Kilpatrick Marine Piling v. Fireman's Fund Ins. Co., 85-8822

Decision Date04 August 1986
Docket NumberNo. 85-8822,85-8822
PartiesKILPATRICK MARINE PILING, a Partnership, and Savannah Bank and Trust Company, Plaintiffs-Appellees, v. FIREMAN'S FUND INSURANCE COMPANY, Defendant-Appellant.
CourtU.S. Court of Appeals — Eleventh Circuit

Gustave R. Dubus, III, Savannah, Ga., for defendant-appellant.

Edwin D. Robb, Jr., Savannah, Ga., for plaintiffs-appellees.

Appeal from the United States District Court for the Southern District of Georgia.

Before KRAVITCH and HATCHETT, Circuit Judges, and TUTTLE, Senior Circuit Judge.

CORRECTED OPINION

TUTTLE, Senior Circuit Judge:

This appeal is from a judgment based on a jury verdict in favor of the insured on a claim under a marine hull insurance policy. The jury, answering special interrogatories, found that the insured vessel sank as a result of a peril of the sea (or peril of the waters); that appellee, the insured, made no material misrepresentations in obtaining the policy; that appellant, the insurer, acted in bad faith in refusing to pay the claim; that this bad faith refusal to pay entitled appellee to $15,600 as a statutory penalty and $14,055.11 as attorney's fees; that the insured vessel was seaworthy at the inception of the policy; and that it was seaworthy at the time it sank. Following the jury verdict in favor of the insured, the trial court awarded 10% prejudgment interest. Appellant challenges the jury's findings and the court's award of 10% prejudgment interest.

BACKGROUND

The insured vessel was made up of eight separate pontoons (or compartments) strapped together in two parallel rows of four each. They made, in effect, a square barge. The barge was used for repairing docks and other such structures by pulling next to the dock and providing a surface from which the repairs could proceed. The barge was anchored to the bottom of the water by two poles, one on the starboard forward pontoon and one on the port stern pontoon. These poles extended downward through the pontoon inside a pipe. This permitted the pontoon to rise and fall with the rise and fall of the tide. Both parties conceded that if a pole became bent so that the barge could not rise with the rising tide, the vessel would become submerged, take on water, and then sink.

On June 29, 1984, the barge was being used in dock repair at American Cyanamid Company in Savannah, Georgia. At four o'clock p.m., Jerry Kilpatrick spudded the barge and left it sitting level. At 7:35 to 7:40 p.m., a security guard for American Cyanamid observed that the barge was sitting Appellee explains the sinking by referring to the conclusion drawn by one of its surveyors, who opined that since a large ocean-going vessel had passed the barge at about 8:30 on the morning of the sinking, a series of large waves caused by this vessel must have bent one of the poles, causing the barge to take on water, and eventually to sink. 1 Appellee, however, presented no direct testimony as to the size of the waves caused by the ocean-going vessel.

                level.  The following morning, at about 9:00 a.m., a utility operator noted that it was "tilted pretty far down in the water."    By 10:00 a.m., the barge had sunk
                

When the barge was raised, it was discovered that some 175 square feet of its bottom was rusted; it was also discovered that there were holes indicating deterioration in the barge's bottom.

ISSUES ON APPEAL

We must resolve four basic questions:

(1) Whether the trial court erred by denying appellant's motion for judgment notwithstanding the verdict based on the grounds that the insurance policy was void because of appellee's misrepresentation of material facts.

(2) Whether the trial court erred by submitting to the jury the question whether the barge sank due to a peril of the seas (or waters.)

(3) Whether the trial court erred by submitting to the jury the question of appellant's bad faith refusal to pay the claim; and

(4) Whether the trial court erred by denying appellant's motion to amend the judgment to award 7% rather than 10% pre-judgment interest.

I. MISREPRESENTATION OF MATERIAL FACTS

As an affirmative defense, appellant asserted that appellee misrepresented certain material facts in obtaining insurance in 1983. If appellant prevails on this issue, it prevails outright, for misrepresentation of any fact material to risk invalidates a marine hull insurance policy. Gulfstream Cargo, Ltd. v. Reliance Ins. Co., 409 F.2d 974, 980 (5th Cir.1969). See L. Buglass, Marine Insurance and General Average in the United States, 23-27 (2d ed.1981) (failure to make material disclosure entitles insurer to avoid contract). But before appellant can avoid the contract, it must prove its claim.

Appellant views as a material misrepresentation surveyor Scott's omission from his September 1983 survey of the fact that he observed rust, scale, deterioration, and water in the pontoons, as well as the fact that the pontoons could not be made watertight. Appellant also cites as a material misrepresentation the fact that plaintiff Jerry Kilpatrick submitted a survey showing the value of the barge as $77,609, without disclosing that the purchase price had been $25,000. According to appellant's underwriter, he would not have insured the barge if he had known any of these facts.

"The general rule of marine insurance, requiring full disclosure, is well settled in this circuit, and as a clear rule of maritime law it is the controlling rule even in the face of contrary state authority." Steelmet v. Caribe Towing Corp., 747 F.2d 689, 695 (11th Cir.1984). Accordingly, the trial court instructed the jury that:

The law provides that contracts of marine insurance require the parties to exercise the most abundant good faith toward one another, and this obligation requires the party seeking insurance to disclose all facts and circumstances which are material to the risk and not within the knowledge of both parties.

The court then described materiality as that which could possibly influence the mind of a prudent and intelligent insurer in determining whether he would accept the risk, and pointed out that concealment of such facts voids the policy, whether the concealment be due to fraud, negligence, accident, or mistake. 2 After being instructed on the law, the jury, in answer to a special interrogatory, concluded that appellee had not misrepresented a material fact.

Appellant argues that the trial court erred by submitting this issue to the jury. Appellee, on the other hand, argues that the question of materiality is one of fact, properly resolved by the jury. It also argues that the conditions alleged to have been material misrepresentations were irrelevant to the cause of the loss. It points to the testimony of David Scott that the pontoons had only negligible amounts of water and that the rust did not pose a serious concern since all barges have some degree of rust. As to the barge's not being watertight, Scott testified that he did not indicate the watertight integrity of the vessel because he was not asked to and because, according to him, many vessels are not absolutely watertight.

On the question of Jerry Kilpatrick's failure to disclose purchase value, he argues that he has made considerable improvements since purchase and that he used an acceptable valuation formula in arriving at a market value of $77,609.

A motion for directed verdict and judgment notwithstanding the verdict is proper only when facts and inferences point so strongly and overwhelmingly in favor of one party that reasonable persons could not reach a different conclusion. Gregory v. Massachusetts Mutual Life Ins. Co., 764 F.2d 1437, 1440 (11th Cir.1985); Boeing Company v. Shipman, 411 F.2d 365, 374 (5th Cir.1969).

Since we cannot say, as a matter of law, in light of appellee's explanation for the omissions, that reasonable persons would not differ on the question whether the omitted facts were material, we decline to disregard the jury's finding.

II. PERIL OF THE SEA

Since we have concluded that appellant cannot avoid the policy, we must now consider whether the barge sank as the result of a covered peril. Appellee's marine hull insurance policy covered loss due to a peril of the waters. Appellee offers only one explanation for the sinking of the barge, the waves caused by the ocean-going vessel. Appellant cites Continental Ins. Co. v. Patton-Tully Co., 212 F.2d 543, 547 (5th Cir.1954), in support of the proposition that ordinary waves of a passing vessel are not a peril of the waters. As additional authority, it cites Western Assurance Co. v. Shaw, 11 F.2d 495, 496 (3d Cir.1926). As contrary authority, appellee cites Allen N. Spooner and Son, Inc. v. Connecticut Fire Ins. Co., 314 F.2d 753 (2d Cir.1963).

Appellee attempts to minimize the precedential value of Continental Ins. Co. v. Patton-Tully Co. by arguing that it is merely a ruling that there was no factual basis, in that particular case, to support a finding that wave wash from a towboat constituted a peril of the waters. It also considers significant the fact that the vessel in that case had a prior history of leaking through deteriorated pontoons of the hull. We quickly dispose of appellant's second contention, for it is irrelevant to our discussion here. That part of the opinion which discussed the vessel's history of leaking was addressed to the question whether the waves caused the sinking, not whether waves were a "peril of the river" within the meaning of the policy. Continental, supra, at 547. At this point in our discussion, we are not concerned with the question of causation. In any event, the Continental court stated that assuming that the sinking was due to wave wash, it did not believe that such waves constituted a "peril of the river." Id.

In arriving at this conclusion, the Continental Court cited the Third Circuit opinion in Western Assurance Co. v. Shaw. In Shaw, the trial court found that "the [vessel's] final plunge was due to the swell of a steamer breaking over...

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