Fifth Circuit: Maritime Carpenter Not Covered by LHWCA

The Fifth Circuit recently issued a new decision addressing the limits of jurisdiction under the Longshore and Harbor Workers’ Compensation Act.  The claimant, a maritime carpenter, was allegedly injured at the employer’s waterside fabrication yard in Houma, La.  At the time of the incident, the claimant was assisting in the construction of a housing module that was to be incorporated into a tension leg offshore oil platform in the Gulf of Mexico.  The claimant filed a claim under the LHWCA, alleging he was covered by the Act as a shipbuilder, or in the alternative that he was covered by its extension under the Outer Continental Shelf Lands Act.

 

Following a formal hearing, the Administrative Law Judge determined that the claimant was not covered by the Act and denied benefits.  The Claimant appealed to the Benefits Review Board, which affirmed the ALJ’s decision.  The Claimant appealed again to the U.S. Fifth Circuit Court of Appeals.

 

The Fifth Circuit evaluated the purpose of the housing module as an eventual component part of the platform.  The Court turned to the Supreme Court’s Lozman and Dutra decisions to determine what constitutes a “vessel”.  Because the platform was not practically intended for maritime transportation, it did not qualify as a vessel.  Further, because the housing module was not a vessel, the claimant was not engaged in maritime employment as a shipbuilder at the time of the incident and therefore did not meet the “status” requirement of the LHWCA.  The Court then turned to the Supreme Court’s recent decision in Pacific Operators Offshore v. Valladolid to determine whether he was covered under OCSLA.  In Valladolid, the Supreme Court held that for a claimant to be covered under OCSLA, he must establish a “substantial nexus” between the injury and extractive operations on the OCS.  The Fifth Circuit concluded that the claimant’s onshore job of building a dining quarters for an offshore platform was too attenuated from OCS operations and therefore he was not covered by the OCSLA.  The Court affirmed the denial of benefits.

 

Baker v. Gulf Island Marine Fabricators, LLC

Eleventh Circuit Considers Challenge to Admiralty Jurisdiction in Florida Drainage Canal Injury

On August 3, 2016, the United States Eleventh Circuit Court of Appeals issued its decision in Tundidor v. Miami-Dade County, a case highlighting an interesting limitation on the federal district courts’ original admiralty jurisdiction.  The plaintiff, Tundidor, sued Miami-Dade County after striking his head on a low hanging water line while on a pleasure boat traveling on a drainage canal.  Tundidor brought his claim in admiralty and the County moved to dismiss for lack of jurisdiction.

 

Noting that federal courts have original jurisdiction over admiralty and maritime tort cases that have a nexus to traditional maritime activity and that occur on navigable waters, the court explained that navigable waters are those capable of use in commerce.  The court further explained that “navigable waters of the United States” as opposed to “navigable waters of the States” is an important distinction to make as the test for navigability for admiralty jurisdiction purposes requires both navigability in fact and an interstate nexus.  See 1 Thomas J. Schoenbaum, Admiralty and Maritime Law § 3-3 (5th ed. 2015).

 

Agreeing with the other federal appellate courts that have considered the question, the Eleventh Circuit determined that when artificial obstructions block interstate commercial travel, admiralty jurisdiction will not lie.  Here, due to artificial obstructions, the drainage canal could not be navigated outside of the State of Florida.

 

The Eleventh Circuit concluded that there was no admiralty jurisdiction over the suit and affirmed the decision of the district court.

 

Tundidor v. Miami-Dade Cty.

$23 Million Punitive Damage Award Upheld by Louisiana Appellate Court

On June 29, 2016, the Louisiana Third Circuit Court of Appeal affirmed a jury’s award of $23 million in punitive damages to the family of a young man fatally injured in a boating accident. The accident occurred on May 7, 2005, on the navigable waters of Louisiana, on a former channel of the Calcasieu River. Derek Hebert was a passenger on an open hull fishing boat manufactured by Champion, owned by Mr. Vamvoras and operated by his son. The Champion’s steering system failed while the boat was on a plane. The boat went into a spin, throwing Derek overboard. The boat’s propeller struck him 19 times, causing his death. His parents brought suit against the Vamvorases, various marinas, and three manufacturers, including Teleflex, manufacturer of the boat’s hydraulic steering system.

 

Litigation continued for nine years. By the time of the trial the only remaining defendants were the Vamvoras father and son and Teleflex. The Louisiana Department of Wildlife and Fisheries investigated the accident and determined that the boat, which had been purchased pre-owned by Vamvoras, lost its steering because of a hydraulic oil/fluid leak in one of the steering system’s lines at a hose/nut coupling assembly. The Department of Wildlife and Fisheries (and other experts) found that a leak in the hydraulic system can result in total failure of the steering system. Teleflex manufactured and supplied the hydraulic steering system, but one of the original Teleflex hoses had been replaced in the past with a non-Teleflex hydraulic hose. The remaining claim against Teleflex was not for construction or design defects. The claim asserted was that the steering system is defective because it contains an inherent danger unknown to users, and Teleflex breached its duty to warn unsuspecting users of a dangerous risk in using its product.

 

The case was tried twice to juries. In the first trial the trial judge dismissed the Vamvorases, holding that there was insufficient evidence to support a finding that they knew or should have known that loss of hydraulic fluid could result in catastrophic steering failure. According to testimony if enough fluid is lost the control of the boat is taken from the driver. The motor goes into a free spin, kicking completely to one side. The boat then suddenly turns on its own axis, referred to in the industry as a “kill spin”. Occupants are often ejected and are immediately in danger of being run over. Apparently the evidence showed that Teleflex, a sophisticated boating industry manufacturer, was well aware of this phenomenon. He also found that the warnings that were on the system were not positioned so as to be readily apparent to the operator. The judge also found that the warnings failed to advise the user that loss of fluid could result in system failure leading to ejection or death. In his opinion it was not foreseeable to the owner/driver that the system could fail and that Derek would be ejected from the boat. Thereafter the jury found in favor of Teleflex. However, the judge granted plaintiff’s motion for new trial holding that prejudicial error had occurred. The second trial was held. This time a jury awarded $125,000 compensatory damages and $23 million in punitive damages. There were numerous issues appealed by both the plaintiff and Teleflex.

 

The Court of Appeal recognized that because Derek was not a seaman or maritime worker his survivors were able to make a claim for punitive damages under the general maritime law. The Court noted that while punitive damages are rarely imposed they have long been recognized as punishment where a defendant’s actions are found to be intentional or so wanton and reckless to amount to a conscious disregard for the rights of others.

 

The Court noted that the evidence revealed that Teleflex not only knew about the steering loss, but had tested the system as early as 16 years before the accident and was aware of the consequences if there was loss of fluid and thereafter loss of control of steering. The Court concluded that the jury was influenced by this testimony and concluded that Teleflex was wanton and reckless to ignore such results when “an inexpensive stick-on warning costing thirty ($.30) cents could have saved a life”. Based on this and other evidence the Court of Appeal did not disturb the finding that the evidence reasonably supported the jury’s finding that the award of punitive damages was appropriate.

 

The Court then addressed the amount of the punitive damage award. Teleflex contended that it was grossly excessive as matter of federal maritime and constitutional law. Judge Ulysses Thibodeaux, writing for the Court, launched into a thorough review of U.S. Supreme Court cases where the propriety of the amount of the punitive damage award was at issue, and where the amount of the award was so grossly excessive as to violate the Due Process Clause of the 14th Amendment. The Supreme Court has recognized three guideposts for determining whether an award is grossly excessive: (1) the degree of reprehensibility of the misconduct; (2) the ratio, or disparity between the punitive damage award and the harm, or potential harm, suffered by the plaintiff; and (3) the difference between this remedy and the civil penalties authorized or imposed in comparable cases.

 

His review of each of the Supreme Court cases, in which all but one punitive damage award was reduced, led Judge Thibodeaux to conclude that each case must be judged on its particular facts. He decided that the Supreme Court’s finding in Exxon Shipping Company v. Baker (2008) that a 1:1 ratio between compensatory damages and the award of punitive was the appropriate measure in maritime cases was not binding. He then went on to find that the evidence supported the judgment and confirmed the 184:1 ratio. Although the Judge went to great pains to explain his reasoning, the author, having read the evidence and testimony cited by the Judge, sees nothing that separated this case from others. Certainly the loss of life is tragic. Legislators and judges across the country have, correctly so, found it in our society’s best interest to allow a tortfeasor to be punished for wanton, reckless and reprehensible conduct that results in injury and death. But there must be a balance. In the author’s opinion there is insufficient evidence to support an award for punitive damages that is 184 times the amount of damages the jury found the plaintiffs suffered. It is expected that Teleflex will appeal this decision to the Louisiana Supreme Court.

 

Warren v. Shelter Mutual Insurance Company, et al.

Drilling Rig Exclusion Precluded Insured’s Reimbursement Claim Against Excess Insurer

The U.S. Fifth Circuit Court of Appeals recently addressed an insurance coverage question involving an excess insurer and an offshore injury.  The Plaintiff was injured while working on a drillship in the Gulf of Mexico.  Plaintiff filed a lawsuit in 2011 pursuant to the Jones Act and general maritime law in the U.S. District Court for the Western District of Louisiana.  Later that year, his employer was named as a third party defendant.  The employer filed cross claims against its primary insurer in 2012 and against its excess insurer 2014.  The Jones Act employer eventually settled with the Plaintiff, but maintained its claims for reimbursement against its two insurers.

 

The excess insurer moved for summary judgment and argued the excess insurance policy excluded coverage.  Specifically, the policy contained an exclusion for “any liability or expense arising out of the ownership, use or operation of drilling rigs, drilling barges, drilling tenders, platforms, flow lines, gathering stations and/or pipelines, but this exclusion shall not apply to craft serving the foregoing such as crew, supply, or utility boats, tenders, barges or tugs.”  The District Court agreed the injury occurring on a drillship fell within this exclusion and dismissed the employer’s claim for reimbursement against the excess insurer.  The employer appealed to the Fifth Circuit.

 

On appeal, the employer argued in part that the excess insurer waived coverage defenses by not raising them until 2014 and not issuing a reservation of right letter.  Under Louisiana law, waiver occurs when there is 1) an existing right, 2) knowledge of its existence, and 3) an actual intention to relinquish it or conduct so inconsistent with the intent to enforce the right as to induce a reasonable belief that it has been relinquished.  The Court found the excess insurer satisfied the first two elements by possessing the coverage defense and having knowledge of the accident as early as 2011.  The employer argued that the excess insurer’s conduct of not raising the coverage defense for three years satisfied the third element and effectively waived the insurer’s right to assert a coverage defense.  The Fifth Circuit determined that because the excess insurer was not made a party to the case until three years after the lawsuit being filed, there was no evidence that the excess insurer had assumed defense of the employer with the intention or conduct of eventually denying coverage.  In other words, the insurer’s conduct prior to being brought into the lawsuit did not create a belief that it intended to waive the coverage defense, which was asserted in its initial filings.  Thus, the excess insurer had not waived its right to lodge a coverage defense and the Fifth Circuit affirmed the dismissal of the employer’s claim against its excess insurer.

 

Richard v. Dolphin Drilling