Paul Holden v. U.S. United Ocean Services ( 2014 )

Case: 12-30251 Document: 00512769289 Page: 1 Date Filed: 09/15/2014
REVISED September 15, 2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 12-30251
United States Court of Appeals
Fifth Circuit
FILED
PAUL HOLDEN, ET AL., August 19, 2014
Lyle W. Cayce
Plaintiffs, Clerk
v.
U.S. UNITED OCEAN SERVICES, L.L.C., ET AL.,
Defendants
U.S. UNITED OCEAN SERVICES, L.L.C.,
Third Party Plaintiff-Appellant,
v.
ST. PAUL FIRE AND MARINE INSURANCE COMPANY,
Third Party Defendant-Appellee
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:09-CV-3670
Before DeMOSS, OWEN, and HAYNES, Circuit Judges.
PER CURIAM:*
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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The petition for panel rehearing is DENIED and the following is
substituted in place of the previous opinion. U.S. United Ocean Services,
L.L.C. (“United”) appeals the district court’s grant of summary judgment to St.
Paul Fire and Marine Insurance Company (“St. Paul”) in this insurance
coverage dispute. For the reasons set forth below, we AFFIRM.
United entered into a General Services Agreement (“GSA”) with Buck
Kreihs Company, Inc. (“Buck Kreihs”) under which Buck Kreihs would perform
ship-repair work for United. 1 The GSA contained an indemnity provision in
which Buck Kreihs agreed to indemnify United for all liabilities arising out of
or related in any way to the work or services performed by Buck Kreihs for
United or to Buck Kreihs’s presence on United’s property. The indemnity
agreement applied even if the liability at issue was partially caused by United’s
fault or negligence; however, it did not apply to liability caused solely by
United’s fault or negligence. The GSA also required Buck Kreihs to procure a
general liability policy and to name United as an additional insured under that
policy.
St. Paul issued a general marine liability policy in which Buck Kreihs is
the “Named Insured.” The policy also provides that an additional insured is
defined as “any . . . organization whom the Named Insured is required to add
as an additional insured” under a written contract. It is undisputed that
United is an additional insured under the policy.
Paul Holden, an employee of Buck Kreihs, was injured while preparing
to remove a gangway that led from a dock at a Buck Kreihs’s facility to the M/V
1 The policy was originally procured by TECO Ocean Shipping, Inc. (“TECO”). After
the policy was procured but before Paul Holden was injured, TECO changed its corporate
structure and also changed its name to U.S. United Ocean Services, L.L.C. For the sake of
clarity, this opinion refers both to U.S. United Ocean Services, L.L.C. and to its predecessor-
in-interest TECO as “United.”
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BARGE BARBARA VAUGHT, a barge owned and operated by United.
Pertinent here, Holden and his wife sued United, which made a demand upon
St. Paul for indemnity, defense, and coverage as an additional insured. After
initially proffering a defense, St. Paul denied coverage under the policy’s
Watercraft Exclusion, described below. United and the Holdens settled,
leaving only this third-party suit to determine whether St. Paul owes coverage.
The district court granted summary judgment to St. Paul, and United timely
appealed.
“We review a grant of summary judgment de novo, applying the same
standards as the district court.” Johnson v. Seacor Marine Corp., 404 F.3d 871,
874 (5th Cir. 2005) (citing Taita Chem. Co., Ltd. v. Westlake Styrene Corp., 246
F.3d 377, 385 (5th Cir. 2001)). “Summary judgment is appropriate when the
record discloses that no genuine issue of material fact exists and that the
movant is entitled to judgment as a matter of law.” Travelers Lloyds Ins. Co.
v. Pac. Emp’rs Ins. Co., 602 F.3d 677, 681 (5th Cir. 2010); see also FED. R. CIV.
P. 56(a). “Any reasonable inferences are to be drawn in favor of the non-moving
party.” First Am. Bank v. First Am. Transp. Title Ins. Co., 585 F.3d 833, 837
(5th Cir. 2009) (citing Robinson v. Orient Marine Co., Ltd., 505 F.3d 364, 366
(5th Cir. 2007)). “Because the interpretation of an insurance policy is a
question of law, we review the district court’s determination de novo.” First
Am. Bank, 585 F.3d at 837 (citing Principal Health Care of La., Inc. v. Lewer
Agency, Inc., 38 F.3d 240, 242 (5th Cir. 1994); Bonin v. Westport Ins. Corp., 930
So. 2d 906, 910 (La. 2006)).
Under Louisiana law, an insurance policy “is construed as a whole and
each provision in the policy must be interpreted in light of the other provisions
so that each is given meaning.” Peterson v. Schimek, 729 So. 2d 1024, 1029
(La. 1999). A policy “should not be interpreted in an unreasonable or strained
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manner under the guise of contractual interpretation to enlarge or to restrict
its provisions beyond what is reasonably contemplated by unambiguous
terms.” Id.
We discern two possible ways in which there could be coverage for the
Holden settlement: (1) if Buck Kreihs were liable via its indemnity, then
United would sue Buck Kreihs which in turn would seek coverage from St. Paul
as the named insured; or (2) if the Holdens’ claims against United were covered
by the policy pursuant to United’s status as an additional insured under the
policy—the policy thereby insuring United directly for its own liability. For
different reasons, neither of these approaches results in reversal in United’s
favor.
The first option can be dispatched relatively quickly. The parties agree
and we conclude that section 905(b) of the Longshore and Harbor Workers’
Compensation Act voids Buck Kreihs’s agreement to indemnify United. See 33
U.S.C. § 905(b). The general insuring clause of the policy extends coverage
only to those obligations that the insured “shall become legally obligated to
pay.” Since Buck Kreihs cannot, as a matter of law, be “legally obligated to
pay” the Holdens’ claims against United, the policy’s coverage provision does
not encompass Buck Kreihs’s attempted assumption of liability as to these
claims. In other words, St. Paul can assert Buck Kreihs’s defense to liability
to United in this scenario. The insured-contract exception to the Watercraft
Exclusion is of no effect under this scenario because Buck Kreihs is not “legally
obligated to pay” United in the first instance. An exception to an exclusion
cannot create coverage that does not otherwise exist. See Colum. Cas. Co. v.
Ga. & Fla. RailNet Inc., 542 F.3d 106, 112 (5th Cir. 2008); Carrier v. Reliance
Ins. Co., 759 So. 2d 37, 40 (La. 2000). United does not dispute this analysis.
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Instead, United argues that it is entitled to coverage because it is an
additional insured. For its part, St. Paul concedes that United is an additional
insured but contends that the Watercraft Exclusion applies:
SECTION II: GENERAL LIABILITY COVERAGES
Coverage A: Bodily Injury and Property Damage
***
2. Exclusions:
***
This insurance does not apply to:
***
(5) Watercraft
“Bodily injury” or “property damage” arising out
of the ownership or operation of any watercraft:
(a) Owned by an insured;
(b) Chartered, leased, rented, or loaned to an
insured.
This exclusion does not apply to:
***
(c) Liability assumed under an “insured
contract”, but only that portion of the “insured
contract” under which the “Named Insured”
assumes the tort liability of another party for
“bodily injury” or “property damage” to a third
person or organization. Tort liability means a
liability that would be imposed by law in the
absence of any contract or agreement.
In turn, United does not rebut the applicability of the Watercraft
Exclusion 2 but posits that the exception in subpart (c) above removes the effect
of the exclusion. This contention is the crux of the parties’ dispute.
2 The watercraft exclusion states that it applies to “‘[b]odily injury’ or ‘property
damage’ arising out of the ownership or operation of any watercraft . . . [o]wned by an
5
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According to its plain language, the exception only applies to that
liability that the named insured (Buck Kreihs) assumed under an insured
contract. The exception does not apply in this case because United does not
seek coverage as an injured claimant against Buck Kreihs as insured under
the policy for “[l]iability assumed under an ‘insured contract’”; rather, United
seeks coverage as an additional insured directly under the policy for its own
liability to the Holdens. Put differently, the exclusion plainly states that it only
applies to a specific type of liability, which United is not subject to and is not
seeking coverage for under the policy. Additionally, United is not the named
insured, and the plain language of the exception states that it applies to
liability that “the ‘Named Insured’ assumes.” 3
insured.” In a footnote, United mentions that testimony in the record creates an issue of fact
as to whether the exclusion was meant to apply only to watercraft owned by Buck Kreihs,
the named insured. United has waived this issue by inadequately briefing it and relegating
it to a footnote. See Bridas S.A.P.I.C. v. Gov’t of Turkm., 345 F.3d 347, 356 n.7 (5th Cir.
2003). Even so, the exclusion unambiguously refers to watercraft owned by an insured—not
simply the named insured—and there is no dispute that United is an insured under the policy
and that it owned the watercraft at issue. The testimony that United refers to cannot be used
to create an ambiguity where none exists in the policy. See Shocklee v. Mass. Mut. Life Ins.
Co., 369 F.3d 437, 440 (5th Cir. 2004).
3 The language of the insured-contract exception to the Watercraft Exclusion thus
demonstrates that it was designed to protect the named insured against liability that it
assumed under an insured contract. It was not designed to provide watercraft coverage to
an additional insured. In this regard, the dissenting opinion recognizes that, if the GSA’s
indemnity provision was enforceable, the exception would serve to insure Buck Kreihs for the
liability that it assumed on behalf of United. We do not suggest that the unenforceability of
the GSA’s indemnity provision changes the meaning of the insured-contract exception.
Instead, it precludes the exact type of liability to which the exception applies. As stated
above, because Buck Kreihs is not subject to liability assumed under the GSA, the policy does
not apply to such liability in the first instance: it only applies to obligations that the insured
“shall become legally obligated to pay.” Conversely, while United is an additional insured
under the policy and may be legally obligated to pay the Holdens’ claims, the insured-contract
exception does not apply to United’s liability to the Holdens because United is not the named
insured and is not subject to “[l]iability assumed under an ‘insured contract.’”
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United’s argument fails because it conflates the two means by which the
policy could potentially apply to the Holdens’ claims against United. It thus
assumes that the exception to the Watercraft Exclusion is triggered when an
insured contract is present between the named insured and an additional
insured. Reading the policy in this manner, however, overlooks the structure
of the policy and the operative language in the exception that makes it clear
that it only “appl[ies] to . . . . [l]iability assumed under an ‘insured contract.’”
For this same reason, the cases United cites are inapposite. They deal with
the question whether the unenforceability of an indemnity provision prevents
a party from being an additional insured. See Gilbane Bldg. Co. v. Admiral
Ins. Co., 664 F.3d 589, 594–96 (5th Cir. 2011); Mid-Continent Cas. Co. v. Swift
Energy Co., 206 F.3d 487, 492–95 (5th Cir. 2000); Voisin v. O.D.E.C.O. Drilling
Co., 744 F.2d 1174, 1176–79 (5th Cir. 1984). 4 This is not an issue in dispute in
this case; the parties agree that United is an additional insured under the
policy. Understanding that United is an additional insured, the issue remains
whether the insured-contract exception to the Watercraft Exclusion applies.
Since United in its role as an additional insured does not seek coverage for
4 In Gilbane and Swift we faced the issue of whether a party “qualifie[d] as an
additional insured” under an insurance policy, which turned on whether coverage was
“required by written contract or written agreement that is an ‘insured contract.’” Gilbane,
664 F.3d at 594; see also Swift, 206 F.3d at 491–92. This issue ultimately required deciding
whether an unenforceable indemnity agreement constituted an “insured contract.” We held
that that question “turns not on enforceability, but on whether [the named insured] agreed
to ‘assume the tort liability of another party.’” Gilbane, 664 F.3d at 596 (emphasis in
original). This holding—that an unenforceable agreement to assume liability constitutes an
insured contract—does not resolve the separate issue faced here of whether an exception to
an exclusion for “[l]iability assumed under an ‘insured contract’” encompasses an additional
insured’s direct demand under a policy for its own liability.
Similarly, Voisin resolved the distinct question, not at issue in this case, of whether
an additional insured provision is invalidated by section 905(b) of the Longshore and Harbor
Workers’ Compensation Act. See 744 F.2d at 1177.
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liability assumed under an insured contract by the named insured, the
exception to the Watercraft Exclusion clearly does not apply.
While “equivocal provisions seeking to narrow an insurer’s obligation are
strictly construed against the insurer,” this rule of strict construction applies
only if the language of the exclusion is ambiguous. Henry v. S. La. Sugars
Coop., 957 So. 2d 1275, 1278 (La. 2007) (quoting Bonin, 930 So. 2d at 911). We
may not “strain to find such ambiguities, if, in so doing, [we] defeat probable
intentions of the parties. This is so even when the result is an apparently
harsh consequence to the insured.” Sharp v. Fed. Sav. & Loan Ins. Corp., 858
F.2d 1042, 1045 (5th Cir. 1988) (citation and internal quotation marks
omitted). Here, the Watercraft Exclusion unambiguously applies and its
insured-contract exception plainly does not encompass the liability at issue.
We may not strain to find otherwise. Accordingly, as the district court
concluded, the Watercraft Exclusion excludes from coverage the Holdens’
claims against United. Therefore, we AFFIRM.
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PRISCILLA R. OWEN, Circuit Judge, dissenting.
All agree that U.S. United Ocean Services, L.L.C. (United) is an
additional insured under the general marine liability policy issued by St. Paul
Fire & Marine Insurance Company (St. Paul). Because the majority opinion
concludes that the Watercraft Exclusion denies coverage to United, I
respectfully dissent.
United is an additional insured under the policy that Buck Kreihs
obtained from St. Paul. The majority opinion holds, however, that the policy’s
Watercraft Exclusion excludes the claims that the Holdens asserted against
United. I respectfully disagree.
The policy contains a “Blanket Additional Insured Endorsement” which
amended the policy “to include as an additional insured . . . any person or
organization whom the Named Insured is required to add as an additional
insured of this policy under . . . [a] written contract.” St. Paul agrees that
United was an additional insured under this endorsement. St. Paul also agrees
that United was insured under the “Bodily Injury and Property Damage”
section of the policy, which provides that “[t]he Company will pay on behalf of
the Insured all sums which the insured shall become legally obligated to pay
as damages because of : ‘Bodily Injury’ ‘Property Damage’ to which this
insurance applies.” United was legally obligated to pay the Holdens. The only
argument St. Paul asserts with regard to United’s status as an additional
insured is that the Watercraft Exclusion excludes coverage.
The Watercraft Exclusion provides:
SECTION II: GENERAL LIABILITY COVERAGES
Coverage A: Bodily Injury and Property Damage
***
2. Exclusions:
***
9
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This insurance does not apply to:
***
(5) Watercraft
“Bodily injury” or “property damage” arising out of the
ownership or operation of any watercraft:
(a) Owned by an insured;
(b) Chartered, leased, rented, or loaned to an insured.
This exclusion does not apply to:
***
(c) Liability assumed under an “insured contract”, but
only that portion of the “insured contract” under which
the “Named Insured” assumes the tort liability of
another party for “bodily injury” or “property damage”
to a third person or organization. Tort liability means
a liability that would be imposed by law in the absence
of any contract or agreement.
Whether the Watercraft Exclusion applies turns on the interpretation of
the exception to the exclusion. The question is whether United’s liability to
the Holdens was “Liability assumed under . . . that portion of the ‘insured
contract’ under which the “Named Insured” [Buck Kreihs] assumes the tort
liability of another party [United].” The district court reasoned that because
Buck Kreihs’s assumption of United’s liability was void under the LHWCA,
“Buck Kreihs has not assumed the tort liability of [United] concerning Holden’s
alleged injuries.” That reasoning is contrary to decisions of our court.
In Mid-Continent Casualty Co. v. Swift Energy Co., 1 Air Equipment, a
contractor, agreed to indemnify Swift, the operator of an oil drilling site. This
indemnity agreement was alleged to be unenforceable under the Texas Oilfield
1 206 F.3d 487, 490 (5th Cir. 2000).
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Anti-Indemnity Act. 2 An insurer, Mid-Continent, had issued a policy to Air
Equipment and argued that Swift was not entitled to coverage. One of the
arguments Mid-Continent made was that the agreement between Air
Equipment and Swift was not an “insured contract” under the policy. 3 Mid-
Continent contended that “if the indemnity provisions of the [agreement
between Air Equipment and Swift] are unenforceable, Mid-Continent never
actually assumed Swift’s liabilities” and therefore, the indemnity agreement
would not qualify as an insured contract. 4 St. Paul’s argument in the present
case that Buck Kreihs never assumed United’s liabilities is indistinguishable.
We rejected the argument in Swift, concluding that even were the indemnity
agreement invalid under the Texas law, it qualified as an “insured contract.” 5
In Gilbane Building Co. v. Admiral Insurance Co., 6 this court also
examined policy language similar to that contained in St. Paul’s policy. In
Gilbane, a general contractor (Gilbane) entered into an agreement with a
subcontractor (Empire Steel) under which Empire Steel agreed to indemnify
Gilbane and to add Gilbane as an additional insured under its commercial
general liability policy. 7 When an employee of Empire Steel was injured, he
sued Gilbane, and Gilbane sought coverage as an additional insured from
2 TEX. CIV. PRAC. & REM. CODE ANN. §§ 127.001-.007.
3 Swift, 206 F.3d at 492; see also id. (explaining that the policy in question defined
“insured contract” to include, “‘That part of any contract or agreement pertaining to your
business . . . under which you [Air Equipment] assume the tort liability of another party to
pay for ‘bodily injury’ or ‘property damage’ to a third person or organization.’”) (alterations in
original).
4 Id. at 493.
5 Id. (“In light of the rule that ambiguous policy language is interpreted to find
coverage . . ., the lack of relevant precedent and the existence of strong opposing arguments
appear to dispose of Mid-Continent’s argument that the MSA is not an ‘insured contract,’
even if we grant the assumption that the MSA’s indemnity provisions are invalid under the
TOAIA.”).
6 664 F.3d 589 (5th Cir. 2011).
7 Gilbane, 664 F.3d at 592-93.
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Empire Steel’s insurer. 8 The policy “provide[d] coverage to additional insureds
. . . so long as Empire Steel had previously assumed the liability of the potential
additional insured in a written contract.” 9 The policy provided that a party
was an additional insured if coverage was required by an “insured contract,”
and the policy defined an “insured contract” as one in which “the named
insured assume[d] the tort liability of the additional insured.” 10 In addressing
whether Gilbane qualified as an additional insured, we were required to
determine whether Empire Steel assumed the tort liability of Gilbane. 11
The insurer argued that there was no assumption of liability because the
indemnity provision in the contract between Empire Steel and Gilbane was
unenforceable under Texas law. 12 We held that the question was not whether
the assumption of liability was enforceable but rather whether Empire Steel
had agreed to assume Gilbane’s tort liability. 13 Because Empire Steel had
agreed not only to indemnify Gilbane but also to secure insurance on behalf of
Gilbane, we held that Empire Steel had agreed to assume Gilbane’s tort
liability. 14 Gilbane therefore qualified as an additional insured. 15
The majority opinion’s attempt to distinguish Gilbane and Swift is
unpersuasive. Although the majority opinion says that it is relying on “Named
Insured” language in the exception to the Watercraft Exclusion, the majority
opinion is in reality giving effect to arguments regarding the meaning of an
8 Id. at 592.
9 Id. at 593.
10 Id. at 594 (internal quotation marks omitted).
11 Id. at 594-95.
12 Id. at 595.
13 Id. at 596.
14 Id. (“Empire Steel contracted not only to indemnify Gilbane, but also to secure
insurance on its behalf; by doing so, it agreed to assume Gilbane’s tort liability. That
provision is not rendered void by the indemnity provision, even if it is unenforceable.”).
15 Id.
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“insured contract” and the assumption by a named insured of the tort liability
of additional insureds that we rejected in Gilbane and Swift. The majority
opinion states that because the policy uses the term “Named Insured,” the
exception to the Watercraft Exclusion limits its scope to claims made by Buck
Kreihs under the policy and thus the exception cannot apply to United. This
entirely ignores the language in the exception to the Watercraft Exclusion
regarding the Named Insured’s assumption of the tort liability of another
party, in this case United, for bodily injury.
Buck Kreihs assumed the liability of United under an “insured contract.”
It was United’s tort liability to those such as the Holdens that the insurance
policy’s additional insured provisions were drafted to cover. The exception to
the Watercraft Exclusion was designed to make clear that the Watercraft
Exclusion did not negate coverage for an additional insured. The exception to
the Watercraft Exclusion focuses on “[l]iability assumed under an ‘insured
contract’, but only that portion of the ‘insured contract’ under which the
‘Named Insured’ assumes the tort liability of another party for ‘bodily injury’
or ‘property damage’ to a third person or organization.” The “portion of the
‘insured contract’ under which the ‘Named Insured’ [Buck Kreihs] assume[d]
the tort liability of another party” was the portion of the indemnity agreement
under which Buck Kreihs assumed the liability of United to Buck Kreihs’s
employees. It is that “[l]iability,” namely, United’s liability that Buck Kreihs,
the Named Insured, assumed, and to which the exception to the exclusion
applies. The fact that Buck Kreihs’s assumption of liability is unenforceable
does not mean that the exception to the exclusion ceases to apply to United’s
liability.
The meaning of the policy is clear when the indemnity obligations of the
Named Insured are enforceable. The Watercraft Exclusion in the policy
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excludes “‘bodily injury’ . . . arising out of the ownership or operation of any
watercraft . . . [o]wned by an insured.” Paul Holden’s bodily injury arose out
of the ownership or operation of a watercraft owned by United, “an insured”
under the policy. If the policy said nothing further, United’s liability for
Holden’s injuries would be excluded. However, there is an exception to this
exclusion. The Watercraft Exclusion does not apply to “[l]iability assumed
under an ‘insured contract’, but only that portion of the ‘insured contract’ under
which the ‘Named Insured’ assumes the tort liability of another party for
‘bodily injury’ or ‘property damage’ to a third person or organization.” The
Named Insured, Buck Kreihs, assumed the additional insured’s (United’s)
liability under the portion of the indemnity agreement in which Buck Kreihs
assumed United’s tort liability to Buck Kreihs’s employees. Therefore, if the
indemnity agreement were enforceable, United’s liability— which was
“[‘l]iability assumed under an ‘insured contract’” by the Named Insured—
would not be excluded by the Watercraft Exclusion. It is the liability of
“another party,” including the liability of an additional insured, not Buck
Kreihs’s own tort liability, that is excepted from the Watercraft Exclusion. The
majority opinion’s reasoning fails to comprehend this. The fact that the Named
Insured’s assumption of an additional insured’s liability is unenforceable does
not change the meaning of the exception to the Watercraft Exclusion. The
majority opinion fails to give meaning to the precise terms of the policy.
Had St. Paul wanted to condition application of the insured-contract
exception on the validity of the assumption of liability by the Named Insured,
it could have explicitly said so in the policy. 16 Construing the policy in favor of
16See LeBlanc v. Global Marine Drilling Co., 193 F.3d 873, 875 (5th Cir. 1999) (“If the
parties had determined to condition . . . assured status upon the legal enforceability of the
indemnity agreement, they very easily could have done so.”).
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coverage for United is consistent with Louisiana contract law, which provides
that “[e]xclusionary provisions in insurance contracts are strictly construed
against the insurer, and any ambiguity is construed in favor of the insured.” 17
As to policy exclusions under Louisiana law, “[t]he insurer has the burden of
proving that a loss comes within a policy exclusion.” 18
Under Louisiana law, “[w]hen the words of a contract are clear and
explicit and lead to no absurd consequences, no further interpretation may be
made in search of the parties’ intent.” 19 The majority opinion’s interpretation
of the exception adds a limitation that is not supported by the language of the
exception. The Watercraft Exclusion should not apply, and United’s claims
should be covered under the policy.
* * *
For the foregoing reasons, I respectfully dissent. I would reverse the
judgment of the district court.
17 Garcia v. St. Bernard Parish Sch. Bd., 576 So. 2d 975, 976 (La. 1991) (citing Capital
Bank & Trust v. Equitable Life Assurance Soc’y, 542 So. 2d 494 (La. 1989); Albritton v.
Fireman’s Fund Ins. Co., 70 So. 2d 111 (La. 1953)).
18 La. Maint. Servs., Inc. v. Certain Underwriters at Lloyd’s of London, 616 So. 2d
1250, 1252 (La. 1993) (citing Capital Bank, 542 So. 2d at 494; Lado v. First Nat’l Life Ins.
Co., 162 So. 579 (La. 1935)).
19 LA. CIV. CODE ANN. art. 2046 (2008).
15