Great Southern Wood Preserving, Inc. v. American Home Assurance Co.

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
FILED
-------------------------------------------U.S. COURT OF APPEALS
No. 07-14446 ELEVENTH CIRCUIT
AUG 22, 2008
Non-Argument Calendar
-------------------------------------------- THOMAS K. KAHN
CLERK
D.C. Docket No. 06-00708-CV-C-1
GREAT SOUTHERN WOOD PRESERVING, INC.,
Plaintiff-Appellant,
versus
AMERICAN HOME ASSURANCE COMPANY,
AIG,
AMERICAN INTERNATIONAL UNDERWRITERS
CORPORATION,
AMERICAN INTERNATIONAL MARINE AGENCY,
Defendants-Appellees.
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Appeal from the United States District Court
for the Middle District of Alabama
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(August 22, 2008)
Before EDMONDSON, Chief Judge, TJOFLAT and BLACK, Circuit Judges.
PER CURIAM:
Plaintiff-Appellant Great Southern Wood Preserving, Inc. (“Great
Southern”) appeals the grant of summary judgment in favor of Defendant-
Appellee American Home Assurance Company (“American Home”) on Great
Southern’s insurance claims. No reversible error has been shown; we affirm.
Great Southern imports raw lumber which it chemically treats at one of its
domestic treatment facilities and then resells to retail and independent business
customers. The imported lumber is delivered by ship and discharged at ports in
the United States. American Home issued Great Southern a Marine Open Cargo
Insurance Policy effective 2 June 2005 (the “Policy”). Two shipments of raw
lumber received by Great Southern at the Port of Gulfport in August 2005 are at
issue in this case.
Because trucking lanes are limited at the Port of Gulfport, the logistics of
picking up a large load of cargo is difficult. Great Southern entered into a
warehouse lease with the Mississippi State Port Authority to allow the short-term
storage by Great Southern of lumber discharged at the Port of Gulfport. On 3
August 2005, the Kestral Arrow arrived at Gulfport bearing 4,056 packs of lumber
for Great Southern. On 8 August 2005, Great Southern began transporting these
packs to its treatment facilities. On 25 August 2005, the Sanko Stream arrived at
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Gulfport bearing approximately 100 tractor-trailer loads of raw lumber for Great
Southern. On 29 August 2005, Hurricane Katrina hit the Port of Gulfport. The
warehouse in which Great Southern stored its shipments was destroyed. Great
Southern suffered the loss of the entire Sanko Stream shipment; also lost was that
portion of the Kestral Arrow shipment – 28 per cent – that had not yet been
transported from the warehouse.
Great Southern filed a claim under the Policy for the lost lumber. American
Home denied the claim contending that coverage under the Policy had ceased
before the time of loss. In the light of that denial, Great Southern brought suit
asserting claims of breach of contract and bad faith.
The Policy contained a “warehouse-to-warehouse” provision that is
oftentimes included in marine cargo insurance:
This insurance attaches from the time the goods leave the
Warehouse and/or Store at the place named in the
Declaration and/or Certificate for the commencement of
transit and continues during the ordinary course of
transit, including customary transshipment, if any, until
the goods are discharged overside from the overseas
vessel at the final port. Thereafter the insurance
continues whilst the goods are in transit and/or awaiting
transit until delivered to the final warehouse at the
destination named in the policy or until the expiry of 15
days (or 30 days, if the destination to which the goods
are insured is outside the limits of the port) whichever
shall first occur.
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According to Great Southern, the lumber it imported into Gulfport had as its
final destination one of Great Southern’s treatment facilities;1 so, under the
warehouse-to-warehouse clause, the Policy insured the cargo until the cargo was
delivered to a Great Southern treatment facility (assuming – as is the case here –
the 30-day period had not yet expired).2 Great Southern maintained that the whole
phrase in the Policy “in transit and/or awaiting transit until delivered to the final
warehouse at the destination named in the policy” was ambiguous; and “Alabama
law instructs that ambiguities in insurance contracts are to be interpreted in favor
of the insured.” Twin City Fire Ins. Co., Inc. v. Ohio Cas. Ins. Co., Inc., 480 F.3d
1254, 1264 (11th Cir. 2007).
But the district court recognized no ambiguity: warehouse-to-warehouse
clauses are standard throughout the marine insurance industry;3 the contract
language had a settled meaning in the industry. And under that settled meaning,
1
Great Southern concedes that it sometimes sells raw lumber to other manufacturers directly from
the Gulfport warehouse.
2
Although the Policy references the final warehouse at the destination named in the policy, the
Policy named no such destination.
3
As the district court explained, although diversity jurisdiction applied, the suit also was
cognizable under admiralty jurisdiction by virtue of the maritime contract at issue. “When a contract
is a maritime one, and the dispute is not inherently local, federal law controls the contract
interpretation.” Norfolk Southern Railway Co. v. Kirby, 125 S. Ct. 385, 392 (2004).
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once the insured exercised dominion and control over the cargo it no longer was in
transit and coverage ceased. We agree.
Lumber & Wood Products, Inc. v. New Hampshire Ins. Co., 807 F.2d 916
(11th Cir. 1987), involved similar facts. A shipment of lumber of the insured
reached the private dock of a third-party consignee in good order. The lumber was
off-loaded and had to be moved about ninety feet to be placed in the consignee’s
warehouse. The consignee had responsibility for and control over the lumber once
it was off-loaded from the vessel; and it had a practice of sometimes selling some
of the off-loaded lumber directly from its dock. Because an earlier shipment
occupied the warehouse space at the dock, the lumber remained on the dock
outside the warehouse; a hurricane came through and damaged the exposed
lumber. At issue was whether the lumber was “in transit” within the meaning of
the warehouse-to-warehouse clause.
We determined that, once the consignee “exercised dominion and control
over the lumber in storing and processing on its dock, coverage under the policy
expired;” “a transit policy of insurance should not be stretched or tortured to
provide coverage for losses which take place after delivery at the consignee’s
facility.” Id. at 920.
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As was the case with the consignee in Lumber & Wood Products, Great
Southern exercised dominion and control over the lumber once it was off-loaded
from the vessel and placed in the warehouse space leased at the Port of Gulfport.
According to the deposition testimony of Great Southern’s import manager, he and
other Great Southern employees made all decisions on the future destination for
the temporarily-stored lumber. The warehouse operated as a staging area.
Inventory levels and other supply and demand considerations were weighed by
Great Southern’s inventory management team to determine the Great Southern
facility to which the lumber would be transported. And, again as was the case
with the consignee in Lumber & Wood Products, from time to time Great Southern
sold lumber directly from the Gulfport warehouse to other manufacturers. The
district court concluded correctly that – as a matter of law – Great Southern
exercised dominion and control over the lumber once it was off-loaded at the Port
of Gulfport; at that point, for purposes of the warehouse-to-warehouse clause, the
lumber had reached it “final warehouse” and “transit” had ceased.
Great Southern argues that the lumber off-loaded from the Sanko Stream
could not be under Great Southern’s dominion and control because the United
States Department of Agriculture (“USDA”) had not as yet cleared and released
that lumber when the hurricane hit. Federal regulations restrict imported lumber
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to the port of entry until a USDA inspector affirms that the regulated article is in
compliance with applicable regulations. See 7 C.F.R. § 319.40-9. According to
Great Southern, the USDA hold on the Sanko Stream lumber prevented Great
Southern from exercising custody and control; the lumber consequently, was still
“in transit” for insurance purposes.
The district court concluded – and we agree – that the restrictions imposed
by the USDA regulations did not annul the dominion and control exercised by
Great Southern over the goods held exclusively in its possession. A government
hold on goods in the possession, custody and control of an insured does not render
the goods “in transit” for purposes of insurance coverage. See Fireman’s Fund
Ins. Co. v. Service Trans. Co., 466 F. Supp. 934 (D.C. Md. 1979) (rejecting claim
that coffee shipment that was subject to a Federal Drug Administration hold was
“in the ordinary course of transit” when it was destroyed by fire at trucking
company’s terminal).
For the reasons stated by the district court, Great Southern’s bad faith claim
is without merit.
AFFIRMED.
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