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Docket Number

Nos. 541, 542, Dockets 72-1422, 72-1423.

Attorney(S)

Charles S. Haight, Jr., (Haight, Gardner, Poor Havens, New York City, on the brief), for appellants Great American Ins. Co., American Manufacturers Mutual Ins. Co., Aetna Ins. Co., and Hartford Fire Ins. Co. Walter L. Hopkins, New York City (William A. Wilson, Wilson Hopkins, New York City, on the brief), for appellants World Tradeways Shipping, Ltd. and The Steamship Mutual Underwriting Ass'n Limited. Edwin Longcope, New York City (John F. X. McKiernan, Hill, Betts Nash, New York City, on the brief), for appellee.

Judges

Paul Raymond Hays

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Smart Summary

Summary: Great American Insurance Company et al. v. Bureau Veritas, Nos. 541, 542 (2d Cir. May 9, 1973)

Factual and Procedural Background

This case arises from the sinking of the ship TRADEWAYS II in the North Atlantic in October 1965 shortly after departing Antwerp, Belgium, bound for the United States. Two groups of plaintiffs commenced suit against Bureau Veritas, the classification society that surveyed the TRADEWAYS II before she departed Antwerp.

The first group of appellants (the "Great American group") consisted of four insurers of the charterer of the TRADEWAYS II: Great American Insurance Company, American Manufacturers Mutual Insurance Company, Aetna Insurance Company, and Hartford Fire Insurance Company. They sued Bureau Veritas for negligence and breach of warranty, seeking indemnification by subrogation for amounts they paid in compromise of cargo claims asserted against the charterer.

The second group of appellants comprised World Tradeways Shipping Ltd. (owner) and Steamship Mutual Underwriting Assoc. Ltd. (underwriter). They brought a separate suit against Bureau Veritas seeking indemnification for sums paid on their behalf. The two suits were consolidated for trial and for appeal.

The cargo claimant Nimpex International, Inc. had sued for cargo loss and the claim was settled for $220,000; the Great American group paid $130,000 and the owner and underwriter paid $90,000, according to the stipulation referenced in the opinion.

The trial was limited by stipulation of the parties to the issue of liability. The district court considered a stipulation of undisputed facts, agreed exhibits, witness testimony, and expert testimony. The District Court for the Southern District of New York dismissed the complaints, entering judgment for the defendant on the ground that plaintiffs had failed to prove by a preponderance of the evidence that any alleged breach of warranty or duty was the proximate cause of the sinking, that breaches in fact occurred, or that principles of tort or contract law would entitle them to recovery. See 338 F. Supp. 999 (S.D.N.Y. 1972).

Legal Issues Presented

Whether the plaintiffs proved, by a preponderance of the evidence, that Bureau Veritas' alleged negligence or breach of warranty proximately caused the sinking of the TRADEWAYS II.
Whether plaintiffs may recover indemnity for compromise settlements (payments made to settle cargo claims) on the ground that the classification society's conduct created a risk of liability that justified settling, even where causation of the loss was not established.
Whether a plaintiff's decision not to "vouch in" (i.e., to bring the classification society into the defense of the cargo claim) precludes later independent recovery against the classification society when causation is not proven.

Arguments of the Parties

Appellants' Arguments

The Great American group (insurers of the charterer) and the owner/underwriter contended that Bureau Veritas was negligent and breached warranty in surveying and reporting unrepaired defects in the TRADEWAYS II prior to departure.
Appellants sought indemnification by subrogation for amounts they paid in compromise of cargo claims and, on appeal, argued that even if they failed to establish causation, they should recover because Bureau Veritas' negligence in not denying classification in the face of reported unrepaired defects created a risk of liability that justified settling the cargo claim.

Appellee's Arguments

The opinion does not contain a detailed account of Bureau Veritas' specific arguments in opposition beyond the district court's findings and the court of appeals' discussion rejecting the appellants' settlement-based justification for recovery.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
In re Marine Sulphur Transport Co., 460 F.2d 89, 101 (2d Cir.), cert. denied, 409 U.S. 982, 93 S.Ct. 326, 34 L.Ed.2d 246 (1972)	Cited in support of the proposition that even assuming negligence by the classification society, recovery is not permitted absent adequate proof of causation.	The court relied on this authority in concluding that appellants could not recover when the causal relationship between alleged negligence and the sinking had not been established by a preponderance of the evidence.
Damanti v. A/S Inger, 314 F.2d 395 (2d Cir.), cert. denied, 375 U.S. 634, 84 S.Ct. 46, 11 L.Ed.2d 64 (1963)	Cited for the principle that a party that could have "vouched in" a defendant to defend a claim but declined to do so cannot later complain and recover in an independent suit where causation is not established.	The court applied this principle to reject appellants' contention that they were justified in settling the cargo claim; because appellants could have vouched in Bureau Veritas to contest liability, their failure to do so precluded their later independent recovery when causation was not proved.
District Court judgment, 338 F. Supp. 999 (S.D.N.Y. 1972)	District court ruling that plaintiffs failed to meet their burden of proving by a preponderance that alleged breach was the proximate cause of the sinking, that breaches occurred, or that tort/contract principles would entitle them to recovery.	Serves as the trial-court factual and legal determination which the court of appeals reviewed and found no sufficient reason to disregard on the issue of causation.

Court's Reasoning and Analysis

The court's analysis centers on causation and the procedural choices available to plaintiffs when defending or settling third-party claims. The district court found no direct evidence that the specific defects surveyed and reported by Bureau Veritas but left unrepaired caused the sinking of the TRADEWAYS II. After weighing the available evidence — including a stipulation of undisputed facts, agreed exhibits, witness testimony, and expert testimony — the district court concluded that appellants failed to establish a causal connection between Bureau Veritas' alleged negligence and the loss of the vessel.

The court of appeals stated that there was no sufficient basis to disregard the district court's findings on causation. The opinion explicitly reasons that even if one assumes Bureau Veritas was negligent, recovery is barred where causation of the loss has not been established by a preponderance of the evidence, citing In re Marine Sulphur Transport Co. as authority for that proposition.

Addressing appellants' separate contention on appeal — that the classification society's failure to deny classification in the presence of reported unrepaired defects created a risk of liability justifying the settlement of cargo claims — the court rejected this argument. It explained that appellants had an alternative course: they could have "vouched in" Bureau Veritas to defend the cargo claims and thereby obtained a judicial test of Bureau Veritas' liability. Because appellants chose to settle rather than bring Bureau Veritas into the defense, the court held they could not later obtain recovery in an independent suit where causation of loss was not proved. The court cites Damanti v. A/S Inger in support of this procedural principle.

Holding and Implications

Core Ruling: Appellants cannot recover; plaintiffs failed to prove that Bureau Veritas' alleged breach or negligence proximately caused the sinking of the TRADEWAYS II, and their settlement of the cargo claim does not substitute for proof of causation.

Implications:

The practical effect for the parties is that the district court's dismissal of the complaints stands: the plaintiffs (both the Great American group and the owner/underwriter) are not entitled to indemnification from Bureau Veritas based on the record before the court because causation was not established.
The court emphasized a procedural consequence: when a party faces a third-party claim potentially involving another actor's liability (here, a classification society), the party can "vouch in" that third party to defend the claim; failure to do so and electing to settle does not allow the settling party to later obtain independent recovery absent proof of causation.
The opinion does not purport to establish a novel legal rule in this opinion; instead, it applies established principles (as reflected in cited authorities) to the facts and declines to permit recovery where causation is not shown.

This summary was prepared strictly from the text of the provided opinion. No information not present in that opinion has been added.

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GREAT AMERICAN INSURANCE COMPANY ET AL., APPELLANTS, v. BUREAU VERITAS, APPELLEE.

HAYS, Circuit Judge:

This is an appeal from a decision of the United States District Court for the Southern District of New York dismissing the complaint which sought to recover from appellee, a classification society, damages occasioned by the sinking of a ship, the TRADEWAYS II, in the North Atlantic in October, 1965, shortly after her departure from Antwerp, Belgium, bound for the United States.

The first group of appellants consists of the Great American Insurance Company, the American Manufacturers Mutual Insurance Company, the Aetna Insurance Company and the Hartford Fire Insurance Company, insurers of the charterer of the TRADEWAYS II. They will be referred to as the "Great American group." The second group of appellants is made up of World Tradeways Shipping Ltd. and Steamship Mutual Underwriting Assoc. Ltd., respectively, the owner and the underwriter of the TRADEWAYS II.

The Great American group sued Bureau Veritas, the classification society which surveyed the TRADEWAYS II before it departed from Antwerp, for negligence and breach of warranty. They sought indemnification by way of subrogation for the amounts which they, as insurers of the charterer, paid out in compromise of the claims asserted against the charterer as a result of the loss of the ship. A second suit was commenced by the owner and underwriter of the ship against Bureau Veritas for indemnification for sums paid out on their behalf. The two suits were consolidated for trial and for appeal.

Nimpex International, Inc., the subvoyage charterer of Midland, sued both Midland and World Tradeways for cargo loss, seeking damages in excess of one million dollars. On the advice of counsel, the claim was settled for $220,000. Of this amount, the Great American group paid $130,000 on behalf of Midland and the owner and underwriter paid $90,000.

The trial was limited by agreement of the parties to the issue of liability. The court had before it a stipulation of undisputed facts, numerous exhibits that were for the most part agreed upon by the parties prior to trial, and the testimony of witnesses as to the facts and of expert witnesses. The court dismissed the complaints of both groups of plaintiffs, 338 F.Supp. 999 (S.D.N.Y. 1972), saying:

"Insofar as plaintiffs have failed to meet their burden of proving by a preponderance of the evidence that the alleged breach of warranty or duty was the proximate cause of the sinking, that there were in fact breaches of either warranty or duty, or that the principles of either tort or contract law would entitle them to recovery, judgment is entered in favor of the defendant."

338 F.Supp. at 1002.

There was no direct evidence that the defects surveyed and reported by Bureau Veritas but left unrepaired caused the sinking of the TRADEWAYS II. Weighing such evidence as there was the district court came to the conclusion that appellants had failed to establish a causal relationship between Bureau Veritas' negligence and the loss of the TRADEWAYS II. No sufficient reason is advanced to justify our disregard of the court's findings as to causation. Therefore, even assuming the classification society was negligent, appellants cannot recover. See In re Marine Sulphur Transport Co., 460 F.2d 89, 101 (2d Cir.), cert. denied, 409 U.S. 982, 93 S.Ct. 326, 34 L.Ed.2d 246 (1972).

On appeal, the appellants assert that even if they failed to establish that the negligence of Bureau Veritas caused the sinking of the ship, they should recover on the ground that Bureau Veritas' negligence in not denying classification in the presence of the report reciting the unrepaired defects in the vessel created such a risk of liability that appellants were justified in settling the cargo claim.

However, appellants did not have to assume the risk of liability. They could have vouched in Bureau Veritas to defend the cargo claims and thus secured a test of Bureau Veritas' liability. Having chosen not to adopt that course they cannot now complain of the holding in their independent suit that Bureau Veritas' negligence was not proved to be the cause of the loss. See Damanti v. A/S Inger, 314 F.2d 395 (2d Cir.), cert. denied, 375 U.S. 634, 84 S.Ct. 46, 11 L.Ed.2d 64 (1963).

GREAT AMERICAN INSURANCE CO. v. BUREAU VERITAS