The U.S. District Court for the Southern District of New York has ruled in favour of World Fuel Services (WFS) in a case involving the theft of marine fuel.
Case background
The case revolves around an insurance dispute with plaintiff
AGCS Marine Insurance Company (AGCS) arising from a sophisticated fraud in which defendants
World Fuel Services, Inc (World Fuel, Inc) and
World Fuel Services Europe, Ltd (WFSE Ltd) were duped by an impostor purporting to work for the U.S. government, who contracted with them to purchase a supply of marine gas oil (MGO), worth around $17 million.
The impostor, who identified himself as 'James Battell', said that he was employed by the U.S. Defense Logistics Agency (DLA), which supplies the U.S. government with fuel and is a regular client of WFS. Unware of the fraud, WFS contacted its suppliers, including
Monjasa A/S, who on November 18, 2013, sent an offer to WFS to supply 17,000 metric tonnes of MGO (worth an estimated $17,284,750) with payment terms of 30 days after delivery. The offer was accepted and WFS signed a contract to provide the aforementioned quantity to its client.
Between December 7 and 9, 2013, off the coast of
Lome, Togo, Monjasa's vessel, the
Marida Marigold, transferred approximately 11,756 metric tonnes of MGO to the Ocean Pearl, and on December 10, 2013, Monjasa sent WFS a Bunker Delivery Receipt (BDR), documenting the delivery and bearing the signature of the Ocean Pearl's Captain.
Between December 10 and 11, 2013, another Monjasa vessel, the
African Leader, transferred an additional amount - approximately 5,262 metric tonnes - of MGO to the Ocean Pearl, and Monjasa sent World Fuel the BDR for this transfer on December 12, 2013.
It was not until the end of January 2014 that a World Fuel employee spoke with an FBI agent, who informed her that 'James Battell' was not a DLA employee and that World Fuel had been defrauded.
Upon realizing that it had been misled, WFS filed a claim with its insurer AGCS, seeking to recover an 'all-risk' clause in its policy. AGCS denied the claim and filed a lawsuit against WFS seeking a declaratory judgment that the loss was not covered. After discovery, the parties cross-moved for summary judgement - WFS seeking a declaratory judgement that its loss was covered, and AGCS seeking declaratory judgement that it was not.
Case arguments and judgement
WFS argued that the loss of the MGO was a fortuitous loss of covered property during a time period covered by an all-risk insurance policy, and that AGCS had failed to establish any exception to or exclusion from coverage.
Second, WFS argued that the loss was covered by the F.B.O.L. clause, because the loss was caused by the acceptance of fraudulent 'shipping documents'.
Third, WFS argued that the F.O.B. clause covers the loss because (1) the shipment was made under F.O.B. 11 terms, and (2) WFS's interest in the cargo has not, to this day, ceased, because it has not been paid.
Meanwhile, AGCS used the 'inherent-vice' doctrine to argue that a loss caused by an event that takes place prior to the attachment of insurance coverage is not covered under a marine insurance policy.
However, it was pointed out in the ruling that AGCS had not claimed that there was a problem endemic to the MGO at all, that the problem was instead that the purported customer was an impostor and a thief, and that AGCS had cited no case applying the inherent-vice doctrine to such a situation.
"In sum, World Fuel made out a prima facie case for recovery by establishing a fortuitous loss of insured cargo under an all-risk policy during the period of coverage - i.e., before the cargo was lawfully 'delivered'. The burden shifted to AGCS to establish an applicable exception or exclusion. It attempted to do so by invoking the inherent-vice doctrine, but the court has rejected this argument." Engelmayer wrote in his judgement ruling, filed on May 17, 2016.
"The court holds that World Fuel's loss is covered under the all-risk clause, and therefore World Fuel is entitled to summary judgment. To the extent that World Fuel advances alternative arguments for summary judgment under the F.B.O.L. clause and the F.O.B. clause, however, those arguments lack merit," Engelmayer concluded.
