Fireman's v. American

• Court: Court of Appeals for the First Circuit
• Decided: March 20, 1997
• Docket: 96-1718
• Status: Published

Opinion

USCA1 Opinion

                            United States Court of Appeals

                                For the First Circuit

                                 ____________________



        No. 96-1718



                         FIREMAN'S FUND INSURANCE COMPANIES,



                                Plaintiff, Appellant,



                                          v.



            AMERICAN INTERNATIONAL INSURANCE COMPANY OF PUERTO RICO, INC.,



                                 Defendant, Appellee.



                                 ____________________



                     APPEAL FROM THE UNITED STATES DISTRICT COURT



                           FOR THE DISTRICT OF PUERTO RICO



                     [Hon. Jaime Pieras, II, U.S. District Judge]
                                             ___________________



                                 ____________________



                                        Before



                      Coffin and Campbell, Senior Circuit Judges,
                                           _____________________



                           and DiClerico,* District Judge.
                                           ______________



                                 ____________________


Timothy J.  Armstrong with whom  Alvaro L. Mejer was  on brief for
            _____________________            _______________

        appellant.

            Francisco E. Colon-Ramirez with  whom Francisco J. Colon-Pagan was
            __________________________            ________________________

        on brief for appellee.



                                 ____________________



                                    March 20, 1997

                                 ____________________


____________________



             *Of the District of New Hampshire, sitting by designation.



COFFIN,  Senior Circuit  Judge.   This  appeal concerns  the
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          scope of insurance coverage  for the loss at sea of 19 containers



          en route from Puerto Rico  to Miami.1  The disputing parties  are



          the  two insurance companies  that maintained  insurance policies



          covering  the   shipper,  Sea  Barge,   and  the   cargo-handling



          stevedore, Ayala.   Fireman's  Fund, which provided  an insurance



          policy  to  Sea Barge,  defended Sea  Barge  and Ayala  in multi-



          district litigation resulting  from the loss, and then  sought to



          compel AIICO, Ayala's insurer, to reimburse it for settlement and



          litigation costs.   The district court found  that AIICO's policy



          did  not  cover the  type of  risk at  issue here,  and therefore



          granted  summary  judgment  for  AIICO.   Although  our  analysis



          differs  in  some details  from that  of  the district  court, we



          approve its general approach and ruling, and therefore affirm.



                                        FACTS
                                        _____



               In 1985, three companies, Ayala, Maduro, and Zapata, joined



          together to form a barge service named Sea Barge, to operate



          between Puerto Rico and Miami.  Ayala and Maduro were stevedores:



          Ayala's operations were in Puerto Rico; Maduro's were in Miami.



          Zapata provided tug and barge services.  Pursuant to the



          Shareholders' Agreement, Ayala, Maduro and Zapata agreed to



                              
          ____________________



               1    As the full names of the relevant entities in this case

          are  somewhat unwieldy, each will be referred to by the following

          abbreviations:   Fireman's  Fund Insurance  Companies ("Fireman's

          Fund"); American  International Insurance Company of Puerto Rico,

          Inc.  ("AIICO"); Marine Transportation  Services Sea Barge Group,

          Inc. ("Sea Barge"); Luis Ayala Colon & Sucesores, Inc. ("Ayala");

          Zapata  Gulf Marine  Corporation  ("Zapata"); and  S.E.L.  Maduro

          (Florida), Inc. ("Maduro"). 



                                         -2-



cooperate in assisting Sea Barge to obtain cargo and cargo legal



          liability insurance, as well as container and chassis damage



          insurance.  They further agreed that each policy would name all



          parties as additional insureds as well as Sea Barge.  Ayala and



          Maduro also agreed to obtain liability insurance covering



          stevedoring services provided to Sea Barge.  



               Under a separate Stevedoring Agreement executed between Sea



          Barge and Ayala, Ayala agreed to maintain public liability and



          property damage insurance covering Ayala's liability for bodily



          injury and property damage sustained by third parties arising out



          of its stevedoring operations.



               In October 1987, AIICO issued a comprehensive general



          liability policy (the "MultiPeril Policy") to Ayala, covering



          personal injury and property damage.  A separate policy covered



          warehousing and stevedoring.  In July 1988, Fireman's Fund issued



          a Marine Policy package to Sea Barge; this included a legal



          liability policy, covering Sea Barge's legal liability for



          physical loss or damage to goods and/or merchandise.2  



               On December 16, 1988, Sea Barge's Barge 101 set off on its



          ill-fated journey.  It encountered rough weather at sea, and 19



          containers were lost.  Seven lawsuits were filed by cargo



          claimants; of these, all named Sea Barge as defendant, but only

                              
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               2    The Fireman's  Fund policy identified Sea  Barge as the

          named  assured,  and  Ayala,  Zapata, and  Maduro  as  additional

          insureds  "solely with  respect  to their  activities" under  the

          Shareholders Agreement.  The policy also  stated that it excluded

          coverage  for damages  collectible  under  the Assured's  General

          Liability Policy  and/or recovery under any  other primary policy

          of the assured.  



                                         -3-



one also named Ayala as a defendant.3  Fireman's Fund, which



          defended Sea Barge and Ayala in the ensuing multi-district



          litigation, subsequently sought contribution and indemnity from



          AIICO.4  AIICO refused, contending the loss was not covered by



          its policy because the incident occurred during Sea Barge's



          segment of the transportation endeavor, rather than during



          Ayala's.  The district court granted summary judgment for AIICO,



          concluding, largely on the basis of two exclusions contained in



          the AIICO policy (the watercraft exclusion and the policy



          territory exclusion), that the loss which occurred was not the



          type insured against by the AIICO policy.  It therefore did not



          reach the second issue raised by the parties as to which of the



          two policies was primary.  This appeal followed.



                                      DISCUSSION
                                      __________



               Our review of the district court's grant of summary



          judgement in AIICO's favor is de novo.  Velez-Gomez v. SMA Life
                                        __ ____   ___________    ________



          Assur. Co., 8 F.3d 873, 875 (1st Cir. 1993).  Since the
          __________



          construction of an insurance policy is a question of law, we must



          make our own independent examination of the policy.  Nieves v.
                                                               ______



          Intercontinental Life Ins. Co. of Puerto Rico, 964 F.2d 60, 63
          _____________________________________________



          (1st Cir. 1992).   



                              
          ____________________



               3    The  cases, five of which were filed in Florida and two

          of  which  were  filed  in  Puerto  Rico,  were  consolidated and

          transferred to the District of Puerto Rico.



               4    Fireman's   Fund   had  previously   requested  AIICO's

          participation in  the defense during  the pre-trial phase  of the

          multi-district litigation; however, this request was rejected  by

          AIICO.  



                                         -4-



Our analysis of the issue is potentially two-pronged: we



          consider first whether the loss was the type covered by or



          contemplated by the policies in question; and if so, we must



          determine which policy is primary.  See Couch on Insurance 2d,
                                              ___ _____________________



          sec. 62: 44, 45 (Rev. ed. 1983).  



               In addressing the first question, we turn to the language of



          the policy, supplementing this if necessary with evidence of the



          parties' intent, as demonstrated here in the Shareholders



          Agreement, the Stevedoring Agreement, and the various affidavits



          submitted.  See Nieves, 964 F.2d at 63 (if wording of contract is
                      ___ ______



          explicit and language is clear, terms and conditions are binding



          on parties); U.S. Aviation v. Fitchburg-Leominster Flying Club,
                       _____________    ________________________________



          42 F.3d 84, 86 (1st Cir. 1994) (determination of ambiguity of



          policy terms and resolution thereof are matters for the court).  



               The AIICO policy, as noted above, was a comprehensive



          general liability policy.  This policy contained a number of



          relevant exclusions and endorsements modifying the policy.  For



          the reasons we discuss below, these in the aggregate indicate



          that the loss sustained here was not the type the AIICO policy



          was intended to cover.  However, while the district court based



          its grant of summary judgment largely on the watercraft and



          policy territory exclusions, we find several other terms in the



          AIICO policy more compelling, specifically those covering the



          definition of the "named insured" and "additional insured."    We


-5-



first discuss briefly the grounds relied on by the district



          court.5  



             The watercraft exclusion, contained in Section II of the



          General Liability Insurance Coverage, provided:



                    This insurance does not apply: [...] 

                              (e)  to bodily injury or property

                    damage arising out of the ownership,

                    maintenance, operation, use, loading or

                    unloading of

                                   (1)  any watercraft owned or

                    operated by or rented or loaned to any

                    insured, or

                                   (2)  any other watercraft

                    operated by any person in the course of his

                    employment by any insured;

                              but this exclusion does not apply

                    to watercraft while ashore on premises owned

                    by, rented to or controlled by the named

                    insured.



          Fireman's Fund maintains that reading this provision to exclude



          coverage for Ayala's activities as a stevedore would render the



          insurance policy meaningless, as Ayala's activities were



          necessarily tied to loading and unloading Sea Barge vessels.  



               But reading this as effectively excluding stevedoring



          activities would not seem to us to contradict the general intent



          of the parties and Ayala's expressed intent not to duplicate



          insurance costs, for, as we have noted, AIICO issued a separate



          policy to Ayala covering warehousing and stevedoring.  This fact



          also seems to distinguish this case from Price v. Zim Israel
                                                   _____    __________


____________________



               5    In  our analysis, we are  mindful that the  terms in an

          insurance  contract are to be given their plain meaning.  Wickman
                                                                    _______

          v. Northwestern Nat'l  Ins. Co.,  908 F.2d 1077,  1084 (1st  Cir.
             ____________________________

          1990).



                                         -6-



Navigation Co., 616 F.2d 422 (9th Cir. 1980),6 principally relied
          ______________



          on by appellant, for in Price applying the exclusion would have
                                  _____



          resulted in avoidance of an obligation which the insurer had



          agreed to assume.7  In any event, we feel more comfortable



          relying on other grounds for our disposition.   



               We next turn to a second exclusion which the district court



          emphasized in its decision -- the Policy Territory Exclusion. 



          The applicable section of the Policy Territory Exclusion states:



                    "policy territory" means:

                    a.    the Commonwealth of Puerto Rico, or

                    b.    international waters or air space,

                    provided the bodily injury or property damage

                    does not occur in the course of travel or

                    transportation to or from any other country,
                                                        ________

                    state or nation.... (emphasis added).
                    _______________



               AIICO makes much in its brief of the use of the term



          "state," contending that the intended meaning includes other



          states within the United States, rather than only contemplating



          foreign states.  Again, we find this argument less than



          convincing.  Black's Law Dictionary defines "state" as "either



          ... body politic of a nation ... or ... an individual

                              
          ____________________



               6     In  Price, the  Ninth Circuit  held that  a watercraft
                         _____

          exclusion similar  to this one in a  policy issued to a stevedore

          did   not  preclude   coverage  for   injuries  sustained   by  a

          longshoreman  employed  by the  stevedore  while  working on  the

          transport  company's vessel.  Price v. Zim Israel Navigation Co.,
                                        _____    _________________________

          616 F.2d 422, 427 (9th Cir. 1980).  The Price court reasoned that
                                                  _____

          construing  the watercraft  exclusion  to preclude  coverage  for

          activities on the vessel would deny coverage to the stevedore and

          the cargo transport company,  in violation of the purpose  of the

          endorsement, which was to provide coverage for such operations to

          both companies.  Id. 
                           ___



               7    Additionally,   Price  is   inapposite   here,  as   an
                                    _____

          endorsement to  this  policy specifically  distinguishes  between

          vessels above and under 26 feet in length.



                                         -7-



governmental unit of such nation."  Black's Law Dictionary 1407
                                              ______________________



          (6th ed. 1990).  To interpret the policy exclusion to exclude



          coverage for accidents that occur between Florida and Puerto Rico



          as "states" creates a result that is perplexing at best, given



          the enterprise at hand.  The district court's rationale was that



          coverage for incidents occurring in international waters was not



          intended at all under the AIICO policy, but rather that the



          endorsement was intended to restrict coverage to Puerto Rico



          itself, on the ground that coverage for the voyage and Florida



          portions was intended to be obtained by the companies actually



          engaged in each of those legs of the transportation operation,



          i.e., Sea Barge and Maduro, respectively.  As with the watercraft
          ____



          exclusion, we prefer not to rest our decision on this ground. 



               We therefore turn to the policy terms we do see as clearly



          indicating that the loss that occurred here was not contemplated



          under the AIICO policy, specifically Endorsements 1 and 13.



               Endorsement 1 of the AIICO policy, "Named Insured," provides



          that the named insured under the policy is Ayala "and/or any



          subsidiary, associated, affiliated, newly acquired, or controlled



          corporation and/or company as may now be constituted or hereafter



          formed, and over which the named insured maintains ownership or



          majority interest."  Fireman's Fund maintains that Sea Barge



          falls within the category of companies covered due to Ayala's



          "ownership interest" in Sea Barge.  However, the facts do not



          support this assertion:  Ayala owned only 20% of the outstanding


-8-



shares of Sea Barge stock, which can be seen as neither ownership



          nor a majority interest.



               Endorsement 13 of the AIICO policy, "Additional Insured,"



          lends additional credence to the view that the occurrence in



          question was not intended to be covered by the policy.  This



          endorsement states that: 



                    the unqualified word 'insured' also includes

                    the below mentioned entities, but only with

                    respect to their liability arising out of

                    operations performed by the named insured. 

                    Such coverage as is afforded under this

                    clause shall only apply when contract

                    conditions between the named insured and

                    their principals so stipulate and then only

                    insofar as is necessary to meet the

                    requirements of such contract conditions. 

                     

          The list following this statement includes Sea Barge, as well as



          nine other companies.  It strains credulity to suggest that



          Ayala, or AIICO, intended all ten companies listed (including Sea



          Barge) to thereby gain unlimited coverage under the policy;



          rather, coverage is specifically limited to that required by



          contracts between those listed and Ayala.  While Fireman's Fund



          maintains that the contract in question between Ayala and Sea



          Barge must be the Shareholders' Agreement, we conclude that the



          contracts the endorsement anticipates are discrete contracts



          between Ayala and the listed companies.  Therefore, here the



          relevant contract must be the stevedoring contract between Ayala



          and Sea Barge.  To read the endorsement otherwise overlooks both



          logic and the language of the endorsement.  



               Our conclusion that straightforward construction of the



          policy's terms indicates that the loss that occurred was not



                                         -9-



contemplated as a covered one is further buttressed by our



          examination of the parties' intent, as evidenced by key documents



          and by sworn testimony.  See In re San Juan DuPont Plaza Hotel
                                   ___ _________________________________



          Fire Litig., 802 F.Supp. 624, 637 (D.P.R. 1992), aff'd, 989 F.2d
          ___________                                      _____



          26 (1st Cir. 1993) (terms of policy must be interpreted according



          to parties' purpose and intent).  



               As noted above, the two major documents in this case are the



          original Shareholders' Agreement, and the stevedoring contract



          between Sea Barge and Ayala.  The Shareholders' Agreement creates



          an interlocking structure of responsibility for the three forming



          companies, with the duties of each clearly specified.  In



          general, these duties are distinct -- Ayala was to handle Puerto



          Rico-based stevedoring activities, Zapata those relating to the



          tugs and barges, and Maduro the Florida-based activities. 



          Article II, section 2.02(vi) of the Agreement stipulates that all



          parties shall cooperate with Sea Barge in obtaining cargo and



          cargo legal liability insurance, and that each policy will name



          all parties, in addition to Sea Barge, as additional insureds.8  



               Both Lemuel Toledo Campos, the insurance broker who advised



          Ayala, and Hernan F. Ayala-Parsi, the executive vice president of



          Ayala, stated in their affidavits that the intent of the



          insurance provisions in the Shareholders' Agreement was to avoid



          duplication of insurance costs by preventing any concurrent



          coverage.  Ayala-Parsi also stated that the parties' intent in

                              
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               8    Ayala and Maduro were  required under section 2.02(vii)

          to obtain separate liability insurance covering their stevedoring

          activities as provided to Sea Barge.



                                         -10-



the Agreement was that losses at sea were to be covered by Sea



          Barge's insurance, and that the AIICO policy's terms were



          consistent with this intent.  



               The Stevedoring Agreement, the other major document here, is



          narrowly directed at structuring the stevedoring relationship



          between Sea Barge and Ayala.  Insofar as it addresses insurance



          coverage, it provides that Ayala will maintain worker's



          compensation insurance, as well as public liability insurance and



          property damage insurance "arising out of operations performed



          hereto."  It further contains a limitation of liability clause



          providing that Sea Barge shall indemnify and hold harmless Ayala



          for any losses due to unseaworthiness or negligence of Sea Barge



          employees, and limiting Ayala's liability to losses caused by its



          own negligence, and then only as a stevedore and not as a



          bailee.9  The Agreement therefore appears to create a



          relationship between Ayala and Sea Barge under which Ayala's



          responsibilities to maintain insurance and its liability are



          narrowly circumscribed. 



               Indeed, it is apparent from the testimony presented that



          AIICO and Ayala, the parties to the insurance policy in question,



          understood and intended that the AIICO policy would not extend to



          Sea Barge's activities other than in the limited circumstances


____________________



               9    Additionally, Article XIV of the Stevedoring Agreement,

          the Custody Clause, provides that Sea  Barge would be responsible

          for goods from the time they  were received by it at the terminal

          facilities  at the port of  loading until they  were delivered or

          dispatched from the port of unloading.  



                                         -11-



set forth in the Stevedoring Agreement.10  Toledo Campos stated



          that the scope of Endorsement 1 of the AIICO policy was intended



          to include only those companies Ayala fully owned or held a



          majority interest in, and that the coverage of Sea Barge and the



          other companies listed in Endorsement 13 was limited to that



          required by contracts between the listed parties and Ayala. 



          Ulises Seijo, a general adjuster for AIICO, confirmed in his



          affidavit that Endorsement 1 applies only to those companies



          which Ayala owned or had a majority interest in, and he



          specifically stated, "It [the endorsement] does not apply to Sea



          Barge."  



               Having reached the conclusion that the loss which occurred



          was not of the type covered or intended to be covered by the



          AIICO policy, we do not reach the second prong of the analysis



          noted above as to which policy is primary, and may draw our



          efforts to a close at this point.  We therefore affirm the



          district court.



                                      CONCLUSION
                                      __________



               As the loss at sea of the nineteen containers was not within



          the purview of the coverage provided by the AIICO policy, we



          conclude that the district court correctly granted summary



          judgment for AIICO.  


Affirmed. 
          ________



                              
          ____________________



               10   No  testimony to the  contrary has been  brought to our

          attention.  



                                         -12-