15

‐ 2941

‐ cv

Petroterminal de Panama, S.A. v. Houston Casualty Company

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

R ULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT

. C ITATION TO A

SUMMARY ORDER FILED ON OR AFTER J ANUARY 1, 2007 IS PERMITTED AND IS GOVERNED BY

F EDERAL R ULE OF A PPELLATE P ROCEDURE 32.1 AND THIS COURT ʹ S L OCAL R ULE 32.1.1.

W HEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT

, A PARTY MUST

CITE EITHER THE F EDERAL A PPENDIX OR AN ELECTRONIC DATABASE ( WITH THE NOTATION

ʺ SUMMARY ORDER ʺ ). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON

ANY PARTY NOT REPRESENTED BY COUNSEL

.

At a stated term of the United States Court of Appeals for the Second

Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in

the City of New York, on the 8 th day of September, two thousand sixteen.

PRESENT: RALPH K. WINTER,

DENNY CHIN,

CHRISTOPHER F. DRONEY,

Circuit Judges

.

‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ x

PETROTERMINAL DE PANAMA, S.A.,

Plainti ff‐ Counter

‐ Defendant

‐ Appellant

,

v. 15

‐ 2941

‐ cv

HOUSTON CASUALTY COMPANY, NATIONAL

LIABILITY & FIRE INSURANCE COMPANY, AKA

National Fire & Liability Insurance Company, LIBERTY

MUTUAL INSURANCE COMPANY, GREAT

AMERICAN INSURANCE COMPANY OF NEW YORK,

INDEMNITY INSURANCE COMPANY OF NORTH

AMERICA, CONTINENTAL INSURANCE COMPANY,

FIREMAN ʹ S FUND INSURANCE COMPANY,

AMERICAN HOME ASSURANCE COMPANY

Defendants

‐ Counter

‐ Claimants

‐ Appellees

.

‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ x‐ 2

‐ FOR PLAINTIFF

‐ COUNTER

‐

DEFENDANT

‐ APPELLANT: JARED ZOLA, Blank Rome LLP, New York,

New York.

FOR DEFENDANTS

‐ COUNTER

‐

CLAIMANTS

‐ APPELLEES

HOUSTON CASUALTY COMPANY,

NATIONAL LIABILITY & FIRE

INSURANCE COMPANY, LIBERTY

MUTUAL INSURANCE COMPANY,

GREAT AMERICAN INSURANCE

COMPANY OF NEW YORK,

INDEMNITY INSURANCE

COMPANY OF NORTH AMERICA,

CONTINENTAL INSURANCE

COMPANY: JAY LONERO (Angie Akers, on the brief ),

Larzelere Picou Wells Simpson Lonero LLC,

Metairie, Louisiana, and Michael A. Kotula,

Rivkin Radler LLP, Uniondale, New York.

FOR DEFENDANTS

‐ COUNTER

‐

CLAIMANTS

‐ APPELLEES GREAT

AMERICAN INSURANCE

COMPANY OF NEW YORK,

INDEMNITY INSURANCE

COMPANY OF NORTH AMERICA,

FIREMAN ʹ S FUND INSURANCE

COMPANY, AMERICAN HOME

ASSURANCE COMPANY: STEPHEN V. RIBLE (Michelle T. Castle, on the

brief ), Mendes & Mount, LLP, New York, New

York.

Appeal from the United States District Court for the Southern District of

New York (Rako ff

, J. ).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED

.

Plainti ff‐ counter

‐ defendant

‐ appellant Petroterminal de Panama, S.A.

( ʺ Petroterminal ʺ ) appeals an August 17, 2015 judgment of the district court awarding

$466,765.76 to certain of the defendants

‐ counter

‐ claimants

‐ appellees (collectively, the‐ 3

‐ ʺ Primary Insurers ʺ ) and $1,472,677.69 to other defendants

‐ counter

‐ claimants

‐ appellees

(collectively, the ʺ Bumbershoot Insurers, ʺ and with the Primary Insurers, the

ʺ Insurers ʺ ). The judgment was entered pursuant to the district court ʹ s July 16, 2015

opinion and order denying Petroterminal ʹ s motion for summary judgment and granting

summary judgment in favor of the Insurers. We assume the parties ʹ familiarity with the

facts, procedural history, and issues on appeal.

Petroterminal owns and operates oil transport and storage facilities in

Panama. Relevant to this appeal are two insurance policies (the ʺ Policies ʺ ), one for

ʺ Marine Liabilities ʺ (the ʺ Primary Policy ʺ ) and the other for ʺ Bumbershoot Liabilities ʺ

(the ʺ Bumbershoot Policy ʺ ), that Petroterminal purchased to cover its operations for the

2007 calendar year.

The Primary Policy provides that it will ʺ pay on behalf of [Petroterminal],

any

. . . sums as [it] may be liable to pay as the result of an accident

. . . in connection

with [Petroterminal ʹ s operations],

. . . including liability

. . . [f]or any accident or

occurrence

. . . in connection with [operating] pipelines from the terminals. ʺ J. App. at

114. It also covers ʺ all costs

. . . in connection with any claim [t]hereunder. ʺ Id. at 116.

Coverage for ʺ [l]iability arising from delay, loss of market and/or consequential loss

therefrom ʺ and ʺ [l]oss

. . . resulting from

. . . seizure [or] con fi scation by order of any

government or public authority ʺ is excluded. Id. at 115

‐ 16.‐ 4

‐ The Bumbershoot Policy is excess insurance and, as endorsed, provides

that it will ʺ pay on behalf of [Petroterminal liabilities] which are covered in [the]

underlying policies [for] [a]ll

. . . sums which [Petroterminal] shall become legally liable

to pay as damages on account of

. . . property damage, ʺ de fi ned as ʺ physical loss of or

direct physical damage to or destruction of tangible property. ʺ Id. at 178, 181, 192.

ʺ Damages ʺ is de fi ned to include ʺ all

. . . fees

. . . for

. . . lawyers

. . . paid as a

consequence of any occurrence covered [t]hereunder. ʺ Id. at 179. Coverage for liability

ʺ resulting from

. . . capture, seizure, arrest, taking, restraint, detainment, con fi scation

. . .

or the consequences thereof ʺ is excluded. Id. at 182.

On February 4, 2007, a pipeline control valve failed at a Petroterminal

facility in Chiriqui Grande, Panama, causing a minor oil spill. Petroterminal and other

fi rms connected to the facility were sued. To secure jurisdiction over an a ffi liate of

Swiss

‐ based Castor Petroleum in one lawsuit, a Panamanian court issued an a tt achment

of 5.4 million barrels of oil that Castor was storing at the Chiriqui Grande facility. Six

weeks later, the Panamanian Supreme Court suspended the a tt achment and eventually

found it violative of due process.

On January 25, 2008, Castor sued Petroterminal in New York state court,

alleging that the oil spill amounted to a breach of their Transport and Storage

Agreement (the ʺ TSA ʺ ), which caused Castor to su ff er damages for shipping expenses,

trading losses, and lost pro fi ts, and triggered Petroterminal ʹ s indemni fi cation‐ 5

‐ obligations under the TSA (the ʺ Castor Suit ʺ ). On April 24, 2008, Petroterminal and the

Insurers agreed in writing that the la tt er would advance the former 50% of its costs to

defend the Castor Suit (the ʺ Defense Costs Agreement ʺ ). The parties also agreed,

however, that the losing party in any later coverage action would reimburse the

prevailing party for the costs advanced or owed. Nearly seven years later, the New

York court found that a force majeure, namely, the a tt achment, relieved Petroterminal of

any liability under the TSA. Petroterminal then exercised its rights under the Defense

Costs Agreement by bringing this insurance coverage action.

The question presented is whether the claims asserted in the Castor Suit

are covered under the Policies. The district court concluded they were not because the

illegal a tt achment caused Castor ʹ s damages, rather than a covered occurrence, and

because Castor ʹ s claims fell within the Policies ʹ exclusions. Accordingly, it granted the

Insurers ʹ summary judgment motions and entered a fi nal judgment in the amounts

noted. This appeal followed.

On appeal, Petroterminal argues that the district court (1) misapplied New

York law by looking beyond the complaint in the Castor Suit to determine if the claims

were covered and (2) misconstrued the Policies ʹ exclusions in making its coverage

determination.

We review de novo the district court ʹ s summary judgment ruling,

ʺ construing the evidence in the light most favorable to the non

‐ moving party and‐ 6

‐ drawing all reasonable inferences in [its] favor. ʺ Mihalik v. Credit Agricole Cheuvreux N.

Am., Inc.

, 715 F.3d 102, 108 (2d Cir. 2013). A movant is entitled to summary judgment if

ʺ there is no genuine dispute as to any material fact and the movant is entitled to

judgment as a ma tt er of law. ʺ Fed. R. Civ. P. 56(a). ʺʹ Because interpretation of an

insurance agreement is a question of law, we review the district court ʹ s construction of

the [Policies] de novo. ʹʺ U.S. Fid. & Guar. Co. v. Fendi Adele S.R.L.

, 823 F.3d 146, 149 (2d

Cir. 2016) (quoting VAM Check Cashing Corp. v. Fed. Ins. Co.

, 699 F.3d 727, 729 (2d Cir.

2012)). In this case, we interpret the Policies under New York law. 1

New York courts interpret insurance policies according to principles of

contract law, giving policy language its ʺ plain and ordinary meaning ʺ and construing

ambiguities in favor of the insured. Selective Ins. Co. of Am. v. Cty. of Rensselaer

, 26

N.Y.3d 649, 655 (2016). In making a coverage determination, exclusions from policy

coverage are ʺ accorded a strict and narrow interpretation ʺ ‐‐ ʺ before an insurance

company is permi tt ed to avoid policy coverage ʺ it must establish that the exclusions

ʺ apply in the particular case [and] are subject to no other reasonable interpretation. ʺ

Pioneer Tower Owners Ass ʹ n v. State Farm Fire & Cas. Co.

, 12 N.Y.3d 302, 307 (2009)

(internal quotation marks omi tt ed).

A threshold issue is whether the Policies impose on the Insurers a duty to

defend, a duty to pay defense costs for claims that are arguably covered subject to a

1 The parties agree that New York law governs the construction and interpretation

of the Policies.‐ 7

‐ right of recoupment, or simply a duty to indemnify. An insurer with a duty to defend

must pay defense costs ʺ [i]f the claims asserted, though frivolous, are within policy

coverage, ʺ whereas the duty to indemnify ʺ is determined by the actual basis for the

insured ʹ s liability to a third person. ʺ Servidone Constr. Co. Corp. v. Sec. Ins. Co. of

Hartford.

, 64 N.Y.2d 419, 424 (1985). Courts examine the policy language to determine

whether the insurer has a duty to defend or a duty to indemnify and will fi nd the

former only where it is expressly stated. See Nat ʹ l Union Fire Ins. Co. of Pi tt sburgh v.

Ambassador Grp., Inc.

, 556 N.Y.S.2d 549, 551 (2d Dep ʹ t 1990) ( fi nding no duty to defend

where policy covered ʺ any amount which the [i]nsureds are legally obligated to pay for

a claim

. . . includ[ing] costs

. . . incurred in the defense of actions ʺ ); MBIA Inc. v. Certain

Underwriters at Lloyd ʹ s, London

, 33 F. Supp. 3d 344, 355 (S.D.N.Y. 2014) ( ʺ In the absence

of a policy provision expressly imposing a duty to defend, New York courts will not

fi nd such a duty. ʺ (internal quotation marks omi tt ed)). Further, ʺ even though a non

‐

duty to defend policy may not [expressly] provide for the advancement of legal costs,

. . . New York law generally requires

. . . advancement

. . . , though such fees are subject

to recoupment by the insurer if it is ultimately found that no coverage exists. ʺ QBE

Ams., Inc. v. ACE Am. Ins. Co.

, No. 653442/2013, 2014 WL 4250089, at *6 (Sup. Ct. N.Y.

Cty. Aug. 27, 2014).

Petroterminal concedes that the Policies do not impose a duty to defend.

Instead, it argues that the Policies ʺ require [the Insurers] to pay defense costs as they are‐ 8

‐ incurred. ʺ Petroterminal Br. 23. Petroterminal further contends that, like the duty to

defend, this duty to pay defense costs ʺ turns solely on whether

. . . the complaint alleges

facts or grounds that bring the action within the liability coverage purchased. ʺ Id. at 22

(omission in original) (quoting Federal Ins. Co. v. Kozlowkski

, 792 N.Y.S.2d 397, 402 (1st

Dep ʹ t 2005)). It argues that the district court thus erred in basing its coverage

determinations on the New York court ʹ s summary judgment ruling. We conclude there

was no error.

The Bumbershoot Policy imposes only a duty to indemnify. It provides

coverage for sums ʺ which the Insured shall become legally liable to pay as damages, ʺ

including defense costs ʺ paid as a consequence of any occurrence covered hereunder

. ʺ J. App.

at 178

‐ 79 (emphasis added). We previously have concluded that identical language

creates a duty to pay ʺ defense costs for claims that are established to be covered

through judgment and se tt lement, ʺ i.e.

, claims for which the insurer has a duty to

indemnify, ʺ and not for claims only potentially falling within the policy ʹ s coverage. ʺ

Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp.

, 73 F.3d 1178, 1219 (2d Cir. 1995)

(interpreting a policy providing that the insured ʺ will be indemni fi ed for damages and

defense costs ʹ paid as a consequence of any occurrence covered hereunder ʹʺ (emphasis

added)). Therefore, the Bumbershoot Insurers were liable for Petroterminal ʹ s costs in

defending the Castor Suit only if the judgment established that Castor ʹ s claims were

covered by the Bumbershoot Policy. It was established at summary judgment that‐ 9

‐ Castor ʹ s damages arose out of the a tt achment of its oil, rather than any of

Petroterminal ʹ s actions. That a tt achment falls squarely within the Bumbershoot Policy ʹ s

exclusion for loss or damages ʺ resulting from

. . . capture, seizure, arrest, taking,

restraint, detainment, con fi scation

. . . or the consequences thereof. ʺ J. App. at 182.

Therefore, the Bumbershoot Insurers were not obligated to pay for Petroterminal ʹ s

defense of the Castor Suit.

We conclude that the Primary Policy also imposes only a duty to

indemnify. As noted, it provides that the Primary Insurers will ʺ pay on behalf of

[Petroterminal], any

. . . sums as [it] may be liable to pay as the result of an accident, ʺ as

well as ʺ costs

. . . in connection with any claim [t]hereunder

. ʺ Id. at 115

‐ 16 (emphasis

added). The Primary Insurers thus agreed to pay defense costs incurred in connection

with any claim or money demanded under the Primary Policy that Petroterminal was

liable to pay, or, in other words, costs expended in defense of covered liability

. As the

Primary Policy also has an exclusion applicable to the a tt achment of Castor ʹ s oil, the

Primary Insurers also had no duty to pay for Petroterminal ʹ s defense of the Castor Suit.

Moreover, assuming that the Policies do create a duty to advance defense

costs, the Insurers were not required to advance here because they were ʺ entitled to

di ff erentiate between covered and non

‐ covered claims. ʺ Kozlowski

, 792 N.Y.S.2d at 403;

accord QBE Am

, 2014 WL 4250089, at *5 (same). The complaints in the Castor Suit

repeatedly allege that Castor was injured because it could not access its oil due to the‐ 10

‐ a tt achment. As noted, such claims are within the Policies ʹ exclusions for loss resulting

from seizure or con fi scation. Cf. Gen. Star Indem. Co. v. Driven Sports, Inc.

, 80 F. Supp. 3d

442, 450 (E.D.N.Y. 2015) ( fi nding no coverage where ʺ the allegations in

. . . the

underlying complaints plainly reveal that [the claims] are excluded from coverage,

because each claim

. . . ʹ arises out of ʹʺ excluded risk (alteration omi tt ed)). Further,

although Castor alleged negligence in respect of the oil spill, the only losses alleged were

for business interruption damages for shipping

‐ related expenses, trading losses, lost

pro fi ts, lost opportunities, and other consequential damages. Such claims for

consequential loss are plainly not covered in light of Primary Policy ʹ s exclusion of

ʺ [l]iability arising from delay, loss of market,

. . . or consequential loss therefrom ʺ

J. App. at 116. See Gen. Star

, 80 F. Supp. 3d at 450 n.6 ( ʺ New York state courts, as well as

other courts in this circuit, have held that the phrase ʹ arising out of ʹ is not ambiguous,

and is ʹ ordinarily understood to mean originating from, incident to, or having

connection with. ʹʺ (quoting Fed. Ins. Co. v. Am. Home Assur. Co.

, 639 F.3d 557, 568 (2d Cir.

2011)). Nor are consequential losses covered by the Bumbershoot Policy, which limits

coverage to ʺ damages on account of

. . . [personal injury and] property damage ʺ as

de fi ned therein. J. App. at 178 (emphasis added). Accordingly, the Insurers had no

duty to advance costs for defense of the Castor Suit.

Finally, we note that had advancement of defense costs been required, the

Insurers would have been entitled to recoup all amounts advanced because in the end‐ 11

‐ none of Castor ʹ s claims were covered. See, e.g.

, Kozlowski

, 792 N.Y.S.2d at 403 (defense

costs advanced are ʺ subject to recoupment in the event it is ultimately determined no

coverage was a ff orded ʺ (quoting Nat ʹ l Union Fire Ins. Co.

, 556 N.Y.S.2d at 553)); QBE Am.

Inc.

, 2014 WL 4250089 at *6 ( ʺ [A]ny defense costs advanced are subject to recoupment if

no coverage is found. ʺ ). Indeed, that is why Petroterminal agreed to recoupment in the

Defense Costs Agreement in the fi rst place. See id. ( ʺ [T]here is no compelling reason

why an insured should not wait to recover until a coverage determination is made

because a claim for defense costs rises and falls with the underlying coverage claim. ʺ ).

We have reviewed Petroterminal ʹ s remaining arguments and conclude

they are without merit. Accordingly, we AFFIRM the judgment of the district court.

FOR THE COURT:

Catherine O ʹ Hagan Wolfe, Clerk