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.

Rhode Island Addresses the Scope of a Seaman’s Entitlement to Unearned Wages

In a lengthy decision, the Supreme Court of Rhode Island addressed a number of Jones Act-related issues, ultimately holding:

(1) that the trial justice’s unearned wages jury instruction, which was part of his instructions to the jury with respect to the plaintiff’s claim for maintenance and cure, was erroneous and resulted in prejudice to the defendant; (2) that the trial justice overlooked and misconceived material evidence in the course of granting the plaintiff’s motion for a new trial on his claims for negligence under the Jones Act and breach of the warranty of seaworthiness; and (3) that the trial justice erred in applying Rhode Island’s prejudgment interest statute, rather than following federal maritime law, which would have required the plaintiff to request an instruction whereby the issue of awarding prejudgment interest (vel non) would be submitted to the jury.

As to the unearned wages jury instruction, the court stated (with internal citations omitted):

Our review of the relevant case law make it abundantly clear that the unearned wages instruction given by the trial justice was erroneous.  For vessels like the Persistence, which are “ocean going ships, the rule is said to be that wages are recoverable for the balance of the voyage . . . .”  However, it is possible for a seaman and his or her employer to extend the period of recovery of unearned wages by contract.  Such a contract would have to provide a definite right to employment for a fixed period of time.  Accordingly, “[t]he period as to which unearned wages must be paid is determined by reference to the contractual relationship.  When a seagoing employee has no contractor has a contract with no enforceable term of duration, she only is entitled to unearned wages from the time she becomes unfit for duty to the end of that voyage.  Thus, we hold that Mr. King was only entitled to recover unearned wages as part of his claim for maintenance and cure for either (1) the duration of the voyage on which he was injured (which is not relevant here since the Peristence was docked when Mr. King’s injury occurred); or (2) for the duration of an employment contract between Mr. King and defendant, if there was such a contract.

. . .

We are of the opinion that the trial justice’s jury instruction with respect to unearned wages was given in error in that it was an incomplete and insufficient statement of the law.  The trial  justice stated that, if the jury awarded maintenance and cure, it “should also award . . . unearned wages . . . when [Mr. King] was serving the ship.”  The trial justice was correct that plaintiff was entitled to be compensated under maintenance and cure for the duration of his employment contract; i.e., when “he was serving the ship.”  However, the trial justice failed to explain that plaintiff was “serving the ship” only if he was on a voyage or had an employment contract for a specified duration.  The lack of clarification of the jury instruction with respect to unearned wages illustrates the fact that the trial justice did not “fram[e] the issues in such a way that the instructions reasonably set forth all of the propositions of law . . . .”  It is further our view that, because the unearned wages jury instruction was somewhat ambiguous in the eyes of this Court it is probable that it was even more so for the lay jurors.

King v. Huntress, Inc., — A.3d —- (R.I. 2014).

Government Accepting Comments About the Longshore Act’s Pre-Hearing Statement

When a Longshore or Defense Base Act claim starts, it is administered by the Office of Workers’ Compensation Program’s Division of Longshore and Harbor Workers’ Compensation.  In the event that a dispute arises, a party may request referral to the Office of Administrative Law Judges.  To do so, the referring party submits a Form LS-18, Pre-Hearing Statement.

Forms used by the government often have an expiration date and the Pre-Hearing Statement is no different.  The present Form LS-18 is scheduled to expire on July 31, 2014.  Accordingly, the Office of Workers’ Compensation Program has asked the Office of Management and Budget (“OMB”) to review the Pre-Hearing Statement and approve its continued use, without change, in accordance with the Paperwork Reduction Act.

In the event you care to do so, the OMB is now accepting public comments about the Pre-Hearing Statement.  The OMB is interested in comments that evaluate whether the proposed collection of information is necessary for the performance of the Office of Administrative Law Judges; evaluate the accuracy of the agency’s estimate of the burden of the proposed collection of information; enhance the quality, utility, and clarity of the information to be collected; and minimize the burden of the collected information “through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.”

For more information about OWCP’s Pre-Hearing Statement Request or the open comment period that ends on July 25, 2014, please view the memorandum at this link.

Maritime Law Did Not Apply to Guest’s Drunk Driving Accident

The Supreme Court of Texas recently determined that admiralty jurisdiction did not apply to a horrific drunk driving crash simply because the driver responsible for the crash had been drinking on a small, chartered fishing boat.  The facts were not disputed.  A technology company hosted a business retreat at a lodge in Aransas Pass near the Gulf of Mexico.  On that retreat, one of the company’s clients drank excessively on a fishing boat.  The boat returned to the lodge, at which time the client left to drive home.  One-and-a-half hours later, the “significantly intoxicated” client crossed into oncoming traffic and struck a motorcycle.  Both motorcycle riders lost their left legs.  They sued the technology company, arguing that it negligently allowed their client to drink excessively.  Texas does not recognize such social host liability, so the plaintiffs asserted that federal maritime law applied to the case because the client became intoxicated on a fishing boat.

In Jerome B. Grubert, Inc. v. Great Lakes Dredge & Dock Co., the United States Supreme Court announced the test for determining admiralty jurisdiction over tort claims:

A party seeking to invoke federal admiralty jurisdiction . . . over a tort claim must satisfy conditions of location and of connection with maritime activity.  A court applying thee location test must determine whether the tort occurred on navigable water or whether injury suffered on land was caused by a vessel on navigable water.  The connection test raises two issues.  A court, first, must assess the general features of the type of incident involved to determine whether the incident has a potentially disruptive impact on maritime commerce.  Second a court must determine whether the general character of the activity giving rise to the incident shows a substantial relationship to traditional maritime activity.

The Supreme Court of Texas applied the Grubert test to the facts of the case.  It determined that a factual dispute exited regarding the plaintiffs’ ability to satisfy the location test.  The plaintiffs had submitted an expert’s analysis that the drunk driver’s level of intoxication indicated that he had been drinking on the fishing boat.  Therefore the court assumed for sake of argument that there was at least some evidence that a duty owed by the company was breached on the boat.

The plaintiffs were not as successful with the two-part maritime connection test because: (1) the consumption of alcohol by guests (not guides) aboard a small, chartered fishing boat does not pose a threat to commercial shipping; and (2) supervising the consumption of alcohol aboard a small, chartered fishing boat cannot be characterized as “substantially related to a traditional maritime activity.”  Because the plaintiffs could not satisfy the second part of the Grubert test, maritime law did not apply to their case.

Schlumberger Tech. Corp. v. Arthey, — S.W.3d —- (Tex. 2014).