Starr Indem. & Liab. Co. v. Water Quality Ins. Syndicate

• Decision Date: 25 April 2018
• Docket Number: 15 Civ. 2365 (PAE)
• Parties: STARR INDEMNITY & LIABILITY CO. a/s/o and as assignee of all rights of Genesis Marine, LLC, Plaintiff, v. WATER QUALITY INSURANCE SYNDICATE, Defendant.
• Court: U.S. District Court — Southern District of New York

320 F.Supp.3d 549

STARR INDEMNITY & LIABILITY CO. a/s/o and as assignee of all rights of Genesis Marine, LLC, Plaintiff,

v.WATER QUALITY INSURANCE SYNDICATE, Defendant.

15 Civ. 2365 (PAE)

United States District Court, S.D. New York.

Signed April 25, 2018

Guerric S.D.L. Russell, John Anthony Vincent Nicoletti, Terry L. Stoltz, Nicoletti Hornig & Sweeney, New York, NY, for Plaintiff.

John Maynard Woods, Corey Russell Greenwald, Clyde & Co. US LLP, New York, NY, for Defendant.

OPINION & ORDER

Paul A. Engelmayer, United States District Judge

This decision sets out the Court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52 following a three-day bench trial. Each party is a maritime insurer. The central issue at trial concerned responsibility for costs arising out of the grounding and ensuing salvage of two oil barges in the Mississippi River in April 2014.

Plaintiff is Starr Indemnity & Liability Company ("Starr"). Starr's insured, Genesis Marine LLC ("Genesis"), incurred salvage costs after two oil barges it owned and operated were grounded in the Mississippi. Starr reimbursed Genesis for those costs. Now, suing in admiralty on behalf of Genesis, which assigned Starr its right to so sue, Starr brings a single claim of breach of contract against another of Genesis's insurers, defendant Water Quality Insurance Syndicate ("WQIS"), which declined to reimburse Genesis for its salvage costs. Starr claims that WQIS was responsible for covering these costs under several provisions of a policy under which WQIS had insured Genesis for costs incurred as the result of oil spills and incidents giving rise to a "substantial threat" of an oil spill. Although the grounding of Genesis's barges undisputedly did not cause any spill, Starr claims that the barges' grounding presented a substantial threat of a discharge, so as to trigger the WQIS policy. WQIS disputes this.

Trial was held between January 5 and 9, 2018. The Court heard testimony from five live witnesses, each of whose direct testimony was received in the form of a sworn affirmation and who was subject to cross- and redirect examination. Two were called by Starr: Paul Ferguson, a Starr vice president, see PX 23 ("Ferguson Aff."); and J. Kenneth Edgar, an expert witness, see PX 25 ("Edgar Aff."). Three were called by WQIS: Robert Schrader, a manager of response services for Gallagher Marine Systems LLC, see DX 72 ("Schrader Decl."); Larry Diamond, a WQIS vice president (and a 30(b)(6) witness), see DX 73 ("Diamond Decl."), Dkt. 74 ("Diamond Supp. Decl."); and George Randall, an expert witness, see DX 78 ("Randall Decl.").

In addition, the Court received written testimony—pursuant to the U.S. Coast Guard's Tuohy regulations—of U.S. Coast Guard Chief Petty Officer Heather Norman, in the form of a sworn declaration, see PX 22 ("Norman Decl.").¹ The Court also received the testimony of Karen Pape, a Starr witness, by affirmation, see PX 21 ("Pape Affirmation"); and designations of deposition testimony of Pape and four others: Deeann Ebanks, the Rule 30(b)(6) deponent for T & T Salvage LLC; Chuck Pennington, the on-site surveyor for Merrill Marine during the incident; Joanie Murphy; and John Moy. The Court also received the parties' Joint Stipulation of Undisputed Facts, Dkt. 64 ("JSF"), the parties' joint exhibits ("JX"), and exhibits offered by each side ("PX" and "DX").²

The findings of fact that follow are based on the Court's review of the entire trial record. Where based in whole or part on a witness's testimony, the Court's findings reflect credibility determinations based on the Court's assessment of, inter alia , the relevant witness or witnesses' experience, knowledge, and demeanor.

For the reasons set forth below, the Court finds that the barges did not pose a substantial threat of discharge; that the salvage efforts at issue were not undertaken for the purpose of mitigating such a discharge; and that, had Genesis not undertaken the salvage efforts it did, the Coast Guard would not have ordered Genesis to do so. The Court therefore holds that none of the provisions of WQIS's insurance policy were triggered, and that this policy, therefore, does not cover the costs Genesis incurred.

I. Findings of Fact

A. The Insurers, the Insured, and the Barges

Starr is a Texas insurance company with its principal place of business in New York. JSF ¶ 1. WQIS is an unincorporated association of marine insurers with its principal place of business in New York. Id. ¶ 2.

Genesis is a limited liability company with its principal place of business in Houston, Texas. JSF ¶ 3. Karen Pape was at all relevant times the Senior Vice President and Controller of Genesis's affiliate, Genesis Energy LLC. JSF ¶ 4. Pape was responsible for placing Genesis's insurance policies. Id.

Genesis was and is the owner of the barges at issue in this case: the GM-5001 and the GM-5002. JSF ¶¶ 12-13. Both barges are double-skinned tank barges designed to carry liquid in bulk in six cargo tanks on each barge. See DX 26 at 1; DX 27 at 1; Tr. 287 (Diamond). Each barge had cargo tanks at the center of the barge, with empty "wing tanks" below (along the hull) and on the sides. See DX 26 at 1; DX 27 at 1; Tr. 123-25 (Edgar). The wing tanks protect the cargo in the central cargo tanks and provide buoyancy or ballast for the barges. Tr. 125 (Edgar). Each barge was approximately 297 feet, 6 inches long, with a breadth of 54 feet, and a depth of 12 feet. JX C at 5.

At the time of the grounding, the barges "were in all respects tight, staunch, strong, equipped and supplied and in all respects seaworthy and fit for the service for which they were engaged." JSF ¶ 20. GM-5001 was carrying 16,701.8 barrels and GM-5002 was carrying 14,841.3 barrels of decant oil. JSF ¶ 22. The barges were being pushed in an "assembled tow"—that is, with the two barges joined together and a single tug, the M/V Karen Pape, pushing them downstream. JSF ¶¶ 17, 18. The GM-5002 was the lead barge and was a raked barge, meaning its bow curved up from the waterline. JSF ¶¶ 13, 18. The GM-5001 was the aft barge and was oriented with its bow—although an unraked bow—upstream. JSF ¶ 18. The M/V Karen Pape, a twin-screw towboat also owned by Genesis Marine, was pushing the two-barge tow. JSF ¶ 17.

B. The Insurance Policies

1. Starr's Policies

The M/V Karen Pape and both barges were covered by two Starr policies: a "Hull & Machinery" Policy (MASIHHS00070813) and a "Protection & Indemnity" Policy (MASIHHS00070913). JSF ¶ 7; see JX A (the "Starr Policies"); JSF ¶ 10. Both had effective dates of—i.e. , they covered the period—between July 18, 2013 and July 18, 2014. JSF ¶ 7; Starr Policies ¶ 4. Those policies insured Genesis against losses to its vessels, see Starr Policies at 12-14, 16, and for damage to others' property and personal injury, id. at 22. The Policies exclude coverage for costs imposed on Genesis "directly or indirectly, in consequence of, or with respect to, the actual or potential discharge, emission, spillage, or leakage upon or into the seas, waters, land or air, of oil, petroleum products, chemicals or other substances of any kind or nature whatsoever." Starr Policies at 19-20 ¶ 16; see id. at 26 ¶ 25. That "pollution exclusion" does not apply to losses and costs caused by actual discharges of oil. See Starr Policies at 26-27 ¶ 25.³

2. WQIS's Policy

The M/V Karen Pape and the two barges were also covered by a primary pollution liability insurance policy issued by WQIS, Policy No. 46-80019. JSF ¶¶ 8, 10; see JX B (the "WQIS Policy"). The WQIS Policy also has effective dates of between July 18, 2013 and July 18, 2014. JSF ¶ 8.

This case implicates three provisions of the WQIS Policy.

First, section A, subsection (1) of the WQIS Policy insured Genesis for

Liability to the United States or to any Claimant imposed under Subchapter I of [the Oil Pollution Act of 1990 ("OPA") ] and costs and expenses incurred by [Genesis] for Removal and damages under the OPA for which liability would have been imposed under Subchapter I, had [Genesis] not incurred such liability voluntarily.

WQIS Policy at 4. As discussed below, Subchapter I of OPA imposes liability, on parties responsible for vessels, for removal costs and damages resulting from the discharge or substantial threat of discharge of oil. See 33 U.S.C. § 2702(a).

Two provisions within Section A, subsection (7)—"Salvage, Cleaning, Offloading and Miscellaneous Liability"—are also implicated.

Subsection 7(a) insured Genesis for

Costs and expenses incurred by [Genesis] for firefighting, salvage or removal of wreck or debris of any Vessel(s) or cargo carried aboard any such Vessel(s), to the extent that such actions were undertaken for the purpose of stopping a discharge or release, or mitigating or preventing a substantial threat of a discharge under OPA

....

WQIS Policy at 5.

Finally, subsection 7(d) provides

In the event of an Occurrence covered under Section A(1) or (2) of Part I, and the Assured is required to offload Oil or Hazardous Substances carried aboard any Vessel(s) involved in the Occurrence and such requirement is at the order of the United States Coast Guard or designated Federal On-Scene Coordinator, this Policy is extended to indemnify [Genesis] for costs and expenses incurred by [Genesis] for actions taken with the prior consent of WQIS to offload any Oil or Hazardous Substances carried aboard the Vessel(s); and it is also understood and agreed that, in the event of a claim covered hereunder, the Policy will indemnify [Genesis] for (i) costs and expenses incurred by [Genesis] for actions taken with the prior consent of WQIS for the disposal of any contaminated Oil and/or Hazardous Substances offloaded from the Vessel(s); and (ii) additional costs and expenses incurred by [Genesis] for the delivery of offloaded Oil or Hazardous Substances provided, however, that such costs and expenses are incurred with the prior consent of WQIS and would not have been incurred by [Genesis]

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