Employers Ins. of Wausau v. Trotter Towing Corp.
| Citation | 834 F.2d 1206 |
| Decision Date | 04 January 1988 |
| Docket Number | No. 86-4790,86-4790 |
| Parties | EMPLOYERS INSURANCE OF WAUSAU, Plaintiff, v. TROTTER TOWING CORP., A Corp., et al., Defendants. TROTTER TOWING CORP., et al., Counter-Plaintiffs-Appellants Cross-Appellees, v. EMPLOYERS INSURANCE OF WAUSAU, Counter-Defendant-Appellee Cross-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Frank S. Thackston, Jr., Claude L. Stuart, III, Greenville, Miss., for appellants.
Gary T. Sacks, Joel K. Goldstein, St. Louis, Mo., Ernest Lane, III, Greenville, Miss., for appellee.
Appeals from the United States District Court for the Northern District of Mississippi.
Before CLARK, Chief Judge, GEE and RUBIN, Circuit Judges.
This case involves a dispute over whether a marine hull insurance policy issued by Employers Insurance of Wausau to Trotter Towing Corp. covers a fire that occurred on the vessel M/V SHENANDOAH. The district court erred in refusing to hold that, as a matter of law, the policy did not cover the fire. We affirm the district court's summary judgment denying punitive damages for alleged bad faith.
The policy in issue is the third consecutive annual policy contract between the parties. Trotter Towing Corp. (Trotter Towing) first purchased insurance policy number EWH-3095 from Employers Insurance of Wausau (Employers) for the period March 1, 1981 to March 1, 1982. This policy covered three motor vessels, two barges, and two flat decks valued from $50,000 to $5,000. A schedule of insured vessels showed the amount of coverage and the premium and deductible for each vessel. The first of this policy's eleven "Special Conditions," styled "Trading Warranty," stated: "Warranted confined to the use and navigation of the Mississippi River within 100 miles of Greenville, MS. M/V GLENDA S warranted laid-up and out of commission in a safe berth with permission to move as safety of the vessel require." The second Special Condition was styled "Automatic Acquisition Clause" (AAC). 1 This policy and both renewals provided in Special Condition 8A that the policy included "the affiliated and/or subsidiary companies of Trotter Towing Corporation as Additional Assureds hereunder." Endorsement No. 3 added M/V MARTHA TROTTER (MARTHA TROTTER) to the schedule of insured vessels as of September 11, 1981, "for one trip from St. Louis to Greenville at which time she will assume port risk status." This policy did not define "port risk status." Endorsement No. 4 inexplicably insured M/V SHENANDOAH (SHENANDOAH) for $1,000,000 during a five day period from "September 25, 1982 to September 30, 1982 " while "laid-up and out of commission in a safe berth."
Employers renewed EWH-3095 by issuing EWH-5148, effective March 1, 1982 to March 1, 1983. Although the terms of the two policies were substantially similar, EWH-5148 contained a "Port Risk Endorsement" which provided that its terms prevailed over any inconsistent policy provisions and warranted that "[t]he Vessel[s] shall be laid-up in the port of Approximate Mile Marker 537, Lower Mississippi [the Port of Greenville, Mississippi]." In addition to noting that all vessels were on port risk status, EWH-5148's schedule of vessels listed the SHENANDOAH valued at $2,000,000, the MARTHA TROTTER valued at $850,000, M/V GLENDA S valued at $75,000, and LA-21 FLAT DECK valued at $20,000. The policy included the same 100-mile Trading Warranty as a Special Condition just as it appeared in the prior policy. EWH-5148 also included the amended AAC. Endorsement No. 4 to EWH-5148 placed the MARTHA TROTTER on "full navigating status" as of September 13, 1982 at a premium rate twice that of the port risk rate. Endorsement No. 5 added LTS Towing (LTS) to the policy as "an Additional Assured as their interests may appear."
The policy at issue in this case, EWH-5234, renewed EWH-5148 for the period March 1, 1983 to March 1, 1984. The same four vessels that appeared in the EWH-5148 schedule of insured vessels appeared on the EWH-5234 schedule. The insured values of the SHENANDOAH and the MARTHA TROTTER were reduced to $1,700,000 and $550,000, respectively. All vessels except the MARTHA TROTTER were shown as at port risk. Endorsement No. 2 continued LTS as an additional assured. Endorsement No. 3 provided that "as respects to the M/V 'MARTHA TROTTER' the navigation limits are amended hereunder: 'Warranted confined to the use and navigation of the Mississippi River and its navigable tributaries (Western Rivers System) including the Gulf Intercoastal Waterway thereof.' " EWH-5234 contained the same Port Risk Endorsement as the prior policy and its Special Conditions contained the same 100-mile Trading Warranty and AAC as the two prior policies.
On April 13, 1983, Shenandoah Marine Corp. (Shenandoah Marine), the owner of the SHENANDOAH, entered a bareboat charter with Arkansas River Company to operate the SHENANDOAH for an indeterminate period of time. Arkansas River Company agreed to acquire marine hull insurance for the SHENANDOAH throughout the charter period. Trotter Towing requested its marine insurance broker to delete the SHENANDOAH from EWH-5234. Endorsement No. 4 to EWH-5234 deleted the SHENANDOAH from the policy, returned most of the initial premium charged for coverage of the SHENANDOAH under policy EWH-5234 and added Shenandoah Marine as an "Additional Assured."
In April or May of 1983, James Lancaster, the president of LTS, and Thomas Trotter, the president of Shenandoah Marine, 2 agreed that, if LTS was the successful bidder for a contract with the Corps of Engineers, LTS could operate the SHENANDOAH. When LTS learned that it was the low bidder, Shenandoah Marine advised Arkansas River Company to return the SHENANDOAH. Thomas Trotter knew that the marine hull insurance acquired by Arkansas River Company ended on the date that the SHENANDOAH was returned, July 12, 1983. Trotter testified that he had intended to notify his insurance broker of the SHENANDOAH's return, but for various reasons no notice was communicated.
On August 17, 1983, the SHENANDOAH, operated by LTS under a bareboat charter, left Greenville. On September 11, 1983, while navigating northbound between Mile 714 and 716 of the Upper Mississippi River (approximately 177 miles from Greenville, Mississippi), a fire broke out near the starboard main engine which extensively damaged the SHENANDOAH.
Employers learned that LTS had been operating the SHENANDOAH when the insurance broker called on September 11 to report the fire. Three days later LTS and Trotter Towing claimed that the SHENANDOAH was covered by policy EWH-5234 at the time of the fire. They reasoned that LTS, an additional assured, acquired the SHENANDOAH by charter on August 17, 1983, from its owner, Shenandoah Marine, also an additional assured and that the AAC automatically provided coverage. Until LTS and Trotter Towing made this claim, Employers did not know that Arkansas River Company had returned the SHENANDOAH, that it had been chartered by LTS, that it had left the port of Greenville or that it had been damaged by fire. Employers responded to the claim by denying coverage on several grounds.
On October 24, 1983, Employers filed a declaratory judgment action in district court seeking a bench ruling that policy EWH-5234 did not cover the SHENANDOAH for this fire loss. Trotter Towing and LTS filed diversity based counterclaims for losses allegedly covered by the insurance policy. The district court dismissed Employer's declaratory judgment action and Trotter Towing and LTS amended their complaint to seek punitive damages for bad faith denial of coverage.
A bifurcated trial followed on the questions of coverage and bad faith. A jury found that the policy covered the fire on the SHENANDOAH and awarded $1,000,000 in damages and $250,000 in prejudgment interest. The district court granted Employers' motion for summary judgment on the bad faith issue and rejected the motion of Trotter Towing and LTS to alter or amend this ruling.
Both sides appeal. Employers contends that the policy, as a matter of law, did not cover the fire on the SHENANDOAH. Trotter Towing and LTS contend that the district court improvidently granted Employer's motion for summary judgment on the bad faith issue. We hold that coverage does not exist as a matter of law and we affirm the summary judgment on bad faith. 3
State law governs construction of marine insurance contracts except where it is displaced by admiralty law. Elevating Boats, Inc. v. Gulf Coast Marine, Inc., 766 F.2d 195, 198-99 (5th Cir.1985); Continental Oil Co. v. Bonanza Corp., 677 F.2d 455, 462 & n. 7 (5th Cir.1982), vacated on other grounds, 706 F.2d 1365 (5th Cir.1983) (en banc).
Mississippi law and federal admiralty law provide consistent guidelines for construing policy EWH-5234. First, the court must decide, as a matter of law, whether a policy is ambiguous, i.e., susceptible to more than one reasonable interpretation. State Farm Mutual Auto. Ins. Co. v. Taylor, 233 So.2d 805, 810 (Miss.1970) (); Coastal Iron Works, Inc. v. Petty Ray Geophysical, 783 F.2d 577, 584-85 (5th Cir.1985) (). The mere fact that policy language requires interpretation does not render the policy ambiguous. Parfait v. Central Towing, 660 F.2d 608, 610 (5th Cir.1981). When reasonable, clauses of a marine policy must be read together and harmonized. Continental Casualty Co. v. Hester, 360 So.2d 695, 697 (Miss.1978) (); Scarborough v. Travelers Ins. Co., 718 F.2d 702, 708 (5th Cir.1983) (). Second, an ambiguous policy drafted by an insurance company will be strictly...
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