Antilles S.S. Co., Ltd. v. Members of American Hull Ins. Syndicate, s. 266

• Decision Date: 05 April 1984
• Docket Number: D,366,Nos. 266,s. 266
• Parties: ANTILLES STEAMSHIP COMPANY, LTD., Plaintiff-Appellee-Cross-Appellant, v. The MEMBERS OF the AMERICAN HULL INSURANCE SYNDICATE, et al., Defendants-Appellants-Cross-Appellees. ockets 83-7511, 83-7557.
• Court: U.S. Court of Appeals — Second Circuit

Page 195

733 F.2d 195

1984 A.M.C. 2444

ANTILLES STEAMSHIP COMPANY, LTD., Plaintiff-Appellee-Cross-Appellant, v. The MEMBERS OF the AMERICAN HULL INSURANCE SYNDICATE, et

al., Defendants-Appellants-Cross-Appellees.

Nos. 266, 366, Dockets 83-7511, 83-7557.

United States Court of Appeals, Second Circuit.

Argued Nov. 3, 1983.

Decided April 5, 1984.

Joseph J. Magrath, 3rd, New York City (Bigham, Englar, Jones & Houston, New York City, of counsel), for defendants-appellants-cross-appellees.

Donald M. Waesche, Jr., New York City (Waesche, Sheinbaum & O'Regan, P.C., John R. Foster, New York City, of counsel), for plaintiff-appellee-cross-appellant.

Before TIMBERS, NEWMAN and CARDAMONE, Circuit Judges.

CARDAMONE, Circuit Judge:

An explosion aboard an ocean-going tanker sailing from the United States to Antwerp, Belgium caused extensive damage to the ship, rupturing several of its cargo tanks loaded with liquid chemicals. As a result some of the liquid cargo spilled out and later solidified. We are asked on this appeal to construe the scope and coverage of a marine hull and machinery insurance policy. The specific question is which of the costs incurred by the shipowner to remove chemical debris from the cargo spaces and to clean and repair the damaged tanks are chargeable to the hull insurer. There is no American judicial precedent concerning this kind of coverage.

FACTS

Antilles Steamship Company Ltd. (Antilles), plaintiff-appellee, engaged in the business of ocean transport of chemicals, is the owner of the M/V "Alchemist". The defendants-appellants, 62 foreign and domestic insurance companies of which 53 are members of the American Hull Insurance Syndicate (Syndicate), are the underwriters that insured the "Alchemist's" hull.

The "Alchemist" is a steel tanker fitted with 34 tanks (18 of which are stainless steel) designed to carry liquid chemicals. She loaded liquid chemicals in Taft, Louisiana, pursuant to a contract of affreightment between Antilles and Union Carbide Corporation for carriage to Antwerp, Belgium. Among the chemicals taken aboard were over 200 tons of glacial acrylic acid (GAA). Another chemical aboard, loaded at a prior port, was ethylene norbonene (ENB). The only characteristic of ENB relevant to this appeal is its unbelievably penetrating, noxious odor. The two chemicals were placed in adjacent stainless steel tanks sharing a common wall. No. 6 starboard wing tank aft (No. 6 aft) was loaded with GAA, and No. 6 starboard wing tank forward (No. 6 forward) with ENB. On September 14, 1975 two days after taking the chemicals aboard, the parties entered into a one year contract of insurance on the "Alchemist's" hull and machinery. Seventy percent of the risk was insured in the American market with defendants and the remaining 30 percent was underwritten in the London market. The identical British and American policies contained the standard American Hull Institute clauses, including the "Inchmaree" clause involved here.

About an hour before midnight, on September 16 while the "Alchemist" was sailing smoothly at sea, the GAA in No. 6 aft suddenly and explosively polymerized for reasons which still remain unknown. The resulting sudden high pressure caused that aft tank to bulge, the common wall between it and No. 6 tank forward to rupture, and seams to open in No. 6 aft, permitting material to escape into the cofferdam, i.e., the empty space between the wall of the tanks and the skin of the ship. The skin or shell plating of the ship in the vicinity of No. 6 tank aft also bulged. The thunderous explosion accompanying the polymerization of the GAA caused the ship to vibrate severely and produced intense heat, 250 degrees F. or higher (the readings taken at the time were at the top of the thermometer) near the two No. 6 tanks. The "Alchemist's" crew reacted quickly during the emergency and successfully reduced the danger of fire by hosing down the deck and pumping seawater into the cofferdam nearest the No. 6 tanks. As a result, a mixture of GAA, ENB and seawater filled these tanks and the cofferdam. The tanker was able to complete the voyage to Antwerp under its own power, and there discharged its sound cargo.

Port officials in Antwerp would not permit the seawater-chemical mixture to be unloaded because of fear that its extremely noxious odor might create an air pollution problem. Later, the "Alchemist" sailed to a tank cleaning facility located near Rotterdam. Upon her departure from Antwerp without even having been permitted to open her cargo tanks, Masefield's evocative words might have been on the crew's mind: "I must go down to the seas again, to the lonely sea and the sky." More likely though--since on the run to Rotterdam the "Alchemist" hoped to avoid the noxious odor by sailing against the wind--this later line from "Sea Fever" was offered as a fervent prayer: "And all I ask is a windy day with the white clouds flying." ¹

On October 21 the tank cleaning company commenced removal of the putrid cargo still aboard. This operation proved to be infinitely more arduous and costly than anticipated because GAA, a water-like liquid in its monomer state, hardens when polymerized. The mixture at the top of No. 6 aft and No. 6 forward tanks posed little problem and vacuum trucks removed it in short order. Most of the one and a half feet of semi-solid polymer at the bottom of No. 6 forward tank was removed in the same manner. What remained was shoveled out by hand. It only took a few days to clean the No. 6 forward tank. Similar methods were used to clean the cofferdam with high pressure washing equipment, vacuum hoses and, finally, shovels.

Meanwhile attention focused on the site of the bulk of the GAA in No. 6 aft tank. For the next 30 days this tank had to be cleaned by hand on an around-the-clock basis. The mixture was about 20 feet deep in the tank. At first near the top it was shovelable. As the work progressed deeper into the tank the polymer became less rubbery and much harder. Near the bottom it became necessary to use heavy-duty compressed air jackhammers to break up the granite-like mass which extended across the bottom of the tank from bulkhead to bulkhead, and adhered to them.

In the course of the work substantial damage was done to the stainless steel skin of the tank. After the "Alchemist" was repaired at a nearby ship yard, Antilles claimed the cost of removal of all of the GAA-ENB-seawater mixture and the cost of repairs from both the British insurers and from defendants by submitting a statement of adjustment in particular average for over a million dollars. ² The London market underwriters responsible for 30 percent of the risk paid their portion of the claim without protest. Defendants, the American market underwriters, at first paid only for the actual damage to the walls of both tanks and the skin or shell of the ship; later, defendants agreed to pay in addition those costs associated with removal of the mixture from the cofferdam and removal of the last residue of the mixture adhering to the bulkheads of the No. 6 aft and forward tanks, a sum stipulated to be $51,858.76. Defendants refused to pay for the cost of removing the bulk of the hardened mass from the cargo tanks which, it was stipulated, cost Antilles $365,339.72.

Antilles filed this action in the United States District Court for the Southern District of New York seeking recovery for the removal of the hardened polymer from the ruptured No. 6 aft. The parties tried the case before District Judge Conner on March 16, 1982. In the brief bench trial where most of the facts were stipulated, plaintiff called only two witnesses. The first, James W. Kingston, was Marine Superintendent for Steuber Company, the manager and operator of the "Alchemist" at the time when the explosion occurred. Kingston testified to the accident and its aftermath. Plaintiff's second witness was Raymond M. Hicks, Jr., claims manager for the defendant American Hull Insurance Syndicate. He testified as an expert regarding the custom and practice of average adjusters and marine insurers in cases of solidified, difficult to remove cargo. Defendants called no witnesses. As part of the case both parties submitted post-trial briefs.

The district court issued two opinions and orders. In its opinion dated May 24, 1982, 539 F.Supp. 572, the court found that the defendants were obligated to indemnify plaintiff for removal of all the hardened polymer. In a supplemental opinion and order dated August 5, 1982 the court clarified its earlier opinion. After analyzing and distinguishing the somewhat arcane authority in what he recognized as a case of first impression, Judge Conner fashioned a result that permitted plaintiff to recover for the cost of removing the rock-hard polymer, but not for the costs of removing from the two No. 6 tanks the "shovelable" material, i.e., the liquid and rubbery substances. Defendants appeal the resulting judgment awarding plaintiff $271,179.01 plus costs and interest. Antilles cross-appeals claiming it was entitled to the entire cost of removal of all substances.

DISCUSSION

I. Choice of Law

Before beginning an analysis of the law we explore briefly the choice of applicable law. After some dispute below, the parties have now agreed that New York law applies in the first instance. See also Wilburn Boat Co. v. Fireman's Fund Insurance Co., 348 U.S. 310, 321, 75 S.Ct. 368, 374, 99 L.Ed. 337 (1955) (state law controlling on marine insurance issues). Such issues as burden of proof and general rules of insurance policy interpretation are substantive rules governed by settled New York law.

To the extent that no New York precedent exists, the maritime nature of this insurance contract dictates that we anticipate that New York courts would look to English law in view of the "special reasons for keeping in harmony with the marine insurance laws of England, the great field of this business." Queen Insurance Co. v. Globe & Rutgers...