185 rolls of fabric left Hong Kong aboard the S/S President Peirce. The goods arrived in Newark on September 27, 1984, were entered also under Category 320 and were routinely released by Customs under a regular Consumption Entry prepared by plaintiff's agent. Customs, however, issued a Notice for Re-delivery of the 185 rolls on October 19, 1984, once again because of the use of an improper visa number. [ See Defendants' Br. in Support, Exh. C]. This shipment was also unavailable for redelivery pursuant to the Notice for Redelivery because the goods had been delivered and consumed.
 
On November 2, 1984, plaintiff requested from Customs an extension to reply to the October 16th and October 19th Notices for Redelivery on the ground they needed additional time to research the problem.
 
Plaintiff had attempted to get the Hong Kong authorities through C & L ENTERPRISES LIMITED to change the category number to comply with Customs' requirements to [sic] regards the goods in question, but to no avail.
 
On January 8, 1985, plaintiff requested the Customs Classification and Value Department, Washington, D.C., to make a formal ruling on the use of visa category Nos. 315 and 320. The matter was referred to the New York Office of Customs, which maintained that Category 315 was the proper visa.
 
Customs issued a Notice of Penalty in the amount of $ 20,991.00 on January 15, 1985, due to plaintiff's failure to comply with the October 16th Notice for Re-Delivery of the July 19th shipment. A similar Notice imposing a penalty of $ 186,560.00 was issued by Customs on January 16, 1985, for plaintiff's inability to comply with the October 19, 1984 Notice for Re-delivery of the August 10, 1984 shipment. The two Notices of Penalty were eventually cancelled.
 
The first shipment for which the plaintiff is claiming under the Cargo Policy consisted of 125 rolls of dyed cotton ticking, valued at $ 151,386.59. These cotton piecegoods were manufactured in Taiwan and subsequently dyed in Hong Kong for use as comforter cloth. C & L ENTERPRISES, LTD., Hong Kong, sold the goods to plaintiff C & F New York.
 
The second shipment destroyed in the warehouse fire consisted of 63 rolls of dyed cotton ticking, and was valued at $ 72,968.06. These goods were also sold by C & F New York to the plaintiff by C & L ENTERPRISES. On December 16, 1984, the goods were shipped aboard the S/S President Madison to San Pedro where an entry number was issued by Customs on December 30, 1984. Subsequently, the rolls of cloth were transshipped by rail to their final destination at the port of New York.
 
In early January, 1985, the goods arrived at American Terminals where they remained for at least three weeks until picked up by plaintiff's truckers, Gross Transportation Corp., on February 7, 1985. Plaintiff's agent, aware of the ongoing dispute, did not attempt a consumption entry on this shipment but rather prepared a warehouse entry for the goods, dated January 31, 1985. The agent issued delivery instructions to Gross Transportation Corp. on February 1st to pick up the goods directly from the pier at South Kearny and deliver them to Van Brunt's bonded warehouse. On the preceding day, plaintiff's agent requested the Customs' Import Specialist to conduct a textile review of the goods due to the prior visa entry problems. During this textile review period, Gross Transportation delivered the bonded goods to the Van Brunt Warehouse on February 11, 1985, where they remained until the fire. On February 14, 1985, Customs issued a correction slip notification for the goods to plaintiff stating that Visa Category 315 should have been used rather than No. 320, which had been designated by plaintiff for both shipments then in storage at Van Brunt.
 
A fire totally destroyed the Van Brunt Warehouse and plaintiff's goods therein on February 21, 1985.

 (Pretrial Order at 3-8; Defendants' Br. in Support, Exh. A).

 Defendants contend that plaintiff's losses are not covered by its insurance policy for three reasons: (1) the insurance coverage provided by the "Warehouse to Warehouse" clause had ceased prior to the fire on February 21, 1985; (2) the interruptions of transit of shipments were not due to circumstances beyond plaintiff's control so that plaintiff is not covered under the policy's Marine Extension Clause; (3) even assuming the extension of the period of coverage by either of the two foregoing clauses the losses which occurred during the "detainment" of the shipments are excluded from coverage by the policy's "Free of Capture & Seizure Clause." Plaintiff opposes each of these contentions and seeks summary judgment in its favor.

 Summary judgment may be granted only when it has been established that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The moving party has the burden of establishing that there exists no genuine issue of material fact. Anderson v. Liberty Lobby, 477 U.S. 242, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The opposing party must set forth specific facts showing a genuine issue exists. Id. Such facts shall be made on personal knowledge in the form of an affidavit. Fed. R. Civ. P. 56(c). In deciding a motion for summary judgment, the facts must be viewed in the light most favorable to the non-moving party and any reasonable doubt as to the existence of a genuine issue of fact must be resolved against the moving party. Continental Ins. Co. v. Bodie, 682 F.2d 436 (3d Cir. 1982).

 I. "Warehouse to Warehouse Clause "

 The policy's "Warehouse to Warehouse Clause" provides as follows:

 
This insurance attaches from the time the goods leave the warehouse and/or store at the place named in the policy for the commencement of the transit and continues during the ordinary course of transit, including customary transshipments, if any, until the goods are discharged overside from the overseas vessel at the final port. Thereafter the insurance continues whilst the goods are in transit and/or awaiting transit until delivered to final warehouse at the destination named in the policy or until the expiry of 15 days (or 30 days if the destination to which the goods are insured is outside the limits of the port) whichever shall first occur. The time limits referred to above to be reckoned from midnight of the day on which the discharge overside of the goods hereby insured from the overseas vessel is completed. Held covered at a premium to be arranged in the event of trans-shipment, if any, other than as above and/or in the event of delay in excess of the above time limits arising from circumstances beyond the control of the Assured.
 
NOTE: It is necessary for the Assured to give prompt notice to these Assurers when the Assured becomes aware of an event for which they are "held covered" under this policy and the right to such cover is dependent upon compliance with this obligation.

 (Defendants' Br. in Support, Exh. F at 2-3) (emphasis added).

 The "Warehouse to Warehouse" clause specifically extends coverage beyond the period of transit to the time of delivery to the "final warehouse at the destination named in the policy." Plaintiff concedes that because the goods in question were discharged overside from the overseas vessels, in San Pedro, California, more than 30 days before their destruction by fire, that 30-day clause applies, has run, and thus has rendered any "final warehouse" issue itself irrelevant. However, case law interpreting "final warehouse" provisions is instructive on the "held covered" provision of the warehouse to warehouse clause, on which the parties in this action are in disagreement.

 In Ocean Marine Ins. Co. v. Lindo, 30 F.2d 782 (9th Cir. 1929), shipments of cotton were temporarily placed in a Customs warehouse until Customs regulations were complied with and were destroyed in a warehouse fire prior to the consignee's removal for reshipment. The court was called upon to decide whether the period of coverage was extended by a similar "warehouse to warehouse" clause similar to that which is presently at issue. The court stated in relevant part:

 
. . . the evidence shows that all goods going to Guatemala, whether dutiable or not, must pass through the custom house at San Jose, comply with the customs regulations, and pay certain fees. Until these requirements are complied with, the consignee is not entitled to the possession of the goods. There was no unreasonable delay on the part of the consignee in the instant case. As a consequence it cannot be said, we think, that the goods were safely deposited in the consignee's or other warehouse within the meaning of the policy, while in the custom house, regardless of the nature or character of the building or structure used by the government for the storage of goods while passing customs. The warehouse to warehouse clause was evidently intended to cover the goods after being discharged at port of destination while in the ordinary course of transit to the consignee's warehouse, or some other equivalent place of storage where the goods were held for the consignee. The risk continued after the goods were landed and during the period reasonably required for this purpose, . . . .

 Id. at 784 (emphasis added).

 Defendants contend that the Van Brunt warehouse was equivalent to Northern Feather's own warehouse inasmuch as the "delivery to and release of the goods from [Van Brunt] was solely dependent upon Northern Feather's compliance with U.S. Customs' requirements." (Defendants' Br. in Support at 12; Hardy Dep., App. to Plaintiff's Br., Exh. D at 4-5). Defendants further contend that inasmuch as plaintiff selected the Van Brunt Warehouse as the depository for the ...


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