Opinion
CIVIL ACTION NO: 02-3682, SECTION: "R"(1)
October 22, 2003
ORDER AND REASONS
Before the Court is plaintiff's motion for summary judgment with respect to its claim of insurance coverage. Also before the Court is defendant's opposition to plaintiff's motion for summary judgment and cross-motion for summary judgment. For the following reasons, the Court GRANTS plaintiff's motion for summary judgment on the issue of insurance coverage.
I. BACKGROUND
Henry's Marine Service, Inc. is a family-owned marine service and boat brokering/chartering business located in Morgan City, Louisiana. Part of Henry's business consists of chartering vessels to others. Henry's owns some of the vessels that it charters. Henry's also charters vessels and then sub-charters those vessels to its customers. To protect itself against claims arising from its boating operations, Henry's has arranged a comprehensive book of insurance coverage through defendants Fireman's Fund Insurance Company and New York Maritime and General Insurance Company.
Henry's chartered several vessels to Tetra Applied Technologies, L.P. Tetra chartered some of the vessels under an oral charter agreement. On March 1, 2000, the parties formalized the oral charter agreement by executing a Master Time Charter Agreement. Since then, Henry's has chartered vessels to Tetra under the Master Agreement. The oral charter agreement and Article 11 of the Master Agreement obliged Henry's to defend, indemnify, and hold Tetra harmless for, among other things, injuries to third parties in connection with the chartered vessels.
Under the oral charter agreement, Henry's chartered the M/V TAMPA BAY to Tetra. Daniel J. Francis, Jr. worked as a seaman aboard the M/V TAMPA BAY. Francis alleges that he suffered serious physical injuries as he attempted to retrieve a tow line in September 1999. On June 7, 2001, Francis sued Tetra in Terrebonne Parish.
Under the Master Agreement, Henry's chartered the tug M/V DIANA MCCALL to Tetra. Troy Moutinho worked as the captain of the tug. Moutinho alleges that he suffered serious physical injuries as he loaded scaffolding boards onto the tug in January 2001. On May 24, 2001, Moutinho sued his employer Cameron Offshore Boats, Inc. in Cameron Parish. Cameron filed a third-party demand against Tetra. Moutinho then amended his petition to join Tetra as a primary defendant.
Wayne Sellers also worked aboard the M/V DIANA MCCALL. In February 2001, Sellers alleges that he injured himself while the tug was being docked at Sabine Pass, Texas. On July 6, 2001, Sellers sued his employer in Jefferson County, Texas. He then amended his complaint to name Tetra as a primary defendant.
Relying on the oral charter agreement and the Master Agreement, Tetra made demand upon Henry's to assume and pay for Tetra's defense in the Francis, Moutinho, and Sellers actions. Tetra also demanded that Henry's indemnify Tetra for any amounts that it may be required to pay in either judgment or settlement. Henry's then tendered these demands to its insurers, including Fireman's. Fireman's refused to pay.
This dispute involves the scope of Fireman's coverage obligations to Henry's. During the relevant time period, Fireman's insured Henry's under two package policies, each of which contained a Schedule of Vessels, General Conditions Applicable to all Sections, a Schedule of Assurers, and five separate insurance sections: (1) Hull and Machinery ("HM"); (2) Boat Broker's Liability ("BB"); (3) Protection and Indemnity ("PI"); (4) Excess Protection and Indemnity; and (5) Pollution Liability ("PL"). The BB section in the two policies is, identical.
The principal dispute centers around the applicability of the Contractual Liability Extension to the BB Policy and its relationship to the exclusions contained in the BB policy. The Extension provides in its entirety that
[u]nderwriters hereon agree to give their permission for the Insured to enter into Time or Voyage Charter Agreements whereby the Insured agrees to hold harmless and indemnify the Time or Voyage Charterer for any and all sums said Time or Voyage Charterer may be legally obligated to pay including legal and other expenses arising out of the use, management or operation of such Time or Voyage chartered vessels by the Insured. This insurance is extended to cover the Insured for any such sums as the Insured may be legally obligated to pay including legal and other expenses as a result of the signing of such Time or Voyage Charter Agreements by the Insured.
However, the language of this or any other endorsement to this policy shall not be construed to extend the Underwriters' agreement to indemnify the Insured for any type of claim not otherwise covered by the Boat Broker's Policy.
See Exs. 1-A and 1-B, §§ BB, attached to Pl.'s Mem. Supp. Summ. J.
The body of the BB Policy contains an exclusion providing that the insurance coverage does not extend to "liability assumed by the Assured under any contract or agreement."
See id.
Plaintiff argues that the Extension expands the liability coverage provided in the body of the BB policy and negates the exclusion quoted above. Defendant relies on the language of the second paragraph in the Extension for its position that the Extension does not expand the liability excluded under the policy. Defendant also asserts that other provisions foreclose coverage. For the following reasons, the Court GRANTS plaintiff's motion for summary judgment.
II. Discussion
A. Legal Standard
Summary judgment is appropriate when there are no genuine issues as to any material facts, and the moving party is entitled to judgment as a matter of law. See FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-323 (1986). A court must be satisfied that no reasonable trier of fact could find for the nonmoving party or, in other words, "that the evidence favoring the nonmoving party is insufficient to enable a reasonable jury to return a verdict in her favor." Lavespere v. Niagara Mach. Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). The moving party bears the burden of establishing that there are no genuine issues of material fact.
If the dispositive issue is one on which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by merely pointing out that the evidence in the record contains insufficient proof concerning an essential element of the nonmoving party's claim. See Celotex, 477 U.S. at 325; see also Lavespere, 910 F.2d at 178/ The burden then shifts to the nonmoving party, who must, by submitting or referring to evidence, set out specific facts showing that a genuine issue exists. See Celotex, 477 U.S. at 324. The nonmovant may not rest upon the pleadings, but must identify specific facts that establish a genuine issue exists for trial. See id. at 325; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1996).
The interpretation of an insurance contract and the exclusions contained in it is a matter of law and is therefore an appropriate subject for summary judgment. See Thermo Terratech v. GDC Enviro-Solutions, Inc., 265 F.3d 329, 334 (5th Cir. 2001).
B. Choice of Law
As a threshold matter, this Court must determine whether state law or maritime law governs this dispute. Defendant argues that a maritime insurance contract is a marine contract within federal admiralty jurisdiction. In the alternative, defendant argues that the choice of law provision provides that maritime law governs the policy. Plaintiff alleges diversity jurisdiction in his complaint and cites to Louisiana law and Fifth Circuit law in his memorandum. The Court finds that the substantive law of Louisiana controls the interpretation of this contract and its exclusions.
Although the Court recognizes that a marine insurance contract "is indisputably a marine contract within federal admiralty jurisdiction, " New Hampshire Ins. Co., 993 F.2d at 1198, it is well-settled Fifth Circuit law that "[s]tate law governs construction of marine insurance contracts except where it is displaced by admiralty law." Employers Ins. of Wausau v. Trotter Towing Corp., 834 F.2d 1206, 1210 (5th Cir. 1988). "[T] he interpretation of a contract of marine insurance is — in the absence of a specific and controlling federal rule — to be determined by reference to appropriate state law." Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882, 886 (5th Cir. 1991) (en bane).
The Fifth Circuit has identified three factors that a court should consider to determine whether a federal rule controls the disputed issue: "(1) whether the federal maritime rule constitutes `entrenched federal precedent'; (2) whether the state has a substantial and legitimate interest in the application of its law; [and] (3) whether the state's rule is materially different from the federal maritime rule." Id. at 886. The Court is unable to find, nor has any party cited to, any law that differentiates Louisiana law from federal maritime law with regard to the interpretation of an insurance contract. For example, under both federal law and Louisiana law, the insured bears the burden of proving coverage, whereas the insurer bears the burden of proving the applicability of any policy exclusions. See New Hampshire Ins.Co., 993 F.2d at 1199; Tunstall v. Stierwald, 809 So.2d 916, 921 (La. 2002). The Court finds that no federal rule displaces state law. Substantive Louisiana state law applies to the interpretation of this maritime insurance contract.
Defendant argues that the choice of law provision contained in the Pollution Liability ("PL") section of the policy controls the issue. This argument is unpersuasive under the unambiguous language of the policy itself. The choice of law provision provides that
[t]he terms of this Policy shall be construed pursuant to, and the rights of the parties hereto shall be governed and controlled by, the general maritime law of the United States; in the absence thereof, the laws of the State of New York shall apply.
See id. § Pl.
This provision appears only in the PL section of the Policy. The section at issue here is the BB liability section. The title page of the BB policy clearly states in capital letters and in bold print that "[t]his section is a separate insurance but is subject always to the other terms and conditions stated in this policy except for the terms and conditions attached to and forming part of sections HM [Hull and Machinery], PI [Protection and Indemnity], and PL." Each section of the policy contains a similar paragraph. Under the clear language of the contract, the choice of law provision in the PL section does not apply to the BB section.
See id. § BB.
Additionally, the title page of each section contains the following language: "Where the word `policy' appears herein, it shall be deemed to read `section.'" Accordingly, the choice of law provision merely provides that "the terms of this [section] shall be construed pursuant to . . . the general maritime law. . . ." The unambiguous language of the section provides that the choice of law provision applies only to the PL section of the policy. Defendant's argument is therefore without merit.
C. LOUISIANA LAW
Louisiana courts interpret an insurance policy in accordance with the general rules of contract interpretation. See Thermo Terratech, 265 F.3d at 334 (citing Louisiana Ins. Guar. Ass'n v. Interstate Fire Cas. Co., 630 So.2d 759, 763 (La. 1994)). This requires a judicial determination of the common intent of the parties to the contract. See id. at 334. The intent of the parties, "as reflected by the words of the policy[,] determine[s] the extent of coverage." Id. A court construes the terms of an insurance policy according to their "`general, ordinary, plain, and proper meaning . . . unless [they] have acquired a technical meaning." Id. Moreover, "[a]n insurance policy should not be interpreted in an unreasonable or strained manner so as to enlarge or to restrict its provisions beyond what is reasonably contemplated by the terms or so as to achieve an asburd conclusion." Carrier v. Reliance Ins. Co., 759 So.2d 37, 43 (La. 2000).
Under Louisiana law, "the burden in an action on an insurance contract is on plaintiff to establish every fact in issue to his cause of action or right of recovery, including existence of policy sued on, its terms and provisions, and that his claim is within its coverage." B.T.U. Insulators, Inc. v. Maryland Cas. Co., 175 So.2d 899, 902 (La.Ct.App. 1965). When the language of an insurance policy is clear, the policy must be enforced as written. Thermo Terratech, 265 F.3d at 334 (citing Reynolds v. Select Props. Ltd., 634 So.2d 1180, 1183 (La. 1994)). If the language in the policy is ambiguous, it must be construed against the drafter of the policy. See id. (citing Oaks v. Dupuy, 653 So.2d 165, 168 (La.Ct.App. 1995)).
Exclusions from coverage contained in an insurance policy must be "clearly and expressly set forth." Id. (citing Ogima v. Rodriguez, 799 F. Supp. 626, 630 (M.D. La. 1992)). Courts construe exclusionary provisions in insurance contracts strictly against the insurer. Garcia v. St. Bernard Parish School Bd., 576 So.2d 975, 976 (La. 1991). Under this rule of strict construction, courts construe equivocal language which seeks to narrow an insurer's obligation strictly in favor of the insured and against the insurer. See Carrier, 759 So.2d at 43. The strict construction principle is, however, subject to exceptions. One exception is that "the rule applies only if the language is susceptible to two or more reasonable interpretations." Id. (emphasis in original). Therefore, if the language contained in an exclusionary clause is susceptible to more than one reasonable interpretation, the court must adopt the interpretation that provides coverage to the insured. See id. (citing Talley v. Blue Cross Blue Shield of La., 760 So.2d 1193, 1195 (La.Ct.App. 2000)).
Defendant first argues that the Loss Payable Clause applicable to all sections does not list the vessels on which the injured seamen were working so that these boats are not covered under the BB policy. Alternatively, defendant argues that the Privilege to Charter clause contained in the General Conditions section of the policy excludes additional assureds under the policy, unless the party is actually engaged or involved in the operations at the time of loss. Thirdly, defendant argues that the second paragraph of the Extension does not extend the liability coverage beyond that provided for in the main body of the BB policy. For the following reasons, the Court finds that the defendant's arguments are without merit.
First, defendant argues that the vessels at issue are not covered by the policy. It is true that the M/V TAMPA BAY and the M/V DIANA MCCALL are not listed in the Schedule of Vessels covered by the policy, nor are they included under the Loss Payable Clause in the General Conditions section. The Schedule of Vessels provides that the three vessels listed there are covered by policy sections HM, PI, and PL. The Schedule of Vessels does not apply to the BB coverage. Indeed, the Court finds that the purpose of the BB section is to provide boat broker's liability for any vessels that Henry's brokers:
Underwriters agree to reimburse the Assured for all sums which the Assured shall become obligated to pay and shall pay, by reason of the liability imposed upon it by law, arising out of the broking, for consideration paid the Assured as commission, of vessels.
See id. (emphasis added).
The provision does not mention specific vessels or cross reference any list of specific vessels. Further on, the policy requires that " [a]ll vessels chartered must have hull insurance. . . ." The term `vessels' is used generically. Further, if the BB section applied only to the same three vessels that are named in the Schedule of Vessels, this provision would be unnecessary because the Schedule of Vessels already provides that these vessels are covered by the Hull insurance policy. Clearly, the BB coverage does not state that it applies only to those ships listed in the Schedule of Vessels, and the Court will not strain to reach such an interpretation.
Id. (emphasis added).
Other sections of the BB policy reveal that it is not limited to the three vessels in the Schedule. The "Defence, Settlements, [and] Supplementary Payments" provision of the BB section provides that the underwriters will defend any suit against the Assured resulting from the errors or omissions "of the Assured, and/or the Owners and/or Operators of the tugs and barges hired, re-hired or broked. . . ." In addition, the "Premium" provision of the BB section requires Henry's to "keep an accurate record of all gross receipts derived from tugs, barges, and to other vessels chartered . . . by them" because Fireman's bases the premiums on the gross receipts. This language clearly contemplates vessels other than those in the Schedule.
Id. (emphasis added).
Id.
The Court also notes that the Extension to the BB section states that the
[u]nderwriters hereon agree to give their permission for the Insured to enter into Time or Voyage Charter Agreements whereby the Insured agrees to hold harmless and indemnify the Time or Voyage Charterer for any and all sums said Time or Voyage Charterer may be legally obligated to pay including legal and other expenses arising out of the use, management or operation of suchTime or Voyage chartered vessels by the Insured. The language here — "Time or Voyage chartered vessels" — demonstrates the intent of the parties to extend the insurance to vessels other than those listed in the Schedule of Vessels. If the parties meant to insure only those vessels covered in the Schedule, they could have said so and not described them generically as "Time or Voyage" chartered vessels. Defendant's first argument is unpersuasive.
Id. (emphasis added).
Defendant's next argument is that the Privilege to Charter Clause in the main body of the policy excludes coverage. This clause states that
[n] otwithstanding the preceding provisions, no party shall be deemed an Additional Assured or favored with a waiver of subrogation of any vessel(s) insured hereunder, unless that party is actually engaged or involved in the operations at the time of the loss, if any.
Id.
The language of this provision applies to determining who is an "additional assured." Henry's does not assert that Tetra is an additional assured. Rather, Henry's argues that Fireman's agreed to insure Henry's obligations under Henry's hold harmless and indemnity agreements with its charterers. This provision is inapplicable here.
Defendant's most persuasive argument is that the second paragraph of the Extension contained within the BB section limits the Extension's applicability to those claims not otherwise excluded in the BB section. The Extension reads in full:
[u]nderwriters hereon agree to give their permission for the Insured to enter into Time or Voyage Charter Agreements whereby the Insured agrees to hold harmless and indemnify the Time or Voyage Charterer for any and all sums said Time or Voyage Charterer may be legally obligated to pay including legal and other expenses arising out of the use, management or operation of such Time or Voyage chartered vessels by the Insured. This insurance is extended to cover the Insured for any such sums as the Insured may be legally obligated to pay including legal and other expenses as a result of the signing of such Time or Voyage Charter Agreements by the Insured.
However, the language of this or any other endorsement to this policy shall not be construed to extend the Underwriters' agreement to indemnify the Insured for any type of claim not otherwise covered by the Boat Broker's Policy.
Id.
The BB policy specifically excludes coverage for "liability assumed by the Assured under any contract or agreement but this exclusion shall not apply if the Assured would have been liable irrespective of such contract or agreement." Defendant argues that this exclusion prevents coverage here under the second paragraph of the Extension.
The language of the first paragraph of the Extension is in direct conflict with the main body of the policy. The Extension expressly allows Henry's to enter into hold harmless and indemnity agreements in its time and voyage charters. It expressly provides that the BB insurance is extended to cover Henry's for such sums as Henry's may be legally obligated to pay as a result of the signing of such agreements. The body of the BB policy expressly excludes liability assumed by Henry's pursuant to any contract. This exclusion directly conflicts with the first paragraph of the Extension. When the language in an extension is in direct conflict with the main body of the policy, the extension controls. See Dekeyser v. Automotive Cas. Ins. Co., 706 So.2d 676, 681 (La.Ct.App. 1998); Howell v. American Cas. Co., 691 So.2d 715, 724 (La.Ct.App. 1997); see also Turbo Trucking Co. v. Those Underwriter's at Lloyd's, 776 F.2d 527, 529-30 (5th Cir. 1985).The Court finds that the parties intended the Contractual Liability Extension to supercede the exclusion contained in the BB section for contractual liability claims.
The wrinkle here is the Extension's second paragraph. The second paragraph of the Extension provides that it does not extend coverage to claims not otherwise covered in the BB policy. Fireman's argues that the second paragraph means there can be no coverage for Henry's contractual indemnities. The Court finds the language ambiguous and subject to more than one reasonable interpretation. When the language in a provision of an insurance contract is ambiguous, it must be construed against the drafter of the policy. See Thermo Terratech, 265 F.3d at 334 (citing Oaks v. Dupuy, 653 So.2d 165, 168 (La.Ct.App. 1995)). Therefore, the Court must construe this language against Fireman's and in favor of coverage.
Defendant's interpretation would lead to absurd results. For what other purpose would the parties have included the Extension in the policy if not to provide coverage for contractual liability. The language in the first paragraph of the Extension is clear. Defendant offers no reasonable explanation of what the Extension covers if the Court accepts its reading of the second paragraph of the Extension. Defendant's interpretation would render the Extension redundant and meaningless. Moreover, "coverage can not be provided by the right hand and then be excluded by the left hand. A policy can not in one instance declare there is express coverage and in a second provision declare effectually there is not coverage." Seals v. Morris, 423 So.2d 652, 656 (La.Ct.App. 1982). This is what Fireman's Fund argues for here. A reasonable interpretation of the second paragraph of the Extension is that coverage is provided for contractual liability, unless it runs afoul of some bar other than the contractual liability exclusion in the body of the BB policy.
III. CONCLUSION
Accordingly, and for all of the foregoing reasons, the Court GRANTS plaintiff's motion for summary judgment.