Gibbs International Inc v. ACE American Insurance Company
Filing
63
OPINION and ORDER granting 53 Motion for Summary Judgment. Signed by Honorable Bruce Howe Hendricks on 3/30/18.(alew, )
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
SPARTANBURG DIVISION
Gibbs International, Inc.,
) Civil Action No.: 7:15-cv-4568-BHH
)
Plaintiff and Counter Defendant, )
vs.
)
)
Opinion and Order
ACE American Insurance Company
)
doing business as ACE USA,
)
)
Defendant and Counter Plaintiff, )
)
vs.
)
)
Southern Recycling, LLC,
)
)
Third Party Defendant. )
This matter is before the Court on Defendant and Counter Plaintiff ACE American
Insurance Company’s (“Defendant” or “ACE”) motion for summary judgment. (ECF No.
53.) For the reasons set forth in this Order, Defendant’s motion for summary judgment
is granted.
BACKGROUND
I.
The Unsuccessful Copper Shipment and its Fallout
This coverage action stems from an apparent fraud perpetrated by a nonparty to
this litigation on Plaintiff and Counter Defendant Gibbs International, Inc. (“Plaintiff” or
“Gibbs”) and Third Party Defendant Southern Recycling, LLC (“Southern Recycling”). In
short, thirteen (13) shipping containers that Gibbs and Southern Recycling believed to
contain scrap copper were transported from the Philippines to Texas, whereupon it was
discovered that some of the containers were filled with concrete blocks and others were
1
filled with black powder (“slag”).
On October 30, 2012, Gibbs contracted with seller Regent Phoenix Imports &
Exports, a Philippine company (“Regent Phoenix”), to purchase 500,000 pounds, plus or
minus 3%, of “No. 1 copper wire that shall consist of bare, uncoated, unalloyed copper
wire” at a price of six thousand two hundred dollars ($6,200.00) per metric ton. (Am.
Answer, Ex. B, ECF No. 24-2 at 2.) The delivery term in the Regen Phoenix agreement
stated: “FOB loaded in bulk into 20[’] sea containers at port of Manila, Philippines.
Shipments and delivery must be completed no later than November 30, 2012. The
Parties will agree to dates, locations, and loading times for containers.” (Id.) Under
“Additional Terms” the agreement reads, inter alia: “[Regent Phoenix] warrants that it
has absolute right, title and interest in and to the copper and is selling the copper to
[Gibbs] free and clear of any and all encumbrances.” (Id.) Moreover, the agreement
indicated that Regent Phoenix was responsible for “all costs of loading, inland freight to
Manila port, loading of containers on vessel, [and] providing all export documentation as
required by Philippine customs.” (Id.) Gibbs, on the other hand, was “responsible for
Ocean shipment.” (Id.) The agreement further stated, “If any portion of the copper
covered by this contract is unshipped or undelivered within the specified time, then that
portion is subject to cancellation by [Gibbs] and/or [Gibbs] has the right to hold [Regent
Phoenix] responsible for substantiated damages.” (Id.)
One week later, on November 6, 2012, Gibbs entered an agreement with buyer
Southern Recycling to sell 500,000 pounds of copper wire conforming to the same
quality specifications itemized in the Regent Phoenix agreement. (See Am. Answer, Ex.
C, ECF No. 24-3 at 2.) It is undisputed that the copper wire Gibbs intended to purchase
2
from Regent Phoenix and the copper wire Gibbs intended to sell to Southern Recycling
were the same. The Southern Recycling contract’s delivery term stated:
F.O.B., loaded in bulk into [Southern Recycling’s] 20’ sea container[s] at
Port of Manila, Philippines. Shipments and delivery to be completed no
later than November 30, 2012. [Southern Recycling] and [Gibbs] will
mutually agree upon dates, location, and loading times for containers.
[Southern Recycling] will have a representative at each loading and will
sign each trucker’s bill of ladings [sic], along with [Gibbs’] representative.
(Id.) Under “Other Terms” the contract reads, inter alia:
Payment to be made via wire transfer to [Gibbs’] designated banking
account the following business day upon [Southern Recycling’s] inspection
and acceptance of goods, and [Gibbs’] delivery as described above.
Incremental payments will be made on each shipment.
(Id.) Additionally, the contract stipulated, “If any portion of the goods covered by this
contract are unshipped or undelivered within the specified time, then that portion is
subject to cancellation by [Southern Recycling] and/or [Southern Recycling] has the
right to hold [Gibbs’] responsible for substantiated damages.” (Id.)
Even a cursory examination of the Regent Phoenix agreement and the Southern
Recycling contract reveals that they are very similar and in many instances use identical
language. (See ECF Nos. 24-2 & 24-3.) However, one notable difference is that Regent
Phoenix, as seller to Gibbs, warrants that it has an absolute right, title, and interest in
and to the copper it is selling and that such sale is free and clear of any encumbrance.
(ECF No. 24-2 at 2.) Whereas Gibbs, as seller to Southern Recycling, makes no such
warranty or claim. (See ECF No. 24-3.)
Pursuant to these agreements, Southern Recycling arranged for the placement
of thirteen (13) shipping containers at the Port of Manila. The containers were collected
by Regent Phoenix and transported to its inland warehouse in Sucat, Philippines where
3
loading was to occur. Both Gibbs and Southern Recycling had representatives present
at the warehouse to observe the loading. Southern Recycling had a corporate
representative, Justin Morgan, and a professional inspector, Alex Stuart Intercorp
Inspection Philippines, Inc. (“ASI”), present. Gibbs was represented by Paul Hemsath,
COO of Spartan Mining and Development Corp.—a Gibbs joint venture involved in
surface iron mining—who was located in Manila at the time.1 The warehouse in Sucat
could not accommodate all thirteen shipping containers at once, and loading was
generally achieved by two containers per day over a period of several days. The basic
process of moving the copper was supposed to proceed in the following fashion: (i) the
shipping containers arrived at the Regent Phoenix warehouse where they were filled
with copper; (ii) the shipping containers were transported by truck from Sucat to the Port
of Manila; (iii) the containers were loaded onto a cargo ship at the Port; (iv) the
containers were transported by ship from the Philippines to Long Beach California; and
(v) the containers were transported overland in the United States by rail from California
to Dallas, Texas. (See Biggerstaff Dep. 105:6-106:23, ECF No. 54-7 at 29; Ford Dep.
62:8-63:1, ECF No. 54-11 at 18.)
While the corporate representatives observed, the inspector retained by
Southern Recycling—ASI—inspected the quality of the copper, watched Regent
Phoenix employees load the copper into the containers, documented the weight of the
copper being loaded throughout the process, photographed the loading process at
various stages, and witnessed seals being affixed to the loaded containers. (Dignos
Dep. 15:22-30:16, 83:2-84:18, ECF No. 54-10 at 15-30, 83-84.) The inspector
1
Mr. Hemsath estimated that he was present at the warehouse for about half of the days required for
loading. (Hemsath Dep. 37:1-9, ECF No. 53-8 at 4.)
4
generated daily reports reflecting material specifications about the quality and quantity
of the loaded copper. (Id.)
The loading began on November 24, 2012 and concluded on December 1, 2012.
(Ford Dep. 137:23-140:4, ECF No. 54-11 at 37.) Ten (10) of the containers stayed at
the inland warehouse overnight after being loaded, and two of those ten containers
stayed two nights. (Id. 82:10-12.) The first containers arrived at the Port on November
26, 2012, and the ship with the containers sailed from Manila on December 2, 2012.
(Biggerstaff Dep. 130:6-12, ECF No. 54-7 at 35; Copper Shipment Charts, ECF No. 543.) Neither Gibbs nor Southern Recycling personnel were continually present during the
period between the sealing of the containers and their departure from the warehouse, or
during the transit from the warehouse to the Port. Outside the gates of the Port, the
exterior, but not the contents, of the containers were inspected and photographed
again. (Ford Dep. 54:13-23, ECF No. 54-11 at 16.)
When a truck transporting a container entered the gates of the Port, various
items of data were recorded. Upon the same truck departing the Port, an Equipment
Interchange Receipt (“EIR”) was generated and provided to the driver. The EIR showed
“the date and time of the receipt of the container, the truck that delivered, whether there
was any damage observed to the container, and the driver’s name and, also, the weight
of whatever was lifted off the vehicle.” (Id. 57:1-9.) In this case, the weights recorded by
the Port were consistent with the weights of the containers upon their arrival in Texas.
(Id. 61:15-62:2.) However, for five of the thirteen containers there were “significant
differences” (in the order of two metric tons per container) between the weights on the
EIRs that Regent Phoenix submitted to Gibbs for payment and the weights recorded on
5
the EIRs at the Port and upon arrival in Texas. (Id. 58:17-19, 63:7-64:25.) Accordingly, it
is apparent that “Regent Phoenix or their associated transport companies, obtained the
first print [EIRs], and that they manipulated these, in the process of them presenting
photocopies . . . to Gibbs and [ASI].” (Id. 66:21-67:1.) The containers with the biggest
weight differentials contained cement blocks upon arrival in Texas. (Id. 58:20-24.) The
weight differences for containers that ultimately contained slag were not as significant.
(Id. 59:5-9.)
The distance from the Sucat warehouse to the Port, as a function of driving time,
was approximately two hours depending on traffic. The following table contains loading
and departure dates, along with other data, for each of the thirteen shipping containers:
Loading
Order
Container
1
2
3
4
5
6
7
8
9
10
11
12
13
TCKU3734138
OOLU1247369
OOLU1733709
OOLU3012492
OOLU1184677
OOLU1382306
OOLU1969269
OOLU2934539
OOLU1362721
OOLU1262656
OOLU1156084
OOLU3788423
OOLU1130855
Date
Loaded
with
Copper
11/24/12
11/24/12
11/26/12
11/26/12
11/27/12
11/27/12
11/28/12
11/28/12
11/29/12
11/29/12
11/30/12
11/30/12
12/01/12
Date
Departed
for the
Port
11/26/12
11/26/12
11/27/12
11/27/12
11/27/12
11/28/12
11/29/12
11/30/12
11/30/12
11/30/12
11/30/12
12/01/12
12/01/12
Date
Arrived at
the Port
Trip Time
from Sucat to
Port
Contents Upon
Arrival in
Dallas, TX
11/26/12
11/26/12
11/27/12
11/27/12
11/27/12
11/28/12
11/29/12
11/30/12
11/30/12
11/30/12
12/01/12
12/01/12
12/01/12
2:35
2:21
2:54
2:46
5:24
6:30
3:01
1:50
2:10
2:33
4:18
4:24
5:27
slag
slag
slag
slag
blocks
blocks
slag
slag
slag
blocks
blocks
blocks
blocks
(See ECF No. 54-3.) The truck drivers explained protracted delivery times by telling ASI
representatives that there was rush hour traffic during the transport of containers 5 and
6, that an armed escort accompanied container 12, and that there was heavy traffic
during the transport of container 13. (Dignos Dep. 43:18-47:10, ECF No. 54-10 at 4347.)
6
Subsequent investigation revealed evidence of tampering, specifically: (a) “[t]he
bolts attaching the lock fittings to the [container] door were tampered with to allow all the
lock fittings to be removed from the door, to allow the door to be opened normally and
closed again normally, and then the lock fittings reattached [without breaking the
seals];” (b) “the large tags holding the numbers of the red [ASI] seals, had been bent to
gain access to the bolt behind them, and that bending was apparent because the plastic
takes on a different color,” and (c) “the long loose end of the plastic strip had been
rethreaded in very different ways through the handle and the locking mechanism,
indicating that that had been unwound at some point and then put back differently.”
(Ford Dep. 28:15, 32:16-33:2, ECF No. 54-11 at 9-10.) These indicia of tampering were
observed by comparing photographs taken by ASI when the containers were sealed at
the warehouse with photographs taken by ASI at the Port gate. (Id.)2
Based on his evaluation of the available evidence, the investigator concluded
that the copper contents of the containers loaded each day were “recycled” and
substituted for concrete block or slag either at the warehouse in Sucat or en route to the
Port—i.e., that the same fifty (50) tons, approximately, of copper was loaded into each
set of containers in succession. (Id. 58:25-59:17, 158:21-160:4, 165:23-168:5.) This
conclusion was based on: (1) confirmations from the ASI inspectors and Gibbs’
representative, Mr. Hemsath, that they never observed more than the approximate
contents of two shipping containers’ worth of copper together during loading; and (2)
examination of the daily photographs taken by ASI. (Id. 166:8-18.) Regarding the
photographs, the inspector testified:
2
The investigation was conducted by Royston Ford, on behalf of CNA Insurance Company, Southern
Recycling’s cargo insurer.
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[T]he more the job went on, the more the stockpiles of copper, it looks like
copper that had just been tipped out of the same kind of one-[ton] bags
that they had been loaded into. It was freshly acquired copper scrap that
had come off of de-insulating machines or other forms of production.
Everything looked like the same material.
(Id. 166:22-167:3.) Ultimately, the investigator was not able to conclusively resolve this
suspicion, which was based on an “overwhelming sense” arising from “scrutinizing the
photographs” over approximately twenty (20) hours, because there were not enough
photographs where details of the serial numbers on the bags of copper were visible for
comparison. (Id. 59:10-17, 158:16-20, 167:4-24.) The investigator found no indication
that ASI, Gibbs, or Southern Recycling were involved in any fraudulent or criminal
activity, and concluded that Gibbs and Southern Recycling were innocent victims of a
“well known metal cargo substitution fraud that has been perpetrated by Asian crime
syndicates in Manila for some years.” (Id. 57:14-19, 151:2-24, 165:7-21.)
Given the investigator’s findings, Southern Recycling and its insurer, CNA
Insurance Company, Limited (“CNA”), filed, on November 18, 2013, a lawsuit against
Gibbs in this Court, captioned: S. Recycling, LLC, et al. v. Gibbs Int’l, Inc., No. 7:13-cv3125-BHH (“Companion Case”). The complaint in the Companion Case alleged:
CNA’s investigation into the matter concluded that the containers had
been tampered with which allowed the doors to be opened without
breaking the seals, that only the initial Copper placed in the first two (2)
containers probably ever existed, that this same Copper was removed
from the first two (2) containers and thereafter was placed into and
removed from each of the remaining containers in a similar manner (in
each circumstance being replaced by cement blocks or slag), that this was
done prior to arrival of the containers at the Port of Manila, and that the
removals occurred either while the containers were left overnight at
Regent Phoenix’s inland warehouse or at some point along the route to
the Port of Manila.
(Compl. ¶ 19, Companion Case ECF No. 1 at 4.) Moreover, the complaint stated,
8
“Based upon the small quantity of Copper that may have actually existed, CNA paid to
Southern Recycling the amount of U.S. $366,518.00 . . . .” (Id. ¶ 20.) Asserting a cause
of action for breach of contract, Southern Recycling sought return of the payments it
made to Gibbs in the amount of approximately $1.7 million. However, Gibbs was unable
to recover the monies it paid to Regent Phoenix, approximately $1.3 million, and
refused to refund the payments made by Southern Recycling. Gibbs made a claim to
ACE for coverage pertaining to loss of the copper prior to the Companion Case being
filed, but ACE denied Gibbs’ claim and refused to defend or indemnify Gibbs in the
Companion Case. Gibbs, therefore, brought this action against ACE seeking a
declaratory judgment as to coverage under its policy with ACE and asserting a claim for
breach of contract. (See Compl., ECF No. 1-1.)
In the Companion Case, the Court granted partial summary judgment in
Southern Recycling’s favor on the discreet legal issue that, pursuant to the “F.O.B. Port”
delivery term in the purchase agreement, Gibbs was obligated to deliver the copper wire
in containers to the Port of Manila and, if Gibbs failed to satisfy this obligation, Gibbs
bore the risk of loss. (March 31, 2016 Order, Companion Case ECF No. 65 at 4, 25.)
Subsequently, the Court denied Gibbs’ motion for leave to file an amended answer and
motion for reconsideration. (January 11, 2017 Order, Companion Case ECF No. 74.)
Thereafter, the parties fully resolved the Companion Case via mediation and the case
was dismissed. (Companion Case ECF Nos. 81 & 82.)
The upshot of this factual context, considered in toto, is that Gibbs clearly had a
ripe breach of contract action against Regent Phoenix for the monies it paid and/or its
loss of profit on the transaction with Southern Recycling—though Regent Phoenix was,
9
not surprisingly, unresponsive to Gibbs’ inquiries regarding the failed shipment.3
Relatedly, Gibbs had exposure—now resolved through mediation in the Companion
Case—to Southern Recycling for Gibbs’ failure to supply the agreed upon consideration
despite accepting and retaining the purchase price. At issue in the case sub judice is
whether coverage exists for Gibbs’ loss or its liability.
II.
The Policy at Issue
ACE issued International Advantage Commercial Insurance Policy No. PHF
D37931901 to Gibbs for the period June 15, 2012 to June 15, 2013 (the “Policy”). (See
ECF No. 24-1.) The Policy includes multiple coverage forms, including but not limited to
coverage forms for commercial property damage and general liability. The Commercial
Property Coverage Form provides:
II.
PROPERTY DAMAGE
A.
PROPERTY AND PERILS INSURED
1.
The Company will pay for direct physical loss or
damage occurring during the Policy Period to the property
described in sub-paragraph A.4. below at an Insured
Location (hereinafter, “Covered Property”) within the
Coverage Territory, directly caused by or resulting from
any Covered Cause of Loss and not otherwise excluded
herein; provided that, prior to the beginning of the Policy
Period, no Insured knew or reasonably should have
known that such loss or damage had occurred, in whole or
part. If any Insured knew or reasonably should have known
that such loss or damage occurred in whole or in part at
the time the Policy Period begins, then any continuation,
change or resumption of such loss or damage during or
after the Policy Period will be deemed to have been
known prior to the Policy Period, and will not be covered
under this Coverage Form.
3
Gibbs’ representative at the Sucat warehouse, Mr. Hemsath, attempted to contact Regent Phoenix’s
principal, Roger Lee, after discovery of the fraud, but never heard from Mr. Lee again. (See Hemsath
Dep. 82:12-84:10, ECF No. 53-8 at 5.)
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2.
If covered loss or damage begins during the Policy Period
and continues after the end of the Policy Period, the
ending of the Policy Period will not cut short coverage
under this Coverage Form for such loss or damage.
3.
The Company will only pay for covered loss or
damage to the extent of the interest of the Insured in
the Covered Property.
4.
Covered Property, except
herein, means the following:
as
otherwise
excluded
...
c.
Personal Property that is owned by:
(1)
the Insured, including the Insured’s interest as
a tenant in improvements and betterments to
buildings or structures. In the event of direct physical
loss or damage, the Company agrees to accept and
consider the Insured as sole and unconditional owner
of
such
improvements
and
betterments,
notwithstanding any contract or lease provision to the
contrary.
(2)
officers or employees of the Insured.
(3)
others that is in the Insured’s custody, to
the extent of the Insured’s legal liability under a
written contract or agreement assumed prior to
loss or damage, for physical loss or damage of
the type insured against under this Coverage
Form, provided that no other insurance is available to
the Insured, including, but not limited to, any
warehouseman’s legal liability insurance.
(A)
The Company will defend that portion
of any suit against the Insured alleging liability
for such loss or damage and seeking
damages on account thereof, even if such
suit is groundless, false or fraudulent. The
Company may, without prejudice, investigate,
negotiate and settle any claim or suit at its
discretion.
(B)
The Company has no duty to defend
the Insured against a suit seeking damages for
direct physical loss or damage to which this
11
insurance does not apply.
(C)
The amount the Company will pay
for damages and defense costs and
expenses is limited to the Sub-Limit of
Liability for Legal Liability shown in item
VI.B. SUB-LIMITS OF LIABILITY of the
Declarations. The Company’s right and duty
to defend end when such Sub-limit of Liability
has been used up in the payment of
judgments, settlements and/or defense costs
and expenses.
(Id. at 137-39 (emphasis added).) The corresponding sub-limit of liability for “Legal
Liability” in the referenced declarations is shown as: “NOT COVERED.” (Id. at 23.)
The Policy’s Commercial General Liability (“CGL”) Coverage Form itemizes the
parameters of third party coverage provided. (See id. at 34-63.) It states, in relevant
part, that ACE “will pay those sums that the insured becomes legally obligated to pay as
damages because of . . . ‘property damage’ to which this insurance applies.” (Id. at 34.)
The CGL Coverage Form further provides that ACE “will have the right and duty to
defend the insured against any ‘suit’ seeking damages for . . . ‘property damage’ . . . .
[and] the right to settle any such ‘suit.’” (Id.) However, it stipulates that ACE “will have
no duty to defend the insured against any ‘suit’ seeking damages for . . . ‘property
damage’ to which this insurance does not apply.” (Id.) The CGL insurance applies to
“property damage” only where such damage “is caused by an ‘occurrence’ that takes
place in the ‘coverage territory’ . . . .” (Id.) Moreover, the CGL Coverage Form sets forth
the following definitions of relevant terms:
SECTION V – DEFINITIONS
...
21. “Occurrence” means an accident, including continuous or
repeated exposure to substantially the same general harmful
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conditions. All such exposure to substantially the same general
conditions shall be considered as arising out of the same “occurrence”;
regardless of the frequency or repetition thereof, or the number of
claimants.
...
26. “Property damage” means:
a. Physical injury to tangible property, including all resulting loss of
use of that property. All such loss of use shall be deemed to occur
at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All
such loss of use shall be deemed to occur at the time of the
“occurrence” that caused it.
(Id. at 59, 61.)
III.
Procedural Background
ACE filed its motion for summary judgment on July 13, 2017. (ECF No. 53.)
Gibbs responded on July 27, 2017 (ECF No. 54), and Southern Recycling filed a onepage response joining in Gibbs’ opposition (ECF No. 55). On August 3, 2017, ACE filed
its reply. (ECF No. 58.) The matter is ripe for adjudication and the Court now issues the
following ruling.
LEGAL STANDARD
Summary Judgment
The Court shall grant summary judgment “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to a judgment as a
matter of law.” Fed. R. Civ. P. 56(a). The movant bears the initial burden of
demonstrating that summary judgment is appropriate; if the movant carries its burden,
then the burden shifts to the non-movant to set forth specific facts showing that there is
a genuine issue for trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). If a
movant asserts that a fact cannot be disputed, it must support that assertion either by
13
“citing to particular parts of materials in the record, including depositions, documents,
electronically stored information, affidavits or declarations, stipulations (including those
made for purposes of the motion only), admissions, interrogatory answers, or other
materials;” or “showing . . . that an adverse party cannot produce admissible evidence
to support the fact.” Fed. R. Civ. P. 56(c)(1).
Accordingly, to prevail on a motion for summary judgment, the movant must
demonstrate that: (1) there is no genuine issue as to any material fact; and (2) that he is
entitled to judgment as a matter of law. As to the first of these determinations, a fact is
deemed “material” if proof of its existence or non-existence would affect disposition of
the case under applicable law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). An issue of material fact is “genuine” if the evidence offered is such that a
reasonable jury might return a verdict for the non-movant. Id. at 257. In determining
whether a genuine issue has been raised, the court must construe all inferences and
ambiguities against the movant and in favor of the non-moving party. United States v.
Diebold, Inc., 369 U.S. 654, 655 (1962).
Under this standard, the existence of a mere scintilla of evidence in support of
the non-moving party’s position is insufficient to withstand a summary judgment motion.
Anderson, 477 U.S. at 252. A litigant is unable to “create a genuine issue of material
fact through mere speculation or the building of one inference upon another.” Beale v.
Hardy, 769 F.2d 213, 214 (4th Cir. 1985). Therefore, “[m]ere unsupported speculation
. . . is not enough to defeat a summary judgment motion.” Ennis v. Nat’l Ass’n of Bus. &
Educ. Radio, Inc., 53 F.3d 55, 62 (4th Cir. 1995). “Only disputes over facts that might
affect the outcome of the suit under the governing law will properly preclude the entry of
14
summary judgment. Factual disputes that are irrelevant or unnecessary will not be
counted.” Anderson, 477 U.S. at 248. Ultimately, the court must determine “whether the
evidence presents a sufficient disagreement to require submission to a jury or whether it
is so one-sided that one party must prevail as a matter of law.” Id. at 251-52.
Where the Court is presented with the question of whether an insurance policy
covers a particular claim, in the absence of a genuine dispute regarding the underlying
facts, summary judgment is the proper mechanism by which to determine whether
coverage is available. See OneBeacon Ins. Co. v. Metro Ready-Mix, Inc., 242 F. App’x
936, 939 (4th Cir. 2007) (“Because the facts are undisputed and we are presented with
a purely legal question of insurance coverage, the case is ripe for summary judgment.”).
South Carolina Insurance Law
In South Carolina, “[i]nsurance policies are subject to the general rules of
contract construction,” and the “cardinal rule o f c o n t r a c t interpretation is to
ascertain and give legal effect to the parties’ intentions as determined by the contract
language.” Auto Owners Ins. Co. v. Benjamin, 781 S.E.2d 137, 141 (S.C. Ct. App.
2015) (quoting Whitlock v. Stewart Title Guar. Co., 732 S.E.2d 626, 628 (S.C. 2012)).
“Courts must enforce, not write, contracts of insurance, and their language must be
given its plain, ordinary and popular meaning.” Id. Where the terms of an insurance
policy are ambiguous or conflicting, courts must construe those terms “liberally in favor
of the insured and strictly against the insurer.” Id. In other words, “where policy
provisions may be reasonably interpreted in more than one way, the court must use
the interpretation most favorable to the insured.” CAMICO Mut. Ins. Co. v. Jackson
CPA Firm, No. 2:15-cv-1823-PMD, 2016 WL 7403959, at *8 (D.S.C. Dec. 22, 2016)
15
(citing State Farm Fire & Cas. Co. v. Barrett, 530 S.E.2d 132, 136 (S.C. Ct. App.
2000)). “‘[T]he Court will look to the reasonable expectations of the insured at the time
when he entered into the contract if the terms thereof are ambiguous or conflicting,
or if the policy contains a hidden trap or pitfall, or if the fine print takes away that
which has been given by the large print.’” State Farm Fire & Cas. Co. v. Morningstar
Consultants, Inc., C.A. No.6:16-cv-01685-MGL, 2017 WL 2265919, at *2 (D.S.C.
May 24, 2017) (quoting Bell v. Progressive Direct Ins. Co., 757 S.E.2d 399, 407 (2014))
(alteration in original). However, “[this] doctrine is not a rule granting substantive rights to
an insured when there is no doubt as to the meaning of policy language,” id. (quoting
Bell, 757 S.E.2d at 407), and “the insurer’s duty under a policy of insurance . . . cannot
be enlarged by judicial construction.” Id. (citing S.C. Ins. Co. v. White, 390 S.E.2d 471,
474 (S.C. 1990)). “The court’s duty is limited to the interpretation of the contract made by
the parties themselves regardless of its wisdom or folly, apparent unreasonableness, or
failure of the parties to guard their interests carefully.” B.L.G. Enterprises, Inc. v. First
Fin. Ins. Co., 514 S.E.2d 327, 330 (S.C. 1999) (quotation marks, alteration, and citation
omitted).
“[U]nder South Carolina law, ‘[q]uestions of coverage and the duty of a liability
insurance company to defend a claim brought against its insured are determined by the
allegations of the [underlying] complaint.’” Auto Owners Ins. Co. v. Pers. Touch Med
Spa, LLC, 763 F. Supp. 2d 769, 776 (D.S.C. 2011) (quoting City of Hartsville v. S.C.
Mun. Ins. & Risk Fin. Fund, 677 S.E.2d 574, 578 (S.C. 2009)). In South Carolina, the
duty to defend is broader than the duty to indemnify. Ross Dev. Corp. v. Fireman’s Fund
Ins. Co., 809 F. Supp. 2d 449, 457 (D.S.C. 2011). “If the underlying complaint creates a
16
possibility of coverage under an insurance policy, the insurer is obligated to defend.”
City of Hartsville, 677 S.E.2d at 578 (citing Gordon-Gallup Realtors, Inc. v. Cincinnati
Ins. Co, 265 S.E.2d 38 (S.C. 1980)) (emphasis added).
This Court has previously explained, “[T]he duty to defend is triggered where the
underlying complaint includes any allegation that raises the possibility of coverage.”
Allstate Ins. Co. v. Ingraham, No. 7:15-cv-3212-BHH, 2017 WL 976301, at *5 (D.S.C.
Mar. 14, 2017) (quotation marks and citation omitted). “[C]lauses of inclusion should be
broadly construed in favor of coverage, and when there are doubts about the existence
or extent of coverage, the language of the policy is to be ‘understood in its most
inclusive sense.’” Cook v. State Farm Auto. Ins. Co., 656 S.E.2d 784, 786 (S.C. Ct. App.
2008) (quoting Buddin v. Nationwide Mut. Ins. Co., 157 S.E.2d 633, 635 (1967)).
“Courts should not, however, ‘torture the meaning of policy language in order to extend’
or defeat coverage that was ‘never intended by the parties.’” Cook, 656 S.E.2d at 78687 (quoting Torrington Co. v. Aetna Cas. & Sur. Co., 216 S.E.2d 547, 550 (S.C. 1975)).
The possibility of coverage triggering an insurer’s duty to defend may also be
determined by facts outside of the complaint that are known by the insurer. City of
Hartsville, 677 S.E.2d at 578 (citing USAA Prop. & Cas. Ins. Co. v. Clegg, 661 S.E.2d
791, 798 (S.C. 2008)). In City of Hartsville, the Supreme Court of South Carolina
indicated that orders issued by the underlying trial court may be considered when
determining whether the underlying claims create a possibility of coverage under an
insurer’s liability policy. See 677 S.E.2d at 576-80.
17
DISCUSSION
I.
Applicability of the Policy’s Commercial Property Coverage Form
Defendant argues that the Policy’s Commercial Property Coverage Form does
not apply to the loss of copper because, under the terms of the Policy, Gibbs cannot
establish: (1) that it sustained a direct physical loss; (2) that this loss was sustained by
Covered Property; (3) that this loss was directly caused by a Covered Cause of Loss;
(4) that the cause of this loss was not excluded by the Policy; and (5) that it had an
interest in the property at the time of loss. (ECF No. 53-1 at 15-16.) Accordingly,
Defendant contends that it is entitled to summary judgment because it need only show
that Gibbs lacks sufficient evidence to prove its breach of contract claim against ACE.
See Roper Hosp., Inc. v. United States, 869 F. Supp. 362, 366 (D.S.C. 1994); Garrett v.
Pilot Life Ins. Co., 128 S.E.2d 171 (S.C. 1962) (“[T]he insured [has] the burden of
showing that his injury was covered by the terms of the policy.”) (citations omitted).
First, Defendant cites this Court’s ruling in the Companion case that under the
F.O.B. Port delivery term in Gibbs’ agreement with Southern Recycling, “delivery” was
not achieved until the copper was put into the hands of the ocean carrier at the Port of
Manila. (See Companion Case ECF No. 65 at 10.) Gibbs’ agreement with Regent
Phoenix contained a materially identical delivery term. (See ECF No. 24-2 at 2.)
Therefore, Defendant argues, Gibbs did not “own” the copper that it contracted for until
it was delivered to the Port. Because all the available evidence indicates that the
substitution of the containers’ contents occurred prior to arrival at the Port, Defendant
avers that Gibbs never acquired an ownership interest in the copper and that the copper
falls outside the coverage limitations of the Policy.
18
Second, Defendant argues that the necessary corollary to Gibbs’ lack of
ownership over the copper is that the “loss” sustained was the funds transferred by
Gibbs to its faithless contract partner, Regent Phoenix, not the copper itself. Defendant
notes that a loss must be to “Covered Property” in order to invoke coverage, and
Section II(B)(1) of the Commercial Property Coverage Form provides that “Covered
Property” does not include “accounts, bills, currency, food stamps or other evidence of
debt, money, notes [or] securities.” (ECF No. 24-1 at 139.) Even if the lost funds could
be considered “Covered Property,” Defendant asserts, Gibbs’ did not sustain a “direct
loss” because losses incurred as a result of bad business deals or third-party fraud are
deemed indirect. See, e.g., Lissauer v. Fireman’s Fund Ins. Companies, 459 F. App’x
67 (2d Cir. 2012) (affirming district court’s finding, as a matter of law, that monies lost
during twenty years of investing in the Madoff Ponzi scheme did not constitute direct
loss).
Third, Defendant argues that the Policy’s additional coverage for goods in transit
does not apply. As an initial matter, the Commercial Property Coverage Form
specifically excludes from the “Covered Property” definition: “property in transit, except
as otherwise provided by this Coverage Form.” (ECF No. 24-1 at 140.) However, the
“Transit” provision under the “Additional Coverages” section states:
This Coverage Form covers the following Personal Property, except as
excluded in the sub-paragraphs below or elsewhere in this Coverage
Form, while such Personal Property is in due course of transit by any
means of conveyance (except ocean marine vessels and aircraft) within
the Coverage Territory of this Coverage Form: (1) Personal Property
owned by the Insured. (2) Personal Property of others in the Insured’s
custody, to the extent of the Insured’s interest or legal liability.
(Id. at 156.) Yet, the “Additional Coverages” section makes clear that additional
19
coverages “are subject to the applicable LIMIT OF LIABILITY and SUB-LIMITS OF
LIABILITY shown in Item VI. of the DECLARATIONS,” that they “will not increase the
Occurrence Limit,” and that they “are subject to all provisions of this Coverage Form,
including applicable exclusions and Deductibles.” (Id. at 141-42.) Thus, Defendant avers
that Gibbs’ claim to additional coverage under subsection (1) of the “Transit” provision is
no more successful than its general claim to coverage under the Policy because it did
not “own” the copper within the meaning of that provision, and it cannot designate
specific facts showing that a specific quantity of copper was “in due course of transit”
when it disappeared—i.e., there is no evidence to show precisely where in the
warehouse-to-Port pipeline the copper was removed from any particular container. (See
ECF No. 53-1 at 21-22.) Moreover, Defendant asserts that subsection (2) of the
“Transit” provision cannot save Gibbs’ claim because there is no evidence that copper
was ever in Gibbs’ “custody”—i.e., Mr. Hemsath’s intermittent presence at the Sucat
warehouse during loading did not constitute dominion over the goods, and Regent
Phoenix was responsible for “all costs of loading [and] inland freight to Manila port”
under the terms of its agreement with Gibbs. (See id. at 22.)
Fourth, Defendant contends that even if Gibbs’ loss of funds could be construed
as a direct loss to Covered Property, coverage would be excluded because the Policy
provides that it does not cover “loss, damage, cost, or expense resulting from the
voluntary parting with title to or possession of property if induced by any fraudulent
scheme, trick, device, or act or by false pretence.” (ECF No. 24-1 at 159.) Moreover, the
Commercial Property Coverage Form also excludes any “mysterious disappearance,
20
loss or shortage disclosed on taking inventory, or any unexplained loss.”4 (Id. at 158.)
Finally, Defendant argues that if Gibbs acquired an ownership of some copper prior to
delivery, then Regent Phoenix must have been transporting that copper to the Port on
Gibbs’ behalf, in which case the loss would be excluded as arising from “[a] dishonest
act, including but not limited to theft, committed alone or in collusion with others, at any
time . . . by any proprietor, partner, director, trustee, or officer of any business or entity
(other than a common carrier) engaged by an Insured to do anything in connection with
Covered Property.” (Id. at 161.)
In response, Plaintiff argues that under the ordinary, dictionary definitions of
“owned,” which means “belonging to,” and “loss,” which includes losing something, it is
reasonable to conclude that Gibbs owned approximately 500,000 pounds of copper wire
that was subsequently stolen from thirteen shipping containers, such that there was a
“direct physical loss” of property owned by the insured. (See ECF No. 54 at 20.) Plaintiff
asserts that the terms of Gibbs’ agreement with Regent Phoenix demonstrate “the intent
of the contracting parties . . . for Gibbs to purchase 500,000 pounds of actual copper
wire, and not just a contractual right to delivery of the copper at a later date.” (Id. at 2021.) Moreover, Plaintiff asserts that Defendant mischaracterizes the import of the
Court’s ruling in the Companion Case with respect to Gibbs’ ownership interest over the
copper, and states, “Even if the Court were inclined to agree with ACE that Gibbs did
not acquire any ownership interest in the copper before delivery to the Port, it has not
been established as a matter of fact precisely when and where the containers were
4
Courts have upheld the application of this type of “mysterious disappearance” exclusion. See, e.g.,
Maurice Goldman & Sons, Inc. v. Hanover Ins. Co., 607 N.E.2d 792 (N.Y. App. 1992) (holding that an
exclusion for “unexplained loss,” “mysterious disappearance,” and “loss or shortage discovered on taking
inventory,” was unambiguous and applied to exclude jewelry loss where insured’s president could not say
how or where loss occurred).
21
robbed.” (Id. at 21-22.)
It should be remembered that an insurance policy does not, in itself, bestow upon
or deprive a party of property rights. Not surprisingly, Plaintiff avoids directly addressing
the F.O.B. Port term in Gibbs’ agreement with Regent Phoenix when discussing Gibbs’
putative ownership over the copper. The term is materially identical to the delivery term
at issue in the Companion Case. In its ruling on Southern Recycling’s motion for partial
summary judgment in the Companion Case, under a section entitled “The F.O.B. Term
and Its Meaning Under the Commercial Code,” the Court stated:
Section 36-2-319 of the South Carolina Commercial Code, entitled “F.O.B.
and F.A.S. terms,” states in relevant part:
(1) Unless otherwise agreed the term F.O.B. (which means “free on
board”) at a named place, even though used only in connection with
the stated price, is a delivery term under which
(a) when the term is F.O.B. the place of shipment, the seller must at
that place ship the goods in the manner provided in this chapter
(Section 36-2-504) and bear the expense and risk of putting them
into the possession of the carrier . . . .
S.C. Code § 36-2-319 (emphasis added). The Official Comment section of
the statute describes the general purpose of the F.O.B. provisions in the
Commercial Code, stating: “This section is intended to negate the
uncommercial line of decision which treats an ‘F.O.B.’ term as ‘merely a
price term.’” S.C. Code Ann. § 36-2-319, cmt. 1. Moreover, the associated
South Carolina Reporter’s Comments state, “In addition to being a price
term, the parties also use the term to indicate the point at which title
passes and delivery takes place,” and with respect to § 36-2319(1)(a), “In addition to the allocation of payment of freight charges,
the risk of loss during handling and shipment passes to the buyer at
the F.O.B. point.” S.C. Code Ann. § 36-2-319.
(Companion Case ECF No. 65 at 5-6 (emphasis added).) In other words, the reason
Gibbs’ bore the risk of loss under the Southern Recycling contract was precisely
because title to the goods did not transfer to the buyer until the F.O.B. point had been
22
reached. The same is true of Gibbs’ agreement with Regent Phoenix, Plaintiff’s
references to amorphous sources of ownership rights notwithstanding. This
determination of when ownership rights would transfer squares with a reconciliation of
the two contracts, in the first of which seller Regent Phoenix warrants its absolute right,
title, and interest in the copper, and in the second of which seller Gibbs makes no such
warranty. (Compare ECF No. 24-2 at 2 (Additional Terms), with ECF No. 24-3 at 2
(Other Terms).) Given that the remaining contractual terms are in all relevant respects
the same, the Court can only assume that Gibbs’ omission of any claim to title in the
second contract was intentional. (See id.) It is clear, then, that Gibbs’ title and interest in
the goods was set to spring into existence at the same moment it transferred those
rights to Southern Recycling. Thus, the Court agrees with Defendant that the loss of the
copper itself falls outside the coverage limits of the Policy insofar as the claim for
“Covered Property” is premised upon Gibbs’ putative ownership of the property in
question. (See Commercial Property Coverage Form, Section II.A.4.c.(1), ECF No. 24-1
at 138 (including “Personal Property that is owned by . . . the Insured”).) Importantly, to
the extent “Covered Property” might be premised upon Gibbs’ legal liability for loss or
damage to the property of others that was in Gibbs’ “custody,” the applicable sub-limits
of liability in the declarations indicate that such legal liability was “NOT COVERED.”
(See id. Section II.A.4.c.(3)(C) (including “Personal Property that is owned by . . . others
that is in the Insured’s custody”); Commercial Property Declarations VI.B., ECF No. 241 at 23 (indicating no coverage for legal liability pertaining to commercial property).)
In its opposition brief, Plaintiff itemizes the following as a list of “material facts
[that] remain in dispute”:
23
1. The point or points in time at which thieves stole the copper cargo from
each of the thirteen shipping containers and replaced the cargo with
concrete blocks or slag—none of the representatives for Gibbs or
Southern Recycling re-opened the containers after they were loaded and
sealed at the warehouse in Sucat and no one knows for sure what was in
the containers at each leg of the journey. (See Biggerstaff Dep. 150;
Boozer Dep. 161; Hemsath Dep. 57; Gibbs Exhibits 28, 33, & 34).
2. The location or locations from which thieves stole the copper cargo from
each of the thirteen shipping containers and replaced the cargo with
concrete blocks or slag— again, none of the representatives for Gibbs or
Southern Recycling re-opened the containers after they were loaded and
sealed at the warehouse in Sucat and no one knows for sure what was in
the containers at each leg of the journey. (See Biggerstaff Dep. 150;
Boozer Dep. 161; Hemsath Dep. 57; Gibbs Exhibits 28, 33, & 34).
Additionally, some of the containers stayed in Sucat overnight, but three
containers were loaded with copper and departed for the Port on the same
day. (See Ford Dep. 82–83; Gibbs Exhibits 28, 33, & 34).
3. Whether or not the copper cargo was “recycled”—CNA’s investigator
testified that he had an “informed suspicion” that the copper may have
been recycled, but he admitted he did not have “conclusive evidence” of
recycling. (Ford Dep. 59). Additionally, Southern Recycling’s
representatives who were physically present during the loading and
shipping process were satisfied that 500,000 pounds of copper were
present and properly delivered. (See Dignos Dep. 76–77, 83–85, 131;
Boudreaux Dep. 29; Ford Dep. 109–13).
(ECF No. 54 at 7-8.) Putting aside the fact that this list is composed of the same
essential concept recycled three different ways—namely, “no one knows” precisely what
happened to the copper that was loaded or when it was removed—it is immediately
apparent that any “dispute” implicated by these facts is not “genuine.” See Anderson,
477 U.S. at 257. Plaintiff has not set forth any evidence to suggest that the copper
loaded into Southern Recycling’s shipping containers in Sucat was removed at some
other point along the shipping journey than either: (1) the warehouse, or (2) en route to
the Port. Merely highlighting the investigator’s inability to establish the precise point or
modality of theft with certainty does not, in itself, invalidate the ample evidence that
exists to support the conclusion that the copper was removed before the containers
24
entered the Port. (See Ford Dep. 28:15, 32:16-33:2, 58:25-59:17, 158:21-160:4, 165:23168:5, ECF No. 54-11 at 9-10, 17, 42-43.) The assertion that the removal might have
happened at some other unidentified location along the shipping route is pure
speculation and is belied by: (1) signs of tampering with the shipping containers
materializing between the warehouse and the Port (as reflected in ASI’s photographs);
(2) dramatically different weights for some containers between the warehouse and the
Port, but matching weights for those same containers between the Port and arrival in
Dallas; and (3) indisputably manipulated EIRs submitted by Regent Phoenix to mask
the weight differentials and gain payment from Gibbs. (Id.) Plaintiff cannot avoid the
entry of summary judgment by isolating insignificant sources of uncertainty in the record
and buttressing that uncertainty with speculation. See Beale, 769 F.2d at 214; Ennis, 53
F.3d at 62. The law requires the Court to construe the facts in the light most favorable to
Plaintiff and draw all reasonable inferences in Plaintiff’s favor. It does not, however,
compel the Court to ignore the clear import of record evidence or pretend that such
evidence does not exist. The only evidence available to determine “when and where the
containers were robbed” clearly shows that the fraud occurred prior to Port entry.
Plaintiff next argues that Defendant has not met its burden of establishing that
the exclusions on which it relies are applicable. With respect to the exclusion that
precludes coverage for loss that results from “any fraudulent scheme, trick, device, or
act or by false pretence,” Plaintiff merely asserts, “ACE cannot establish that this
exclusion applies because Gibbs did not ‘voluntarily part[] with title to or possession of
property.’” (ECF No. 54 at 23.) Assuming for the sake of argument that the copper
loaded into containers at the warehouse was in Gibbs’ “possession”—a factual claim
25
that has virtually no support in the record given the terms of the Regent Phoenix
agreement and Mr. Hemsath’s intermittent presence at the warehouse—it is hard to
square this assertion with what actually happened. It is unclear how Plaintiff can say
that it did not voluntarily relinquish such putative possession when it left the containers
at the warehouse overnight and entrusted Regent Phoenix with sole responsibility for
delivery to the Port. Moreover, it is undisputed that the loss of the copper was induced
by a fraudulent scheme. Suffice it to say, this exclusion applies inexorably to the facts at
issue and coverage would be excluded even if the lost copper qualified as “Covered
Property.”
With respect to the exclusion that precludes coverage for loss that is
“unexplained” or arises from a “mysterious disappearance,” Plaintiff argues simply that
there was no “mysterious disappearance” or “unexplained loss” because the copper
was “stolen by thieves at some point in the logistics chain.” (ECF No. 54 at 22-23.)
However, it is hard to reconcile this argument with Plaintiff’s repeated insistence that “no
one knows for sure” what happened to the contents of the containers after they were
loaded. (See id. at 5, 7-8.) In any event, the “mysterious disappearance” exclusion
would only be triggered as an alternative to the “fraudulent scheme” exclusion—i.e., if
one were to blindly ignore the clear indicators of fraud present in the record—which the
Court has already found directly applicable under the circumstances.
Plaintiff does not even attempt to explain why the exclusion of coverage for loss
that arises from “[a] dishonest act, including but not limited to theft” by any “officer of
any business or entity . . . engaged by an Insured to do anything in connection with
Covered Property” should not apply. (ECF No. 24-1 at 161.) This is understandable
26
given Plaintiff’s repeated assertions that “theft” occurred, and given the unavoidable
significance of Regent Phoenix doctoring the EIRs submitted to Gibbs for payment and
Regent Phoenix principal, Roger Lee’s, refusal to respond to Gibbs’ inquiries (see supra
n.3). Accordingly, the Court finds that this exclusion provides an additional bar to
coverage.
Next, Plaintiff argues that the “Transit” provision under the “Additional
Coverages” section saves its claim: “To the extent that any of the thefts occurred when
the copper was ‘in due course of transit,’ this ‘Additional Coverages’ section applies
because, as explained above, Gibbs owned the copper at the time of the loss and there
was a direct physical loss of the copper.” (ECF No. 54 at 23-24.) Plaintiff also notes that
the specific exclusions advanced by Defendant do not apply to additional coverage for
transit losses. (Id.; see Section II.C.31.c., ECF No. 24-1 at 157 (itemizing a limited
subset of exclusions that apply to the “Transit” provision).)
Although the “Transit” provision eliminates the general exclusion of “property in
transit” from the definition of “Covered Property” (see Section II.B.8., ECF No. 24-1 at
140), the other limitations in that definition remain in full force and effect. It bears
repeating that the “Additional Coverages” section explicitly states the additional
coverages “are subject to the applicable LIMIT OF LIABILITY and SUB-LIMITS OF
LIABILITY shown in Item VI. of the DECLARATIONS” and “are subject to all provisions
of [the Commercial Property] Coverage Form.” (Section II.C.1.a. & c., ECF No. 24-1 at
141-42.) Thus, merely asserting that the goods were lost “in transit” does not escape
the problems that frustrate Gibbs’ generic property loss claim explained above: (1) a
lack of “ownership” over the copper, and (2) no coverage for legal liability pertaining to
27
the property of others in the insured’s “custody.” (See supra at 22-23.) In other words,
the “Transit” provision does not somehow provide special status to goods “in transit”
such that the property in question need not satisfy the typical definitional requirements
to qualify for coverage. Moreover, even if Plaintiff was able to surmount these
impediments to its invocation of the “Transit” provision, it would have to be able to set
forth specific facts showing that definite quantities of copper were “in due course of
transit” when they were stolen. see Celotex, 477 U.S. at 322-23; see also Sunex Int’l,
Inc. v. Travelers Indem. Co. of Ill., 185 F. Supp. 2d 614, 617 (D.S.C. 2001) (“The burden
of proof is on the insured to show that a claim falls within the coverage of an insurance
contract.” (citing Gamble v. Travelers Ins. Co., 160 S.E.2d 523, 525 (S.C. 1968)).
Plaintiff would be hard pressed to do so given its confessed lack of knowledge as to the
fate of the copper once the containers were sealed at the warehouse. Correspondingly,
the Court would be hard pressed to construe “due course of transit” to include what
Defendant aptly describes as the “undisputed criminal machinations of Regent
Phoenix.” (See ECF No. 53-1 at 22.)
Finally, Plaintiff argues that if coverage exists under the basic insuring agreement
of the Commercial Property Coverage Form for property that was stolen while it was not
in “due course of transit,” then Gibbs would be entitled to coverage up to the limit of
liability under that agreement, namely $3,800,000. (See ECF No. 24-1 at 22.) With
respect to property stolen while in transit, there is a limit of $125,000 per occurrence,
subject to a $25,000 deductible per occurrence. (See id. at 24, 26.) Plaintiff asserts that
there was an “occurrence” each time copper was stolen from an individual shipping
container, and that thirteen separate policy limits for transit losses should be allowed.
28
(ECF No. 54 at 24-26.) However, these questions are moot because the Court has
already determined that Gibbs did not suffer a loss to “Covered Property,” and even if it
had coverage would be excluded due to the modality of loss.
In summary, the Court finds that no genuine dispute of material fact remains as
to coverage under the Commercial Property Coverage Form, and grants summary
judgment to Defendant on this basis.
II.
Applicability of the Policy’s Commercial General Liability Form
The South Carolina Supreme Court has explained that, while a CGL insurance
policy “provides coverage for all the risks of legal liability encountered by a business
entity, with coverage excluded for certain specific risks,” CGL insurance “is not intended
to insure business risks, i.e., risks that are normal, frequent, or predictable
consequences of doing business, and which business management can and should
control or manage.” Auto Owners Ins. Co., Inc. v. Newman, 684 S.E.2d 541, 547-48
(S.C. 2009) (citing Isle of Palms Pest Control Co. v. Monticello Ins. Co., 459 S.E.2d 318
(S.C. Ct. App. 1995), aff’d, 468 S.E.2d 304 (1996) (general liability policy is intended to
provide coverage for tort liability for physical damage to property of others; it is not
intended to provide coverage for insured’s contractual liability which causes economic
losses)) (quotation marks and citations omitted).
The CGL Coverage Form at issue covers “property damage” caused by an
“occurrence” that takes place in the “coverage territory.” (ECF No. 24-1 at 34.)
Defendant argues, generally, that Plaintiff cannot substantiate its burden to prove
“property damage” and an “occurrence” as defined in the Policy. (See ECF No. 53-1 at
25-29.) Questions of coverage and the duty of an insurance company to defend a claim
29
brought against its insured are determined by the allegations in the underlying
complaint. Auto Owners Ins. Co. v. Pers. Touch Med Spa, LLC, 763 F. Supp. 2d at 776.
Here the allegations in Southern Recycling’s complaint against Gibbs were that the
copper was removed prior to the containers arrival at the Port of Manila, that Gibbs
breached its contract with Southern Recycling by failing to deliver the copper as
specified, and that Southern Recycling suffered damages principally in the form of the
purchase price it paid to Gibbs. (Compl. ¶¶ 19, 24-27, Companion Case ECF No. 1 at
4.)
Defendant argues, and the Court agrees, that the loss implicated in Southern
Recycling’s complaint against Gibbs does not constitute “property damage” under the
terms of the CGL Coverage Form. The Policy defines “property damage” as “physical
injury to tangible property, including all resulting loss of use of that property,” and “loss
of use of tangible property that is not physically injured.” (ECF No. 24-1 at 61.) In
general, economic damages do not qualify as “property damage.” See, e.g., AutoOwners Ins. Co. v. Carl Brazell Builders, Inc., 588 S.E.2d 112, 115-16 (2003) (holding,
under an identical “property damage” definition, that no property damage occurred and
contractors’ CGL policies provided no coverage because homeowners alleged only
economic damages). As already detailed above, neither Southern Recycling nor Gibbs
ever obtained title to the copper that was placed into the shipping containers at the
warehouse. When Gibbs failed its contractual duty to deliver the copper, Southern
Recycling sought to hold Gibbs responsible for its substantiated damages, which were
primarily the purchase price that Gibbs refused to refund. These damages were
economic in nature and do not qualify as “property damage” under the CGL Coverage
30
Form.
Moreover, Southern Recycling’s allegations in the Companion Case do not
implicate an “occurrence” as defined in the CGL Coverage Form. Gibbs’ refusal to
refund the purchase price was an intentional and considered choice and cannot
reasonably be construed as an “accident.” (See ECF No. 24-1 at 59); see also CRC
Scrap Metal Recycling, LLC v. Hartford Cas. Ins. Co., No. 7:12-146-HMH, 2012 WL
4903661, at *4-5 (D.S.C., October 15, 2012) (“Injury that is caused directly by
negligence must be distinguished from injury that is caused by a deliberate and
contemplated act initiated at least in part by the actor’s negligence at some earlier point.
The former may be an accident.”) Thus, the Court finds that the Companion Case did
not allege property damage arising from an “occurrence” and, therefore, did not raise
the possibility of coverage under the CGL Coverage Form.
Finally, the CGL Coverage Form contains an exclusion for “‘property damage’ for
which the insured is obligated to pay damages by reason of the assumption of liability in
a contract.” (ECF No. 24-1 at 35.) Even if Plaintiff was able to show that the Companion
Case involved “property damage” arising from an “occurrence,” this provision would
apply and exclude coverage for Gibbs’ assumption of liability in its contract with
Southern Recycling. This finding is consistent with the principle recognized in South
Carolina that a general liability policy is intended to provide coverage for tort liability, not
economic losses from the insured’s contractual liability. See Isle of Palms Pest Control,
459 S.E.2d at 320
In conclusion, the Court finds that no genuine issue of material fact remains as to
coverage under the CGL Coverage Form, and grants summary judgment to Defendant
31
on this basis.
CONCLUSION
After careful consideration of the parties’ briefs and the associated record the
Court hereby GRANTS Defendant’s motion for summary judgment (ECF No. 53). Thus,
the Court finds, as a matter of law, that neither Gibbs’ loss to Regent Phoenix nor
Gibbs’ liability to Southern Recycling were covered by the Policy.
IT IS SO ORDERED.
/s/ Bruce Howe Hendricks
United States District Judge
March 30, 2018
Greenville, South Carolina
32
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