House of Lloyd, Inc. v. Versa Corporation, Doing Business as Versa, Ferguson Conveyor Corporation, Federal Insurance Company
Docket: 95-1597
Court: Court of Appeals for the Eighth Circuit; August 12, 1996; Federal Appellate Court
Federal Insurance Company appeals a judgment from the United States District Court for the Western District of Missouri favoring House of Lloyd, Inc. regarding insurance proceeds for equipment destroyed by fire while being installed by Versa Corporation, Federal's insured. Federal contends that the district court erred in concluding that the loss was covered by Federal's policy, despite the risk of loss having transferred from Versa to Lloyd, and in ruling that Federal's liability share was 83%, leaving 17% attributed to Lloyd's insurer, Travelers Indemnity Company. The Eighth Circuit Court holds that the Federal policy did not cover the loss and thus reverses the judgment in favor of Lloyd, rendering the allocation issue moot and remanding the case for judgment in favor of Federal.
The background reveals that Lloyd contracted with Versa in April 1987 to supply and install conveyor subsystems at its distribution facility. The equipment was damaged in a fire on November 27, 1987, prior to installation completion. At the time of the incident, the Federal policy included an Installation Floater covering property for which Versa may be liable. Lloyd also maintained an active policy with Travelers that indisputably covered the loss.
Lloyd initiated a federal district court action based on diversity jurisdiction, asserting two breach of contract claims against Versa (Counts I and II) and one against Federal (Count III). The claims against Versa alleged that it was responsible for the risk of loss of conveyor subsystems at the time of a fire. Count III against Federal argued that the Installation Floater in the Federal policy covered the subsystems as "property of others for which [Versa] may be liable." The parties agreed to separate issues for trial, first addressing the risk of loss, which was tried by a magistrate judge. The magistrate concluded that Versa was not liable, as the risk of loss transferred to Lloyd upon delivery.
Following this ruling, the district court required the parties to submit stipulated facts and briefing on Federal's liability, which it resolved without a jury or bench trial. The court determined that the Federal policy did cover Lloyd's loss, triggered by Versa's equitable responsibility, despite the risk of loss having passed to Lloyd. The district court later found Federal liable for $1,045,884.05 and Travelers for $214,217.21 based on a comparative analysis of policy limits.
Federal appealed, and the appellate court noted that the record did not clarify the procedural mechanism used by the district court to decide Federal's liability. Regardless of whether viewed as a summary judgment or a bench trial, the appellate court's review standard remained consistent. Accepting the stipulated facts and the magistrate's finding on the risk of loss, the appellate court conducted a de novo legal interpretation of the contract and ultimately concluded that the Federal policy did not cover Lloyd's loss.
The case's outcome hinges on the interpretation of language in the Installation Floater of the Federal insurance policy, which covers property of others for which the insured may be liable, specifically mechanical materials, handling equipment, and metal products. The district court's decision, which determined that Federal was liable for Lloyd's loss of conveyor subsystems, drew on the precedent set in Folger Coffee Co. v. Great Am. Ins. Co., where a bailee's policy covered damage to property of others in their possession, irrespective of negligence. The court concluded that the term "liable" in this instance encompasses both legal and equitable responsibility, extending beyond mere legal liability.
In this case, although there was shared possession of the components, Versa retained a continuing duty to install them, implying ongoing equitable responsibility for the property until installation was completed. The coverage duration explicitly included the installation period, suggesting that Versa's liability extended through this timeframe.
Federal contends that the district court misinterpreted the Installation Floater's language, arguing it only covers damages for which Versa is legally obligated to pay. Federal asserts that since the risk of loss transferred to Lloyd upon delivery, Versa was not liable for damages, thus negating coverage under the Federal policy. Furthermore, Federal claims that unlike the bailee in Folger Coffee, Versa did not have the risk of loss at the time of the incident, emphasizing that responsibility for installation does not equate to liability for loss or damage when the property was not under their exclusive control.
Lloyd contends that Federal's interpretation of the Installation Floater incorrectly assumes coverage for liability instead of coverage for property loss or damage. Lloyd asserts that the covered property includes items owned by others, such as conveyor subsystems for which Versa is responsible. He supports this claim by citing multiple instances where the Installation Floater refers to "property" and by referencing the Underwriting Guidelines and a letter from Federal indicating it had no duty to defend Versa, stating the form was "not a liability form."
In response to Federal's argument regarding the district court's application of the Folger Coffee case, Lloyd refutes the implication that Folger Coffee distinguishes between bailment and non-bailment cases, arguing that it emphasizes a fundamental difference between liability and property coverage. He further claims that the district court's interpretation aligns with Missouri state court rulings recognizing that language in insurance contracts referring to "property of others" indicates the insurer's intent to benefit non-named parties.
While agreeing with Lloyd that the Installation Floater intends to benefit unnamed parties, the review concludes that the district court mistakenly found coverage for Lloyd's loss under Federal's policy. The district court's interpretation was deemed inconsistent with the ordinary and plain meaning of the Installation Floater, affirming that insurance language must be interpreted according to its clear terms and any ambiguity must be construed against the insurer.
Lloyd's loss is not covered by the Federal policy under the Installation Floater, which clearly states it insures property of others for which the Insured may be liable. Federal is obligated to indemnify Versa for liability related to loss or damage to others' property during installation. The phrase "may be" indicates Federal's duty to defend Versa against such claims, but does not imply automatic coverage for Lloyd's losses irrespective of Versa's obligations. Versa, as the purchasing party of the policy, understood the Installation Floater as an indemnity provision, reinforced by Federal's refusal to defend Versa. The court concludes that Federal's responsibilities are limited to defending and indemnifying Versa for its legal obligations regarding the loss during installation.
The interpretation aligns with Folger Coffee, where the insured retained risk due to a bailment relationship, which is not the case here. Versa's contractual obligation to install does not equate to a bailee's duty to protect property, especially since the conveyor subsystems were on Lloyd's property at the time of the fire. The court affirms that the risk of loss had transferred to Lloyd at that moment, thus ruling that Versa was not legally or equitably responsible for the conveyor subsystems as defined in the Folger Coffee case.
The judgment of the district court in favor of Lloyd against Federal is reversed, and the case is remanded with instructions to enter judgment for Federal, while the allocation issue is deemed moot. Lloyd claims dual coverage under the Federal and Travelers policies. A magistrate judge previously ruled that a June 7, 1993, ruling was interlocutory and not a final judgment. Following a later judgment favoring Lloyd regarding Federal's liability, the magistrate judge ordered final judgment for Versa based on the earlier order. Lloyd did not cross-appeal on the risk-of-loss issue, making the determination that the risk of loss transferred from Versa to Lloyd upon delivery of the conveyor subsystems non-reviewable and deserving of deference. The district court's earlier ruling indicated that if Lloyd bore the risk of loss, a jury trial would be warranted for Lloyd's remaining claims against Federal; however, no jury trial occurred, and the court ruled based on stipulations and the magistrate's findings. Federal claims the appeal stems from a civil bench trial, while Lloyd contends the judgments were akin to summary judgment. The Underwriting Guidelines cover losses related to machinery and equipment during installation but clarify that general liability should be covered by separate policies. Initially, when Lloyd brought the lawsuit, Versa requested a defense from Federal, which declined, stating the Installation Form did not obligate them to defend against breach of contract claims.
