Fifth Circuit |

Need for Notice

May 13, 2013 by Will Bland

Accidents happen. To protect ourselves from financial disaster, virtually all of us carry liability insurance on our homes, businesses, and vehicles, as well as health insurance in the event we are injured or ill. We expect our insurer to respond to our needs and defend and indemnify us from losses. After all, that is why we pay premiums. However, an insurer’s contractual obligation to defend or indemnify in the event of a loss is not unconditional. Often the policy of insurance will contain conditions with which the insured must comply in order for there to be coverage.

For example, on May 1, 2013, the Fifth Circuit Court of Appeals decided the matter of Insurance Company of North America v. Board of Commissioners of the Port of New Orleans, 2013 WL 1811892. This dispute arose in connection with a $2.6 million judgment against the Port for injuries sustained by John Morella in 2001. The Port had in place a primary policy with a limit of $1 million. Above this, the Port had purchased an excess marine insurance policy to which three underwriters subscribed by percentages, forty (40%) percent, forty (40%) percent, and twenty (20%) percent.

The case went to trial in 2007. The Port’s representatives had timely notified the insurance company, which provided the primary layer of insurance. However, the excess insurers were not notified until late March 2007, approximately a month after the state court judgment was entered. In May, 2007 the underwriters filed suit seeking declaratory judgment that they were not required to pay under the policy because the Port did not provide timely notice of Morella’s claim. In May 2009, the excess insurers filed for summary judgment. Applying New York law, the district judge found that the notice was untimely and that the Port should have notified the underwriters of the claim when its defense counsel indicated that Morella’s economic loss exceeded $1.8 million. The district judge also found, however, that “loss summaries” provided to two of the insurers could have constituted timely “notice” under the policies. Accordingly, the district court rendered summary judgment in favor of the third insurer because it did not receive loss summaries detailing the incident as its co-excess insurers had and notice to its co-excess insurers did not constitute notice to St. Paul.

The policy contained the following policy provisions:

Whenever any Assured has information from which the Assured may reasonably conclude that an occurrence covered hereunder involves an event likely to involve this Policy, notice shall be sent to Underwriters as soon as practicable, provided, however, that the failure to notify Underwriters of any occurrence which at the time of its happening did not appear to involve this Policy, but which, at a later time, would appear to give rise to claims hereunder, shall not prejudice such claims.

It its decision in favor of the insurer that did not receive notice via the “loss summaries,” the court rejected the Port’s argument that notice to one or more co-excess insurers triggered a duty of coverage by all the excess insurers, regardless of whether some underwriters did not receive notice like the others. The court stated that “the policy language requires that all of the subscribing insurers must receive notice,” and affirmed the district court’s summary judgment in favor of the insurer because it did not receive notice under the policy as its co-excess insurers may have received.

On receipt of this ruling, the remaining two insurers filed another summary judgment and argued that the ruling required notice to all insurers before any were required to provide coverage. That is to say that because one of the three did not receive notice, all were relieved of any duty to provide coverage under the policy. The district court agreed and ruled that the notice provision required that each and every insurer needed notice and found that no excess coverage was available.

On appeal from the Fifth Circuit, the district judge was reversed. The Fifth Circuit found that any insurer who receives notice is liable for providing coverage, regardless of whether its co-insurers received notice. Because these two insurers had received “loss summaries” earlier in the litigation, this constituted sufficient notice and they provided coverage.

The moral of the story is clear. Better to be safe than sorry. Read your policies and when a loss occurs, make sure that all insurers, primary and excess, are timely placed on notice in writing. Failure to promptly place your insurers on notice of a claim may leave you uninsured.

Filed Under: Fifth Circuit, Insurance

En Banc Decision of 5th Circuit Changes Scope of Situs Requirement: “Adjoining” Means “Border On” Navigable Waters

May 3, 2013 by Patrick Babin

An en banc decision of the United States Fifth Circuit Court of Appeals has vastly amended the scope of the situs requirement under the LHWCA. This case began as a simple hearing loss issue, when the claimant filed a claim for longshore benefits against his employer. Claimant was employed at the Employer’s Chef Menteur Highway container yard in New Orleans (“Chef Yard”). Claimant’s primary job duties were to repair and maintain shipping containers at the Chef Yard. The Chef Yard had access to a highway and railway. It was located 300 yards from the Intracoastal Canal and was surrounded by a carwash, radiator shop, automobile repair shop, bottling company, and a box manufacturing company. The bottling company’s facility was located in between the intracoastal waterway and the Chef Yard. Claimant worked only within the employer’s Chef Yard, no other locations. The Chef Yard had no access to the intracoastal canal and all the equipment was delivered to the Chef Yard by truck.

After a formal hearing, the ALJ concluded that the claimant’s work repairing ocean containers was a significant maritime activity necessary to loading and unloading cargo. Additionally, the ALJ concluded that the location of the Chef Yard satisfied the situs requirement for an injury occurring in an area “adjoining navigable waters.” The BRB affirmed the ALJ’s decision and a divided panel of the Fifth Circuit affirmed the BRB. The Fifth Circuit then voted for an en banc court to consider the BRB’s determination of the situs test.

The Fifth Circuit began its review of the situs issue looking at its prior en banc decision in Texports Stevedore Co. v. Winchester, 632 F.2d 504 (5th Cir. 1980). In Winchester, a worker was injured when he fell while working. The worker was engaged in repairing and maintaining gear used by longshoremen in loading and unloading vessels. The gear room was located five blocks from the gate of the nearest Houston port dock. The Fifth Circuit held that the situs requirement was met. The Winchester court stressed that a site must have some nexus with the waterfront.

The Fifth Circuit also reviewed the Sidwell decision from the Fourth Circuit Court of Appeals. Sidwell v. Express Container Services, Inc., 71 F.3d 1134 (4th Cir. 1995). In Sidwell, the injured worker was a shipping container mechanic. His injury occurred at his employer’s facility located approximately .8 miles from the closest ship terminal in an area with non-maritime commercial and residential facilities. In deciding the Sidwell matter, the Fourth Circuit recognized the Supreme Court had not defined the term “adjoining area” and none of the tests proffered by other federal circuits followed the language of the Act. The Sidwell court found support for its interpretation from the House of Representatives Report on the 1972 amendments of the Act – “the bill also expands the coverage of this Act to cover injuries occurring in the contiguous dock area related to longshore and ship repair work.” The Sidwell court stated “the definition we adopt today ensures coverage for all maritime employees injured in the waterfront areas where the loading, unloading and repairs of vessels occurs as Congress plainly intended and as the Supreme Court has directed.” The Sidwell court made clear that its literal definition of “adjoining” could not be circumvented by a broad interpretation of the term “area.” In order for an “area” to constitute an “other area,” under the statute, it must be a shore-side structure or facility.

The en banc Fifth Circuit in the instant matter adopted the Sidwell ruling and definition of adjoining navigable water to mean “border on” or “be contiguous with” navigable waters. The Fifth Circuit overruled the contrary definition and analysis of Winchester and its progeny. This definition was more faithful to the plain language of the Act. In applying the Sidwell decision to the instant case, the Fifth Circuit ruled there was no dispute that the Chef Yard where Claimant’s injury occurred did not adjoin navigable waters and thus was not a longshore covered situs. The decision of the BRB was vacated and remanded for further proceedings.

Concurrence

A seven judge concurrence also determined that Claimant would not have had the appropriate maritime status as well. The concurrence analyzed the Schwalb case to reach this decision. Chesapeake & Ohio Ry. Co. v. Schwalb, 493 U.S. 40 (1989). In Schwalb, the Supreme Court recognized that employees who were injured while maintaining or repairing equipment were essential to the loading or unloading process. However, not all such repairmen would be covered, as the Schwalb court premised this conclusion on the fact that the process of loading and unloading vessels would stop if the machinery used by longshoremen became broken, clogged or fouled. The concurring opinion noted it was clear that the claimant was not involved in the process of moving cargo between ship and land transportation. His task was to repair empty containers, only some of which may have been used in maritime shipping. Although it would not be unreasonable to conclude that repairing ship containers was integral and essential to the ship loading and unloading process, the Fifth Circuit noted that Schwalb does not create a rule under which all employees, who repair any equipment that may be used in a loading process, are integral and essential to allow coverage under the Act. The Act does not provide a “but-for” test for determining coverage. The inquiry distinguishes tasks necessary to execute a loading process from the tasks of an employee that are only tangentially connected to the loading process. The concurrence noted that the work of the claimant in this case had a tangential connection to the loading process. Some of the empty containers that claimant repaired may have been headed for a truck or train rather than a vessel. This was the sort of tangential (“second character”) connection for which the Act would not allow coverage. Nothing about claimant’s work was done with the specific purpose of assisting longshoring tasks and nothing about the location of claimant could be considered a proper situs. The concurrence concluded, claimant’s work was not essential or integral to loading or unloading vessels and claimant’s work would not meet the status requirement under the Act.

New Orleans Depot Services, Inc. v. Director, OWCP; New Orleans Marine Contractors; Signal Mutual Indemnity Association, Ltd., No. 11-60057 (5th Cir. April 29, 2013).

Filed Under: Fifth Circuit, Longshore

Economic Loss Rule Precluded Vessel Owner’s Tort Recovery Against Shipyard

April 1, 2013 by Trevor Cutaiar

Associated Gas & Oil Co. (“Associated”) purchased liftboats from Offshore Marine, Inc. (“OMI”). Pursuant to the parties’ agreement, OMI was to make certain additions and improvements to the vessels. In order to install additional living quarters on one of the boats, the shipyard had to cut, extend and re-weld a crane boom and cradle stanchion of the hydraulic pedestal crane mounted on the vessel.

Associated acquired the liftboats to carry out contract work in Nigeria that it had recently won and, once modified, had to ship the vessels from Louisiana to Nigeria. En route to Nigeria, the flotilla transporting the liftboats had to navigate rough seas. This caused the re-welded stanchion to snap at the site of the weld. This allowed the boom swing free and cause damage to the living quarters. The flotilla was diverted to St. Thomas, British Virgin Islands to assess the damage. Finally underway, the flotilla experienced more rough seas and was diverted to Trinidad. The flotilla was eventually sent back to Louisiana for repairs.

In the ensuing litigation that involved several interested parties, Associated asserted claims against the shipyard that performed the repair work, alleging that its negligence caused the damage and that the delays and inability of Associated to utilize the boats in Nigeria caused further financial loss. The shipyard moved for summary judgment, arguing that the economic loss rule announced in East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1986), precluded Associated’s recovery of economic losses. The district court granted the motion and Associated appealed.

The Fifth Circuit’s analysis centered on the applicability of East River and its economic loss rule. East River involved a shipbuilder that contracted with a company to design, manufacture and supervise the installation of turbines in supertankers. Once in service, the turbines malfunctioned. The Supreme Court held that no duty, under a negligence or strict products liability theory, is owed by a manufacturer to prevent a product from injuring itself. 476 U.S. at 871. The Fifth Circuit has extended East River’s applicability to claims against a provider of professional services to a vessel manufacturer and to a repairer of a vessel. The Fifth Circuit explained that “[t]he public policy concerns underpinning tort duties are not present here, and that parties are capable of defining satisfactory performance and allocating the risk of defective performance in their contract.” Nathaniel Shipping, Inc. v. General Elec. Co., 932 F.2d 366, 368 n.3 (5th Cir. 1991).

Despite Associated’s attempts to distinguish itself from East River and its progeny, the court was unconvinced and quoted East River’s statement that “[d]amage to a product itself is most naturally understood as a warranty claim. Such damage means simply that the product has not met the customer’s expectations, or, in other words, that the customer has received ‘insufficient product value.’” 476 U.S. at 872. The Fifth Circuit stated simply that those claims are best left to contract and warranty law, not tort law. Finding that East River was applicable to the facts, the Fifth Circuit affirmed the summary judgment entered against Associated. Notably, the unpublished opinion was originally released on January 3, 2013 but was subsequently redesignated for publication on March 12, 2013.

Smith Mar., Inc. v. L/B KAITLYN EYMARD, 12-30378, 2013 WL 886226 (5th Cir. Jan. 3, 2013), redesignated as published opinion Mar. 12, 2013.

Filed Under: Fifth Circuit, General Maritime Law, Litigation, Products Liability

Testbank Maritime Rule Affirmed: Recovery Limited to Plaintiffs Who Sustain Physical Damage to Proprietary Interest

March 27, 2013 by Tyler Kostal

On May 31, 2011, the vessel JULIE MARIE, owned by Bertucci Contracting Co., LLC (“Bertucci”), allided with the Leo Kerner Bridge (“the bridge”), which links the Louisiana communities of Lafitte and Barataria. Because of the accident, the bridge was closed for several days for repairs. Bertucci filed a complaint-in-limitation under the Limitation of Liability Act in the Eastern District of Louisiana. Numerous claimants filed answers, including Appellants. Additionally, a separate class action suit was filed on behalf of residents of Barataria, seeking to recover damages resulting from the closure of the bridge, including loss of use of property, loss of income and revenue, and damages due to inconvenience. The district court consolidated the class action proceeding with Bertucci’s limitation proceeding. Bertucci filed a motion to dismiss Appellants’ claims pursuant to Federal Rule of Civil Procedure 12(b)(6), and the district court granted Bertucci’s motion to dismiss Appellants’ claims in both the limitation proceeding and in the class action. The district court held that in maritime negligence cases, recovery for economic damages is barred unless a plaintiff sustains physical damage to a proprietary interest, pursuant to State of Louisiana ex rel Guste v. M/V TESTBANK, 752 F.2d 1019 (5th Cir. 1985) (en banc). Appellants appealed the dismissal of their claims.

Appellants argued that the Testbank rule should not bar recovery because they are not maritime actors and, thus, Louisiana law should apply, even though their claims may be heard in federal court pursuant to maritime jurisdiction. The Fifth Circuit found Appellants’ attempts to distinguish Testbank and its progeny unpersuasive. The court reiterated that its en banc opinion in Testbank reviewed and reaffirmed the “prevailing” maritime rule that “denie[s] a plaintiff recovery for economic loss if that loss resulted from physical damage to property in which he had no proprietary interest.” Further, the Fifth Circuit has clearly held that “state law does not supply an alternative remedy to [a claimant] when its claim was already denied in its proper maritime jurisdiction.” “Maritime law specifically denies recovery to non proprietors for economic damages. To allow state law to supply a remedy when one is denied in admiralty would serve only to circumvent the maritime law’s jurisdiction.”

Appellants alternatively argued that even if Testbank is not distinguishable, the district court erred in dismissing their claims because some of the claimants might have suffered physical injuries. The Fifth Circuit opined that while Appellants assert that the bridge damage and closing interfered with the use of their property, interference with access is not physical damage. Thus, the district court correctly dismissed the claims because Appellants alleged no facts, even if construed liberally, that plausibly state a claim for physical damages. The Fifth Circuit affirmed the district court’s dismissal of Appellants’ claims in the limitation proceeding and in the class action.

In Re: Bertucci Contracting Co., L.L.C., — F.3d —- (5th Cir. 2013).

Filed Under: Fifth Circuit, General Maritime Law