United States Court of Appeals

Fifth Circuit

FILED

June 21, 2004

Charles R. Fulbruge III

Clerk

In the

United States Court of Appeals

for the Fifth Circuit

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m 03-41067

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BAYOIL SUPPLY & TRADING LIMITED,

Plaintiff-Appellee,

VERSUS

GULF INSURANCE COMPANY, ET AL.,

Defendants,

GULF INSURANCE COMPANY;

CERTAIN UNDERWRITERS AT LLOYDS SUBSCRIBING TO CERTIFICATE 41557;

LLOYDS OF LONDON SYNDICATES

#2724, 0079, 1221, 0002, 1183, 0488, 2488, AND 0079;

TERRA NOVA INSURANCE COMPANY, LIMITED;

CGU INTERNATIONAL INSURANCE PLC,

Defendants-Appellants.

_________________________

Appeal from the United States District Court

for the Southern District of Texas

m G-02-CV-313

_________________________
2

Before GARWOOD, HIGGINBOTHAM and

SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge:*

The appealing defendants challenge a summary judgment for plaintiff on its insurance

coverage claim.2 Concluding that the district

court erred as a matter of law in interpreting

the contract, we reverse and render judgment

for appellants.

I.

In 2000, Bayoil Supply and Trading Limited (“Bayoil”) purchased oil from Iraq under

the United Nations’s “Oil for Food” program.

The oil was loaded onto Bayoil’s ship, the

M/T ESSEX. At the time of loading, the United Nations-appointed inspectors (Saybolt

International), members oftheESSEX’s crew,

and Bayoil’s representative (Oil Inspections)

measured the oil in the ship’s tanks and

calculated the amount based on the tank

tables. This calculation was used on the bill of

lading, on the basis of which Bayoil paid Iraq

with an irrevocable letter of credit. 

Only after leaving port did the Oil Inspections surveyor realize that although the initial

measurement had been correct, the amount of

oil in one tank had been miscalculated by using

the tables for another, larger tank; the actual

quantity of oil was some 48,312 barrels less

than thatstated in the initial calculation and bill

of lading. When Bayoil informed Iraq that it

had paid for that many barrels that it had not

received, Iraq refused to return Bayoil’s

money, approximately $1.5 million. Bayoil

claims this is a loss covered by its “all risks”

insurance policy. The defendant underwriters

denied coverage.3

Bayoil brought a declaratory judgment action, alleging that the 48,312 barrels constituted a “shortage” and was therefore covered

under its policy. The district judge personally

attempted to mediate, then granted Bayoil’s

motion for summary judgment, then ordered

the parties to further mediation. When this

second mediation failed to resolve the dispute,

the court entered final judgment for Bayoil.

In the district court, Bayoil claimed that

coverage should be based on the erroneous bill

of lading pursuant to which Bayoil had paid

Iraq. Underwriters maintained that no covered

loss had occurred and that any loss should be

measured with reference to the corrected survey. The court based its summary judgment

on the heading at section I.2 of the Shortage,

Leakage and Contamination Endorsement,4

* Pursuant to 5TH CIR. R. 47.5, the court has

determined that this opinion should not be published and is not precedent except under the limited

circumstances set forth in 5TH CIR. R. 47.5.4.

2 The district court granted summary judgment

for the defendants onBayoil’s non-contract claims,

but Bayoil does not appeal that judgment, which is

not before us. 

3 A comparison of the corrected survey with the

survey at the destination showed a shortage in

addition to the 48,312 barrels claimed here. Defendants have paid Bayoil’s claim for that shortage, which is not disputed here.

4

 This provision reads in relevant part:

2. At time of, and during, loading SS Warranted that careful measurements as to

gauge, weight and temperature of the separable components of th shipment be made

and certified to by a Surveyor, who shall also supervise loading and repeat (and certify

(continued...)
3

which the court interpreted to specify that any

measurements and correctionsmust take place

at the time of loading, and that the correction

made after the loading had been completed

could not be used to determine whether a

shortage had occurred. The court held alternately that if the contract was ambiguous, it

was to be construed against the insurer.

II.

We review a summary judgment de novo,

using the same standards as did the district

court. BP Oil Int’l Ltd. v. Empressa Estatal

Petoleos de Ecuador, 332 F.3d 333, 336 (5th

Cir. 2003); Mayo v. Hartford Life Ins. Co.,

354 F.3d 400 (5th Cir. 2004). Summary judgment is proper where “there is no genuine issue as to any material fact and the moving

party is entitled to a judgment as a matter of

law.” FED. R. CIV. P. 56(c). Because there

are no issues of fact, the resolution of the case

turns on an interpretation ofthe insurance contract as a matter of law.

III.

The insurance contract is to be interpreted

in accordance with Texaslaw. TEX INS.CODE

art. 21.42 (1951). “In construing a written

contract, the primary concern ofthe court isto

ascertain the true intentions of the parties as

expressed in the instrument.” Coker v. Coker,

650 S.W.2d 391, 393 (Tex. 1983). “To

achieve this object the courts will examine and

consider the entire writing, seeking as best

they can to harmonize and to give effect to all

the provisions of the contract so that none will

be rendered meaningless.” Universal C. I. T.

Credit Corp. v. Daniel, 243 S.W.2d 154, 158

(Tex. 1951). With this in mind, we examine

the entire contract to determine whether Bayoil’s claimed loss falls under the policy’s

coverage.

A.

Under Texas law, the holder of an all-risk

policy has the burden to establish that a

covered loss occurred. See Dow Chem. Co. v.

Royal Indem. Co., 635 F.2d 379, 386 (5th Cir.

Unit A Jan. 1981); Employers Cas. Co. v.

Block, 744 S.W.2d 940 (Tex. 1988), overruled

on other grounds, State Farm Fire & Cas. v.

Gandy, 925 S.W.2d 696 (Tex.1996). The district court erred in allowing Bayoil to recover

under its policy when Bayoil had not demonstrated that it had suffered a physical loss as

the policy requires.

It is undisputed that Bayoil did not

physically lose oil but did lose a significant

amount of money. Appellants argue that the

policy covers only physical loss and that

Bayoil’s monetary loss therefore does not fall

under its coverage. Bayoil, for its part,

appears to rely on its characterization of the

policy as an “all risk” policy and contends that

it has suffered a loss that must be covered. 

The title “all risk” is not itself conclusive;

rather, we must look to the terms of the policy

to determine what risks and losses are

covered. The endorsement purports to cover

a “loss” resulting from “shortage,” and so

forth, but does not define what constitutes a

shortage or specify whether the “loss” can be

economic or must be physical.5 Because,

4

(...continued)

to) such measurements as frequently as he

deems necessary and desirable . . . .

5

 The endorsement reads in relevant part: 

SHORTAGE, LEAKAGE AND

CONTAMINATION ENDORSEMENT

(continued...)
4

however, we read the contract as a whole, the

endorsement must be construed in conjunction

with the average terms and conditions of the

policy. 

The body of the contract provides: “This

insurance covers against all risks of physical

loss or of damage to the subject matter insured

from any external cause but specifically

excluding unexplained shortage and/or

unexplained loss in weight (or volume).”

Thus, the contract provides that the required

physical loss from an external cause may not

consist of or be established merely by an

“unexplained shortage.” The endorsement

provides for an extension of coverage by

allowing physical loss to be established by an

unexplained shortage under the stated

circumstances. Here, however, the shortage is

not unexplained, but is conclusively explained

as being not a physical loss at all, but only a

calculation error.

To show coverage, therefore, Bayoil must

prove a physical loss. Because there is no genuine issue of fact asto whether Bayoil actually

suffered a physical loss of oil, appellants, not

Bayoil, are entitled to summary judgment.

B.

Because Bayoil cannot demonstrate a covered loss, we need not address whether the

district court erred in finding that the

magnitude of Bayoil’s loss was to be

determined on the basis of the initial, incorrect

survey calculations. Inasmuch as the district

court’s finding was based solely on the

heading at section I.2 of the endorsement,

however, we note that individual headings are

not to be considered in isolation from the

contract as a whole. Rather, the court must

examine the entire document to determine the

parties’ intent. Coker v. Coker, 650 S.W.2d

391, 393 (Tex. 1983). 

This provision, read in the context of an endorsement to a policy that provides coverage

for physical loss evidenced o nly by an unexplained shortage, canbe betterinterpreted to

indicate that the parties intend for an initial

survey to provide an accurate account of the

amount of oil actually loaded onto a ship, and

the parties have made provision to correct inaccuracies in that initial reading. Thus, where

the insured admits that no physical loss

occurred, the intent of the parties is best

fulfilled by using an accurate measurement of

the amount of oil it possessed at the time of

and during loading. 

Using the accurate, corrected measurement

of the oil loaded onto the ESSEX

demonstrates that Bayoil has been compensated for the shortage that actually occurred between the loading and unloading, and

that it is not entitled to coverage for the oil

that was never loaded. Thus, it was error for

the district court to grant summary judgment

for Bayoil on that basis.

For the foregoing reasons, the summary

judgment is REVERSED, and judgment is

RENDERED for appellants.

5

(...continued)

THIS INSURANCE ALSO COVERS:

Loss due to shortage and/or leakage and/or

contamination and/or loss in weight (or volume) howsoever arising . . . .