Bayoil Supply Trdg v. Gulf Insurance Co, et al

United States Court of Appeals
Fifth Circuit
F I L E D
June 21, 2004
Charles R. Fulbruge III
Clerk
In the
United States Court of Appeals
for the Fifth Circuit
_______________
m 03-41067
_______________
BAYOIL SUPPLY & TRADING LIMITED,
Plaintiff-Appellee,
VERSUS
GULF INSURANCE COMPANY, ET AL.,
Defendants,
GULF INSURANCE COMPANY;
CERTAIN UNDERWRITERS AT LLOYDS SUBSCRIBING TO CERTIFICATE 41557;
LLOYDS OF LONDON SYNDICATES
#2724, 0079, 1221, 0002, 1183, 0488, 2488, AND 0079;
TERRA NOVA INSURANCE COMPANY, LIMITED;
CGU INTERNATIONAL INSURANCE PLC,
Defendants-Appellants.
_________________________
Appeal from the United States District Court
for the Southern District of Texas
m G-02-CV-313
_________________________

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Before GARWOOD, HIGGINBOTHAM and
SMITH, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*
The appealing defendants challenge a sum-
mary judgment for plaintiff on its insurance
coverage claim.2 Concluding that the district
court erred as a matter of law in interpreting
the contract, we reverse and render judgment
for appellants.
I.
In 2000, Bayoil Supply and Trading Lim-
ited (“Bayoil”) purchased oil from Iraq under
the United Nations’s “Oil for Food” program.
The oil was loaded onto Bayoil’s ship, the
M/T ESSEX. At the time of loading, the Unit-
ed Nations-appointed inspectors (Saybolt
International), members of the ESSEX’s crew,
and Bayoil’s representative (Oil Inspections)
measured the oil in the ship’s tanks and
calculated the amount based on the tank
tables. This calculation was used on the bill of
lading, on the basis of which Bayoil paid Iraq
with an irrevocable letter of credit.
Only after leaving port did the Oil Inspec-
tions surveyor realize that although the initial
measurement had been correct, the amount of
oil in one tank had been miscalculated by using
the tables for another, larger tank; the actual
quantity of oil was some 48,312 barrels less
than that stated in the initial calculation and bill
of lading. When Bayoil informed Iraq that it
had paid for that many barrels that it had not
received, Iraq refused to return Bayoil’s
money, approximately $1.5 million. Bayoil
claims this is a loss covered by its “all risks”
insurance policy. The defendant underwriters
denied coverage.3
Bayoil brought a declaratory judgment ac-
tion, alleging that the 48,312 barrels consti-
tuted a “shortage” and was therefore covered
under its policy. The district judge personally
attempted to mediate, then granted Bayoil’s
motion for summary judgment, then ordered
the parties to further mediation. When this
second mediation failed to resolve the dispute,
the court entered final judgment for Bayoil.
In the district court, Bayoil claimed that
coverage should be based on the erroneous bill
of lading pursuant to which Bayoil had paid
Iraq. Underwriters maintained that no covered
loss had occurred and that any loss should be
measured with reference to the corrected sur-
vey. The court based its summary judgment
on the heading at section I.2 of the Shortage,
Leakage and Contamination Endorsement,4
* Pursuant to 5TH CIR. R. 47.5, the court has
determined that this opinion should not be pub-
lished and is not precedent except under the limited
circumstances set forth in 5TH CIR. R. 47.5.4.
2 The district court granted summary judgment
for the defendants on Bayoil’s non-contract claims,
but Bayoil does not appeal that judgment, which is
not before us.
3 A comparison of the corrected survey with the
survey at the destination showed a shortage in
addition to the 48,312 barrels claimed here. De-
fendants have paid Bayoil’s claim for that short-
age, which is not disputed here.
4 This provision reads in relevant part:
2. At time of, and during, loading SS War-
ranted that careful measurements as to
gauge, weight and temperature of the sep-
arable components of th shipment be made
and certified to by a Surveyor, who shall al-
so supervise loading and repeat (and certify
(continued...)

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which the court interpreted to specify that any
measurements and corrections must take place
at the time of loading, and that the correction
made after the loading had been completed
could not be used to determine whether a
shortage had occurred. The court held alter-
nately that if the contract was ambiguous, it
was to be construed against the insurer.
II.
We review a summary judgment de novo,
using the same standards as did the district
court. BP Oil Int’l Ltd. v. Empressa Estatal
Petoleos de Ecuador, 332 F.3d 333, 336 (5th
Cir. 2003); Mayo v. Hartford Life Ins. Co.,
354 F.3d 400 (5th Cir. 2004). Summary judg-
ment is proper where “there is no genuine is-
sue as to any material fact and the moving
party is entitled to a judgment as a matter of
law.” FED. R. CIV. P. 56(c). Because there
are no issues of fact, the resolution of the case
turns on an interpretation of the insurance con-
tract as a matter of law.
III.
The insurance contract is to be interpreted
in accordance with Texas law. TEX INS. CODE
art. 21.42 (1951). “In construing a written
contract, the primary concern of the court is to
ascertain the true intentions of the parties as
expressed in the instrument.” Coker v. Coker,
650 S.W.2d 391, 393 (Tex. 1983). “To
achieve this object the courts will examine and
consider the entire writing, seeking as best
they can to harmonize and to give effect to all
the provisions of the contract so that none will
be rendered meaningless.” Universal C. I. T.
Credit Corp. v. Daniel, 243 S.W.2d 154, 158
(Tex. 1951). With this in mind, we examine
the entire contract to determine whether Bay-
oil’s claimed loss falls under the policy’s
coverage.
A.
Under Texas law, the holder of an all-risk
policy has the burden to establish that a
covered loss occurred. See Dow Chem. Co. v.
Royal Indem. Co., 635 F.2d 379, 386 (5th Cir.
Unit A Jan. 1981); Employers Cas. Co. v.
Block, 744 S.W.2d 940 (Tex. 1988), overruled
on other grounds, State Farm Fire & Cas. v.
Gandy, 925 S.W.2d 696 (Tex.1996). The dis-
trict court erred in allowing Bayoil to recover
under its policy when Bayoil had not dem-
onstrated that it had suffered a physical loss as
the policy requires.
It is undisputed that Bayoil did not
physically lose oil but did lose a significant
amount of money. Appellants argue that the
policy covers only physical loss and that
Bayoil’s monetary loss therefore does not fall
under its coverage. Bayoil, for its part,
appears to rely on its characterization of the
policy as an “all risk” policy and contends that
it has suffered a loss that must be covered.
The title “all risk” is not itself conclusive;
rather, we must look to the terms of the policy
to determine what risks and losses are
covered. The endorsement purports to cover
a “loss” resulting from “shortage,” and so
forth, but does not define what constitutes a
shortage or specify whether the “loss” can be
economic or must be physical.5 Because,
4(...continued)
to) such measurements as frequently as he
deems necessary and desirable . . . .
5 The endorsement reads in relevant part:
SHORTAGE, LEAKAGE AND
CONTAMINATION ENDORSEMENT
(continued...)

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however, we read the contract as a whole, the
endorsement must be construed in conjunction
with the average terms and conditions of the
policy.
The body of the contract provides: “This
insurance covers against all risks of physical
loss or of damage to the subject matter insured
from any external cause but specifically
excluding unexplained shortage and/or
unexplained loss in weight (or volume).”
Thus, the contract provides that the required
physical loss from an external cause may not
consist of or be established merely by an
“unexplained shortage.” The endorsement
provides for an extension of coverage by
allowing physical loss to be established by an
unexplained shortage under the stated
circumstances. Here, however, the shortage is
not unexplained, but is conclusively explained
as being not a physical loss at all, but only a
calculation error.
To show coverage, therefore, Bayoil must
prove a physical loss. Because there is no gen-
uine issue of fact as to whether Bayoil actually
suffered a physical loss of oil, appellants, not
Bayoil, are entitled to summary judgment.
B.
Because Bayoil cannot demonstrate a cov-
ered loss, we need not address whether the
district court erred in finding that the
magnitude of Bayoil’s loss was to be
determined on the basis of the initial, incorrect
survey calculations. Inasmuch as the district
court’s finding was based solely on the
heading at section I.2 of the endorsement,
however, we note that individual headings are
not to be considered in isolation from the
contract as a whole. Rather, the court must
examine the entire document to determine the
parties’ intent. Coker v. Coker, 650 S.W.2d
391, 393 (Tex. 1983).
This provision, read in the context of an en-
dorsement to a policy that provides coverage
for physical loss evidenced o nly by an un-
explained shortage, can be better interpreted to
indicate that the parties intend for an initial
survey to provide an accurate account of the
amount of oil actually loaded onto a ship, and
the parties have made provision to correct in-
accuracies in that initial reading. Thus, where
the insured admits that no physical loss
occurred, the intent of the parties is best
fulfilled by using an accurate measurement of
the amount of oil it possessed at the time of
and during loading.
Using the accurate, corrected measurement
of the oil loaded onto the ESSEX
demonstrates that Bayoil has been com-
pensated for the shortage t hat actually oc-
curred between the loading and unloading, and
that it is not entitled to coverage for the oil
that was never loaded. Thus, it was error for
the district court to grant summary judgment
for Bayoil on that basis.
For the foregoing reasons, the summary
judgment is REVERSED, and judgment is
RENDERED for appellants.
5(...continued)
THIS INSURANCE ALSO COVERS:
Loss due to shortage and/or leakage and/or
contamination and/or loss in weight (or vol-
ume) howsoever arising . . . .

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