Motors Ins. Co. v. Bud's Boat Rental, Inc.

• Decision Date: 19 November 1990
• Docket Number: No. 89-3679,89-3679
• Parties: MOTORS INSURANCE COMPANY, Plaintiff-Appellee, v. BUD'S BOAT RENTAL, INC., Defendant-Counter-Claimant-Appellant, Cross-Appellee, v. MOTORS INSURANCE COMPANY, et al., Counter-Defendants-Appellees. CERTAIN UNDERWRITERS AT LLOYDS, Counter-Defendant and Third-Party-Defendant-Appellee, v. TENNESSEE GAS PIPELINE COMPANY, Counter-Defendant Third-Party-Plaintiff-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 199

917 F.2d 199

MOTORS INSURANCE COMPANY, Plaintiff-Appellee, v. BUD'S BOAT RENTAL, INC., Defendant-Counter-Claimant-Appellant, Cross-Appellee, v. MOTORS INSURANCE COMPANY, et al., Counter-Defendants-Appellees.

CERTAIN UNDERWRITERS AT LLOYDS, Counter-Defendant and Third-Party-Defendant-Appellee, v. TENNESSEE GAS PIPELINE COMPANY, Counter-Defendant

Third-Party-Plaintiff-Appellant.

No. 89-3679.

United States Court of Appeals Fifth Circuit.

Nov. 19, 1990.

William D. Cass, Courtenay, Forstall, Guilbault, Hunter & Fontona, Terrence C. Forstall, New Orleans, La., for Bud Boat.

James B. Doyle, Lafayette, La., for Tennessee Gas.

William B. Gibbens, III, Patricia Nalley Bowers, Gibbens & L'Hoste, New Orleans, La., for Motors Ins. Co.

Sheryl Story, New Orleans, La., for Travelers Ins. Co.

Edward Koehl, Jr., Wayne G. Zeringue, Jr., Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, La., for T. Banker Smith Sons, Inc. and Travelers.

James K. Carroll, Susan Johnson Burkenstock, Peter B. Tompkins, Gelpi, Sullivan, Carroll & LaBorde, New Orleans, La., for Muller-Young Assoc., Inc.

J. Frederick Kessenich, Emmett, Cobb, Waits & Kessenich, New Orleans, La., for American Home Assur. Co.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before RUBIN, GARWOOD and HIGGINBOTHAM, Circuit Judges.

ALVIN B. RUBIN, Senior Circuit Judge:

A vessel owner and the company to which the vessel had been chartered appeal from a declaratory judgment that neither the vessel's marine underwriter nor its insurance broker bear any liability for claims arising from an injury suffered by a passenger on the vessel. The district court held that the insurance policy, which covered named vessels but did not list the vessel involved, did not cover the vessel and that the broker did not breach its fiduciary duty in failing to obtain such coverage. The district court dismissed without prejudice the owner's claims that the charterer's negligence caused the injury. We affirm the judgment in favor of the insurers and, in the absence of any appeal raising the issue of the charterer's rights or liabilities in the event that no insurance coverage was provided, likewise affirm the judgment of dismissal without prejudice.

I.

Bud's Boat Rental, Inc., a Louisiana corporation, operated a fleet of oil field vessels in the coastal and inland waters of Louisiana. Among its vessels was a "jo-boat" used to transport passengers and cargo, the M/V MR. BOB. Bud's had entered into a charter party for this vessel with Tennessee Gas Pipeline Company.

On the morning of December 11, 1987, the M/V MR. BOB, captained by Terry Landry, an employee of Bud's, picked up three passengers at the A-Z Terminal dock in Venice, Louisiana for transport to a job site on the west side of the Mississippi River. The passengers were Paul N. Use and Harry Dupre, both employees of T. Baker Smith & Son, a Louisiana corporation surveying an area where Tennessee Gas was to lay a pipeline, and Kenneth Byrd, a Tennessee Gas supervisor. Captain Landry advised Byrd that he planned to follow the river route to the job site, which was slightly longer than the alternate bayou route, in order to avoid the shallow waters of the bayou in which the M/V MR. BOB had run aground the previous day. Byrd said that he preferred to take the bayou route, so Captain Landry complied.

As the M/V MR. BOB turned from the river into a small canal on the bayou route, she ran aground in a shallow, unmarked area. The impact caused Use to be thrown to the floor. Since Use had suffered no apparent injuries, the M/V MR. BOB continued its trip to the job site and left him there. A short time later, however, Tennessee Gas directed the M/V MR. BOB by radio to return to the job site to convey Use, who was complaining of pain in his groin, to a doctor. That afternoon, Bud's obtained handwritten, signed statements describing the grounding incident from Landry and Use; these were subsequently forwarded to Bud's insurance broker. Use was examined by a doctor on December 11th and was returned to full duty the next day.

Bud's heard nothing further from Use until May 10, 1988, when it received notice that he and his wife had filed a suit in state court seeking damages for back injuries to Use allegedly caused by the grounding of the M/V MR. BOB. In addition to Bud's, the suit named T. Baker Smith & Son, Tennessee Gas, and Motors Insurance Company the underwriter of Bud's protection and indemnity ("P & I") policy, as defendants.

Bud's immediately notified its insurance broker, Muller-Young & Associates, of the suit. Motors Insurance and Lloyd's of London, the excess underwriter on the policy, denied coverage of all claims arising from the grounding of the M/V MR. BOB.

For several years before December 11, 1987, Bud's had been experiencing financial difficulty. In order to minimize its expenses, Bud's had developed a practice of removing from insurance coverage those vessels that were unemployed for a significant period of time. Bud's would notify Muller-Young by telephone that a given vessel should be removed from the schedule of insured vessels; Muller-Young would then arrange for the vessel to be deleted from the vessels named in the policy and for the unearned part of the premium to be credited to Bud's. When the vessel returned to work, Bud's simply reversed the process with another phone call. At any given time, therefore, one or more of the vessels in Bud's fleet might not be listed on the policy schedule of insured vessels. Susan Luckie, a Bud's employee, usually handled these communications as well as other insurance matters.

This was the situation on September 1, 1987 when, in view of the impending expiration of Bud's policy, Muller-Young submitted a proposal to several different underwriters to renew Bud's hull and P & I coverages. At that time the M/V MR. BOB was not on the list of scheduled vessels, having been deleted from the expiring policy on May 5, 1987.

On November 11, 1987, however, Luckie informed Muller-Young that coverage should again be provided for the M/V MR. BOB. Yet on November 23, when Muller-Young submitted an amended proposal to Motors Insurance, the attached schedule listed only other vessels and made no reference to the M/V MR. BOB. On the basis of this proposal, Motors Insurance submitted a quote, which Muller-Young conveyed to Luckie by telephone. Bud's approved the renewal, which became effective December 1, 1987.

On December 2, 1987, Muller-Young sent Bud's and the charterers named as additional assureds certificates of insurance with attached schedules of covered vessels (which did not list the M/V MR. BOB). On December 9th, Luckie met with Marcus Dunn of Muller-Young, to review in detail each vessel insured under the policy schedule and the premium per vessel. Five jo-boats were listed on the schedule, but the M/V MR. BOB was not among them. Luckie made a down payment on the insurance premium. At no time did she compare her list of working vessels to the policy schedule or request that the M/V MR. BOB be added.

On March 18, 1988, after the Use injury had occurred, one of Bud's customers noticed that the M/V MR. BOB was not one of the scheduled vessels on the certificate of insurance that he had received, and so informed Luckie. She thereupon advised Muller-Young that two jo-boats, the M/V MR. BOB and the ROBBIE, should have been listed on the policy schedule from its inception, while another jo-boat, the WALTER, was scheduled although it should not have been. She directed Muller-Young to procure the necessary changes retroactive to the inception of the policy.

Dunn proposed to Motors Insurance that they amend the policy schedule retroactively, subject to a warranty of "no known or reported losses as of March 18, 1988." Dunn testified that he volunteered this warranty language because he knew that no underwriter would agree to retroactive coverage without an express exclusion of prior known or reported losses. Neither Muller-Young nor Motors Insurance ever informed Bud's about the inclusion of this warranty. Acting in reliance on the warranty, Motors Insurance agreed to amend the schedule retroactively, charging an additional premium of $4500 per vessel for the ROBBIE and the M/V MR. BOB and crediting the $4500 premium originally paid for the M/V WALTER.

Motors Insurance filed this action seeking a declaratory judgment that it had provided no coverage for any claims arising out of the grounding of the M/V MR. BOB on December 11, 1987. This suit was subsequently consolidated with Bud's action filed in the same court seeking exoneration from liability. The Uses' state court action was stayed pending resolution of the issues before the district court. After a trial on the merits, the district court entered judgment in favor of Motors Insurance. The court dismissed all other claims and counterclaims, including a claim by Tennessee Gas, which was dismissed without prejudice, that it was not liable for navigational error as a time charterer of the vessel. Meanwhile, the Uses had settled their claims for $250,000, which was paid by Bud's, Tennessee Gas, T. Baker Smith & Son and its compensation carrier, The Travelers Insurance Company.

Bud's contends that it is entitled to complete indemnity by Motors Insurance for all losses arising from the grounding of the M/V MR. BOB. In the alternative, it asserts that Muller-Young breached its fiduciary duty by failing to procure the requested insurance coverage or to notify Bud's of the absence of coverage. Tennessee Gas joins Bud's claims against Motors Insurance and Muller-Young and also contends that as a time charterer it was not liable for injury resulting from navigational error aboard the M/V MR. BOB.

II.

Insurance coverage under a P & I policy extends only to the liability the insured incurs in its capacity as an owner, operator, or charterer of the vessel/s named in the policy....