Edinburgh Assur. Co. v. RL Burns Corp.

• Citation: 479 F. Supp. 138
• Decision Date: 30 August 1979
• Docket Number: No. CV 76-1737-DWW.,CV 76-1737-DWW.
• Court: U.S. District Court — Central District of California
• Parties: EDINBURGH ASSURANCE COMPANY, New India Assurance Co., Ltd., Plaintiffs, v. R. L. BURNS CORP., and American Pacific International, Inc., Defendants.

479 F. Supp. 138

EDINBURGH ASSURANCE COMPANY, New India Assurance Co., Ltd., Plaintiffs, v. R. L. BURNS CORP., and American Pacific International, Inc., Defendants.

No. CV 76-1737-DWW.

United States District Court, C. D. California.

August 30, 1979.

COPYRIGHT MATERIAL OMITTED

McCutchen, Black, Verleger & Shea, Roger A. Ferree, John Zebrowski, Los Angeles, Cal., for plaintiffs.

MacDonald, Halsted & Laybourne, Orville A. Armstrong, Los Angeles, Cal., Franklin T. Lloyd, San Bernardino, Cal., Dorr, Cooper & Hays, George L. Waddell, San Francisco, Cal., for defendant and counterclaimants.

Michael D. Berk, Alan Holmberg, McKenna & Fitting, Los Angles, Cal., for defendant and plaintiff American Pacific International, Inc.

Jack R. Willis, Los Angeles, Cal., for John Moran.

Brown, Sims & Ayre, Thomas A. Brown, Houston, Tex., for defendant R. L. Burns Corp.

MEMORANDUM

DAVID W. WILLIAMS, District Judge.

American Pacific International, Inc. ("API") and R. L. Burns Corporation ("Burns") obtained insurance from certain syndicates at Lloyd's of London and certain insurance corporations, members of the Institute of London Underwriters. The insurance covered risks attendant to the proposed salvage of the off-shore mobile drilling platform¹ Gatto Selvatico ("Gatto") disabled in the Mozambique Channel off the coast of Madagascar. Admiralty and maritime jurisdiction is found under 28 U.S.C. § 1333. Plaintiff insurers brought this declaratory action seeking judgment that no insured event had occurred entitling API and Burns to recover. API and Burns seek a declaration that an insured event did occur and for an insurance recovery and compensatory damages. Since the insurance contract at issue insured the Gatto venture against "Actual Total Loss Only," the principal issues are the meaning of this contract term and whether there occurred a casualty within the meaning of the term. Subsidiary issues include determinations of agency relationships among the insured several insurance brokers, and the insurers; and choice of law determinations.

FINDINGS OF FACT

PERSONS AND ENTITIES INVOLVED

American Pacific International is a Nevada corporation with its principal place of business in Los Angeles, California. API's principal business is oil and gas exploration. Gerald Raydon is, and since 1973 has been, chairman of the board and president of API. R. L. Burns Corporation is a Delaware corporation with its principal place of business in California.

Emett & Chandler is a licensed surplus line insurance broker with its principal place of business in Los Angeles. Leonard P. Lawrence is president of Emett & Chandler.

Hogg Robinson-Gardner Mountain Ltd. ("Hogg Robinson") is an insurance brokerage firm with its principal place of business in London, England. Leslie Percival, Brian Graves and Dennis Risbey were during the relevant time period employees of Hogg Robinson and residents of England.

Lloyd's of London (Lloyd's) is an association of members including underwriters who represent syndicates of underwriters. The Institute of London Underwriters ("Institute") is an association of insurance companies. Both Lloyd's and the Institute are located and based in England. The parties at risk on the insurance here in issue are the individual members of certain Lloyd's syndicates of underwriters and certain corporate members of the Institute. Several hundred individual members of the underwriting syndicates are involved on the risk, a few domiciled in California and the rest in England and numerous other places. Most of the corporate insurers are incorporated in England. All the underwriters at risk have arranged pursuant to English authority to sell insurance through the London market. P.C.W. Underwriting Agencies, Ltd. ("PCW") is an underwriter in the insurance market at Lloyd's in London. J.A. W.I. Hardman is a director of PCW and a resident of England.

THE GATTO SELVATICO

The Gatto was designed and constructed as a self-contained three-legged, mobile and self-elevating offshore drilling platform. It was designed by R. G. LeTourneau, Inc., the predecessor of the Marathon LeTourneau Company, and was built in Italy in 1960-1961 by SAIPEM and Nuovo Pignone, subsidiaries of ENI, the Italian national petroleum industry. The metal, triangular shaped hull platform was designed to be floated to a drilling site in tow. The hull platform as built housed machinery and drilling equipment, and measured 186 feet long by 152.5 feet wide by 22 feet deep. The rig as built had a triangular-shaped lattice work leg at each of the three corners; these legs were designed to be raised and lowered through apertures in the hull termed spud holes. As built, each leg was about 218 feet long with a 32-foot high bearing tank at its foot. When raised fully, e. g., for transport, much of the leg would stand erect above the hull deck. When lowered for placement at a drilling site, most of the leg, depending upon the depth of the water, would project below the hull bottom. The rig weighed about 3,500 tons.

Once the platform was positioned by tugs at the drilling site, the hull temporarily continued to ride on the ocean surface while the legs were lowered through the spud holes. The legs would contact and anchor to the sea bottom, forming a configuration somewhat like a gigantic three-legged stool resting on the ocean floor. The mechanism which had lowered the legs would continue to crank the legs downward through the three spud holes. Since, however, the leg bottoms were already braced against the sea bottom, this cranking would have the effect of jacking the hull up along those portions of the legs still above the hull deck level, pushing the hull up and above the surface of the water.

In June, 1974, the Gatto was in the Mozambique Channel in water about 100 feet deep and 18 miles from the nearest land. It was approximately 102 miles west of the port of Majunga, Madagascar, and was beginning to drill a well for its owner SAIPEM. The Gatto at this time was insured against various risks. Some of the parties presently at risk on the insurance here in issue were also at risk on this insurance for SAIPEM. On June 15, 1974, the port and starboard legs of the Gatto "toed" inwards into a crater that had developed under the rig through the washing out of the sea bottom on which the platform stood. The port and starboard legs consequently became jammed in their guides, and the legs could not be raised or lowered. Consequently, it was impossible to keep the hull level, or to move the platform. The Gatto was abandoned by its crew. After abandonment, the rig was standing on the seabed on its three legs with a 4 degree list and a trim of 2 degrees. There was an air gap of about 2 to 3 meters between the bottom of the hull and the water surface. The Gatto sustained certain damage as a result of these events. The damage sustained was considered greater than the insured value of the Gatto at that time, and it was declared a constructive total loss. The insurers paid SAIPEM on the policy.

API'S OBTAINING OF INSURANCE

Circumstances

In early 1975, API became interested in purchasing the Gatto from SAIPEM and salvaging it. In anticipation, API began efforts to secure insurance regarding the risks attendant to this proposed salvage project. API discussed the matter of insurance with a number of brokers. In the summer of 1975, Lawrence of Emett & Chandler learned that API was seeking coverage and contacted Raydon, president of API. On June 3, 1975, Lawrence and Russell Pickup of Hogg Robinson met with a representative of API in Los Angeles. It appeared likely that API could pursue the obtaining of insurance through Hogg-Robinson, using the services of Emett & Chandler. Raydon and Lawrence discussed the type of insurance API was seeking. Raydon had ascertained through other contacts in the insurance industry that a Total Loss Only coverage (TLO) might be obtainable, and that this insurance would cover the various risks API anticipated. Raydon related this to Lawrence.

API's initial hope was to obtain insurance on the value of the rig, a value that would increase as more investment were made in it. It became clear to Raydon and API that only TLO-type coverage would be obtainable. Raydon explained to Lawrence that API wanted insurance up to the amount of four and a half million dollars, which was the estimate API was using for all costs it contemplated incurring in buying, salvaging, and removing the Gatto to a port of refuge.

API gave Lawrence a copy of a Telex the company had been using previously to describe the insurance it was seeking. Lawrence used that Telex and composed one of his own, which he sent to Hogg Robinson in London. Lawrence also conferred with Hogg Robinson by telephone, and the brokers produced a set of terms with which to enter the insurance market.

Eventually, through a Telex of June 20, 1975, Percival of Hogg Robinson advised Lawrence that he thought coverage could be obtained. He indicated that the proposed cover would be against "ACTUAL TOTAL LOSS." He also noted "WILL BE NECESSARY AGREE CONSTITUTES TOTAL LOSS." Lawrence advised API through a series of telephone calls that a syndicate had been contacted at Lloyd's that appeared to be interested in providing insurance, providing API gave a firm order. API placed a firm offer through Lawrence with Hogg Robinson on June 24, 1975. Lawrence conveyed the authorization to Hogg Robinson in a Telex of June 24, 1975 that, inter alia, included as one provision to be obtained, that "IN EVENT OF TOTAL LOSS OF LESS THAN POLICY LIMIT, ASSURED ENTITLED TO RETURN OF EXCESS PREMIUM." On June 26, 1975, Percival sent Lawrence a Telex, which stated, inter alia, that Hogg Robinson had not yet begun the process of placing the insurance, although it was hopeful it would start the next day, and that the proposed conditions included "AGAINST ACTUAL TOTAL LOSS OF VESSEL ONLY." Shortly thereafter, Raydon received a call from...