Eleventh Circuit Holds That Coverage Under Marine Policy's "Warehouse-To-Warehouse" Provision Terminates Once Insured Maintains Dominion & Control Over Insured Cargo
December, 2008
by Kimbley A. Kearney and Daniel R. Bryer
In Great Southern Wood Preserving, Inc. v. American Home Assurance Co., 292 Fed. Appx. 8 (11th Cir. 2008), the Eleventh Circuit examined the point at which cargo reaches a “final warehouse” pursuant to a Marine Policy’s “warehouse-to-warehouse” provision, and held that once an insured exercises dominion and control over cargo it can no longer be considered “in transit,” thereby terminating coverage.
Facts
Great Southern Wood Preserving, Inc. imports raw lumber delivered by ship and discharged at various ports in the United States, including Gulfport, Mississippi. In August 2005, two loads of lumber were delivered to the Port of Gulfport for Great Southern and were stored in a warehouse leased from the port authority for short term storage. Later that month, Hurricane Katrina hit the Gulf coast, destroying all of one load of lumber and part of the other.Great Southern then filed a claim with its insurer, American Home Assurance Company, which had issued Great Southern a Marine Open Cargo Insurance Policy in June, 2005. Great Southern sought the value of the destroyed lumber pursuant to the policy’s “warehouse-to-warehouse” provision, which provided, in relevant part, that the insurance extended “whilst the goods are in transit and/or awaiting transit until delivered to the final warehouse at the destination named in the policy.” American Home denied the claim, contending that coverage under the policy had ceased before the time of loss.
Great Southern then brought suit in the U.S. District Court for the Middle District of Alabama, alleging breach of contract and bad faith denial of its claim. Great Southern argued that the final destination of the lumber was not the Gulfport warehouse, but one of Great Southern’s facilities at which the lumber was to be treated before sale, so that the policy was in effect at the time the lumber was destroyed in the warehouse. Alternatively, it argued that the language contained in the “warehouse-to-warehouse” provision was ambiguous, and that under Alabama law all ambiguities must be construed in favor of the insured. Failing to recognize an ambiguity, the district court granted summary judgment in favor of American Home, holding that once the insured exercised control over the cargo it no longer was in transit and coverage ceased.
Analysis
The U.S. Court of Appeals for the Eleventh Circuit affirmed the decision of the district court, holding that, in accordance with Lumber & Wood Products, Inc. v. New Hampshire Ins. Co., 807 F.2d 916 (11th Cir. 1987), “once the [insured] ‘exercised dominion and control over the lumber in storing and processing [it] . . . coverage under the policy expired.’” Specifically, the court stated that 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. The court noted that the warehouse was a “staging area” for the lumber while Great Southern made all decisions regarding it, including when and where it would ultimately be shipped.
Learning Point
The court rejected Great Southern’s argument that the lumber could not be under its dominion and control because the United States Department of Agriculture had not yet cleared and released the lumber when the hurricane hit. The court held that a federal hold on goods in the possession of the insured does not render the goods “in transit” for the purpose of an insurance policy. The test employed by the court for determining the cargo’s final destination for purposes of the “warehouse-to-warehouse” clause was the owner’s dominion and control over it; the lumber had reached its “final warehouse” and “transit” had ceased when it was taken into the insured’s leased warehouse.
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