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Intermetal Mexicana, S.A. v. Insurance Co.

filed: January 18, 1989.

INTERMETAL MEXICANA, S.A.
v.
INSURANCE COMPANY OF NORTH AMERICA, APPELLANT



On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil No. 84-6179.

Author: Cowen

Opinion OF THE COURT

COWEN, Circuit Judge.

This appeal arises from an order of the district court denying defendant's post-trial motions for Judgment Notwithstanding the Verdict, a New Trial, and/or an Order Molding, Amending or Modifying the Judgment. The district court had entered a judgment on September 10, 1987 which directed the defendant to pay the plaintiff the sum of $3,649,309.77 under the terms of the insurance policy at issue. Upon review, we conclude that the district court erred in its construction of the policy and will reverse and remand.

I.

The underlying dispute in this case raises the question of whether the plaintiff, Intermetal Mexicana, S.A. ("IMSA"), an affiliate of International Mill Service, Inc. ("IMS"),*fn1 has a valid claim for payment from the defendant Insurance Company of North America ("INA") for the value of machinery that INA insured. IMSA brought suit against INA in the Eastern District of Pennsylvania on December 1, 1984, seeking to recover the replacement cost of eleven pieces of equipment. This is a diversity action in which Pennsylvania law applies. This Court has jurisdiction of the appeal pursuant to 28 U.S.C. ยง 1291.

On March 20, 1982, IMS and INA entered into a written insurance contract entitled "Contractors Machinery and Equipment Floater Policy No. 70HF228" ("the policy"). App. at 1159aa. The policy covers "all risks of direct physical loss or damage from any external cause except hereinafter excluded." App. at 1159ee. The policy also provides that the insurer's duty to indemnity applies to "items . . . entered in the Schedule, whilst at a location or in transit thereto or therefrom within the territorial limits of the policy" in the event such items "suffer any unforeseen and sudden physical loss or damage from any cause, other than those specifically excluded . . . ." App. at 1159cc. The parties agree that the insurance policy covers the IMSA equipment at issue here.

The equipment which was the subject of the underlying dispute is titled to IMSA. IMSA is a Mexican corporation that is jointly owned -- sixty percent of the stock being owned by IU Corporation, Inc. ("IU")*fn2 and forty percent being owned by a Mexican national named Raoul Martinez. Martinez was a director of IMSA during this period and he apparently exercises control over a separate construction-equipment dealership, Ter-Mexicana, S.A. ("Ter-Mexicana").*fn3 According to IMSA, Martinez functioned as a "sleeping partner," i.e., he did not act for or participate in the operations of IMSA. App. at 288-89, 319.

IMSA began to lose money in the late 1970's. IU and Martinez, the shareholders of IMSA, agreed to loan IMSA $600,000. Martinez assumed forty percent of the responsibility for the loan ($240,000) and IU, sixty percent ($360,000) -- reflecting the proportion of their equity ownership. Martinez then persuaded Ter-Mexicana to loan IMSA the $240,000. App. at 124. The loan was not secured by IMSA's equipment or by any other collateral. App. at 129, 325.

At the time the policy was issued, the insured equipment was located at Altos Hornos Steel Mill ("AHMSA") in Montclova, Mexico. In June or July, 1982, a decision was made to cease operations at the two IMSA sites in Mexico -- Sicartsa and AHMSA in Montclova -- as the result of deteriorating business conditions. Late in 1982, IMSA moved the equipment in Montclova to a storage location known as Frontera in Coahuila, Mexico. On September 23, 1983, INA was informed that the eleven pieces of equipment at issue had been moved from the AHMSA site to a non-scheduled uninsured location under the policy as it was then written, and that IMSA wished to secure an endorsement in order to provide coverage at the new location. App. at 826. INA was also advised that the equipment was being held by the Mexican partner, Martinez. INA subsequently issued Endorsement No.11.

On July 15, 1983, Martinez and Ter-Mexicana obtained a court order ex parte and without notice to IMSA entitling Martinez and Ter-Mexicana to obtain possession of the eleven pieces of insured equipment which had been moved to Frontera.*fn4 On July 16, 1983, representatives of Ter-Mexicana went to Frontera, took possession of the equipment pursuant to the court order and removed it to a fenced-in lot under Ter-Mexicana's control. Apparently, this was a strategy by which Martinez sought to induce repayment of the $240,000 loan which IMSA owed him.

IMSA's Mexican counsel promptly commenced legal action to recover the equipment. App. at 566. On November 25, 1983, IMSA obtained a court order directing Ter-Mexicana to return the equipment to IMSA. When the IMSA representatives arrived on November 25 to retrieve the equipment, employees of Martinez and Ter-Mexicana refused to admit them, threatening them with physical violence. The employees then immobilized the equipment by partially dismantling it. IMSA's representatives, although legally entitled at the time of the return of the equipment, were forced to retreat. IMS sent INA a Sworn Proof of Loss Statement on May 18, 1984. On that same day, INA mailed a reservation of rights letter to IMS. INA denied the IMS claim of theft under the policy and this litigation ensued.

The case was tried by a jury in June, 1987. At the conclusion of the trial, the jury was charged that July 16, 1983 was the date of the loss.*fn5 Because the district court held that the loss occurred on July 16, 1983 as opposed to November 25, 1983, it found that it was unnecessary to reach the issue of whether IMSA misrepresented facts in the interim period when it secured the endorsement.*fn6 Finally, the district court found no evidence that Martinez or Ter-Mexicana would share in any recovery IMSA made from INA and consequently held against INA on its equitable claim that IMSA's damages must be reduced by forty percent. App. at 1827-28. The court then entered judgment for IMSA for the scheduled value of the ...


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