U.S. Court of Appeals affirms that maritime insurance policy covering collision on the Mississippi River included defense costs in coverage limits. In a case of insurance contract interpretation, the U.S. Court of Appeals for the Fifth Circuit determined that defense costs were included in the policy limits set by a maritime insurance policy. The court admitted that this interpretation erodes policy limits.
Gabarick v. Laurin Maritime (America) Inc., Nos. 09-30549, 09-30809 (5th Cir. 8/10/11) arose out of a collision on the Mississippi River. Laurin Maritime and related parties owned the ocean-going tanker M/V Tintomara. In the early hours of July 23, 2008, the ship collided with a barge carrying heavy fuel oil. The impact split the barge in half, and heavy oil spilled into the river. American Commercial Lines, LLC (barge owner) owned the tug, barge, and cargo, but D.R.D. Towing Co., LLC (towing company) provided the crew that ran the tug pushing the barge. It’s the towing company’s insurance policy that raised issues of policy interpretation.
A protection and indemnity (or P&I) policy issued by Indemnity Insurance Company of North America (insurer) covered the towing company. The policy is a standard maritime policy, except for modifications the parties made to the SP-23 Form. The policy provided a single occurrence limit of liability of $1 million, with a $15,000 deductible. The towing company and the barge owner demanded that the insurer indemnify and defend them. Not knowing which of the numerous parties rightfully should receive the insurance proceeds, the insurer deposited $985,000 into the registry of the U.S. District Court for the Eastern District of Louisiana for the court to make the decision. That court held that the insurer’s deposit for the interpleader action was proper and that the funds would reimburse defense costs. The barge owner and Laurin Maritime appealed.
The appellate court explained that Louisiana law forms the basis for the court’s independent review of the District Court’s interpretation of the insurance policy. Even before it entered into this analysis, the court cautioned that marine insurance commentators agree that defense costs are typically included within such insurance policy limits. The P&I insurer usually has no duty to defend: indemnification is the basis for coverage. Louisiana law agrees. Legal expenses incurred in defending a liability covered by an insurance policy are treated as part of the overall claim. Payment of legal expenses falls within the policy limits. Because the barge owner is a sophisticated commercial entity, it bore the burden that this policy should be interpreted differently.
The collision triggered coverage under the policy’s collision and towers liability and protection and indemnity coverage. Although the policy was mostly standard, a “manuscript provision” (modification) added a collision and towers liability clause. The standard language for the relevant coverage stated, “Liability hereunder in respect to any one accident or occurrence is limited to the amount hereby insured.” The court found no ambiguity.
The barge owner argued that the policy was ambiguous. It pointed to the modification language that the insurer “will also pay the costs which the Insured shall thereby incur or be compelled to pay.” The barge owner argued that Exxon Corporation v. St. Paul Fire & Marine Insurance Co., 129 F.3d 781 (5th Cir. 1997) had interpreted the clause to exclude defense costs from the policy cap. This argument did not work for three reasons. The cited case involved personal injury, not collision, placing the “also pay” language in the P&I policy, unlike the towing company’s policy. Second, the claims mentioned by the barge owner are excluded from the collision coverage. “[A]ny recovery must come under the standard P&I section of the policy,” the court explained. Finally, any ambiguity from the clause, were it applicable, would not extend to the relevant coverage sections of the standard policy language because the modification was a separate contract entered into by sophisticated parties.
The court summarized that “the policy is clear that defense costs were intended to be included within the policy limits. This P&I policy is unambiguously written against the backdrop of traditional principles of maritime law that defense costs erode P&I limits of liability.”
The barge owner also appealed the District Court’s denial of insurance proceeds. The appellate court explained, “The district court did not permanently deny funds to the barge owner but rather stated, ‘payment to [the barge owner] at this time would not be equitable.'” (Alterations in original.) Therefore, the District Court’s decision was not a final judgment and could not be appealed.
Coverage limits and defense from an insurer are crucial issues in evaluating a claim when you have been harmed. Insurance policies differ between consumer and business and by industry. This case demonstrates the specificity of insurance coverage. A lawyer independent of your insurance company can help you understand your policy, its coverage limits, and the extent of an insurer’s duty to defend.
If you have been harmed by the acts of another, call the Berniard Law Firm toll free at 1-866-574-8005 and speak with a lawyer who can help you get the recovery you deserve.