Sherwin-Williams Co. v. Insurance Co. of State of Pa.

• Decision Date: 07 July 1994
• Docket Number: No. 1:91CV0250.,1:91CV0250.
• Citation: 863 F. Supp. 542
• Parties: The SHERWIN-WILLIAMS COMPANY, Plaintiff, v. The INSURANCE COMPANY OF the STATE of PENNSYLVANIA, Defendant.
• Court: U.S. District Court — Northern District of Ohio

863 F. Supp. 542

The SHERWIN-WILLIAMS COMPANY, Plaintiff, v. The INSURANCE COMPANY OF the STATE of PENNSYLVANIA, Defendant.

No. 1:91CV0250.

United States District Court, N.D. Ohio, Eastern Division.

July 7, 1994.

Paul J. Schumacher, Jr., John B. Robertson, Gallagher, Sharp, Fulton & Norman, John W. Lebold, Sherwin-Williams Co., Cleveland, OH, for plaintiff.

Mark P. O'Neill, Weston, Hurd, Fallon, Paisley & Howley, Donald Paul Screen, Thompson, Hine & Flory, Cleveland, OH, James L. Carroll, Watkins & Eager, Jackson, MS, for defendant.

MEMORANDUM OF OPINION AND ORDER GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

WELLS, District Judge.

This case is before this Court on the cross-motions for summary judgment filed by plaintiff, The Sherwin-Williams Company, and defendant, the Insurance Company of the State of Pennsylvania ("ISOP").

The Court referred the parties' motions to United States Magistrate Judge Patricia A. Hemann for a report and recommended decision. Magistrate Judge Hemann has submitted a report and recommended decision, recommending that the Court enter a declaratory judgment in favor of Sherwin-Williams. ISOP has objected to the Magistrate Judge's report and recommendation; Sherwin-Williams has responded to the objections. For the reasons which follow, the Court overrules ISOP's objections and accepts and adopts the Magistrate Judge's report and recommendation.

PROCEDURAL HISTORY

This Court's jurisdiction was invoked by the parties' diversity of citizenship. In its complaint, Sherwin-Williams asserts that ISOP issued an "all risks" insurance policy to it which was in full force and effect from December 22 to December 24, 1989. On those dates, real and personal property owned by Sherwin-Williams' wholly-owned subsidiary in Panama City, Panama, was damaged or lost "due to incidents of theft and vandalism." Sherwin-Williams claims it provided ISOP with proof of loss, but ISOP rejected its claim based on the "other insurance" and "war exclusion" clauses of the policy. Sherwin-Williams therefore requests a declaratory judgment that (1) the policy was in full force and effect and was applicable to the loss, (2) Sherwin-Williams complied with the policy requirements for providing proof of loss, (3) ISOP is required to provide coverage (despite the other insurance clause) if other insurers have denied coverage under their policies, and (4) Sherwin-Williams is entitled to recover $875,257.00 plus interest at the rate of ten percent (10%) per annum under the policy.

In its answer, ISOP admits the policy was in full force and effect at the time of the loss, but denies the remainder of plaintiff's claims. ISOP also asserts Sherwin-Williams' claims were excluded from coverage under the policy.

Both parties have moved for summary judgment on the question whether Sherwin-Williams' loss was covered by the policy, and whether the loss was excluded from coverage. For the reasons which follow, the Court finds there is no genuine issue of material fact with respect to these issues, and Sherwin-Williams is entitled to judgment as a matter of law.

FACTS

The following facts are not disputed. On December 15, 1989, the Panamanian National Assembly declared that a state of war existed between the United States and Panama. United States military forces invaded the Republic of Panama on December 20, 1989. In the days following the invasion, Sherwin-Williams' plant in Panama and a number of its retail outlets in Panama City were ransacked and partially destroyed by civilian looters. These properties were owned by Sherwin-Williams de Panama, S.A., a wholly-owned subsidiary of The Sherwin-Williams Company. Sherwin-Williams' business was interrupted as a result of the damage to and loss of its property.

Sherwin-Williams and its affiliated, subsidiary, and associated companies are named insureds in an "all risks" policy issued by ISOP which was first effective January 1, 1988. The policy was renewed effective January 1, 1989, and was in effect at the time of the invasion and subsequent looting. The policy provided worldwide territorial coverage, with stated exceptions not relevant here. The policy consisted of three parts, (1) a policy jacket, (2) a manuscript policy, and (3) Endorsement 1. Because the dispute here is entirely focussed on the policy language, the Court will examine that language at length.

Section 7A of the manuscript policy states that the policy covers "the interest of the insured in all real and personal property, including improvements and betterments, owned, used or intended for use by the insured," "except as hereinafter excluded." Sections 7B and 7C provide coverage for business interruption losses under certain circumstances. Section 8 provides that the policy insures against "all risk of physical loss or damage to property described herein ... except as hereafter excluded."

ISOP claims coverage is excluded by the War Exclusion. The War Exclusion appears on the policy jacket and in the manuscript policy. The policy jacket states:

War Exclusion Clause This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the following occurrences, namely: — sic

a) War, invasion, act of foreign enemy, hostilities or warlike operations (whether war be declared or not), civil war.

b) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military or usurped power, martial law or state of siege or any of the events or causes which determine the proclamation or maintenance of martial law or state of siege.

Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise) which are occasioned by or through or in consequence, directly or indirectly, of any of the said occurrences shall be deemed to be loss or damage which is not covered by this insurance, except to the extent that the insured shall prove that such loss or damage happened independently of the existence of such abnormal conditions.

In any action, suit or other proceeding where the Company alleges that by reason of the provisions of this condition any loss or damage is not covered by this insurance, the burden of proving that such loss or damage is covered shall be upon the Assured.

In addition, the manuscript policy also contains a war exclusion clause:

9. Perils Excluded

This policy does not insure:

A. Loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the following occurrences, namely:

(1) War, invasion, act of foreign enemy, hostilities or warlike operations (whether war be declared or not), civil war.

(2) Mutiny, civil commotion assuming the proportions of or amounting to a popular rising, military rising, insurrection, rebellion, revolution, military or usurped power.

(3) Acts of terrorism committed by a person or persons acting on behalf of or in connection with any organization. For the purpose of this condition, "terrorism" means the use of violence for political ends and includes any use of violence for the purpose of putting the public or any section of the public in fear.

(4) In any action, suit or other proceeding, where the Company alleges that by reason of the provisions of this condition any loss or damage is not covered by this insurance, the burden of proving that such loss or damage is covered shall be upon the insured.

Under the terms of Endorsement No. 1, Sherwin-Williams "bought back" a portion of the excluded coverage. Endorsement No. 1 provides:

1. It is understood and agreed that coverage provided by this policy is extended, for a limit of liability of $5,000,000 per occurrence, to provide coverage for direct physical loss or damage as a result of the following named perils:

A) Mutiny, civil commotion assuming the proportions of or amounting to a public uprising, military rising, insurrection, rebellion, revolution, military or usurped power including all happenings which contributed to same event;

B) This policy is further extended to include acts of terrorism sic committed by a person or persons acting on behalf of or in connection with any organization. For the purpose of this coverage, terrorism means the use of violence for political ends and includes any use of violence which places the public or any section of the public in fear.

LAW AND ANALYSIS

A. Applicable Law

In her report and recommended decision, Magistrate Judge Hemann first applied Ohio's choice of law rules and determined that Ohio law governed this diversity case. Neither party has objected to this determination, and the Court accepts and adopts it.

Ohio courts have adopted § 188 of the Restatement (Second) of Conflict of Laws (1971) to discern the law applicable to a case involving a contract. Gries Sports Enter., Inc. v. Modell, 15 Ohio St.3d 284, syllabus, 473 N.E.2d 807 (1984). The Magistrate Judge's thorough review of the factors listed in § 188 indicates that Ohio law applies here. The contract of insurance was made in Ohio, Sherwin-Williams' application for insurance was made here, the policy was delivered here, and premium payments were made from here. In addition, the insured's principal place of business is in Ohio, as is its broker. The contract was negotiated in both Ohio and New York, and apparently was to be "performed" worldwide. The Magistrate Judge correctly concluded that Ohio has the most significant relationship to this contract, and Ohio law therefore should apply.

B. Ohio Law Regarding Construction of Insurance Policies

Under Ohio law, the "fundamental goal" of interpreting an insurance policy (or any contract) is "to ascertain the intent of the parties from a reading of the contract in its entirety, and to settle upon a reasonable interpretation of any disputed terms in a manner calculated to give the agreement its intended effect." Burris v. Grange Mut. Cos., 46 Ohio St.3d 84, 89, 545...