American National Fire Insurance v. Mirasco, Inc.
2003 WL 1057501, 249 F. Supp. 2d 303 (2003)
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Rule of Law:
A foreign government's decree that specifically bans the importation of all products from a single company constitutes an "embargo or prohibition" under an insurance policy's rejection coverage exclusion. When such an embargo is declared after a shipment has sailed, the policy may validly limit the insured's recovery for those specific goods to return freight costs.
Facts:
- Mirasco, a beef exporter, procured an ocean marine transportation and rejection insurance policy from American National Fire Insurance Company and Great American Insurance Co. (the Insurers).
- On December 31, 1998, Mirasco loaded the ship M/V Spero with frozen beef liver from three suppliers—IBP, Excel, and Monfort—for shipment to Alexandria, Egypt.
- The M/V Spero sailed from Houston, Texas for Egypt.
- While the ship was in transit, on January 3, 1999, the Egyptian government issued Decree #6, which banned the importation of all products from the American company IBP Corp.
- The M/V Spero arrived in Alexandria on January 23, 1999, after Decree #6 had become effective.
- Egyptian authorities inspected the shipment, noting labeling irregularities on the Excel and Monfort products, but refused to sample the IBP products due to the decree.
- Egyptian authorities ultimately refused to allow the entire cargo to be discharged and issued a certificate of re-exportation, stating the shipment was rejected.
- Mirasco re-exported the entire cargo back to the United States and sold it at a significant loss due to a fallen market price for beef liver.
Procedural Posture:
- The Insurers filed an action in the U.S. District Court for the Southern District of New York seeking a declaration that they were not obligated to pay Mirasco's insurance claim.
- Mirasco asserted a counterclaim against the Insurers for breach of contract and bad faith.
- Mirasco separately commenced an action against the Insurers in the Superior Court of Georgia, Fulton County.
- The Insurers removed the Georgia action to the U.S. District Court for the Northern District of Georgia.
- The Northern District of Georgia transferred the case to the Southern District of New York, where the actions were consolidated.
- The Insurers moved for summary judgment, and Mirasco cross-moved for summary judgment.
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Issue:
Does a foreign government's decree that bans the importation of all products from a single company constitute an "embargo or prohibition" under a rejection insurance policy's exclusion clause, thereby limiting the insured's recovery for those products to return freight costs?
Opinions:
Majority - Sweet, J.
Yes. A foreign government's decree banning all products from a specific company constitutes an "embargo or prohibition" under the policy's exclusion clause, limiting recovery for those products to the specified remedy of return freight costs. The court defined "embargo" by its ordinary business meaning and U.S. Supreme Court precedent as a "governmentally imposed quantitative restriction—of zero—on the importation of merchandise." The Egyptian government's Decree #6, which placed a ban on all trade with IBP Corp., squarely fits this definition. Even if it were not an embargo, it qualifies as a "prohibition." Because the policy's exclusion clause (Clause D) stipulated that if an embargo or prohibition was announced after a shipment sailed, coverage was limited to the cost of return freight, the Insurers' only obligation for the IBP cargo was to pay for its return, which they had already done. However, for the non-IBP cargo (Excel and Monfort products), a genuine issue of material fact remained as to whether their rejection was caused by a covered peril (such as arbitrary government action) concurrently with an excluded peril (mislabeling), precluding summary judgment on that portion of the claim.
Analysis:
This decision clarifies the scope of key terms within rejection risk insurance policies, establishing that a government ban targeting a single company, not just an entire country, can trigger an "embargo or prohibition" exclusion. It provides important guidance for international traders and insurers by distinguishing between an excluded "loss of market" and a potentially covered "loss of market value," which arises when rejected goods are resold at a lower price. The opinion also reinforces the insurance law principle of concurrent causation, where a loss caused by both a covered and an excluded peril may still be covered, leaving the factual determination of apportionment for trial.
