15‐2941‐cv  

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

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT.  CITATION TO A

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

FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1.  

WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST

CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION

ʺSUMMARY ORDERʺ).  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 8th day of September, two thousand sixteen.

PRESENT: RALPH K. WINTER,

DENNY CHIN,

    CHRISTOPHER F. DRONEY,

Circuit Judges.

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PETROTERMINAL DE PANAMA, S.A.,  

Plaintiff‐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,

FIREMANʹS FUND INSURANCE COMPANY,

AMERICAN HOME ASSURANCE COMPANY

Defendants‐Counter‐Claimants‐Appellees.

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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,

FIREMANʹS 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 (Rakoff, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

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

Plaintiff‐counter‐defendant‐appellant Petroterminal de Panama, S.A.

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

$466,765.76 to certain of the defendants‐counter‐claimants‐appellees (collectively, the
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ʺPrimary Insurersʺ) and $1,472,677.69 to other defendants‐counter‐claimants‐appellees

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

ʺInsurersʺ).  The judgment was entered pursuant to the district courtʹs July 16, 2015

opinion and order denying Petroterminalʹs motion for summary judgment and granting

summary judgment in favor of the Insurers.  We assume the partiesʹ 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 ʺPoliciesʺ), one for

ʺMarine Liabilitiesʺ (the ʺPrimary Policyʺ) and the other for ʺBumbershoot Liabilitiesʺ 

(the ʺBumbershoot Policyʺ), that Petroterminal purchased to cover its operations for the

2007 calendar year.

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

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

with [Petroterminalʹs 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 ʺall 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

therefromʺ and ʺ[l]oss . . . resulting from . . . seizure [or] confiscation by order of any

government or public authorityʺ is excluded.  Id. at 115‐16.
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The Bumbershoot Policy is excess insurance and, as endorsed, provides

that it will ʺpay 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 defined as ʺphysical loss of or

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

ʺDamagesʺ is defined to include ʺall . . . fees . . . for . . . lawyers . . . paid as a

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

ʺresulting from . . . capture, seizure, arrest, taking, restraint, detainment, confiscation . . .

or the consequences thereofʺ 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

firms connected to the facility were sued.  To secure jurisdiction over an affiliate of

Swiss‐based Castor Petroleum in one lawsuit, a Panamanian court issued an attachment

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 attachment 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 ʺTSAʺ), which caused Castor to suffer damages for shipping expenses,

trading losses, and lost profits, and triggered Petroterminalʹs indemnification
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obligations under the TSA (the ʺCastor Suitʺ).  On April 24, 2008, Petroterminal and the

Insurers agreed in writing that the latter would advance the former 50% of its costs to

defend the Castor Suit (the ʺDefense Costs Agreementʺ).  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 attachment, 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 attachment caused Castorʹs damages, rather than a covered occurrence, and

because Castorʹs claims fell within the Policiesʹ exclusions.  Accordingly, it granted the

Insurersʹ summary judgment motions and entered a final 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 Policiesʹ exclusions in making its coverage

determination.

We review de novo the district courtʹs summary judgment ruling,

ʺconstruing the evidence in the light most favorable to the non‐moving party and
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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

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

judgment as a matter of law.ʺ  Fed. R. Civ. P. 56(a).  ʺʹBecause interpretation of an

insurance agreement is a question of law, we review the district courtʹs 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 ʺplain and ordinary meaningʺ 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 ʺaccorded a strict and narrow interpretationʺ ‐‐ ʺbefore an insurance

company is permitted to avoid policy coverageʺ it must establish that the exclusions

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

Pioneer Tower Owners Assʹn v. State Farm Fire & Cas. Co., 12 N.Y.3d 302, 307 (2009)

(internal quotation marks omitted).   

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.
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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 ʺis determined by the actual basis for the

insuredʹs 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 find the

former only where it is expressly stated.  See Natʹl Union Fire Ins. Co. of Pittsburgh v.

Ambassador Grp., Inc., 556 N.Y.S.2d 549, 551 (2d Depʹt 1990) (finding no duty to defend

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

a claim . . . includ[ing] costs . . . incurred in the defense of actionsʺ); MBIA Inc. v. Certain

Underwriters at Lloydʹs, London, 33 F. Supp. 3d 344, 355 (S.D.N.Y. 2014) (ʺIn the absence

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

find such a duty.ʺ (internal quotation marks omitted)).  Further, ʺeven 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 ʺrequire [the Insurers] to pay defense costs as they are
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incurred.ʺ  Petroterminal Br. 23.  Petroterminal further contends that, like the duty to

defend, this duty to pay defense costs ʺturns 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

Depʹt 2005)).  It argues that the district court thus erred in basing its coverage

determinations on the New York courtʹs summary judgment ruling.  We conclude there

was no error.

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

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

including defense costs ʺpaid 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 ʺdefense costs for claims that are established to be covered

through judgment and settlement,ʺ i.e., claims for which the insurer has a duty to

indemnify, ʺand not for claims only potentially falling within the policyʹs 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 ʺwill be indemnified for damages and

defense costs ʹpaid as a consequence of any occurrence covered hereunderʹʺ (emphasis

added)).  Therefore, the Bumbershoot Insurers were liable for Petroterminalʹs costs in

defending the Castor Suit only if the judgment established that Castorʹs claims were

covered by the Bumbershoot Policy.  It was established at summary judgment that
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Castorʹs damages arose out of the attachment of its oil, rather than any of

Petroterminalʹs actions.  That attachment falls squarely within the Bumbershoot Policyʹs

exclusion for loss or damages ʺresulting from . . . capture, seizure, arrest, taking,

restraint, detainment, confiscation . . . or the consequences thereof.ʺ  J. App. at 182.  

Therefore, the Bumbershoot Insurers were not obligated to pay for Petroterminalʹs

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 ʺpay on behalf of

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

well as ʺcosts . . . 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 attachment of Castorʹs oil, the

Primary Insurers also had no duty to pay for Petroterminalʹs 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 ʺentitled to

differentiate 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
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attachment.  As noted, such claims are within the Policiesʹ exclusions for loss resulting

from seizure or confiscation.  Cf. Gen. Star Indem. Co. v. Driven Sports, Inc., 80 F. Supp. 3d

442, 450 (E.D.N.Y. 2015) (finding no coverage where ʺthe allegations in . . . the

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

because each claim . . . ʹarises out ofʹʺ excluded risk (alteration omitted)).  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

profits, lost opportunities, and other consequential damages.  Such claims for

consequential loss are plainly not covered in light of Primary Policyʹs exclusion of

ʺ[l]iability arising from delay, loss of market, . . . or consequential loss therefromʺ 

J. App. at 116.  See Gen. Star, 80 F. Supp. 3d at 450 n.6 (ʺNew York state courts, as well as

other courts in this circuit, have held that the phrase ʹarising out ofʹ is not ambiguous,

and is ʹordinarily 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 ʺdamages on account of . . . [personal injury and] property damageʺ as

defined 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
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none of Castorʹs claims were covered.  See, e.g., Kozlowski, 792 N.Y.S.2d at 403 (defense

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

coverage was affordedʺ (quoting Natʹl 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 first 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 Petroterminalʹs remaining arguments and conclude

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

FOR THE COURT:

Catherine OʹHagan Wolfe, Clerk