Opinion ID: 3171786
Heading Depth: 2
Heading Rank: 2

Heading: Great Lakes’s Burden of Showing an Exclusion

Text: Great Lakes claims that Exclusion r in the policy applies to preclude coverage. Exclusion r states that the following is not covered under the policy: “Damage to the Scheduled Vessel’s engines, mechanical and electrical parts, unless caused by an accidental external event, such as collision, impact with a 8 Case: 15-11939 Date Filed: 01/25/2016 Page: 9 of 13 fixed or floating object, grounding, stranding, ingestion of a foreign object, lightning strike or fire.” (emphasis added). Courts must enforce insurance provisions as written when they are unambiguous and understandable. Parks Real Estate Purchasing Grp. v. St. Paul Fire & Marine Ins. Co., 472 F.3d 33, 42 (2d Cir. 2006) (applying New York insurance law).4 Ambiguity exists in an insurance policy when its terms are susceptible to different reasonable interpretations. Fireman’s Fund Ins. Co. v. Tropical Shipping & Constr. Co., Ltd., 254 F.3d 987, 1003 (11th Cir. 2001). “[T]o negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case and that its interpretation of the exclusion is the only construction that [could] fairly be placed thereon.” Parks Real Estate Purchasing Grp., 472 F.3d at 42. Any ambiguity is resolved in favor of the insured. Id. at 42-43; Dow Chemical Co., 635 F.2d at 386. Here, the district court concluded that Exclusion r created ambiguity in the policy because, giving the ordinary meaning to the operative terms in both Coverage A and Exclusion r—such as “mechanical parts,” “machinery,” and “equipment”—“many of the same parts of the Kan-Do could reasonably fall under 4 As mentioned in footnote 4 above, a choice-of-law provision in the policy provides that New York law governs unless entrenched principles of admiralty law apply. In any case, the parties do not suggest that choice of law affects the inquiry into ambiguity or the effect of the exclusion. 9 Case: 15-11939 Date Filed: 01/25/2016 Page: 10 of 13 either Coverage ‘A’ or Exclusion ‘r,’ thus creating ambiguity.” Having found ambiguity, the court construed the contract against Great Lakes and found that Exclusion r did not apply to exclude coverage. We conclude that the court erred in finding ambiguity based on the fact that the same terms appeared in both Coverage A and Exclusion r. “[S]imply because one provision gives a general grant of coverage and another provision limits this coverage does not mean there is an ambiguity or inconsistency between the two. This is the very nature of an insurance contract; exclusions in coverage are expressly intended to modify coverage clauses and to limit their scope.” Ajax Bldg. Corp. v. Hartford Fire Ins. Co., 358 F.3d 795, 798-99 (11th Cir. 2004); see also Central Int’l Co. v. Kemper Nat’l Ins. Cos., 202 F.3d 372, 374 (1st Cir. 2000) (“[U]nder ordinary principles of contract interpretation, there is little doubt that the exclusion is presumptively a qualification on the risk coverage.”). Under the terms of the policy, there is a general grant of coverage for “accidental physical loss of, or accidental physical damage to the Scheduled Vessel.” The policy defines “Scheduled Vessel” as the vessel, including the hull, machinery, electrical equipment, and “all other equipment normally required for the operation and maintenance of the vessel.” Coverage A states that coverage is “subject to” certain exclusions, including damage to “engines, mechanical and electrical parts” unless caused by an “accidental external event.” All told, the 10 Case: 15-11939 Date Filed: 01/25/2016 Page: 11 of 13 policy facially provides coverage for “accidental physical damage” to engines and mechanical and electrical parts only if the damage was caused by an “accidental external event.” Put differently, the coverage for engines and mechanical components appears to be narrower than the general all-risk coverage because it requires an external cause. Cf. Morrison Grain Co., Inc., 632 F.2d at 430 (stating that the insured was not required “to demonstrate that the loss or damage was occasioned by an external cause” to establish fortuity); City of Burlington, 332 F.3d at 48 (noting that many courts have rejected “an implicit external-cause requirement in all-risk policies”). As a result, we do not find the policy to be ambiguous for the reason given by the district court.5 Appellee responds that the policy is ambiguous because “accidental external event” is not defined in the policy, so it is left with little guidance as to what is being excluded. So, for example, Appellee asserts, it is arguable whether water intrusion as a result of the bilge-pump system’s failure qualifies as an “external” event. Great Lakes replies that water intrusion was not the relevant “cause,” but rather the blown fuse or the failed bilge-pump system was, neither of which Appellee contends is an “external event.” The district court did not address 5 Notably, despite the district court’s adoption of its position on ambiguity from the Appellee below, Appellee does not defend the court’s reasoning on appeal and instead contends that “accidental external event” is ambiguous, an issue the district court did not reach. 11 Case: 15-11939 Date Filed: 01/25/2016 Page: 12 of 13 whether “accidental external event” or other specific terms in the exclusion itself were ambiguous. Although contractual ambiguity is a question of law that we may resolve in the first instance, we think the better course of action in these circumstances is simply to vacate the district court’s ruling with respect to Exclusion r and remand for further proceedings. See Wilkerson v. Grinnell Corp., 270 F.3d 1314, 1322 & n.4 (11th Cir. 2001) (noting our preference for the district court to address issues in the first instance). As we understand the exclusionary provision at issue, and as represented by Great Lakes in its briefing, the scope of the exclusion (the “Scheduled Vessel’s engines, mechanical and electrical parts”) is narrower than the extent of the policy’s coverage (the “Scheduled Vessel” itself). Additional fact finding therefore may be appropriate to determine the extent of damages. Because further proceedings are required regardless, we leave any arguments respecting additional sources of ambiguity in the policy for the district court to address in the first instance.