Opinion ID: 779651
Heading Depth: 2
Heading Rank: 2

Heading: The CU Policy

Text: 17 A. Did the District Court Properly Find that Multifoods Had Made a Prima Facie Case that the Loss Fell Within the Scope of the Policy? 18 As the District Court correctly observed, Multifoods, as an all-risk insured, has the burden of establishing a prima facie case for recovery by proving (1) the existence of an all-risk policy, (2) an insurable interest in the subject of the insurance contract, and (3) the fortuitous loss of the covered property. International Multifoods, 178 F.Supp.2d at 350 (citing Farr Man Coffee Inc. v. Chester, 1993 WL 248799, at  (S.D.N.Y.1993) (deriving these three requirements from controlling federal and New York law)). In this case, there is no dispute that the CU Policy is an all-risks policy and that Multifoods, by endorsement, has an insurable interest through the CU Policy in the seized cargo. The sole issue is whether Multifoods has suffered a fortuitous loss. CU argues that Multifoods has not demonstrated a fortuitous loss because the evidence does not specifically explain what happened to the goods after the seizure by the Russian authorities and therefore does not prove a loss. For the reasons that follow, we disagree. 19 The burden on the insured with respect to demonstrating a fortuitous loss under an all-risks policy such as the CU Policy is relatively light: 20 All risk coverage covers all losses which are fortuitous no matter what caused the loss, including the insured's negligence, unless the insured expressly advises otherwise. A loss is fortuitous unless it results from an inherent defect, ordinary wear and tear, or intentional misconduct of the insured. An insured satisfies its burden of proving that its loss resulted from an insured peril if the cargo was damaged while the policy was in force and the loss was fortuitous.... All risk open cargo policies ... provide broad coverage for shippers. 21 Ingersoll Milling Machine Co. v. M/V Bodena, 829 F.2d 293, 307-08 (2d Cir. 1987), cert. denied, 484 U.S. 1042, 108 S.Ct. 774, 98 L.Ed.2d 860 (1988) (internal citation omitted). Multifoods thus needs only to show a fortuitous loss; it need not explain the precise cause of the loss. See In re Balfour MacLaine Int'l Ltd., 85 F.3d 68, 77-78 (2d Cir.1996) (In order to recover under an all risk policy, the burden of proof is on the insured to prove a fortuitous loss of the covered property. The insured, however, need not prove the cause of the loss.) (internal citations omitted). 22 Here, the issue largely relates to whether Multifoods has demonstrated a loss, rather than to whether such loss should be characterized as fortuitous. We agree with CU (and with the District Court, which made this point through a hypothetical at oral argument, see Joint Appendix at 1817) that the mere seizure of the goods would not by itself have constituted a loss triggering coverage under the CU Policy in the sense that coverage obviously would not have been triggered if the cargo had been returned to Multifoods the day after the seizure at little or no cost to Multifoods. However, the fact that Multifoods was unable to recover the goods despite substantial good-faith effort is in our view sufficient to support the conclusion that the seizure of Multifoods' cargo constituted a fortuitous loss within the meaning of the CU Policy-Multifoods' dispossession from the property was never remedied, and resulted in a considerable financial loss to Multifoods. See Pan American World Airways, Inc. v. Aetna Casualty & Surety Co., 505 F.2d 989, 1008 (2d. Cir.1974) (when a peril results in the owner's losing control over insured property, any subsequent damage to or loss of the property is attributable to the peril causing the loss of control.); Magoun v. New England Marine Ins. Co., 16 Fed. Cas. 483, 485-86 (No. 8,961) (C.C.D.Mass. 1840) (Story, Circuit Justice) (where a vessel and its goods were confiscated by foreign authorities and the vessel was later returned virtually ruined by climate-related deterioration while in the custody of the authorities, the shipper had suffered a loss within meaning of insurance policy because the restraint and detainment under the seizure rather than the long delay and exposure to the climate was the proximate cause of the loss). 23 In Pan American World Airways, we held that the seizure of an airplane over London by hijackers was the proximate cause of the loss of the airplane, even though the airplane was blown up only after having been flown to Beirut and then to Cairo, and even though the passengers had already left the plane prior to its explosion. Pan American World Airways, 505 F.2d at 1006-09. The present case is distinguishable from Pan American World Airways and Magoun in that the actual destruction or destination of the cargo in this case has never been verified. Nonetheless, we agree with the District Court that the principle of Pan American World Airways controls here to make the seizure the proximate cause of Multifoods' loss. The Pan American World Airways court specifically cited cases which recognize the principle that the taking characterizes the loss. Id. at 1008. While these cases generally involve a confirmed destruction of the insured property, they recognize that from the perspective of the insured, the real loss — if never remedied — is the loss of control that occurs upon a dispossession. Given that there is no dispute that Multifoods lost possession of the cargo upon the seizure by the Russian authorities and given that Multifoods unsuccessfully exerted diligent effort to regain its cargo, the seizure effectively created a loss for Multifoods. 2 We thus partially affirm the District Court's grant of summary judgment to Multifoods, and hold that there is no dispute of material fact with respect to whether Multifoods has established its prima facie claim for indemnity under the CU Policy. B. The War Exclusion Clause 24 While we thus agree with the District Court that Multifoods has incurred a loss within the meaning of the CU Policy, we respectfully differ with the District Court's holding that there is no dispute of material fact with respect to whether the War Exclusion Clause excludes Multifoods' loss from coverage. For convenience, we once again set forth the text of the War Exclusion Clause: 25 6. In no case shall this insurance cover loss damage or expense caused by 26 6.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power 27 6.2 capture seizure arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat 28 6.3 derelict mines torpedoes bombs or other derelict weapons of war. 29 As noted above, to the right of Clause 6.1 appears italicized language identifying Clause 6 as the War Exclusion Clause. 30 Multifoods argues that the war-heavy context of Clause 6 and the marginal caption make clear that Clause 6 applies only to events occurring during wartime or during one of the other conflicts listed in Clause 6.1. CU, by contrast, contends that Clause 6.2 by its plain terms applies to any governmental seizure of goods, irrespective of whether such seizure occurs during wartime or peacetime. The District Court agreed with Multifoods: 31 The meaning of Clause 6 is clear and unambiguous. The risks discussed throughout are war-related risks. The caption and Subdivision 6.1 plainly say so, and Subdivision 6.1 sets out various species of war; Subdivision 6.2 describes applications or consequences of war affecting insured property; and Subdivision 6.3 extends the exclusion to the after-effects of the detritus of war, i.e., the consequences of derelict mines, torpedoes and bombs. 32 International Multifoods, 98 F.Supp.2d at 501. 33 We share the District Court's view that the fact that the caption titles Clause 6 the War Exclusion Clause supports Multifoods' interpretation of the clause. Captions are relevant to contract interpretation. See Mazzaferro v. RLI Ins. Co., 50 F.3d 137, 140 (2d Cir.1995) (internal quotations omitted) (A contract of insurance must be read as a whole, including any introductory clause or heading, to determine the intent of the parties.). We also agree that the fact that Clause 6.3 proclaims that it deals with derelict weapons of war supports the inference that Clause 6 deals exclusively with war-related perils. However, for the reasons that follow, we cannot conclude that the War Exclusion Clause unambiguously applies only to wartime seizures. 34 Although the caption and the content of Clauses 6.1 and 6.3 support Multifoods' argument, several other aspects of the language of the War Exclusion Clause bolster CU's position that Clause 6.2 excludes even peacetime seizures, and at a minimum suggest the existence of an ambiguity. First and most importantly, as noted above, the plain language of Clause 6.2 is global and unqualified. The fact that Clause 6.2 explicitly provides that [i]n no case shall this insurance cover loss damage or expense caused by ... capture seizure arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat, is arguably by itself enough to demonstrate that the terms of [the] contract at least suggest, Morgan Stanley, 225 F.3d at 275, that peacetime seizures are excluded. Second, if, as the District Court held, Clause 6.2 excludes from coverage only seizures caused by war, International Multifoods, 98 F.Supp.2d at 501, it would appear to serve no purpose in light of the fact that Clause 6.1 already excludes from coverage all damage caused by war civil war revolution rebellion insurrection, or civil strife arising therefrom (emphasis added). We disfavor contract interpretations that render provisions of a contract superfluous. See Scholastic, Inc. v. Harris, 259 F.3d 73, 83 (2d Cir.2001) (quoting Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1094-95 (2d Cir.1993)) (In determining whether a contract is ambiguous, a court must look at `the entire integrated agreement,' to `safeguard against adopting an interpretation that would render any individual provision superfluous.'); Galli v. Metz, 973 F.2d 145, 149 (2d Cir.1992) (quoting Garza v. Marine Transport Lines, Inc., 861 F.2d 23, 27 (2d Cir.1988)) (Under New York law an interpretation of a contract that has `the effect of rendering at least one clause superfluous or meaningless ... is not preferred and will be avoided if possible.'); Lawyers' Fund for Client Protection of State of N.Y. v. Bank Leumi Trust Co., 94 N.Y.2d 398, 404, 706 N.Y.S.2d 66, 69-70, 727 N.E.2d 563, 566-67 (2000) (Bank Leumi's interpretation would render the second paragraph superfluous, a view unsupportable under standard principles of contract interpretation.). 3 35 Finally, while we agree that the caption supports Multifoods' argument that the War Exclusion Clause applies only to wartime seizures, we note that Multifoods' heavy reliance on the caption is undercut somewhat by the fact that the London Form exclusion clause that immediately follows the War Exclusion Clause contains language broader than implied by its caption. Clause 7 is titled the Strikes Exclusion Clause. However, while Clauses 7.1 and 7.2 relate to labor strikes, Clause 7.3 excludes damage caused by any terrorist or any person acting from a political motive. Thus, the Clause 7 caption obviously does not intend exhaustively to subsume the entire scope of Clause 7. This supports CU's view that the War Exclusion Clause title merely reflects an attempt to choose a caption that embodies an important theme of the clause rather than serving as an indication that the clause excludes only wartime situations. 36 Hence, while both the caption (read in a vacuum) and the frequent references in Clause 6 to war and to perils that are clearly associated with war support Multifoods' interpretation of the clause, other textual arguments favor CU's interpretation. We must consider the caption in tandem with the actual contractual provisions. See 2 Couch on Insurance § 18:18 (3d ed. 1997) (While the caption or designation of the type of policy ... does not broaden the coverage expressed in the body of the policy, the policy must be considered as a whole and the caption read in connection with the remainder of the contents and [a]n index of the policy's contents forms a part of the contract and should be construed with the detailed provisions of the policy to which it refers). Given the competing inferences that can be drawn from the language of the CU Policy, we believe that the District Court erred in holding that the War Exclusion Clause unambiguously applied only to wartime seizures. We therefore remand to the District Court for determination of the intent of the parties with respect to the meaning of the War Exclusion Clause. We note that because the contract is facially ambiguous, the District Court may consider any evidence that is probative of the parties' intent, including parol evidence and evidence of custom and usage. 4 See Morgan Stanley, 225 F.3d at 275-76 (Once a court concludes that an insurance provision is ambiguous, `the court may accept any available extrinsic evidence to ascertain the meaning intended by the parties during the formation of the contract.') (quoting Alexander & Alexander, 136 F.3d at 86). C. The Special Note 37 As noted above, an additional issue on appeal relates to the relevance, if any, of the Special Note that appears at the end of the London Form and provides as follows: 38 SPECIAL NOTE: — This insurance does not cover loss damage or expense caused by embargo, or by rejection prohibition or detention by the government of the country of import or their agencies or departments, but does not exclude loss of or damage to the subject-matter insured caused by risks insured hereunder and sustained prior to any such embargo rejection prohibition or detention. 39 CU argues that the Special Note either (i) by itself excludes Multifoods' loss from coverage or (ii) serves to explain that the War Exclusion Clause excludes Multifoods' loss from coverage. 40 We believe that ambiguities exist with respect to the scope, meaning, and force of the Special Note. The language of the Special Note supports CU's interpretation of the CU Policy, providing that [t]his insurance does not cover loss damage or expense caused by ... rejection prohibition or detention by the government of the country of import. 5 However, the force of the Special Note is very unclear. It does not appear to be an operative provision of the London Form; certainly it is not an exclusion in the sense that the War Exclusion Clause is an exclusion. 6 Indeed, Clause 1 of the London Form specifically provides that the insured has all-risk coverage subject to Clauses 4, 5, 6, and 7, which clauses all have captions that describe them as exclusions; there is no reference to the Special Note as an exclusion. The Special Note reads almost like an interpretive comment which could be a useful aid in interpreting the form. However, in the words of the District Court, the CU Policy is a 71-page document, [i]ts insuring clauses, exceptions and exclusions [a]re repetitive and inconsistent, and [t]he cross-referencing of clauses, from and to indorsements, special indorsements, specimen clauses and appendices increase[s] the [interpretive] difficulty. International Multifoods, 178 F.Supp.2d at 348. Given this background, it is difficult to determine how much interpretive weight the Special Note should be accorded. 41 At the end of the day, we do not believe that it is possible satisfactorily to determine the relevance or force of the Special Note only on the basis of the CU Policy itself. Resort to extrinsic evidence bearing on the intent of the parties with respect to the force of the Special Note is therefore appropriate, and the District Court should undertake this inquiry in the first instance. On remand, the District Court should view the Special Note as incorporated into the CU Policy as part of the London Form, and should consider all evidence bearing on its meaning, scope, and force as part of the assessment of whether or not the CU Policy excludes Multifoods' loss from coverage. 7