GATX Leasing Corp. v. National Union Fire Ins. Co.

Decision Date08 September 1995
Docket NumberNo. 94-3562,94-3562
Citation64 F.3d 1112
CourtU.S. Court of Appeals — Seventh Circuit

Steven H. Mora (argued), Diana M. Paserba, Mora & Baugh, Ltd., Chicago, IL, for plaintiff-appellant.

Sandra Young (argued), Howard J. Fishman, Purcell & Wardrope, Chicago, IL, for defendant-appellee.

Before FLAUM, RIPPLE and ROVNER, Circuit Judges.

RIPPLE, Circuit Judge.

GATX was sued by TCR and Arco under various theories of liability for damages related to the loss of petroleum stored by TCR and Arco in a GATX facility. In dealing with this suit, GATX incurred significant attorneys' fees and settlement costs. Consequently, GATX filed a declaratory judgment action against Nation Union Fire Insurance Company, alleging that National Union had a duty to defend and to indemnify GATX under both a general liability policy and a related umbrella policy. The district court granted judgment on the pleadings to National Union. For the reasons contained herein, we affirm.

A. Facts

Amarco Petroleum, Inc. ("Amarco") operated a petroleum product terminal storage and transfer facility near Houston, Texas. GATX was a secured creditor of Amarco, and had leased separately virtually all of the plant assets at the facility to Amarco. In November 1983, GATX filed an involuntary petition in bankruptcy against Amarco. GATX terminated the equipment lease prior to the filing of the bankruptcy petition and assumed possession of the facility assets.

Two customers of the facility, Arco Chemical Company ("Arco") and Texas City Refining ("TCR"), considered not renewing their agreement because of Amarco's apparent insolvency. Around that time, officers of GATX conferred with Arco and TCR regarding a continuing agreement. GATX wanted the facility operations to continue in order to protect the value of the facility assets, as well as to maintain the revenue derived from the facility's use. To that end, GATX acquired the exclusive use of the name "Amarco Petroleum, Inc." to ensure continuity of business. Further, GATX assured Arco and TCR that, if they continued to use the facility and renewed their petroleum products storage agreements, GATX would be responsible for facility operations. Arco and TCR renewed their storage agreements on the assurances that GATX would be responsible for the continuing control and operation of the facilities.

In June 1985, Arco and TCR discovered that vast quantities of their stored products were missing, and TCR found that further quantities of its fuel had been degraded by the unauthorized addition of foreign chemical substances. This discovery was not made until 1985, Arco and TCR submit, because GATX and its employees had, both orally and in writing, represented that their inventories were consistent with the quantities of product originally delivered for storage, and had conspired to hide the thefts of the product.

Following the discovery of the missing petroleum products, Arco filed claims, and TCR intervened, against GATX and several GATX entities, 1 among others, alleging breach of contract, breach of guarantee, negligence, fraudulent inducement and misrepresentation, and conversion. GATX requested that National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National Union") defend and indemnify it with respect to the lawsuits, but National Union declined. Eventually, GATX settled with Arco for the sum of approximately $300,000, and with TCR for $500,000. GATX estimated that its defense costs, including attorneys' fees, that led up to the settlement totalled $450,000.

On January 24, 1994, GATX filed a declaratory judgment action against National Union, contending that National Union had a duty to defend and to indemnify GATX for the Arco and TCR legal actions under two policies issued to Amarco, effective June 14, 1984: the Primary Policy, No. EHA 940-9398 RA, and the Umbrella Policy No. EHA 940-9399. These policies stated that National Union, on behalf of Amarco or any other insured, would recompense all amounts to which Amarco or any insured became legally obligated due to "property damage" caused by an "occurrence." Because GATX had leased equipment to Amarco which comprised the "principal facilities," GATX was named as an additional "person insured" under the primary policy.

B. District Court Proceedings

National Union moved for judgment on the pleadings. See Fed.R.Civ.P. 12(c). 2 The district court granted the motion. The court first determined that Texas substantive law applied. The court then held that, under the terms of the insurance agreements, GATX could not allege any "property damage" caused by an "occurrence." Alternatively, the court held that, because the Arco and TCR products had been "entrusted" to the "care, custody and control" of GATX, damage to those products was excluded under the terms of the insurance agreements. GATX Leasing Corp. v. National Union Fire Ins. Co., No. 94 C 431, 1994 WL 383909, at * 7 (N.D.Ill. July 19, 1994).


We review de novo judgments on the pleadings under Fed.R.Civ.P. 12(c). Craigs, Inc. v. General Elec. Capital Corp., 12 F.3d 686, 688 (7th Cir.1993); Fallimento C.Op.M.A. v. Fischer Crane Co., 995 F.2d 789, 791 (7th Cir.1993). We review a motion pursuant to Rule 12(c) under the same standard as a motion to dismiss under Fed.R.Civ.P. 12(b). Thomason v. Nachtrieb, 888 F.2d 1202, 1204 (7th Cir.1989). "Accordingly, the motion should not be granted unless it appears beyond doubt that the plaintiff cannot prove any facts that would support his claim for relief." Id. (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957)). In evaluating the motion, we will view the facts in the complaint in the light most favorable to the nonmoving party. Craigs, Inc., 12 F.3d at 688.


We begin, as did the district court, with the choice of law issue. The district court concluded that Texas state law applies to this case. We agree. A federal court sitting in diversity looks to the conflict-of-laws rules in the state jurisdiction in which it sits in order to choose the substantive law applicable to the case. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); S.A. Healy Co. v. Milwaukee Metro. Sewerage Dist., 50 F.3d 476, 478 (7th Cir.1995); Horn v. Transcon Lines, Inc., 7 F.3d 1305, 1307 (7th Cir.1993).

We have recognized, in previous cases, that, in dealing with choice of law issues in the area of contract law, the Illinois Supreme Court applies the Second Restatement's "most significant contacts" test. 3 See CSX Transp., Inc. v. Chicago & N.W. Transp. Co., 62 F.3d 185, 188 (7th Cir.1995); Wildey v. Springs, 47 F.3d 1475, 1481 (7th Cir.1995). 4 Under the "most significant contacts" test, the contacts relevant to a choice-of-law decision include "the place of contracting, negotiation, performance, location of the subject matter of the contract, and the domicil[e], residen[ce], place of incorporation, and business of the parties." Palmer v. Beverly Enters., 823 F.2d 1105, 1109-10 (7th Cir.1987) (citations omitted). In the case of fire, surety and casualty insurance contracts, the Restatement, applying these general principles, takes the position that the law of the principal situs of the insured risk ought to be applied. Restatement (Second) of Conflicts Sec. 193 (1971). Cf. Nationwide Ins. v. Zavalis, 52 F.3d 689, 693 & n. 4 (7th Cir.1995) (noting in context of homeowner's policy that place of delivery controls, but also noting that covered home was in that state). 5

In this case, under the analysis set forth by the Restatement, it is clear that the law of Texas ought to be applied. As the district court noted, both Amarco and GATX were located in Texas, the events at issue occurred in Texas, and the underlying lawsuits were filed in Texas. Illinois had no contacts with the suit other than its being the forum chosen by GATX. 6


We now turn to the general principles of Texas law that must guide our analysis. GATX submits that the theft and contamination of the Arco and TCR petroleum products in storage at the GATX facility was an "occurrence" for purposes of the National Union insurance policy, and that therefore National Union had a duty to defend GATX, the insured. 7 We shall determine whether National Union had a duty to defend by considering the allegations of the complaint "in the light of the policy provisions without reference to the truth or falsity of such allegations." Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex.1973). We look to the face of the pleadings without reference to outside facts to make this determination, Houston Petroleum Co. v. Highlands Ins. Co., 830 S.W.2d 153, 155 (Tex.Ct.App.1990), and our decision regarding the duty to defend will not be influenced by facts learned before the suit, in the process of the litigation, or by the ultimate outcome of the underlying litigations. American Alliance Ins. Co. v. Frito-Lay, Inc., 788 S.W.2d 152, 154 (Tex.Ct.App.1990). "If the third party [Arco and TCR] only alleges facts that, even if true, are excluded by the [insurance] policy, the insurer does not have a duty to defend regardless of the legal theories involved in the case." Maryland Casualty Co. v. Texas Commerce Bancshares, Inc., 878 F.Supp. 939, 942 (N.D.Tex.1995) (citing Fidelity & Guar. Ins. Underwriters, Inc. v. McManus, 633 S.W.2d 787, 788 (Tex.1982)). If GATX has failed to allege a factual paradigm in its complaint that would support a theory of recovery within the ambit of the National Union policy provisions, we must affirm the decision of the district court. See Continental Sav. Ass'n v. United States Fidelity & Guar. Co., 762 F.2d 1239, 1243 (5th Cir.) ("The duty [to defend] arises when a third party sues the insured on allegations that, if taken as true,...

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