The Best $518 World Fuel Services Ever Spent: AGCS Marine Insurance Company V. World Fuel Services

Types : Alerts

The theft of over $17 Million worth of marine gasoil (“MGO”) prompted an insurance coverage dispute in AGCS Marine Insurance Company v. World Fuel Services.  World Fuel Services (“World Fuel”), a supplier of MGO, received an inquiry from someone posing as an employee of one of their regular customers, the Defense Logistics Agency (“DLA”).  Unaware that they were dealing with an imposter, World Fuel entered into a contract and delivered a total of 17,000 metric tons of MGO to the Ocean Pearl, the vessel designated by the imposter as the receiving vessel.  World Fuel then issued an invoice to the imposter for over $17 Million.  In the weeks that followed, World Fuel realized that the person they had been dealing with was an imposter and that they had been defrauded.  World Fuel had insured this particular shipment paying an incremental premium of $518 to AGCS Marine Insurance Company (“Insurer”), so they submitted a claim.  The Insurer denied coverage and filed a declaratory judgment action.  The parties cross-moved for summary judgment, and World Fuel prevailed.  The coverage dispute focused on three provisions of the policy: the All-Risks Clause, the Fraudulent Bills of Lading Clause and the F.O.B. Clause.

All-Risks Clause

The Insurer focused its arguments on the temporal limits of the All-Risks Clause.  The All-Risks Clause protects against losses during transit, beginning at the port of shipment and ending with the safe delivery at its destination.  From the Insurer’s point of view, this loss did not occur during transit.  Rather, the Insurer maintained that it occurred either when World Fuel entered into the contract with the imposter (well before the tanks left the port of shipment) or after the safe delivery to the Ocean Pearl, when she made off with the MGO.  The district court rejected both arguments.  The theft of the MGO was not a fait accompli when World Fuel entered into the contract with the imposter because the theft could have been thwarted had World Fuel conferred with their usual contacts at DLA.  Thus, the loss did not occur before transit began.  Likewise, the loss did not occur after the safe delivery because under New York Law safe delivery can only occur with delivery to a bona fide customer.  Thus, the district court found that the All-Risks Clause covered the loss.

Fraudulent Bills of Lading Clause

World Fuel also argued the loss was covered under the Fraudulent Bills of Lading Clause, citing the contract with the imposter and the bunker delivery receipts as fraudulent shipping documents.  This clause covers “physical loss incurred … through the acceptance by … of fraudulent bills of lading, shipping receipts, messenger receipts, warehouse receipts or other shipping documents.”  The district court was not convinced.  The contract with the imposter was not a shipping document because although it initiated the transaction, it was “not used in the ordinary course of shipping.”  The delivery receipts were not covered because they were penned after the delivery and thus, could not have caused the loss.  The district court ruled that World Fuel could not claim coverage under the Fraudulent Bills of Lading Clause.

F.O.B. Clause

World Fuel’s final argument focused on the F.O.B. Clause.  Coverage under this clause ends when the goods are loaded for shipment or when the insured’s interest ends.  World Fuel argued that its interest never ended because it still has an interest in being paid.    The district court rejected World Fuel’s interpretation of the clause because the Unpaid Vendors Clause (which World Fuel was not seeking coverage under) covered issues with non-payments.  Interpreting the F.O.B. Clause as World Fuel desired would make the Unpaid Vendors Clause superfluous.  Furthermore, the district court noted that, according to case law, an insured must have an insurable interest in the goods, which generally ends upon delivery, for an insured to recover under any insurance policy.  (It is unclear why the Court’s analysis of delivery under this clause was different than it was under the All-Risks Clause.)  The Court held that World Fuel’s loss was not covered by the F.O.B. Clause.

Thus, the Court granted summary judgment for World Fuel under the All-Risks Clause and denied the Insurer’s motion for summary judgment.