UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-20487
AGIP PETROLEUM COMPANY, INC.,
Plaintiff-Appellant,
versus
GULF ISLAND FABRICATION, INC.,
Defendant—Third Party Plaintiff—Appellant—Appellee,
versus
SNAMPROGETTI USA, INC.,
Third Party Defendant—Counter Claimant—Appellant,
PETRO-MARINE ENGINEERING OF TEXAS, INC.,
Third Party Defendant—Appellant,
versus
UNDERWRITERS, Subscribing to Policy No. SJ0002, SJ0003A, and
SJ0003B issued by Sedgwick Energy (Insurance Services),
Third Party Defendant—Counter Defendant—Appellee.
AGIP PETROLEUM COMPANY, INC.,
Plaintiff—Appellant,
versus
GULF ISLAND FABRICATION, INC.,
Defendant—Third Party Plaintiff—Appellant—Appellee,
SNAMPROGETTI USA, INC.; MCDERMOTT, INC.,
Defendants—Counter Claimants—Appellants—Appellees,
PETRO-MARINE ENGINEERING OF TEXAS, INC.,
Defendant—Appellant—Appellee,
versus
UNDERWRITERS, Subscribing to Policy No. SJ0002, SJ0003A, and
SJ0003B issued by Sedgwick Energy (Insurance Services),
Third Party Defendant—Counter Defendant—Appellee.
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
(H-94-CV-3547)
_________________________________________________________________
November 28, 2001
Before HIGGINBOTHAM, BARKSDALE, and STEWART, Circuit Judges.
PER CURIAM:*
Primarily at issue is whether, under Texas law, an insurance
policy exclusion for “physical loss and/or damage to” insured
property excludes coverage for loss of use of that property.
Claiming coverage under their insurance policy against a loss of
use action brought against them by Agip Petroleum Company, Inc.,
another insured under that policy, contractors of Agip contest the
no-coverage summary judgment. AFFIRMED.
*
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this opinion should not be published and is not precedent except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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I.
Agip is a developer of off-shore oil and gas production. Its
off-shore drilling platform at issue was designed, manufactured,
and to be installed for Agip by four contractors: Snamprogetti
USA, Inc., was responsible for engineering and supervising
construction of the platform; Petro-Marine Engineering of Texas,
Inc., a Snamprogetti subcontractor, for designing the platform;
Gulf Island Fabrication, Inc., for fabricating the platform; and
McDermott, Inc., for transporting the platform components to the
drilling site in the Gulf of Mexico and for attaching the platform
to the sea bed.
The platform jacket consists of the legs that rest on the sea
bed and upon which the platform deck is installed. During the
jacket’s installation, it toppled and sank. It was recovered,
repaired, and installed at the off-shore site. The cost of repair
was covered by an insurance policy purchased by AGIP, under which
it was a principal insured and the Contractors were other insureds.
The policy is a hybrid of a builder’s risk policy (Section I)
and a comprehensive general liability policy (Section II).
Restated, it provided two types of coverage. As noted, Section I
provided the builder’s risk coverage; it is entitled “PHYSICAL
DAMAGE”. Section II, entitled “THIRD PARTY LIABILITIES ETC.”,
provided the comprehensive general liability coverage.
Section I (“PHYSICAL DAMAGE”) insured “against all risks of
physical loss and/or damage to the property covered hereunder,
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except as hereinafter mentioned”. The insured property included
“the works executed in the performance of all contracts relating to
this entire project ... and all materials, components, ... or any
other property destined to become a part of the completed
project....” Excluded from coverage under Section I was “[l]oss of
use or delay in ‘start-up’ of the insured property however caused”.
Accordingly, pursuant to Section I, Agip could (and did)
recover from the insurer for the structural damage to the platform
but not for loss of use due to the production-delay resulting from
the platform’s sinking. As a result, two actions were filed.
In the first action, Agip sued the Contractors for claimed
damages sustained because of the loss of use of the platform.
Again, these were damages Agip could not recover under Section I.
According to Agip, because of the production-delay, it lost the
ability to produce substantial amounts of gas and oil. In the
second action, the policy Underwriters, in Agip’s name, brought a
subrogation claim against the Contractors, seeking to recover the
substantial amount the Underwriters paid Agip under Section I for
the structural damage. The two actions were consolidated. The
Underwriters and Contractors filed cross motions for summary
judgment on whether, under policy Section II (“THIRD PARTY
LIABILITIES, ETC.”), the Underwriters were obligated to indemnify,
and provide a defense to, the Contractors against Agip’s loss of
use action.
Section II provides coverage where
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the Assured shall become liable (under
Contract or otherwise) to pay ... any sum ...
in respect of any ... claim ... arising from
... the Assured’s operations in connection
with the Project, that is to say:
Loss of life, personal injury or
illness....
Loss of or damage to or loss of use of
property of any kind or description,
including all other direct or indirect or
consequential loss resulting from loss of
or damage to the property....
(Emphasis added.)
Section II contains the following cross liability clause. The
first paragraph of the clause reads:
In the event of one Assured incurring
liability to any other of the Assureds, this
insurance shall cover the Assured against whom
claim is ... 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 herein.
The second paragraph of the clause, — the linchpin for this
appeal — reads, however:
In no case shall this Section II provide
coverage for any physical loss and/or damage
to or defect discovered in the property
insured.
As discussed infra, it is this second paragraph that precludes
coverage for the Contractors.
Summary judgment was awarded the Underwriters. The district
court concluded the policy provided no coverage for the
Contractors, reasoning that, if coverage were provided, “Agip would
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be recovering in a circular fashion from its insurer for excluded
risks [loss of use]”. Agip Petroleum Co., Inc. v. Gulf Island
Fabrication, Inc., et al., No. H-94-3382, at 2 (S.D. Tex. 4 Dec.
1997) (Agip-USDC). Furthermore, according to the district court,
when the policy is read as a whole in conjunction with Agip’s
choice to retain the risk of loss of use, rather than insure
against such risk, no coverage exists. The district court reasoned
that, if coverage existed under the policy, “the underwriters would
be paying twice the coverage they underwrote when insuring the
platform”. Agip-USDC, at 3.
The district court based its ruling on, inter alia, Agip’s not
being a third party to the policy so as to trigger the provisions
of Section II. In addition, it concluded that, even if Agip were
a third party, “Agip’s claims against the contractors are for the
losses to the insured property — the platform. No coverage
attaches to third-parties for property damage, even under the
contractors’ reading of section two for damage to the platform”.
Agip-USDC, at 6.
II.
The Contractors appealed the no-coverage ruling; Agip appealed
the rulings on its claims against the Contractors, but that appeal
is stayed pending settlement; and the Underwriters did not appeal
the summary judgment awarded the Contractors in regard to the
subrogation claim. Therefore, the only issue is whether coverage
6
exists under Section II for Agip’s loss of use claim against the
Contractors.
A summary judgment is reviewed de novo, applying the identical
standard used by the district court. E.g., Stewart v. Murphy, 174
F.3d 530, 533 (5th Cir.), cert. denied, 528 U.S. 906 (1999). Such
judgment should be granted if “the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law”. FED. R. CIV. P. 56(c). For this process, we
“view the pleadings and summary judgment evidence in the light most
favorable to the nonmovant”. Stewart, 174 F.3d at 533.
Because Section I expressly excludes coverage for loss of use,
Section II is the only possible basis for coverage. Even though
Section II covers third party liability, the Contractors assert
that, pursuant to the cross liability clause, coverage exists under
Section II where, as here, one insured sues another insured. The
Contractors concede, however, that, whether any coverage exists
against Agip’s loss of use claim is dependent upon the exclusion
contained in the cross liability clause.
The Underwriters advance numerous bases for no coverage. It
is only necessary to address their assertion that, under Texas law,
the cross liability clause’s exclusion “for any physical loss
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and/or damage to ... the property insured” excludes coverage for
loss of use.
A.
The parties agree that Texas law governs by virtue of the
forum selection clause in policy Endorsement 10. “A federal court
is required to follow the choice of law rules of the state in which
it sits.” Resolution Trust Corp. v. Northpark Joint Venture, 958
F.2d 1313, 1318 (5th Cir. 1992) (citing Klaxon Co. v. Stentor Elec.
Mfg. Co., 313 U.S. 487, 496 (1941)), cert. denied, 506 U.S. 1048
(1993); see, e.g., St. Paul Mercury Ins. Co. v. Lexington Ins. Co.,
78 F.3d 202, 205 (5th Cir. 1996). Under Texas choice of law rules,
parties to a contract may select the law that governs their
agreement. Exxon Corp. v. Burglin, 4 F.3d 1294, 1298 (5th Cir.
1993).
“A Texas court will enforce a contractual choice of law
provision unless (1) the contract bears no reasonable relation to
the chosen state or (2) the law of the chosen state violates a
fundamental public policy of Texas.” Id. at 1298 n.5; see DeSantis
v. Wackenhut Corp., 793 S.W.2d 670, 677 (Tex. 1990), cert. denied,
498 U.S. 1048 (1991). The parties agree to the application of
Texas law. Accordingly, neither maintains application of such law
would violate Texas public policy. Furthermore, Texas law bears a
reasonable relation to the policy; Agip, the primary insured, and
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Sedgwick James of Texas, Inc., the insurance broker, were located
in Texas.
In sum, Texas law governs. Accordingly, the burden rests upon
the insurer to prove “the applicability of any exclusions in the
policy”. Guar. Nat’l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193
(5th Cir. 1998) (citing Telepak v. United Servs. Auto. Ass’n, 887
S.W.2d 506, 507 (Tex. App. — San Antonio 1994, writ denied)); see
Sink v. Progressive County Mut. Ins. Co., 47 S.W.3d 715, 718 (Tex.
App. — Texarkana 2001); TEX. INS. CODE ANN. § 21.58(b)(Vernon Supp.
2001) (“insurer has the burden of proof as to any avoidance or
affirmative defense that must be affirmatively pleaded under the
Texas Rules of Civil Procedure. Any language of exclusion in the
policy ... constitutes an avoidance or an affirmative defense”).
B.
That there is no coverage for the Contractors against the loss
of use claim seems clear from the plain wording of the policy.
Texas law bears this out.
1.
The part of Section I (¶ 8), providing coverage for damage to
the property, and the part of Section II (¶ 41), excluding cross
liability coverage for damage to the property, both use essentially
the same wording. Section I speaks of “physical loss and/or damage
to the property covered hereunder, except as hereinafter
mentioned”; Section II, of “physical loss and/or damage to ... the
9
property insured”. Therefore, arguably, loss of use would be
covered by the above quoted language in Section I, except for its
being expressly excluded later in that section (¶ 28.1.(c)).
In short, Section I speaks of coverage for physical damage,
but makes some exceptions, including for loss of use; Section II
speaks of no cross-liability for physical damage, and makes no
exceptions. As quoted supra, loss of use is covered pursuant to
the general coverage provision in Section II (¶ 40); but no
authority need be cited for a specific provision’s (cross
liability, ¶ 41) controlling a general one (coverage, ¶ 40).
In sum, the cross liability provision precludes coverage for
“physical loss and/or damage to ... the property insured”. No more
need be said. It was not necessary for the policy to go into
greater detail and say: “there is no cross liability for physical
loss and/or damage to the property insured; this exclusion means
that, among other possible exclusions, there is no cross liability
for loss of use arising out of physical loss and/or damage to the
property insured”. As discussed below, this plain reading comports
with Texas law.
2.
In maintaining that, under Texas law, the exclusion for
“physical loss and/or damage” includes excluding coverage for loss
of use, the Underwriters principally rely upon Employers Cas. Co.
v. Brown-McKee, Inc., 430 S.W.2d 21 (Tex. Civ. App. — Tyler 1968,
10
writ ref’d. n.r.e.). Brown-McKee contracted with Panhandle Wheat
Growers, Inc., to construct a grain elevator for it. Brown-McKee
was insured by Employers. After completion of the work, Panhandle
sued Brown-McKee, alleging: defects in the elevator allowed water
to enter and damage another’s stored grain; and, as a result, the
grain was removed from the elevator and Panhandle therefore lost
revenue. In turn, Brown-McKee sued Employers, because Employers
claimed that, under a policy exclusion, it had no duty to provide
a defense.
Under the policy, Employers agreed to defend Brown-McKee
against any suit that fell within the policy coverage — “injury to
or destruction of property, including the loss of use thereof,
caused by accident”. Id. at 23 (emphasis added; internal quotation
omitted). The policy, however, contained the following exclusion:
This policy does not apply:
...
... under [the above quoted provision] to
injury to ... (4) any ... work completed by or
for the named insured, out of which the
accident arises.
Id. Employers maintained that this clause excluded coverage for
Panhandle’s loss of use claim. Brown-McKee countered that
Panhandle’s claim arose not from damage to the completed work but
instead from damage to the grain in the elevator and the removal of
the grain.
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The court determined, however, that Panhandle’s action was not
for damage to the grain, but rather “for lost storage revenue,
which, in effect, is for loss of the use of the elevator”. Id. at
27. Most notably, for purposes of our analysis, the court held
that “loss of use of the elevator is merely an element of damage to
the elevator and coverage therefor is excluded under [the above
quoted] Exclusion”. Id. Accordingly, loss of use was held
exempted from coverage, even though the term was not used in the
exclusion.
Our court has recognized the Brown-McKee holding that loss of
use is an element of property damage. See Todd Shipyards Corp. v.
Turbine Serv., Inc., 674 F.2d 401, 422-23 & n.16 (5th Cir.)
(although expressing doubt that the result would be the same under
Louisiana law), cert. denied, 459 U.S. 1036 (1982). This is also
consistent with our court’s observation that, in general, courts
interpret “property damage to require (1) actual damage to tangible
property or (2) the loss of use of property with tangible monetary
value”. Snug Harbor, Ltd. v. Zurich Ins., 968 F.2d 538, 542 (5th
Cir. 1992) (applying Texas law but citing to New York, Florida, and
Wisconsin law for this statement).
Brown-McKee is clear: where an exclusion denies coverage for
damage to property, that exclusion forecloses coverage for loss of
use of that property. Furthermore, Brown-McKee is factually on
point. There, the policy covered loss of use to property that was
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not part of Brown-McKee’s construction project. Here, the policy
provides coverage to the Contractors for loss of use of property
that is not part of the platform construction project. In Brown-
McKee, the policy excluded coverage for “injury to or destruction
of” the property constructed by Brown-McKee. Here, where one
insured sues another, excluded from coverage is “physical loss
and/or damage to” the insured property — in this case, the platform
jacket.
The policy at issue in Brown-McKee was a comprehensive general
liability (CGL) policy, whereas the policy here is termed by the
parties as a builder’s risk policy. This difference, however, does
not affect the applicability of Brown-McKee. A builder’s risk
policy is typically purchased by the party owning a property
interest in the construction work to be performed in order to
protect the property during construction. See Data Specialties,
Inc. v. Transcon. Ins. Co., 125 F.3d 909, 914 (5th Cir. 1997)
(applying Texas law and observing that a builder’s risk insurance
policy “reimburses the owner, or any party with an insurable
interest such as a mortgage holder, for the accidental loss,
damage, or destruction of the property”). A CGL policy, on the
other hand, can be purchased by the party performing the
construction work, as was the situation in Brown-McKee, to broadly
cover against tort liability incurred during construction. See id.
(“CGL policy covers the contractor for its tort liability”).
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As stated supra, the policy in question is really a hybrid of
a builder’s risk policy and a CGL policy. Section I performs the
function of builder’s risk by insuring Agip’s interest in the
jacket against loss or damage. Section II is more akin to a CGL
policy, as it protects Agip and the Contractors from tort liability
to third parties. Accordingly, for our purposes, there is no
functional difference between the CGL policy in Brown-McKee and the
coverage in Section II.
There is a difference, however, in the relationship of the
parties in Brown-McKee and here. In Brown-McKee, the party that
owned the elevator and suffered the loss of use damages, Panhandle,
was not an insured under the policy and had nothing to do with its
purchase. Here, the owner of the jacket, Agip, purchased the
policy and is an insured under it. If there is no coverage under
Brown-McKee for a loss of use claim brought by a stranger to the
policy, it makes even more sense that, pursuant to the plain
wording of the policy at issue, there be no coverage when the party
claiming loss of use is the purchaser of, and a party to, the
policy. Again, Agip decided not to insure against loss of use
under Section I.
Therefore, under the Brown-McKee holding, Section II’s cross
liability clause exclusion for physical loss and/or damage to the
jacket also excludes coverage for loss of use of that jacket. The
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Contractors present two reasons why Brown-McKee should not dictate
the outcome here.
First, they seize upon language in the Brown-McKee exclusion,
which prohibited coverage for “work completed by or for the named
insured, out of which the accident arises”. Brown-McKee, 430
S.W.2d at 23 (emphasis added). According to the Contractors, this
language distinguishes Brown-McKee from the situation at hand. The
Brown-McKee court, however, did not rely upon this language.
Furthermore, here, Section II requires that, for coverage to exist,
the damage must result from “the Assured’s operations in connection
with the Project” (“Coverage”, ¶ 40). This forecloses coverage
pursuant to the cross liability clause for property damage not in
connection with the Contractors’ role in the project. Instead of
distinguishing Brown-McKee, this language further demonstrates the
similarities between the policies at issue there and here.
The Contractors’ second assertion fares no better. According
to them, and discussed supra, because damages for loss of use are
expressly excluded from Section I coverage (¶¶ 8 & 28.1.(c)) but
expressly included in Section II coverage (¶ 40), the complete
absence of such exclusionary language from the subsequent Section
II cross liability exclusion (¶ 41) demonstrates no intent to
exclude coverage for loss of use. Under this theory, however, it
would be just as reasonable to conclude that, because of such
silence in the cross liability clause, loss of use is excluded. In
15
any event, and as discussed supra, the plain meaning of the policy
certainly does not support this contention.
Moreover, the Contractors cite no authority for this position.
Under Texas law, as we have concluded, an exclusion for property
damage subsumes loss of use. Because the policy included the loss
of use term in two instances but not in another does not change the
meaning, under Texas law, of property damage. In addition, failure
to so include this language does not create an ambiguity in the
policy where, under Texas law, there is only one reasonable
interpretation of the scope of the exclusion. See Columbia Gas
Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex.
1996) (“A contract is not ambiguous if it can be given a definite
or certain meaning as a matter of law.”).
III.
As the district court correctly observed, were we to hold that
Agip’s loss of use claim was not an element of property damage,
Agip and the Contractors would receive coverage for which the
parties to the policy never negotiated. To say the least, it would
be contrary to reason for Agip to recover from the Underwriters,
indirectly through the Contractors, what Agip could not recover
directly from the Underwriters. Texas law avoids such a result.
AFFIRMED
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