Great American Insurance Company of New York v. Toms Welding, Inc.

Filing 43

ORDER AND REASONS granting Great American's 19 Motion for Summary Judgment. Tom's Welding Inc's Motion for Summary Judgment is DENIED. Signed by Judge Jane Triche Milazzo. (ecm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
GREAT AMERICAN INSURANCE
COMPANY OF NEW YORK

CIVIL ACTION

VERSUS

NO. 13-6797

TOMS WELDING, INC.

SECTION "H"

ORDER AND REASONS
Before the Court is Plaintiff Great American Insurance Company of New
York's ("Great American") Motion for Summary Judgment (R. Doc. 19).1 Great
American contends that is owes no coverage or duty to defend to Defendant
Tom's Welding Inc. in litigation pending in the Eastern District of Texas. For
the following reasons, summary judgment is GRANTED to Plaintiff.

1

Pursuant to Federal Rule of Civil Procedure 56(f), this Court established a briefing
schedule and ordered both parties to brief why summary judgment should be granted in their
favor. (R. Doc. 29).

1

BACKGROUND
This is a declaratory judgment action filed by Plaintiff Great American
Insurance Company of New York ("Great American"). Great American disputes
that it owes insurance coverage and a duty to defend to Defendant Tom's
Welding, Inc. ("TWI") for its potential liability in a suit pending in the Eastern
District of Texas (the "Texas Litigation").2 In that suit, the United States is
seeking a declaratory judgment that TWI and others are responsible for removal
costs and civil penalties for an oil spill that allegedly seeped from a barge to
which TWI had agreed to provide wreck removal services. The other defendants
in the Texas Litigation have filed cross-claims for contractual indemnity against
TWI.
The facts underlying the Texas Litigation are as follows. On September
1, 2008, the Tank Barge DIA-IA (the "Barge") became grounded. Thereafter,
TWI entered into a wreck removal agreement with BEI, the owner of the Barge.
The agreement transferred ownership of the Barge to TWI. The United States
alleges, among other things, that after the transfer of ownership of the Barge to
TWI, the Coast Guard notified TWI that it was required to submit a salvage plan
before any wreck removal could occur.

According to the United State's

complaint, TWI never received approval of its salvage plan from the Coast Guard
and unauthorized salvage operations began on the Barge.

TWI owned the

Barge and attempted salvage operations from December 30, 2008 to September
2009, at which point it sold the Barge to another entity.
2

United States of America v. Brothers Enterprises Inc et al., 1:13-cv-00017-MAC (E.D.
Texas 2013).

2

On December 15, 2009, TWI received notice that the United States Coast
Guard believed it was responsible for an oil spill that occurred from the Barge
on or about December 7, 2009.3 The spill created a sludge and sheen in the Port
of Orange and required a clean-up operation in the Sabine River and its
tributaries.
In this case, Great American seeks a judgment declaring that its policy
with TWI does not cover any potential liability that TWI may have in the
aforementioned suit. Great American issued a Marine Commercial Liability
Insurance policy to TWI for the period in question (the "Policy"). It argues,
however, that the Policy does not provide coverage or a duty to defend TWI's oil
spill liability for a myriad of reasons. Having determined that only legal issues
remained in this matter, this Court set a briefing schedule to permit both parties
to present their arguments. This Court will address each of those arguments in
turn.
LEGAL STANDARD
Summary judgment is appropriate "if the pleadings, depositions, answers
to interrogatories, and admissions on file, together with affidavits, if any, show
that there is no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law."4 A genuine issue of fact exists only
"if the evidence is such that a reasonable jury could return a verdict for the
3

The United State's complaint in the Texas Litigation alleges that the spill occurred on
or before October 8, 2009.
4

Fed. R. Civ. P. 56(c) (2012).

3

nonmoving party."5
In determining whether the movant is entitled to summary judgment, the
Court views facts in the light most favorable to the non-movant and draws all
reasonable inferences in his favor.6 "If the moving party meets the initial burden
of showing that there is no genuine issue of material fact, the burden shifts to
the non-moving party to produce evidence or designate specific facts showing the
existence of a genuine issue for trial."7 Summary judgment is appropriate if the
non-movant "fails to make a showing sufficient to establish the existence of an
element essential to that party’s case."8 "In response to a properly supported
motion for summary judgment, the non-movant must identify specific evidence
in the record and articulate the manner in which that evidence supports that
party’s claim, and such evidence must be sufficient to sustain a finding in favor
of the non-movant on all issues as to which the non-movant would bear the
burden of proof at trial."9 "We do not . . . in the absence of any proof, assume
that the nonmoving party could or would prove the necessary facts."10
Additionally, "[t]he mere argued existence of a factual dispute will not defeat an
otherwise properly supported motion."11
5

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

6

Coleman v. Houston Indep. Sch. Dist., 113 F.3d 528, 533 (5th Cir. 1997).

7

Engstrom v. First Nat’l Bank of Eagle Lake, 47 F.3d 1459, 1462 (5th Cir. 1995).

8

Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).

9

John v. Deep E. Tex. Reg. Narcotics Trafficking Task Force, 379 F.3d 293, 301 (5th Cir.
2004) (internal citations omitted).
10

Badon v. R J R Nabisco, Inc., 224 F.3d 382, 394 (5th Cir. 2000) (quoting Little v.
Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994)).
11

Boudreaux v. Banctec, Inc., 366 F. Supp. 2d 425, 430 (E.D. La. 2005).

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LAW AND ANALYSIS
At the outset, the Court notes that state law applies to the coverage issues
presented. Absent an established federal admiralty rule, or a need for national
uniformity that warrants fashioning such a rule, the Supreme Court has held
that state law should apply to issues of maritime insurance.12 Accordingly, the
parties do not dispute that Louisiana law governs this dispute.13
A. Coverage
Under Louisiana law, "[a]n insurance policy is a contract between the
parties and should be construed by using the general rules of interpretation of
contracts set forth in the Louisiana Civil Code."14 "When the words of a contract
are clear and explicit and lead to no absurd consequences, no further
interpretation may be made in search of the parties' intent."15 "An insurance
policy should not be interpreted in an unreasonable or a strained manner so as
to enlarge or to restrict its provisions beyond what is reasonably contemplated
by its terms or so as to achieve an absurd conclusion."16

"The rules of

construction do not authorize a perversion of the words or the exercise of
inventive powers to create an ambiguity where none exists or the making of a
new contract when the terms express with sufficient clarity the parties' intent."17
12

See Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 320 (1955).

13

Graham v. Milky Way Barge, Inc., 824 F.2d 376, 380 (5th Cir. 1987) ("[I]t is well
settled law, that the law of the state in which the contract was formed, in the absence of federal
admiralty rule, determines the rights of the parties.").
14

Mayo v. State Farm Mut. Auto. Ins. Co., 869 So. 2d 96, 99 (La. 2004).

15

La. Civ. Code art. 2046.

16

Carrier v. Reliance Ins. Co., 759 So. 2d 37, 43 (La. 2000).

17

Mayo, 869 So. 2d at 99–100.

5

"The determination of whether a contract is clear or ambiguous is a question of
law."18 However, "ambiguous provisions must be strictly construed against the
insurer, though not to such a degree that the language of the policy is
perverted."19 "Courts should consider the policy as a whole and interpret the
policy to fulfill the reasonable expectations of the parties in light of the customs
and usages of the industry."20 "The insured bears the burden of proving that the
incident giving rise to a claim falls within the policy's terms. But the insurer
bears the burden of proving that an exclusion to coverage applies."21
The policy at issue contains a "Marine Commercial Liability Limited
Pollution Coverage Endorsement" (the "Limited Pollution Endorsement"). This
Limited Pollution Endorsement covers TWI for property damage it becomes
obligated to pay as a result of "the actual, alleged or threatened discharge,
dispersal, seepage, migration, release or escape of 'pollutants'" resulting from its
"Maritime Operations" only. The term "Maritime Operations" is defined in the
Policy as "the ownership, maintenance, operation, use, repair, loading or
unloading of owned, leased, rented or chartered watercraft, or other watercraft
in your care, custody, or control solely in conjunction with the operations listed
in the policy Declarations."
TWI argues that it is owed a defense and coverage under the Limited
Pollution Endorsement. Great American, on the other hand, avers that this
18

Cadwallader v. Allstate Ins. Co., 848 So. 2d 577, 580 (La. 2003).

19

Cont'l Cas. Co. v. Smith, 243 F. Supp. 2d 576, 580 (E.D. La. 2003).

20

Id.

21

XL Specialty Ins. Co. v. Bollinger Shipyards, Inc., 57 F. Supp. 3d 728, 750 (E.D. La.
2014) aff'd, 593 F. App'x 408 (5th Cir. 2015) (internal citations and quotations omitted).

6

endorsement does not provide TWI with insurance coverage for liability in the
Texas Litigation for many reasons: (1) the Policy Declaration states that TWI's
business was "ship repair," which does not encompass wreck removal; (2) the
incident in question did not arise at an insured location; (3) the claims in the
Texas Litigation are not for property damage; (4) the endorsement excludes
coverage if the polluting incident was not known to TWI within 72 hours; (5) the
endorsement excludes coverage if TWI did not provide Great American with
notice of the polluting event within 30 days of its knowledge of it; (6) the
endorsement excludes coverage for obligations arising solely by statute; (7) the
endorsement excludes coverage for penalties or punitive damages; (8) the
endorsement excludes coverage for damages caused by TWI's willful misconduct.
In response, TWI propounds a defense only to Great American's first
argument—that the Policy does not cover wreck removal. The parties agree that
the Limited Pollution Endorsement provides coverage for incidents that occur
during TWI's "Maritime Operations"—identified in the Policy Declarations as
"ship repair."

TWI argues, however,

that coverage for wreck removal is

necessarily encompassed within the scope of ship repair. Great American, on the
other hand, contends that ship repair and wreck removal are two very different
functions and call for different policies of insurance. Great American argues
that the risks involved in salvage operations at the location of a wrecked vessel
far surpass that of those incurred in repairing ships in a controlled environment.
Great American states that wreck removal coverage is typically provided under
a P&I policy and that TWI was aware of this fact. Indeed, on two prior occasions
7

TWI obtained additional coverage from Great American to cover wreck removal
projects. TWI rebuts that Great American's argument is mere semantics and
that it routinely retrieves vessels that have broken down far from its repairing
facilities.
This Court believes that Great American has the better argument on this
issue. Because there is scant case law discussing the distinction between wreck
removal and ship repair, this Court will apply "the general rule of construction
that words in an insurance contract are to be construed in accordance with their
plain and ordinary meaning."22 Clearly, the term "wreck removal" contemplates,
as here, a vessel that is a total loss that must be removed from navigable
channels.23

There is no aspect of repair contemplated by the removal of

wreckage. This Court finds that there is a clear distinction between moving a
vessel from the water to a facility for repair and dismantling a vessel for scrap
while it remains in the water, as was attempted here. Accordingly, this Court
agrees that the Limited Pollution Endorsement does not cover liability arising
out of TWI's wreck removal operations. In coming to this conclusion, the Court
notes that it is aware, as frequently quoted by TWI, that any ambiguity in an
insurance policy should be construed in favor of the insured, however, it holds
that the policy at issue here is clear and unambiguous as to its scope of coverage.
22

Louisiana Ins. Guar. Ass'n v. Interstate Fire & Cas. Co., 630 So. 2d 759, 763 (La. 1994)
("The parties' intent as reflected by the words in the policy determine the extent of coverage.
Such intent is to be determined in accordance with the general, ordinary, plain and popular
meaning of the words used in the policy, unless the words have acquired a technical
meaning.").
23

See Wreck Removal Act, 33 U.S.C. § 409 (West).

8

Notwithstanding this conclusion, TWI is not entitled to coverage for a
myriad of other reasons. First, TWI does not dispute that the Coast Guard sent
it a letter on December 15, 2009 stating that it believed that the Barge was the
source of a pollution incident that occurred on or about December 7, 2009. TWI
does not submit any evidence that it knew of the incident prior to this date. The
Limited Pollution Endorsement explicitly states that it does not provide coverage
for damages that did not become known to TWI within 72 hours of the accident
or occurrence. Therefore, limited pollution coverage is expressly barred under
this exclusion.
Second, TWI admits that it did not provide Great American with notice of
the Coast Guard's 2009 letter until July 3, 2013—six months after the Texas
Litigation was filed against it. The Limited Pollution Endorsement explicitly
excludes coverage if TWI fails to notify Great American of "an actual or potential
pollution accident or occurrence within 30 days of [its] knowledge of the event."
TWI attempted to defend the delay by explaining that it had already sold the
Barge when it was notified of the pollution and thus merely provided the Coast
Guard with the bill of sale. This explanation, however, does not account for the
six-month delay in notifying Great American after TWI was sued in the Texas
Litigation. Certainly at that point TWI should have understood that the United
States believed it was liable for the pollution regardless of the bill of sale.
Therefore, TWI's failure to notify Great American within 30 days of its
knowledge of the oil spill excludes it from coverage under the Limited Pollution
Endorsement.
9

Third, the Limited Pollution Endorsement expressly excludes coverage for
damages that are from "actual or alleged liability to evaluate, monitor, control,
remove and/or clean-up seeping, polluting or contaminating substances to the
extent such liability arises solely from any obligation imposed by any statute,
rule, ordinance, regulation." The United State's complaint against TWI seeks
a declaratory judgment that TWI and the other defendants are liable under the
Oil Pollution Act of 1990 and an assessment of civil penalties under the Clean
Water Act. Accordingly, any potential liability that TWI may face in the Texas
Litigation arises solely from obligations imposed by statute. Coverage under the
Limited Pollution Endorsement is therefore barred by this exclusion as well.
Finally, the Limited Pollution Endorsement expressly excludes coverage
for "fines, penalties, exemplary or punitive damages." The only monetary
recovery sought by the United States in the Texas Litigation is civil penalties
under the Clean Water Act. As clearly stated by this exclusion, the Policy does
not insure against liability for penalties.
Given the foregoing, this Court need not address every argument offered
by Great American to support its position that it does not owe TWI coverage for
its potential liability in the Texas Litigation. It is clear that there are any
number of reasons why TWI is not entitled to coverage under the Limited
Pollution Endorsement. In addition, the Policy totally excludes coverage for
property damage caused by the discharge of pollutants. TWI has not pointed
this Court to any other provision of the Policy that would provide it coverage.
Out of an abundance of caution, however, this Court notes that TWI is also
10

not entitled to coverage for the cross-claims in the Texas Litigation because the
Policy contains a contractual liability exclusion, which states that coverage will
not be provided when "the insured is obligated to pay damages by reason of the
assumption of liability in a contract or agreement." In their cross-claims in the
Texas Litigation, the other defendants seek to enforce the salvage contract in
which TWI agreed to indemnify them from any damages resulting from pollution
or ship breaking.24 Clearly this is precisely the type of agreement that the Policy
excludes from coverage. Accordingly, TWI is not entitled to coverage for its
liability on the cross-claims in the Texas Litigation.
B. Duty to Defend
Finally, TWI argues that Great American has breached its duty to defend.
When determining whether an insurance company has a duty to defend a suit
against its insured, Louisiana courts apply the so-called "eight corners rule."25
Under this rule, the court looks only to the four corners of the petition and the
four corners of the insurance policy.26 An insurer has a duty to defend against
the suit if, assuming all allegations in the petition to be true, there would be
both liability to the plaintiff and coverage under the policy.27 "An [insurer's]
duty to defend arises whenever the pleadings against the insured disclose even
a possibility of liability under the policy."28 "In other words, the test is not
24

No. 13-17, Doc. 11, p.12.

25

Vaughn v. Franklin, 785 So. 2d 79, 84 (La. App. 1 Cir. 2001).

26

Id. (citing Am. Home Assur. Co. v. Czarniecki, 230 So. 2d 253, 259 (La. 1969)).

27

Id.

28

Steptore v. Masco Const. Co., 643 So. 2d 1213, 1218 (La. 1994).

11

whether the allegations unambiguously assert coverage, but rather whether they
do not unambiguously exclude coverage."29 "Under this analysis, the factual
allegations of the plaintiff's petition must be liberally interpreted to determine
whether they set forth grounds which raise even the possibility of liability under
the policy"30 "Courts should consider the policy as a whole and interpret the
policy to fulfill the reasonable expectations of the parties in light of the customs
and usages of the industry."31 "[A]n insurer's duty to defend lawsuits against its
insured is broader than its liability for damage claims."32
TWI argues that the complaint in the Texas Litigation supports a cause
of action for the threatened or actual escape of pollutants from TWI's maritime
operations, which is covered by the Policy's Limited Pollution Endorsement.
Great American rebuts that it does not have a duty to defend TWI for some of
the same reasons that the Limited Pollution Endorsement does not provide TWI
with coverage: namely, that the Policy Declaration states that TWI's business
was "ship repair," which does not encompass wreck removal. Having already
determined that the plain meaning of the terms "wreck removal" and "ship
repair" bar coverage, this Court likewise holds that Great American had no duty
to defend TWI.

The United State's complaint in the Texas Litigation

unambiguously states that the Barge had been declared a total loss and that
TWI entered into a wreck removal agreement and engaged in salvage operations
29

Johnson v. Misirci, 955 So. 2d 715, 718 (La. App. 4 Cir. 2007).

30

Id.

31

Cont'l Cas. Co., 243 F. Supp. 2d at 580.

32

Johnson, 955 So. 2d at 718.

12

that resulted in the removal of significant portions of the Barge's structure. No
mention of repair is made.

In considering the policy as a whole and the

intentions of the parties, it is clear that the policy at issue here does not provide
coverage for wreck removal operations, and therefore clearly does not provide
coverage for the allegations asserted in the complaint. Accordingly, under the
eight corners rule, Great American has no duty to defend TWI for the allegations
in the Texas Litigation.
CONCLUSION
For the foregoing reasons, Great American's Motion for Summary
Judgment is GRANTED, and TWI's Motion for Summary Judgment is DENIED.
Judgment is entered in favor of Great American, and this case is closed.

New Orleans, Louisiana, this 26th day of August, 2015.

___________________________________
JANE TRICHE MILAZZO
UNITED STATES DISTRICT JUDGE

13