Shippers’ Law: Contained losses

​A U.S. district court has upheld the decision of the American Club to deny coverage to TransAtlantic Lines over costs associated with a suit resulting from lost cargo, ruling the association’s international deliberations were legally binding.

   The U.S. District Court for the Southern District of New York in May upheld the decision of the American Steamship Owners Mutual Protection and Indemnity Association, Inc. (American Club) to deny coverage to TransAtlantic Lines LLC over costs associated with a suit resulting from lost cargo, ruling the association’s international deliberations were legally binding.
   TransAtlantic had chartered a barge, the Atlantic Trader, from non-party McAllister Towing Co. Inc. in February 2013, and added the vessel to its certificate of entry. On March 4, 2013, over 20 shipping containers fell off the barge into the Atlantic Ocean, and additional containers and cargo onboard were damaged, according to the court’s opinion and order signed by Judge Jed S. Rakoff (TransAtlantic Lines LLC v. American Steamship Owners Mutual Protection and Indemnity Association, Inc. (Case No. 1:17-cv-00998), May 28, 2017).
   The containers went overboard about 18 miles off Key Biscayne, Fla., as the 91-foot vessel was en route from Jacksonville, Fla., to Guantanamo Bay, Cuba, according to the U.S. Coast Guard.
   This incident resulted in a lawsuit in the Southern District of Florida in which TransAtlantic sued Portus Stevedoring LLC for negligent loading of the vessel, which in turn led to Portus bringing claims against McAllister for providing an “unseaworthy” barge, according to the court’s opinion.
   In April 2014, McAllister demanded TransAtlantic defend it against Portus’ claims pursuant to the charter contract, but McAllister’s request was denied.
   After prevailing against Portus in the Florida suit, McAllister demanded TransAtlantic reimburse its attorney fees. Consequently, TransAtlantic paid McAllister $100,000 to settle this claim.
   Following a bench trial, the Florida district court on Oct. 6, 2015, found TransAtlantic 60 percent liable and Portus 40 percent liable for the incident.
   In addition, the court found TransAtlantic had incurred damages of $517,942.03, prompting the company to submit claims for those losses to the American Club.
   The Shipowners Claims Bureau, Inc. (SCB), which handles the American Club’s day-to-day claims processing, paid TransAtlantic’s claims in the amount of $516,728.39 for “sue and labor” costs and the costs of pursuing a suit against Portus, but rejected TransAtlantic’s claims for McAllister’s attorney fees, as well as claims for losses of U.S. government cargo and costs TransAtlantic incurred in recovering perishable cargo.
   On May 31, 2017, the clerk’s judgement was signed by Clerk of Court Ruby Krajick, dismissing TransAtlantic’s complaint and closing the case.
   TransAtlantic challenged the board’s denial of its claim for McAllister’s attorney fees in the Florida action, but the board denied coverage because, under the insurance policy, the attorney fees were not within the narrow coverage provided to McAllister under the “misdirected arrow” clause, as well as because the claim arose both from TransAtlantic’s breach of a contractual duty to obtain coverage for McAllister and TransAtlantic’s obligation to cover the fees pursuant to a contract with a third party. “This decision was not arbitrary and capricious, but was, instead, a straightforward application of the applicable rules,” the court said in its opinion and order.
   Meanwhile, although TransAtlantic challenged the board’s denial of a claim arising out of its loss of U.S. government cargo, the court’s opinion and order pointed out that the board denied coverage because TransAtlantic agreed to transport government cargo on terms less favorable than required under the U.S. Carriage of Goods by Sea Act (COGSA) by granting the government a six-year limitations period, whereas COGSA imposes a one-year period.
   TransAtlantic also challenged the board’s denial of an approximate $43,000 claim in expenses it incurred in recovering perishable cargo after the shipping incident. Under the policy rules, the American Club is entitled to be made whole for any claim it paid before a member can recover it from a third party. However, the board denied this claim because it found that the $43,000 represented a portion of the roughly $517,000 in claims that the American Club already paid to TransAtlantic.
   Commenting on the case, Christopher Raleigh, member of Cozen O’Connor’s New York Office, told American Shipper, “The decision is consistent with prior rulings, which have enforced agreements, entered into between commercially sophisticated parties, containing clauses that mandate the resolution of disputes through arbitration. In the past, contract clauses requiring disputes to be resolved through commercial arbitration have been routinely enforced, and these awards will not be disturbed by our courts absent a showing that the award was obtained through one of the narrow statutory exceptions set forth in the Federal Arbitration Act or applicable state statute, e.g., fraud, bias, corruption or misconduct on the part of the arbitrators.

   “The court’s ruling in TransAtlantic is consistent with these holdings, insofar as it enforced an alternate dispute resolution process that was mandated in the rules of the American Steamship Owners Mutual Protection and Indemnity Association, an association of which the plaintiff was a member,” he added. “In conducting its analysis, the court subjected the TransAtlantic claim to the same analysis as other courts, i.e., was TransAtlantic treated unfairly? Did the process violate the law? etc. After concluding that TransAtlantic did not prove the existence of any of the legally available exceptions, the court declined to disturb the decision rendered by American Steamship’s Board.”