15‐2941‐cv
Petroterminal de Panama, S.A. v. Houston Casualty Company
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007 IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
ʺSUMMARY ORDERʺ). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in
the City of New York, on the 8th day of September, two thousand sixteen.
PRESENT: RALPH K. WINTER,
DENNY CHIN,
CHRISTOPHER F. DRONEY,
Circuit Judges.
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PETROTERMINAL DE PANAMA, S.A.,
Plaintiff‐Counter‐Defendant‐Appellant,
v. 15‐2941‐cv
HOUSTON CASUALTY COMPANY, NATIONAL
LIABILITY & FIRE INSURANCE COMPANY, AKA
National Fire & Liability Insurance Company, LIBERTY
MUTUAL INSURANCE COMPANY, GREAT
AMERICAN INSURANCE COMPANY OF NEW YORK,
INDEMNITY INSURANCE COMPANY OF NORTH
AMERICA, CONTINENTAL INSURANCE COMPANY,
FIREMANʹS FUND INSURANCE COMPANY,
AMERICAN HOME ASSURANCE COMPANY
Defendants‐Counter‐Claimants‐Appellees.
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FOR PLAINTIFF‐COUNTER‐ JARED ZOLA, Blank Rome LLP, New York,
DEFENDANT‐APPELLANT: New York.
FOR DEFENDANTS‐COUNTER‐ JAY LONERO (Angie Akers, on the brief),
CLAIMANTS‐APPELLEES Larzelere Picou Wells Simpson Lonero LLC,
HOUSTON CASUALTY COMPANY, Metairie, Louisiana, and Michael A. Kotula,
NATIONAL LIABILITY & FIRE Rivkin Radler LLP, Uniondale, New York.
INSURANCE COMPANY, LIBERTY
MUTUAL INSURANCE COMPANY,
GREAT AMERICAN INSURANCE
COMPANY OF NEW YORK,
INDEMNITY INSURANCE
COMPANY OF NORTH AMERICA,
CONTINENTAL INSURANCE
COMPANY:
FOR DEFENDANTS‐COUNTER‐ STEPHEN V. RIBLE (Michelle T. Castle, on the
CLAIMANTS‐ APPELLEES GREAT brief), Mendes & Mount, LLP, New York, New
AMERICAN INSURANCE York.
COMPANY OF NEW YORK,
INDEMNITY INSURANCE
COMPANY OF NORTH AMERICA,
FIREMANʹS FUND INSURANCE
COMPANY, AMERICAN HOME
ASSURANCE COMPANY:
Appeal from the United States District Court for the Southern District of
New York (Rakoff, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.
Plaintiff‐counter‐defendant‐appellant Petroterminal de Panama, S.A.
(ʺPetroterminalʺ) appeals an August 17, 2015 judgment of the district court awarding
$466,765.76 to certain of the defendants‐counter‐claimants‐appellees (collectively, the
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ʺPrimary Insurersʺ) and $1,472,677.69 to other defendants‐counter‐claimants‐appellees
(collectively, the ʺBumbershoot Insurers,ʺ and with the Primary Insurers, the
ʺInsurersʺ). The judgment was entered pursuant to the district courtʹs July 16, 2015
opinion and order denying Petroterminalʹs motion for summary judgment and granting
summary judgment in favor of the Insurers. We assume the partiesʹ familiarity with the
facts, procedural history, and issues on appeal.
Petroterminal owns and operates oil transport and storage facilities in
Panama. Relevant to this appeal are two insurance policies (the ʺPoliciesʺ), one for
ʺMarine Liabilitiesʺ (the ʺPrimary Policyʺ) and the other for ʺBumbershoot Liabilitiesʺ
(the ʺBumbershoot Policyʺ), that Petroterminal purchased to cover its operations for the
2007 calendar year.
The Primary Policy provides that it will ʺpay on behalf of [Petroterminal],
any . . . sums as [it] may be liable to pay as the result of an accident . . . in connection
with [Petroterminalʹs operations], . . . including liability . . . [f]or any accident or
occurrence . . . in connection with [operating] pipelines from the terminals.ʺ J. App. at
114. It also covers ʺall costs . . . in connection with any claim [t]hereunder.ʺ Id. at 116.
Coverage for ʺ[l]iability arising from delay, loss of market and/or consequential loss
therefromʺ and ʺ[l]oss . . . resulting from . . . seizure [or] confiscation by order of any
government or public authorityʺ is excluded. Id. at 115‐16.
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The Bumbershoot Policy is excess insurance and, as endorsed, provides
that it will ʺpay on behalf of [Petroterminal liabilities] which are covered in [the]
underlying policies [for] [a]ll . . . sums which [Petroterminal] shall become legally liable
to pay as damages on account of . . . property damage,ʺ defined as ʺphysical loss of or
direct physical damage to or destruction of tangible property.ʺ Id. at 178, 181, 192.
ʺDamagesʺ is defined to include ʺall . . . fees . . . for . . . lawyers . . . paid as a
consequence of any occurrence covered [t]hereunder.ʺ Id. at 179. Coverage for liability
ʺresulting from . . . capture, seizure, arrest, taking, restraint, detainment, confiscation . . .
or the consequences thereofʺ is excluded. Id. at 182.
On February 4, 2007, a pipeline control valve failed at a Petroterminal
facility in Chiriqui Grande, Panama, causing a minor oil spill. Petroterminal and other
firms connected to the facility were sued. To secure jurisdiction over an affiliate of
Swiss‐based Castor Petroleum in one lawsuit, a Panamanian court issued an attachment
of 5.4 million barrels of oil that Castor was storing at the Chiriqui Grande facility. Six
weeks later, the Panamanian Supreme Court suspended the attachment and eventually
found it violative of due process.
On January 25, 2008, Castor sued Petroterminal in New York state court,
alleging that the oil spill amounted to a breach of their Transport and Storage
Agreement (the ʺTSAʺ), which caused Castor to suffer damages for shipping expenses,
trading losses, and lost profits, and triggered Petroterminalʹs indemnification
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obligations under the TSA (the ʺCastor Suitʺ). On April 24, 2008, Petroterminal and the
Insurers agreed in writing that the latter would advance the former 50% of its costs to
defend the Castor Suit (the ʺDefense Costs Agreementʺ). The parties also agreed,
however, that the losing party in any later coverage action would reimburse the
prevailing party for the costs advanced or owed. Nearly seven years later, the New
York court found that a force majeure, namely, the attachment, relieved Petroterminal of
any liability under the TSA. Petroterminal then exercised its rights under the Defense
Costs Agreement by bringing this insurance coverage action.
The question presented is whether the claims asserted in the Castor Suit
are covered under the Policies. The district court concluded they were not because the
illegal attachment caused Castorʹs damages, rather than a covered occurrence, and
because Castorʹs claims fell within the Policiesʹ exclusions. Accordingly, it granted the
Insurersʹ summary judgment motions and entered a final judgment in the amounts
noted. This appeal followed.
On appeal, Petroterminal argues that the district court (1) misapplied New
York law by looking beyond the complaint in the Castor Suit to determine if the claims
were covered and (2) misconstrued the Policiesʹ exclusions in making its coverage
determination.
We review de novo the district courtʹs summary judgment ruling,
ʺconstruing the evidence in the light most favorable to the non‐moving party and
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drawing all reasonable inferences in [its] favor.ʺ Mihalik v. Credit Agricole Cheuvreux N.
Am., Inc., 715 F.3d 102, 108 (2d Cir. 2013). A movant is entitled to summary judgment if
ʺthere is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.ʺ Fed. R. Civ. P. 56(a). ʺʹBecause interpretation of an
insurance agreement is a question of law, we review the district courtʹs construction of
the [Policies] de novo.ʹʺ U.S. Fid. & Guar. Co. v. Fendi Adele S.R.L., 823 F.3d 146, 149 (2d
Cir. 2016) (quoting VAM Check Cashing Corp. v. Fed. Ins. Co., 699 F.3d 727, 729 (2d Cir.
2012)). In this case, we interpret the Policies under New York law.1
New York courts interpret insurance policies according to principles of
contract law, giving policy language its ʺplain and ordinary meaningʺ and construing
ambiguities in favor of the insured. Selective Ins. Co. of Am. v. Cty. of Rensselaer, 26
N.Y.3d 649, 655 (2016). In making a coverage determination, exclusions from policy
coverage are ʺaccorded a strict and narrow interpretationʺ ‐‐ ʺbefore an insurance
company is permitted to avoid policy coverageʺ it must establish that the exclusions
ʺapply in the particular case [and] are subject to no other reasonable interpretation.ʺ
Pioneer Tower Owners Assʹn v. State Farm Fire & Cas. Co., 12 N.Y.3d 302, 307 (2009)
(internal quotation marks omitted).
A threshold issue is whether the Policies impose on the Insurers a duty to
defend, a duty to pay defense costs for claims that are arguably covered subject to a
1 The parties agree that New York law governs the construction and interpretation
of the Policies.
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right of recoupment, or simply a duty to indemnify. An insurer with a duty to defend
must pay defense costs ʺ[i]f the claims asserted, though frivolous, are within policy
coverage,ʺ whereas the duty to indemnify ʺis determined by the actual basis for the
insuredʹs liability to a third person.ʺ Servidone Constr. Co. Corp. v. Sec. Ins. Co. of
Hartford., 64 N.Y.2d 419, 424 (1985). Courts examine the policy language to determine
whether the insurer has a duty to defend or a duty to indemnify and will find the
former only where it is expressly stated. See Natʹl Union Fire Ins. Co. of Pittsburgh v.
Ambassador Grp., Inc., 556 N.Y.S.2d 549, 551 (2d Depʹt 1990) (finding no duty to defend
where policy covered ʺany amount which the [i]nsureds are legally obligated to pay for
a claim . . . includ[ing] costs . . . incurred in the defense of actionsʺ); MBIA Inc. v. Certain
Underwriters at Lloydʹs, London, 33 F. Supp. 3d 344, 355 (S.D.N.Y. 2014) (ʺIn the absence
of a policy provision expressly imposing a duty to defend, New York courts will not
find such a duty.ʺ (internal quotation marks omitted)). Further, ʺeven though a non‐
duty to defend policy may not [expressly] provide for the advancement of legal costs,
. . . New York law generally requires . . . advancement . . . , though such fees are subject
to recoupment by the insurer if it is ultimately found that no coverage exists.ʺ QBE
Ams., Inc. v. ACE Am. Ins. Co., No. 653442/2013, 2014 WL 4250089, at *6 (Sup. Ct. N.Y.
Cty. Aug. 27, 2014).
Petroterminal concedes that the Policies do not impose a duty to defend.
Instead, it argues that the Policies ʺrequire [the Insurers] to pay defense costs as they are
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incurred.ʺ Petroterminal Br. 23. Petroterminal further contends that, like the duty to
defend, this duty to pay defense costs ʺturns solely on whether . . . the complaint alleges
facts or grounds that bring the action within the liability coverage purchased.ʺ Id. at 22
(omission in original) (quoting Federal Ins. Co. v. Kozlowkski, 792 N.Y.S.2d 397, 402 (1st
Depʹt 2005)). It argues that the district court thus erred in basing its coverage
determinations on the New York courtʹs summary judgment ruling. We conclude there
was no error.
The Bumbershoot Policy imposes only a duty to indemnify. It provides
coverage for sums ʺwhich the Insured shall become legally liable to pay as damages,ʺ
including defense costs ʺpaid as a consequence of any occurrence covered hereunder.ʺ J. App.
at 178‐79 (emphasis added). We previously have concluded that identical language
creates a duty to pay ʺdefense costs for claims that are established to be covered
through judgment and settlement,ʺ i.e., claims for which the insurer has a duty to
indemnify, ʺand not for claims only potentially falling within the policyʹs coverage.ʺ
Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178, 1219 (2d Cir. 1995)
(interpreting a policy providing that the insured ʺwill be indemnified for damages and
defense costs ʹpaid as a consequence of any occurrence covered hereunderʹʺ (emphasis
added)). Therefore, the Bumbershoot Insurers were liable for Petroterminalʹs costs in
defending the Castor Suit only if the judgment established that Castorʹs claims were
covered by the Bumbershoot Policy. It was established at summary judgment that
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Castorʹs damages arose out of the attachment of its oil, rather than any of
Petroterminalʹs actions. That attachment falls squarely within the Bumbershoot Policyʹs
exclusion for loss or damages ʺresulting from . . . capture, seizure, arrest, taking,
restraint, detainment, confiscation . . . or the consequences thereof.ʺ J. App. at 182.
Therefore, the Bumbershoot Insurers were not obligated to pay for Petroterminalʹs
defense of the Castor Suit.
We conclude that the Primary Policy also imposes only a duty to
indemnify. As noted, it provides that the Primary Insurers will ʺpay on behalf of
[Petroterminal], any . . . sums as [it] may be liable to pay as the result of an accident,ʺ as
well as ʺcosts . . . in connection with any claim [t]hereunder.ʺ Id. at 115‐16 (emphasis
added). The Primary Insurers thus agreed to pay defense costs incurred in connection
with any claim or money demanded under the Primary Policy that Petroterminal was
liable to pay, or, in other words, costs expended in defense of covered liability. As the
Primary Policy also has an exclusion applicable to the attachment of Castorʹs oil, the
Primary Insurers also had no duty to pay for Petroterminalʹs defense of the Castor Suit.
Moreover, assuming that the Policies do create a duty to advance defense
costs, the Insurers were not required to advance here because they were ʺentitled to
differentiate between covered and non‐covered claims.ʺ Kozlowski, 792 N.Y.S.2d at 403;
accord QBE Am, 2014 WL 4250089, at *5 (same). The complaints in the Castor Suit
repeatedly allege that Castor was injured because it could not access its oil due to the
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attachment. As noted, such claims are within the Policiesʹ exclusions for loss resulting
from seizure or confiscation. Cf. Gen. Star Indem. Co. v. Driven Sports, Inc., 80 F. Supp. 3d
442, 450 (E.D.N.Y. 2015) (finding no coverage where ʺthe allegations in . . . the
underlying complaints plainly reveal that [the claims] are excluded from coverage,
because each claim . . . ʹarises out ofʹʺ excluded risk (alteration omitted)). Further,
although Castor alleged negligence in respect of the oil spill, the only losses alleged were
for business interruption damages for shipping‐related expenses, trading losses, lost
profits, lost opportunities, and other consequential damages. Such claims for
consequential loss are plainly not covered in light of Primary Policyʹs exclusion of
ʺ[l]iability arising from delay, loss of market, . . . or consequential loss therefromʺ
J. App. at 116. See Gen. Star, 80 F. Supp. 3d at 450 n.6 (ʺNew York state courts, as well as
other courts in this circuit, have held that the phrase ʹarising out ofʹ is not ambiguous,
and is ʹordinarily understood to mean originating from, incident to, or having
connection with.ʹʺ (quoting Fed. Ins. Co. v. Am. Home Assur. Co., 639 F.3d 557, 568 (2d Cir.
2011)). Nor are consequential losses covered by the Bumbershoot Policy, which limits
coverage to ʺdamages on account of . . . [personal injury and] property damageʺ as
defined therein. J. App. at 178 (emphasis added). Accordingly, the Insurers had no
duty to advance costs for defense of the Castor Suit.
Finally, we note that had advancement of defense costs been required, the
Insurers would have been entitled to recoup all amounts advanced because in the end
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none of Castorʹs claims were covered. See, e.g., Kozlowski, 792 N.Y.S.2d at 403 (defense
costs advanced are ʺsubject to recoupment in the event it is ultimately determined no
coverage was affordedʺ (quoting Natʹl Union Fire Ins. Co., 556 N.Y.S.2d at 553)); QBE Am.
Inc., 2014 WL 4250089 at *6 (ʺ[A]ny defense costs advanced are subject to recoupment if
no coverage is found.ʺ). Indeed, that is why Petroterminal agreed to recoupment in the
Defense Costs Agreement in the first place. See id. (ʺ[T]here is no compelling reason
why an insured should not wait to recover until a coverage determination is made
because a claim for defense costs rises and falls with the underlying coverage claim.ʺ).
We have reviewed Petroterminalʹs remaining arguments and conclude
they are without merit. Accordingly, we AFFIRM the judgment of the district court.
FOR THE COURT:
Catherine OʹHagan Wolfe, Clerk
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