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Page 422 DEFENSE COUNSEL JOURNAL–October 2012the United Nations Convention onContracts for the International Sale ofGoods (“CISG”). As the Second Circuitnoted, under the CISG, “the seller mustdeliver goods which are of the quantity,quality and description required by thecontract,” and “the goods do not conformwith the contract unless they . . . possessthe qualities of goods which the seller hasheld out to the buyer as a sample ormodel.” 35 The CISG further states that“the seller is liable in accordance with thecontract and this Convention for any lackof conformity.” 36 As to the damagesavailable in the event of a breach ofcontract, the Treaty states:Damages for breach ofcontract by one party consist ofa sum equal to the loss,including loss of profit,suffered by the other party as aconsequence of the breach.Such damages may not exceedthe loss which the party inbreach foresaw or ought tohave foreseen at the time of theconclusion of the contract, inthe light of the facts andmatters of which he then knewor ought to have known, as apossible consequence of thebreach of contract. 3735 Delchi Carrier Spa v. Rotorex Corp., 71F.3d 1024, 1028 (2nd Cir. 1995).36 Id.37 Article 74, United Nations Convention onContracts for the International Sale of Goods,Vienna, 11 April 1980, S.Treaty DocumentNumber 98-9 (1984), UN Document NumberA/CONF 97/19, 1489 UNTS 3.Finally, as with the choice-of-lawprovision, companies can always agree bycontract to shift the burden of a loss.Parties can include indemnificationprovisions that specify the extent andnature of damages the indemnitor isentitled to in the event of a covered loss.3. DamagesIdeally, a contract will be wordedwith sufficient strength to avoid litigation.Too frequently, however, litigation willstill ensue. Once a complaint is file,companies must think strategically and beprepared to prove every element ofdamages.Plaintiffs must present evidenceestablishing the full extent of damagesand explain the rationale used to reachtheir conclusions. Forensic accountantsmay be required to sift through recordsand calculate actual losses. Simplestatements about expected losses or priorsales will likely be insufficient. Damagecannot be speculative, and the claimantwill bear the burden of proof. The failureto sustain this burden will limit orpreclude recovery regardless of whetherthe claim is against a tortfeasor or aninsurer.In Texpor Traders v. Trust CompanyBank, the plaintiff filed a breach ofcontract action against Oxford Industriesbased upon the sale of cotton sweatshirtsand the refusal to honor a line of credit. 38Oxford, which had ordered thesweatshirts, contended the sweatshirtswere defective and counterclaimed for$61,036.40 paid to Texpor under a letter38 Texpor Traders, Inc. v. Trust Co. Bank, 720F. Supp. 1100 (S.D.N.Y. 1989).
The Global Supply Chain Page 423of credit for shipment and $163,265.95for lost profits on confirmed customerorders and potential customer orders thatOxford was unable to deliver because ofdefects in the merchandise.The court concluded that the goodsTexpor delivered to Oxford underpurchase orders were materially defectiveand not of “first quality” as the contractspecified. 39 Turning to the issue ofdamages, the court held that Oxford wasentitled to damages for lost profits in theamount of $111,112.78. The court notedthat Oxford had met is burden of proof inestablishing the damages by providingcomputerized printouts of orderconfirmations and cancellations, asummary of confirmed customer orders,and a tabular analysis of price per itemsold on confirmed customer orders andacquisition cost of such items. However,the court declined to award Oxford anydamages for potential orders because,“Oxford presented no evidence, however,of such prospective sales, and the courtwill not speculate in attempting to assessthem.” 40The obligation to provide evidencesupporting damages applies equally in thecontext of a claim for insurance coverage.An insurer has the right to seekinformation relevant to a claim. InAmerex Group v. Lexington InsuranceCompany, 41 Amerex was in the businessdistributing outerwear in the UnitedStates and acted as an intermediarybetween its wholesale customers andoverseas clothing manufacturers. Thecompany stored clothing in its warehouse39 Id. at 1106.40 Id. at 1108.41 678 F.3d 193 (2nd Cir. 2012).in Avenel, New Jersey. The warehouseutilized a large rack system thatfacilitated inventory storage andorganization. This rack subsequentlycollapsed, activating the warehouse'ssprinkler system, which flooded thepremises. The water not only damagedAmerex's merchandise, but also renderedits computer system inoperable for “oneto three weeks,” and prevented Amerexfrom making promised deliveries. Thedamages associated with the collapseincluded lost merchandise, cancellation oforders, late charges for orders fulfilled,and lost business income.At the time of the loss, Amerex wasinsured under three separate policies, afirst primary was issued by Fireman'sFund Insurance Company in the amountof $2.5 million and second and thirdpolicies were issued by appellees, andprovided insurance in excess of theFireman's Fund policy. Each excesspolicy had a liability limit of $5 million,for a total of $10 million beyond thecoverage provided by Fireman's Fund.The excess insurance policies containedsubstantially identical clauses thatallowed either party to insist in writing onthe appointment of an appraisal panel todetermine the extent of losses associatedwith any claim. The appraisal clause didnot specify any time limit for makingsuch a demand, and instead focused onthe procedure used to appoint the Panel.Two years after the rack collapse,Amerex submitted its proof of loss toFireman's Fund and the excess insurers,claiming total damages of $8.8 million.Fireman's Fund paid the full amount of itspolicy; Amerex then sought coveragefrom the excess insurers for the remaining$6.3 million. The excess insurers
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