Austin v. Servac Shipping Line
| Decision Date | 02 July 1986 |
| Docket Number | No. 85-2462,85-2462 |
| Citation | 794 F.2d 941 |
| Parties | Jim AUSTIN and Aulemic, Inc., Plaintiffs-Appellees, v. SERVAC SHIPPING LINE, Hassan A. Gaafar, Ind., and Lexington Insurance Co., Defendants, Lexington Insurance Co., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
H.S. Morgan, Jr., Vinson & Elkins, R. Jeffrey Coppock, Houston, Tex., for defendant-appellant.
David S. Prince, Houston, Tex., for plaintiffs-appellees.
Appeal from the United States District Court for the Eastern District of Texas.
Before CLARK, Chief Judge, JOLLY and HILL, Circuit Judges.
Defendant Lexington Insurance Company (Lexington) appeals a judgment entered against it following a bench trial. Lexington presents several arguments calling for a complete reversal and the entry of a take-nothing judgment and several additional alternative arguments calling for a reduction of the damages assessed against it. While we reject the arguments calling for a complete reversal, we accept several of the damage reduction arguments and therefore order the damages reduced accordingly.
Plaintiffs Jim Austin and his wholly owned corporation, Aulemic, Inc., (collectively Austin) purchased the AMAZON TRADER, a refrigerated freight ship, at a United States Marshal's auction in December 1981 for $125,000. After completing some repair and maintenance work, Austin agreed to a short-term charter party with Servac Shipping Line, Ltd. and its principal, Hassan Gaafar, (collectively Servac) so that Servac could evaluate the suitability of the vessel for its long-term charter needs. Austin obtained a $1,000,000 marine hull insurance policy with Lexington covering the AMAZON TRADER. During the period the policy was in force, pursuant to the short-term charter party, the AMAZON TRADER carried a Servac cargo from Tampa, Florida, to Alexandria, Egypt.
While enroute from Tampa to Alexandria, the ship suffered engine, power train, and generator problems. Austin, through its agent Frank B. Hall & Co. (Hall & Co.), an insurance broker, contacted Lexington about the ship's mechanical problems and requested coverage. Lexington initially rejected the claim as occurring outside the vessel's trading warranty, which included only the Western Hemisphere, but Lexington later undertook a determination of the amount of the damages. One year after the claim arose the parties still could not agree on the cost to repair the vessel; consequently, Austin brought suit against Lexington, alleging failure to pay claims arising under the policy, seeking recovery of losses covered by the policy, lost profits, other consequential damages, and treble damages under article 21.21 of the Texas Insurance Code, Tex.Ins.Code Ann. art. 21.21 (Vernon 1981), and seeking the return of layup premiums. 1
The district court, 610 F.Supp. 229, sitting in admiralty without a jury, entered judgment against Lexington in the amount of $367,592 for amounts owed under the policy, 2 plus prejudgment and post-judgment interest, and $2,582,547 in punitive damages 3 under article 21.21, plus costs, post-judgment interest, and stipulated attorney's fees. This appeal followed.
Lexington levels numerous attacks on the judgment entered by the district court. Lexington first offers two arguments for reversing the entire judgment: (1) the alleged misrepresentations made by the insured voided the policy, and (2) the alleged unseaworthiness of the vessel voided the policy. Lexington next offers several arguments for reducing the amount of the damages awarded against it because the district court erred: (1) in determining the cost to repair the vessel, (2) in subtracting only one deductible amount from the cost to repair, (3) in awarding layup premiums, (4) in determining that crew negligence caused all the losses, (5) in determining that Lexington's actions caused Austin to lose a future charter party agreement, (6) in determining other consequential damages incurred by Austin, and (7) in applying the punitive provisions of article 21.21 of the Texas Insurance Code.
Lexington's first argument for reversal is that the district court erred in finding that the alleged misrepresentations made by the insured did not void the policy.
Nothing is better established in the law of marine insurance than that
Fireman's Fund Insurance Co. v. Wilburn Boat Co., 300 F.2d 631, 646 (5th Cir.), cert. denied, 370 U.S. 925, 82 S.Ct. 1562, 8 L.Ed.2d 505 (1962) (emphasis in original) (citation omitted); see also Gulfstream Cargo, Ltd. v. Reliance Insurance Co., 409 F.2d 974, 980 (5th Cir.1969). "A material fact is any fact, 'the knowledge or ignorance of which would naturally influence an insurer in making the contract at all, or in estimating the degree and character of the risk, or in fixing the rate of insurance.' " 300 F.2d at 640 (citations omitted).
Lexington claims that Hall & Co., Austin's broker, misrepresented Austin's maritime experience by stating that Austin had owned and operated the AMAZON TRADER for twelve years, that Austin owned numerous other maritime interests including twenty fishing vessels, and that Austin was contemplating the purchase of two new vessels, when in fact Austin had just purchased the AMAZON TRADER, had previously owned only one other vessel, an oilfield supply boat, and was not contemplating the purchase of additional vessels. Lexington further claims that the alleged misrepresentations were material to its determination of the risk.
Lexington cites the testimony of one witness, Niels Aaskov, an employee of Lexington's underwriting agent, Southeastern Risk Specialists, to support its contentions. Aaskov testified, based on a worksheet prepared at the time, that an employee of Hall & Co., Frank Sioli, informed him that the owner of the AMAZON TRADER had owned and operated the vessel for twelve years, that the owner owned numerous other vessels, and that the owner was contemplating the purchase of two other vessels. Later, on cross-examination, Aaskov testified that, in addition to gathering information on the current owner, he also compiled information concerning the previous owner. The previous owner of the vessel, Hines Worbs, had operated the vessel for twelve years, owned numerous other vessels, and was contemplating the purchase of two new vessels.
The district court also had before it the testimony of several other witnesses concerning the alleged misrepresentations. Sioli, the agent who contacted Aaskov concerning coverage for the AMAZON TRADER, testified that he met with Austin before contacting Aaskov and that he knew Austin owned the vessel. He further testified that he knew that the previous owner had not retained any ownership interest or managerial involvement with the vessel and that nothing in Hall & Co.'s files reflected that Sioli ever told Aaskov otherwise. Austin also testified that he told Sioli and the president of Hall & Co. that he owned the vessel. Furthermore, Lexington issued the policy to: "Aulemic, Inc. and Mr. James D. Austin, c/o Mr. James D. Austin."
We do not believe the district court's finding that no material misrepresentation occurred is clearly erroneous, see Fed.R.Civ.P. 52, as it is "plausible in light of the record viewed in its entirety." Anderson v. City of Bessemer City, 470 U.S. 564, ----, 105 S.Ct. 1504, 1512, 84 L.Ed.2d 518, 528 (1985). Based on the testimony before it, the district court easily could have decided that Sioli provided Aaskov with the correct information and that Aaskov somehow confused the past owner's experience with the present owner's experience. Since the district court's finding is plausible, we cannot disturb it. 4
Lexington next contends that the policy was void from its inception because Austin allowed the vessel to sail in an unseaworthy condition.
A warranty of seaworthiness by the owner is implied in every hull insurance policy unless expressly waived. The warranty is a continuing obligation that
Insurance Co. of North America v. Board of Commissioners, 733 F.2d 1161, 1165 (5th Cir.1984) (citations omitted); see also D.J. McDuffie, Inc. v. Old Reliable Fire Insurance Co., 608 F.2d 145, 147 (5th Cir.1979), cert. denied, 449 U.S. 830, 101 S.Ct. 97, 66 L.Ed.2d 35 (1980); Saskatchewan Government Insurance Office v. Spot Pack, Inc., 242 F.2d 385, 388 (5th Cir.1957). The law presumes that every vessel is seaworthy until the contrary is proved, and the burden of proving unseaworthiness lies with the insurance company. Hanover Fire Insurance Co. v. Holcombe, 223 F.2d 844, 845-46 (5th Cir.), cert. denied, 350 U.S. 895, 76 S.Ct. 154, 100 L.Ed. 787 (1955).
Lexington contends that the AMAZON TRADER was unseaworthy in two respects: (1) various mechanical deficiencies rendered the vessel unseaworthy and (2) the incompetence of the crew rendered the vessel unseaworthy. Lexington relies on the testimony of two expert witnesses to the effect that the vessel was unseaworthy due both to mechanical deficiencies and crew incompetence; however, the record also contains testimony to the opposite effect. At least five witnesses attested to the seaworthiness of the vessel, and one expert witness testified that the entire crew was competent. Since ample testimony supported the district court's finding that...
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