Transamerica Leasing, Inc. v. Institute of London Underwriters

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT
_________________________ FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 99-15090 OCTOBER 4, 2001
_________________________ THOMAS K. KAHN
CLERK
D. C. Docket No. 96-02712-CV-KMM

TRANSAMERICA LEASING, INC.,
Plaintiff-Appellee,

versus

INSTITUTE OF LONDON UNDERWRITERS, YORKSHIER INSURANCE
COMPANY, LTD. "C" ACCOUNT, THREADNEEDLE INSURANCE
COMPANY, LTD., THREADNEEDLE INSURANCE COMPANY, LTD., "A"
ACCOUNT, LONDON ASSURANCE - "PHOENIX LSA" ACCOUNT ZURICH
RE (UK) LTD., INSURANCE COMPANY OF NORTH AMERICA (UK) LTD.,
MARITIME INSURANCE CO., LTD., NORWICH NO. 1 "M" ACCOUNT,
PHOENIX ASSURANCE PLC, COMPAGNIE D'ASSURANCE MARITIMES
AERIENNES ET TERRESTRES, SCOTTISH LION INSURANCE CO., LTD.,
CORNHILL INSURANCE PLC, LONDON & EDINBURGH INSURANCE
COMPANY LIMITED, WURTTEMBERGISCHE, FEUERVERSICHERUNGS
AG, GERLING-KONZERN ALLGEMEINE VERSICHERUNGS AG, TERRA
NOVA INSURANCE COMPANY, LTD., SKANDIA MARINE INSURANCE
COMPANY (UK) LIMITED, CORNHILL INSURANCE COMPANY LTD., "D"
ACCOUNT, INSURANCE COMPANY OF NORTH AMERICA (UK) LTD., "G"
ACCOUNT,
Defendants-Appellants,

QUANTUM INTERNATIONAL,
Defendant,

ADJUSTERS LIMITED,
Movant.
____________________________

Appeal from the United States District Court
for the Southern District of Florida
____________________________
(October 4, 2001)
Before TJOFLAT, BARKETT and MAGILL*, Circuit Judges.

PER CURIAM:

Transamerica Leasing, Inc. ("Transamerica") sued several insurance

underwriters (the "Underwriters"), alleging that the Underwriters owe

Transamerica damages under an insurance policy. The district court granted partial

summary judgment to Transamerica, and a jury awarded Transamerica

$3,958,981.94 in damages. The Underwriters appeal, and we reverse and remand

for trial.

Transamerica is a lessor of ocean cargo containers and related equipment. In

the early 1990s, Transamerica entered into various lease agreements with C.A.

Venezolana de Navigacion ("CAVN"), a Venezuelan government shipping line.

Under these agreements, Transamerica leased various equipment to CAVN,

including containers, trailers, and chassis. CAVN used this equipment to move

*
Honorable Frank J. Magill, U.S. Circuit Judge for the Eighth Circuit, sitting by
designation.

2
cargo on routes around the world.

The lease agreements between Transamerica and CAVN required CAVN to

obtain insurance coverage for the leased equipment, so CAVN acquired "all risk"

insurance from the Underwriters. CAVN's first "slip" insurance policy with the

Underwriters covered the year beginning June 30, 1991, and named CAVN as the

only assured. Subsequently, the parties executed an addendum that stated:

Noted and agreed as from inception, Named Assured is more precisely
as below and not as previously advised: C.A. VENEZOLANA DE
NAVIGACION and/or Associated and/or Inter-related Companies and
various Lessors. Losses if any are payable to the Assured as their
respective interests may appear or order. All other slip terms, clauses
and conditions remain unaltered.

The 1991 policy, as well as the policies that followed, stated that it should be

interpreted according to "English law and practice." The policies provided all risk

coverage for the equipment leased by Transamerica to CAVN, but listed various

exclusions and conditions. One such exclusion excepted "loss, damage or expense

arising from insolvency or financial default" from coverage.

CAVN again acquired all risk insurance from the Underwriters for the policy

year beginning June 30, 1993. The named assureds were: "C.A. Venezolana de

Navigacion and/or Leasing Companies as Owners and producers of equipment

and/or subsidiary and/or associated and/or affiliated companies." Addendum

number one to the 1993 policy, dated October 4, 1993, states: "It is hereby noted

3
and agreed to accept the following as additional assureds/loss payees as their

respective interests may appear; . . . Transamerica Leasing, Incorporated . . . All

other terms, clauses and conditions remain unaltered." The parties dispute the

authenticity of this addendum.

The Underwriters again provided CAVN with all risk insurance for the year

beginning June 30, 1994, with the policy essentially identical to the 1993 policy.

On November 1, 1994, the policy was cancelled due to CAVN's failure to pay

premiums.

In July 1994, CAVN informed Transamerica that it had lost track of at least

500 pieces of Transamerica equipment. Transamerica searched for and recovered

some equipment but could not locate many units. In October 1994, CAVN

informed Transamerica that the units either were lost or damaged and would not be

returned.

On November 10, 1994, Susan Esposito, Manager of Risk Management for

Transamerica, sent a letter to Rollins Huding Hall, CAVN's United States broker,

giving notice of a claim under the 1994 policy for physical damage and loss of 944

containers that had been on hire to CAVN. On December 5, 1995, the

Underwriters declined coverage, stating:

Due to the volume of claims intimated against C.A.V.N. under the
above policies, the age of several of the claims and the total lack of

4
assistance insurers have received from C.A.V.N. in identifying the
number of claims lodged with them, insurers hereby formally decline
cover in respect of any claims of whatsoever nature that may fall for
their consideration under any of the policies referred to above.

Insurers hereby repudiate cover under the above policies due to late
notification and failure by CAVN to disclose material facts to
underwriters at each and every renewal subsequent to bankruptcy
proceedings in the Venezuelan Supreme Court.

Transamerica does not know how, or on the precise date on which, the missing and

damaged containers were lost, damaged, or destroyed. CAVN's financial troubles

caused it to cease doing business in July 1994 and to file for protection under

Venezuelan bankruptcy law in October of that year.

In September 1996, Transamerica sued the Underwriters in Florida state

court, alleging that the 1993 and 1994 policies ("together, the Policy") cover

Transamerica's claim for damages resulting from the lost equipment. The

Underwriters removed the case to federal district court under diversity jurisdiction.

In May 1998, the district court granted partial summary judgment to Transamerica,

holding that Transamerica is entitled to recover under the Policy. First, the district

court held that Transamerica is an additional assured under the Policy. Second, the

court rejected the Underwriters' argument that alleged CAVN misrepresentations

voided the Policy, thereby preventing Transamerica from recovering. Instead, the

court held that the Policy was severable, so that even if CAVN failed to disclose

5
material facts when renewing the Policy, the Policy continued to provide coverage

for Transamerica. Third, under the burden shifting test enunciated in New

Hampshire v. Martech USA, Inc., 993 F.2d 1195 (5th Cir. 1993), the court held

that the Underwriters failed to show that the loss of equipment occurred outside the

Policy period. Finally, the court found a genuine issue of material fact regarding

the issue of damages, so a jury trial on the damages issue ensued.

Before trial, Transamerica filed a motion in limine seeking to preclude the

Underwriters from producing any evidence at trial relating to defenses not raised in

the Underwriters' December 5, 1995 declinature letter. The district court granted

Transamerica's motion. The damages trial resulted in an award of $3,958,981.94 to

Transamerica. The Underwriters appeal.

II.

We review the district court's grant of summary judgment de novo. Mitchell

v. USBI Co., 186 F.3d 1352, 1354 (11th Cir. 1999). A district court may grant

summary judgment "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

judgment as a matter of law." Fed. R. Civ. P. 56(c) (2001). Thus, a court may

grant summary judgment only if, viewing the evidence in the light most favorable

6
to the non-moving party, there is no genuine issue of material fact. Crawford v.

Babbitt, 186 F.3d 1322, 1325 (11th Cir. 1999). As the Policy dictates, we apply

English law.

A. Is Transamerica an Additional Assured, a Loss Payee, or Both?

The initial issue is whether Transamerica is an additional assured, a loss

payee, or both an additional assured and a loss payee under the Policy. As the

district court explained:

A coinsured party under an insurance policy has all the rights afforded
to the named assured and can recover under the policy under its own
right. On the other hand, a loss payee is merely a party designated to
receive payment should the named insured prevail on its claim. In
other words, a loss payee can only recover to the extent the named
insured can recover.

See also Couch on Insurance § 65:22 (3d ed. 1996) ("Loss payee's rights under

insurance policy are derivative of named insured's rights; when named insured has

no right to recover, loss payee cannot recover under policy."). The district court

held that Transamerica is both an assured and a loss payee under the Policy and,

therefore, can recover damages under its own right.

The Policy lists the assured as "C.A. Venezolana de Navigacion and/or

Leasing Companies as Owners and producers of equipment and/or subsidiary

and/or affiliated companies." (emphasis added). This language seemingly requires

us to find that Transamerica, a leasing company, is an assured.

7
However, the Underwriters point to an addendum to the Policy that states:

"It is hereby noted and agreed to accept the following as additional assureds/loss

payees as their respective interests may appear; . . . Transamerica Leasing,

Incorporated." The Underwriters argue that the addendum's specific reference to

Transamerica takes precedence over any general Policy terminology to the

contrary. See Macgillivray on Insurance Law 277 (9th ed. 1997) (stating that

"clauses of specific application may contradict clauses of general application

which, if they stood alone, would control the specific subject matter, and the clause

of specific application then controls").

Viewing the evidence and factual inferences in the light most favorable to

the Underwriters, we hold that the addendum creates an issue of fact necessitating

a jury trial. Transamerica disputes the authenticity of the addendum and suggests

that one of the Underwriters crossed out "additional assureds." Although

Transamerica is free to raise these points before a jury, this court will not decide

such issues of fact while reviewing a grant of summary judgment. See Warrior

Tombigbee Transp. Co. v. M/V Nan Fung, 695 F.2d 1294, 1296 (11th Cir. 1983)

("A trial court must not decide any factual issues it finds in the records; if factual

issues are present, the court must deny the motion and proceed to trial.").

B. Did CAVN's Alleged Failure to Disclose Material Facts to the
Underwriters Void Transamerica’s Coverage?

8
The Underwriters next find fault with the district court's determination that

CAVN's alleged failure to disclose material information when renewing the Policy

does not void Transamerica's coverage.1 The district court based this

determination on its conclusion that Transamerica is an additional assured.

Therefore, the district court reasoned, Transamerica is not relegated to recovering

only to the extent that CAVN can recover. The district court then examined

whether the Policy is severable so that even if CAVN’s alleged non-disclosure

voids its own coverage, Transamerica still may recover. The court, relying on

English law providing that an insurance policy can be voided only as to the assured

making the non-disclosure, held that the Policy is severable. See New Hampshire

Ins. Co. v. MGN, Ltd., [1996] CLC 1692.

The doctrine of uberrimae fidei applies to this maritime case. This doctrine

"requires that an insured fully and voluntarily disclose to the insurer all facts

material to a calculation of the insurance risk." HIH Marine Servs., Inc. v. Fraser,

211 F.3d 1359, 1362 (11th Cir. 2000); accord Godfrey v. Britannic Assurance Co.

1
The Underwriters argue on appeal that Transamerica failed to disclose material
information concerning the loss of the leased equipment. However, the Underwriters failed to
raise this argument in response to Transamerica's motion for summary judgment. Therefore, the
Underwriters have waived any argument that Transamerica's purported failure to disclose
material information requires voidance of the policy. See Publishers Res., Inc. v. Walker-Davis
Publ'ns, Inc., 762 F.2d 557, 561 (7th Cir. 1985).

9
Ltd., [1963] 2 Lloyd's Rep. 515, 528-30. "A misrepresentation is material if 'it

might have a bearing on the risk to be assumed by the insurer.'" HIH Marine

Servs., Inc., 211 F.3d at 1363; accord St. Paul Fire & Marine Ins. Co. v.

McConnell Dowell Constructors Ltd., [1995] 2 Lloyd's Rep. 116, 121-25.

The Underwriters' claim that CAVN failed to disclose material facts rests on

the following. In July 1994, CAVN told Transamerica that it had lost track of at

least 500 units of leased equipment. Transamerica then began to search for its

equipment. In August 1994, immediately prior to "binding" coverage for the 1994

policy, Transamerica's brokers told the Underwriters that there were "no known or

reported losses." In October 1994, CAVN informed Transamerica that the missing

containers were lost and could not be returned. On November 10, 1994,

Transamerica informed the Underwriters of the loss.

Because the district court held that Transamerica is an additional assured and

the Policy is severable as to Transamerica, the court did not analyze whether

CAVN's alleged non-disclosure requires the court to void the policy altogether.

We already have determined that an issue of fact exists concerning Transamerica's

status as an assured or a loss payee under the Policy. If the jury finds that

Transamerica is an additional assured, or both an additional assured and a loss

payee, then the district court correctly concluded that CAVN's actions do not affect

10
Transamerica's coverage. On the other hand, if the jury finds that Transamerica is

merely a loss payee, then the jury must decide whether CAVN failed to disclose to

the Underwriters "all facts material to a calculation of the insurance risk," thereby

negating Transamerica's coverage. HIH Marine Servs., Inc., 211 F.3d at 1362.2

C. Can the Underwriters Rely on the "Insolvency or Financial Default"
Exclusion?

The Underwriters argue that the district court erred by ruling that they

waived reliance on coverage defenses not raised in their declinature letter. The

declinature letter stated:

Due to the volume of claims intimated against C.A.V.N. under the
above policies, the age of several of the claims and the total lack of
assistance insurers have received from C.A.V.N. in identifying the
number of claims lodged with them, insurers hereby formally decline
cover in respect of any claims of whatsoever nature that may fall for
their consideration under any of the policies referred to above.

Specifically, the Underwriters seek to rely on a Policy exclusion that precludes

coverage for losses "arising from insolvency or financial default," despite their

failure to cite this exclusion in the declinature letter.

2
Should the jury find that Transamerica is merely a loss payee, then the district court may
decide that there is no genuine issue of material fact concerning whether CAVN violated the
doctrine of uberrimae fidei, thereby permitting a decision as a matter of law.

11
English law does not require insurers to specify all grounds for denial of

coverage in a declinature letter. See Macgillivray on Insurance Law 475-76

(stating that "no party is required to name all his reasons at once or any reason at

all in the assignment of one reason, for a refusal to pay cannot be a waiver of any

other existing reason"). Moreover, an insurer cannot waive a policy exclusion

where coverage otherwise would not exist. Pentagon Constr. (1969) Co. v.

USF&G Co., [1978] 1 Lloyd's Rep. 93, 104 (B.C. Ct. App. 1977); accord Reliance

Ins. Co. v. The Yacht Escapade, 280 F.2d 482, 487 (5th Cir. 1960). These

principles are well-founded, for it often is the case that an insurer will not be aware

of all possible defenses at the time it writes a declinature letter. Therefore, we

conclude that the district court erred in ruling that the Underwriters waived reliance

on Policy exclusions not raised in the declinature letter.

Alternatively, the district court held that the Policy is severable between

Transamerica and CAVN with respect to the "insolvency or financial default"

exclusion, so that CAVN's insolvency can preclude only CAVN from recovering.

We respectfully disagree with the district court’s holding. The "insolvency or

financial default" exclusion applies, by its terms, to all parties subject to the Policy;

it thus applies to bar coverage for any loss due to insolvency or financial default,

regardless of which party makes the claim.

12
Transamerica does not defend the district court's severability analysis.

Instead, Transamerica asks us to affirm the district court due to the Underwriters'

alleged failure to produce sufficient evidence that CAVN's insolvency caused the

loss of equipment. We decline this invitation.

We think that a jury reasonably could find a causal connection between

CAVN's bankruptcy and the disappearance of the leased equipment. In July 1994,

CAVN informed Transamerica that it had lost track of at least 500 pieces of

Transamerica equipment. Also in July 1994, CAVN ceased doing business. About

three months later, CAVN filed for protection under Venezuelan bankruptcy law.

We think that a reasonable jury could conclude that CAVN's insolvency led to the

disappearance of Transamerica's equipment. Thus, a genuine issue of material fact

exists concerning whether the "insolvency or financial default" exclusion applies to

bar recovery by Transamerica, requiring a jury trial.3

D. Did the Loss Occur During the Policy Period?

3
At oral argument, Transamerica argued that it could not have been CAVN's insolvency
that caused the disappearance of the leased equipment. Insolvency, the argument goes, does not
cause equipment to disappear. Instead, Transamerica suggests that the equipment must have
been stolen. We think Transamerica's suggestion eminently reasonable. That being said, we do
not believe that insolvency must directly cause a loss for the insolvency exclusion to apply; were
that the case, we would be hard pressed to imagine any situation where the exclusion would
apply. We instead think that the exclusion applies if a jury concludes that CAVN's insolvency
resulted in the abandonment of Transamerica's equipment, which eventually led to its
misappropriation.

13
The Underwriters contend that the district court erred in ruling that

Transamerica's loss occurred within the Policy period.4 The district court, applying

the burden shifting test enunciated in New Hampshire v. Martech USA, Inc., 993

F.2d 1195 (5th Cir. 1993), held that the Underwriters failed to show that the loss of

equipment occurred outside the Policy period. Under Martech, the insured first

must show that the loss occurred during the policy period. Id. at 1200. If the

insured succeeds in showing that the loss occurred within the policy period, then

the burden shifts to the insurer to prove that a policy exclusion excepts the loss

from coverage. Id.

In Banco Nacional de Nicaragua v. Argonaut Insurance Co., 681 F.2d 1337

(11th Cir. 1982), this court examined a case involving the shipment of urea from

Romania to Nicaragua. Id. at 1338-39. The owner of the urea sued the cargo's

insurer, Argonaut Insurance Company, alleging that the urea was lost or damaged

on the voyage. Id. at 1339. We rejected the insured's argument that Argonaut had

the burden to prove that the loss occurred outside the policy period as an exception

to coverage, holding that the plaintiff in a suit under an all risk insurance policy

must show

proof that the loss occurred within the policy period. . . . Rather than

4
The parties rely exclusively on American law in arguing this issue.

14
being an exception to coverage, as an inherent vice or defect would
be, proof that a loss occurred within the policy period is a predicate to
the application of the policy. Thus, as Morrison indicates, the burden
of proving that the loss occurred during the policy period is properly
on the insured. . . . Our holding should not be read as requiring an
insured to prove . . . the precise time during the policy period at which
the loss occurred. We hold only that the insured must show that a loss
did occur at some time within the policy period, and that the jury may
not engage in speculation in concluding that a loss occurred within
that period.

Id. at 1340 & n.5 (citing Morrison Grain Co. v. Utica Mut. Ins. Co., 632 F.2d 424,

430 (5th Cir. 1980) (holding that the insured satisfied its burden of proving a loss

by showing that the cargo of urea was in good condition when the voyage began

and in damaged condition when unloaded from the vessel)).

In Martech, the Fifth Circuit examined an insurance policy that provided

coverage for damages to the insured's underwater diving equipment. 993 F.2d at

1197. The court rejected the insured's contention that it satisfied its burden by

showing that its losses "more likely than not" occurred within the policy period.

Id. at 1200. The court concluded that the insured's evidence did not preclude the

damage to the goods occurring before or after the policy period, noting: "Proof that

the claimed losses occurred during the policy period is an essential element of

Martech's coverage claim on which it bears the burden of proof. Unconfirmed

rumors of loss are insufficient to satisfy that burden." Id. The court distinguished

Morrison Grain by stating: "Because the policy covered a discrete shipment of

15
goods the questions regarding the time of loss are different from those presented in

the instant case." Id. at 1199 n.18.

To satisfy its burden of producing evidence showing that its loss occurred

during the Policy period, Transamerica produced a May 1993 inventory of

equipment on lease to CAVN. Transamerica then notes that (1) in July 1994,

CAVN informed Transamerica that it had lost track of at least 500 pieces of

equipment and (2) in October 1994, CAVN notified Transamerica that the

equipment had disappeared mysteriously and would not be returned.

We hold that the district court erred in holding, as a matter of law, that the

equipment disappeared during the Policy period. First, at least some of the loss

could have occurred before the Policy period. The Underwriters point out that

Transamerica's May 1993 inventory was just a list of equipment on lease to

CAVN, many units of which had been on lease since the 1980s. In other words,

the inventory does not necessarily show that all the equipment listed was still in

CAVN's possession at the beginning of the Policy period. Moreover, although

CAVN informed Transamerica that it had lost track of at least 500 units of

equipment in June 1994, this does not necessarily mean that the loss occurred

within the Policy period. Second, at least some of the loss could have occurred

after the Policy period. On November 10, 1994, nine days after cancellation of the

16
Policy, Transamerica gave notice of a claim for physical damage and loss of 944

containers that had been on hire to CAVN. It is conceivable that some of this loss

occurred after the Policy terminated.

Moreover, this case is unlike Banco Nacional or Morrison Grain, which both

involved a product sent in good condition but arriving at its destination damaged or

lost. In those cases, it is obvious that the loss occurred sometime during the

voyages. See Martech, 993 F.2d at 1199 n.18 ("Because the policy [in Morrison

Grain] covered a discrete shipment of goods the questions regarding the time of

loss are different from those presented in the instant case."). In this case, as in

Martech, the equipment at issue was used before the Policy became effective, so

there is a question of fact concerning when the loss occurred. Therefore, we

reverse the district court and remand for trial to determine whether the loss

occurred within the Policy period.5

III.

We REVERSE the district court and REMAND for trial. In summary, the

jury must determine whether Transamerica is an additional assured, a loss payee,

or both. If the jury finds that Transamerica is an additional assured, or both an

additional assured and a loss payee, then CAVN's alleged non-disclosure does not

5
Due to our resolution of the issues on appeal, we also reverse the jury damages award.

17
affect Transamerica's coverage because the Policy is severable. If, on the other

hand, the jury finds that CAVN is merely a loss payee, then the jury must decide

whether CAVN's alleged non-disclosure violates the doctrine of uberrimae fidei.

Regardless of the finding as to Transamerica's status as an additional assured or a

loss payee, the jury also must determine whether Transamerica's loss occurred due

to CAVN's insolvency or financial default and whether the loss occurred within the

Policy period.