National Union Fire Ins. Co. of Pittsburgh, Pa. v. Care Flight Air Ambulance Service, Inc.

• Decision Date: 12 April 1994
• Docket Number: No. 93-1154,93-1154
• Citation: 18 F.3d 323
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Plaintiff-Appellee-Cross-Appellant, v. CARE FLIGHT AIR AMBULANCE SERVICE, INC., ET AL., Defendants-Appellees, General Electric Capital Corp. and Avemco Insurance Co., Defendants-Appellants-Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 323

18 F.3d 323

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA Plaintiff-Appellee-Cross-Appellant, v. CARE FLIGHT AIR AMBULANCE SERVICE, INC., ET AL., Defendants-Appellees General Electric Capital Corp. and Avemco Insurance Co. Defendants-Appellants-Cross-Appellees.

No. 93-1154.

United States Court of Appeals Fifth Circuit.

April 12, 1994.

F. Franklin Honea, Payne & Vendig, P.C., Dallas, TX, for appellant.

Cynthia Hollingsworth and Stacy Obenhaus, Gardere & Wynne, Dallas, TX, for Nat. Union Fire Ins. Co.

Care Flight Air Ambulance Service, Inc., pro se.

Appeals from the United States District Court for the Northern District of Texas.

Before REAVLEY and DAVIS, Circuit Judges, and ROSENTHAL, ^* District Judge.

ROSENTHAL, District Judge:

On March 3, 1989, General Electric Capital Corporation, ("GECC"), leased a Piper Cheyenne 400LS aircraft to Care Flight Air Ambulance Service, Inc. ("Care Flight"). The lease prohibited Care Flight from subleasing the aircraft without GECC's consent, and required Care Flight to insure the plane. On March 5, 1989, Care Flight obtained an insurance policy from National Union Fire Insurance Co. of Pittsburgh, PA. ("National Union"). The policy contained a war risk endorsement and a breach of warranty endorsement. The breach of warranty endorsement named GECC as a beneficiary along with the named insured, Care Flight. The breach of warranty endorsement contained a clause excluding coverage for loss due to conversion by or at the direction of the named insured. GECC's interest in the plane was insured by AVEMCO.

Without seeking authorization from GECC, Care Flight subleased the aircraft to James Coltharp ("Coltharp"), an admitted violation of the lease. Coltharp in turn subleased it to Anthony Contraras ("Contraras"). There was a dispute in the summary judgment evidence as to whether Care Flight participated in or knew of this sublease to Contraras. It is undisputed that Contraras flew the plane to several Central American countries, and that while the aircraft was in Contraras's possession, the Colombian government seized the plane for violation of Colombian air traffic laws.

GECC was notified by Care Flight on September 1, 1989 that the aircraft had been confiscated. The aircraft was not returned to the United States until almost three years later. Before the plane was returned, AVEMCO paid GECC, its insured, $2.5 million for the plane. Asserting subrogation rights, AVEMCO demanded that National Union pay AVEMCO under National Union's policy with Care Flight. National Union then filed this declaratory relief action and moved for summary judgment that coverage was precluded because Care Flight had converted the plane.

The district court granted summary judgment in favor of National Union, ruling that Care Flight had converted the aircraft as a matter of law and that the conversion limitation in the breach of warranty endorsement precluded coverage. Final judgment was entered on February 16, 1993.

In this appeal, GECC and AVEMCO assert that the district court erred in finding that Care Flight had converted the plane and in holding that the conversion limitation in the breach of warranty endorsement precluded coverage. National Union cross-appealed from the district court's refusal to award part of National Union's attorneys' fees incurred in its dispute with GECC and AVEMCO.

I. Standard of Review

This court reviews summary judgments de novo. Fireman's Fund Ins. Co. v. Murchison, 937 F.2d 204, 207 (5th Cir.1991); Mozeke v. International Paper Co., 856 F.2d 722, 725 (5th Cir.1988). The issue before this court is whether any questions of material fact exist that bar the moving party from judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323-25, 106 S.Ct. 2548, 2552-54, 91 L.Ed.2d 265 (1986); American Economy Ins. Co. v. Tomlinson, 12 F.3d 505, 507 (5th Cir.1994). In making this determination, this court must view all fact questions in the light most favorable to the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986); United States v. Park Towers, Inc., 8 F.3d 306, 309 (5th Cir.1993). This court reviews matters of contract interpretation de novo. Travelers Ins. Co. v. Liljeberg Enterprises, Inc., 7 F.3d 1203, 1206 (5th Cir.1993); Matador Drilling Co. v. Post, 662 F.2d 1190, 1197 (5th Cir.1981).

II. The Relevant Policy Language

National Union's policy contained a breach of warranty endorsement insuring against physical damage to the aircraft. The endorsement provided in part as follows:

1. As to the interest of the said Lienholder only, the Insurance afforded by any Physical Damage Coverage of this policy shall not be invalidated by any act or neglect of the Named Insured nor by any change in the title or ownership of the aircraft but conversion, embezzlement or secretion by or at the direction of the Named Insured is not covered hereunder; provided however that:

(a) in case the Named Insured shall neglect to pay any premium due under this policy the Lienholder shall, on demand, pay the premium; and

(b) the Lienholder shall notify the Company of any change of title or ownership of the aircraft or apparent increase of hazard, which shall come to the knowledge of the Lienholder, and, unless permitted by this policy, it shall be endorsed thereon and the Lienholder shall, on demand, pay the premium for such increased hazard.

(III R. 35).

Page 2 of the main body of the insurance policy contained the policy's coverage exclusion. Paragraph 6(a) of the policy excluded from coverage "loss or damage due to conversion ... by any person in possession of the aircraft under a bailment, lease ... or other encumbrance." (III R. 25).

The policy also included a war risk endorsement, which provided that "notwithstanding anything in the policy to the contrary," the policy covered physical loss of or damage to the aircraft if caused by "[c]onfiscation, nationalisation [sic], seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government." (III R. 31). Both the breach of warranty endorsement and the war risk endorsement stated that "[n]othing herein contained shall vary, alter, waive or extend any of the terms, provisions, representations, conditions or agreements of the policy other than as above stated." (III R. 31, 35)

III. Conversion As a Matter of Law

The district court found that the unauthorized sublease, resulting in the confiscation, was a conversion as a matter of law. Texas law defines conversion as "the unauthorized and unlawful exercise of dominion and control over property inconsistent with or to the exclusion of another's superior rights in that property." Vickery v. Texas Carpet Co., 792 S.W.2d 759, 762 (Tex.App.--Houston [14th Dist.] 1990, writ denied); Waisath v. Lack's Stores, Inc., 474 S.W.2d 444, 446 (Tex.1971). Under Texas law, wrongful intent is not an element of conversion. Killian v. Trans Union Leasing Corp., 657 S.W.2d 189 (Tex.App.--San Antonio 1983, writ ref'd n.r.e.). GECC and AVEMCO claim that because Care Flight's conduct breached its lease contract, such conduct cannot as a matter of law constitute the tort of conversion.

Texas law has long distinguished tort liability from contract liability as between the parties to a contract, seeking to avoid the availability of both tort and contract liability for the same conduct and the same kind of harm or loss. See Southwestern Bell Telephone Co. v. DeLanney, 809 S.W.2d 493 (Tex.1991); Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex.1986); Mid-Continent Aircraft Corp. v. Curry County Spraying Service Inc., 572 S.W.2d 308, 312 (Tex.1978). However, the Texas cases also recognize that when certain legal relationships exist between contracting parties, the law may impose affirmative duties that are separate and apart from the contractual promises made between those parties. To determine whether conduct that breaches a contract can also be a tort, Texas law requires a court to look to the origin of the duty owed and the nature of the resulting injury. 809 S.W.2d at 494-95.

In Southwestern Bell Telephone Co. v. DeLanney, the Texas Supreme Court described the relevant inquiry into the origin of the duties owed, as follows:

As one prominent authority has explained: "Tort obligations are in general obligations that are imposed by law--apart from and independent of promises made and therefore apart from the manifested intention of the parties--to avoid injury to others." W. Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser and Keeton On the Law of Torts Sec. 92 at 655 (5th Ed.1984).... If the defendant's conduct--such as negligently burning down a house--would give rise to liability independent of the fact that a contract exists between the parties, the plaintiff's claim may also sound in tort. Conversely, if the defendant's conduct--such as failing to publish an advertisement--would give rise to liability only because it breaches the parties' agreement, the plaintiff's claim ordinarily sounds only in contract.

809 S.W.2d at 494.

In Southwestern Bell v. DeLanney, the plaintiff sued over Southwestern Bell's breach of its promise to print plaintiff's advertising in the "yellow pages." The Texas Supreme Court examined the origin of the duties between the parties and found that the only duty breached arose from the contract itself. The court held that the plaintiff therefore had no tort claim.

In this case, Care Flight owed GECC a contractual duty not to sublease the aircraft without GECC's consent. However, under the Texas law of bailment, Care Flight also owed GECC a tort-based duty not to exercise unauthorized dominion and control over the leased plane inconsistent with, or to the exclusion of, GECC's superior rights in the plane. Vickery, 792 S.W.2d at 762. Care Flight's unauthorized sublease of the plane to Coltharp was admittedly a breach of the contract. The issue is...