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interpreting policy covering losses from "`other causes of whatsoever nature'"
Summary of this case from Royal Indemnity Co. v. Deep Sea InternationalOpinion
CIVIL ACTION NO. 01-3063, (REF. ALL CASES), SECTION "L"(2)
October 8, 2002
ORDER REASONS
Before the Court are three motions for summary judgment pertaining to a marine insurance policy issued by St. Paul Fire and Marine Insurance Co. (St. Paul) and covering SSA Gulf Terminals, Inc. ("SSA"). First, St. Paul has moved for summary judgment on the "sue and labor" clause, arguing that the clause creates an express warranty on the part of SSA, and further that SSA breached that warranty excluding coverage in this matter; second, SSA has moved for summary judgment on the hull policy arguing that it is not liable under the hull policy because: (a) the DELTA CONVEYOR is not a vessel and owes no warranty of seaworthiness; and (b) the policy at issue is an "all risks" policy, placing the burden of proof on St. Paul to show an exclusion to coverage; and third, SSA moves for summary judgment on the Protection and Indemnity ("P I") Clause, arguing that St. Paul is contractually bound to pay the costs and liabilities of removing the wreckage of the DELTA CONVEYOR. For the reasons set forth below, the Court DENIES St. Paul's motion, GRANTS SSA's motions regarding vessel status and burden of proof, and DENIES SSA's motion on the P I Clause.
I. BACKGROUND
The DELTA CONVEYOR, a floating structure used for the processing of rice and grain, sank in the Mississippi River near Convent, Louisiana on June 11, 2001 in calm, clear weather, without being struck by any other vessels; presently, it is submerged under fifty feet of water. St. Paul claims the sinking resulted from several holes in the hull of the DELTA CONVEYOR caused by the repeating bumping of the structure by vessels being loaded with rice.
At the time of the sinking, St. Paul and SSA were party to an insurance policy listing the DELTA CONVEYOR as a "covered vessel." The parties before the Court are disputing whether insurance coverage exists for the sinking. Three clauses in the insurance policy are relevant to the Court's determination of these matters: the Sue and Labor Clause, the Inchmaree (Additional Perils Clause), and the P I Clause.
The Sue and Labor clause provides:
An in case of any Loss or Misfortune, it shall be lawful and necessary for the Assured . . . to sue, labor and travel for, in, and about the defense, safeguard, and recovery of the Vessel . . . to the charges whereof the Underwriters will contribute their proportion as provided below.
The Inchmaree (Additional Perils) clause provides:
This Policy also covers loss of or damage to the Vessel directly caused by either:
(a) breakdown of motor generators or other electrical machinery and electrical connections thereto, bursting of boilers, breakage of shafts, or any latent defect in the machinery or hull, (excluding the cost and expense of replacing or repairing the defective part); or
(b) other causes of whatsoever nature arising either on shore or otherwise provided the loss or damage arising from those causes set forth in either (a) or (b) has not resulted from want of due diligence by the Assured, the Owners, or Managers of the Vessel, or any of them.
The relevant portion of the P I policy requires the "assurer . . . to make good to the Assured . . . all such loss and/or damage and or expense as the Assured shall as owners of the vessel named herein have become liable to pay and shall pay on account of the . . . (7) Liability for cost or expense of, or incidental to, the removal of the wreck of the vessel named herein when such removal is compulsory by law."
Plaintiffs FRS Capital Corp., FRS Service Companies, Inc., Stevedoring Service of America, Inc., and SSA Gulf Terminals, Inc., filed suit against St. Paul Fire and Marine Insurance Co. on September 27, 2001 in the Western District of Washington. On October 9, 2002, before being served with the complaint, St. Paul Fire and Marine Insurance Co. filed a Complaint for Declaratory Judgment in this Court seeking a judgment that there was no coverage for the sinking of the M/S DELTA CONVEYOR under a policy issued by St. Paul. St. Paul explains that the policy excludes coverage for losses resulting from the want of due diligence by the assured. St. Paul contends that the sinking resulting from a large hole on the side of the DELTA CONVEYOR through which river water infiltrated. SSA Gulf Terminals, Inc. is the only defendant named in the declaratory judgment action.
On December 5, 2001, the Western District of Washington granted St. Paul's motion for transfer of venue of the Washington action to this Court. Thereafter, the transferred action — designated as Civil Action No. 02-125 — was consolidated with the declaratory judgment action filed by St. Paul. On January 2, 2002, SSA filed a petition in the 23rd Judicial District Court for the Parish of St. James, State of Louisiana, in which it sought payment from St. Paul for the proceeds allegedly due under the insurance policy issued for the DELTA CONVEYOR. In its petition SSA demanded a jury trial. On January 7, 2002, St. Paul removed the state court action to this court. Thereafter, the action — designated as Civil Action No. 02-43 — was consolidated with the consolidated declaratory judgment actions. Meanwhile, on January 4, 2002, SSA answered the St. Paul's declaratory judgement action wherein SSA asserted a counter claim against St. Paul for payment of proceeds due under the DELTA CONVEYOR insurance policy. SSA demanded a jury trial of its counter claim. The counter claim is identical to the claim asserted in the state court action which was removed to this court. On June 21, 2002, this Court dismissed the declaratory judgment action in the interest of simplifying the matters to be tried. The parties are now before the Court again seeking summary judgment on the matters stated above.
II. CHOICE OF LAW ANALYSIS
Before the Court may consider the merits of the motions for summary judgment, it must first determine the law applicable to this issue. SSA has argued that state law, not federal maritime law applies because this policy is not within the court's admiralty jurisdiction, while St. Paul reaches the opposite conclusion. Further, even if the court concludes that the contract is within its admiralty jurisdiction, it must still determine whether state substantive law is applicable.
In order to invoke this Court's admiralty jurisdiction, the contract need not insure a vessel, but it must bear a certain nexus to a vessel's operations and navigation. See J.A.R., Inc. v. M/V LADY LUCILLE, 963 F.2d 96, 98 (5th Cir. 1992) (noting "[n]ot every contract that touches incidentally on maritime activities is a maritime contract; for maritime character to attach, there must be a direct and proximate juridical link between the contract and the operation of a ship."). As one noted admiralty commentator has stated, the contract "must be directly and intimately related to the operation of a vessel in navigation; it is not enough that the contract relate in some preliminary (shoreside) manner to maritime affairs." THOMAS J. SCHOENBAUM, 1 ADMIRALTY AND MARITIME LAW, § 3-10 at 120 (3d ed. 2001).
The relevant case law looks at the nexus between the insured object and vessels in navigation and the nature of the insured object. In Royal Ins. Co. v. Pier 39 Limited Partnership, 738 F.2d 1035 (9th Cir. 1984), the Ninth Circuit held that for admiralty jurisdiction to apply, both the interests insured and the risks insured against must be maritime. Id. at 1036. The risks insured against being clearly maritime in nature the question is whether the interest insured is maritime. In Commercial Union Ins. Co. v. Detyens Shipyard, Inc., 147 F. Supp.2d 413 (D.S.C. 2001), the court concluded that a contract to insure a floating drydock (a non-vessel) had a sufficient maritime interest to invoke admiralty jurisdiction because the drydock was used to repair ships and barges. Id. at 419. The court held that since contracts to repair ships are within admiralty jurisdiction and since "drydocks play an integral role in the operation and maintenance of ships and other vessels — a crucial maritime activity" the drydock was a marine interest. Id.
In the present case, the DELTA CONVEYOR is "intimately connected" with maritime commerce since it assists in the loading and off loading of rice from ocean-going vessels. Thus, the DELTA CONVEYOR has definite maritime interest. As such, the contract to insure that interest is a maritime contract and falls under the admiralty jurisdiction of this Court.
The issue of jurisdiction having been resolved, the Court must now determine which substantive law to apply: state law or federal maritime law. With admiralty jurisdiction usually comes the application of substantive admiralty law unless there is an absence of maritime law, in which case state substantive law is applied. See, e.g., Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955); Yamaha Motor Corp., USA v. Calhoun, 516 U.S. 199 (1996); Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882, 886 (5th Cir. 1991). The issues raised in these motions for summary judgment involve the Sue and Labor Clause, vessel status, an Inchmaree Clause, and a Protection and Indemnity Clause. The federal authority on these points is abundant; thus, there is no need to turn to state law. Instead, the Court will apply the substantive federal maritime law.
III. MOTIONS FOR SUMMARY JUDGMENT
A. SUMMARY JUDGMENT STANDARD
A district court can grant a motion for summary judgment only when the "`pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed.R.Civ.P. 56(c)). When considering a motion for summary judgment, the district court "will review the facts drawing all inferences most favorable to the party opposing the motion." Reid v. State Farm Mut. Auto. Ins. Co., 784 F.2d 577, 578 (5th Cir. 1986). The court must find "[a] factual dispute . . . [to be] `genuine' if the evidence is such that a reasonable jury could return a verdict for the nonmoving party . . . [and a] fact . . . [to be] `material' if it might affect the outcome of the suit under the governing substantive law." Beck v. Somerset Techs., Inc., 882 F.2d 993, 996 (5th Cir. 1989) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
"If the moving party meets the initial burden of showing that there is no genuine issue of material fact, the burden shifts to the non-moving party to produce evidence or designate specific facts showing the existence of a genuine issue for trial." Engstrom v. First Nat'l Bank of Eagle Lake, 47 F.3d 1459, 1462 (5th Cir. 1995) (citing Celotex, 477 U.S. at 322-24, and Fed.R.Civ.P. 56(e)). The mere argued existence of a factual dispute will not defeat an otherwise properly supported motion. See Anderson, 477 U.S. at 248. "If the evidence is merely colorable, or is not significantly probative," summary judgment is appropriate. Id. at 249-50 (citations omitted).
B. ST. PAUL'S MOTION FOR SUMMARY JUDGMENT ON THE SUE AND LABOR CLAUSE
St. Paul argues that over a three to six month period before June 11, 2001 (the date the DELTA CONVEYOR sank) several holes existed in the starboard side of the hull, including one approximately four feet in diameter, about three to four feet from the waterline. The holes were caused by the continued bumping of barges into the DELTA CONVEYOR during the grain loading process. Further, the depositions of various SSA employees indicate that the company had knowledge of these holes during those three to six months, yet did nothing to repair them. St. Paul contends that this failure to repair the holes constituted a breach of what it terms be an express warranty created by the insurance policy's Sue and Labor Clause and asks for summary judgment to that effect. ( See supra note 1 for the Sue and Labor Clause provision). SSA, however, takes the position that the Sue and Labor Clause creates no warranties since the policy language does not use language to that effect. They further argue that their actions were reasonable in light of the circumstances or at the very least that the reasonableness of their actions is a fact issue precluding summary judgment.
Before addressing the merits of this motion, an understanding of the history and purpose of the Sue and Labor Clause is appropriate. The Sue and Labor Clause may be traced back as far as the seventeenth century in England. Young's Market Co. v. American Home Assurance Co., 481 P.2d 817, 820 (Cal. 1971); see also CHRISTOPHER L. TROY ANDREW S. GRANZOW, BRIEF, 30, 31 (AMERICAN BAR ASS'N SPRING 2002). The historical purpose of the clause is to encourage the assured to take steps to prevent a threatened loss or if a loss does occur, to take steps to diminish the amount of the loss. White Star S.S. Co. v. North British Mercantile Ins. Co., 48 F. Supp. 808, 813 (E.D. Mich. 1943). The clause "makes express the duty implied in law on the part of the insured to labor for the recovery and restitution of damaged or detained property." Id. Thus, the clause functions as a devise to encourage prevention or mitigation of damages.
For support of its position that the clause creates an express warranty, St. Paul cites only Reliance Insurance Co. v. McGrath, 671 F. Supp. 669 (N.D. Cal. 1987). In McGrath, the insured's policy, containing a Sue and Labor Clause, covered damages to his yacht. Id. at 670. Approximately 6 months before his yacht sunk, the defendant-insured struck a submerged object while sailing in his yacht but did nothing to repair any damages; further, defendant had failed to maintain the hull of the yacht with anti-fouling paint. Id. at 673. The court determined that these actions caused the yacht to eventually sink; further, timely action on the defendant's part would have prevented the extensive damage to the yacht. Id.
The court held that the Sue and Labor Clause created "an express warranty . . as well as an implied in law warranty that the owner must minimize his loss by timely inspection and repair." Id. at 675. The court further held that since the defendant did not take appropriate steps upon becoming aware of the yacht hitting a submerged object it had breached these warranties, causing the yacht to sink; since defendant had breached a warranty under the Sue and Labor Clause, the insurer had a valid defense to coverage.
However, the controlling appellate court in this district, the Fifth Circuit reached a different conclusion when considering the Sue and Labor Clause. In Reliance Insurance Co. v. The Yacht ESCAPADE, 280 F.2d 482 (5th Cir. 1960), the court held that the insured has a duty under the Sue and Labor Clause "to exercise the care of a prudent uninsured owner to protect insured property in order to minimize or prevent the loss from the occurrence for which the underwriter would be liable under the policy. The [Sue and Labor Clause] undertakes to reimburse the assured for these expenditures which are made primarily for the benefit of the underwriter either to reduce or eliminate a covered loss altogether." Id. at 488. The Sue and Labor Clause thus functions as a tool for encouraging mitigation of damages. The above-quoted language does not indicate the existence of a warranty, but rather a standard of reasonableness.
See also Blasser Bros. v. Northern Pan-Am. Line, 628 F.2d 376, 386 (5th Cir. 1980) (noting "The purpose of the sue and labor clause is to reimburse the insured for those expenditures which are made primarily for the benefit of the insurer to reduce or eliminate a covered loss.").
Thus, the question before this court is whether SSA was reasonable in failing to repair the holes in the hull of the DELTA CONVEYOR in the three to six months before it sank since it may have had knowledge of a covered loss, namely the holes in the hull. The determination of what is reasonable is a fact-laden question, and no evidence has been presented by the parties. Summary judgment is not appropriate for making such conclusions when several issues of fact are present. Therefore, St. Paul's motion for summary judgment on the hull claim is DENIED.
C. SSA'S MOTION FOR SUMMARY JUDGMENT ON THE HULL CLAIM
As noted above, this motion is comprised of two parts: (1) whether the DELTA CONVEYOR is a vessel owing a warranty of seaworthiness; and (2) whether the policy is an "all risks" policy placing on St. Paul the burden of proving an exclusion to coverage.
1. VESSEL STATUS OF THE DELTA CONVEYOR AND THE WARRANTY OF SEAWORTHINESS
A court's determination of vessel status is often a question of fact. However, when the relevant facts are not in dispute, vessel status may become a question of law. The undisputed facts show that the DELTA CONVEYOR was permanently moored as a floating work platform in the Mississippi River at Convent, Louisiana where it served as a grain-handling facility. Further, the DELTA CONVEYOR never navigated the river. In fact, as revealed in the affidavit of Frederick Lee Robinson, a twenty-year employee of SSA serving as the superintendent for the operation of the DELTA CONVEYOR, it had no operating engines, navigational equipment or controls, and had not moved from its location in over twenty years and there were no plans to move it in the future.
In Michel v. Total Transportation, Inc., 957 F.2d 186 (5th Cir. 1992), the court identified various factors to consider in determining vessel status; these factors include the craft's purpose, size, flotation, permanent fixation to the shore or bottom, its movement, ability to move, and involvement in navigation at the time of the incident. Id. at 189 (quoting Ellender v. Kiva Construction Engineering, 909 F.2d 803, 806 (5th Cir. 1990). The barge at issue in Michel moved along a six-mile stretch of the Mississippi River and assisted in the loading and unloading of grain on to ocean-going vessels. Id. at 188. The court found that it was a vessel because its "transportational function is not `merely incidental' to its primary purpose as a work platform." Id. at 190.
In Burchett v. Cargill, Inc., 48 F.3d 173 (5th Cir. 1995), the court distinguished Michel and found that the structure at issue in that case was not a vessel. The structure had no engines, or independent mode of transportation, had no capacity to move further than its cables, and had been permanently moored to the bottom of the river for almost 10 years by the time of the accident at issue in the case. Id. The court denied vessel status, emphasizing the vessel's limited movement and permanent mooring to the river bottom for about 10 years. Id. at 176-77. The court further rejected the argument that the barge's capacity to move on navigable waters made it a vessel since it had not actually moved. Id. at 177.
Further, two cases from this court provide substantial guidance to the resolution of this issue. These cases have previously determined that the DELTA CONVEYOR was not a vessel during the time that it was permanently moored. See Vaughn v. Ryan-Walsh, Inc., 1994 WL 10341, at * 1 (E.D. La. Jan. 3, 1994) (Opinion of Judge Beer); Trisler v. Ryan-Walsh, Inc., Civ. No. 90-1575 (E.D. La. May 15, 1991) (Opinion of Judge McNamara). Both cases stress the facts that in 1980, the DELTA CONVEYOR's propellor was removed, it was rendered inoperable, and was permanently moored in the river. These uncontroverted facts were sufficient for the court to render summary judgment in both cases as to the vessel status of the DELTA CONVEYOR.
St. Paul argues that Michel, Burchett, Trisler, and Vaughn are distinguishable because those cases were Jones Act cases, involving third parties. in fact, counsel for St. Paul acknowledged that if this case arose under the Jones Act, the DELTA CONVEYOR would most likely not be considered a vessel. Nonetheless, he argues that as a matter of contract interpretation the court should recognized vessel status in this limited instance. St. Paul also points to SSA's representations to the Coast Guard, Department of Labor, and the insurance agreement as evidence that SSA intended to treat the DELTA CONVEYOR as a vessel by looking to the parties' intent at the time the policy issued. St. Paul argues that it would not have provided this type of coverage on a non-vessel. It asks this Court to hold that as between the parties the DELTA CONVEYOR is not a vessel. The law does not support St. Paul's argument.
The fact that the cases cited above involved Jones Act claims does not change the analysis of whether something is a vessel. In other words, parties cannot contractually agree to determine vessel status by issuing or withholding the issuance of marine insurance hull policies. Vessel status is determined by the history of the contrivance, its use, purpose, and, perhaps potential, not what the parties call it. The DELTA CONVEYOR, when subjected to the scrutiny imposed by the jurisprudence, fails to qualify as a vessel and this fact cannot be changed by any agreement of the parties. See, e.g., Sohyde Drilling Marine Co. v. Coastal States Gas Producing Co., 644 F.2d 1132, 1136-37 n. 5 (5th Cir. 1981); Offshore Co. v. Robison, 266 F.2d 769, 779-80 (5th Cir. 1959).
Finally, since the DELTA CONVEYOR is not a vessel, it cannot owe a warranty of seaworthiness. In Detyens, supra, the court held that since the insured drydock was not a vessel, there was no implied warranty of seaworthiness from the insurance contract. Detyens, 147 F. Supp.2d at 422. Also, in Keller v. Dravo Corp., 441 F.2d 1239, 1245 (5th Cir. 1971), the Fifth Circuit noted that a vessel no longer in navigation cannot owe a warranty of seaworthiness. Thus, since the DELTA CONVEYOR is not a vessel, and is out of navigation, it owes no warranty of seaworthiness.
Accordingly, the Court GRANTS SSA'S Motion for Summary Judgment and holds that as a matter of law the DELTA CONVEYOR is not a vessel and owes no warranty of seaworthiness.
2. "ALL RISKS" COVERAGE AND THE BURDEN OF PROOF
In the second part of its motion on the hull claim, SSA aks this court to hold that the policy creates a species of coverage known as "all risks" coverage and shifts the burden of proof to St. Paul to show that there is a specific exclusion to coverage. SSA points to the language in the Inchamree Clause of the policy ( see supra note 2) covering losses caused by "other causes of whatsoever nature arising either on shore or otherwise provided the loss or damage arising from those causes set forth in either (a) or (b) has not resulted from want of due diligence" and argues that this places the burden of proof on St. Paul to show an exclusion to coverage. St. Paul argues that the policy does not contain specific "all risks" language excluding certain risks from coverage.
The only reported case interpreting the "other causes of whatsoever nature" clause is International Ship Repair Marine Services, Inc. v. St. Paul Fire and Marine Insurance Co., 944 F. Supp. 886 (M.D. Fla. 1996). in that case, the insurance agreement contained that clause as well as one covering "all other perils, losses, and misfortunes." Id. at 891. The court held that this language created an "all risk" policy, not a covered perils policy. Id.
St. Paul contends that the Court should not follow International Ship Repair because it was applying Florida law and because, it argues, the limiting language regarding due diligence does not appear within the clause. With regard to the latter argument, the due diligence clause before the court in International Ship Repair, appeared in the Inchmaree clause, while the "other causes of whatsoever nature" provision was in a separate clause. Id. at 891-92. The court concluded that in the "all risk policy . . . the policy covers any loss without putting upon the insured the burden of proving that the loss was due to a peril falling within the policy's coverage. . . . [A]n insured must prove only the loss or damage to the insured's property while the policy was in force, with the burden then shifting to the insurer to prove that the lose arose from a cause that is excluded under the policy." Id. at 892. Regarding the Inchmaree clause, however, the court concluded that the insured "carries the burden under the policy's Inchmaree clause to show that it complied with its obligation of `due diligence.'" Id. at 894.
In the present case, however, the all risks language is made part of the Inchmaree clause, and it contains broader language than a typical Inchmaree clause. The clause at issue in this case may favorably be compared to what is known in the marine insurance industry as a Liner Negligence Clause. This type of clause, the Fifth Circuit has recognized, provides broader coverage than the typical Inchmaree clause. Employers Ins. of Wasau v. Occidental Petroleum, 978 F.2d 1422, 1437 (5th Cir. 1992). The Fifth Circuit, quoting an admiralty commentator with approval has noted that "the Liner Negligence Clause `is really a species of an all risks policy,' under which the underwriter must `prove that the cause of the loss was one which was excluded by the words of the policy.'" Id. at 1438 (quoting 1 ALEX L. PARKS, THE LAW AND PRACTICE OF MARINE INSURANCE: AN AVERAGE AT 404 (1987)) (emphasis added). In the present case, the coverage provided is even broader than the typical Liner Negligence Language, in that it provides coverage not just for mere negligence but also losses caused by any nature except want of due diligence. Therefore, it follows that the underwriter in the present case should have the burden of proving the exclusion. St. Paul, therefore, has the burden to show that the sinking of the DELTA CONVEYOR was caused by a want of due diligence by SSA.
The typical Inchmaree clause covers:
(a) accidents in loading, discharging or handling cargo, or in bunkering; (b) accidents in going on or off, or while on drydocks, graving docks, ways, gridirons or pontoons; (c) explosions on shipboard or elsewhere; (d) breakdown of motor generators or other electrical machinery and electrical connections thereto, bursting of boilers, breakage or shafts, or any latent defect in the machinery or hull (excluding the cost and expense of replacing or repairing the defective part); (e) breakdown of or accidents to nuclear installations or reactors not on board the insured vessel; (f) contact with aircraft, rockets or similar missiles, or with any land conveyance; (g) negligence of charterers and/or repairers, provided such charterers and/or repairers are not an assured hereunder; (h) negligence of masters, officers, crew or pilots, provided such loss or damage has not resulted from want of due diligence by the assured, the owners or managers of the vessels, or any of them.Employers Ins. of Wausau v. Occidental Petroleum Corp., 978 F.2d 1422, 1437 n. 15 (5th Cir. 1992). The purpose of the Inchmaree clause "is to broaden the coverage under a marine insurance policy," and a typical clause :covers loss of or damage to the vessel caused directly by latent defects in the machinery or hull or by operational negligence on the part of certain individuals." Id.
The Liner Negligence Clause provided coverage for "Negligence, error of judgment or incompetence of any person . . . provided such loss or damage . . . has not resulted from want of due diligence by the Assured." Id. at 1437-38.
In summary, SSA's motion for summary judgment is GRANTED and the Court holds that as a matter of law this policy is an "all risks" policy. The Court further holds that as a matter of law SSA has the burden of showing that a loss occurred during the term of the policy, while St. Paul has the burden of showing an actual exclusion to that coverage.
D. SSA'S MOTION FOR SUMMARY JUDGMENT ON THE P I CLAUSE
SSA seeks summary judgement on the P I clause declaring coverage for the liabilities and expenses of removing the wreckage of the DELTA CONVEYOR. SSA argues that St. Paul at all times during the period of coverage was aware of the condition of the DELTA CONVEYOR and had agreed to insure it, and that agreement included coverage for wreck removal. St. Paul counters that SSA exposed the DELTA CONVEYOR to known hazards, namely the holes in the hull of the ship that allegedly filled with river water causing the structure to sink. Further, they allege that SSA misrepresented the condition of the DELTA CONVEYOR in its proof of claim and at the time the policy was issued in 2001.
In Sorenson v. Boston Ins. Co. of Boston, Mass., 20 F.2d 640 (4th Cir. 1927), the court held that "[n]egligence ordinarily will not defeat recovery under a policy of insurance; there must be either fraud or willful exposure to known danger." Id. at 643. Further, the Fifth Circuit has held that "the insurer must satisfy the heavy burden of establishing that the conduct complained of was done and was a willful, purposeful misrepresentation of facts having substantial materiality under circumstances to which the law would attribute the intention to defraud that is, cheat, deceive, and cause the insurer to do other than that which would have been done had the truth been told." Chaachou v. American Central Ins. Co., 241 F.2d 889, 893 (5th Cir. 1957).
The determination of whether SSA misrepresented itself or exposed the DELTA CONVEYOR to known hazards depends on the resolution of contested facts. Since issues of material fact exist as to whether SSA was reckless in its actions or possessed the intent to deceive St. Paul when it made its claim for loss on the DELTA CONVEYOR or misrepresented its condition, the Court denies SSA's motion for summary judgment on the P I Clause.
IV. CONCLUSION
For the foregoing reasons the Court does the following:
1. DENIES St. Paul's motion for summary judgment on the hull claim;
2. GRANTS SSA's motion for summary judgment and holds that the DELTA CONVEYOR is not a vessel and owes no warranty of seaworthiness;
3. GRANTS SSA's motion for summary judgment and holds that the hull policy is an "all risks" policy placing the burden of proof on St. Paul to show a lack of due diligence; and
4. DENIES SSA's motion for summary judgment on the P I clause.