On Appeal from the United States District Court for the District of New Jersey. (D.C. No. 04-cv-00867). District Judge: Honorable Dennis M. Cavanaugh.
The opinion of the court was delivered by: Fisher, Circuit Judge
Before: FUENTES and FISHER, Circuit Judges, and PADOVA,*fn1 District Judge.
This appeal calls for the interpretation of a Marine Open Cargo insurance policy (the Policy) entered into by KSI Trading Corporation (KSI) and Royal Insurance Company of America (Royal). A fire occurred at one of KSI's warehouses, and KSI filed a reimbursement claim with Royal for the full extent of its loss pursuant to a Warehouse Storage Insurance section of the Policy. Royal disclaimed coverage for a significant portion of the loss, asserting that the Warehouse Storage Insurance section did not cover KSI's domestically acquired merchandise. Thereafter, Royal sought a declaratory judgment in the District Court that it was not obligated to indemnify KSI for all of its loss. The District Court determined that the Warehouse Storage Insurance section of the Policy only provided coverage for KSI's internationally acquired merchandise and granted summary judgment in favor of Royal. We conclude that the Policy is ambiguous with respect to the property that was insured while stored in KSI's warehouse, and because New Jersey law, which governs the interpretation of the Policy, requires ambiguities to be resolved in favor of the insured, we will reverse the District Court and enter judgment in favor of KSI.
KSI, a New Jersey corporation, is a wholesale distributor of after-market auto body parts that purchases inventory from both domestic and international suppliers, and stores its inventory in warehouses located throughout the United States. Royal, an Illinois corporation, is a marine cargo underwriter which provides insurance for the hazards encountered in maritime transportation. On May 19, 1999, Royal provided quotations for insurance coverage to KSI's broker, Jeffrey Joiner of the LIG Insurance Agencies (LIG), and on July 1, 1999, Royal and KSI entered into an insurance contract, with coverage commencing at this time. Certain subsidiaries of KSI, including Astro Automotive, Inc. (Astro), were also covered by the Policy. Sometime after July 1, 1999, KSI received the actual Marine Open Cargo Policy No. POC102991.
The Policy contained three sections, which are titled as follows: (I) Ocean Cargo; (II) Domestic Transportation Insurance; and (III) Warehouse Storage Insurance. The Ocean Cargo section of the Policy is comprised of fifty-one paragraphs, but in one particularly relevant paragraph, entitled "Property Insured & Insurable Interest," states:
"This Policy covers, for account of whom it may concern, shipments of lawful goods and merchandise consisting principally of:
MERCHANDISE INCIDENTAL TO THE ASSURED'S BUSINESS, CONSISTING PRINCIPALLY OF AUTOMOBILE PARTS
Under or on deck, consigned to or shipped by others for account or control of the Assured or in which the Assured has the risk of loss, but excluding shipments either sold or purchased by the Assured subject to the terms of sale (or purchase) whereby the Assured is not obligated to furnish Ocean Marine insurance. Notwithstanding the foregoing, this Policy also covers all shipments of lawful goods and merchandise for the account of others from whom the Assured has received written instructions to insure provided such instructions are received prior to any known or reported loss, damage, or accident and prior to sailing of the vessel."
In another particularly relevant paragraph, with the caption "Geographical Limits," the Ocean Cargo section also states:
"Always excepting adventures which are illegal under the laws of the United States this Policy covers Property Insured at and from ports and/or places in the world to ports and/or places in the world excluding shipments originating in the United States (meaning the forty-eight (48) contiguous states and the District of Columbia) or Canada for shipment to destination[s] in the Continental United States or Canada."
Turning to Sections II and III of the Policy, the Domestic Transportation Insurance section states, in pertinent part:
"Effective as to all shipments made on or after July 1, 1999 this Policy is hereby extended, subject to its terms and conditions, to cover shipments of the Property Insured while in due course of transit only at the risk of the assured WORLDWIDE excluding the former Soviet Union and Russian Federation from the time the property leaves the store, warehouse, or factory at initial point of shipment and continuously thereafter, including while on docks, ...