Eagle Leasing Corp. v. Hartford Fire Ins. Co.

• Decision Date: 22 October 1976
• Docket Number: No. 74-3858,74-3858
• Parties: EAGLE LEASING CORPORATION, Olin Corp. and Nilo Barge Line, Inc., Plaintiffs-Appellees, v. HARTFORD FIRE INS. CO., Defendant-Third-Party Plaintiff-Appellant, v. NAT'L CASUALTY CO., etc., et al., Third-Party Defendants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1257

540 F.2d 1257

EAGLE LEASING CORPORATION, Olin Corp. and Nilo Barge Line, Inc., Plaintiffs-Appellees, v. HARTFORD FIRE INS. CO., Defendant-Third-Party Plaintiff-Appellant, v. NAT'L CASUALTY CO., etc., et al., Third-Party Defendants.

No. 74-3858.

United States Court of Appeals, Fifth Circuit.

Oct. 22, 1976.

Overton T. Harrington, Jr., Brunswick G. Deutsch, New Orleans, La., for plaintiff-appellant.

George A. Frilot, III, New Orleans, La., for plaintiffs-appellees.

Appeal from the United States District Court for the Eastern District of Texas.

Before WISDOM, COLEMAN and GEE, Circuit Judges.

WISDOM, Circuit Judge:

This appeal presents an unusual question involving the construction of the Protection and Indemnity (P & I) coverage afforded by a policy of marine indemnity insurance. The Hartford Fire Insurance Company (Hartford) appeals from a district court holding that it must indemnify the insured, Olin Corporation (formerly Olin Mathieson Corporation), and its affiliates, Eagle Leasing Corporation, and Nilo Barge, Inc. (collectively referred to as Olin), for attorneys' fees and expenses incurred in the defense of a suit against Olin by Sun Oil Company. See E.D.Tex. 1974, 384 F.Supp. 247. The fleet policy was issued and delivered to Olin in St. Louis, Missouri, on January 1, 1967, and also included coverage for Hull and Machinery, Cargo, and Charter's Legal Liability. The policy period was three years subject to payment of renewal premiums that were to be recomputed annually on the basis of Olin's loss record.

The renewal premium for 1969 quoted to Olin in December 1968, was $583,000, more than double the rate for 1968. Hartford asserts that this increase was due to extensive fleet losses during 1968. Olin soon notified Hartford that it intended to seek coverage with other insurers. After Hartford had granted two extensions of its existing policy in January 1969, Olin obtained fleet insurance from new insurers. Its policy with Hartford was terminated by mutual consent on January 27, 1969. All premiums accruing through that date were paid.

Before the termination of the Hartford policy, Olin experienced a fleet loss at sea. On November 16, 1968, Barge NL-701, owned by Eagle Leasing, but under bareboat charter to Olin and sub-charter to Nilo Barge, sank in the Gulf of Mexico about 50 miles from Galveston, Texas. Search and salvage operations were initiated soon afterwards. The bow of the vessel was raised to the surface by February 13, 1969, but the stern remained embedded in the mud bottom eleven fathoms below. At this point, severe weather caused the salvage operations to cease. During the ensuing storm the barge split into two sections. Further recovery efforts were later conducted, continuing into March 1969, when they became economically unwarranted. Olin then abandoned and sold the sunken wreck of the barge.

About two years later, on February 10, 1971, Sun Oil Company sued Olin for damage to its tanker, the S/S WESTERN SUN, which allegedly had struck Olin's sunken barge on February 14, 1969, Sun Oil's complaint alleged, in part, that Olin "failed and refused to remove" the barge and that it "failed and refused to light" or to "properly mark" it. Neither Hartford nor Olin had notice of the claim or loss before Sun filed suit. Olin tendered its defense to Hartford under the P & I provisions of its earlier policy with Hartford. The tender was refused on the ground that there was no coverage. ¹ Olin retained its own attorneys who tried the collision case on the merits. The district court denied any recovery by Sun Oil in its judgment, entered on January 29, 1973, on the ground that the Western Sun had struck an unidentified underwater object, not Olin's barge. ²

Meanwhile, Olin had commenced this action on June 2, 1971, seeking to establish its right to indemnification for attorneys' fees and expenses for defending the collision suit. The district court tried the case on stipulated facts and briefs. It held that the unambiguous and clear meaning of the P & I provisions of the policy created a legal obligation on the part of Hartford to indemnify Olin for its expenses in defending the Sun Oil suit. 384 F.Supp. at 250-251. "But even when such rules (relating to ambiguous insurance contracts) are applicable, adoption of any reasonable construction favorable to the Assured is mandatory." Id. at 251. We respectfully disagree with the district court's reading of the contested provisions, and with its statement of the rule of construction to be applied in this case.

I

The Hartford policy states that the coverage provided Olin is "in consideration of the payment of the premium for loss or damage which occurs during the policy period stated in the declarations . . ." This part of the policy was omitted when the policy was introduced as an exhibit; it appears however in the complete policy found in the supplemental appendix. The district court asserted in its opinion that the "policy does not require, necessarily, that a loss occur during the policy premium term". Id. at 250.

The relevant portion of the P & I policy reads:

It is agreed that if the Assured, as shipowners, shall have become liable to pay, and shall have in fact paid, any sum or sums in respect of any responsibility, claim demand, damages and/or expenses, or shall become liable for and shall pay any other loss arising from or occasioned by any of the following matters or things during the currency of this policy in respect of the ship hereby insured, that is to say:

(a) Loss or damage in respect of any other ship or boat, or in respect of any goods, merchandise, freight or other things or interests whatsoever, on board such other ship or boat, caused approximately or otherwise by the insured vessel, in so far as the same is not covered by the Running Down Clause in or attached to the policies on Hull and Machinery.

(b) Loss or damage to any goods merchandise, freight, or other things or interests whatsoever, other than as aforesaid, whether on board said vessel or not.

(c) Loss of life or personal injury, and for payments made on account of life salvage.

(d) Loss or damage to any harbor, dock, graving, or otherwise, slipway, way, gridiron, pontoon, pier, quay, jetty, stage, buoy, telegraph cable, or other fixed or movable thing whatsoever or to any goods or property in or on the same.

(e) Any attempted or actual raising, removal or destruction of the wreck of the insured vessel or the cargo thereof, or any neglect or failure to raise, remove or destroy the same.

(f) Liability for loss, damage or expense incurred in connection with or in resisting any unfounded claim by the master or crew or other persons employed on the vessel named herein, or in prosecuting such persons in case of mutiny or other misconduct.

(g) Net loss due to deviation incurred solely for the purpose of landing an injured or sick seaman in respect to port charges incurred, insurance, bunkers, stores, and provisions consumed as a result of the deviation.

This company will, subject to the reservations herein mentioned, pay to the Assured such proportion of the sum or sums so paid, for such loss, as the amount insured by this policy bears to the policy value of the ship hereby insured, and in case the liability of the Assured has been contested, with the consent in writing of two-thirds of the Underwriters on the ship hereby insured in amount, this Company will, subject to the conditions of this policy, also pay a like proportion of the costs which the Assured shall thereby become liable for and shall pay. (Emphasis added.)

The court read this language as providing coverage

upon the occurence of any of the listed matters or things during the premium term of the policy. The policy does not require, necessarily, that a loss occur during the policy premium term. One of the "matters or things" listed in Section (e) is neglect or failure to raise, remove, or destroy the wreck of an insured vessel. Therefore, the policy, as it applies to this item, reads as follows:

"It is agreed that if the Assured, as shipowners, shall have in fact paid any sum in respect of any expenses arising from or occasioned by any neglect or failure to raise, remove, or destroy the wreck of the vessel during the currency of this policy, this Company will pay to the Assured the sum or sums so paid."

In the prior suit, Sun Oil alleged that there had been neglect in raising or removing the Barge NL-701. At the time of the alleged striking by the S/S WESTERN SUN, the Barge NL-701 had been wrecked approximately three months. Of this period, all but approximately two weeks occurred during the policy's premium term. Clearly, Sun's lawsuit charged neglect during the currency of this policy. Therefore, the policy provided coverage beyond question.

Id. at 250.

The trial judge considered this conclusion bolstered by the distinctive language used in section (e). The six other sections each refer to either "loss", "damage", "injury", or "liability". He stated that, before an obligation to indemnify arises, one of these matters must have occurred during the policy premium term. He felt that because those terms are not used in section (e) only neglect to raise or remove a vessel must have occurred during the policy premium term, i. e. before January 27, 1969, to establish an obligation to indemnify.

We are unable to share the district court's conviction that the quoted language has an unambiguous meaning. The court, applying strict grammatical rules, asserts that the phrase "during the currency of this policy" must modify the words nearest it, i. e. "matters or things". It is far from conclusive that the time-qualifying phrase "during the currency of this policy" modifies "matters or things". Notwithstanding the terminology used in Sections (a) through (g), the quoted language makes equally good sense if the time-qualifying phrase modifies the term "loss" in the phrase "any other loss". It can also be...