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Gatx Leasing Corp. v. National Union Fire Insurance Co.

September 8, 1995

GATX LEASING CORPORATION, PLAINTIFF-APPELLANT,

v.

NATIONAL UNION FIRE INSURANCE COMPANY, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 94 C 431--John A. Nordberg, Judge.

Before FLAUM, RIPPLE and ROVNER, Circuit Judges.

RIPPLE, Circuit Judge.

ARGUED MARCH 30, 1995

DECIDED SEPTEMBER 8, 1995

GATX was sued by TCR and Arco under various theories of liability for damages related to the loss of petroleum stored by TCR and Arco in a GATX facility. In dealing with this suit, GATX incurred significant attorneys' fees and settlement costs. Consequently, GATX filed a declaratory judgment action against Nation Union Fire Insurance Company, alleging that National Union had a duty to defend and to indemnify GATX under both a general liability policy and a related umbrella policy. The district court granted judgment on the pleadings to National Union. For the reasons contained herein, we affirm.

I. BACKGROUND

A. Facts

Amarco Petroleum, Inc. ("Amarco") operated a petroleum product terminal storage and transfer facility near Houston, Texas. GATX was a secured creditor of Amarco, and had leased separately virtually all of the plant assets at the facility to Amarco. In November 1983, GATX filed an involuntary petition in bankruptcy against Amarco. GATX terminated the equipment lease prior to the filing of the bankruptcy petition and assumed possession of the facility assets.

Two customers of the facility, Arco Chemical Company ("Arco") and Texas City Refining ("TCR"), considered not renewing their agreement because of Amarco's apparent insolvency. Around that time, officers of GATX conferred with Arco and TCR regarding a continuing agreement. GATX wanted the facility operations to continue in order to protect the value of the facility assets, as well as to maintain the revenue derived from the facility's use. To that end, GATX acquired the exclusive use of the name "Amarco Petroleum, Inc." to ensure continuity of business. Further, GATX assured Arco and TCR that, if they continued to use the facility and renewed their petroleum products storage agreements, GATX would be responsible for facility operations. Arco and TCR renewed their storage agreements on the assurances that GATX would be responsible for the continuing control and operation of the facilities.

In June 1985, Arco and TCR discovered that vast quantities of their stored products were missing, and TCR found that further quantities of its fuel had been degraded by the unauthorized addition of foreign chemical substances. This discovery was not made until 1985, Arco and TCR submit, because GATX and its employees had, both orally and in writing, represented that their inventories were consistent with the quantities of product originally delivered for storage, and had conspired to hide the thefts of the product.

Following the discovery of the missing petroleum products, Arco filed claims, and TCR intervened, against GATX and several GATX entities, *fn1 among others, alleging breach of contract, breach of guarantee, negligence, fraudulent inducement and misrepresentation, and conversion. GATX requested that National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National Union") defend and indemnify it with respect to the lawsuits, but National Union declined. Eventually, GATX settled with Arco for the sum of approximately $300,000, and with TCR for $500,000. GATX estimated that its defense costs, including attorneys' fees, that led up to the settlement totaled $450,000.

On January 24, 1994, GATX filed a declaratory judgment action against National Union, contending that National Union had a duty to defend and to indemnify GATX for the Arco and TCR legal actions under two policies issued to Amarco, effective June 14, 1984: the Primary Policy, No. EHA 940-9398 RA, and the Umbrella Policy No. EHA 940-9399. These policies stated that National Union, on behalf of Amarco or any other insured, would recompense all amounts to which Amarco or any insured became legally obligated due to "property damage" caused by an "occurrence." Because GATX had leased equipment to Amarco which comprised the "principal facilities," GATX was named as an additional "person insured" under the primary policy.

B. District Court Proceedings

National Union moved for judgment on the pleadings. See Fed. R. Civ. P. 12(c). *fn2 The district court granted the motion. The court first determined that Texas substantive law applied. The court then held that, under the terms of the insurance agreements, GATX could not allege any "property damage" caused by an "occurrence." Alternatively, the court held that, because the Arco and TCR products had been "entrusted" to the "care, custody and control" of GATX, damage to those products was excluded under the terms of the ...


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