While a Travelers Cos. Inc. unit is obligated under its commercial general liability policy to indemnify a container company for damages incurred to a corn syrup shipment, it must pay only $425,000, not the $732,000 awarded by a lower court, says a federal appeals court.

In 2006, Piscataway Township, New Jersey-based USA Container Co. Inc. contracted with Amsterdam, Holland-based Meelunie B.V., a corn syrup distributor, to transfer corn syrup from rail cars to drums and then on to Meelunie’s customers overseas, according to Tuesday’s ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia in The Travelers Property Casualty Company of America v. USA Container Co. Inc.

USA Container contracted with Newark, New Jersey-based Passaic River Terminal L.L.C. to transfer the corn syrup to drums. For the transfer to take place, the corn syrup had to be heated in accordance with standard operating procedures, but Passaic failed to follow them and damaged the corn syrup by overheating it, according to the ruling. 

The damage was discovered after the corn syrup was shipped to Meelunie’s customers, who rejected it. Meelunie subsequently sold the corn syrup at a reduced rate and ultimately incurred $782,724 in damages, for which it demanded US. Container compensate it. Meelunie and U.S. Container later reached a settlement agreement, 

U.S. Container filed a claim under its commercial general liability policy with Travelers, which denied coverage. U.S. Container then filed suit against Travelers, a unit of Hartford, Connecticut-based Travelers Cos. Inc., in U.S. District Court in Newark.

The lower court ruled that Traveler’s CGL policy covered the property damage and that it was obligated to pay USA Container a total of $732,000.

“We affirm the District Court’s finding that USA Container’s claim falls within the basic coverage provisions of the CGL policy,” said a unanimous three-judge panel.

The court ruled, however, that Travelers was obligated to pay only $425,000. “The settlement agreement obligated USA Container to a Meelunie $425,000 in two installments and USA Container paid that amount,” said the ruling. 

USA Container “committed to paying Meelunie a maximum additional $307,000 only if it receives payment from another party at some point in the future,” such as Passaic River, but this “is purely hypothetical,” said the ruling, in remanding the case for further proceedings.