Riskier than it seemed

   What duty does the federal government owe an insurance company that underwrites a surety bond to guarantee the obligations of an importer?
   That’s the issue at the heart of a case that was remanded to the U.S. Court of International Trade by the U.S. Court of Appeals in Washington to in a 2-1 decision. (Hartford Fire Insurance Co. v. United States, Fed. Cir. No. 10-1198. Aug. 11)
   The case involved shipments of frozen cooked crawfish imported from China in summer 2003 that were subject to an existing antidumping order.
   In October 2004, following an administrative review by the International Trade Administration, the crawfish imports were subjected to a new, higher antidumping duty rate.
   The importer, Sunline Business Solutions Corp., did not make a payment of the additional antidumping duties, so by June 2005, U.S. Customs and Border Protection sought to obtain payment from Sunline’s surety, Hartford.
   “When you import merchandise into the country, you basically have to post some collateral,” explained Frederic Van Arnam Jr., an attorney at Barnes/Richardson, who represents Hartford. “The vast majority of the time you go to a surety and get a bond.” The surety agrees to pay the customs duties in the event that the importer defaults or if liquidated damages are assessed.
   Hartford said in May 2005 its lawyers learned from an individual connected with a customs brokerage house that personnel from Sunline had been arrested for using false invoices. Hartford undertook an investigation into the matter and believed it had potential grounds upon which it could deny liability regarding Customs’ demand for payment.
   Hartford had 90 days in which to file an administrative protest with Customs, but instead waited until Feb. 7, 2007 to file a suit in the Court of International Trade.
   Hartford argued CIT had jurisdiction because it did not learn of the basis for its protest until after the period for filing an administrative complaint had passed. But the trial judge at the CIT found Hartford reasonably should have known about the protest grounds in May 2005 and denied jurisdiction.
   In August, the appeals court majority overturned that decision, saying “the circumstances leading up to Hartford’s eventual discovery of the information that it alleges to support its cause of action remind one of a detective story filled with happenstance, rather than what might be expected to surface as a result of routine uncovering of information through the exercise of due diligence.”
   Van Arnam said a surety bond “is a three-way document. You have the obligor, which is the importer, you have the secondary obligor, which is the surety, and you have the obligee, which is the United States.”
   Hartford contended the government “knew or should have known that there were some irregularities in these types of shipments,” Van Arnam said. “They should have either let Hartford know about that before they executed the bonds or should have required additional security from the importer. Our argument is that there was a misrepresentation, and as a result we took on an obligation that had greater risk than was presented to us.”
   With the case back in the CIT, Hartford will now have a chance to make its argument on the merits.


Cargo declares general average
   The ancient concept of “general average” surprises some, but is more understandable if you unbridle your imagination and put yourself on a Phoenician galleon with little freeboard, caught in a violent storm crossing the Mediterranean.
   To save his crew and ship, the captain orders bundles of wood and amphora of wine tossed overboard. 
The gambit works; the ship arrives at its destination 
safely.
   General average requires that the shippers whose cargo was saved from destruction (or their insurers) to chip in to compensate those whose cargo was lost or damaged to “save the venture” on a basis proportionate to the value of their cargo or vessel.
   While general average is usually declared by the ship owner, it can also be declared by shippers, as it was in a recent case before a U.S. District Court in New York. (Vogt Power International v. Beluga Constellation. S.D.N.Y. 10CV2887. Sept. 1.)
   During cargo loading, securing plates were being welded on a ‘tween deck, when slag fell to the deck below, starting a blaze in packing material.
   The fire was extinguished, but Vogt said its generators were damaged by the fresh water and seawater used to fight the blaze. It contended the damage to its cargo were sacrifices, entitling it to be made good through the doctrine of general average, and asked the court summary judgment.
   The ship owner also asked for summary judgment, but contended if cargo was damaged, its liability was limited to $500 per package, pursuant to the U.S. Carriage of Goods by Sea Act (COGSA).
   The judge declined to grant summary judgment to either party.
   In order to qualify for recovery as a general average loss, three requirements must be met:
   • A common peril or danger must be immediately impending.
   • The voluntary sacrifice must be for the common good.
   • The peril must be successfully avoided.
   The judge said that “while fire is a classic maritime peril, that does not make every on board fire a per se peril.” While that determination “is usually left within the broad discretion of the captain or master,” she said the plaintiff is not entitled to a declaration of general average as a matter of law and a court must “determine whether there was a real and substantial peril to the common safety of the vessel and the 
cargo.” 
   And while the plaintiff will still have to make that argument in court, Jim Carbin, a partner at Duane Morris in Newark, N.J., who represents Vogt, said he knows of only one other case where a court found it could declare general average when requested by cargo even though the ship owner declined to do so.
   On the vessel’s motion for summary judgment, the judge noted COGSA explicitly provides that nothing in the law “shall be held to prevent the insertion in a bill of lading of any provision regarding general average.”
   COGSA’s package limitation “constitutes a separate legal doctrine that does not infringe on a cargo owner’s recovery of a general average allowance for a sacrifice,” the judge said.