USCA1 Opinion
United States Court of Appeals
For the First Circuit
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No. 96-1718
FIREMAN'S FUND INSURANCE COMPANIES,
Plaintiff, Appellant,
v.
AMERICAN INTERNATIONAL INSURANCE COMPANY OF PUERTO RICO, INC.,
Defendant, Appellee.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jaime Pieras, II, U.S. District Judge]
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Before
Coffin and Campbell, Senior Circuit Judges,
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and DiClerico,* District Judge.
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Timothy J. Armstrong with whom Alvaro L. Mejer was on brief for
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appellant.
Francisco E. Colon-Ramirez with whom Francisco J. Colon-Pagan was
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on brief for appellee.
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March 20, 1997
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*Of the District of New Hampshire, sitting by designation.
COFFIN, Senior Circuit Judge. This appeal concerns the
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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
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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
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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").
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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
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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.
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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
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Our review of the district court's grant of summary
judgement in AIICO's favor is de novo. Velez-Gomez v. SMA Life
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Assur. Co., 8 F.3d 873, 875 (1st Cir. 1993). Since the
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construction of an insurance policy is a question of law, we must
make our own independent examination of the policy. Nieves v.
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Intercontinental Life Ins. Co. of Puerto Rico, 964 F.2d 60, 63
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(1st Cir. 1992).
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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.
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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,
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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
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explicit and language is clear, terms and conditions are binding
on parties); U.S. Aviation v. Fitchburg-Leominster Flying Club,
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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
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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
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5 In our analysis, we are mindful that the terms in an
insurance contract are to be given their plain meaning. Wickman
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v. Northwestern Nat'l Ins. Co., 908 F.2d 1077, 1084 (1st Cir.
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1990).
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Navigation Co., 616 F.2d 422 (9th Cir. 1980),6 principally relied
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on by appellant, for in Price applying the exclusion would have
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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,
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state or nation.... (emphasis added).
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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
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6 In Price, the Ninth Circuit held that a watercraft
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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.,
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616 F.2d 422, 427 (9th Cir. 1980). The Price court reasoned that
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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.
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7 Additionally, Price is inapposite here, as an
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endorsement to this policy specifically distinguishes between
vessels above and under 26 feet in length.
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governmental unit of such nation." Black's Law Dictionary 1407
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(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
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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
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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
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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
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Fire Litig., 802 F. Supp. 624, 637 (D.P.R. 1992), aff'd, 989 F.2d
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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
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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.
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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
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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.
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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
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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.
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10 No testimony to the contrary has been brought to our
attention.
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