Maritime Law-Capsizing of Yacht on Launch Calls for NTSB Investigation

June 05, 2014

Yachting Magazine and other similar sources report that the National Transportation Safety Board has taken over the investigation of a capsizing that occurred May 18, 2014 in Anacortes, Washington, during the launch of a brand-new 90-foot motoryacht. The capsized yacht was reportedly constructed by New World Yacht Builders doing business as Northern Marine. Northern Marine was founded in 1995 and in 2009, former Northern Marine employee Andy McDonald founded New World Yacht Builders, which leased the Northern Marine name along with equipment and other assets and has been doing business as Northern Marine.

Vessel beginning to capsize. Photo taken from Yachting Magazine

The U.S. Coast Guard completed an initial investigation into the incident before handing the matter over to the NTSB, according to both agencies. The NTSB investigation is expected to take several months. The NTSB are investigating this incident because it is considered a major marine casualty. Major marine casualties are incidents with estimated damage over $500,000. At the time of the failed launch, the yacht was listed for sale on the brokerage market for $9.2 million.

If you are interested in seeing the video, please click on the link below.

Yacht Capsize Video

If you are interested in contact me, you may do so at mov@chaloslaw.com.

Maritime Law--11th Circuit Again Finds Exclusion Applicable in Marine Insurance Policy

May 20, 2014

In Miele v. Certain Underwriters at Lloyd’s of London, Case No. 13-14166 (11thCir. Mar. 17, 2014), the Eleventh Circuit in another unpublished decision has found that exclusion for:

"The cost of repairs or replacing any part of Your Boat by reason of wear and tear, gradual deterioration, osmosis, wet or dry rot, corrosion, weathering, marring, scratching, denting, vermin, pets or marine life, or electrolytic or galvanic action" is not ambiguous.

In Miele, an insured’s 32-foot vessel sank while docked because water entered through what a surveyor concluded was a “degraded and rotten” air conditioning hose, which cause was not disputed.  Underwriters denied coverage under the insured’s yacht insurance policy based upon the exclusion. In the insured’s suit against the insurers, the United States District Court for the Southern District of Florida granted summary judgment to the insurers.

On appeal, the insured argued that the exclusion was ambiguous and should be limited to excluding only the cost of replacing the air conditioning hose and not the cost of replacing the entire boat if a part failed and caused a sinking.  The Eleventh Circuit disagreed, concluding that the exclusion was unambiguous and broader than the insured argued.  In the court's view, the exclusion applied to all damages arising from the need to replace a single part due to wear and tear. The appellate court agreed with the district court’s reasoning that a vessel is nothing but a sum of all its parts and that the exclusion bars coverage for any single part or collection of parts where the damages are caused by wear and tear of any part.  In the case at hand, “the need to replace one part due to wear and tear indirectly gave rise to a need to replace all parts.”  Unfortunately for the insured, the fact that the entire vessel was damaged made no difference in the application of the exclusion.

This case is reminiscent of my case of St. Paul Fire & Marine Ins. Co. v. Lago Canyon, Inc., where the district court found no coverage for losses due to sinking at the vessel's mooring where the cause of the flooding was corrosion of a brass hose fitting to the air conditioning hose. The difference in Lago Canyon was that there was a separate allegation that the brass hose fitting was inappropriate for the use. Lago Canyon appealed that decision. On remand by the Eleventh Circuit, the district court found that although the "yellow brass" in the salt water installation may be a "manufacturer's defect", the proximate cause of the loss was corrosion, which was clearly excluded under the policy. 2009 U.S. Dist. LEXIS 114568 (S.D. Fla. 2009). Thus, the result in Miele is the correct one under the circumstances.

If you are interested in receiving a copy of either the Miele decision or the Lago Canyondecision, you may write to me at mov@chaloslaw.com.

Maritime Law--Eleventh Circuit Recognizes Important Exception to Duty to Defend

May 08, 2014

Under Florida law, the duty to defend determination is made by looking only at the terms within the  insurance policy and the allegations within the complaint.  Generally, extrinsic evidence may not be considered.  However, in the case of Composite Structures, Inc. v. Continental Insurance Co., Case No. 12-15866 (11th Cir. Mar. 20, 2014) (unpublished), the United States Court of Appeals for the Eleventh Circuit (applying Florida state law) recognized an important exception to this general rule. When an insurer’s coverage denial is based on factual issues that ordinarily would not be alleged in the complaint, the insurer may consider extrinsic evidence outside of the complaint.

The underlying lawsuit was brought by two seamen who sustained carbon monoxide poisoning while aboard a boat.  The seamen sued the insured boat manufacturer for negligence and strict liability, and the insured tendered its defense to its insurer. The insurer disclaimed coverage for the underlying suit because the insured first discovered the occurrence more than 72 hours after its commencement.  As a result, the insured had not satisfied the conditions of the pollution buyback endorsement that created exceptions to the pollution exclusion in the two general liability policies at issue.

In the declaratory judgment action brought by the insured, the insurer successfully argued in the district court that the conditions in the pollution buyback endorsement were not satisfied because the insured did not first discover the occurrence within 72 hours after its commencement, and because the occurrence was not timely reported to the insurer.  On appeal from the district court’s summary judgment ruling, the insured argued that the district court erred in considering evidence outside of the underlying complaint in determining the insurer’s coverage obligations.

The Eleventh Circuit affirmed the district court’s decision.  The appellate court recognized the general rule that the duty to defend is only determined by looking at the terms of the insurance policy and the allegations of the complaint. However, the court also noted that the Florida Supreme Court has recognized certain exceptions to this rule, including that insurers may look to facts outside of the underlying complaint when the basis for the insurer’s declination involves facts that normally would not be alleged in the complaint.  Here, the court observed that the underlying complaint involved negligence and strict liability claims, neither of which required the plaintiffs to allege the date of when the insured notified its insurer of the occurrence.  Thus, the Eleventh Circuit held that, “[u]nder Florida law, Continental was permitted to consider the uncontroverted date of written notice when determining its duty to defend because the date of written notice to the insurance company is not a fact that would normally be alleged in the complaint.”

This decision is currently unpublished but the insurer has filed a motion for publication with the appellate court. Any published opinion rendered will have a significant impact on lower courts in the Eleventh Circuit in deciding this issue.

If you are interested in receiving a copy of this decision, please do not hesitate to contact me at mov@chaloslaw.com.

Maritime Law: Maritime Panel at St. Thomas University School of Law

April 09, 2014

Today, I had the pleasure of being part of a Maritime Panel at my alma mater, St. Thomas University School of Law. Joining me on the Panel were other St. Thomas alumni, Christine M. Dimitriou of Mase Lara Eversole and Kerry A. Nierenberg of Lipcon, Marguiles, Alsina and Winkleman.

Photo of Carnival Triumph

The topics discussed were Class Actions against cruise lines, the operational realities of a Costa Concordia tragedy occurring in the U.S., exclusions in marine insurance policies, unseaworthiness and the current status of punitive damages for unseaworthiness and other maritime claims. However the topic which garnered the most lively discussion was the current state of the law regarding ship owner liability for negligence of ships' doctors and medical staff. Under Mascolo v. Costa Crociere, S.p.A., 726 F. Supp. 1285 (S.D. Fla. 1989), a ship operator has no vicarious liability for negligence of a ship's doctor on the ground that it has no control over the physician/patient relationship where the passenger contract of carriage provides that a ship's doctor is not an agent of the carrier and services were to be rendered at the passenger's expense, a passenger carrier is not vicariously liable for the negligence of its ship's doctor or his staff in treating a passenger. Barbetta v. S.S. Bermuda Star, 848 F.2d 1364 (5th Cir. 1988)  dictum states that a carrier may have no vicarious liability for the negligence of a ship's doctor irrespective whether the doctor is an employee of the carrier or an independent carrier. Fairley v. Royal Cruise Line, Ltd., 1993 AMC 1633 (S.D. Fla. 1993), expressed criticism of the Barbetta rule and denied summary judgment sought by a carrier. 

There has been a tortured progeny post-Barbetta, some courts following Fairley and others following Barbetta, ultimately creating a majority rule in the Southern District of Florida of no vicarious liability for the negligence of an independent ship's doctor. Plaintiff attorneys then attacked this line of cases by alleging passenger reliance on statements that the doctor was held out as an officer and member of the crew of the ship on the grounds of apparent agency. Thus far, this has been rejected on the grounds that it is unreasonable as a matter of law for a passenger to conclude that a ship's medical staff were apparent agents of the carrier. 

This is an anomaly where the law relative to negligent treatment of an employee is established by other precedent: in the context of negligent treatment of a seaman, the employer of the doctor and seaman are vicariously liable for the doctor's negligence. See De Zon v. American President Lines, Ltd., 180 U.S. 660 (1943). The panel discussed that the entry into force of the Maritime Labor Convention may ultimately resurrect this anomaly. As the ship owner is required under the MLC to provide treatment to a seaman on board ship similar to what that seaman can receive on land, we queried why paying passengers are not entitled to that same medical treatment? Something to think about...

If you are interested in contacting me, please feel free to write me at mov@chaloslaw.com.