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

_______________



### m 03-41067

_______________



### B AYOIL 

### S UPPLY 

### & T RADING 

### L IMITED



### ,

Plaintiff-Appellee,

VERSUS



### G ULF 

### I NSURANCE 

### C OMPANY



### , ET AL



### .,

Defendants,



### G ULF 

### I NSURANCE 

### C OMPANY 

### ;

C ERTAIN 

### U NDERWRITERS AT 

### L LOYDS 

### S UBSCRIBING TO 

### C ERTIFICATE 

### 41557;

L LOYDS OF 

### L ONDON 

### S YNDICATES


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

### 0079;

T ERRA 

### N OVA 

### I NSURANCE 

### C OMPANY



### , L IMITED 

### ;

CGU I NTERNATIONAL 

### I NSURANCE 

### PLC,

Defendants-Appellants.

_________________________

Appeal from the United States District Court

for the Southern District of Texas



### m G-02-CV-313

_________________________2

Before G ARWOOD , H IGGINBOTHAM and

S MITH , Circuit Judges.

J ERRY E. S MITH , Circuit Judge: *

The appealing defendants challenge a summary judgment for plaint iff on it s insurance

co v erage 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, B a yoil 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 inspecto r s (Saybolt

International), members of the ESSEX’s crew,

and Bayoil’s representative (Oil Inspections)

measur ed 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.

Onlyafter leaving port did the Oil Inspections surveyor realize that although the init ial

measurement had been correct, the amount of

oil in one tank had been miscalculated by using

the tables for another, larger t ank; the actual
quantity of oil was some 48 ,312 barrels less than that stated in the init ial calculation and bill

of lading. When Bayoil informed Iraq that it

had paid for that man y barrels that it had not

received, Iraq refused to ret u rn Bayoil’s

m o ney, approximately $1.5 million. Bayoil

claims this is a loss co v ered by its “all risks”

insurance policy. The defendant underwriters
denied coverage. 3

Bayoil brought a declaratory judgment action, alleging that the 48,312 ba rrels consti

tuted 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 mediati o n. When this

second mediation failed to resolve the dispute,
the court entered final judgment for Bayoil.

In t h e district court, Bayoil claimed that

coverage should be based on the erroneous bill

of lading pu rsuant 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 Co n tamination Endorsement, 4

* Pu rsuant to 5 T H C IR

. R. 47.5, the court has

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

circumstances set forth in 5 TH C IR

. R. 47.5.4.

2 The district court granted summary judgment

for the defendants on Bayoil’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

additio n 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 SSWarranted that careful measurements a s to

gauge, weight and te mperature of the separable compone nts 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 corrections must take place
at the time of loading, and that the correcti on

made after the loading had been completed

cou l d 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 summ ary judgment d e novo

, using the same stand ards 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 w here “there is no genuine issue as to an y material fact and the moving

party i s ent itled to a judgment as a matter of

law.” F ED

. R. C IV

. P. 56(c). Because there

are no issues of fact, the resolution of the case

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

III.

The insurance contract is to be interpreted

in accordance with Texas law. T E X I NS

. C ODE art. 21.42 (1951). “In construi ng a wri tten

contract, the primary concern of the court is to

ascertai n t he true intentions of the parties as
expressed in the instrument.” C oker v. Coker

, 650 S.W.2d 391, 393 (Tex. 1983). “To

achieve this object the courts will examine and

co nsider 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 p o licy’s

coverage.

A.

Under Texas law, the holder of an all-risk

p o licy has the burden to establish that a

covered loss occurred. S ee 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 B a yoil did not physically l o se oil but did lose a significant

amount of money. Appellants argue that the
policy covers only physic al loss and that
Bayoil’s monetary loss therefore does not fall

under its coverage. Bayoil, fo r 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 co n clusive;

rather, we must look to the terms of the policy

to determ

ine what risks and losses are
covered. The endorsement purports to cover

a “loss” result i ng from “shortage,” and so forth, but does not define what constitutes a
shortage or specify whether the “loss” can be

ec o no mic or must be physical. 5 Because,

4 (...continued)
to) such measurements as frequen tly 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 t erms and conditions of the
policy.

The body of the contract provides: “This

insurance covers against all risks o f physical

loss or of damage to the subject matter insured

from any external cause but specificall y excluding unexpl ai

ned shortage and/or
unexplained loss in weight (or volume).”

Thus, the contract provides that the required
physical loss from an external caus e may not

consist of or be est ablished merely by an
“unexplained shortage.” The endorsement
provides for an extension of coverage by
allowing physical loss to b e established by an

unexplained shortage u nder the stated

circumstances. Here, however, the shortage is

not un explained, 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 as to whether Bayoil actually

suffered a physical l o ss o f 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

ma gnitude of Bayoil’s loss was to be

determined on the basis of the init ial, incorrect
survey calculations. Inasmuch as the district court’s finding was based solely on the
heading at section I.2 of the endo rsement,
however, we note that individual headings are

not to be considered in is olation from the

contract as a whol e. Rather, the court m ust

examine the entire document to determine the
parties’ intent. C

oker 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 eviden ced o nly by an unexplained shortage, can be better interpreted to

indicate that the pa rt ies intend for an initial

survey to provi de an accurate account of the

amount of oil actually loaded onto a ship, and
the parties have made provision to correct inaccuracies in that init

ial reading. Thus, where

the insured admits that no physical loss

occurred, the intent of

t he parties is best

fulfilled by using an accurate measurement of

the amount o f o il it possessed at the time of
and during loading.

Using the accurate, corrected measurement

of t he oil loaded onto the ESSEX

d emo nstrates that Bayoil has been compensated for the short age t hat actuallyoccurred between the loading and unloading, and

that it is not entitled to coverage for the oi l

that was never loaded. Thus, it was error for

the di st rict 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 . . . .