Disappearing act
Who was responsible when a barge of wheat disappeared during Hurricane Katrina? (ConAgra Trade Group v. AEP MEMCO, U.S. District Court, E.D. Louisiana, Cv. 07-2222, July 9.)
ConAgra entered into a freight contract with MEMCO for transportation of wheat from Kentucky to Louisiana. (AEP MEMCO, part of American Electric Power, changed its name to AEP River Operations last year. It barged about 33 million tons of bulk commodities in 2008, with the largest share, 38 percent, being agricultural products.) The wheat was loaded safely aboard the barge on Aug. 2, 2005 in good order and condition.
While the cargo was in transit, ConAgra sold it to Cenex-Harvest States (CHS). The contract of sale between ConAgra and CHS provided for delivery of the wheat 'CIF Nola' in New Orleans. The contract was subject to the trade rules of the National Grain and Feed Association, which required ConAgra to 'furnish cargo insurance or cargo insured bill of lading with respect to barges furnished by seller involving CIF or delivered contracts.'
On Aug. 22, the barge reached the agreed upon destination, the grain elevator at the CHS fleeting area near Port Sulphur, La. (A fleeting area is essentially a parking lot or staging area for barges). CHS advised MEMCO that its fleet was full and MEMCO accordingly delivered the barge on Aug. 22 to the nearby International Marine Terminal's fleet at Myrtle Grove. From Aug. 22, the barge was in the exclusive care, custody and control of IMT.
On the morning of Aug. 29, the eye of Hurricane Katrina made landfall near Buras, La., about 15 miles away from the IMT fleet. The court said it is presumed that at some time during the storm, the barge came free from her moorings and was lost. To date, the barge and her cargo have never been located and are presumed sunk.
ConAgra paid CHS for the value of the wheat after it was lost and took an assignment of CHS's claim. The barge had 53,499 bushels of wheat aboard when it was lost. The fair market value of the wheat was about $185,909.
ConAgra sued MEMCO to recover the value of the lost wheat plus prejudgment interest, claiming MEMCO breached its contract since it assumed liability for cargo safety aboard its barge pursuant to the freight contract. ConAgra further maintained MEMCO breached the freight contract due to its refusal to pay for the lost cargo and because it did not have cargo insurance.
In response, MEMCO claimed it should not bear the loss because the barge was constructively delivered to its destination, which, by agreement of the parties, placed the risk of loss upon ConAgra. MEMCO also argued the loss of barge and cargo was due to an 'Act of God.' Finally, MEMCO asserted it was not liable because at the time of loss the barge was in the care custody and control of a third party. MEMCO asserted third-party claims against the terminal management in the event that it was found liable for the loss of the barge or its contents, but the parties agreed to the third-party claims and placed only the ConAgra-MEMCO dispute before the court.
The contract was governed by Missouri state law, but the court noted 'the law regarding the construction of the contract is the same under general maritime law.
'The cardinal principle of contract interpretation is to ascertain the intention of the parties and to give effect to that intent,' the court explained. 'For a contract to be ambiguous, the terms of the contract must be susceptible to two different, reasonable interpretations.'
That was not the case here. The court said contract language 'clearly and unambiguously evidences the parties' intent that the risk of loss shifted from MEMCO to ConAgra and/or CHS when MEMCO delivered the barge to the IMT fleeting facility. Thus, ConAgra or CHS bore the risk of loss on Aug. 29, 2005 when Hurricane Katrina sunk the barge and damaged the cargo.'
The court added, 'even if MEMCO still retained the risk of loss for the barge and her cargo, its performance under the freight contract is excused by an Act of God. To avail itself of the Act of God defense a party must show that the loss was due to a natural cause without any human intervention and by which no amount of foresight reasonably to have been expected could have prevented.'
It said MEMCO was not negligent in delivering the barge and its contents 'several days before any weather information predicted with reasonable accuracy that Hurricane Katrina would make a direct hit on New Orleans,' contrasting with the case Crescent Towing & Salvage Co. Inc. v. Chios Beauty, No. 05-4207, 2008 WL 3850481 (Aug. 14, 2008), which held the Act of God defense did not apply to loss of vessel when the carrier moored a barge in New Orleans on Aug. 28, 2005, despite clear and overwhelming meteorological warnings that Hurricane Katrina would make a direct hit on the area within 24 hours.
The court found AEP MEMCO bore no liability for the loss of Barge DE8229 or its contents.
Spoiled milk
Up the coast, Gulfport, Miss., was hard hit by Katrina, where 59 loads of Dairy America's milk powder in a warehouse awaiting shipment were destroyed.
Dairy America asked a court (Dairy America Inc. v. New York Marine And General Insurance Co., et al., U.S. District Court, E.D. California, No. CV F 07-0537 LJO SMS. July 21) to reconsider a summary judgment in favor of the defendant cargo insurer and underwriter that found 23 of the 59 loads were not covered.
The court in its summary judgment found the key issue was whether the insurance binder's scope included 23 loads shipped prior to Aug. 11, 2005. Relying on points raised by a senior vice president at the cargo underwriter, the court said the declarations of Dairy America experts and the insurance broker raised no factual issues to defeat the summary judgment.
The underwriters' expert had said the reason goods whose transit begins prior to the inception of the policy are not covered within the cargo policy is that the underwriter 'would never know what goods were in transit or where the transit may have begun,' and because 'the underwriter would have no way of knowing whether or not products such as milk powder could have been damaged, adulterated, lost or stolen.'
Dairy America's expert had countered that a 'lost or not lost' clause in the policy indicated that the parties anticipated that coverage would be provided for shipments already in transit, but the court said the clause addresses geographical limits of coverage, not the time of attachment.
Dairy America argued the competing expert testimony meant there were disputed issues of material fact, and that there should not be a summary judgment.
But the court said, 'Taken to an extreme, Dairy America's position would preclude summary judgment in any action involving opposing expert opinion. Dairy America offers no authority for its novel approach.' It denied the motion for reconsideration.