Coastal Iron Works, Inc. v. Petty Ray Geophysical, Div. of Geosource, Inc., 84-2437

• Decision Date: 24 February 1986
• Docket Number: No. 84-2437,84-2437
• Citation: 783 F.2d 577
• Parties: COASTAL IRON WORKS, INC., Plaintiff-Third Party Plaintiff-Appellant, Cross- Appellee, v. PETTY RAY GEOPHYSICAL, a DIVISION OF GEOSOURCE, INC., Defendant-Appellee, Cross-Appellant, v. FIDELITY & CASUALTY CO. OF NEW YORK, Third Party Defendant-Appellee, Cross- Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 577

783 F.2d 577

1987 A.M.C. 571

COASTAL IRON WORKS, INC., Plaintiff-Third Party Plaintiff-Appellant, Cross- Appellee, v. PETTY RAY GEOPHYSICAL, a DIVISION OF GEOSOURCE, INC., Defendant-Appellee, Cross-Appellant, v. FIDELITY & CASUALTY CO. OF NEW YORK, Third Party

Defendant-Appellee, Cross- Appellant.

No. 84-2437.

United States Court of Appeals Fifth Circuit.

Feb. 24, 1986.

Ross, Griggs & Harrison, H. Lee Lewis, Jr., James C. Arnold, Houston, Tex., for Coastal Iron Works, Inc.

James D. Wise, Jr., Houston, Tex., for Petty Ray Geophysical.

Gary Norton, Shirley Selz, Corpus Christi, Tex., for Fidelity & Casualty Co. of New York.

Appeals from the United States District Court for the Southern District of Texas.

Before REAVLEY, WILLIAMS and HIGGINBOTHAM, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

On December 9, 1977, a fire occurred aboard the M/V DABNEY E. PETTY, a ship equipped for geophysical exploration owned by the Petty Ray Geophysical Division of Geosource, Inc. ("Petty Ray"). The DABNEY PETTY had been undergoing repairs in a shipyard owned by Coastal Iron Works, Inc. ("Coastal"), at the time. This case represents the culmination of attempts by the interested parties to sort out responsibility for that fire which occurred almost a decade ago.

Soon after the fire, Coastal sought a declaratory judgment to limit its liability arising out of the fire to $300,000 in accordance with the terms of the ship repair written contract between itself and Petty Ray. Petty Ray filed a counterclaim against Coastal to bar enforcement of this limitation and to recover for all of the damage to the DABNEY PETTY, and for losses resulting from the ship's inactivity. At the time of the fire, Coastal was insured up to the amount of $300,000 under a policy issued by Fidelity & Casualty Company of New York ("Fidelity"). Fidelity subsequently denied Coastal coverage under this policy for the damages caused by the fire because Coastal's employees had not followed certain safety standards while working aboard the DABNEY PETTY. Coastal thereupon filed a third party complaint to compel Fidelity to defend and indemnify it in its suit with Petty Ray in accordance with the terms of the policy.

Judgment was entered in October, 1983, following a nonjury trial. The district court found that both Coastal and Petty Ray had failed to use reasonable care to prevent the fire, and it assessed 75 percent liability against Coastal and 25 percent against Petty Ray. Although damages were approximately $1,600,000, the district court found that Coastal was liable to Petty Ray only to the extent of the $300,000 contractual limit contained in the ship repair contract. In addition to the $300,000 cap, Petty Ray, however, was awarded prejudgment interest, attorneys' fees and litigation costs. Finally, on the damage issue, the court found that Coastal was not culpable to the level of gross negligence. The district court then found that Fidelity had wrongfully denied coverage to Coastal and gave judgment ordering Fidelity to pay Coastal the $300,000 owed under the policy along with prejudgment interest and one-half of Coastal's attorneys' fees and litigation costs. The district court found, however, that Coastal was not entitled to recover from Fidelity the attorneys' fees awarded to Petty Ray. All parties filed notices of appeal.

I. FACTS

The DABNEY PETTY was a seismic vessel engaged in the collection of data from the seabed. On December 9, 1977, the DABNEY PETTY entered Coastal's shipyard in Corpus Christi, Texas for some minor repairs. One of these repairs was the replacement of the DABNEY PETTY's sanitary pipe. The fire began during the removal of this pipe.

A Coastal crew equipped with an acetylene torch and associated gear set about to accomplish this task by cutting the pipe into small sections and removing them one at a time. While this was being done, polyurethane coating the roof of one of the port tanks aboard the DABNEY PETTY ignited, and fire spread rapidly through the ship causing extensive damage. The polyurethane coating had been installed aboard the DABNEY PETTY by a previous owner. Petty Ray did not know of the polyurethane's installation and thus did not inform Coastal of its presence.

When the DABNEY PETTY entered Coastal's shipyard for repair work on December 9, Samuel O. Lucky, the ship's captain, was required to sign a job authorization detailing the work to be done and containing the contractual terms between the parties. One of the terms contained in this job authorization is a "red letter clause" which provides:

Furthermore, we undertake to perform work and/or provide public or private berth, wharfage, towage, and other services and facilities ONLY upon the condition, expressly acknowledged by Customer, that we shall not be liable in respect to any one vessel or job, directly or indirectly in contract, tort, or otherwise, to its owners, charterers, underwriters, or representatives for any injury, loss, or damage to such vessel, its cargo, equipment or movable stores, or for any consequences thereto, to said owners, parties in interest, or any third party unless such injury is directly caused by our negligence or the negligence of our employees, and in no event shall aggregrate liability to all such parties in interest for damages sustained by them, as a result of such injury, or such defective workmanship or material, exceed the sum of $300,000.00.

The red letter clause appears on the reverse side of the two page repair contract. Captain Lucky, however, subsequently denied reading the liability limitation provision.

On the day of the fire, Coastal contacted Fidelity through Fidelity's local agent, Marine Office of America Corporation ("MOAC"). MOAC immediately sent out its agents to conduct a preliminary investigation. Fidelity represented Coastal during the early stages of its dispute with Petty Ray. On May 22, 1979, however, Fidelity informed Coastal that it would not indemnify or defend Coastal for the DABNEY PETTY fire because of Coastal's failure to comply with the standards of the National Fire Prevention Association (NFPA) during the repair work aboard the DABNEY PETTY as required by Fidelity's policy with Coastal. Coastal subsequently filed a third party complaint to compel Fidelity to fulfill its obligations under the insurance contract.

II. LIABILITY FOR THE FIRE

A. Negligence

A trial court's findings of fact in an admiralty case will be upheld unless they are clearly erroneous. Fisher v. Agios Nicolaos V, 628 F.2d 308, 311 (5th Cir.1980), cert. denied, 454 U.S. 816, 102 S.Ct. 92, 70 L.Ed.2d 84 (1981). The district court's apportionment of responsibility for the fire aboard the DABNEY PETTY is such a factual determination. Lewis v. Timco, Inc., 736 F.2d 163, 166 (5th Cir.1984). Our review of the trial record amply supports the district court's finding that Coastal and Petty Ray were comparatively negligent to the extent of 75 percent and 25 percent respectively. Coastal could properly be assessed the greater share of responsibility because of its work crew's failure to abide by the NFPA fire standards while conducting "hot" work aboard the DABNEY PETTY. Coastal's crew failed to check the vessel for flammable materials such as the polyurethane coating and also to post a fire watch as required by these standards. The district court's decision to impose some share of responsibility upon Petty Ray because of its failure to discover the polyurethane aboard the DABNEY PETTY was also not clearly erroneous.

The district court's finding that Coastal's conduct fell short of gross negligence must also be upheld as not clearly erroneous. A trial court's finding on gross negligence is similarly afforded deference. Gross negligence is defined as harm willfully inflicted or caused by gross or wanton negligence. Todd Shipyards Corp. v. Turbine Service, Inc., 674 F.2d 401, 411 (5th Cir.), cert. denied, 459 U.S. 1036, 103 S.Ct. 447, 74 L.Ed.2d 602 (1982) (Todd I ). The record would not support such a finding.

B. Red Letter Clause

Although the district court found that Coastal was the party primarily at fault for the fire, it determined that Coastal's liability to Petty Ray was limited to $300,000 in accordance with the red letter clause contained in the repair contract between Coastal and Petty Ray. Petty Ray disputes this conclusion by urging that the red letter clause (1) is invalid under the Texas Deceptive Trade Practices Act ("DPTA"); (2) is not a part of the contract between itself and Coastal; (3) is beyond the authority of the DABNEY PETTY's captain to agree to; and (4) is void as against public policy under maritime law. We address each of these contentions in turn.

First, Petty Ray contends, that a ship repair contract is not to be interpreted under maritime law. We find this conclusion incorrect. Todd I, 674 F.2d at 412. Although state law may supplement maritime law where maritime law is silent, Continental Oil Co. v. Bonanza Corp., 677 F.2d 455, 461 (5th Cir.1982), on rehearing, 706 F.2d 1365 (1983) (en banc), or where a local matter is at issue, Kamani v. Port of Houston Authority, 702 F.2d 612, 614 (5th Cir.1983), state law may not be applied where it would conflict with maritime law. Powell v. Offshore Navigation, Inc., 644 F.2d 1063, 1065 (5th Cir.1981), cert. denied, 454 U.S. 972, 102 S.Ct. 521, 70 L.Ed.2d 391 (1981). Applying the DTPA in this case to void the red letter clause would create such a conflict.

Second, the red letter clause is part of the contract between Coastal and Petty Ray. It is clearly displayed on the back page of the repair contract. Moreover, there is prominent language at the bottom of the front page informing a prospective signer of the existence of important terms and conditions on the reverse side. A reasonably prudent person should have seen the red letter clause.

Third, the DABNEY PETTY's captain acted within the scope of his authority in signing the repair...