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Stan Koch & Sons v. Great West Casualty

United States District Court,D. Minnesota.

STAN KOCH & SONS TRUCKING, INC., Plaintiff,

v.

GREAT WEST CASUALTY COMPANY, Defendant.

Civ. No. 05-1225 (RHK/AJB).

 

Aug. 10, 2006.

 

MEMORANDUM OPINION AND ORDER

RICHARD H. KYLE, District Judge.

 

Introduction

 

This is a dispute between Plaintiff Stan Koch & Sons Trucking, Inc.  (“Koch”)-an insured-and Defendant Great West Risk Management, Inc. (“Great West”)-its insurer-arising from Great West’s acceptance of coverage under Koch’s insurance policy, and Great West’s subsequent demand for payment from Koch of a $500,000 “Retention.” Koch brought this declaratory judgment action against Great West arguing that Great West wrongfully accepted coverage in the context of a wrongful death action. The parties have filed cross-motions for summary judgment, each arguing for an interpretation of the insurance policy favorable to its position. For the reasons set forth below, the Court will grant Great West’s Motion and deny Koch’s Motion.

 

 

Background

 

In July 2001, Great West and Koch entered into a contract for insurance (the “Policy”) pursuant to which Great West agreed to provide Koch up to $3,000,000 in liability coverage. The Policy contains a Retention Endorsement (the “Retention”)-central to this dispute-which provides:

[Koch] agree[s] to reimburse [Great West] for the first $500,000 of any loss or claim for each accident which this insurance policy applies to. This amount shall be [Koch’s] Retention.

 

(Policy at 15.) The Policy also provides that Great West “will settle or defend, as we consider appropriate, claim or ‘suit’ asking for damages which are payable under the terms of this Coverage Form.” (Id. at 30.)

 

On March 22, 2002, Kelly Ann Kelly was killed in a car accident when the car in which she was a passenger crashed into the side of a trailer being pulled by a tractor-trailer rig. David White was the owner-operator of the tractor, and he was pulling the trailer for Supreme Transport Services, LLC (collectively “Supreme/White”). Supreme leased the trailer from United Trailer Leasing, a division of Corporation, which in turn is a wholly-owned subsidiary of Koch.

 

Kelly’s husband (“Kelly”) brought a wrongful death action in Minnesota state court against the driver of the car she was in, the driver of a car that was driving next to the car she was in, and Supreme/White (the “Kelly Litigation”).  Koch was not a party to the Kelly Litigation. Supreme/White tendered their defense in the Kelly Litigation to Sirius American Insurance Company (“Sirius”) which insured Supreme/White and provided $1,000,000 of liability coverage. (See Martin Aff. Exs. B, E.) Sirius retained attorney Mick McNee to defend Supreme/White in the Kelly Litigation; Kelly was represented by attorney Steve Watters. (Id.)

 

 

Kelly also brought a dram shop claim against a bar alleging that, prior to the accident, the bar served alcohol to the driver of the car in which she was a passenger when the driver was obviously intoxicated. See Kelly v. Ellefson, 712 N.W.2d 759, 764 (Minn.2006).

 

During the discovery phase of the Kelly Litigation, Watters obtained a copy of the Policy. On June 4, 2003-with a trial in the Kelly Litigation scheduled for September 2003-Watters put Great West on notice of the Kelly Litigation and asserted that Great West’s coverage was exposed because Supreme/White qualified as insureds under the Policy. (Martin Aff. Ex. B.) In his initial letter to Great West, Watters stated that “[a]ccording to [the Policy], there is coverage for the wrongful death of Kelly A. Kelly from this accident.” (Id.) According to Watters, Supreme/White were insureds because the trailer qualified as a “covered auto” under the Policy, and they were using the trailer with Koch’s permission. (Martin Aff. Ex. E.)

 

 

The Policy provides, under the heading “Who is an Insured”:

The following are ‘Insureds’:

a. You for any covered ‘auto’.

b. Anyone else while using with your permission a covered ‘auto’ you own, hire or borrow….

(Policy at 30.)

 

Great West initially took the position that the Policy did not extend to Supreme/White. (See Martin Aff. Ex. D.) Watters responded by suggesting that he would enter into settlement negotiations with Supreme/White, the end aim being to pursue Great West directly for coverage. (See Martin Aff. Ex. F.) In addition, McNee tendered the Kelly Litigation to Great West “to the extent coverage is provided under [the Policy].” (Martin Aff. Ex. G .)

 

In July 2003, Great West retained attorney Ted Smetak to advise it concerning its obligations to Supreme/White. After an initial (lengthy) analysis, Smetak recommended that Great West deny coverage, recognizing that coverage could, if necessary, be admitted at a later date to pre-empt a Miller-Shugart settlement.  (Martin Aff. Ex. H.) However, when Smetak learned that settlement discussions among the parties in the Kelly Litigation contemplated a hybrid settlement agreement combining the features of a Miller-Shugart settlement agreement  with a Drake v. Ryan settlement agreement , he “suggest[ed] more caution in denying coverage … because denying coverage is a necessary pre-requisite to a Miller Shugart stipulated judgment and because [Great West] might not have another opportunity to step in and admit coverage.” (Martin Aff. Ex. I.) Over the course of the roughly two months between the time Smetak was hired by Great West and Great West decided to accept coverage on behalf of Supreme/White, Smetak engaged in a number of detailed analyses regarding strategy surrounding the acceptance or denial of coverage under the Policy. (See Martin Aff. Exs. H, I, M, N.) Smetak’s position regarding Great West’s acceptance of coverage evolved over those two months-from initially advising Great West to deny coverage, to eventually having serious doubts with respect to whether a denial of coverage would be the best course of action. (Id.)

 

 

Even in his initial analysis, Smetak acknowledged that “there are arguments to be made for and against coverage under the Great West policy,” and that the position that the Policy does not cover Supreme/White, although valid, “might lose.” (Martin Aff. Ex. H.) In a later letter, Smetak noted that “there is a risk that the Great West policy does apply,” and suggested to Great West that: “[w]hen this is over, we should discuss some text which will eliminate this kind of argument for coverage.” (Id. Ex. I.)

 

A Miller-Shugart settlement agreement occurs when an insured (here, Supreme/White) stipulates to a money judgment in favor of a plaintiff (here, Kelly), the plaintiff releases the insured from personal liability, and the plaintiff agrees to seek disputed liability coverage from the insurer (here, Great West). Miller v. Shugart, 316 N.W.2d 729 (Minn.1982).

 

Parties enter into a Drake v. Ryan settlement agreement when there are multiple layers of liability coverage, and a claimant (here, Kelly) settles a claim against the primary liability insurer (here, Sirius) while preserving her right to proceed against the potentially applicable excess liability insurer (here, Great West). Drake v. Ryan, 514 N.W.2d 785 (Minn.1994).

 

As the Kelly Litigation approached trial, and the parties’ positions crystalized, it became clear that a Miller-Shugart settlement between Supreme/White and Kelly was a real prospect. Immediately before the trial began, Sirius entered into a Drake v. Ryan release with Kelly, which increased the risk that Supreme/White would enter into a Miller-Shugart settlement with respect to the Policy. (See Martin Aff. Ex. N.) On September 30, 2003, Great West determined to accept coverage to avert a Miller-Shugart settlement (id.); at the time it admitted coverage, Great West was concerned it would be unsuccessful in disproving coverage and was aware of (and shared) the widely held belief on the Supreme/White side of the Kelly Litigation that the prospects for a favorable verdict were good which, if proven correct, would moot the coverage issue (see Martin Aff. Ex. M).

 

The Kelly Litigation proceeded to trial and, despite projections to the contrary, the jury returned with a $2.7 million verdict, and assigned 60% of the fault to Supreme/White. See Kelly v. Ellefson, 712 N.W.2d 759, 765 (Minn.2006). Supreme/White appealed the judgment, and the Minnesota Court of Appeals reversed and remanded for re-trial on the liability issues. See Kelly v. Ellefson, 2005 WL 525548 (Minn.Ct.App. Mar. 8, 2005). In May 2005, while the verdict was on appeal, the claims of Corbin Ellefson, who was also injured in the accident, were being addressed in a mediation session and Great West agreed to pay Ellefson $750,000 to settle his claims. (Martin Aff. Ex. Q.) In accordance with the Retention Endorsement, Great West paid the full settlement to Corbin Ellefson and then requested reimbursement of $500,000 from Koch. (Id.) Koch declined to pay the Retention, asserting that it had “never acquiesced that coverage is applicable in this case.” (Martin Aff. Ex. R.)

 

 

The Supreme Court of Minnesota has since reversed the Court of Appeals on some evidentiary rulings, but left the remainder of the opinion in tact. See Kelly, 712 N.W.2d at 765-66.

 

In June 2005, Koch filed this declaratory judgment action, seeking a declaration that its Retention “is not obligated over Koch’s objection and without Koch’s permission.” (Compl. at 8.) In its claim for declaratory judgment, Koch alleges that it “did not own the tractor,” that Supreme/White are not insureds under the Policy, and that the Retention “is not obligated because Great West does not have the authority under the Policy to unilaterally offer coverage or negotiate a settlement without Koch’s consent, and Koch did not consent to coverage for this matter.” (Compl.¶ ¶  36-42.)

 

Great West filed an Answer and Counterclaim against Koch, seeking “a declaratory judgment … determining that Great West, under the facts and circumstances of this case, was obligated to provide coverage to the operator of the accident Vehicle in connnection with the claims against him (4)” (Counterclaim ¶  4.)

 

 

Standard of Review

 

Summary judgment is proper if, drawing all reasonable inferences favorable to the nonmoving party, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986). The moving party bears the burden of showing that the material facts in the case are undisputed. See Celotex, 477 U.S. at 322; Mems v. City of St. Paul, Dep’t of Fire & Safety Servs., 224 F.3d 735, 738 (8th Cir.2000). The court must view the evidence, and the inferences that may be reasonably drawn from it, in the light most favorable to the nonmoving party. See Graves v. Arkansas Dep’t of Fin. & Admin., 229 F.3d 721, 723 (8th Cir.2000); Calvit v. Minneapolis Pub. Sch., 122 F.3d 1112, 1116 (8th Cir.1997). The nonmoving party may not rest on mere allegations or denials, but must show through the presentation of admissible evidence that specific facts exist creating a genuine issue for trial. See Anderson, 477 U.S. at 256; Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir.1995).

 

 

Analysis

 

Great West argues that it is entitled to summary judgment with respect to Koch’s declaratory judgment action and its counterclaims seeking reimbursement of $500,000 from Koch. According to Great West, “the policy clearly states that it provides coverage for any trailers owned by Koch when being used by a third person with Koch’s consent.”  (Great West Mem. in Supp. at 16.) Koch responds that “[Supreme/White] were not ‘insureds’ under the Policy” (Koch Mem. in Opp’n at 16), Koch did not “legally ‘own’ “ the trailer involved in the accident (id. at 17), and Great West breached its fiduciary duty to Koch when it chose to provide coverage under the policy (id. at 19). The Court will consider these arguments below.

 

 

Great West further contends that it “was vested with the unqualified right and duty to defend and make decisions about settlement.”  (Great West Mem. in Supp. at 21.) While Koch alleged in its Complaint that “Great West does not have the authority under the Policy to unilaterally offer coverage or negotiate a settlement without Koch’s consent,” (Compl.¶  42), it appears to have abandoned that claim in its summary judgment papers. Even if it currently pursues that claim, however, the Court determines that under the plain language of the Policy, Great West did have the authority to settle with Ellefson. The Policy provides that Great West “will settle or defend, as [it] consider[s] appropriate, claim or ‘suit’ asking for damages which are payable under the terms of this Coverage Form.” (Policy at 30 (emphasis added).) Koch has not provided the Court with any argument to cast doubt on the applicability of this language establishing Great West’s authority to settle on Koch’s behalf.

 

Under Minnesota law, it is settled that the interpretation of an insurance contract is a question of law. Watson v. United Servs. Auto. Ass’n, 566 N.W.2d 683, 688 (Minn.1997). In interpreting an insurance contract, the contract is to be construed as a whole, see id. at 692, and when the language of the insurance policy is clear and unambiguous, the language employed must be given its usual and accepted meaning, see Lobeck v. State Farm Mut. Auto. Ins. Co., 582 N.W.2d 246, 249 (Minn.1998). See also SCSC Corp. v. Allied Mut. Ins. Co., 536 N.W.2d 305, 311 (Minn.1995) (citation omitted). “Exclusions are narrowly interpreted against the insurer.” SCSC Corp., 536 N.W.2d at 314 (citation omitted).

 

Great West argues for coverage under the Policy based on the following Policy language:

We will pay all sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ … to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto.’

 

 

 

1. Who is an Insured

 

The following are ‘insureds’:

a. You for any covered ‘auto’.

b. Anyone else while using with your permission a covered ‘auto’ you own, hire or borrow….

 

(Policy at 30.) The term “auto” includes “trailer” under the Policy. (Id. at 41.) Based on these provisions of the Policy, Great West argues that the trailer was a “covered auto,” being used by Supreme/White (“anyone else”), with Koch’s permission. Therefore, Supreme/White are “insureds” under the Policy, Great West was required to provide them coverage, and Koch is obligated to reimburse Great West in the amount of its Retention.

 

Koch relies on the following Policy language to argue that Supreme/White are not “insureds”:

 

However, none of the following is an ‘insured’:

a. Any ‘trucker’, or his or her agents or ‘employees’, other than you and your ‘employees’:

(1) If the ‘trucker’ is subject to motor carrier insurance requirements and meets them by a means other than ‘auto’ liability insurance.

(2) If the ‘trucker’ is not insured for hired ‘autos’ under an ‘auto’ liability insurance form that insures on a primary basis the owners of the ‘autos’ and their agents and ‘employees’ while the ‘autos’ are being used exclusively in the ‘truckers’ business and pursuant to operating rights granted to the ‘trucker’ by a public authority.

 

(Policy at 30.) Based on this language, Koch argues that “it is undisputed that [Supreme/White] were not employed by or affiliated with [Koch] and were covered by their own insurance policies, not the Policy; therefore [Koch] is under no obligation to relinquish its $500,000 [Retention] to settle a claim that did not implicate [Koch].” (Koch Mem. in Opp’n at 16.)

 

The Court determines that Supreme/White are insureds under the Policy. The Policy provisions that Great West relies upon, given their plain meaning, apply to Supreme/White as permissive users of Koch’s trailer. Thus, under the “who is an insured” provision, Supreme/White appear to qualify as insureds. Conversely, the provisions cited by Koch have no apparent application to Supreme/White. The first provision cited by Koch-section a(1)-states that a “trucker” is not an “insured” if it meets the insurance requirements “by a means other than ‘auto’ liability insurance.” (Policy at 30 (emphasis added).) Here, Supreme/White were subject to motor carrier insurance requirements, but they did meet those requirements through standard “ ‘auto’ liability insurance.” (Id.) In fact, Koch concedes as much in its memorandum. (Koch Mem. in Opp’n at 16 (“Great West has admitted that Supreme/White ‘did procure standard ‘auto’ liability insurance through Sirius.” ‘).) Therefore, it is unclear to the Court how this provision of the Policy acts to exclude Supreme/White from coverage.

 

Likewise, with respect to the second provision Koch relies upon-section a(2)-Koch has failed to adequately explain how this provision applies to the facts here. It provides that a “trucker” is not an “insured” if he is not insured under an insurance policy “that insures on a primary basis the owners of the ‘autos’….” (Policy at 30.) However, there can be no dispute that Supreme/White were insured by Sirius, and the Sirius policy provided for primary insurance coverage to Supreme/White and Koch. Accordingly, the Court determines that Supreme/White are insureds under the plain language of the Policy.

 

Koch seeks to avoid this conclusion by arguing that Koch did not “legally ‘own’ “ the trailer being used by Supreme/White under the Minnesota No-Fault Automobile Insurance Act (the “No-Fault Act”). (Koch Mem. in Opp’n at 17.) If Koch was not the owner of the trailer, then Supreme/White cannot qualify as insureds under the Policy because they were not “using with [Koch’s] permission a covered ‘auto’ [Koch] own[s].” (Policy at 30 (emphasis added).) The No-Fault Act provides:

[i]f a motor vehicle is the subject of a lease having an initial term of six months or longer, the lessee shall be deemed the owner for the purposes of [the No-Fault Act] …, notwithstanding the fact that the lessor retains title to the vehicle….

 

Minn.Stat. §  65B.43, subd. 4 (2004). Supreme/White leased the trailer from Koch pursuant to a 24-month lease. Therefore, “for the purposes of [the No-Fault Act],” Supreme/White would be “deemed the owner” of the trailer. (Id.)

 

Koch relies upon U.S. Fire Ins. Co. v. Fireman’s Fund Ins. Co., 461 N.W.2d 230, 233 (Minn.Ct.App.1990) and Laurich v. Emcasco Ins. Co., 455 N.W.2d 527, 528-29 (Minn.Ct.App.1990) to support its position that “a lessee’s insurance carrier is obligated to provide coverage for a loss when a ‘motor vehicle’ is the subject of a lease with a period of six months or longer.” (Koch Mem. in Opp’n at 18.) However, neither case counsels in favor of cutting-off Koch’s ownership interest in the trailer in this case.

 

In U.S. Fire, the Minnesota Court of Appeals held that a regulated trucker has primary insurance obligations. 461 N.W.2d at 232-33. While it cited the No-Fault Act as support for its conclusion, it did not hold that the trucking entity’s policy was the exclusive policy applicable to the plaintiff’s claims. See id. Similarly, Laurich simply held that even a trucker with possession of a tractor-trailer under a long-term lease must obtain Minnesota insurance. Laurich, 455 N.W.2d at 528-29. These cases do not limit the availability of insurance coverage for auto accidents that occur in Minnesota; nor do they hold that a lessee, who could be deemed an owner of a vehicle for purposes of the No-Fault Act, is the exclusive owner of the subject vehicle for all other purposes. Rather, the cases expand the insurance obligation of those operating motor vehicles under long-term leases, a result not at odds with Great West’s coverage decision here. Accordingly, the Court rejects Koch’s argument that, pursuant to the No-Fault Act, it is not the “owner” of the trailer under the Policy.

 

 

It is worth noting that Smetak considered U.S. Fire and Laurich in his coverage analysis for Great West, and determined that the cases did not support a determination that Supreme/White-and not Koch-was the “owner” of the trailer under the Policy. (Martin Aff. Ex. H at 9-11.) In fact, Smetak stated that:

[a]s tempting as it is to seize upon U.S. Fire as authority [for the proposition that Koch was not the owner of the trailer], it only goes so far. It, too, essentially recognizes two “owners” for different purposes. And it did not render the trucking entity’s insurance the exclusive source for the claims; it was a primary/excess scenario.

(Id.)

 

Finally, Koch argues that “Great West breached the fiduciary duty that it owed to [Koch] by putting its own financial interests ahead of [Koch’s] financial interests.” (Koch Mem. in Opp’n at 20.) Great West argues that Koch did not allege a breach of fiduciary duty or bad faith claim in its Complaint, and the Court is inclined to agree. However, for the sake of completeness, the Court will consider Koch’s arguments below.

 

Koch relies on Short v. Dairyland Ins. Co., 334 N.W.2d 384 (Minn.1983), for its contention that Great West’s actions in accepting coverage and settling with Ellefson constituted a breach of its fiduciary duties to Koch. (Mem. in Opp’n at 19-22.) It contends that Great West put “its own financial interests ahead of [Koch’s] financial interests,” (id. at 20), and “the only reason Great West accepted coverage in the [Kelly Litigation] was to avoid a $3,000,000 Miller-Shugart settlement and thereby protect its own financial interests” (id. at 21 (emphasis in original)).

 

In Short, the Supreme Court of Minnesota recognized that “[u]sually … the insurer contractually acquires control of the negotiations and settlement, thus oftentimes creating conflicting interests on the part of the insurer.” 334 N.W.2d at 387. The Court noted that “[i]n Minnesota, a liability insurer, having assumed control of the right of settlement of claims against its insured, may become liable in excess of its undertaking under the terms of the policy if it fails to exercise ‘good faith’ in considering offers to compromise the claim for an amount within the policy limits.” Id. (citation omitted). That duty of good faith on the part of the insurer “is breached in situations in which the insured is clearly liable and the insurer refuses to settle within the policy limits and the decision not to settle within the policy limits is not made in good faith and is not based upon reasonable grounds to believe that the amount demanded is excessive.” Id. at 388 (citation omitted). The court held that the insurance company in Short breached its fiduciary duty to the insured when it repeatedly refused to settle within the policy limits, despite its knowledge that the insured would likely be found liable for damages well beyond those limits, thereby exposing him to personal liability. See id. at 388-89.

 

The Court determines that there is no evidence that Great West breached its fiduciary duty to Koch by accepting coverage in the Kelly Litigation. While Short’s good faith standard likely applies to Great West’s conduct in considering whether or not to accept coverage of the Kelly Litigation and ultimately settle with Ellefson, the facts of Short are distinguishable from the facts at issue here. This case is not one in which Great West rejected modest settlement offers in order to take a gamble, thereby exposing Koch to personal liability beyond the Policy limits. Rather, Great West accepted coverage after detailed and careful consideration of the advice of its seasoned legal counsel. Great West’s decision to accept coverage was based on the not-unfounded hope that Supreme/White would not be apportioned a significant amount of the fault for the accident, in which case the Policy would not be significantly taxed. Furthermore, with the acceptance of coverage, Great West would avoid a Miller-Shugart settlement, an outcome that could have been beneficial to both Great West and Koch. This is especially true given the Court’s above analysis concluding that Supreme/White are insureds under the policy.

 

 

After all, if Great West declined coverage, had to defend an action based on a Miller-Shugart settlement, and lost, Koch would still be on the hook for its Retention. Koch makes much of the fact that the decision by Great West to accept coverage was a “strategic” one (see Mem. in Opp’n at 16, 17) and that, because Great West had initially been advised to deny coverage, this indicates a lack of good faith on the part of Great West. What Koch fails to point out, however, is that Smetak’s evolving analysis of the coverage issue always encompassed the possibility that there was coverage for Supreme/White under the Policy. (See Martin Aff. Ex. H (initial Smetak letter, noting that “[a]lthough there are arguments to be made for and against coverage under the Great West policy, there is more benefit to be realized by dispelling the impression that your coverage will apply”).) Thus, the Court does not view Great West’s eventual acceptance of coverage as wholly at odds with Smetak’s initial analysis of the coverage issue.

 

In addition, the evidence indicates that Great West kept Koch apprised of its evolving coverage analysis at the time it was happening. (See Martin Aff. Exs. S, T, U.) On September 11, 2003, Great West forwarded the latest Smetak letter to Koch and noted in part that Great West had “not made a decision on whether or not our coverage is excess to the primary layer [Sirius].” (Martin Aff. Ex. S.) On September 26, 2003, Great West faxed a Smetak letter of the same date to Koch discussing the likely possibility that Great West would be accepting coverage. (Martin Aff. Ex. U.) Accompanying the Smetak letter, Great West wrote to Bill Sullivan, who handled insurance matters for Koch:

Bill, did you get a chance to discuss these matters with Ted Smetak? The enclosed letter from Ted points out some of the issue[s] that we will undoubtedly face in the next few days. I agree with Ted in that we must be prepared to make some decisions if the situations present themselves.

 

(Id.) There is no evidence in the record that Koch made any formal objections-or, for that matter, any clear informal objections-to Great West’s acceptance of coverage prior to its decision to do so, and Koch cannot make a credible argument that it was left out of the loop on the analysis leading up to that decision. Koch’s failure to lodge any documented objection to a determination of coverage prior to Great West’s acceptance of coverage can only be construed as acquiescence in that decision, especially considering that Koch was in a position to object to such a determination at the time it was being made. Accordingly, the Court determines that, even if Koch had raised a breach of fiduciary duty claim in its Complaint, that claim would not survive summary judgment.

 

Having determined that Supreme/White are insureds under the Policy, and that there is no evidence that Great West breached its fiduciary duty to Koch in accepting coverage in the Kelly Litigation and settling with Ellefson, the Court concludes that Koch is obligated to pay Great West the $500,000 Retention under the Policy. Accordingly, Great West is entitled to summary judgment on its Counterclaims, and Koch’s Complaint will be dismissed with prejudice.

 

 

Conclusion

 

Based on the foregoing and all the files, records and proceedings herein, it is ORDERED that:

 

(1) Great West’s Motion for Summary Judgment on its Counterclaims (Doc. No. 22) is GRANTED; and the Court DECLARES that: (a) Great West acted properly in accepting coverage for the claims arising out of the Kelly accident; and (b) Koch owes Great West $500,000 together with prejudgment interest pursuant to the Retention Endorsement; and

 

(2) Koch’s Motion for Summary Judgment (Doc. No. 38) is DENIED, and Koch’s Complaint (Doc. No. 1) is DISMISSED WITH PREJUDICE.

 

LET JUDGMENT BE ENTERED ACCORDINGLY.

Altadis USA v. Sea Star Line

United States Court of Appeals,Eleventh Circuit.

ALTADIS USA, INC., for the use and benefit of FIREMAN’S FUND INSURANCE COMPANY, its subrogee, Plaintiff-Cross-Defendant-Appellant.

v.

SEA STAR LINE, LLC, Defendant-Cross Defendant-Cross-Claimant-Appellee Cross-Appellant,

American Trans-Freight (ATF), Inc., Defendant-Cross-Claimant-Cross-Defendant-Appellee-Cross-Appellee.

No. 05-14988.

 

Aug. 7, 2006.

 

Before ANDERSON, FAY and SILER,FN* Circuit Judges.

ANDERSON, Circuit Judge:

In this case involving a maritime contract, we review the appellant’s claim that the district court erred when it found appellant’s claim time barred. Appellant argues that the district court erred in holding that the Carmack Amendment, and its two-year statute of limitations, was inapplicable to this case. We also review the district court’s denial of summary judgment in two cross-claims brought by one appellee against the other appellee. After careful consideration, we affirm the district court’s order with regard to appellant’s Carmack Amendment claim, affirm the district court’s denial of summary judgment on one cross-claim, and vacate and remand the remaining cross-claim for reconsideration by the district court.

 

 

I. FACTS

 

In March of 2003, Plaintiff-Appellant Altadis (“Altadis”) purchased a shipment of cigars and cigar bands from Congar International, a company located in Cayey, Puerto Rico. The shipment, containing 2478 cartons of cigars and 20 cartons of bands, was placed in a container and booked with Defendant-Appellee Sea Star Line (“Sea Star”) for shipment to Altadis in Tampa, Florida. The cigars and cigar bands were to be shipped from Puerto Rico to the port in Jacksonville, Florida. From there, they were to be transported overland to Tampa, Florida where Altadis would receive them. A single through bill of lading was issued in Puerto Rico and covered the entire shipment including the ocean voyage to Jacksonville and the overland transportation from Jacksonville to Tampa.

 

On March 17, 2003, the ship arrived in Jacksonville and Defendant-Appellee American Trans-Freight (“ATF”) took possession of the cargo as the inland carrier responsible for delivering the shipment to Altadis in Tampa. According to the Transportation Service Agreement (TSA) between Altadis and Sea Star, ATF was engaged to continue the carriage under the same multimodal bill of lading.  At some point after receiving the container, ATF’s driver parked the truck which contained the cigar container in the front driveway of a closed gas station. He left the vehicle overnight. When he returned the next day, March 18, to continue the trip to Tampa, the container was gone. It was found empty on March 25, 2003, in South Dade County, Florida.

 

Altadis sued Sea Star and ATF in Florida state court under various theories of liability. The case was removed to federal court soon afterward. Both Sea Star and ATF filed affirmative defenses (based on the statute of limitations). Sea Star filed a cross-claim against ATF asserting common law contribution and indemnity and also breach of contract. Sea Star then filed a series of motions for summary judgment, all of which claimed that Altadis had failed to timely file its suit within one year after the date the container should have been delivered. This one-year statute of limitations was provided for both in the bill of lading and in the Carriage of Goods by Sea Act (COGSA). The bill of lading also stated that “the relationship between Carrier [Sea Star and ATF] and Shipper [Altadis] … shall have effect subject to the provisions of the United States Carriage of Goods by Sea Act.” ATF filed a similar motion for summary judgment.

 

The district court granted summary judgment for ATF as to the claims by Altadis but it did not initially rule on Altadis’ claims against Sea Star or the cross-claims by Sea Star against ATF. Later, the court granted Sea Star’s motion for summary judgment as to the claims by Altadis and denied Sea Star’s motion for summary judgment on its cross-claims against ATF (effectively ruling that Sea Star’s cross-claims were without merit). The district court then ordered the clerk to close the case.

 

Altadis appeals from the district court order of summary judgment for Sea Star and ATF. Altadis’ appeal is based on the Carmack Amendment, which states that a carrier cannot provide, by rule or contract, for a statute of limitations of less than two years for bringing a civil action. Altadis argues that the Carmack Amendment, with its two-year minimum statute of limitations, governs the case, and that the one-year statute of limitations relied upon by Sea Star and ATF, and used by the court to grant summary judgment, is inapplicable. Sea Star seeks review of the district court’s denial of its motion for summary judgment on its two cross-claims brought against ATF: one under a common law theory of contribution and indemnity, and another alleging breach of contract.

 

 

II. DISCUSSION

 

The district court granted summary judgment to ATF and Sea Star on Altadis’s complaint based on the language contained in the bill of lading issued by Sea Star. The district court relied upon two grounds: (1) the bill of lading issued was a “through” bill of lading-or one issued to the final destination-and therefore all carriers, including land carriers, are subject to its terms and (2) the bill of lading specifically incorporated COGSA into the agreement, and therefore COGSA and its one-year statute of limitations, not the Carmack Amendment, applies to the case.

 

Using the date of the second amended complaint filed by Altadis and the date of the alleged theft or loss of the cigar container, the district court agreed with ATF and Sea Star that more than one year had passed between the loss to Altadis and the service of process on ATF and Sea Star. The court then quoted from the language of the bill of lading, which said that suits for loss or damage to cargo must be brought “within one (1) year after delivery of the Goods or the date the Goods should have been delivered,” and that no suit will be deemed to have been brought unless “service of process on Carrier or the Vessel has been effected.” Since Altadis did not serve process on ATF until April 13, 2004 (and the loss occurred on March 25, 2003), the district court found that ATF was entitled to summary judgment.

 

On appeal, Altadis argues that the Carmack Amendment, and its minimum two-year statute of limitations, applies, and not the one-year statute of limitations provided for in the bill of lading and COGSA. Altadis suggests that the Secretary of Transportation and Surface Transportation Board have jurisdiction of ATF’s carriage on the overland (Jacksonville to Tampa) leg, and that the Carmack Amendment’s minimum two-year statute of limitations is applicable.

 

On the other hand, Sea Star and ATF argue that the instant carriage is maritime commerce governed by a maritime contract. They argue that the governing law is the bill of lading and COGSA, both of which provide for a one-year statute of limitations.

 

The question with which we are faced is straightforward: where a single bill of lading covers a shipment from Puerto Rico to Tampa (including the ocean leg to Jacksonville and the overland leg from Jacksonville to Tampa), does the Carmack Amendment and its two-year minimum statute of limitations apply to a loss occurring on the overland leg, or does the one-year statute of limitations provided for in the bill of lading and COGSA apply?

 

The case law has established that the Carmack Amendment does not apply to a shipment from a foreign country to the United States (including an ocean leg and overland leg to the final destination in the United States) unless the domestic, overland leg is covered by a separate bill of lading. The Sixth Circuit so held in American Road Service Co. v. Consolidated Rail, 348 F.3d 565, 568 (6th Cir.2003) (holding that the Carmack Amendment and its two-year minimum statute of limitations does not apply to a shipment from a foreign country governed by a through bill of lading, “unless a domestic segment of the shipment is covered by a separate domestic bill of lading.”). In Shao v. Link Cargo (Taiwan) Ltd., 986 F.2d 700, 703 (4th Cir.1993), the court held that the Carmack Amendment does not apply to shipments from a foreign country to the United States “unless a domestic segment of the shipment is covered by a separate bill of lading.” The Seventh Circuit is in accord; see Capitol Converting Equipment v. LEP Transport, 965 F.2d 391, 394 (7th Cir.1992) (holding that the Carmack Amendment does not apply to a shipment from a foreign country to the United States covered by a through bill of lading, “unless a domestic segment of the shipment is covered by a separate domestic bill of lading.”). Dicta in our own circuit is consistent with the Fourth, Sixth and Seventh Circuits. In Swift Textiles, Inc. v. Watkins Motor Lines, Inc., 799 F.2d 697 (11th Cir.1986), we held that the Carmack Amendment was applicable to a shipment from a foreign country where the loss occurred during the domestic, overland portion of the shipment (between the United States port and the final destination in the United States), and where the domestic overland portion of the shipment was covered by a separate, domestic bill of lading. We held “that when a shipment of foreign goods is sent to the United States with the intention that it come to final rest at a specific designation beyond its port of discharge, then the domestic leg of the journey (from the port of discharge to the intended destination) will be subject to the Carmack Amendment as long as the domestic leg is covered by a separate bill or bills of lading.” Id. at 701.

 

The notion that a separate, inland bill of lading is a prerequisite to the application of the Carmack Amendment originated from a discussion in an earlier case before the Supreme Court. In Reider v. Thompson, 339 U.S. 113, 70 S.Ct. 499, 94 L.Ed. 698 (1950), a shipment of goods originating in Buenos Aires was sent over water to New Orleans. In New Orleans, a new and separate bill of lading was issued pursuant to which the goods were carried to Boston, where they arrived in damaged condition. The plaintiff sued, claiming the Carmack Amendment applied, and the Supreme Court accepted the plaintiff’s argument.  Reider, 339 U.S. at 118-19, 70 S.Ct. at 502-03. The Court explained:

The test is not where the shipment originated, but where the obligation of the carrier as receiving carrier originated. Thus it is not significant that the shipment in this case originated in a foreign country, since the foreign portion of the journey terminated at the border of the United States. The obligation as receiving carrier originated when respondent issued its original through bill of lading at New Orleans. That contract of carriage was squarely within the provisions of the statute.

 

Id. at 117, 70 S.Ct. at 502 (citations omitted). As noted above, subsequent cases, citing Reider, have held that a separate bill of lading for the domestic leg of an international shipment must be issued in order for the Carmack Amendment to apply.

 

Altadis does not dispute that it agreed to the Transportation Service Agreement (TSA) with Sea Star, or that the TSA specifically explains that the terms and conditions provided in the bill of lading will govern any dispute. Altadis also does not dispute that this was a “through” bill of lading, which was intended to cover the entire voyage from Puerto Rico to Tampa, Florida. 0 Finally, Altadis does not dispute that the bill of lading for the cigar shipment incorporates COGSA and its one-year statute of limitations. 1 Rather, Altadis acknowledges that the one-year statute of limitations included in the bill of lading applies to Sea Star as the ocean carrier, but argues that the inland, domestic leg of the trip during which ATF took control of the containers is subject to the Carmack Amendment, which bars statutes of limitations less than two years. Because the Carmack Amendment is a federal statute, Altadis argues that it “preempts and supercedes all other laws and contracts having less than statutory rank including the Sea Star Bill of Lading which is governed by Common Law.”

 

In support of its argument Altadis attempts to distinguish the above-cited cases. Altadis argues that the cases do not require a separate bill of lading, but require only a domestic bill of lading. Altadis also points out that the cases all involved foreign shipments, whereas the instant case involves an ocean shipment from a possession of the United States, Puerto Rico.

 

We reject Altadis’ attempt to distinguish the case law. Contrary to its argument, the cases do in fact require a separate bill of lading. See American Road Service Co. v. Consolidated Rail, 348 F.3d 565, 568 (6th Cir.2003) (the Carmack Amendment does not apply “to a shipment under a through bill of lading unless a domestic segment of the shipment is covered by a separate domestic bill of lading.”) (emphasis added); Shao v. Link Cargo (Taiwan) Ltd., 986 F.2d 700, 703 (4th Cir.1993) (same); Capitol Converting Equipment v. LEP Transport, 965 F.2d 391, 394 (7th Cir.1992) (same); Swift Textiles Inc. v. Watkins Motor Lines, 799 F.2d 697, 701 (11th Cir.1986) (“The domestic leg of the journey … will be subject to the Carmack Amendment as long as the domestic leg is covered by a separate bill or bills of lading.”). 2

 

We also believe that Altadis’ position is in tension with the opinion of the Supreme Court in Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, 125 S.Ct. 385, 160 L.Ed.2d 283 (2004). The case was “a maritime case about a train wreck.” Id. at 18, 125 S.Ct. at 390. There was a shipment of machinery from Australia to Huntsville, Alabama, pursuant to a through bill of lading. Id. at 19, 125 S.Ct. at 390. The Court held that the bill of lading was a maritime contract, holding: “so long as a bill of lading requires a substantial carriage of goods by sea, its purpose is to effectuate maritime commerce-and thus it is a maritime contract.” Id. at 27, 125 S.Ct. at 395. The Court emphasized the importance of the uniformity of the general maritime law, and accordingly the need to reinforce the liability regime Congress established in COGSA, and the apparent purpose of COGSA to facilitate efficient contracting in contracts for carriage by sea. Id. at 28-29, 125 S.Ct. at 395-96. The Court also noted that a “single Himalaya Clause can cover both sea and land carriers downstream.”3 Id. at 29, 125 S.Ct. at 396. Finally, the Court pointed out that COGSA explicitly authorizes such clauses. Id. (citing 46 U.S.C.App. §  1307). Thus, the Court held that Norfolk Southern, the rail carrier having custody of the machinery at the time of its damage, was entitled to the protection of the liability limitations in the through bill of lading.

 

Altadis’ position in this case is in tension with Norfolk Southern in that it would introduce uncertainty and lack of uniformity into the process of contracting for carriage by sea, upsetting contractual expectations expressed in through bills of lading. Given the holding Norfolk Southern, which recognizes that a rail carrier on the inland leg of a maritime contract is protected by the limitations in a through bill of lading, Altadis’ position would introduce a different result if the inland carrier were a motor carrier. The purpose of COGSA to “facilitate efficient contracting in contracts for carriage by sea” would be undermined. Norfolk Southern, 543 U.S. at 29, 125 S.Ct. at 396.

 

In light of the Supreme Court’s opinion in Norfolk Southern, the almost uniform case law, and dicta in our own Swift decision, we hold that-in the absence of a separate domestic bill of lading covering the inland leg-the Carmack Amendment, and its two-year minimum statute of limitations, does not apply to this maritime contract covering a shipment pursuant to a single through bill of lading which governs the ocean voyage from Puerto Rico to Jacksonville and also the inland transportation to Tampa. Accordingly, the district court correctly concluded that the one-year statute of limitations provided for in the bill of lading and in COGSA was applicable.

 

Finally, we turn to Sea Star’s appeal of the district court’s denial of its two cross-claims against ATF. Sea Star filed two cross-claims against ATF, asserting a common law claim (for contribution and indemnity), and a breach of contract claim (seeking attorneys fees). With respect to the common law claim, we affirm the district court’s denial of summary judgment for Sea Star. Because there is no liability on the part of Sea Star to Altadis, there is nothing for it to receive from ATF by way of contribution or indemnity. With respect to the breach of contract claim, it is unclear from the record whether the district court directly addressed this issue. Having found Sea Star was unable to prove the first requirement for common law indemnification-proving liability to a third party-the district court denied its motion for summary judgment on both cross-claims and closed the case without directly referring to the contract claim or the language of the relevant contract. We decline to address Sea Star’s breach of contract cross-claim, preferring for the district court to address it in the first instance. Accordingly, we vacate the district court’s implicit denial of Sea Star’s breach of contract cross-claim against ATF and remand that individual claim for consideration by the district court. As to all other claims raised on appeal, the judgment of the district court is affirmed.

 

AFFIRMED IN PART, VACATED AND REMANDED IN PART.

 

 

 

FN* Honorable Judge Eugene Edward Siler, Jr., United States Court of Appeals for the Sixth Circuit.

 

 

In April of 2002, Altadis and Sea Star entered into a Transportation Service Agreement (“TSA”) which required Sea Star to pay Altadis for any damages for a lost container. The General Rules of the TSA also state that Sea Star will issue a transportation bill of lading and export declaration for each shipment, and that the “terms and conditions printed upon the Bill of Lading shall govern all such shipments.” The TSA stated that the Bill of Lading would govern the relationship between the carrier and shipper and would be subject to the provision of the Carriage of Goods by Sea Act (“COGSA”). It also included “inland carriers” as part of the definition of “Carrier” in the agreement, and extended the benefits of the TSA to “all parties performing services for or on behalf of Carrier or the Vessel as employees, servants, agents or contractors, including without limitation … inland carriers.”

 

Sea Star and ATF had also signed an agreement-a Uniform Intermodal Interchange and Facilities Access Agreement (“UIIA”). The UIIA stated that Sea Star would, from time to time, hire ATF to transport to various locations containers that Sea Star had transported to Jacksonville by ocean carrier under an intermodal through bill of lading. The UIIA governed the terms of the agreement between Sea Star and ATF, including ATF’s agreement to indemnify and hold harmless Sea Star in the event of damage or loss caused by ATF.

 

ATF also filed a cross-claim against Sea Star, but the district court dismissed it and ATF does not appeal.

 

Altadis does not challenge the district court’s finding that more than one year has passed. Altadis argues only that the applicable statute of limitations is the Carmack Amendment’s minimum two-year statute, not the one-year statute provided for in the bill of lading and COGSA.

 

The district court’s detailed order, which included its legal analysis regarding the statute of limitations, was applicable only to ATF’s motion for summary judgment. Docket 86. In a second, subsequent order, the court made a similar ruling on Sea Star’s motion for summary judgment “[b]ased upon [the] Court’s prior Order … and the analysis contained therein.” Docket 87.

 

49 U.S.C. §  13501(1)(C) indicates that the Secretary and Board have jurisdiction over transportation by motor carrier between a place in “the United States and a place in a territory or possession of the United States to the extent the transportation is in the United States.”

 

49 U.S.C. §  14706(e) provides for the minimum two-year statute of limitations.

 

46 U.S.C.App. §  1303(6) provides that the carrier “shall be discharged from all liability in respect of loss or damage unless suit is brought within one year.” The bill of lading contains a similar provision.

 

Only the Ninth Circuit has reached a different result. See Neptune Orient Lines v. Burlington N. and Santa Fe, 213 F.3d 1118, 1119 (9th Cir.2000) (“in the past we have held that [the Carmack Amendment] applies to separate inland bills of lading for shipments to or from overseas ports …. The language of the statute also encompasses the inland leg of an overseas shipment conducted under a single, ‘through’ bill of lading … to the extent that the shipment runs beyond the dominion of the Carriage of Goods by Sea Act.”). The Ninth Circuit’s holding and discussion is limited to a single sentence, cites no authority for its position, and does not discuss the opposing case law.

 

0. Appellant’s brief on appeal says, “Upon taking delivery of [the cigar] container … the Appellee, Sea Star Line, LLC, loaded it on board its vessel El Yunque, issued its Bill of Lading … and proceeded with the loaded container to Jacksonville, Florida for further transportation overland by truck to the Appellant in Tampa, Florida … That said Bill of Lading is a Multimodal Bill of Lading covering the entire transportation from [Puerto Rico] to the Plaintiff in Tampa, Florida.”

 

1. The several provisions of the bill of lading clearly set forth: that COGSA provides the governing law (paragraph 1); that a one-year statute of limitations shall apply (paragraph 27); and that the same shall apply not only to Sea Star but also to ATF (paragraphs 2(a) and 22). Altadis not dispute these provisions of the bill of lading.

 

2. Although it is true that Puerto Rico is a possession of the United States, that fact does not serve to distinguish the cited cases involving shipments from foreign ports. The language which Altadis suggests supports the applicability of the Carmack Amendment to shipments to the United States from United States possessions-49 U.S.C. §  13501(1)(C)-is identical to the language relating to shipments from foreign countries to the United States-49 U.S.C. §  13501(1)(D).

 

3. A Himalaya Clause operates to extend the contractual limitations on liability beyond the initial contracting carrier (e.g., the ocean carrier) to include also downsteam carriers (e.g., the land carrier, Norfolk Southern in the Supreme Court case). The bill of lading in this case also includes such a clause.

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