A commercial general liability policy does not provide coverage for an import/export company that was defrauded by a criminal organization in the Philippines.
The defendant-insurer’s motion for summary judgment is granted.
Plaintiff contracted to buy 500,000 pounds of copper wire from Regent Phoenix Imports & Exports, a Philippine company. The delivery term in the Regent Phoenix agreement stated, in part, “FOB loaded in bulk into 20[’] sea containers at port of Manila, Philippines.”
Plaintiff agreed to sell 500,000 pounds of copper wire to third-party defendant Southern Recycling, LLC. The Southern Recycling contract’s delivery term stated, in part, “F.O.B., loaded in bulk into [Southern Recycling’s] 20’ sea container[s] at Port of Manila, Philippines.”
Both plaintiff and Southern Recycling had representatives at the warehouse in Sucat, Philippines, where the shipping containers were to be loaded. Southern Recycling provided 13 shipping containers, but the warehouse in Sucat could not accommodate all 13 shipping containers at once. Loading was generally achieved at the rate of two containers per day over a period of several days.
Each container was loaded with copper; sealed; trucked to the Port of Manila (the Port); shipped to Long Beach, California; and transported by rail to Dallas, Texas. When Southern Recycling opened the containers in Texas, it found no copper wire. Instead, the containers were filled with either black-powder slag or concrete blocks.
An investigator concluded that the copper contents of the containers loaded each day were “recycled” and substituted for concrete block or slag either at the warehouse in Sucat or en route to the Port – i.e., that the same 50 tons of copper was loaded into each set of containers in succession. The investigator found no indication of fraud by the representatives of plaintiff and Southern Recycling. He suspected that, after these representatives left the warehouse, Regent Phoenix unlocked the containers without breaking the seals, removed the copper, replaced it with slag or concrete blocks, and relocked the containers.
Before the fraud was discovered, plaintiff paid Regent Phoenix $1.4 million for the copper, and Southern Recycling paid plaintiff $1.7 million for the copper. Based on the small amount of copper that may actually have existed, Southern Recycling’s insurer paid it $366,518.
Southern Recycling sued plaintiff for return of the payment it had made to plaintiff. Unsurprisingly, Regent Phoenix was unresponsive to plaintiff’s inquiries regarding the failed shipment.
Plaintiff has sued its own insurer, alleging breach of contract and seeking a declaratory judgment as to coverage under the policy provided by the defendant-insurer. At issue is whether the policy – which includes coverage for commercial property damage and general liability — provides coverage for plaintiff’s loss or liability.
Commercial Property Damage Coverage
According to its contracts with Regent Phoenix and Southern Recycling, plaintiff’s title and interest in the copper was set to spring into existence at the same moment that it transferred those rights to Southern Recycling. Thus, the loss of the copper itself falls outside the coverage limits of the policy insofar as the claim for “Covered Property” is premised upon plaintiff’s putative ownership of the property in question. To the extent “Covered Property” might be premised upon plaintiff’s legal liability for loss or damage to the property of others that was in plaintiff’s “custody,” the applicable sub-limits of liability in the policy’s declarations indicate that such legal liability was “NOT COVERED.”
Plaintiff has not set forth any evidence to suggest that the copper loaded into Southern Recycling’s shipping containers in Sucat was removed at some other point along the shipping journey than either: (1) the warehouse, or (2) en route to the Port. Merely highlighting the investigator’s inability to establish the precise point or modality of theft with certainty does not, in itself, invalidate the ample evidence that exists to support the conclusion that the copper was removed before the containers entered the Port.
The assertion that the removal might have happened at some other unidentified location along the shipping route is pure speculation and is belied by (1) signs of tampering with the shipping containers materializing between the warehouse and the Port; (2) dramatically different weights for some containers between the warehouse and the Port, but matching weights for those same containers between the Port and arrival in Dallas; and (3) indisputably manipulated Equipment Interchange Receipts submitted by Regent Phoenix to mask the weight differentials and gain payment from plaintiff. The only evidence available to determine when and where the containers were robbed clearly shows that the fraud occurred prior to Port entry.
Moreover, it is undisputed that the loss of the copper was induced by a fraudulent scheme. Suffice it to say, the exclusion that precludes coverage for loss that results from “any fraudulent scheme, trick, device, or act or by false pretence,”applies inexorably to the facts at issue and coverage would be excluded even if the lost copper qualified as “Covered Property.”
Plaintiff’s mere assertion that the goods were lost “in transit” does not allow it to escape the problems that frustrate plaintiff’s generic property loss claim: a lack of “ownership” over the copper and (2) no coverage for legal liability pertaining to the property of others in the insured’s “custody.”
The court finds that no genuine dispute of material fact remains as to coverage under the policy’s Commercial Property Coverage Form, and grants summary judgment to defendant on this basis.
Commercial general liability insurance is not intended to insure business risks, i.e., risks that are normal, frequent, or predictable consequences of doing business, and which business management can and should control or manage.
The allegations in Southern Recycling’s complaint against plaintiff were that the copper was removed prior to the containers arrival at the Port, that plaintiff breached its contract with Southern Recycling by failing to deliver the copper as specified, and that Southern Recycling suffered damages principally in the form of the purchase price it paid to plaintiff.
The loss implicated in Southern Recycling’s complaint does not constitute “property damage” under the terms of the CGL Coverage Form. In general, economic damages do not quality as “property damage.”
Neither Southern Recycling nor plaintiff ever obtained title to the copper that was placed into the shipping containers at the warehouse. When plaintiff failed its contractual duty to deliver the copper, Southern Recycling sought to hold plaintiff responsible for its substantiated damages, which were primarily the purchase price that plaintiff refused to refund. These damages were economic in nature and do not qualify as “property damage” under the CGL Coverage Form.
Moreover, Southern Recycling’s allegations do not implicate an “occurrence” as defined in the CGL Coverage Form. Plaintiff’s refusal to refund the purchase price was an intentional and considered choice and cannot reasonably be construed as an “accident.” Thus, the court finds that Southern Recycling’s complaint did not allege property damage arising from an “occurrence” and, therefore, did not raise the possibility of coverage under the CGL Coverage Form.
Finally, the CGL Coverage Form contains an exclusion for “‘property damage’ for which the insured is obligated to pay damages by reason of the assumption of liability in a contract.” Even if plaintiff were able to show that the companion case involved “property damage” arising from an “occurrence,” this provision would apply and exclude coverage for plaintiff’s assumption of liability in its contract with Southern Recycling. This finding is consistent with the principle recognized in South Carolina that a general liability policy is intended to provide coverage for tort liability, not economic losses from the insured’s contractual liability.
Gibbs International, Inc. v. ACE American Insurance Co. (Lawyers Weekly No. 002-075-18, 32 pp.) (Bruce Howe Hendricks, J.) 7:15-cv-04568; Donald C Coggins Jr., John Belton White Jr., Kevin Dunlap and Marghretta Hagood Shisko for plaintiff; David Michael Collins, Joseph Ziemianski, Sean Houseal and Stacey Farrell for defendant; S. Scott Bluestein for third-party defendant. D.S.C.