Insurance Company Not Liable to Pay for Damages, Says Court

In APL Co. Pte. Ltd. v. Valley Forge Insurance Company, 11-18065, the Ninth Circuit Court of Appeals decided that the United States District Court for the Northern District of California erred in finding in favor of APL Co. Pte. Ltd. (“APL”) and held that the Valley Forge Insurance Company (“Valley Forge”)  did not have any liability to APL as the insurer of U.G. Co. Inc. (“U.G.”) for damages sustained as a result of the leakage of hair care products from various shipping containers.  

APL shipped hair spray and mousse products for U.G. from Istanbul, Turkey to California.  The product leaked from the shipping containers and caused damages to APL.  APL in turn filed suit against U.G. (the purchaser), Kamdar Global, LLC (the purchasing agent) and U.K. Aerosols (the seller) on contract and negligence theories.  The district court granted summary judgment against APL on the negligence theories and granted summary judgment for APL on the contract theories.  APL was awarded a judgment in the amount of USD 733,963.10.  Subsequently, APL commenced proceedings against Valley Forge, as U.G.’s insurer, to collect the judgment.

Valley Forge argued that the contractual liability exclusion in U.G.’s insurance policy precluded coverage and did not require them to pay the judgment.  APL argued that the “insured contract” exception to the contractual liability exclusion applied to extend coverage for this situation.  The insurance policy excluded coverage “for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.”  Under the Bill of Lading, U.G. contractually agreed to indemnify APL for damages it sustained when third parties packed the container.  APL argued that because a third party prepared the container for shipment, U.G. was obligated to indemnify APL for any damage and therefore the Bill of Lading was an “insured contract.” 

However, the Ninth Circuit held that APL’s argument was at odds with the plain language of the “insured contract” exception because the exception only applied if the insured had assumed a contracting party’s tort liability against a third party.  Accordingly, the Ninth Circuit held that the Bill of Lading was not an “insured contract” under the insurance policy.  Finally, because the contractual liability exclusion applied, Valley Forge had no liability to APL under the U.G. insurance contract and the judgment in favor of APL by the District Court was reversed.        

Read a copy of the Ninth Circuit’s Decision here.

For more information about the Court's decision and how it may apply to specific facts and circumstances, please contact [email protected].