Fruehauf Corp. v. Royal Exchange Assur. of America, Inc., 81-4497

• Decision Date: 29 April 1983
• Docket Number: No. 81-4497,81-4497
• Citation: 704 F.2d 1168
• Parties: FRUEHAUF CORPORATION, Plaintiff-Appellant, v. ROYAL EXCHANGE ASSURANCE OF AMERICA, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1168

704 F.2d 1168

1984 A.M.C. 1194

FRUEHAUF CORPORATION, Plaintiff-Appellant, v. ROYAL EXCHANGE ASSURANCE OF AMERICA, INC., Defendant-Appellee.

No. 81-4497.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Aug. 10, 1982.

Decided April 29, 1983.

Alexander R. Imlay, Kerner, Colangelo & Imlay, San Francisco, Cal., for plaintiff-appellant.

Donald F. Morey, Bohnert, McCarthy, Flowers, Roberts & Damir, San Francisco, Cal., for defendant-appellee.

Appeal from the United States District Court for the Northern District of California.

Before ANDERSON and BOOCHEVER, ^* Circuit Judges, and JAMESON, ^** District Judge.

JAMESON, District Judge:

Appellant, Fruehauf Corporation, brought this action against appellee, Royal Exchange Assurance of America, Inc., under a casualty insurance policy issued by Royal to Pacific Far East Lines (PFEL). Fruehauf seeks indemnification for its security interest in eight tractors sold by Fruehauf to PFEL under an installment sales contract (chattel mortgage) that required PFEL to insure the tractors against loss. Following discovery and submission of affidavits, documents and memoranda by both parties, the district court granted Royal's motion for summary judgment. We affirm.

I. Factual Background

On September 23, 1976, Fruehauf sold 12 tractors to PFEL. At PFEL's request, Fruehauf executed bills of sale for eight of the tractors to "Saudi Trucking Services, c/o IACC Agency, P.O. Box 106, Dammam, Saudi Arabia, (Buyer)." ¹ PFEL executed a chattel mortgage to Fruehauf covering all of the tractors. The mortgage required inter alia, that the buyer procure "insurance against theft, loss, total destruction of or damage to the goods being purchased hereunder." ²

PFEL had a policy with Royal covering its shipping stores, office furniture, and shipping equipment. The relevant terms of the policy were: (1) property for which PFEL was liable to others was covered; (2) that property was protected against "all risks of physical loss or damage from any external cause whatsoever and howsoever occurring"; (3) proof of loss had to be given to Royal within twelve months after notice of loss; (4) subject to California law, suits against Royal had to be brought within twenty-four months of the "happening of the loss"; and (5) Royal could cancel by giving thirty days' written notice to PFEL.

On April 29, 1977 Royal issued an endorsement to the policy adding coverage of the 12 tractors to the extent of $372,000. Royal sent a confirmation of the endorsement to PFEL and a copy of the confirmation to Fruehauf. On June 1, 1977, Royal issued a new policy providing the same coverage as the original policy. Fruehauf was never named as a loss-payee, additional insured, or coinsured in the policies, endorsements or confirmations.

On January 31, 1978, PFEL filed for bankruptcy. On February 2, 1978, Royal mailed PFEL a notice cancelling the policy, effective March 3, 1978. Royal did not send a notice to Fruehauf. Meanwhile, PFEL defaulted on its installment payments to Fruehauf. Fruehauf was precluded from attempting to regain possession of the tractors by the automatic stay imposed by the bankruptcy proceedings.

On August 28, 1978, the trustee in bankruptcy wrote a letter to Fruehauf stating that four of the tractors were in Baltimore, Maryland, and eight were "in the possession of International Associated Cargo Carrier (IACC) in Dammam, Saudi Arabia," and that the "above equipment is being abandoned by us to the Fruehauf Corporation." ³

Pursuant to a stipulation between Fruehauf and the trustee in bankruptcy, the stay was lifted on September 13, 1978, and Fruehauf was authorized to proceed to enforce its security interest in the tractors. ⁴ Fruehauf recovered the four tractors in Baltimore. Fruehauf alleges that despite diligent efforts on its part, it has been unable to recover any of the eight tractors in Saudi Arabia, claiming that it learned that the IACC refused to allow inspection of its premises to verify the location of the tractors or to surrender the tractors except upon payment of a "release fee". On August 3, 1979, Fruehauf made a claim under PFEL's policy for the value of the eight tractors. Royal denied coverage on May 18, 1980.

II. Proceedings in District Court

Fruehauf brought this action on September 4, 1980. Royal moved for summary judgment on the grounds that (1) if the loss occurred before cancellation of the policy on March 3, 1978, the action was barred by the 24 month contractual period of limitations; and (2) if the loss occurred after March 3, 1978, no policy issued by Royal was in effect.

The district court granted Royal's motion on the grounds that (1) Fruehauf is not a loss payee or a coinsured under the policies or endorsements; (2) PFEL had wilfully abandoned the tractors and wilful abandonment does not constitute a risk that is insured against by the policies; and (3) "there could be no reasonable or normal expectation on the part of the parties concerned, including plaintiff Fruehauf Corporation, that a loss of the type that occurred here would be covered by the policy in question."

III. Contentions on Appeal

Appellant contends that the district court erred in finding as a matter of law (1) that PFEL "abandoned" the tractors and (2) that Fruehauf was not an additional insured under Royal's policy. Specifically appellant contends that (1) IACC may have refused to surrender possession "because the tractors, having originally come into the agent's possession lawfully, were later converted by the agent's demand for payment of a 'release fee' ", or (2) PFEL may have transferred possession and registered title to IACC "to reduce its obligations to the agent, thus converting and extinguishing Fruehauf's interest in the tractors." Fruehauf argues that either alternative would "constitute a physical loss of the units from an external cause" and would be covered by Royal's policy.

Appellee contends that (1) the entire thrust of appellant's case is an attempt "to change the property insurance issued by the Royal Exchange to PFEL into a guarantee of PFEL's contractual obligation to Fruehauf;" and (2) the district court properly concluded that Fruehauf was not an additional insured under the policy.

IV. Standard of Review

We recognize at the outset that where findings are made which go to the merits and disclose factual issues necessary to a determination of the litigation, an order granting summary judgment must be reversed. Ornellas v. Oakley, 618 F.2d 1351, 1355 (9 Cir.1980). It is equally clear, however, that a judgment may be sustained on any ground that finds proper support in the record. Jaffke v. Dunham, 352 U.S. 280, 281, 77 S.Ct. 307, 308, 1 L.Ed.2d 314 (1956). In summary judgments the test is whether, with respect to any dispositive issue, there is any genuine issue as to any material fact and, if not, whether viewing the evidence and inferences which may be drawn therefrom in the light most favorable to the adverse party, the movant is entitled to prevail as a matter of law. Federal Deposit Ins. Corp. v. First Nat. Finance, 587 F.2d 1009 (9 Cir.1978).

V. Was Fruehauf a Co-Insured under Royal's Policy?

We agree with the district court that Fruehauf was not a co-insured under Royal's policy. Neither the endorsement on the original policy nor the new policy named Fruehauf as a payee or additional insured. ⁵ As the district court noted, "A policy does not insure the property covered thereby, rather it is a personal contract between the insured, here Pacific Far East Lines, Inc., and the underwriter, here the Royal Exchange Assurance of America, Inc. Russell v. Williams, (1962) 58 Cal.2d 487 ." See also Long v. Keller, 104 Cal.App.3d 312, 163 Cal.Rptr. 532 (1980). Fruehauf's security interest in the tractors does not make it a party to the insurance contract. The builder's risk cases cited by Fruehauf to support its contention that it was a coinsured are...