Great American Insurance Company of New York et al v. Castleton Commodities International LLC et al

Filing 99

OPINION: For all of the foregoing reasons, the Court, by Order dated December 10, 2015, denied both sides' motions for summary judgment. (Signed by Judge Jed S. Rakoff on 2/25/2016) (ama)

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
-------------------------------------x
GREAT AMERICAN INSURANCE COMPANY
Ul:'

Nt.;W

:r:UK.K,

AJ:...A

_l_N::SUKAl\JCt.;

CU[VJl:'AN:r:,

and CERTAIN UNDERWRITERS AT LLOYD'S,
LONDON AND LONDON MARKET COMPANIES
SUBSCRIBING TO POLICY NUMBER
B0823MA1402182,

15 Civ. 3976

Plaintiffs,

OPINION

-vCASTLETON COMMODITIES INTERNATIONAL
LLC and CASTLETON COMMODITIES
TRADING (CHINA) CO. LTD.,
Defendants.
-------------------------------------x
JED S. RAKOFF, U.S.D.J.
On December 10, 2015,

following full briefing and oral argument

on summary judgment motions filed by both sides in this case, the
Court denied the summary judgment motions filed by plaintiffs and by
defendants. See Order dated Dec. 10, 2015, Dkt.

93. This Opinion

lays out the reasons for those denials.
On May 22, 2015, plaintiffs Great American Insurance Company of
New York ("Great American"), AXA Insurance Company ("AXA"), and
Certain Underwriters at Lloyd's, London and London Market Companies
Subscribing to Policy Number B0823MA1402182

("Certain

Underwriters"), collectively, the "Insurers," filed suit against
defendants Castleton Commodities International LLC ("CCI")
Castleton Commodities Trading (China) Co. Ltd.

and

("CCI China") ,

collectively, the "Castleton defendants." See Complaint, Dkt. 1. The

1

Insurers sought a declaratory judgment that they had no obligation
to cover defendants'

claimed losses of over 87,000 metric tons of

bitumen,i which were allegedly lost while being stored at a Chinese
facility called Fukang. See Complaint

~~

49,

60,

74. The Insurers

alleged that the loss of bitumen fell under an exclusion in the
insurance contract for dishonest acts,
See Complaint

~~

67,

74; Goldstein Declaration, Exhibit A ("Marine

Cargo/Storage & War Risk Policy),
26,

including misappropriation.

Dkt.

63-1,

at CCI0071896. On June

2015, defendants answered the complaint and counterclaimed for

breach of the insurance contract, as well as bad faith in
investigating and handling defendants'
and Counterclaims,

Dkt.

insurance claim. See Answer

15. Defendants claimed that their covered

loss had a value of more than $53 million. See Answer and
Counterclaims,

~

74.

Months of discovery ensued,

including extensive motion practice

relating to each side's efforts to compel production of documents
that, they claimed, had been improperly designated as privileged. 2

1 Bitumen is used in the manufacture of asphalt.
See Plaintiffs' Statement of
Material Facts in Support of Motion for Summary Judgment ("Pl. 56.1"), Dkt. 58, 'II
9; Counterclaim-Plaintiffs' Local Rule 56.1 Response and Objections to
Counterclaim-Defendants' Statement of Material Facts in Support of Motion for
Summary Judgment ("Defs. 56.1"), Dkt. 72, 'II 9.

Plaintiffs argue on the instant motion that defendants rely on declarations of
in-house counsel whose records they refused to disclose, and so have now waived
privilege pursuant to the "fairness doctrine." See Memorandum of Law in Opposition
to Defendants' Motion for Partial Summary Judgment ("Pl. Opp. Br."), Dkt. 68, at
4-5. Defendants respond, inter alia, that the relevant information appeared in
letters sent to the Insurers, and so defendants are making no offensive use of any
privileged information. See Counterclaim-Plaintiffs' Reply Memorandum in Further
Support of Their Motion for Summary Judgment ("Defs. Reply Br."), Dkt. 85, at 910. The Court sees no basis for denying or staying defendants' motion for summary
judgment purely on the basis of plaintiffs' assertions about privilege, as
plaintiffs urge, see Pl. Opp. Br. at 4. However, if, during trial, defendants
2

2

See Memorandum Order dated Oct. 15, 2015, Dkt. 33; Memorandum Order
dated Nov. 2, 2015, Dkt. 45. On November 6, 2015, both sides filed
cross-motions tor summary Judgment. Plaintirr insurers 3 move ror
summary judgment declaring that defendant CCI

(as distinct from co-

defendant CCI China) has no cognizable claim and dismissing CCI from
the action; declaring that there is no coverage for the Castleton
defendants'

claimed loss; and dismissing defendants' counterclaim

with prejudice. See Plaintiffs Motion for Summary Judgment Pursuant
to Fed. R. Civ. P. 56,

Dkt. 49. The defendants move for partial

summary judgment as to coverage for their loss and non-application
of the "dishonest acts" exclusion, while leaving the damages to be
determined at trial. See Defs. Br. at 1. On November 20, 2015, each
side opposed the other's summary judgment motion, and on November
30, 2015, both sides replied. On December 3, 2015, the Court heard
oral arguments on the motions, and on December 10, 2015, the Court
issued a "bottom-line" ruling denying both sides' motions for
summary judgment.4

introduce evidence that plaintiffs believe mandates further disclosure on
defendants' part, the Court will adjudicate such disputes on an item-by-item
basis.
3 The Castleton defendants refer to themselves as the "Counterclaim-Plaintiffs"
and to the Insurers as the "Counterclaim-Defendants." See, e.g., CounterclaimPlaintiffs' Memorandum in Support of Their Motion for Summary Judgment ("Defs.
Br."), Dkt. 60. For simplicity's sake, the Court refers to the Insurers as the
plaintiffs and the Castleton entities as the defendants.
4 On November 29,
2015, plaintiffs, in lieu of filing a reply to defendants'
counterstatement of material facts, submitted an "Objection to Defendant's
Improper Counterstatement of Material Facts," in which they asked the Court to
strike defendants' "improper and prolix statements." See Objection to Defendant's
Improper Counterstatement of Material Facts, Dkt. 89. For the reasons stated at
oral argument on December 3, 2015, see Transcript of Oral Argument dated Dec. 3,
2015 ("Tr."), Dkt. 95, at 22:12-24, the Court grants this motion and does not,

3

By way of background,

in 2008, plaintiffs Great American and

AXA issued to CCI's predecessor, Louis Dreyfus Hybridge Energy
("LDHE")

a Marine Cargo/Storage & War Risks Policy. see Local Rule

56.1 Statement of Undisputed Facts in Support of CounterclaimPlaintiff's Motion for Summary Judgment

("Defs.

56.1"),

Dkt.

61,

'lI

9; Plaintiffs' Counterstatement of Material Facts in Opposition to
Defendants' Motion for Partial Summary Judgment

("Pl. Opp.

56.1"),

Dkt. 70, 'lI 9. CCI was substituted as the named insured effective
December 31, 2012. See Defs.
As of March 1,

56.1 'll'll 27-29; Pl. Opp. 56.1 'll'll 27-29.

2014, Great American and AXA charged CCI a flat

premium of $250,000, and provided insurance coverage up to $30
million. See Defs.

56.1 'll'll 29,

55; Pl. Opp.

56.1,

Dkt. 70, 'll'll 29,

55.
Policy Endorsement No.

2 of the insurance policy, "Storage &

Inland Transit," excludes certain losses from coverage,

including

"Loss or damage to goods and merchandise caused by or resulting from
misappropriation,

secretion, conversion,

infidelity or any dishonest

act on the part of the Assured or other party of interest, his or
their employees or agents." See Pl.
Goldstein Declaration, Exhibit A,

56.1 'lI 24; Defs.

56.1 'lI 43;

at CCI0071896. The Court will

refer to this exclusion as the "dishonest acts exclusion."
On or about March 1, 2012, co-plaintiff Certain Underwriters at
Lloyd's London and London Market Companies issued an excess
therefore, rely on the additional facts asserted in defendants' counterstatement
in deciding the instant summary judgment motions. Nonetheless, the Court is of the
view that considering the stricken factual allegations would not materially affect
the decision of the summary judgment motions.

4

insurance policy to CCI's predecessor, Louis Dreyfus Highbridge
Energy. See Defs. 56.1

~

26; Pl. Opp. 56.1

~

26. The excess policy

provided insurance coverage of $190 million above the $30 million
limits provided by the primary policy. See Defs. 56.l
~

30; Goldstein Declaration, Exhibit B, Dkt.

~

30; Pl. Opp.

63-2, at CCI0071928.

The excess policy stated that it was "[s]ubject to all terms,
clauses and conditions as per underlying insurance policy [Primary
Policy No.] as far as applicable,

including all amendments thereto

with or without notice and follow all settlements absolutely." See
Goldstein Declaration, Exhibit B, at CCI0071929; Defs. 56.1
Pl. Opp. 56.1

~

~

48;

48.

In January 2014, CCI China 5 entered into certain agreements to
sell bitumen to purchasers in China and store the bitumen in China.
See Defs. 56.l

~~

61,

67; Pl. Opp. 56.1

~

61; Qiuling Declaration,

Exhibit 30, Dkt. 50-32, at CCI0011795; Pl. Opp.

56.1, Exhibit 4,

Dkt. 70-4, at CCI0008124. Though various aspects of these agreements
- even their English translations - are disputed by these litigious
parties, the basic outline of the relevant contractual arrangements
was as follows.

CCI China entered into sales agreements with

purchasers of bitumen in China, including Hangzhou Leiteng Trading
Co., Ltd.

("Leiteng")

and Hangzhou Zhongjiao Asphalt Co., Ltd.

s Defendants urge this Court to determine that CCI,

as distinct from CCI China,
has no claim under the insurance policy because CCI had no insurable interest in
the bitumen at issue in this case. See Memorandum of Law in Support of Plaintiffs'
Motion for Summary Judgment ("Pl. Br."), Dkt. 57, at 4-5. However, the Court
declines to remove CCI from the lawsuit. As the parent company of CCI China and
the named insured, see Goldstein Declaration, Exhibit B, at CCI0071926, CCI is
entitled to make a claim under the insurance policy.
5

("HZA"). See Defs. 56.1 'JI 61; Pl. Opp. 56.1 'JI 61. CCI China also
entered into three-party agreements with its customer (for example,
Lei teng) and a cninese SLorage raciJ.i LY,
Petrochemical Storage Co. , Ltd.
56.1

'1I

M1eJ J.a.ng t uKang

( "Fukang") . See Def s. 5 6. 1

'1I

67; Pl.

57. Under these agreements, CCI China and its bitumen

customer would jointly store the bitumen at Fukang. See Pl. 56.1
54; Defs. Opp. 56.1 'JI 54; Pl. 56.1 Exhibit 46

'1I

(Deposition of CCI

China's Filippo Duan), Dkt. 58-46, at 90:9-12; Pl. Opp. 56.1,
Exhibit 4 (Plaintiffs' Translation of Three-Way Agreement with
Leiteng), Dkt. 70-4; Qiuling Declaration, Exhibit 30
Translation of Three-Way Agreement with Leiteng),

(Defendants'

Dkt. 50-32. CCI

China's customers would pay Fukang for storing the bitumen (although
the parties dispute whether such payment was conditioned on Fukang's
making delivery of the bitumen to CCI China's customers). See Pl.
56.1

'1I

106; Defs. Opp. 56.1

'1I

106. According to a CCI Powerpoint

presentation attached to an email dated November 14, 2014, the
"three-party storage agreement [was] a unique arrangement in order
to legally reduce VAT on CCI China." See Pl. 56.1, Exhibit 14, Dkt.
58-14, at CCI0025338; see also Deposition of Filippo Duan,

95:10-

96:4. CCI retained title to its bitumen even while it was stored at
the Fukang facility.

See Defs. 56.1

'1I

71; Pl. Opp.

56.1

'1I

71.

On or about September 26 or 27, 2014, CCI learned that
approximately 87,400 metric tons of its bitumen in storage at the
Fukang facility,

for which CCI was awaiting payment, had been

released by Fukang. See Defs. 56.1

'1I

6

80; Pl. Opp. 56.1

'1I

80. On or

about September 27, 2014, CCI notified insurers of its loss. See
Defs. 56.1

~

83; Pl. Opp. 56.1

~

83.

6

through its insurance broker Aon Xisk

On October 17, 2014, CCI,
inc.,

~ervices,

submiLLed a

document to the insurers alleging a recoverable loss of
approximately $61,481,807
89; Pl. Opp. 56.l

(before applicable deductions)

See Defs.

56.1

~

Dkt.

63-4. On October 30, 2014, Great American wrote a letter to

~

89; Goldstein Declaration, Exhibit D,

CCI, stating that it "and the other interested underwriters
expressly reserve all of their rights under the policy, while they
continue their investigation of the alleged bitumen loss." See Pl.
56.1, Exhibit 40, Dkt. 58-40; Goldstein Declaration, Exhibit E, Dkt.
63-5; Defs. 56.1

~

91; Pl. 56.1

~

125. This letter identified the

dishonest acts exclusion as a possible bar to coverage. See id.
The Insurers and CCI then conducted investigations of the
claim. Though the parties dispute several aspects of what these
investigations revealed,
86; Pl. 56.1

~

see, e.g., Defs. 56.1

129; Defs. Opp. 56.1

~

~

86; Pl. Opp. 56.1

~

129, it is undisputed that

plaintiffs' investigation found that "CCI's bitumen was released by
Fukang without CCI's knowledge, consent or authorization, but

Defendants state that on October 14, 2014, CCI China brought a civil lawsuit in
China against Fukang and Jiayue, Fukang's parent company (see Pl. 56.1 ~ 116,
Defendants' Reply to Plaintiffs' Counterstatement of Material Facts in Opposition
to Defendants' Motion for Partial Summary Judgment ("Defs. Reply 56.1"), ~ 68),
based on breach of contract for releasing CCI's bitumen from storage. See Defs.
56.1 ~ 87. Plaintiffs deny this point, but they do not seem to deny the existence
of a Chinese lawsuit so much as dispute defendants' reasons for bringing that
lawsuit and claim that CCI withheld relevant documents. See Pl. Opp. 56.1 ~ 87.
Plaintiffs assert, for example, that "certain documents produced indicate the
decision to sue was made to appease the local authorities." Pl. Opp. 56.1 ~ 87.
Regardless, the Court does not view the Chinese lawsuit as material to the denial
of summary judgment to both sides.
6

7

could not determine to whom the bitumen was released," and the
Insurers "were unable to determine why, when or how CCI's bitumen
was released rrom cne tuKang rac111cy.- ue1s.
Opp. 56.1

~

~b.1

~

1U5-U4;

~1.

103-04. On April 23, 2015, CCI submitted a further proof

of loss, calculating CCI's loss as $61,603,383 before application of
deductions. See Defs. 56.1

~

Declaration, Exhibit F, Dkt.

116; Pl. Opp. 56.1

~

116; Goldstein

63-6. On May 22, 2015, the Insurers

denied CCI's claim based on the dishonest acts exclusion. See Defs.
56.1

~

118; Pl. Opp. 56.1

~

118. On the same date, the Insurers

filed their declaratory judgment action against CCI. See Complaint,
Dkt. 1.
Summary judgment is warranted only if "there is no genuine
issue as to any material fact and .

. the moving party is entitled

to a judgment as a matter of law." Celotex Corp. v. Catrett, 477
U.S. 317, 322

(1986). The Court must "construe all the evidence in

the light most favorable to the nonmoving party, drawing all
inferences and resolving all ambiguities in its favor." Amidon v.
Student Ass'n of State Univ. of New York at Albany,

508 F.3d 94,

98

(2d Cir. 2007).
In the context of insurance policy interpretation, the insured
"has the burden of establishing a prima f acie 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." Int'l Multifoods Corp. v.
Commercial Union Ins. Co., 309 F.3d 76, 83
8

(2d Cir. 2002). However,

"the insurer bears the burden of showing that an exclusion applies
to exempt it from covering a claim." MBIA Inc. v.
t.Jd

l~~,

l~~

(~d

Cir. 2011).

virtue of an exclusion,

~1gn1r1can~1y,

~o

Fed.

an insurer must establish that the exclusion

other reasonable interpretation .

2006).
one,

652

coverage ny

-nega~e

is stated in clear and unmistakable language [that]

Grp. v. St.

Ins. Co.,

is subject to no

." Parks Real Estate Purchasing

Paul Fire & Marine Ins. Co.,

472 F.3d 33,

Further, under "New York insurance law,

42

(2d Cir.

[t]he burden, a heavy

is on the insurer, and [i]f the language of the policy is

doubtful or uncertain in its meaning, any ambiguity must be resolved
in favor of the insured and against the insurer." Id.

7

In this case,

plaintiff Insurers seek to establish that the dishonest acts
exclusion applies. See Pl. Br. at 5. While the Court thinks it
unlikely that plaintiffs will be able to establish the application
of this exclusion in a manner that meets the standards for insurance
contract interpretation, the Court cannot conclude at the summary
judgment stage that there are undisputed facts that either preclude
or mandate the exclusion's application.
As an initial matter, the parties raise the issue of choice of
law. See, e.g.,

Pl. Br. at 2-3; Defs. Br. at 3-4 n.l. The Court will

give effect to the excess policy's express choice of law clause

For the reasons stated infra, the Court finds that New York law applies to both
the primary and excess insurance contracts. However, in the Court's view, the
cited principles of insurance contract interpretation do not depend on whether the
Court applies New York law to the primary policy, as plaintiffs urge, see
Memorandum of Law in Support of Plaintiffs' Motion for Summary Judgment ("Pl.
Br."), Dkt. 57, at 2-3, or Connecticut law, as defendants contend, see Defs. Br.
at 3-4 n.l. See MBIA Inc., 652 F.3d at 158-59.

7

9

stating that New York law governs. See Goldstein Declaration,
Exhibit B, at CCI0071932. Furthermore, the Court finds that New York
law also governs the primary policy, which lacks such an express
choice-of-law clause. The Second Circuit has stated that
Federal maritime law requires us to determine the scope
and validity of the [marine insurance] policy provisions
and the consequences of breaching them by using state
law
Under federal choice-of-law rules
this
choice-of-law analysis should include an assessment of the
following
contacts:
( 1)
any
choice-of-law
provision
contained in the contract;
( 2)
the place where the
contract was negotiated, issued, and signed; ( 3) the place
of performance; (4) the location of the subject matter of
the
contract;
and
( 5)
the
domicile,
residence,
nationality, place of incorporation, and place of business
of the parties.
Advani Enterprises,
162

(2d Cir. 1998)

Inc. v. Underwriters at Lloyds, 140 F.3d 157,
(citations and internal quotation marks omitted)

Here, the Court finds especially significant the fact that
CCI's insurance broker is Aon Risk Services, Northeast,
York office, see Pl. 56.1

~

10; Defs. Opp. 56.1

~

Inc.'s New

10, and that Aon's

New York Marine Cargo Department placed the insurance policies at
issue with the plaintiff insurers, see Pl. 56.l

~

11; Defs. Opp.

56.1

~

11. Even if CCI's headquarters is in Connecticut, see Defs.

56.1

~

59, that fact is not dispositive. See St. Paul Fire & Marine

Ins. Co. v. Novus Int'l,
28, 2011)

Inc., 2011 WL 6937593 at *5

("[a]lthough [the insured]

(S.D.N.Y. Dec.

itself is located in Missouri,

it relied entirely on its New York insurance broker, Marsh, to
manage its relationship with [insurers].

. this Court finds

application of New York law to be appropriate"), aff'd,

10

504 F. App'x

57

(2d Cir. 2012). The issue is, moreover,

relatively immaterial,

because, even though defendants contend, at least in their brief,
that Connecticut law should govern the primary policy, see Defs. Br.
at 3-4 n.l, they do not expressly identify any specific issue on
which,

in their view, the choice between Connecticut and New York

law to govern the primary insurance policy would make a difference.
See Tr. 41:15-18

(defendants' counsel stating "we don't dispute that

the interpretation of the insurance policies is governed by New York
law, perhaps Connecticut law with respect to the primary policy.")
Therefore, while the Court finds that New York law governs the
primary insurance policy in addition to the secondary insurance
policy, the Court does not view this determination as dispositive of
any essential issue in this case.
As to the law governing the three-way agreements between CCI
China,

its customers, and the Fukang storage facility,

these

agreements provide that they are to be governed by the law of the
People's Republic of China. See, e.g., Qiuling Declaration, Exhibit
30, at CCI0011806; Pl. Opp. 56.1, Exhibit 4, at CCI008135. The Court
is unwilling to conclude, therefore, that Chinese law is irrelevant
to a determination of the relationship between CCI and Fukang as
defined by these agreements. However, the interpretation of the
insurance policies in this case - notably, of the term "agent" in
the dishonest acts exclusion - remains a matter of U.S., and
specifically New York,

law. Most significantly, the Court is not

convinced that any material aspect of this case depends on the
11

application of Chinese versus American law. See, e.g., Tr. 41:2542:1

(defendants' counsel stating, in response to the Court's

question ot whether it mattered whicn

~aw

app~ied,

"U~timate~y,

Your

Honor, we think the result is the same.").
The Court now turns to the application of the dishonest acts
exclusion in Endorsement No. 2, which, as noted above,
follows:

"EXCLUSIONS;

reads as

Loss or damage to goods and merchandise

caused by or resulting from misappropriation, secretion, conversion,
infidelity or any dishonest act on the part of the Assured or other
party of interest, his or their employees or agents." See Goldstein
Declaration, Exhibit A. First, and most importantly, plaintiff
Insurers argue that that Fukang was CCI China's "agent" within the
meaning of the dishonest acts exclusion. See Pl. Br. at 8.

8

"Agency is a legal concept which depends upon the existence of
required factual elements: the manifestation by the principal that
the agent shall act for him, the agent's acceptance of the
undertaking and the understanding of the parties that the principal
is to be in control of the undertaking." Cabrera v. Jakabovitz, 24
F.3d 372, 386 (2d Cir. 1994), quoting Restatement
§

1 cmt. b

(Second)

of Agency

(1958). Here, plaintiffs claim that Fukang was CCI

China's agent both for "freight forwarding" purposes - that is, to
s Plaintiffs also claim that CCI had a Commercial Crime Policy that it chose not

to extend to insure the risk of a dishonest agent, such as Fukang. See Pl. Br. at
6-7. In the Court's view, even if the existence of alternative sources of
insurance were relevant, which is doubtful, see Pan Am. World Airways, Inc. v.
Aetna Cas. & Sur. Co., 505 F.2d 989, 1002 (2d Cir. 1974), this point would not
clearly cut in favor of plaintiffs, since it could suggest that the policy
defendants actually purchased did cover dishonest acts. However, the Court does
not take the Commercial Crime Policy issue to weigh materially in favor of either
side's summary judgment motion.

12

receive the bitumen from the ocean vessel,

clear it through customs,

and pay customs duties - and for the purposes of making deliveries
of CCI China's bitumen to CCI China's customers.
Defendants respond - plausibly,

~ee

P~.

Br. at 5-9.

in the Court's view - that the

dishonest acts exclusion in Endorsement No. 2 applies only after CCI
China's goods had been placed into storage. See Defs. Opp. Br. at 67.

In particular, Endorsement No.

2, titled "Storage & Inland

Transit," begins by stating: "In consideration of marine premium
paid, as stated elsewhere herein,

this policy is extended to cover

goods and merchandise as per Clause 4 of this policy, while
temporarily stored in any location anywhere in the world, and during
subsequent Inland transit; subject to the following terms and
conditions

" See Goldstein Declaration, Exhibit A (also Pl.

56.1, Exhibit 1) at CCI0071894. One of these "terms and conditions"
is the dishonest acts exclusion at issue in the instant litigation.
See id. at CCI0071896.
In the Court's view,

this language indicates that the relevant

issue is whether Fukang was CCI China's agent for the purposes of
storage or inland transportation to CCI China's customers, and that
any services that Fukang performed for CCI China as a "freight
forwarder" prior to storage of the bitumen at the Fukang facility
are not evidence of agency. At the very least,

construing the

evidence in the light most favorable to defendants,

the Court cannot

grant summary judgment to plaintiffs on the basis that Fukang was
CCI's agent prior to storage of the bitumen at Fukang.

13

As to whether plaintiffs have even raised genuine disputes of
material fact on this point, plaintiffs argue, for example, that the
original ararc or cne cnree-parcy agreemenLs cor1Lainea a clause
captioned "no agency," which was later deleted. See Pl. Br. at 13,
citing Pl. 56.1, Exhibit 16, Dkt. 58-16, at CCI0050669; Pl. 56.1,
Exhibit 4, at CCI0008135. Plaintiffs further contend that CCI's
internal communications refer to Fukang as CCI China's freight
forwarding agent, see Pl. Br. at 12-13, citing, e.g.,

Pl. 56.1,

Exhibit 14, at CCI0025337. The Court doubts that these points and
other evidence adduced by plaintiffs raises a reasonable dispute of
material fact to counteract the language of Endorsement No. 2, which
indicates that the dishonest acts exclusion applies to storage and
subsequent inland transit. However, the Court has no need to
definitively resolve the issue of whether Fukang was CCI China's
agent for freight forwarding purposes, since it finds that there
exists, however narrowly, a reasonable dispute of material fact as
to whether Fukang was CCI China's agent for storage and delivery
purposes.
Plaintiffs contend,

for instance, that CCI China fully relied

on Fukang to effect the physical delivery of bitumen to CCI China's
customers,

in accordance with CCI China's instructions. See Pl. Br.

at 14, citing, e.g.,

Pl. 56.1, Exhibit 46

Filippo Duan), at 52:17-20
customer] took delivery,

(Deposition of CCI China's

("I don't know where Leiteng [CCI China's

I just know that once Leiteng had paid the

full amount, that we would just tell Leiteng how many tons of goods
14

belong to Leiteng"); Pl. 56.1, Exhibit 49, Dkt. 58-49

(Deposition of

CCI China's Summer Gao), at 16:17-21 ("We have goods stored at the
Fukang storage lsicJ Company and
with him,

1

would nave some communication

including about goods clearing customs and the storage of

some of our goods, and he would then accept our instructions and
carry out the release of those goods."). Plaintiffs also cite
language in the three-party agreements about the services that
Fukang was to perform, such as "Services: Any or all operations
carried out or to be carried out by Zhejiang Fukang in respect of
the Goods, as specified in Schedule II or at the request of CCI and
agreed by Zhejiang Fukang, and include operations incidental
thereto, including but not limited to receiving, handling, storage
and/or delivery of the Goods." See Pl. Br. at 15, citing, e.g., Pl.
56.1, Exhibit 4, Dkt. 70-4, at CCI0008123. Moreover, plaintiffs
claim that CCI's purchase agreements with its customers Leiteng and
HZA (distinct from the three-way agreements that included Fukang)
referred to Fukang as CCI's "service agents." See Pl. Br. at 11. 9
Defendants argue, by contrast, that Fukang was not authorized
to, and did not actually, physically transport or deliver CCI
China's bitumen, and did not serve as CCI's shipper's agent with
respect to the bitumen. See Defs. Opp. Br. at 14. According to
defendants,

Fukang's role in the delivery of bitumen was solely to

allow CCI China's customers to collect the bitumen at Fukang, after
Defendants contest plaintiffs' translation, arguing that the term plaintiffs
translate as "service agents" is correctly translated "service merchants" or
"service providers." They also note that Fukang was not a party to the sales
agreements with CCI China's customers. See Defs. Opp. Br. at 13.
9

15

the customers had paid and title had transferred to the customers.
See id. Defendants note that the three-party agreements prohibited
Fukang from releasing bitumen without CCI China's written consent.
See Defs. Br. at 9; Pl. Opp. 56.1, Exhibit 5, Dkt. 70-5, at
CCI008100

(plaintiffs' translation of three-way agreement with HZA)

("Without CCI's written notice of authorization,

Zhejiang Fukang

shall not release the Goods"); Qiuling Declaration, Exhibit 31, Dkt.
50-33, at CCI0008648
with HZA)

(defendants' translation of three-way agreement

("Zhejiang Fukang shall not handle delivery formalities

without a written notice of an authorized representative of
[Castleton]"); see also Transcap Associates,
No.

99-cv-5292, 2001 WL 1104718, at *7

Inc. v. Cigna Ins. Co.,

(N.D. Ill. Sept. 18, 2001)

("To read the dishonestly [sic] exclusion to exclude anyone and
everyone to which Transcap granted a contractual right would render
the policy a nullity."). Defendants further contend that the
insurance policy distinguishes "agents," on the one hand,

from

storage owners or operators such as Fukang, on the other. See Defs.
Br. at 8, citing Goldstein Declaration, Exhibit A, at CCI0071894,
and that Fukang, as a warehouseman, was not an agent under Chinese
law,

see Defs. Br. at 10.
The Court agrees with plaintiffs that Fukang need not have

released the bitumen in furtherance of its agency relationship with
CCI China in order to be considered CCI China's agent for the
purposes of storage and delivery. See Reply Memorandum of Law in
Further Support of Plaintiffs' Motion for Summary Judgment
16

("Pl.

Reply Br."), Dkt. 86, at 5.

Indeed, even defendants do not seem to

claim as much. See Defs. Reply Br. at 2-3. But there remain genuine
disputes of material tact that, at the very least, preclude summary
judgment in plaintiffs'

favor on the question of whether Fukang

misappropriated the bitumen in its capacity as CCI China's agent for
the purposes of storage and delivery.
The Court sees it as a closer question whether summary judgment
for defendants is warranted on this point, especially in light of
insurers' burden to establish the application of the dishonest acts
exclusion. However, construing all the evidence in the light most
favorable to plaintiffs, the Court finds that plaintiffs have
presented sufficient evidence to create a triable issue of material
fact and, accordingly, denies summary judgment to defendants.
Moving beyond the agency question, plaintiff Insurers also
contend that Fukang was an "other party of interest" within the
meaning of the dishonest acts exclusion. See Pl. Br. at 21-23.
Plaintiffs argue that this term should be construed broadly, to
encompass "a party who has a financial interest with respect to the
insured goods by virtue of being in a position relative to the goods
as a result of the insured's decision to do business with that
party." Pl. Br. at 20.

Plaintiffs further claim that Fukang should

be considered an "other party of interest" because it was a
"critical part of CCI China's bitumen trade"; because it had
physical custody and control of the bitumen; because it held the
bitumen "jointly" for CCI China and its customers; because it had an
17

insurable interest in the bitumen and,

in fact,

insured the bitumen;

and because it had a fiscal interest in the transaction inasmuch as
it would be paid by cc1 China's customers only arter delivery or the
bitumen was completed. See Pl. Br. at 21-22.
Defendants counter that the term "other party of interest" has
a specific meaning in the ocean cargo marine insurance industry, and
this meaning does not include warehousemen and storage providers,
but rather is limited to "a party with an insurable interest under
the Policy in the goods insured." See Defs. Br. at 14, 16.
Defendants also argue that if the insurers had wished to exclude
coverage for dishonest acts by parties like Fukang, they could have
included language, which they inserted in a different policy form,
excluding coverage for dishonest acts by, among other parties, "any
persons to whom the property may be entrusted .

." See id. at 15.

Defendants further note that CCI retained title to the bitumen while
it was in storage at Fukang (indeed, this is undisputed,
56.1

~

71; Pl. Opp. 56.1

~

see Defs.

71). See Defs. Br. at 18. Further, the

parties dispute the relevance of "Bankers' Endorsements" and the
dishonest act exclusions contained therein. See Goldstein
Declaration, Exhibit A, at CCI0071911; Defs. Br. at 18; Pl. Reply
Br. at 9.
The Court regards plaintiffs' argument that Fukang counted as
an "other party of interest" as weaker than their claim that Fukang
was CCI China's agent for storage and delivery purposes. However,
the Court notes that whether Fukang counted as an "other party of
18

interest" depends significantly on the custom and policies of the
marine cargo insurance industry - a point on which the parties
reasonably disagree. Having found a reasonable dispute of material
fact with respect to whether Fukang was CCI China's agent for
storage and delivery purposes, the Court need not definitively
resolve the issue of whether there exists such a dispute with regard
to the issue of whether Fukang was an "other party of interest."
Similarly, the Court need not resolve the merits of defendants'
argument that plaintiffs cannot establish Fukang "misappropriated"
or "converted" the bitumen, or committed a "dishonest act," within
the meaning of the "dishonest acts" exclusion. See Defs. Br. at 19.
The Court sees it as doubtful that Fukang's actions do not fall
within the aforementioned terms of this exclusion. Under New York
law, "an agent who intermeddles with the property of his principal
beyond the extent of his authority, with the intent to use or
dispose of it so as to alter its condition or interfere with the
owner's dominion, is guilty of conversion.
unnecessary." Filner v. Shapiro,

. Wrongful intent is

633 F.2d 139, 141

(2d Cir. 1980).

Even if defendants are correct that the insurers cannot establish
that Fukang "dishonestly" misappropriated CCI China's bitumen, see
Defs. Br. at 19, Fukang's actions could still fall within the ambit
of the policy exclusion. However, the Court recognizes that there is
some uncertainty regarding the exact nature of the events at Fukang.
See, e.g., Defs. 56.l

~~

103-04; Pl. Opp. 56.1

~~

103-04.

Ultimately, the Court need not decide if there is a genuine dispute
19

of material fact as to whether Fukang committed a
"misappropriation," "conversion," or other "dishonest act," since it
rests its denial of summary Judgment on the issue

01

wnetner ruKang

was CCI China's "agent" for storage and delivery purposes.

10

Defendants additionally claim that plaintiffs acted in bad
faith by prolonging the investigation and denying CCI's claim even
though their own investigation failed to show that CCI China's loss
was not covered. See Answer and Counterclaims,
Br. at 23-24.

In the Court's view,

~~

77-87; Defs. Opp.

it is doubtful that there exists

an independent cause of action for bad faith denial of an insurance
claim under New York law. See, e.g., Hastings Dev., LLC v. Evanston
Ins. Co., No.
30,

2015)

14 Civ.

("[A]

6203, 2015 WL 6618634, at *17

(E.D.N.Y. Oct.

host of courts have held that there is no separate,

generalized tort claim for bad faith denial of insurance in New
York," and collecting citations) (internal quotation marks omitted)
but see Harris v.
(2d Cir. 2002)

Provident Life & Acc.

Ins. Co.,

310 F.3d 73,

80

(citing, possibly as dicta, New York cases

recognizing a bad faith claim "in which an insurance company refuses
to settle a claim against the insured"). However,

"consequential

damages resulting from a breach of the covenant of good faith and
10

Defendants further argue that the Insurers cannot show Fukang "caused" CCI
China's loss while acting as CCI China's agent, within the meaning of the
dishonest acts exclusion ("loss or damage to goods and merchandise caused by or
resulting from misappropriation .
. "). See Defs. Br. at 11-12. Defendants claim,
for example, that any services Fukang performed as CCI China's agent for freight
forwarding purposes had terminated by the time the loss occurred. See id. at 12.
In the Court's view, the issue of whether Fukang "caused" CCI China's loss is
largely covered by the discussion of whether Fukang was CCI China's agent for
freight forwarding purposes, see supra. Since the Court need not decide whether
there exists a genuine dispute of material fact as to the freight forwarding
agency question, it takes the same position on defendants' causation argument.

20

fair dealing may be asserted in an insurance contract context."
Panasia Estates, Inc. v. Hudson Ins. Co., 10 N.Y.3d 200, 203
see also Bi-Econ. Mkt.,
10 N.Y.3d 187, 194

(2008);

lnc. v. Harleysville Ins. Co. of New York,

(2008). At least for damages purposes, therefore,

the Court finds that there are genuine disputes of material fact as
to whether plaintiffs acted in bad faith in denying defendants'
insurance claim. See, e.g.,

Defs. 56.1

~~

85, 110; Pl. Opp. 56.1

~~

85, 110.
For all of the foregoing reasons, the Court, by Order dated
December 10, 2015, denied both sides' motions for summary judgment.

~!~

Dated: New York, NY
February
2016

J6,

21

u.s.o.J.