Tall Ships maintains that K & N's erroneous instruction to fumigate
was within the terms of K & N's agency and, thus, Blue Anchor is
liable for its loss. Specifically, Tall Ships claims that K & N's
advice regarding United States Customs regulations was an "ancillary
service" authorized by Blue Anchor in paragraph 2.8. Tall Ships also
asserts that the advice concerned "regulations existing" in American
ports and, thus, falls within the language of paragraph 1.4. Finally, Tall
Ships argues that a sign in K & N's offices identifying K & N as
Blue Anchor's agent led Tall Ships to believe, reasonably, that K & N
was Blue Anchor's agent for all purposes.
B. COGSA Claim
We need not dwell long on Tall Ships' COGSA claim. Tall Ships concedes
that the cargo damage was caused by the fumigation chemicals, which were
introduced into the cargo container at least three days before Blue
Anchor received it for shipment. Obviously, then, Tall Ships cannot
establish that the cargo was delivered to Blue Anchor in good condition,
as required to recover damages under COGSA. See, e.g., Daewoo Int'l (Am.)
Corp. v. Sea-Land Orient Ltd., No. 98-6171, 1999 WL 1050704, at *2 (3d
Cir. Nov. 19, 1999); Hale Container Line, Inc. v. Houston Sea Packing
Co., 137 F.3d 1455, 1468 (11th Cir. 1998); Transatlantic Marine Claims
Agency, Inc. v. M/V OOCL Inspiration, 137 F.3d 94, 98 (2d Cir. 1998).
C. Agency Claim
There is really no question that Tall Ships adequately alleged a cause
of action against Blue Anchor as K & N's principal: it did. (R. 1,
Compl. at ¶ 11.) Furthermore, K & N's advice to Tall Ships
regarding fumigation was within the scope of its actual authority to act
on Blue Anchor's behalf. Although the advice probably was not within the
meaning of "ancillary services" (when read in the context of paragraph
2.8, "ancillary services" apparently refers to land-based transport, as
opposed to marine transport), the purpose of K & N's obligation to
inform Blue Anchor of United States regulations is "to enable the
Principal to comply with all rules and regulations . . . imposed by any
authority in the Area." (R. 92, Tall Ships Ex. V, Agency Agreement at
¶ 1.4.) K & N's duties on behalf of Blue Anchor thus included
assuring that its customers comply with United States Customs
regulations. Here, although the fumigation advice was erroneous, K &
N informed Tall Ships that U.S. Customs requires fumigation. The advice
was given for the purpose of assuring Tall Ships' compliance, and thus
Blue Anchor's compliance, with "regulations . . . imposed by [an]
authority in the Area."
For this reason, we grant Blue Anchor's summary judgment motion with
respect to Tall Ships' COGSA claim, but deny it with respect to the
III. Tall Ships v. Fireman's
Tall Ships sues Fireman's for wrongfully denying its insurance claim.
The relevant facts are as follows.
Tall Ships hired K & N to handle all of its shipping needs,
including procuring insurance for its shipments. Fireman's issued a
standard open-marine cargo policy to K & N. Under this policy, K
& N is the assured and places insurance with Fireman's for its
customers, the insureds. As relevant here, the policy covers losses
occurring "in transit," unless the damage is caused by inadequate
packaging. (R. 92, Tall Ships Ex. L, Open Marine Ins. Portfolio
("Policy"), at § 1, ¶ 6 (warehouse-to-warehouse clause) and
§ 1, ¶ 19 (incorporating Institute Cargo Clauses); R. 72,
Fireman's Ex. J, Institute Cargo Clause ("ICC"), at ¶ 4.3 (excluding
loss from inadequate packaging).) Additional coverage, if desired, must
be requested in writing. The shipment at issue here was insured under the
terms of K & N's policy.
In preparing the cargo for transit, Tall Ships placed the seventy-six
model ships in
a single container that was located on the street outside of its
Philippines facility. The fumigator placed a can containing forty
phosphine tablets inside the container with the cargo. The container was
then sealed by Tall Ships' employees, who stood guard over the container
until a trucker picked it up later that day. The cargo container should
have been vented 72 hours after the fumigation chemical was introduced;
because it was not, the model ships were ruined.
Tall Ships notified K & N regarding the damage and filed an
insurance claim for the damage. Fireman's denied the claim, and Tall
Ships initiated this lawsuit to recover insurance proceeds from
Fireman's. Fireman's seeks summary judgment arguing that the damage to
the model ships is not covered by the insurance policy because it
occurred before transit. began and, even if the damage occurred during
transit, it falls within the "inadequate packaging" exclusion.
Fireman's presents two basic arguments in support of its motion for
summary judgment. First, it argues that Tall Ships loss occurred prior to
transit. According to Fireman's, the loss occurred when the phosphine
tablets were placed in the cargo container and the container was sealed.
Fireman's asserts that, because the fumigation took place while the cargo
was in Tall Ships' control, the cargo had not commenced transit as
required under the warehouse-to-warehouse clause of K & N's policy.
Second, Fireman's argues that, even if the damage occurred during
transit, it fell within the policy's "inadequate preparation" exclusion,
and thus was not covered. The Court agrees on both points.
1. The Warehouse Clause and
Commencement of Transit
The policy at issue here is an "open-marine cargo policy" typically
used in the freight forwarding business. An open-marine cargo policy "is
a prospective policy that requires notice from the insured [via the
assured] to the insurer so that it can be entered on the policy, which is
open to receive them." Sorkin, Goods in Transit § 42.08 (1999)
(quotations omitted). The assured binds the insurer by issuing a
certificate of insurance for each specific shipment including the value
of the shipment, vessel name, route, etc. See Greene v. Cheetham,
293 F.2d 933, 935 (2d Cir. 1961). Fireman's insurance policy covers cargo
from warehouse to warehouse: in other words, it attaches when the cargo
"leaves the warehouse for the commencement of transit." (R. 92, Tall
Ships Ex. L, Policy at § 1, ¶ 6.) Assuming that the damage
occurred to the model ships when the fumigation occurred, the question is
when transit commenced.
Courts have held that transit involves movement. See Hartford Cas.
Ins. Co. v. Banker's Note, Inc., 817 F. Supp. 1567, 1573 (N.D.Ga. 1993)
("Property is considered in transit when it is moving from one location
to another"); 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) ("Transit in common speech is
the act or process of causing to pass from one place to another."); see
also Sorkin, Goods in Transit § 43.04 (1999) ("In transit implies
a continuity of movement of cargo and not storage."). Cargo cannot
simultaneously be "in preparation for transit" and "in transit." See
Kessler Export Corp. v. Reliance Ins. Co., 207 F. Supp. 355, 358
(E.D.N.Y. 1962); Brammer Corp. v. Holland-America Ins. Co., 34 Misc.2d 337,
228 N.Y.S.2d 512 (N.Y.Sup.Ct. 1962); Donald T. Rave, Jr. and Stacey
Tranchina, Marine Cargo Insurance: An Over view, 66 TUL. L. REV. 371,
375-76 (1991) (surveying relevant case law and concluding that "[t]he
general rule appears to be that mere preparation of a shipment for
transit, no matter how complete, does not trigger coverage under a cargo
policy. Transit will not be considered to have commenced unless the
shipment has been moved to a point beyond the control of the seller.").
In San-Nap-Pak, the cargo at issue was 480 cartons of toilet tissue,
which was loaded
on to the plaintiffs tractors and trailers. See San-Nap-Pak, 47 N.Y.S.2d
at 543. The tractors and trailers were left on a lot adjacent to the
plaintiffs factory. Id. The next day a flood inundated the trailers and
damaged the cargo. Id. The court held that transit had not commenced
because although it was fully prepared, the cargo had not actually made
any movement toward its intended destination. Id. at 545. Similarly, in
Kessler, the defendant arranged for a shipment of sunglasses to Morocco.
See Kessler, 207 F. Supp. at 357. After the goods were loaded into the
defendant's truck, the truck was left in the plaintiffs warehouse for the
weekend. Id. Over the weekend the truck with the cargo was stolen. Id.
The court held that the goods had not commenced transit because they
never left the plaintiffs control. Id.
K & N delivered a container to the street outside of Tall Ships'
Philippines warehouse. Tall Ships' employees placed the cargo into the
container. The fumigator placed a can containing forty phosphine tablets
into the container, which Tall Ships then sealed. Tall Ships affixed the
U.S. Customs seal and stood guard until a trucker came to pick up the
container. Thus, although the fumigation took place outside Tall Ships'
warehouse, the cargo had not yet commenced transit. Once fumigated, the
cargo sat in front of Tall Ships' warehouse. As in San-Nap-Pak there was
no "movement to the points of [the cargo's] intended delivery." See
San-Nap-Pak, 47 N.Y.S.2d at 545. Because the model ships remained in Tall
Ships' control until hours after the fumigation, the cargo had not yet
begun transit; instead it was "there awaiting the beginning of 
transit." Id. The fact that the packaging was sealed after the fumigation
underscores the point that transit had not commenced; cargo cannot
simultaneously be prepared for transit and in transit.
Tall Ships argues that an insurance policy is a contract of adhesion
and that any ambiguity should be construed in favor of the insured.
According to Tall Ships, because Fireman's never defines "transit" in its
policy, the clause is ambiguous, and the Court should therefore deny
Fireman's motion for summary judgment. However standard clauses are
generally not read so harshly. See Sorkin, Goods in Transit § 56.11
(1999) (discussing marine insurance policies as contracts of adhesion).
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.,
207 F. Supp. 355; Brammer Corp., 34 Misc.2d 337, 228 N.Y.S.2d 512;
San-Nap-Pak, 47 N.Y.S.2d 542. In other words, the meaning of "in transit"
in the context of warehouse-to-warehouse clauses is not ambiguous.
Tall Ships also argues that K & N was acting as Fireman's agent,
and, therefore, that Fireman's should be liable for K & N's
negligence in ordering that the cargo be fumigated. "In examining agency
relationships Illinois law focuses on the agent's conduct rather than on
his or her title." Perzy v. Intercargo Corp., 827 F. Supp. 1365, 1373
(N.D.Ill. 1993). There may be instances where an insurance broker, in
this case K & N, is an agent of both the insurer and the insured.
Id. Here, however, the fumigation was done at K & N's direction to
protect Tall Ships' interest, not Fireman's. The fumigation was directed
according to a mistaken belief that it was required by U.S. Customs; this
has nothing to do with insurance. Moreover, there is no evidence that
Fireman's played any role whatsoever in requesting or obtaining the
fumigations. Thus, K & N was not Fireman's agent when it arranged for
2. Inadequate Preparation
Even if the damage occurred at some point during transit, Tall Ships
still could not recover under the terms of Fireman's policy. The policy
is an all-risk policy and must be read as a whole, including exclusions.
See Sorkin, Goods in Transit, § 42.03 (1999). Once a plaintiff
has shown the existence of an all-risk policy and a fortuitous loss, an
insurance company can escape liability by demonstrating that the loss
occurred within an exclusion in the policy. See Pan American World
Airways, Inc. v. Aetna Cas. & Sur. Co., 505 F.2d 989, 999 (2d Cir.
1974). Assuming Tall Ships can meet its obligations, Fireman's contends
that the loss falls within Exclusion 4.3;
In no case shall this insurance cover loss damage or
expense caused by insufficiency or unsuitability of
packing or preparation of the subject matter insured
(for the purpose of the Clause 4.3 "packing" shall be
deemed to include stowage in a container or a liftvan
but only when such stowage is carried out prior to
attachment of this insurance or by the Assured or
(R. 72, Fireman's Ex. J, ICC.)
Few cases address the adequacy of packaging in terms of insurer
liability. However, several courts have addressed the issue in the
context of the Carriage of Goods at Sea Act (COGSA), 46 U.S.C. App.
§ 1304(2)(n). While not dispositive, these cases illustrate an
accepted meaning of the phrase "inadequate preparation." For example, in
Bache v. Silver Line, 110 F.2d 60 (2d Cir. 1940), the court held that a
carrier was not to be liable for damage to a rubber shipment because of
inadequate preparation. In ruling for the defendant. Judge Learned Hand
held that "if goods, as they are wrapped or cased, are not fitted to
endure the ordinary hazards of the voyage, the ship is not liable"
because the goods are not adequately prepared. Id. at (ii). Similarly, in
The Rita Sister, 69 F. Supp. 480 (E.D.Pa. 1946), the plaintiff shipped
two thousand cases of brandy which were received by the carrier in good
condition. Id. at 481. During transit, however, twenty cases were
damaged. Id. The record indicated that the cases were handled and stowed
in a careful manner, but that the packaging was "weak" because it allowed
the bottles to break. Id. For this reason, the carrier was not liable for
In another brandy case, Kasser Distillers Prod. Corp. v. Companhia De
Navegacao Carregadores Acoreanos, 76 F. Supp. 796 (S.D.N.Y. 1948), the
court found that "[t]he breakage was clearly within the [packaging]."
Id. at 798. The court held that it did not matter if customary packaging
methods were used because that fact was not probative of the adequacy of
the particular packaging. Id.
Here, the damage was, as in Kasser, within the packaging. There is no
dispute that the botched fumigation destroyed the model ships. The
fumigation was done in preparation for transit. Additionally, the
container should have been ventilated 72 hours after it was fumigated,
but it wasn't. In other words, the packaging of the cargo was faulty; it
contained corrosive fumes. Thus, the damage resulted from the preparation
and packaging of the cargo and, for this reason, was not covered by the
terms of the insurance policy.
Tall Ships argues, without citing any case law, that the packaging
exception applies only to structural damage. Tall Ships contends that the
packaging here was sufficient to keep the models from shifting inside the
container, and that nothing structural in the packaging caused the
damage. Although the cases analyzing inadequate packaging have indeed
dealt with damage caused by some structural defect, the exclusion at
issue here is not limited solely to structural damage, or any other
particular cause. Here, the model ships were damaged by the fumigation
tablets placed in the cargo container; the fumigation tablets were part
of the packaging. Thus, the damage was the result of inadequate
Thus, there is no genuine issue of fact that Fireman's is liable on its
policy to Tall Ships and we grant Fireman's summary judgment motion.
IV. Tall Ships v. Nacora
Finally, Tall Ships sues Nacora for breach of duty under maritime
contract, breach of contract to procure marine insurance, negligent
failure to procure insurance, and breach of fiduciary duty. Nacora is K
& N's in-house insurance broker. Tall Ships "enlisted the aid of [K
& N], because of their claim that they were a full service shipper
with an in-house insurance broker, Nacora." (R. 87-1, Tall Ships' Resp.
to Nacora's Mot. at 3.) But Tall Ships did not discuss insurance for the
seventy-six model ships with Nacora; rather, it made arrangements for
insurance with K & N. Nor is there any other evidence of a
relationship between Tall Ships and Nacora. Instead, Dennis Egan,
President of Tall Ships, stated in his deposition that he believed that
Nacora and K & N were one and the same, and that when he was talking
to K & N he thought he was talking to both.
The difficulty here is that, although Nacora is an insurance broker, K
& N was Tall Ships' insurance broker: Tall Ships contracted with K
& N to make all of its arrangements for shipping, including
insurance. Thus any contractual or fiduciary duty owed Tall Ships by an
insurance broker was owed by K & N, not Nacora. Moreover, even
assuming that Nacora failed in some duty to Tall Ships, the insurance it
would have procured would not have covered this particular loss.
A. Breach of Contract and Breach of Contract to Procure Insurance
To state a claim for breach of contract, Tall Ships must allege that a
contract between it and Nacora existed, that Tall Ships performed their
contractual obligations, that Nacora breached the contract, and that Tall
Ships suffered damages due to the breach. See Derson Group, Ltd. v. Right
Mgmt. Consultants, 683 F. Supp. 1224, 1230 (N.D.Ill. 1988).
Tall Ships offers no evidence that a contract existed between it and
Nacora; the only evidence it submits goes to Dennis Egan's state of
mind. For instance, Egan thought that he was dealing with Nacora; he
thought Nacora and K & N were one and the same. Yet in his affidavit
Egan acknowledges that the two companies are in fact separate entities.
Egan also testified that when negotiating insurance he never spoke to
anyone from Nacora. Instead, he discussed insurance with a K & N
This evidence cannot establish the existence of a contract between Tall
Ships and Nacora. There is no evidence of an offer by Nacora, or
acceptance by Nacora of an offer by Tall Ships. Because Tall Ships has
not shown the existence of a contract between it and Nacora, it has not
met its threshold burden, and its breach of contract claims cannot
B. Breach of Fiduciary Duty
Tall Ships also claims that Nacora breached its fiduciary duty to Tall
Ships. To succeed on this claim, Tall Ships must prove the existence of a
fiduciary relationship. See Farmer City State Bank v. Guingrich,
139 Ill. App.3d 416, 94 Ill.Dec. 1, 487 N.E.2d 758, 763 (1985). A
fiduciary relationship may be presumed by virtue of the parties'
relationship. Id.; see also State Sec. Ins. Co. v. Frank B. Hall &
Co., 258 Ill. App.3d 588, 196 Ill.Dec. 775, 630 N.E.2d 940, 945 (1994).
For example, an agency relationship establishes a fiduciary relationship
as a matter of law. State Sec. Ins., 196 Ill.Dec. 775, 630 N.E.2d at
Nacora is an insurance agent and Tall Ships is an insured; this appears
to be the basis of Tall Ships' fiduciary duty claim. But, as stated
above, K & N was Tall Ships' insurance broker, and Tall Ships has not
produced any evidence that it had any sort of relationship with Nacora.
Although Tall Ships claims that it regarded K & N and Nacora as one,
this evidence, of course, does not establish that they
were one, or that K & N could somehow silently bind Nacora as a
fiduciary to Tall Ships. The fiduciary relationship, if any. lies between
Tall Ships and K & N.
To state a cause of action for negligence, the plaintiff must show that
the defendant owed it a duty of care, that the defendant breached that
duty, and that the breach was the proximate cause of the plaintiffs
injury. See Mt. Zion State Bank & Trust v. Consol. Communications,
Inc., 169 Ill.2d 110, 214 Ill.Dec. 156, 660 N.E.2d 863, 867 (1996).
Here, even if Tall Ships could demonstrate that Nacora owed it a duty,
Tall Ships would not prevail because it cannot show that Nacora's failure
to procure insurance was the proximate cause of Tall Ships' loss.
As we held above, Tall Ships' loss occurred outside of the terms of the
standard marine cargo policy and, thus. was not covered by that policy.
Tall Ships presents no evidence that it requested coverage beyond that
provided by the standard marine policy. Thus, even if Nacora had a duty to
obtain insurance for Tall Ships, it would not have been under any duty to
obtain extraordinary coverage. Because Nacora would have gotten the same
type of insurance that K & N did in fact obtain, Tall Ships loss
would not have been covered under a Nacora-obtained policy either.
Therefore, Tall Ships cannot show that Nacora's failure to obtain
insurance caused its loss.
Thus, there is no genuine issue of material fact that Nacora is liable
for Tall Ships' losses, and we grant Nacora's summary judgment motion.
For the foregoing reasons, K & N's partial summary judgment motion
is denied. (R. 56-1.) We grant in part and deny in part Blue Anchor's
summary judgment motion. (R. 66-1.) We grant the summary judgment motions
of Fireman's and Nacora. (R. 70-1; R. 59-1.)
Also pending are motions by Fireman's and Nacora to strike portions of
Tall Ships' response briefs for failing to comply with the local rules
and for violating counsel's ethical obligations, and a motion by Tall
Ships to strike Nacora's motion to strike. Although the defendants'
points are well taken, given our ruling, their motions are denied. (R.
98-1; R. 102-1.) Tall Ships' motion to strike is dismissed as moot. (R.
112-1.) However, we admonish in the strongest possible terms Tall Ships'
attorneys to alter their litigation strategy — particularly their
use of inflammatory and wholly inappropriate characterizations of the
defendants*fn2 in lieu of well-reasoned legal positions — or face
possible future sanctions.
A final pretrial order in this case will be due on January 5, 2000. The
remaining issues in this lawsuit are hereby set for trial on January 24,
2000, at 10:00 a.m. A status hearing will be held in open court on
December 21, 1999 at 9:45 a.m.