Case Name: BORDEN, INC. v. HOWARD TRUCKING COMPANY, INC. and Northwest Insurance Company
Court: Louisiana Supreme Court
Jurisdiction: Louisiana
Decision Date: 1983-10-17
Citations: 454 So. 2d 1081
Docket Number: Nos. 83-C-0203, 83-C-0238
Parties: BORDEN, INC. v. HOWARD TRUCKING COMPANY, INC. and Northwest Insurance Company.
Judges: WATSON, J., dissents being of the opinion that Borden is not entitled to consequential damages.
Reporter: Southern Reporter, Second Series
Volume: 454
Pages: 1081–1100

Head Matter:
BORDEN, INC. v. HOWARD TRUCKING COMPANY, INC. and Northwest Insurance Company.
Nos. 83-C-0203, 83-C-0238.
Supreme Court of Louisiana.
Oct. 17, 1983.
On Rehearing June 28, 1984.
Dissenting Opinion of Justice Blanche June 29, 1984.
Rehearing Denied Sept. 14, 1984.
Marcus, Blanche and Watson, JJ., dissented and each assigned reasons, and filed statement on denial of rehearing.
Lemmon, J., subscribed to the opinion and will assign additional reasons.
Lawrence A. Durant, Durant, Pierce & Malone, Baton Rouge, for applicant in No. 83-C-0203 and respondents in No. 83-C-0238.
Leon E. Roy, Jr., Hugh E. McNeely, Roy, Forrest & Lopresto, New Iberia, for respondents in No. 83-C-0203 and applicant in No. 83-C-0238.
Eugene R. Groves, Taylor, Porter, Brooks & Phillips, Baton Rouge, P. Albert Bienvenu, Jr., Bienvenu, Foster, Ryan & O’Bannon, New Orleans, for respondents in both cases.

Opinion:
DIXON, Chief Justice.
Borden, Inc. manufactures methanol at its plant in Geismar, Louisiana on a twenty-four hours a day, seven days a week basis. Rather than halting production every time a minor problem develops with the equipment used in this process, these problems are noted and corrected during a "turnaround." A "turn-around" is a scheduled period for routine repairs and maintenance. Borden scheduled a "turn-around" for its methanol "B" plant to begin on October 26, 1976 and to end on October 30, 1976. As was its customary procedure, Borden contacted its repair contractor, Dresser Industries, Inc., and planned the routine maintenance of two compressors used in the manufacture of methanol. Dresser arranged with Howard Trucking Company, Inc. for the carriage of one of the compressors from Borden's plant to Dresser's repair and maintenance facility in Harahan, Louisiana.
While enroute to the Dresser facility, the Howard truck was involved in a one vehicle accident and overturned, killing the driver. Borden's compressor was damaged when it was thrown from the bed of the truck. In addition, the resumption of production was delayed at the Borden plant because of the additional repairs to the compressor necessitated by the accident.
On August 2, 1977 Borden filed suit against Howard and Northwest Insurance Company, Howard's comprehensive auto mobile, general and contractual liability insurer, seeking recovery for the cost of repairing the compressor and for the loss of production of methanol due to the delay in getting the compressor back into operation. Howard's cargo insurer, Antoy William Ames, an Underwriter at Lloyd's, London, was named as an additional defendant and Dresser was added as a party plaintiff on April 20, 1978.
The trial court rendered judgment against Howard and Ames in the sum of $174,203.63, and dismissed all claims against Northwest. The court of appeal reversed, finding coverage under Northwest's policy for the loss of production and under Ames' policy for the physical damage to the compressor. Borden, Inc. v. Howard Trucking Co., Inc., 425 So.2d 893 (La.App.1983).
At the outset we agree with the finding of the lower courts that Howard was at fault for the damage suffered by Borden based upon the negligence of Howard's employee. The Howard vehicle drove off the traveled roadway and turned over in a one vehicle accident.
When a party has been damaged by the conduct of another arising out of a contractual relationship, he may choose to recover under either tort or contract. Federal Insurance Co. v. Insurance Company of North America, 262 La. 509, 263 So.2d 871 (1972). Here Borden had contracted with Howard, through its agent Dresser, to transport the compressor from Geismar to Harahan. The damage to Borden's property arose out of the performance of this contract. The lower courts found that Borden's action lay in tort, and that Borden was entitled to recover all foreseeable damages flowing from the accident. We affirm this finding.
Borden argues that it is entitled to two separate items of property damage stemming from the accident. The first is for physical damage to the compressor itself. The second claim is for the loss of production resulting from the damage to the compressor. Borden maintains that its right to use its compressor in its plant, free from the interference of others, was in itself property, independent and separate from the compressor itself. Thus, Borden asserts that the loss of production due to the damaged compressor was itself an additional item of property damage.
The lower courts agreed that Borden was entitled to recover all of its damages, both for the compressor and for the loss of production. The primary issue in dispute is whether Howard or its insurance companies are to pay the damages to Borden.
Northwest, Howard's liability insurer, contends that it is not liable to Borden. The insurance company argues that there is no coverage for either type of property damage under the policy issued to Howard because of the exclusions in its policy. Northwest had issued a standard multifaceted liability policy to Howard. The policy contains three basic types of coverage: (a) comprehensive automobile liability insurance; (b) comprehensive general liability insurance; and (c) contractual liability insurance.
Each of these coverages contained a standard insuring clause with exceptions. Under the comprehensive automobile liability insurance coverage it was agreed that:
"COVERAGE C — BODILY INJURY LIABILITY
COVERAGE D — PROPERTY DAMAGE LIABILITY
The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of
C. bodily injury or
D. property damage
to which this insurance applies, caused by an occurrence and arising out of the ownership, maintenance or use, including loading and unloading, of any automobile, .
Exclusions
This insurance does not apply:
(d) to property damage to
(1) property owned or being transported by the Insured, or
(2) property rented to or in the care, custody or control of the Insured, or as to which the Insured is for any purpose exercising physical control, other than property damage to a residence or private garage by a private passenger automobile covered by this insurance.
Under the comprehensive general liability insurance coverage it was provided that:
"COVERAGE A — BODILY INJURY LIABILITY
COVERAGE B — PROPERTY DAMAGE LIABILITY
The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of
A. bodily injury or
B. property damage
to which this insurance applies, caused by an occurrence .
Exclusions
This insurance does not apply:
(k) to property damage to
(3)property in the care, custody or control of the Insured or as to which the Insured is for any purpose exercising physical control;
(m) to loss of use of tangible property which has not been physically injured or destroyed resulting from
(l) a delay in or lack of performance by or on behalf of the Named Insured of any contract or agreement, or
(2) the failure of the Named Insured's products or work performed by or on behalf of the Named Insured to meet the level of performance, quality, fitness or durability warranted or represented by the Named Insured;
but this exclusion does not apply to loss of use of other tangible property resulting from the sudden and accidental physical injury to or destruction of the Named Insured's products or work performed by or on behalf of the Named Insured after such products or work have been put to use by any person or organization other than an Insured;
Finally, under the contractual liability insurance coverage, it was provided that: "COVERAGE YY — CONTRACTUAL
BODILY INJURY LIABILITY COVERAGE ZZ — CONTRACTUAL
PROPERTY DAMAGE LIABILITY
The Company will pay on behalf of the Insured all sums which the Insured, by reason of contractual liability assumed by him under any written contract relating to the business of the Named Insured as stated in the declarations, shall become legally obligated to pay as damages because of
bodily injury or
property damage
to which this insurance applies, caused by an occurrence, .
Exclusions
This insurance does not apply:
(g) to property damage to
(3) property in the care, custody or control of the Insured or as to which the Insured is for any purpose exercising physical control;
(i) to loss of use of tangible property which has not been physically injured or destroyed resulting from
(1) a delay in or lack of performance by or on behalf of the Named Insured of any contract or agreement, or
(2) the failure of the Named Insured's products or work performed by or on behalf of the Named Insured to meet the level of performance, quality, fitness or durability warranted or represented by the Named Insured;
but this exclusion does not apply to loss of use of other tangible property resulting from the sudden and accidental physical injury to or destruction of the Named Insured's products or work performed by or on behalf of the Named Insured after such products or work have been put to use by any person or organization other than an Insured;
Howard does not argue that the above coverages extended to the actual physical damage to the compressor. That damage was clearly excluded under the Northwest policy for it was incurred while the property was "being transported'' by Howard, and while the compressor was under the "care, custody or control" of Howard.
Howard claims that the physical damage to the compressor was covered under its cargo policy with Ames. Antoy Williams Ames had issued a policy of insurance to Howard covering damage to cargo which was in the custody or control of the insured. This policy specifically did not cover loss of use, loss resulting from delay in production or any other consequential or remote loss. The Ames Motor Cargo Liability Policy provides as follows:
"This policy covers the liability of the insured for loss or damage to lawful goods and merchandise while in the custody or control of the insured (and while in the custody of connecting carriers) in the ordinary course of transit within the contiguous states of the United States, The District of Columbia and Canada (except as provided elsewhere in this policy)
6. This policy does not insure the liability of the insured for:
c. Loss of market; delay; loss of use or any other remote or consequential loss;
We agree with the lower courts that Ames is liable only for the physical damage to the compressor, less the deductible stated in the policy. The Ames policy is clear and unambiguous that loss of use and other consequential losses are excluded from coverage.
Howard insists that while the Ames policy does not provide coverage for loss or use of the compressor, the Northwest policy does provide this coverage. Even though the Northwest policy, unlike the Ames policy, does not afford coverage for physical damage to the compressor, Howard contends that the Northwest policy does provide coverage for loss of use of the compressor. Howard argues that the loss of production resulting from the inability of Borden to resume operations on schedule is a separate and distinct item of property damage from the physical damage to the compressor, and is not clearly excluded in the Northwest policy. In addition, Howard asserts that the exclusionary clauses in the Northwest policy are ambiguous and unclear, and so should be interpreted in favor of coverage.
Northwest, on the other hand, argues that its policy is sufficiently clear and excludes damages resulting from loss of use of the damaged compressor. Northwest reasons that since its policy clearly excludes coverage for the damaged property itself, it should be apparent that any consequential losses flowing from this physical damage are likewise excluded. Northwest declares that its policy accomplished the same goal as the Ames policy with respect to the exclusion of damages for loss of production directly attributed to the physical damage to the compressor.
The primary issue is whether the loss of use of the compressor is property damage in and of itself or whether it is merely included as a measure of damage resulting from the physical damage to the compressor. If the loss of use is independent property damage, regardless of whether the tangible property is covered by the policy, then the liability policy would include the loss of use unless an exclusion specifically applied. However, if the loss of use is simply an additional measure of damage flowing from the physical damage to the compressor, then the loss of use would not be covered by the policy unless the physical damage to the compressor was also covered.
To determine whether the loss of use of damaged physical property is viewed as property damage itself, regardless of whether the underlying tangible property is covered, it is necessary to examine the definition of "property damage" contained in the policy.
The policy defines the term as follows: " 'property damage' means (1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period." (Emphasis added).
The law is well settled that if there is any doubt or ambiguity as to the meaning of a provision in an insurance policy, it must be construed in favor of the insured and against the insurer. When the ambiguity relates to an exclusionary clause, the law requires that the contract be interpreted liberally in favor of coverage. The primary object of all insurance is to insure, and exclusionary clauses are strictly construed against the insurer. Insurance Company of North America v. Solari Parking, Inc., 370 So.2d 503 (La.1979); Credeur v. Luke, 368 So.2d 1030 (La.1979).
Based on the language of the policy we find that where injury or destruction of property is not covered by the policy, the resulting loss of use of that property is not covered unless otherwise stipulated. The loss of use of physically damaged tangible property is merely a measure of damage resulting from the property damage. Loss of use of physically damaged tangible property is not property damage in and of itself. It is dependent on the coverage afforded the damaged tangible property under the policy. Property damage is defined as the "physical injury to or destruction of tangible property . including the loss of use thereof . resulting therefrom ." (Emphasis added).
We agree with the conclusion of the Supreme Court of South Carolina in Torrington v. Aetna Casualty & Surety Co., 264 S.C. 636, 216 S.E.2d 547, 550 (1975), that:
"... It is the only reasonable construction of the contract that damages arising from loss of use were excluded. [The insurance company] must pay only when there has been injury to or destruction of property for which it is liable. Since the injury to and/or destruction of property is not covered, the resulting loss of use is not covered. The provision for 'including the loss of use thereof,'is merely a parenthetical phrase expressly providing for consequential damagaes when the insurer is otherwise liable on the underlying claim. The loss of use grew out of the injury and/or destruction, and since the injury and/or destruction were excluded, the loss of use was excluded as a necessary consequence."
For the reasons assigned, the judgment of the court of appeal is reversed, and the judgment of the trial court is reinstated. Defendants, Howard Trucking Company, Inc. and Antoy William Ames, an Underwriter at Lloyd's, London, are cast for costs.
WATSON, J., dissents being of the opinion that Borden is not entitled to consequential damages.
. Ames was only held liable for the cost of repairs for the physical damage to the compressor (110,579.15 less its deductible of $5,000).
. Northwest had earlier filed a motion for summary judgment to dismiss Borden's claims against it based on an automobile insurance policy exclusion. The trial court had granted the motion, but the court of appeal had reversed and remanded, finding that the exclusionary clause did not exclude coverage for loss of production resulting from the damage to the compressor. Borden, Inc. v. Howard Trucking Co., Inc., 372 So.2d 242 (La.App.1979), writ denied, 373 So.2d 544 (La. 1979).
.Apparently Borden placed most reliance on the comprehensive automobile liability coverage in its claims for damages. Borden alleged that the negligence of Howard's employee in operating an insured vehicle caused damage to Borden's property. Since the provisions and exclusions relating to property damage liability are basically the same in the three types of coverage contained in the Northwest policy, the same arguments will generally apply to all of them unless otherwise specified.