Court Opinion

ID: 2964615
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:28:20.14836+00
Date Added: 2024-06-11T11:42:58.561900
License: Public Domain

USCA1 Opinion

	

                            United States Court of Appeals
                                For the First Circuit
                                 ____________________

        No. 96-1718

                         FIREMAN'S FUND INSURANCE COMPANIES,

                                Plaintiff, Appellant,

                                          v.

            AMERICAN INTERNATIONAL INSURANCE COMPANY OF PUERTO RICO, INC.,

                                 Defendant, Appellee.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF PUERTO RICO

                     [Hon. Jaime Pieras, II, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                      Coffin and Campbell, Senior Circuit Judges,
                                           _____________________

                           and DiClerico,* District Judge.
                                           ______________

                                 ____________________

            Timothy J.  Armstrong with whom  Alvaro L. Mejer was  on brief for
            _____________________            _______________
        appellant.
            Francisco E. Colon-Ramirez with  whom Francisco J. Colon-Pagan was
            __________________________            ________________________
        on brief for appellee.

                                 ____________________

                                    March 20, 1997
                                 ____________________

                            
        ____________________

             *Of the District of New Hampshire, sitting by designation.

               COFFIN,  Senior Circuit  Judge.   This  appeal concerns  the
                        _____________________

          scope of insurance coverage  for the loss at sea of 19 containers

          en route from Puerto Rico  to Miami.1  The disputing parties  are

          the  two insurance companies  that maintained  insurance policies

          covering  the   shipper,  Sea  Barge,   and  the   cargo-handling

          stevedore, Ayala.   Fireman's  Fund, which provided  an insurance

          policy  to  Sea Barge,  defended Sea  Barge  and Ayala  in multi-

          district litigation resulting  from the loss, and then  sought to

          compel AIICO, Ayala's insurer, to reimburse it for settlement and

          litigation costs.   The district court found  that AIICO's policy

          did  not  cover the  type of  risk at  issue here,  and therefore

          granted  summary  judgment  for  AIICO.   Although  our  analysis

          differs  in  some details  from that  of  the district  court, we

          approve its general approach and ruling, and therefore affirm.

                                        FACTS
                                        _____

               In 1985, three companies, Ayala, Maduro, and Zapata, joined

          together to form a barge service named Sea Barge, to operate

          between Puerto Rico and Miami.  Ayala and Maduro were stevedores:

          Ayala's operations were in Puerto Rico; Maduro's were in Miami.

          Zapata provided tug and barge services.  Pursuant to the

          Shareholders' Agreement, Ayala, Maduro and Zapata agreed to

                              
          ____________________

               1    As the full names of the relevant entities in this case
          are  somewhat unwieldy, each will be referred to by the following
          abbreviations:   Fireman's  Fund Insurance  Companies ("Fireman's
          Fund"); American  International Insurance Company of Puerto Rico,
          Inc.  ("AIICO"); Marine Transportation  Services Sea Barge Group,
          Inc. ("Sea Barge"); Luis Ayala Colon & Sucesores, Inc. ("Ayala");
          Zapata  Gulf Marine  Corporation  ("Zapata"); and  S.E.L.  Maduro
          (Florida), Inc. ("Maduro"). 

                                         -2-

          cooperate in assisting Sea Barge to obtain cargo and cargo legal

          liability insurance, as well as container and chassis damage

          insurance.  They further agreed that each policy would name all

          parties as additional insureds as well as Sea Barge.  Ayala and

          Maduro also agreed to obtain liability insurance covering

          stevedoring services provided to Sea Barge.  

               Under a separate Stevedoring Agreement executed between Sea

          Barge and Ayala, Ayala agreed to maintain public liability and

          property damage insurance covering Ayala's liability for bodily

          injury and property damage sustained by third parties arising out

          of its stevedoring operations.

               In October 1987, AIICO issued a comprehensive general

          liability policy (the "MultiPeril Policy") to Ayala, covering

          personal injury and property damage.  A separate policy covered

          warehousing and stevedoring.  In July 1988, Fireman's Fund issued

          a Marine Policy package to Sea Barge; this included a legal

          liability policy, covering Sea Barge's legal liability for

          physical loss or damage to goods and/or merchandise.2  

               On December 16, 1988, Sea Barge's Barge 101 set off on its

          ill-fated journey.  It encountered rough weather at sea, and 19

          containers were lost.  Seven lawsuits were filed by cargo

          claimants; of these, all named Sea Barge as defendant, but only
                              
          ____________________

               2    The Fireman's  Fund policy identified Sea  Barge as the
          named  assured,  and  Ayala,  Zapata, and  Maduro  as  additional
          insureds  "solely with  respect  to their  activities" under  the
          Shareholders Agreement.  The policy also  stated that it excluded
          coverage  for damages  collectible  under  the Assured's  General
          Liability Policy  and/or recovery under any  other primary policy
          of the assured.  

                                         -3-

          one also named Ayala as a defendant.3  Fireman's Fund, which

          defended Sea Barge and Ayala in the ensuing multi-district

          litigation, subsequently sought contribution and indemnity from

          AIICO.4  AIICO refused, contending the loss was not covered by

          its policy because the incident occurred during Sea Barge's

          segment of the transportation endeavor, rather than during

          Ayala's.  The district court granted summary judgment for AIICO,

          concluding, largely on the basis of two exclusions contained in

          the AIICO policy (the watercraft exclusion and the policy

          territory exclusion), that the loss which occurred was not the

          type insured against by the AIICO policy.  It therefore did not

          reach the second issue raised by the parties as to which of the

          two policies was primary.  This appeal followed.

                                      DISCUSSION
                                      __________

               Our review of the district court's grant of summary

          judgement in AIICO's favor is de novo.  Velez-Gomez v. SMA Life
                                        __ ____   ___________    ________

          Assur. Co., 8 F.3d 873, 875 (1st Cir. 1993).  Since the
          __________

          construction of an insurance policy is a question of law, we must

          make our own independent examination of the policy.  Nieves v.
                                                               ______

          Intercontinental Life Ins. Co. of Puerto Rico, 964 F.2d 60, 63
          _____________________________________________

          (1st Cir. 1992).   

                              
          ____________________

               3    The  cases, five of which were filed in Florida and two
          of  which  were  filed  in  Puerto  Rico,  were  consolidated and
          transferred to the District of Puerto Rico.

               4    Fireman's   Fund   had  previously   requested  AIICO's
          participation in  the defense during  the pre-trial phase  of the
          multi-district litigation; however, this request was rejected  by
          AIICO.  

                                         -4-

               Our analysis of the issue is potentially two-pronged: we

          consider first whether the loss was the type covered by or

          contemplated by the policies in question; and if so, we must

          determine which policy is primary.  See Couch on Insurance 2d,
                                              ___ _____________________

          sec. 62: 44, 45 (Rev. ed. 1983).  

               In addressing the first question, we turn to the language of

          the policy, supplementing this if necessary with evidence of the

          parties' intent, as demonstrated here in the Shareholders

          Agreement, the Stevedoring Agreement, and the various affidavits

          submitted.  See Nieves, 964 F.2d at 63 (if wording of contract is
                      ___ ______

          explicit and language is clear, terms and conditions are binding

          on parties); U.S. Aviation v. Fitchburg-Leominster Flying Club,
                       _____________    ________________________________

          42 F.3d 84, 86 (1st Cir. 1994) (determination of ambiguity of

          policy terms and resolution thereof are matters for the court).  

               The AIICO policy, as noted above, was a comprehensive

          general liability policy.  This policy contained a number of

          relevant exclusions and endorsements modifying the policy.  For

          the reasons we discuss below, these in the aggregate indicate

          that the loss sustained here was not the type the AIICO policy

          was intended to cover.  However, while the district court based

          its grant of summary judgment largely on the watercraft and

          policy territory exclusions, we find several other terms in the

          AIICO policy more compelling, specifically those covering the

          definition of the "named insured" and "additional insured."    We

                                         -5-

          first discuss briefly the grounds relied on by the district

          court.5  

             The watercraft exclusion, contained in Section II of the

          General Liability Insurance Coverage, provided:

                    This insurance does not apply: [...] 
                              (e)  to bodily injury or property
                    damage arising out of the ownership,
                    maintenance, operation, use, loading or
                    unloading of
                                   (1)  any watercraft owned or
                    operated by or rented or loaned to any
                    insured, or
                                   (2)  any other watercraft
                    operated by any person in the course of his
                    employment by any insured;
                              but this exclusion does not apply
                    to watercraft while ashore on premises owned
                    by, rented to or controlled by the named
                    insured.

          Fireman's Fund maintains that reading this provision to exclude

          coverage for Ayala's activities as a stevedore would render the

          insurance policy meaningless, as Ayala's activities were

          necessarily tied to loading and unloading Sea Barge vessels.  

               But reading this as effectively excluding stevedoring

          activities would not seem to us to contradict the general intent

          of the parties and Ayala's expressed intent not to duplicate

          insurance costs, for, as we have noted, AIICO issued a separate

          policy to Ayala covering warehousing and stevedoring.  This fact

          also seems to distinguish this case from Price v. Zim Israel
                                                   _____    __________

                              
          ____________________

               5    In  our analysis, we are  mindful that the  terms in an
          insurance  contract are to be given their plain meaning.  Wickman
                                                                    _______
          v. Northwestern Nat'l  Ins. Co.,  908 F.2d 1077,  1084 (1st  Cir.
             ____________________________
          1990).

                                         -6-

          Navigation Co., 616 F.2d 422 (9th Cir. 1980),6 principally relied
          ______________

          on by appellant, for in Price applying the exclusion would have
                                  _____

          resulted in avoidance of an obligation which the insurer had

          agreed to assume.7  In any event, we feel more comfortable

          relying on other grounds for our disposition.   

               We next turn to a second exclusion which the district court

          emphasized in its decision -- the Policy Territory Exclusion. 

          The applicable section of the Policy Territory Exclusion states:

                    "policy territory" means:
                    a.    the Commonwealth of Puerto Rico, or
                    b.    international waters or air space,
                    provided the bodily injury or property damage
                    does not occur in the course of travel or
                    transportation to or from any other country,
                                                        ________
                    state or nation.... (emphasis added).
                    _______________

               AIICO makes much in its brief of the use of the term

          "state," contending that the intended meaning includes other

          states within the United States, rather than only contemplating

          foreign states.  Again, we find this argument less than

          convincing.  Black's Law Dictionary defines "state" as "either

          ... body politic of a nation ... or ... an individual
                              
          ____________________

               6     In  Price, the  Ninth Circuit  held that  a watercraft
                         _____
          exclusion similar  to this one in a  policy issued to a stevedore
          did   not  preclude   coverage  for   injuries  sustained   by  a
          longshoreman  employed  by the  stevedore  while  working on  the
          transport  company's vessel.  Price v. Zim Israel Navigation Co.,
                                        _____    _________________________
          616 F.2d 422, 427 (9th Cir. 1980).  The Price court reasoned that
                                                  _____
          construing  the watercraft  exclusion  to preclude  coverage  for
          activities on the vessel would deny coverage to the stevedore and
          the cargo transport company,  in violation of the purpose  of the
          endorsement, which was to provide coverage for such operations to
          both companies.  Id. 
                           ___

               7    Additionally,   Price  is   inapposite   here,  as   an
                                    _____
          endorsement to  this  policy specifically  distinguishes  between
          vessels above and under 26 feet in length.

                                         -7-

          governmental unit of such nation."  Black's Law Dictionary 1407
                                              ______________________

          (6th ed. 1990).  To interpret the policy exclusion to exclude

          coverage for accidents that occur between Florida and Puerto Rico

          as "states" creates a result that is perplexing at best, given

          the enterprise at hand.  The district court's rationale was that

          coverage for incidents occurring in international waters was not

          intended at all under the AIICO policy, but rather that the

          endorsement was intended to restrict coverage to Puerto Rico

          itself, on the ground that coverage for the voyage and Florida

          portions was intended to be obtained by the companies actually

          engaged in each of those legs of the transportation operation,

          i.e., Sea Barge and Maduro, respectively.  As with the watercraft
          ____

          exclusion, we prefer not to rest our decision on this ground. 

               We therefore turn to the policy terms we do see as clearly

          indicating that the loss that occurred here was not contemplated

          under the AIICO policy, specifically Endorsements 1 and 13.

               Endorsement 1 of the AIICO policy, "Named Insured," provides

          that the named insured under the policy is Ayala "and/or any

          subsidiary, associated, affiliated, newly acquired, or controlled

          corporation and/or company as may now be constituted or hereafter

          formed, and over which the named insured maintains ownership or

          majority interest."  Fireman's Fund maintains that Sea Barge

          falls within the category of companies covered due to Ayala's

          "ownership interest" in Sea Barge.  However, the facts do not

          support this assertion:  Ayala owned only 20% of the outstanding

                                         -8-

          shares of Sea Barge stock, which can be seen as neither ownership

          nor a majority interest.

               Endorsement 13 of the AIICO policy, "Additional Insured,"

          lends additional credence to the view that the occurrence in

          question was not intended to be covered by the policy.  This

          endorsement states that: 

                    the unqualified word 'insured' also includes
                    the below mentioned entities, but only with
                    respect to their liability arising out of
                    operations performed by the named insured. 
                    Such coverage as is afforded under this
                    clause shall only apply when contract
                    conditions between the named insured and
                    their principals so stipulate and then only
                    insofar as is necessary to meet the
                    requirements of such contract conditions. 
                     
          The list following this statement includes Sea Barge, as well as

          nine other companies.  It strains credulity to suggest that

          Ayala, or AIICO, intended all ten companies listed (including Sea

          Barge) to thereby gain unlimited coverage under the policy;

          rather, coverage is specifically limited to that required by

          contracts between those listed and Ayala.  While Fireman's Fund

          maintains that the contract in question between Ayala and Sea

          Barge must be the Shareholders' Agreement, we conclude that the

          contracts the endorsement anticipates are discrete contracts

          between Ayala and the listed companies.  Therefore, here the

          relevant contract must be the stevedoring contract between Ayala

          and Sea Barge.  To read the endorsement otherwise overlooks both

          logic and the language of the endorsement.  

               Our conclusion that straightforward construction of the

          policy's terms indicates that the loss that occurred was not

                                         -9-

          contemplated as a covered one is further buttressed by our

          examination of the parties' intent, as evidenced by key documents

          and by sworn testimony.  See In re San Juan DuPont Plaza Hotel
                                   ___ _________________________________

          Fire Litig., 802 F.Supp. 624, 637 (D.P.R. 1992), aff'd, 989 F.2d
          ___________                                      _____

          26 (1st Cir. 1993) (terms of policy must be interpreted according

          to parties' purpose and intent).  

               As noted above, the two major documents in this case are the

          original Shareholders' Agreement, and the stevedoring contract

          between Sea Barge and Ayala.  The Shareholders' Agreement creates

          an interlocking structure of responsibility for the three forming

          companies, with the duties of each clearly specified.  In

          general, these duties are distinct -- Ayala was to handle Puerto

          Rico-based stevedoring activities, Zapata those relating to the

          tugs and barges, and Maduro the Florida-based activities. 

          Article II, section 2.02(vi) of the Agreement stipulates that all

          parties shall cooperate with Sea Barge in obtaining cargo and

          cargo legal liability insurance, and that each policy will name

          all parties, in addition to Sea Barge, as additional insureds.8  

               Both Lemuel Toledo Campos, the insurance broker who advised

          Ayala, and Hernan F. Ayala-Parsi, the executive vice president of

          Ayala, stated in their affidavits that the intent of the

          insurance provisions in the Shareholders' Agreement was to avoid

          duplication of insurance costs by preventing any concurrent

          coverage.  Ayala-Parsi also stated that the parties' intent in
                              
          ____________________

               8    Ayala and Maduro were  required under section 2.02(vii)
          to obtain separate liability insurance covering their stevedoring
          activities as provided to Sea Barge.

                                         -10-

          the Agreement was that losses at sea were to be covered by Sea

          Barge's insurance, and that the AIICO policy's terms were

          consistent with this intent.  

               The Stevedoring Agreement, the other major document here, is

          narrowly directed at structuring the stevedoring relationship

          between Sea Barge and Ayala.  Insofar as it addresses insurance

          coverage, it provides that Ayala will maintain worker's

          compensation insurance, as well as public liability insurance and

          property damage insurance "arising out of operations performed

          hereto."  It further contains a limitation of liability clause

          providing that Sea Barge shall indemnify and hold harmless Ayala

          for any losses due to unseaworthiness or negligence of Sea Barge

          employees, and limiting Ayala's liability to losses caused by its

          own negligence, and then only as a stevedore and not as a

          bailee.9  The Agreement therefore appears to create a

          relationship between Ayala and Sea Barge under which Ayala's

          responsibilities to maintain insurance and its liability are

          narrowly circumscribed. 

               Indeed, it is apparent from the testimony presented that

          AIICO and Ayala, the parties to the insurance policy in question,

          understood and intended that the AIICO policy would not extend to

          Sea Barge's activities other than in the limited circumstances

                              
          ____________________

               9    Additionally, Article XIV of the Stevedoring Agreement,
          the Custody Clause, provides that Sea  Barge would be responsible
          for goods from the time they  were received by it at the terminal
          facilities  at the port of  loading until they  were delivered or
          dispatched from the port of unloading.  

                                         -11-

          set forth in the Stevedoring Agreement.10  Toledo Campos stated

          that the scope of Endorsement 1 of the AIICO policy was intended

          to include only those companies Ayala fully owned or held a

          majority interest in, and that the coverage of Sea Barge and the

          other companies listed in Endorsement 13 was limited to that

          required by contracts between the listed parties and Ayala. 

          Ulises Seijo, a general adjuster for AIICO, confirmed in his

          affidavit that Endorsement 1 applies only to those companies

          which Ayala owned or had a majority interest in, and he

          specifically stated, "It [the endorsement] does not apply to Sea

          Barge."  

               Having reached the conclusion that the loss which occurred

          was not of the type covered or intended to be covered by the

          AIICO policy, we do not reach the second prong of the analysis

          noted above as to which policy is primary, and may draw our

          efforts to a close at this point.  We therefore affirm the

          district court.

                                      CONCLUSION
                                      __________

               As the loss at sea of the nineteen containers was not within

          the purview of the coverage provided by the AIICO policy, we

          conclude that the district court correctly granted summary

          judgment for AIICO.  

          Affirmed. 
          ________

                              
          ____________________

               10   No  testimony to the  contrary has been  brought to our
          attention.  

                                         -12-