Fifth Circuit Addresses Bailment and Eroding Policy Limits After Vessel Sank

 National Liability & Fire Ins. Co. v. R&R Marine, Inc., — F.3d —- (5th Cir. 2014):

This case arises after the sinking, and subsequent salvage, of a vessel owned by Hornbeck Offshore Services. Hornbeck Offshore owned the M/V Erie Service, which was in need of repairs.  Hornbeck entered into a Shipyard Repair and Drydock Agreement with R&R Marine for the repair and refit of two of Hornbeck’s vessels, one being the M/V Erie Service, at R&R Marine’s shipyard.  Per this Agreement, Hornbeck retained access to its vessel and reserved its authority over the vessel with the use of two on-site managers.  Despite Hornbeck’s oversight, it was undisputed that the Erie Service was in the custody of R&R Marine upon delivery.

On September 12, 2007, the National Weather Hurricane Center issued a tropical storm warning which included an area in which R&R Marine’s shipyard was located.  R&R Marine ensured Hornbeck pumps were available should water entry become an issue.  R&R Marine also ensured Hornbeck the shipyard docks were monitored “around the clock.”  However, in anticipation of the weather advisory, R&R personnel evacuated the shipyard and failed to take any precautions, apparently underestimating the severity of the storm.  The following morning, the M/V Erie Service sank.

Hornbeck entered into a time-and-materials salvage bid which totaled $627,324.64.  Hornbeck and R&R Marine demanded National, R&R Marine’s insurer, pay the salvage costs directly.

National sought a declaratory judgment that it was not required to pay the salvage cost.  Hornbeck counterclaimed asserting National’s policy required them to pay for damage to the M/V Erie Service since it was in the custody of R&R Marine, its insured, at the time of loss.  Hornbeck filed a cross-claim asserting R&R Marine’s negligence proximately caused the sinking of the M/V Erie Service.

The district court held R&R Marine was negligent in failing to secure the M/V Erie and that National was required to pay Hornbeck salvage costs, and interest and attorney’s fees associated with said costs.  Both National and R&R appealed.

The Fifth Circuit concluded the district court did not clearly err in finding R&R Marine to be negligent.  Hornbeck had established a prima facie case of negligence, as the M/V Erie Service was delivered to R&R Marine afloat and R&R Marine had full custody of the vessel.  The Court did not agree with R&R Marine that only a limited bailment was created due to the presence of Hornbeck’s on-site managers; to the contrary, the Court determined the district court was not clearly erroneous in finding that neither the presence nor authority of Hornbeck’s personnel affected R&R Marine’s exclusive control and full custody.

R&R Marine next argued Hornbeck was unreasonable in choosing a time-and-materials salvage contract, as opposed to a less expensive, “no cure, no pay” agreement.  Again, the Court determined the district court’s determination of Hornbeck’s reasonableness was not clearly erroneous and therefore upheld its determination.

The district court determined National was liable for the salvage costs associated with the sinking of the M/V Erie Service, as provided by its policy with R&R Marine.  National argued Hornbeck lacked standing as a third-party claimant to bring its counterclaim.  The Court of Appeals, reviewing the district court’s decision de novo, looked to Texas law to determine the parties’ substantive rights.  The Court engaged in an analysis of procedural law application and determined Hornbeck had standing to assert its counterclaim but agreed with National that the district court erred in the total amount of damages awarded in excess of National’s policy limits.  Accordingly, the award to Hornbeck was reduced to $1,000,000.00 plus reasonable attorney’s fees.

More Briefs Filed in Dize v. Association of Maryland Pilots

In 1995, the Supreme Court decided Chandris, Inc. v. Latsis, 515 U.S. 347 (1995), wherein it announced a test for determining “seaman” status.  To qualify as a “seaman” the employee must (1) contribute to the function of a vessel or to the accomplishment of its mission, and (2) have a connection to a vessel in navigation that is substantial in both duration and nature.  The Supreme Court favorably cited a rule of thumb from the Fifth Circuit whereby an employee would be denied “seaman” status if they spent less than 30% of their time in the service of a vessel in navigation.

Last year, the Court of Appeals of Maryland decided Dize v. Association of Maryland Pilots, which addressed the “seaman” status of an employee who maintained vessels that are dockside or ashore.  The court determined that such work does not factor into the 30% rule because maintaining a moored vessel is not “sea-based duties” that exposes the employee to the “perils of the sea.”

In April, this blog mentioned that Ms. Dize filed a petition for certiorari, asking the Supreme Court to review the lower court’s decision.  The question presented by Ms. Dize is: “When applying the Chandris 30-percent rule, may a court consider the time a maritime worker spends in the service of a vessel in navigation that is moored, dockside, or ashore, as the Third, Fifth, Sixth, and Ninth Circuits have held, or must a court categorically exclude such time, as the Eleventh Circuit and the Maryland Court of Appeals have held?”

Now, Ms. Dize has gained additional support for her petition.  Three amicus (or amici) briefs were recently filed by (1) Inland Boatmen’s Union, Pile Drivers, Divers, Bridge, Wharf & Dockbuilders Union, and the Sailors’ Union of the Pacific; (2) Practicing Maritime Lawyers; and (3) Maritime Law Professors.  Although the Inland Boatmen’s Union’s brief is not online–after a very short search on my part–the briefs filed by the Practicing Maritime Lawyers and Maritime Law Professors are available at SCOTUSblog.

The Practicing Maritime Lawyers argue in their brief:

In Chandris v. Latsis, 515 U.S. 347 (1995), this Court endorsed a 30-percent rule of thumb to establish “seaman” status but the Court has never specified the types of activities that count toward the 30-percent threshold.  As a result, lower courts are in irreconcilable conflict over whether to count the time a maritime worker spends in the service of a vessel in navigation that is moored, at the dock, or ashore.  The resulting confusion and uncertainty harms thousands of maritime workers due to loss of benefits, delays in receiving benefits, the extra burdens in obtaining benefits, and waste of time and money in pursuing benefits to which they are not entitled.  It also harms maritime employers and insurers who are uncertain of their responsibilities and, as a result, face increased expenses and exposure to legal risks.  Finally, it imposes unnecessary costs on the judicial system, which must devote substantial resources to deciding which regime governs a particular case before it can resolve the underlying merits of a claim.

The work of a seaman preparing the vessel for sea and conducting or waiting to conduct the vessel’s business should be included in the time credited to seaman status.  The application of Dize to the Alaska salmon fishery, and many other small vessel undertakings, would have devastating consequences for employers, employees and their insurers.  Vessel owners deserve to know under which status their employees will fall so they can procure appropriate insurance.  Employees deserve to have proper insurance coverage for their work injuries.  The Court should take this opportunity to bring clarity to the seaman-status jurisprudence.

The Maritime Law Professors argue in their brief:

“Seaman’s status” is a mixed question of law and fact.  However, the incorrect result below is not simply due to a failure to correctly apply the facts to the law, bur rather to a misinterpretation of the law as set forth in Chandris, Inc. v. Latsis, 515 U.S. 347 (1995).

Inconsistent interpretation of Chandris can have substantial effects on the maritime industry.  Because maritime employers are subjected to personal liability if they fail to secure compensation under the Longshore and Harbor Workers’ Compensation Act (hereinafter “the LHWCA”), inaccurately predicting which way a court may decide can cause a substantial personal loss to the President, Secretary, or Treasurer of a maritime employer.

These inconsistent results can be redressed by a clarification of the duration requirement in Chandris.  Therefore the undersigned maritime law professors request that the Court grant certiorari.

Tip of the hat to SCOTUSblog.  I can’t wait to see the respondent’s brief which is presently due on July 21, 2014.

No Work-Related Stress Claims Under the Jones Act, Says 11th Circuit

William Skye worked a lot.  A whole lot.  Skye worked between 90 and 105 hours per week for 70 to 84 days at a time.  Over the course of eight years, Skye’s cardiac condition (initially a benign arrhythmia) worsened.  Skye’s cardiologist concluded that Skye’s “continued physical stress related to his job, with long hours and lack of sleep” caused the worsening.  By 2008, Skye was diagnosed with left ventricular hypertrophy–a thickening of the heart wall of the left ventricle.  According to the cardiologist, Skye’s stress led to hypertension which, in turn, caused the left ventricular hypertrophy.

In 2011, Skye sued Maersk Line for negligence under the Jones Act.  He alleged that Maersk failed to provide reasonable working hours, an adequate crew, and adequate rest.  Maersk overworked him to the point of fatigue, thus causing physical damage to his heart.  A jury agreed and awarded damages of $2,362,299.  But because Skye was 75% at fault for his injuries, the district court reduced the award to $590,574.75.  Maersk then moved for a directed verdict on the grounds that Skye could not recover under the Jones Act for an injury caused by work-related stress.  The district court disagreed and Maersk appealed.

A divided panel from the Eleventh Circuit Court of Appeals agreed with Maersk.  It held that Skye’s work-related stress complaint was not cognizable under the Jones Act.  A complaint of physical injury caused by work-related stress is foreclosed by Supreme Court precedent.

The precedent that guided the Eleventh Circuit was a Federal Employers Liability Act (“FELA”) case called Consolidated Rail Corp. v. Gottshall, 512 U.S. 532 (1994).  The Jones Act provides a cause of action for seaman much like FELA provides a cause of action for inured railroad employees.  The Jones Act incorporates FELA’s remedial scheme, and FELA case law also applies to the Jones Act.  Accordingly, even though Gottshall is a FELA case, the holding and rationale can be applied to Jones Act cases.  The Eleventh Circuit summarized the Gottshall holding and rationale as follows:

In Gottshall, the Supreme Court ruled that injuries cause by the long-term effects of work-related stress are not cognizable under [FELA] because they are not caused by any physical impact or fear from the threat of physical impact.  …  The Supreme Court adopted the zone-of-danger test for injuries not caused by a physical impact; [Plaintiff's] injuries were compensable only if [Plaintiff] was injured when he was within the zone of danger of a physical impact caused by his employer’s negligence.”

With the Gottshall reasoning in mind, the Eleventh Circuit then disposed of Skye’s claims.  Even if Maersk failed to provide reasonable working and rest hours, and even if Skye felt overworked to the point of fatigue, none of that mattered:

As the Supreme Court explained in Gottshall, the “central focus” of [FELA], and the Jones Act by extension, is “on physical perils.”  512 U.S. at 555, 114 S. Ct. at 2410.  An arduous work schedule and an irregular sleep schedule are not physical perils.  That Skye developed a “physical injury” is no matter; the cause of his injury was work-related stress. See Szymanski, 154 F.3d at 594-95.  [The Gottshall Plaintiff] too had physical injuries–weight loss and headaches–but a physical injury is not enough.  Gottshall, 512 U.S. at 539, 558, 114 S. Ct. 2402, 2411-12.  Compensating Skye for his injury would potentially lead to, in the words of the Supreme Court, “a flood of trivial suits, the possibility of fraudulent claims…and the specter of unlimited and unpredictable liability” because there is no way to predict what effect a stressful work environment–compared to a physical accident such as an exploding boiler–would have on any given employee.  See id. at 557, 114 S. Ct. at 2411.  Skye’s complaint of a physical injury caused by work-related stress is foreclosed by binding precedent of the Supreme Court, and the judgment in his favor cannot stand as a matter of law.  Id. at 558, 114 S. Ct. at 2411-12.

There you have it: no work-related stress Jones Act claims.  Still, this likely isn’t the last we will hear about this injury.  I would anticipate that Skye would either request reconsideration by an en banc Eleventh Circuit, or he would file a petition with the Supreme Court.  Maersk won Skye v. Maersk Line by the slimmest of margins.  Out of three judges, one wrote the opinion, one concurred, and one dissented.  The concurrence all but asks the Supreme Court to revisit this area of law, noting that “[b]eing required to work 90 and 105 hours per week for 70 or 84 days at a time is hardly being given a safe place to work.”  The dissent argued that deference should be given to the jury’s decision that Skye suffered a physical as opposed to an emotional injury.  Further, the dissenter “would not read the Jones Act to preclude liability for an employer who makes a seaman work so hard and so continuously that he suffers physical injury in the form of heart disease, heart attack, organ failure, seizure, or stroke.”  Clearly, reasonable minds can differ with respect to the compensability of a work-related stress Jones Act claim, especially when there is a physical component to the total injury.

Skye v. Maersk Line, — F.3d —-, No. 12-16433 (11th Cir. 2014).

Around the Longshore and Maritime Blogosphere

Happy Friday, everyone.  Here are some great Longshore and maritime related posts that I recommend reading.

The LexisNexis Workers’ Compensation Law Community published two interesting articles.  First up is Karen Koenig’s Update from the Benefits Review Board (May 2014).  In addition to important statistics about the Board’s caseload, the article addresses the Board’s recent interpretation of Section 2(3)(F) of the Longshore and Harbor Workers’ Compensation Act (“LHWCA”).  Congress amended Section 2(3)(F) in 2009.  It now excludes from coverage “individuals employed to build any recreational vessel under sixty-five feet in length, or individuals employed to repair any recreational vessels, or to dismantle any part of a recreational vessel in connection with the repair of such vessel . . . if [the individual is] subject to coverage under a state workers’ compensation law.”

Next up is The Loyola Current, which is published by the Loyola New Orleans Maritime Law Journal.  Recent posts include a summary of Exxon Mobil Corporation v. Hill, which has an important discussion about attorney-client privilege for in-house counsel advice.  Another post discusses a recent limitation of liability decision from the Norther District of New York.  There, the court determined that workers compensation was not subject to vessel owner limitation.

Over at John’s Longshore and Defense Base Act Blog, John Chamberlain discusses an important Office of Administrative Law Judges decision pertaining to the calculation of a Defense Base Act claimant’s average weekly wage.  This link will take you directly to the post.

Finally, the AEU Longshore Blog has an interesting post about suicide entitled,  Survivor’s Benefits in the Case of an Injured Worker’s Suicide.  The author makes valid points regarding the effect of Ninth Circuit’s Kealoha decision on a Section 3(c) suicide defense under the LHWCA.