Policy Must Be Read as Written

P&I Insurance Requires Causal Relationship to Vessel

The difference between marine and land-based incidents and their insurance becomes difficult when land-based events meld with marine activities. When the two are involve in causing an injury insurers who must respond often try to resolve the problems by litigation.

In Naquin v. Elevating Boats, L.L.C., — F.3d —- United States Court of Appeals, Fifth Circuit, 2016 WL 1138516 (March 22, 2016) the Fifth Circuit was called upon to resolve a dispute over whether the incident was causally related to a vessel an require the vessel’s insurer to pay for the judgment entered in favor of Naquin.

FACTS

In employee’s suit against employer under Jones Act, employer was granted leave to file third-party action against liability insurers for breach of contract by failing to provide defense and indemnity under a protection and indemnity (P&I) policy in the employee’s suit to recover for injuries caused by toppling of employer’s land-based crane. The United States District Court for the Eastern District of Louisiana, entered summary judgment in favor of insurer.

The employer appealed. This appeal flows directly from a previous decision by this court. In that matter, Larry Naquin was using an EBI land-based crane to relocate a test block when the pedestal of the crane snapped, causing the crane to topple over. Naquin v. Elevating Boats, L.L.C., 744 F.3d 927, 931 (5th Cir.2014). Upon jumping from the crane house, Naquin sustained a broken left foot, a severely broken right foot, and a lower abdominal hernia.  Despite reparative surgeries and physical therapy sessions, Naquin was unable to return to physical work.

Naquin subsequently sued EBI pursuant to the Jones Act, and after a three-day trial a jury concluded that Naquin was a Jones Act seaman and that EBI’s negligence caused his injury. The jury subsequently awarded Naquin $1,000,000 for past and future physical pain and suffering, $1,000,000 for past and future mental pain and suffering, and $400,000 for future lost wages. EBI appealed, challenging, among other things, the grant of Jones Act seaman status to Naquin and the sufficiency of evidence to establish EBI’s negligence.

Pertinent to this appeal, the Naquin majority affirmed the jury’s verdict as to liability, concluding that the jury correctly determined that Naquin qualified as a Jones Act seaman. Specifically, as to the negligence inquiry, the Fifth Circuit held: “EBI was the only party responsible for welding the LC–400 crane to its base, a weld which was indisputably defective and the direct cause of Naquin’s injuries.” The Fifth Circuit vacated the verdict as it related to damages and remanded the matter to the district court to conduct a new trial on that specific issue.

The district court subsequently granted EBI leave to file a third-party complaint against its insurance companies, SNIC and Certain London Insurers (“London Insurers”). In its third-party demand, EBI complained that both SNIC and London Insurers breached their insurance contracts by denying EBI’s insurance claims arising from Naquin’s accident and by failing to provide EBI with defense and indemnity.

SNIC moved for summary judgment, asserting, chiefly, that EBI was not entitled to coverage under its Protection & Indemnity Policy (the “Policy”) because coverage did not extend to Naquin’s land-based incident and that EBI failed to comply with the notice requirements imposed by the Policy. EBI responded in opposition, explaining that it was entitled to indemnity under the “any casualty or occurrence” language of the Policy.

Scope of Coverage

The “Indemnity” provision of the Policy at the heart of this appeal, provides: “Subject to all exclusions and other terms of this Policy, the Underwriters agree to indemnify the Assured for any sums which the Assured, as owner of the Vessel, shall have become liable to pay, and shall have paid in respect of any casualty or occurrence during the currency of the Policy, but only in consequence of any other matters set forth hereunder …” (emphasis added). The district court interpreted this critical language as excluding coverage to EBI due to the circumstances surrounding its liability in Naquin.

In the absence of a specific and controlling federal maritime rule over this dispute, the Fifth Circuit interprets this maritime insurance contract under Louisiana state law. Under Louisiana law, an insurance policy is a contract between the parties and should be construed using the general rules of contract interpretation set forth in the Louisiana Civil Code.

Words and phrases used in an insurance policy should be construed using their plain, ordinary and generally prevailing meaning, unless the words have acquired a technical meaning. SNIC avers that the terms of the subject Policy—specifically, the “as owner of the Vessel” clause—does not provide coverage for the land-based incident due to EBI’s negligence as described in Naquin. Before the district court, EBI urged a blanket reading of the Policy that would provide coverage for “any casualty or occurrence” for which EBI might become liable.

EBI’s strained interpretation of the Policy is unreasonable in this context. There is no genuine issue that the scope of coverage of the Policy does not extend to EBI’s liability for the Naquin incident. The Fifth Circuit declined EBI’s invitation to read the provision in the piecemeal fashion that it prefers — a policy construction that would directly contradict the well-established Louisiana rules regarding contractual interpretation. The only way to give meaning to both provisions of the Policy is to construe the Policy as limiting coverage to “any casualty or occurrence” which arises out of EBI’s conduct “as owner of the Vessel.”

There must be at least some causal operational relation between the vessel and the resulting injury. The line may be a wavy one between coverage and noncoverage, especially with industrial complications in these ambiguous amphibious operations plus those arising from the personification of the vessel as an actor in a suit. Where injury is done through non-vessel operations, the vessel must be more than the inert locale of the injury.
Naquin’s incident in no way arose out of EBI’s conduct as “owner of the Vessel.” The earlier Naquin decision, devoid of any indication that EBI was liable due to such conditions, confirms as much; this understanding alone forecloses EBI’s arguments to the contrary.

The land-based crane did not break on or even in close proximity to a vessel. Thus, EBI’s attempts to craft a causal connection to a vessel are discharged, plainly and simply, by the underlying facts.

Where there is no causal operational relation between the vessel and the resulting injury, there is no extension of coverage for liability. It was EBI’s actions as platform operator or as a crane operator that caused the harm, and that does not make it a liability of a shipowner.

Bad Faith

Louisiana law instructs that in order for a claim of statutory bad faith to survive, it must be based on a valid underlying claim. The Policy does not extend to EBI’s liability associated with the defective crane; consequently, EBI has no valid underlying claim on which to stand. Accordingly, the district court did not err in dismissing EBI’s claim for bad faith.

ZALMA OPINION

When a policy of insurance clearly and unambiguously limits its scope courts are compelled to enforce the wording. When, as here, a policy limits its coverage to actions of the insured as “owner of the vessel” and, as here, the vessel was no where near the incident there can be no coverage under this policy wording.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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