Paktank Louisiana, Inc. v. Marsh & McLennan, Inc.

• Decision Date: 15 April 1988
• Docket Number: Civ. A. No. 81-1529.
• Court: U.S. District Court — Eastern District of Louisiana
• Parties: PAKTANK LOUISIANA, INC., et al. v. MARSH & McLENNAN, INC., et al.

688 F. Supp. 1087

PAKTANK LOUISIANA, INC., et al. v. MARSH & McLENNAN, INC., et al.

Civ. A. No. 81-1529.

United States District Court, E.D. Louisiana.

April 15, 1988.

Ronald A. Johnson, Johnson & McAlpine, New Orleans, La., for Paktank Louisiana, Inc. and Underwriters at Lloyds and British Companies, subscribing to insurance evidenced by Bland, Payne Cover Note No. 4700791.

Margot Mazeau, and George W. Healy, III, Phelps, Dunbar, Marks, Claverie & Sims, New Orleans, La., for Arkwright-Boston Manufacturers Mut. Ins. Co. and Mut. Marine Office, Inc.

William J. Hamlin, and Michael T. Tusa, Jr., Walker, Bordelon, Hamlin & Theriot, New Orleans, La., for Marsh & McLennan, Inc., Marsh & McLennan, Inc. of Delaware and Marsh & McLennan, Inc. of Texas.

MEMORANDUM OPINION

MENTZ, District Judge.

This litigation arises out of a fire at the docking facility of Gold Bond Building Products Division of National Gypsum Company (Gold Bond) on April 19, 1977. One month earlier, on March 18, 1977, Gold Bond contracted with Paktank Louisiana, Inc. to grant Paktank the non-exclusive use of its dock for Paktank's marine terminal operations. Pursuant to the terms of the agreement, Paktank commenced construction of improvements to the dock, including installation of a crane, a product pipeline, and some collection facilities for spillage from product transfers. On April 19, 1977, while Paktank's improvements were still under construction, a fire destroyed a portion of Gold Bond's docking facility, as well as Paktank's improvements thereto.

As a result of the fire, Gold Bond filed suit for damages in the amount of $1,500,000 against Paktank and the contractor for Paktank's improvements, I.C.M. Corporation (I.C.M.), alleging that the negligence of Paktank and I.C.M. caused the fire. Underwriters at Lloyds and British Companies subscribing to Bland, Payne Cover Note No. 4700791 (Underwriters), which issued a property and business interruption policy to Paktank, took up Paktank's defense and paid all expenses of the litigation. There is no evidence that Lloyds defended under a reservation of rights.

During trial, Underwriters made a formal demand for settlement contribution from Arkwright-Boston Manufacturers Mutual Insurance Company (Arkwright-Boston), Paktank's liability insurer, and Mutual Marine Office, Inc., (MMO) who wrote the coverage. Arkwright-Boston and MMO refused the demand and thereafter, Underwriters paid Gold Bond $400,000 in settlement. Paktank waived its claim for $125,000 for damage to its own property and Underwriters waived Paktank's $10,000 deductible. I.C.M. contributed $50,000.

In the present action, plaintiffs, Paktank and Underwriters, seek indemnity in the amount of $400,000 from defendants, Arkwright-Boston and MMO, for the sums paid in settlement to Gold Bond.¹ Defendants filed a cross-claim against Marsh & McLennan, Inc., Marsh & McLennan, Inc. of Delaware, and Marsh & McLennan, Inc. of Texas (Marsh & McLennan) seeking indemnification in the event that liability is imposed on defendants by reason of any binders issued by Marsh & McLennan without having been authorized to do so. The principal question for the Court to resolve is the extent, if any, to which the Underwriters property policy and the Arkwright-Boston liability policy provide coverage for the damage sustained to Gold Bond's property.² Each insurer denies coverage under its own policy and points to the other insurer as providing coverage.

The parties agreed to submit the case on the briefs and documents without trial. Having considered the arguments of counsel, the evidence, and the applicable law, the Court finds that the Underwriters policy does not cover Gold Bond's property loss and that the Arkwright-Boston policy covers only liability for the loss of Gold Bond's hopper and conveyor system.

The Underwriters Policy

The dispute with respect to coverage under the Underwriters policy concerns the following clause found in Section B—Physical Damage Coverage:

1. PROPERTY INSURED:

(a) All Real and Personal Property (including improvements and betterments), of every kind and description, owned by the Insured or the property of others for which the Insured may be liable, including while under construction except as specified in PROPERTY EXCLUDED.

Plaintiffs contend that the Underwriters policy does not cover Gold Bond's property loss because the phrase "the property of others for which the Insured may be liable" refers to a bailment, which did not exist between Paktank and Gold Bond. Plaintiffs urge that Section B be read together with Section D—Liability Imposed By Law, which provides in part:

1. PAYMENT FOR LOSS

To pay on behalf of the Insured,

(a) All sums which the Insured shall become obligated to pay to any person or organization by reason of the liability imposed by law upon the insured as a warehouseman or bailee for loss or destruction of or damage to property contained in the Insured's premises, excluding all liability for loss, destruction or damage of every kind occurring away from the premises of the Insured, and caused by an occurrence.

. . . . .

3. EXCLUSION

This section does not apply:

(a) to any liability assumed by the Insured under any contract or agreement except liability assumed on warehouse receipts issued by the Insured;

. . . . .

Defendants argue that the express terms in Section B of the Underwriters policy provide coverage for any liability Paktank might have for the property of others. It cannot refer to a bailment, they argue, because Section B includes coverage for property "under construction" which cannot be the subject of a bailment. They also argue that the policy did not provide that Section D be read together with or as a limitation upon Section B.

The fact that Section B speaks of property "under construction" does not preclude coverage under that Section for bailed property. Defendants do not cite, and this Court has not found, any authority for the proposition that property under construction cannot be the subject of a bailment. To the contrary, the following authorities, while not directly on point, suggest that property under construction can be the subject of a bailment: International Images, Inc. v. Smith, 171 Ga.App. 172, 318 S.E.2d 711 (1984) (Owner of shed, which was used by lessee to store materials for and construct a custom pontoon boat, was a bailee for hire); Star Iron & Steel Company v. Pierce County, 5 Wash.App. 515, 488 P.2d 776 (1971) (Where it was held that a manufacturer of custom-engineered, heavy-duty cranes and hoisting equipment did not have a taxable interest in such property. The court stated at page 783 that were it to find otherwise, "every bailee of personal property would be subject to taxation on the bailed property he held")³; McLarty v. Shirley, 122 Ga.App. 786, 178 S.E.2d 753 (1970) (A fire truck belonging to the City of Atlanta was bailed to the plaintiff for the purpose of rebuilding it).

The phrase, "the property of others for which the Insured may be liable," clearly refers to a bailment situation. This fact is apparent not only upon a plain reading of the entire policy, including Section D, which specifically limits Paktank's liability for loss imposed by law to a warehouseman or bailee situation, but also upon review of the relevant legal authorities.

Courts have almost uniformly held that if, from the contract construed in its entirety, the fair interpretation and construction of the insurance contract is that it was intended primarily to cover the property held by the insured, then "liable," as used within the policy, does not refer to any fixed legal liability of the insured to respond in damages, but should be construed more broadly to mean "responsible."

Folger Coffee Company, Inc. v. Great American Insurance Company, 333 F.Supp. 1272, 1274 (W.D.Mo.1971). Without question, the Underwriters policy provides insurance on property and does not cover the legal liability of Paktank to respond in damages.⁴ This Court finds that the phrase "the property of others for which the Insured may be liable" is an unambiguous phrase providing property damage coverage for the property of others where Paktank has a present and existing general responsibility by virtue of a bailment. It does not provide coverage for any contingent liability based in negligence. See United States v. Globe & Rutgers Fire Insurance Company, 104 F.Supp. 632 (N.D.Tex.1952), aff'd., 202 F.2d 696 (5th Cir.1953); Northwest Insurance Company v. Albrecht, 22 Wash.App. 16, 587 P.2d 1081, 1085-86 (1978); Penn v. Commercial Union Fire Insurance Company of New York, 233 Miss. 178, 101 So.2d 535 (1958); Annotation, Fire Insurance-Insured's Bailor, 67 A.L.R.2d 1241, 1255. There being no question that Paktank was not Gold Bond's bailee or warehouseman, the Underwriters policy does not cover the loss of Gold Bond's property.

This Court recognizes, of course, that there are situations other than bailment where one might be "liable" for the property of others—for example, by virtue of a rental, leasing, or borrowing agreement. But, in the case at bar, Section D of the Underwriters policy specifically excludes "liability assumed by Paktank under any contract, except liability assumed or agreement on warehouse receipts." Even if the Underwriters policy did not contain this exclusion, the agreement between Paktank and Gold Bond did not place any general responsibility on Paktank for Gold Bond's property. In addition, the interest conveyed to Paktank was not a lease, but a license. This characterization is important because, under the governing law of New York,⁵ a license does not convey any interest in the property itself such as would be associated with an existing liability or responsibility for the property. See Lahti v. State, 98 Misc.2d 829, 414 N.Y.S.2d 607, 609-10 (Ct.Cl.1979). "A license is a mere privilege or permission given by the owner of land authorizing another to enter and to use or occupy...