Acadia Ins. Co. v. Allied Marine Transport LLC, CIV. 00-19-P-C.

• Court: U.S. District Court — District of Maine
• Writing for the Court: Gene Carter
• Citation: Acadia Ins. Co. v. Allied Marine Transport LLC, 151 F.Supp.2d 107 (D. Me. 2001)
• Decision Date: 30 July 2001
• Docket Number: No. CIV. 00-19-P-C.,CIV. 00-19-P-C.
• Parties: ACADIA INSURANCE COMPANY, Plaintiff v. ALLIED MARINE TRANSPORT LLC and Michael Cranson, Defendants

151 F.Supp.2d 107

ACADIA INSURANCE COMPANY, Plaintiff v. ALLIED MARINE TRANSPORT LLC and Michael Cranson, Defendants

No. CIV. 00-19-P-C.

United States District Court, D. Maine.

July 30, 2001.

COPYRIGHT MATERIAL OMITTED

Leonard W. Langer, Tompkins, Clough, Hirshon & Langer, Portland, ME, for Plaintiff.

Michael Kaplan, Preti, Flaherty, Beliveau, Pachios & Haley, LLC, Michael Kaplan, Preti, Flaherty, Beliveau, Pachios & Haley, LLC, Portland, ME, for Defendants.

MEMORANDUM OF DECISION AND ORDER

GENE CARTER, District Judge.

This is a declaratory judgment action brought pursuant to 28 U.S.C. § 2201 and Rule 57 arising out of a marine insurance contract. In response to Plaintiff's Amended Complaint, Defendants filed a four-count Amended Counterclaim asserting claims for breach of contract, estoppel, bad faith, and negligent salvage and raised affirmative defenses of waiver and estoppel. Prior to trial, the Court granted Plaintiff's Motion to Dismiss the bad faith count, and Plaintiff's Motion for Partial Summary Judgment on the negligent salvage count. Thereafter, the parties presented evidence over the course of a three-day bench trial. Having considered the evidence and arguments of the parties, the Court makes the following findings of fact and conclusions of law.

I. FACTS¹

A. Acquisition of the Vessel and Insurance

In early October of 1998, Defendant Michael Cranson was exploring the possibility of buying one of three different LCM-6 vessels. On October 8, 1998, Cranson called Frank Butterworth, an insurance agent at C.M. Bowker and Company in Portland, Maine, seeking a quote for navigational coverage for an LCM-6. Plaintiff's Exs. 5A, 6; Tr. at 10, 63, 191-92, 231-32. The purpose underlying the request for a quote was to allow Cranson to determine what his expenses would be in operating a vessel of this type. Tr. at 13. Cranson discussed the general parameters of what he was planning to do with Butterworth. Plaintiff's Exs. 5A, 6; Tr. at 63-66, 193-94, 197-98. Cranson indicated to Butterworth that the vessel would be used for "freight hauling/primarily construction equipment and other freight, to Islands." Plaintiff's Exs. 5A, 6. He further indicated, inter alia, that the LCM-6 would be Coast Guard inspected, and would carry a crew including an operator and one crewmember.² Id. Seeking quotes for an LCM-type vessel, Butterworth filled in the information on an unsigned application form and forwarded the unsigned application with the above information to a number of different underwriters, including Plaintiff Acadia Insurance Company (hereinafter "Acadia"). Plaintiff's Ex. 5A; Tr. at 197. Butterworth and Cranson subsequently determined that Acadia's quote was the most advantageous. Id.

In early November 1998, Cranson purchased the ALLIED RESOURCE, a 56-foot LCM-6, for $27,500. Tr. at 6. The ALLIED RESOURCE was a steel-hulled vessel designed to carry cargo, and was equipped with a ramp located in the bow of the vessel that can be lowered to allow for the loading and unloading of cargo, including vehicles.³ Plaintiff's Ex. 14. After Cranson acquired the ALLIED RESOURCE, Butterworth filled out another application for marine insurance reflecting the details of the ALLIED RESOURCE. Plaintiff's Ex. 7; Tr. at 233-34. Cranson signed the application and Butterworth sent it to Acadia. Plaintiff's Ex. 7; Tr. at 232-33. The new application was forwarded to Acadia seeking "port risk only" coverage for an LCM-6 owned by Cranson, which was to undergo renovations at PRW Mechanical and Fabricators, Inc. in St. George, New Brunswick, Canada (hereinafter "PRW"). Defendants' Ex. 140 at 68-69; Plaintiff's Ex. 7; Tr. at 312-13.

On December 7, 1998, Matthew Pedersen, the lead marine underwriter at Acadia and the person responsible for quoting coverage on the ALLIED RESOURCE, authorized C.M. Bowker to issue, and C.M. Bowker did issue, an insurance binder providing port risk coverage for the ALLIED RESOURCE.⁴ Plaintiff's Ex. 8. Coverage was effective as of November 24, 1998, and carried a hull value of $50,000. Id. On December 10, 1998, Butterworth forwarded the port risk policy to Cranson, who received it shortly thereafter. Tr. at 15-16. The policy issued was a time policy with a time period from November 24, 1998, through November 24, 1999. Plaintiff's Exs. 8, 9. The Special Terms and Conditions contained in the port risk policy, included the following:

1. COMMERCIAL USE WARRANTY: Warranted that the insured vessels be used for no commercial purpose other than PORT RISK ONLY and coverage shall not be provided for any other activity unless endorsed herein.

. . . . .

3. SEAWORTHINESS WARRANTY: The underwriters shall not be liable for any loss, damage or expense arising out of the failure of the Assured to exercised due diligence to maintain the vessel in a seaworthy condition and in all respects fit, tight, and properly manned, equipped and supplied after attachment of this policy; the foregoing, however, not to be deemed a waiver of any warranty of seaworthiness implied at law.

Plaintiff's Ex. 9. The policy also contained an Inchmaree clause covering, inter alia, latent defects in the machinery or hull, and "[n]egligence of master, mariners, engineers or pilots; ... provided such loss or damage has not resulted from want of due diligence by the insured, the owners or managers of the vessel, or any of them." Plaintiff's Ex. 9, Taylor hull policy, lines 20-34; Tr. at 346-47.

During the period November 1998 through mid-August 1999, the ALLIED RESOURCE underwent substantial renovations at PRW, at a cost exceeding $200,000. Tr. at 33. As part of the renovations, Cranson had PRW install eight "goose-neck" vents, two (one port and one starboard) in each of the four watertight compartments on the ALLIED RESOURCE. Tr. at 45. The vents were 12" off the work deck of the vessel. Tr. at 391.

In March 1999, Cranson transferred the vessel to Defendant Allied Marine Transport LLC (hereinafter "Allied Marine").⁵ Tr. at 4. On April 22, 1999, Cranson filed, on behalf of Allied Marine, an "Application of Initial Issue, Exchange, or Replacement of Certificate of Documentation; Redocumentation," with the National Vessel Documentation Center. Plaintiff's Ex. 2; Tr. at 7. The application sought an endorsement for coastwise trade only, and indicates that the primary service of the vessel is as a "freight barge." Plaintiff's Ex. 2. In completing the Application for Documentation, Cranson certified that the vessel "will not be operated in a trade not authorized by the endorsement(s) on the certificates(s) of documentation." Plaintiff's Ex. 2. On April 28, 1999, the National Vessel Documentation Center issued a Certificate of Documentation for the ALLIED RESOURCE, assigning official number 1080422. Plaintiff's Ex. 3. The only operational endorsement for the vessel was "coastwise." Id.

B. Lifting the Port Risk Restriction

In early August 1999, Cranson contacted C.M. Bowker to notify the agency that the ALLIED RESOURCE was almost ready to launch and to request navigational coverage. Tr. at 21, 69, 211-12, 242; Defendants' Exs. 53, 55. Cranson further requested hull coverage of $250,000, protection and indemnity coverage of $1,000,000 with one paid crew, and cargo legal liability coverage of $100,000. Plaintiff's Ex. 15. Once the vessel arrived back in Maine, it was to be used for "hauling cargo." Plaintiff's Ex. 15. It was to carry a crew of two, including the master. Plaintiff's Ex. 13. Butterworth contacted Acadia to convey the need to create an amendatory endorsement and advise as to the change in coverage. Tr. at 248, 251-52; Defendants' Ex. 56. Acadia replied through C.M. Bowker that the vessel would have to be surveyed for condition and value and that the results of the survey would need to be satisfactory to Acadia before the vessel would be allowed to navigate under the coverage. Tr. at 23, 69-73, 215-16, 320, 352. Butterworth faxed to Cranson a list of surveyors, which included the name of Bernard Cheney, whom Acadia had informed Butterworth was a surveyor acceptable to Acadia. Tr. at 71, 241; Defendants' Ex. 95. Butterworth requested that Acadia provide a quote on the amended coverage. The quote provided by Acadia in August 1999 was conditioned on a satisfactory survey of the vessel.

Allied Marine and Cranson retained the services of Captain Bernard Cheney of Machias, Maine, to survey the ALLIED RESOURCE. Tr. at 23. Cheney surveyed the vessel and prepared a written survey dated August 11, 1999. Plaintiff's Ex. 14. The information contained in the survey came either from Cranson or from Cheney's observations and inspection of the vessel. Id. The written survey confirmed the information previously provided to Acadia or C.M. Bowker by Cranson, including that two individuals would man the vessel—Cranson as master and one paid crewmember. Id. Cheney's survey said that the vessel would be used as "marine transport—work boat." Id. Cheney valued the vessel at $250,000. Plaintiff's Ex. 14. Cheney's survey made only one recommendation: "install door seals prior to putting to sea. They have been inspected and will make excellent seals." Id. at 3. Because Cheney was unable to complete his written survey on time, he reported verbally to Pedersen, who accepted the results of his survey and authorized Butterworth to inform Cranson that navigational coverage had been extended to the vessel.⁶ Tr. at 320-21; 342.

An amendment reflecting the above changes was prepared by Acadia on August 23, 1999. Tr. at 322-24; 336; Plaintiff's Ex. 13, Amendatory Endorsement. The changes would not constitute a new policy but, rather, would amend the existing policy. Tr. at 343. Shortly thereafter, Acadia issued an invoice in the amount of $755 for the increased premium due to the changes in the policy. Tr. at 249. The invoice was forwarded directly to Allied Marine Transport LLC, which paid the invoice in September 1999. Prior to paying the invoice, Cranson called...