IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
NORFOLK SHIPBUILDING & DRYDOCK CORPORATION,
SEABULK TRANSMARINE PARTNERSHIP, LTD., ET
SEABULK TRANSMARINE PARTNERSHIP, LTD.,
NORFOLK SHIPBUILDING & DRYDOCK CORP.,
NORFOLK SHIPBUILDING & DRYDOCK CORP.,
VESTA FORSIKRING A/S, also known as Skadeforsikringsselskapet
Vesta A/S; CERTAIN UNDERWRITERS AT LLYOD'S,
AND AT THE INSTITUTE OF LONDON UNDERWRITERS,
Underwriters at Lloyd's Subscribing to Cover
Notes EII-20252(A) & EII-204052(B)
Appeal from the United States District Court
for the Eastern District of Louisiana
November 26, 2001
Before KING, Chief Judge, and DUHÉ
and BENAVIDES, Circuit Judges.
BENAVIDES, Circuit Judge:
This insurance case arises out of a dispute
related to the construction of a ship. The parties to the construction
contract obtained a builder's risk policy under which both of them were
listed as principal assureds. A dispute arose between the two principal
assureds regarding the design of the ship's hull, and litigation ensued.
The insurance policy contained no explicit duty to defend clause, and we
must determine whether coverage for defense costs in a suit between the
principal assureds can be found in the policy's provision for third party
liability coverage. Because we hold that it cannot, we AFFIRM the judgment
of the district court.
This appeal is the latest episode in the lengthy
and complex dispute surrounding efforts by Seabulk Transmarine Partnership,
Ltd. ("Seabulk") to build a new vessel, the M/V SEABULK AMERICA,
and the insurance contract that covered the ship's construction.
A. Construction of the Ship
To build the SEABULK AMERICA, Seabulk
planned to combine parts of two separate vessels, the Barge 4102
and the M/V FUJI. The Barge 4102 transported chemical
products, but had no means of propulsion after the sinking of its custom-fitted
tug. Seabulk sought to resolve this problem by combining the forward section
of the barge with the stern of the FUJI, a wrecked tanker. The hulls
of these two existing vessels, however, were of dissimilar widths and depths,
so that Seabulk faced the challenge of obtaining a third, intermediate
hull to join the other two. For this task it engaged C.R. Cushing &
Company, Inc. ("CRC") to handle its engineering and naval architecture
needs. CRC then commissioned the Maritime Research Institute of the Netherlands
("MARIN") to perform model testing of the proposed
MARIN built a model of the proposed hull design, tested it, and even produced
a drawing depicting the lines of the hull form ("the MARIN lines").
Before the MARIN lines were finished, CRC
and Seabulk solicited bids for the actual construction of the SEABULK
AMERICA. Appellant Norfolk Shipbuilding & Drydock Corporation ("Norshipco")
successfully bid on the work. Although the construction contract between
Seabulk and Norshipco did not explicitly refer to the MARIN lines, Norshipco
understood that it was obligated to follow them. During the course of the
construction, however, Seabulk became aware that Norshipco was not following
the MARIN lines, and instead was using lines developed by its own subcontractor.
As a result of deviating from the MARIN lines, Norshipco saved $15,000
in steel costs, but the speed of the finished product was slightly reduced.
Ultimately, Seabulk obtained a completed SEABULK AMERICA that was
substantially similar in performance to the originally proposed vessel,
yet somewhat different in design.
B. The Insurance Policy
The SEABULK AMERICA project was insured
under a policy from certain Lloyd's of London syndicates and various insurance
companies, collectively referred to by the lead underwriter, appellee Vesta
Forsikring A/S ("Vesta"). The policy lists both Seabulk and Norshipco as
"principal assureds," and defines "other assureds" as including the contractors,
subcontractors and suppliers of the principal assureds. It is undisputed
that § 1 of the policy provides first party insurance for physical
loss and/or damage. Section II(B) covers "General Third Party Liabilities"
and a "Cross Liabilities Clause" at the end of § II(C) states that
in the event that one assured incurs liability to any other assured, coverage
is no different than if separate policies had been issued to the assureds.(1)
C. Procedural History
In June 1991, Seabulk filed an action against
Norshipco for failure to build the SEABULK AMERICA in accordance
with the proper hull lines. In April 1993, Norshipco filed a complaint
against Seabulk to recover amounts due under the contract. The actions
were consolidated in the Eastern District of Louisiana. In January 1995,
Seabulk obtained leave to file an amended complaint against Vesta, asserting
claims for refusing to cover purported losses stemming from the design
of the SEABULK AMERICA's hull lines. Norshipco then filed a cross-claim
against Vesta seeking coverage of its costs in defending against Seabulk's
claim for defective hull lines.
The district court referred the case to a
special master, who presided over a three-month trial. At the conclusion
of the trial, he issued a draft report, allowed the parties to submit comments
on the draft report, and held a hearing on the comments. Before a final
report was issued, however, Seabulk entered into separate settlement agreements
with Vesta and Norshipco. Only Norshipco's claim against Vesta remained.
In his final report, the special master found in favor of Norshipco, holding
that the policy was intended to cover such claims. The district court refused
to adopt the final report, concluding that the special master's findings
were clearly erroneous and contrary to law. Specifically, the court held
that Norshipco's defense costs in the suit brought by Seabulk were not
third party liabilities, and, in any event, were not covered because there
was no actual loss or damage from Norshipco's breach of contract. Accordingly,
the district court dismissed Norshipco's claim with prejudice. Norshipco
timely appealed this judgment.
The parties agree that the central issue in
this case is whether Norshipco's defense costs are covered under §
II of the policy, specifically the third party liability coverage outlined
in § II(B) and the cross liabilities provision at the end of §
II(C).(2) We review a district court's interpretation
of an insurance contract de novo. Adams v. Unione Mediterranea di Scurta,
220 F.3d 659, 677 (5th Cir. 2000), cert. denied, 121
S.Ct. 1191 (2001). It is undisputed that Florida law governs the interpretation
of the contract.
A. Parties' Contentions
Section II(B) of the policy, entitled "General
Third Party Liabilities", states:
It is understood and agreed that coverage
hereunder in respect of General Third Party Liabilities shall be in accordance
with the following:
Underwriters hereon agree that if the Assured
shall become liable (under) [sic] Contract or otherwise) to pay and shall
pay any sum or sums in respect of any responsibility, claim, demand, damages
and/or expenses, or shall incur any other loss arising from or occasioned
either directly or indirectly by the Assured's operations in connection
with the subject matters insured that is to say: . . .
loss or damage to or loss of use of property
of any kind or description, including all other direct or indirect or consequential
losses resulting from loss or damage to property,
Underwriters will pay the Assured such sum
or sums so paid, or which may be required to indemnify the Assured for
such losses, provided always that the liability under this Clause in respect
of any one accident or series of accidents arising out of the same event,
shall be limited as above . . . .
Norshipco contends that the liability protection
provided under § II(B) covers its defense costs in the suit by Seabulk,
as such costs are third party liabilities. In support of its position that
Seabulk is a third party, Norshipco points to the "Cross Liabilities Clause"
at the end of § II(C), which provides that:
In the event of one Assured incurring liability
to any other of the Assureds, this insurance shall cover the Assured against
whom claim is or may be made in the same manner as if separate policies
had been issued to each Assured. However, the inclusion of more than one
Assured hereunder shall not operate to increase the limit of liability
Norshipco notes that such cross liability
provisions generally guarantee coverage for claims emanating from disputes
between assureds, so that the fact that both assureds chose to obtain coverage
under the same policy does not prejudice them. See, e.g., Alaska
v. Underwriters at Lloyd's London, 755 P.2d 396, 400 (Alaska 1988)
("The cross-liability clause requires that we read the policy 'as though
a separate policy had been issued to each' insured."). Moreover, the policy
contains no insured-versus-insured exclusion to void the effect of the
cross liabilities clause. Finally, Norshipco argues that the district court's
conclusion that § II does not cover its defense costs is contrary
to the intent of the parties, who meant to secure full coverage for both
Seabulk and Norshipco as if each had its own separate policy.
Vesta contends that Norshipco's defense costs
are not covered under § II(B) because it is a principal assured, not
a third party. It argues that parol evidence regarding the meaning of "General
Third Party Liabilities" is inadmissible because the term is not ambiguous.
Accordingly, we need not consider the effect of the cross liabilities clause,
as it does not create coverage under § II(B) for claims that would
otherwise fall outside the definition of third party liabilities. Alternatively,
Vesta argues that coverage is unavailable because there was no "loss or
damage to or loss of use of property." In the absence of such loss or damage,
§ II(B) does not provide coverage.
In order for Norshipco's defense costs to
be covered under § II(B), Seabulk's claims must be "General Third
Party Liabilities". Norshipco contends that the cross liabilities clause
makes a claim by one policyholder against another policyholder a third
party liability. This argument, however, places undue reliance on the cross
liabilities clause. As Norshipco notes, the cross liabilities clause is
not a part of § II(B); rather, it follows § II(C). As such, it
does not increase the scope of coverage available under § II(B). It
merely ensures that the parties are not prejudiced by their decision to
obtain coverage under the same policy. Therefore, in deciding whether Seabulk's
claims are covered under § II(B), we must first determine the contours
of "General Third Party Liabilities", including the definition of "third
party". We then shall apply the cross liabilities clause so that this §
II(B) coverage is not diminished by the fact that Seabulk and Norshipco
are insured under the same policy.
1. Coverage under § II(B)
Having considered the structure and the plain
terms of the policy, we conclude that Seabulk's claims cannot be considered
"General Third Party Liabilities". The policy explicitly indicates that
Seabulk, like Norshipco, is a principal assured, and § I outlines
the coverage for certain losses between the principal assureds. Section
II, however, is limited to claims by third parties, which obviously cannot
be synonymous with principal assureds. By its very definition, third party
liability does not include claims by the principal assureds, who as the
primary policyholders are first parties to the insurance contract.
Norshipco seeks to avoid the plain meaning
of "third party" by reliance on certain rules of contract interpretation
and parol evidence. It notes that under Florida law, the policy is to be
construed in favor of the insured. See Berkshire Life Ins. Co. v. Adelberg,
698 So.2d 828, 830 (Fla. 1997). This doctrine, however, applies only to
the interpretation of ambiguities in the contract. See Deni Assocs.
of Fla., Inc. v. State Farm Fire & Cas. Ins. Co., 711 So. 2d 1135,
1138 (Fla. 1998). In the absence of any uncertainty, inconsistency, or
ambiguity, Norshipco cannot rely on this rule to escape the clear meaning
of a policy's term. Noting that the term "General Third Party Liabilities"
is not explicitly defined in the policy, Norshipco argues that it is ambiguous.
Given this uncertainty, Norshipco contends, it was incumbent upon Vesta
to expressly exclude coverage for liability claims between principal assureds.
The absence of an explicit definition, however, does not automatically
render a term ambiguous. Rather, courts will accord the term its natural
meaning consistent with common usage. Sec. Ins. of Hartford v. Commercial
Credit Equip. Corp., 399 So.2d 31, 34 (Fla. App. 1981). In the present
case, "General Third Party Liabilities" is simply not an ambiguous term,
as application of its normally accepted meaning leaves no doubt that it
does not encompass claims by principal assureds.
The absence of ambiguity in the policy also
undercuts Norshipco's argument for the admission of parol evidence. Without
an explicit finding of ambiguity, the special master considered inter
alia testimony by Vesta's agent that he understood that the parties
wanted full protection, with no gaps in coverage. The district court correctly
ignored this testimony after finding no ambiguity to justify the consideration
of parol evidence. As we already have stated, there is no ambiguity surrounding
the issue of whether a third party liability provision covers claims between
principal assureds. Moreover, we reject Norshipco's argument that parol
evidence was necessary to explain "General Third Party Liabilities" because
it was a term of art. Not only is this position inconsistent with Norshipco's
argument that the term is ambiguous, Norshipco has not identified
any evidence in the record purporting to explain "General Third Party Liabilities"
as a term of art. All of the evidence cited in its brief relates to the
parties' intent, not to any established trade usage. Accordingly, we agree
with the district court's conclusion that there is no basis for the admission
of parol evidence. We also agree with its holding that the "General Third
Party Liabilities" provision covers just that-third party liabilities,
not costs incurred as a result of a dispute between principal assureds.
2. Cross Liabilities Clause
Having addressed the scope of coverage under
§ II(B), we now analyze the effect of the cross liabilities clause
on that coverage. As noted above, the cross liabilities clause guarantees
that a named insured under a joint policy does not receive less coverage
than would be available under an otherwise identical, separate policy.
Norshipco argues that the cross liabilities clause, in addition to the
absence of any insured-versus-insured exclusion in the policy, results
in coverage for disputes between the named assureds. It contends that any
interpretation of the policy that does not include such coverage effectively
renders the cross liabilities clause meaningless. We disagree. As the district
court noted, the cross liabilities clause clearly applies to situations
in which a true third party asserts a claim against one of the principal
assureds, who then seeks to hold another principal assured liable for the
third party claim. In such cases, the cross liabilities clause acts to
ensure that both principal assureds receive coverage, just as if they had
purchased separate policies. This reasonable interpretation comports with
the structure of the policy, giving effect to the cross liabilities clause
without allowing it to eviscerate the express limitations on the coverage
provided under § II(B).(3)
We hold that the coverage under § II(B)
does not extend to Norshipco's defense costs in the suit brought by Seabulk
because § II(B) covers "General Third Party Liabilities", not claims
between principal assureds. Having determined that Norshipco's defense
costs are not third party liabilities, and that the cross liabilities clause
does not transform them into such, we need not address the district court's
independent, alternative basis for denial of coverage, i.e., that there
was no actual loss or damage to the property. Accordingly, we AFFIRM the
judgment of the district court.
1. Norshipco correctly
notes in its reply brief and at oral argument that there are, in fact,
four sections of the policy. It does not argue, however, that coverage
for its defense costs is found in either § 3 or § 4.
2. Section I of the policy,
which indisputably covers claims between principal assureds, does not apply
to the claims at issue because it only provides coverage for damage to
the insured vessel.
3. Because Norshipco is
not entitled to its defense costs under the policy, it cannot recover attorney's
fees in prosecuting the present action against Vesta. The Florida statute
on which Norshipco relies only applies to cases in which the insured prevails
on its claim against an insurer. As Norshipco has not prevailed on the
claim against Vesta, a statutory award of attorney's fees is not available.