413 F.3d 307 (2nd Cir. 2005), 03-9124, Folksamerica Reinsurance Co. v. Clean Water of New York, Inc.

Docket Nº:03-9124.
Citation:413 F.3d 307
Party Name:FOLKSAMERICA REINSURANCE COMPANY, as successor in interest to Christiania General Insurance Company of New York, Plaintiff-Appellant, v. CLEAN WATER OF NEW YORK, INC., Defendant-Appellee.
Case Date:June 30, 2005
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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413 F.3d 307 (2nd Cir. 2005)

FOLKSAMERICA REINSURANCE COMPANY, as successor in interest to Christiania General Insurance Company of New York, Plaintiff-Appellant,

v.

CLEAN WATER OF NEW YORK, INC., Defendant-Appellee.

No. 03-9124.

United States Court of Appeals, Second Circuit

June 30, 2005

Argued: Nov. 9, 2004.

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[Copyrighted Material Omitted]

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James E. Mercante (Gerald A. Greenberger, Edward F. Kenny, of counsel), Rubin, Fiorella & Friedman, LLP, New York, New York, for plaintiff-appellant.

Garth Wolfson (Cornelius A. Mahoney, on the brief), Mahoney & Keane, New York, New York, for defendant-appellee.

Before: WALKER, Chief Judge, POOLER and WESLEY, Circuit Judges.

WESLEY, Circuit Judge.

Milton Rivera was injured cleaning the oil tank of a barge moored in New York Harbor. Soon thereafter, defendant-appellee Clean Water of New York, Inc., which had subcontracted the work to Rivera's employer, found itself involved in a negligence action in a New York State court. See Folksamerica Reinsurance Co. v. Clean Water of New York, Inc., 281 F.Supp.2d 530, 531 (E.D.N.Y.2003). Clean Water notified its insurer of the action, and the insurer's successor in interest, plaintiff-appellant Folksamerica Reinsurance Company, went to federal court seeking a declaration that it had no obligation to defend or indemnify Clean Water. Id. at 531-32. The insurance contract at issue contained a Shiprepairers Legal Liability (SLL) policy coupled with a modified Comprehensive General Liability (CGL) policy (collectively, the Policy). Id. at 532. The district court (Block, J.) determined that the contract was neither wholly nor primarily maritime in nature and dismissed for lack of subject matter jurisdiction. Id. at 533-34. Folksamerica appeals, and we

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vacate and remand because we find that the primary objective of the contract was to establish marine insurance.

Background

The parties, Folksamerica and Clean Water, are a reinsurance company and a ship tank cleaning business, respectively. Folksamerica is the successor in interest to Christiania General Insurance Corporation of New York. Id. at 531. On behalf of Christiania, Trident Marine Managers, Inc., a managing general agent of marine insurance, issued an insurance policy to Eklof Marine Corporation, the corporate parent of Clean Water. Folksamerica, Christiania, and Clean Water are all New York corporations.

Clean Water cleans the tanks of coastal and ocean-going vessels in New York Harbor and prepares vessels for the shipyard and for changes of cargo. Sometime prior to mid-August 1994, Clean Water contracted to clean the oil tanks of Barge S.T. 85. Id. The barge, an ocean-going vessel, was moored in the Kill Van Kull tidal strait, a navigable waterway within New York Harbor. See id. Union Maintenance Corporation supplied Clean Water with workers for the oil-tank cleaning, and on August 12, 1994, Mr. Rivera, a Union Maintenance employee, was injured on the job. See id. Rivera, perhaps overwhelmed by fumes, lost his grip on a ladder and tumbled backwards into an oil tank. Thereafter, Rivera brought suit against Clean Water in the Civil Court of New York, Kings County, principally alleging negligence. Id.

Clean Water sought defense and indemnification under the Policy. 1 Id. The Policy lists over a dozen named insureds, consisting of Eklof Marine and its subsidiaries. 2 All of the insureds are marine companies whose business operations relate entirely to either ship repair, marine oil transport, marine cargo transport, or, in the case of Clean Water, ship tank cleaning. The Policy has two sections defining coverage, "Section I, Comprehensive General Liability" and "Section II, Shiprepairers Legal Liability." Id. at 532. Shared liability limits govern these sections; the Policy has one premium. Clean Water asserted its insurance claim under the CGL section of the Policy.

On June 19, 2002, Folksamerica filed a declaratory judgment action against Clean Water in the United States District Court for the Eastern District of New York. Folksamerica alleged admiralty jurisdiction and sought voidance of the Policy, rescission, and a declaration that it was not obligated to defend or indemnify Clean Water. Clean Water raised various defenses, a counterclaim seeking reformation of the Policy, and a challenge to the district court's subject matter jurisdiction.

Both sides moved for summary judgment. In defending the court's admiralty jurisdiction, Folksamerica contended, "Since the Policy was issued to maritime companies, clearly covers their marine interests[,] and the underlying accident was on board a vessel in navigable waters, it is a policy of 'marine insurance.' " The admiralty question had implications beyond conferring federal jurisdiction. Folksamerica pressed the court to employ the federal maritime doctrine of uberrimae fide, or utmost good faith, which "provides that the parties to a marine insurance contract

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are held to the highest degree of good faith, whereby the party seeking insurance is required to disclose all circumstances known to it which materially affect the risk." Atl. Mut. Ins. Co. v. Balfour Maclaine Int'l Ltd. (In re Balfour MacLaine Int'l Ltd.), 85 F.3d 68, 80 (2d Cir. 1996) (hereinafter Balfour) (internal quotation marks and brackets omitted). Folksamerica asserted that Clean Water failed to disclose that it performed tank cleaning on others' vessels and that the Policy was therefore void.

Clean Water argued that Folksamerica could not invoke admiralty jurisdiction. It characterized the CGL section of the Policy as a standard "all risk policy" and contended that the maritime risks covered by the Policy were "merely incidental" at best. The district court agreed. Folksamerica, 281 F.Supp.2d at 531.

The court focused on the CGL section of the Policy and found it did not constitute "marine insurance." Id. at 532-33. Relying on Benedict on Admiralty, the court explained that, for a contract to have " 'maritime character,' " " 'there must be present a direct and proximate judicial link between the contract and the operation of the ship, its navigation or its management afloat.' " Id. at 532 (quoting BENEDICT ON ADMIRALTY § 182, at 11-7 (7th ed.1985)). The court characterized the CGL section as "a standard comprehensive general liability policy of the type used by many businesses to cover a variety of losses which may arise in day-to-day general operations." Id. at 533. Contrasting CGL insurance with "the three traditional forms of marine insurance--hull insurance, cargo insurance, and protection and indemnity insurance," the court concluded that the CGL section "simply lacks the genuinely salty flavor necessary to constitute a maritime contract." Id. (internal quotation marks omitted). The court declined to consider the SLL section. Id. at 533-34. It reasoned that, while admiralty jurisdiction exists "where the non-maritime elements are merely incidental in an otherwise maritime contract," id. at 533 (citing Atl. Mut. Ins. Co. v. Balfour Maclaine Int'l Ltd., 968 F.2d 196, 199 (2d Cir. 1992) (hereinafter Atlantic Mutual) (internal quotation marks omitted)), "coverage under Section I can hardly be considered incidental to the Policy as a whole," id. at 534. The court dismissed the complaint, and Folksamerica timely appealed.

Discussion

This appeal turns on what would seem a simple inquiry: Is the Policy a maritime contract giving rise to admiralty jurisdiction? See Jeffcott v. Aetna Ins. Co., 129 F.2d 582, 584 (2d Cir. 1942). Unfortunately, there are few "clean lines between maritime and non-maritime contracts." Norfolk S. Ry. Co. v. James N. Kirby, Pty Ltd., 543 U.S. ----, 125 S.Ct. 385, 393, 160 L.Ed.2d 283 (2004). The boundaries of admiralty jurisdiction over contracts are conceptual rather than spatial, id. (quoting Kossick v. United Fruit Co., 365 U.S. 731, 735, 81 S.Ct. 886, 6 L.Ed.2d 56 (1961)), and defined by the purpose of the jurisdictional grant--to protect maritime commerce, see Exxon Corp. v. Cent. Gulf Lines, Inc., 500 U.S. 603, 608, 111 S.Ct. 2071, 114 L.Ed.2d 649 (1991) (citing Ins. Co. v. Dunham, 78 U.S. (11 Wall.) 1, 24, 20 L.Ed. 90 (1870), and Sisson v. Ruby, 497 U.S. 358, 367, 110 S.Ct. 2892, 111 L.Ed.2d 292 (1990)). The Supreme Court has adopted a case-by-case approach in defining these boundaries, see Sisson, 497 U.S. at 372, 110 S.Ct. 2892 (Scalia, J., concurring), and has instructed that "[p]recedent and usage are helpful insofar as they exclude or include certain common types of contract," Kossick, 365 U.S. at 735, 81 S.Ct. 886.

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While " '[t]he precise categorization of the contracts that warrant invocation of the federal courts' admiralty jurisdiction has proven particularly elusive,' " 3 Ingersoll Milling Mach. Co. v. M/V Bodena, 829 F.2d 293, 301 (2d Cir. 1987) (quoting CTI-Container Leasing Corp. v. Oceanic Operations Corp., 682 F.2d 377, 379 (2d Cir. 1982)), the abiding instruction of the Supreme Court is that we should look to the contract's " 'nature and character' " to see "whether it has 'reference to maritime service or maritime transactions,' " Norfolk S. Ry. Co., 125 S.Ct. at 393 (quoting N. Pac. S.S. Co. v. Hall Bros. Marine Ry. & Shipbuilding Co., 249 U.S. 119, 125, 39 S.Ct. 221, 63 L.Ed. 510 (1919)); see Dunham, 78 U.S. (11 Wall.) at 26. Therefore, the contract's subject matter must be our focal point. See, e.g., Exxon Corp., 500 U.S. at 611, 111 S.Ct. 2071; Dunham, 78 U.S. (11 Wall.) at 29.

A. A Threshold Inquiry

Several of our cases, however, require that, prior to inquiring into the subject matter of the contract, we first make a "threshold inquiry" into the subject matter of the dispute. Balfour, 85 F.3d at 74-75. "Before attempting to categorize contractual rights as...

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