1 

IN THE UNITED STATES DISTRICT COURT 

MIDDLE DISTRICT OF ALABAMA 

EASTERN DIVISION 

GREAT SOUTHERN WOOD * 

PRESERVING, INC., * 

 * 

 Plaintiff, * 

 * 

v. * Civil No. 1:06-cv-00708-CSC 

 * 

AMERICAN HOME ASSURANCE * 

CO., AIG, AMERICAN INTERNATIONAL * 

UNDERWRITERS CORP., AMERICAN * 

INTERNATIONAL MARINE AGENCY, * 

 * 

 Defendants. * 

DEFENDANTS' REPLY TO PLAINTIFF'S OPPOSITION TO 

MOTION FOR SUMMARY JUDGMENT

 Defendants American Home Assurance Co., AIG, American International Underwriters 

Corp. and American International Marine Agency submit this brief in reply to Plaintiff's 

opposition to Defendants' motion for summary judgment. For the reasons stated herein, and in 

Defendants' initial brief, Defendants are entitled to summary judgment as to all of Plaintiff's 

claims. 

I. Dismissal of AIG, American International Underwriters Corp. and American 

International Marine Agency

 Plaintiff has brought this action seeking to recover benefits under a policy issued by 

Defendant American Home Assurance Co. Plaintiff has stated no claim against the other named 

Defendants and these Defendants have moved for summary judgment on that ground. Plaintiff 

has not opposed their motion and Defendants AIG, American International Underwriters Corp. 

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and American International Marine Agency are entitled to summary judgment as to all of 

Plaintiff's claims. 

II. Breach of Contract Claim

 Plaintiff asserts that the loss of its cargo was covered under the Warehouse-to-Warehouse 

clause of the American Home policy. This clause expressly provides that the insurance attaches 

"for the commencement of the transit and continues during the ordinary course of transit." 

(Policy, § 19) (emphasis added). After discharge from the vessel, the insurance "continues whilst 

the goods are in transit and/or awaiting transit . . . ." (Policy, § 19) (emphasis added). 

 The policy and the case law construing such policies are clear that the insurance 

continued only while the cargo was "in transit." At the time the goods ceased to be in transit, the 

coverage terminated. The Warehouse-to-Warehouse clause was intended to cover goods after 

discharge from the vessel while in the ordinary course of transit and to the consignee's 

warehouse, or some place of storage where the goods are held for the consignee. See Lumber & 

Wood Products Inc. v. New Hampshire Ins. Co., 807 F.2d 916, 919 (11th Cir. 1987). In this 

case, the goods ceased to be in transit when the goods were delivered to the custody and control 

of Great Southern at its leased warehouse space in Gulfport, Mississippi. 

 The court in Pacific Tall Ships Co. v. Kuehne & Nagel, Inc., 76 F. Supp.2d 886 (N.D. Ill. 

1999) explained: "Warehouse-to-warehouse clauses are standard in policies covering marine 

cargo. A considerable amount of case law interprets such clauses, and precisely when transit 

commences. See, e.g., Kessler Export Corp. v. Reliance Ins. Co., 207 F. Supp. 355 (E.D. N.Y. 

1962); Brammer Corp. v. Holland-America Ins. Co., 228 N.Y.S.2d 512 (N.Y. Sup. Ct. 1962); 

Case 1:06-cv-00708-CSC Document 28 Filed 07/17/2007 Page 2 of 21
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San-Nap-Pak Mfg. Co. v. Firemen's Ins. Co. of Newark, N.J., 47 N.Y.S.2d 542 (City Ct. N.Y. 

1944). In other words, the meaning of 'in transit' in the context of warehouse-to-warehouse 

clauses is not ambiguous." Id. at 893. 

 "Property is considered in transit when it is moving from one location to another." 

Fireman's Fund Insurance Co. v. Service Trans. Co., 466 F. Supp. 934, 935 (D.C. Md. 1979) 

(quoting Boonton Handbag Co., Inc. v. Home Ins. Co., 310 A.2d 510, 511 (N.J. App. Div. 

1973)). The court in Hagger Co. v. United States Fire Ins. Co., 497 S.W. 2d 61 (Tex. Civ. App. 

1973) explained: "The term 'in transit' is constantly used in the inland marine insurance and 

related fields, such as the inland floater policy in this case. Courts frequently have occasion to 

ponder the meaning of the phrase. The dictionary meaning of the word 'transit' is 'the act of 

passing." Id. at 63 (quoting Century Dictionary and Cyclopedia). "'In transit' means literally in 

course of passing from point to point, and such is its common acceptation." Id. (internal 

quotation omitted). 

 In this case, Great Southern took delivery of its lumber in Gulfport and stored it at its 

leased warehouse while Great Southern determined whether it would ship the lumber directly to 

customers, or take it to one of its facilities for treatment prior to sale. (Goff Dep. at 15-16). For 

example, Great Southern's documents show a number of direct sales Great Southern made to 

customers from its Gulfport warehouse. (Delivery Breakdown, attached hereto as Exhibit A). 

These sales included lumber shipped on the vessel Kestrel Arrow v. 45, one of the shipments at 

issue in this case. Great Southern's "Delivery Breakdown" shows that it sold lumber from its 

Gulfport warehouse to Georgia Pacific on August 24, 25 at 26, 2005. (Delivery Breakdown). 

Plaintiff also sold lumber (initially shipped on the Kestrel Arrow) to Nuss Lumber on August 25, 

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2005. (Delivery Breakdown). The records further indicate that in August 2005, Plaintiff also 

sold lumber from its Gulfport warehouse -- shipped on other vessels -- to Georgia Pacific on 

August 2, 3, 8 and 11, 2005. 

 Great Southern's "Delivery Breakdown" shows that the purchasers, e.g., Georgia Pacific, 

picked up the sold lumber at Great Southern's Gulfport warehouse. See also, Great Southern 

Invoices, attached hereto as Exhibit B. Therefore, Great Southern relinquished both custody and 

ownership of these goods upon sale and delivery to a customer. Upon a sale, at that point Great 

Southern had no insurable interest in continued transit and Gulfport was the last and "final 

destination" at which Great Southern had any interest in the goods. 

 Additionally, Great Southern had processing facilities in Mobile, Alabama, Abbeville, 

Alabama, Muscle Shoals, Alabama, Conyers, Georgia, Jessup, Georgia and Lake Panasofkee, 

Florida as well as satellite production centers at other locations. (Goff Dep. at 12). Although 

Great Southern attempted to forecast its inventory needs at certain plants, Great Southern did not 

decide where to specifically send any particular lumber until the lumber was in storage in its 

Gulfport warehouse. (Goff Dep. at 98-99). Great Southern's corporate representative testified as 

follows: "Q: . . . . [Y]ou could have one consignment of ocean cargo planned to go all in one 

treatment facility and then when its gets there [to Gulfport], or at some point in time after that, 

say, well, we're going to send half of it to one and half of it to the other? A: Yes. It could." 

(Goff Dep. at. 98-99). 

 Plaintiff asks the Court to find that coverage continued after Great Southern received the 

goods and thereafter while it indefinitely stored the lumber in its own leased warehouse until, in 

its sole discretion and for its own convenience, it dispatched the goods to later-determined 

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locations. The law, however, is clear that coverage under an "in transit" policy terminates when 

the insured accepts delivery of the goods and stores the goods for its own convenience. See, e.g., 

Exchange Lemon Products Co. v. Home Ins. Co., 235 F.2d 558 (9th Cir. 1956); Dealers Dairy 

Products Co. v. Royal Ins. Co., 164 N.E.2d 745 (Ohio 1960); see also Lumber & Wood Products 

Inc. v. New Hampshire Ins. Co., 807 F.2d 916, 920 (11th Cir. 1987) ("In those instances where it 

is simply more convenient for the consignee to allow the cargo to be stored outside its 

warehouse, the shipper cannot indefinitely of avail itself of coverage because the cargo is 

allegedly 'in transit.'"); St. Maurine Valley Paper Co. v. Continental Ins. Co., 1936 AMC 152, 

153 (E.D. N.Y. 1936) (ruling "[Goods were] in the possession not of the ship but of . . . the 

consignee. The liability of the insurer went no further."); M.J. Federman Co. v. American Ins. 

Co., 196 N.E. 297, 1935 AMC 1224, 1226 (E.D. N.Y. 1935) ("Whatever would be the duration 

of a risk under such a stipulation, it is clear, we think, that an insured may put an end to it by 

taking delivery outside his own premises."). 

 In their initial brief, Defendants cited certain authorities holding that transit ends when 

the insured takes custody and control of goods, and coverage under a Warehouse-to-Warehouse 

clause terminates when the goods are no longer in transit. In its response, Great Southern tries to 

avoid the result dictated by these cases. In Lumber & Wood Products Inc. v. New Hampshire 

Ins. Co., 807 F.2d 916, 920 (11th Cir. 1987), the Eleventh Circuit expressly held that coverage 

under a Warehouse-to-Warehouse clause ended when an insured took custody and control of 

cargo, even though the insured took delivery at a location other a designated final destination. 

Great Southern tries to escape the holding of Lumber & Wood Products by arguing that the case 

turned on time limitations. However, the Eleventh Circuit clearly stated: "The fundamental 

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issue in this case focuses on the construction of the Warehouse-to-Warehouse and Marine 

Extension Clauses of the Marine Open Cargo Policy as to whether the lumber was 'in transit'

within the meaning of those clauses." Id. at 918-19 (footnote omitted, emphasis added). The 

court further explained: 

The lumber in this case was "in transit" as it was shipped from South America to 

Chickasaw. The lumber was covered throughout that travel period, including 

temporary stops, incidental delays and deviations from the planned route of 

travel. When the lumber reached its destination at Delta Hardwood's dock, the 

lumber could no longer be considered "in transit." The lumber had arrived at its 

"final warehouse" and was merely been stored prior to being sold. Transit had 

ceased. 

Id. at 921. As transit had ceased, coverage terminated. Id. As transit had likewise terminated in 

this case, there was no coverage for the lumber at the time of loss. 

 Great Southern also attempts to avoid the holdings of two other cases cited by 

Defendants, Jomark Textiles, Inc. v. Int'l Fire and Marine Ins. Co., Ltd., 1991 A.M.C. 1393 (S.D. 

N.Y. 1989) and New York Marine & General Ins. Co. v. Tradeline LLC, 2003 A.M.C. 414 (S.D. 

N.Y. 2003). 

 In Tradeline, the court held that because the insured exercised custody and control over 

the cargo, the cargo was no longer in transit. The court explained: "To test whether goods have 

reached their 'final' destination, courts have often been focused on whether the consignee 

exercised dominion and control over the shipment." The court found as follows: "[T]hus [the 

insured] exercised dominion and control over the goods in the silo. Accordingly, the [goods] 

w[ere] no longer in transit and no longer covered by the disputed marine cargo insurance 

policy." Id. Plaintiff attempts to distinguish the Tradeline case by arguing that the policy at 

issue provided that "transit" terminated when the insured placed the goods into "storage at the 

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destination" or "storage other than in the ordinary course of transit." However, these provisions 

merely express the well-established law that once goods are placed in the custody and control of 

the insured, the goods are no longer in transit and no longer covered under the policy. 

 Likewise, in Jomark Textiles, Inc. v. Int'l Fire and Marine Ins. Co., Ltd., 1991 A.M.C. 

1393 (S.D. N.Y. 1989), the court found that the insured used a warehouse "as a 'staging place' 

from which [the insured] would distribute the goods once it determined their final destination." 

Id. at 579-80. The court explained: "Since [the insured] exercised dominion and control over 

the goods, they were no longer in transit as a matter of law, and therefore, were no longer 

covered by the Marine Cargo policy." Id. at 580. The Jomark policy provided that transit 

terminated upon "storage other than in the ordinary course of transit" or upon "allocation or 

distribution" of the goods by the insured. Great Southern argues that these provisions distinguish 

the case. However, as with Tradeline, the essence of the court's ruling was that once the insured 

took custody and control of the goods, and the goods were not traveling to any designated 

destination, coverage terminated under the policy. 

 Courts have consistently held that once an insured takes custody and control of cargo, 

and the goods are not en route to a specific destination, coverage terminates under an "in transit" 

clause of a policy. For example, in Exchange Lemon Products Co. v. Home Ins. Co., 235 F.2d 

558 (9th Cir. 1956), an insured shipped goods under a policy which provided coverage while 

goods were "in the due course of transit." Id. at 560. The insured shipped the goods to a 

terminal warehouse in Kansas City which it used as an intermediate staging area for goods which 

would subsequently be transported to other and final destinations. While in storage at the 

warehouse, the goods were destroyed by flood. The insured claimed that the goods were 

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earmarked for shipment to Chicago, although it was revealed that the goods had been in storage 

for months at the time of loss. The court noted that when the goods were unloaded at the Kansas 

city warehouse, the ultimate destination had not been designated (and may not have been 

known). Id. at. 559. The court found that because the goods were not en route to a designated 

final destination, and were merely in intermediate storage in the warehouse, the goods were not 

in transit and therefore there was no coverage for the loss. Id. at 561-62. 

 In Dealers Dairy Products Co. v. Royal Ins. Co., 164 N.E.2d 745 (Ohio 1960), the policy 

at issue provided coverage while goods were "in transit." Although the insured began 

transporting the goods, the insured offloaded the goods and placed them in storage while it made 

other deliveries to customers. The goods were then lost and the insured claimed coverage under 

the policy. The court found that coverage terminated when the goods were indefinitely taken out 

of transit. The court explained: "The words 'in transit' and 'transportation' contained in an 

insurance policy, such as the ones involved herein, comprehend the carriage of goods from one 

point to another and ordinarily mean the movement of goods on a transporting conveyance from 

the starting point to a point of delivery, including stops along the way incidental to the carriage." 

 Id. at 747. The court continued: 

But the words "in transit" and "transportation" as they appear in the policies 

before us and as construed under the circumstances here involved, did not 

embrace a period of days during which for the convenience of the insured and to 

divert the transporting conveyance to other businesses of the insured, the goods or 

unloaded and deposited on designated premises and left their rest while the 

transporting conveyance to parts and is used on another transportation project 

foreign to the original shipment. An abandonment of the original transporting 

process thereby occurs, even though such an interruption is temporary. 

In circumstances related, a storage of goods occurs and while and storage they are 

removed from the protection of a policy which insures against loss only when the 

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goods are in transit or were being transported. 

Id. at 747. 

 In Ins. Co. of N. Am. v. United States Fire Ins. Co., 322 N.Y.S. 2d 520 (N.Y. Sup. Ct. 

1971), the court addressed a hurricane loss at a Gulfport warehouse. The goods were insured 

under an underlying open marine cargo policy1 which provided coverage while the goods were 

in transit. Id. at 523-24. The goods at issue had been shipped from interior ports and were 

intended for overseas transport. However, at the time of loss the goods were undergoing 

processing whereby the goods were placed in the individual bags. The bagging process was not 

necessary to shipment and was merely provided as a service to the customer. Id. at 522. The 

court found: "The stoppage and bagging of the cargo at Gulfport was an interruption in the 

transit of the goods and created a shore risk not insured under plaintiff's original insurance 

contract." Id. at 524. The court ruled on summary judgment that because the goods were not in 

transit, there was no coverage under the policy. Id.; see also Koshland v. Columbia Ins. Co., 130 

N.E. 41 (Mass. 1921) (goods lost at processing facility to which they were sent for convenience 

of insured were not "in transit" for coverage under policy); Allied Leisure Indus., Inc. v. 

American Mut. Liability Ins. Co., 342 So. 2d 540 (Fla. App. 1977) (goods lost while temporarily 

stored at dock after shipment cancelled were not in transit for coverage under policy); 

Glendinning Co., Inc. v. Aetna Ins. Co., 395 A. 2d 354 (Conn. Super. Ct. 1978) (goods awaiting 

re-shipment were not in transit for coverage under policy). 

 

1 A policy of reinsurance was issued and the suit involved a dispute between two insurers. 

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 In Sovereign Recycling Int'l, Inc. v. New York Marine & Gen. Ins. Co., 2001 WL 

225243 (S.D. N.Y. 2001), the court addressed a claim that goods were in transport despite being 

held in indefinite storage with no designated final destination. The insured claimed that the 

goods were insured under a Warehouse-to-Warehouse clause identical to that in this case. The 

insured held the goods in a warehouse while determining which of its customers needed the 

goods and in what quantities. Id. at. *3. The court explained: "When the 13 boxes arrived in 

Rotterdam, plaintiffs exercised dominion and control over them and put them into a warehouse 

for almost two months, while plaintiffs determined which customers needed cobalt, and in what 

quantities. While the boxes of ingots were in the warehouse, they were not 'in transit' and thus 

were not covered by clause 7 of the policy." Id. at *8. 

 In this case, Plaintiff received goods at its Gulfport warehouse which were shipped to the 

warehouse on bills of lading identifying Gulfport as the destination. Plaintiff held the goods 

there indefinitely while, at its convenience and in its discretion, it later designated locations to 

which the goods would be transported, or, until it sold the goods to a customer. The policy in 

this case expressly required that the goods be "in transit" for coverage to continue under the 

policy. The law is clear that when an insured receives goods and stores them in its own 

warehouse space for further (yet initially undesignated) dispatch, at its convenience and in its 

discretion, the goods are no longer in transit for purposes of coverage under the policy. 

 Finally, without any legal authority, Plaintiff argues that despite admittedly having the 

goods in its custody and control, and in its own leased warehouse space,2

 Plaintiff claims that 

 

2

 Plaintiff's warehouse lease expressly provided Plaintiff would have care, custody, control and protection of the 

lumber. (Lease Agreement, ¶ F, Ex. 11 to Goff Dep.). 

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lumber shipped on the Sanko Stream v. 193

 remained "in transit" due to a purported USDA hold 

on the lumber at the time of the loss. However, a government hold on goods in the possession, 

custody and control of the insured does not render the goods "in transit" for insurance coverage. 

See Fireman's Fund Ins. Co. v. Service Trans. Co., 466 F. Supp. 934 (D.C. Md. 1979). Great 

Southern's corporate representative testified that although the USDA placed certain restrictions 

on lumber shipped on the Sanko Stream, the goods had been received by Great Southern in its 

warehouse and were in Great Southern's possession. (Goff Dep. at 95, 121). 

 In Fireman's Fund Ins. Co. v. Service Trans. Co., 466 F. Supp. 934 (D.C. Md. 1979), the 

insured sought benefits under a policy which provided coverage for goods in "the ordinary 

course of transit." Id. at 935. The goods at issue were bags of Nicaraguan coffee which were 

initially received in New York. Upon arrival in New York, the Food and Drug Administration 

placed a hold on the goods. While the FDA hold remained in effect, the goods were transported 

in bond to the insured's Baltimore, Maryland terminal. The goods remained in the insured's 

custody. Id. at 936. The goods were subsequently destroyed by a fire at the Baltimore terminal. 

 The insured argued that, despite having custody and possession of the goods, the FDA hold 

meant the goods remained suspended in transit. The court rejected this argument and explained: 

 "While it may be true that the coffee's ultimate distribution was delayed owing to the action of 

the FDA, that does not alter the fact that as between these parties, [plaintiff's] South Kresson 

 

3

 Ever were the argument meritorious, Plaintiff's USDA hold argument only applies to the cargo shipped on the 

Sanko Stream v. 19. The cargo shipped on the Kestrel Arrow v. 45, which arrived August 5, 2005, was not under 

any hold at the time of the loss. As noted above, Plaintiff had been disbursing the lumber shipped on the Kestrel 

Arrow prior to the loss including numerous sales to customers. Consequently, even were Plaintiff's USDA hold 

argument with merit, it would not entitle Plaintiff to avoid summary judgment as to the shipments on the Kestrel 

Arrow v. 45. 

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Street terminal was the destination of the coffee. Once the coffee reached the terminal, it was no 

longer 'in the ordinary course of transit.'" Id. at 937.4 

 As Defendants have shown, the coverage at issue in this case ended when the goods were 

no longer in transit and, in Plaintiff's custody and control, and in indefinite storage at Plaintiff's 

Gulfport warehouse. Consequently, Defendants are entitled to summary judgment on Plaintiff's 

breach of contract claim. 

III. Bad Faith Claim

 Plaintiff has opposed summary judgment on the bad faith claim arguing that American 

Home did not have a debatable reason to deny coverage. As shown above, both the facts and the 

law clearly provided American Home reason to deny coverage. 

 Plaintiff also argues that the "in transit" provision is ambiguous and that American Home 

was in bad faith by relying on the provision to deny coverage. As noted above, the court in 

Pacific Tall Ships Co. v. Kuehne & Nagel, Inc., 76 F. Supp.2d 886 (N.D. Ill. 1999) explained: 

"Warehouse-to-warehouse clauses are standard in policies covering marine cargo. A 

considerable amount of case law interprets such clauses, and precisely when transit commences. 

 See, e.g., Kessler Export Corp. v. Reliance Ins. Co., 207 F. Supp. 355 (E.D. N.Y. 1962); 

Brammer Corp. v. Holland-America Ins. Co., 228 N.Y.S.2d 512 (N.Y. Sup. Ct. 1962); San-NapPak Mfg. Co. v. Firemen's Ins. Co. of Newark, N.J., 47 N.Y.S.2d 542 (City Ct. N.Y. 1944). In 

 

4

 The facts in this case where Great Southern held the cargo in its own warehouse must be distinguished from 

certain older reported cases where goods were held in a separate customs warehouse under a customs hold prior to 

delivery to the insured. See, e.g., Ocean Marine Ins. Co. v. Lindo, 30 F.2d 782 (9th Cir. 1929) ("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") (emphasis added). 

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other words, the meaning of 'in transit' in the context of warehouse-to-warehouse clauses is 

not ambiguous." Id. at 893 (emphasis added). 

 As shown, the "in transit" term has been construed by numerous courts and the provision 

is not ambiguous. As illustrated above, the denial of coverage was founded on the long line of 

case law holding that coverage terminates when transit ends upon delivery to the insured. 

Therefore, American Home did not rely on an ambiguous provision in denying coverage and the 

bad faith claim fails. 

 Although the argument has no merit, Plaintiff finally argues that American Home was in 

bad faith because it failed to investigate the claim and note the purported USDA hold on the 

Sanko Stream v. 19 shipments. Great Southern has raised this purported USDA hold issue for 

the first time during the summary judgment stage of this case. At no time during the claim 

investigation did Great Southern assert that the Sanko Stream shipments were under any USDA 

hold. Rather, as shown below, during the claim investigation Great Southern represented that 

the shipments had cleared customs. The documents Great Southern produced during the claim 

investigation expressly stated as to the shipments from both vessels at issue: "Customs Cleared 

in Gulfport." (Richard Murray & Co. Docs., attached hereto as Exhibit C). Even after the claim 

was denied, when stating his objections to the denial Great Southern's own lawyer failed to 

mention of any USDA hold. (Dowdy July 21, 2006 Let., attached hereto as Exhibit D). 

 Now, long after the claim investigation has concluded, Great Southern argues American 

Home was in bad faith based on an issue Great Southern had not heretofore raised, based on a 

document Great Southern failed to produce, and based on facts not known to American Home. 

Clearly, even were the USDA hold issue relevant, American Home cannot have been in bad faith 

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based on an issue either unknown, or at the least undisclosed, by Great Southern during the claim 

investigation. 

 In support of its USDA hold argument, Great Southern relies on a report from its own 

customs agent which is dated October 6, 2006, two months after Great Southern filed its 

complaint. (ABI Processing Rep., attached hereto as Exhibit E). As noted, Great Southern 

failed to produce (and based on the document date, likely did not possess) the cryptic ABI 

Processing Status Report which Plaintiff contends shows a USDA hold on the Sanko Stream 

shipments. 

 During American Home's investigation of the claim, it repeatedly requested documents 

from Great Southern concerning the discharge and delivery of the cargo. American Home's 

requests clearly encompassed documents concerning any hold or detention of the cargo. Despite 

the requests, Great Southern, which was assisted by both in-house and outside council during the 

investigation, did not raise the USDA hold issue and did not produce its ABI Processing Status 

Report. 

 Great Southern's corporate representative admitted in deposition that documentation 

concerning USDA inspections is maintained on an online system and that the information is 

maintained by Great Southern's customs agent, Richard Murray & Co. (Goff Dep. at 56-57). 

During American Home's investigation, Great Southern's insurance broker, Dan Morton, who 

was handling the claim for Great Southern, stated that the customs documents they produced 

"are date stamped with arrivals and customs clearances." (Morton May 1, 2006 Email, 

attached as Exhibit 13 to Selena Ho Decl.; see also Richard Murray & Co. Docs.). As noted, 

Great Southern produced no documents showing any USDA hold and the documents they 

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produced, and their characterization of the documents indicated the lumber had cleared customs. 

 After American Home received the claim, it retained SGS North American - Marine 

Services to investigate the claim. (Ho Decl., attached hereto as Exhibit F). SGS contacted 

Plaintiff and requested documentation concerning the claim including dock receipts of discharge, 

warehouse receipts and other documents indicating when Great Southern received the goods into 

its warehouse. (M. Iversen Email Sept. 9, 2005, attached as Exhibit 1 to Ho Decl.). By email 

dated September 29, 2005, SGS reported that it had attempted to contact Great Southern 

concerning the claim but that Great Southern was not returning their phone calls. (M. Iversen 

Sept. 29, 2005 Email, attached as Exhibit 2 to Ho Decl.). 

 By letter dated October 7, 2005, Plaintiff's counsel, Donald Lusk, wrote to SGS surveyor 

Fred Clausen concerning the requests and a conference call between the Great Southern lawyers 

and the surveyor. (Lusk Oct. 7, 2005 Let. attached as Exhibit 3 to Ho Decl.). Of note, Mr. Lusk 

directed that all communication concerning the claim must be channeled through the lawyers. 

Lusk noted the request for documents concerning discharge of the cargo. He stated: "I inquired 

of you about what information would be contained in the 'dock receipts of discharge,' which 

would relate to your activities. You told me that such 'dock receipts of discharge' documents 

would provide you with 'notice of arrival, date of arrival, date and time of discharge and to 

whom the goods were discharged.'" He continued: "Mr. Belcher [Great Southern's in-house 

counsel] and I inform you that to the best of our present knowledge, no 'warehouse receipts' as 

requested by Ms. Ho, exist and that to the best of our knowledge, the information you are trying 

to obtain is contained within the customs documents, pertaining to the shipments and the 

property, already within the materials you have obtained from Ms. Ho." 

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 The customs documents Plaintiff provided to American Home indicated that the Sanko 

Stream v. 19 and Kestrel Arrow v. 45 cleared customs prior to the storm. As noted, it was only 

after Plaintiff filed its lawsuit did it raise the USDA hold issue. 

 Surveyor Roger Iversen reported to claims adjuster Selena Ho concerning the October 7, 

2005 conference with Great Southern's lawyers. Mr. Iversen stated: 

We, acting as surveyors, advised Mr. Lusk that documentation pertaining to the 

voyage history, as well as discharge information on dock receipts and arrival 

notices and any other documentation pertaining to the location of the shipments at 

the time of the hurricane impact would be required. 

Mr. Lusk was very conservative about submitting information pertaining to the 

actual discharge date. We informed Mr. Lusk that this information is important in 

order to establish the location of the goods as much as all of the goods were left 

on the dock when Hurricane Katrina hit the area. . . . . At this point we advised 

Mr. Lusk that we would await his advises and at that time Mr. Lusk informed us 

that due to his busy schedule that his correspondence may be delayed. I reiterated 

to Mr. Lusk and Mr. Belcher that before any investigation and inspection can be 

made we will need documentation indicating the discharge of the vessels at 

Gulfport, Mississippi. 

(R. Iversen Oct. 7, 2005 Let., attached as Exhibit 4 to Ho Decl.). 

 Selena Ho forwarded Mr. Iversen's October 7, 2005 letter to Great Southern's insurance 

broker who was handling the claim. Ms. Ho wrote: 

Please help convince the insured and their attorney that we need to have records 

of when the various lumber shipments arrived at the warehouse. 

We can only inspect verified shipments. Thank you! 

(Ho Handwritten Memo, attached as Exhibit 5 to Ho Decl.). 

 By letter dated November 2, 2005, the SGS surveyor reported to Selena Ho on the status 

of the investigation. He stated: 

According to the letter sent to us by Great Southern Wood Preserving's attorney 

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Lusk, Lusk, Dowdy & Caldwell, PC, they were supposed to obtain the 

information we requested and send it to our office in New Orleans. 

As of this date we have not received the information requested. 

As per the letter sent October 7, 2005 by the attorney, they have asked that we do 

not communicate with the insured as all communication should be through the 

their office. 

This is highly unusual on a marine claim and unfortunately our file has been 

inactive since his letter of October 7, 2005. 

(R. Iversen Nov. 2, 2005 Let., attached as Exhibit 6 to Ho Decl.). 

 Selena Ho subsequently wrote to Great Southern's insurance broker and stated as follows: 

Dear Susan, please note our surveyor's update that he has not heard from the 

insured nor their attorney on requested documents. It's been two months since we 

received the notices of loss. 

As we discussed numerous times, we need the insured's warehouse 

records/receipts to show when the shipment went into the warehouse and the 

quantity of lumber that was stored. These documents are important of verify 

whether what they claimed was actually under the policy period as well as under 

the coverage period. 

Susan, please help us by contacting the insured to advise them that if we do not 

receive the requested documents within the next 60 days, we will consider closing 

our files due to non-activity. We also do not want to correspond for the insured's 

attorney for we are not comfortable with this style and behavior. These are not 

litigated matters. Therefore, our surveyor will go through your office from now 

on for any request an additional information, with copies to our office for our 

files. 

(Ho Nov. 2, 2005 Email, attached as Exhibit 7 to Ho Decl.). 

 By letter dated December 22, 2005, Great Southern's lawyer wrote to SGS surveyor Fred 

Clausen stating that no warehouse receipts existed and asserting that documents previously 

produced showed the amount and location of the lumber at the time of loss. (Lusk Dec. 22, 2005 

Let., attached as Exhibit 8 to Ho Decl.). 

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18 

 By letter dated February 7, 2006 and sent to Great Southern's lawyer, the surveyor again 

requested documents concerning the claim. Surveyor Roger Iversen wrote: 

As of this date we still have not received all the requested information in order for 

us to resolve this matter and submit our report to the underwriters for further 

consideration. 

As previously requested, would you kindly obtain the vessels' arrival date at the 

port of discharge together with the ocean bills of lading covering these 

movements into the United States. As soon as we obtain this information we will 

then be in a position to finalize this matter and submit our report to the 

underwriters for their further consideration. 

(R. Iversen Feb. 7, 2006, attached as Exhibit 10 to Ho Decl.). 

 On February 15, 2006 Selena Ho wrote Great Southern's insurance broker and again 

requested documentation. Ms. Ho wrote: 

To date, we and the surveyor have yet to receive the warehouse receipts/records 

on their lumber shipments that went into the affected warehouse before the 

hurricane hit. Roger Iversen at SGS Marine wrote to Mr. Lusk again on 2/7/06 

again asking for the requested documentation. Susan, in order for us to adjust 

these 2 losses we have to have proof that the shipments that they claimed did 

enter the warehouse within the coverage period, the lumber counts that went into 

the warehouse before the hurricane hit, etc. 

 (Ho Feb. 15, 2006 Email, attached as Exhibit 11 to Ho Decl.). 

 On May 1, 2006, Plaintiff's insurance broker wrote to Ms. Ho and stated that the 

documents from Great Southern's customs broker Richard Murray & Co. "are date stamped 

with arrivals and customs clearances." (Morton May 1, 2006 Email) (emphasis added). As 

noted, these documents state: "Customs Cleared in Gulfport." (Richard Murray & Co. Docs., 

attached hereto as Exhibit C). 

 On June 26, 2006, Selena Ho wrote to Great Southern's insurance broker concerning the 

claim and noted: "Seems like we are missing some information." (Ho June 26, 2006 Email, 

Case 1:06-cv-00708-CSC Document 28 Filed 07/17/2007 Page 18 of 21
19 

attached as Exhibit 14 to Ho Decl.). The email was forwarded to Great Southern's in-house 

counsel, Sid Belcher. He responded: "They have all of the information we have; we have sent it 

to them twice now. Any further delays will result in a lawsuit." (Belcher June 26, 2006 Email, 

attached as Exhibit 14 to Ho Decl.). American Home subsequently denied the claim by letter 

dated July 6, 2006. 

 Finally, on July 21, 2006, after issuance of the denial letter, Great Southern's lawyer, 

Kenneth Dowdy, wrote to Selena Ho objecting to the denial of the claim. (Dowdy July 21, 2006 

Let., Exhibit D). In his list of objections, Mr. Dowdy made no reference to any USDA hold (as 

neither he nor any of the other Great Southern lawyers had made any reference to any USDA 

hold during the claim investigation). Rather, Mr. Dowdy stated: "The Sanko Stream v. 19 

delivered 100 tractor-trailer loads of lumber four days before the storm and of those 100 loads, 

none were able to be transported out of the port." He further stated: "The lumber shipments 

noted in this letter were actively being transported from the port . . . ." 

 Mr. Dowdy's letter, and Great Southern's conduct during the investigation, indicate that 

this USDA hold argument is merely an after-the-fact contrivance which has been solely raised 

for the purposes of this litigation. Clearly, American Home cannot have been in bad faith for an 

issue not discovered during the claim investigation by Great Southern itself, its lawyers or its 

insurance broker handling the claim, and particularly because any information concerning the 

purported hold was within the possession of Great Southern's own customs agent. 

 Based on the foregoing, Defendants are entitled to summary judgment on Plaintiff's bad 

faith claim. 

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IV. Conclusion

 For the reasons stated herein and in Defendants' initial brief, Defendants are entitled to 

summary judgment on Plaintiff's claims. 

 s/Blane H. Crutchfield_________________ 

BLANE H. CRUTCHFIELD (CRUTB4243) 

LOUIS C. NORVELL (NORVL4585) 

 Attorneys for Defendants 

 American Home Assurance Company, AIG, 

 American International Underwriters Corporation, 

 and American International Marine Agency 

OF COUNSEL: 

HAND ARENDALL, L.L.C. 

P. O. Box 123 

Mobile, AL 36601-0123 

Tel: (251) 432-5511 

Fax: (251) 694-6375 

Case 1:06-cv-00708-CSC Document 28 Filed 07/17/2007 Page 20 of 21
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CERTIFICATE OF SERVICE

 I hereby certify that I have on this 17th day of July, 2007 served the foregoing pleading 

on counsel of record via electronic notice or by United States mail first class, postage prepaid. 

Kenneth A. Dowdy, Esq. 

Lusk, Lusk, Dowdy & Caldwell, P.C. 

2101 Highland Ave. 

Suite 410 

Birmingham, AL 35205 

Leslie Ann Caldwell, Esq. 

Lusk, Lusk, Dowdy & Caldwell, P.C. 

2101 Highland Ave. 

Suite 410 

Birmingham, AL 35205 

 

s/Blane H. Crutchfield_________________ 

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