Bohemia, Inc. v. Home Ins. Co.

• Decision Date: 07 February 1984
• Docket Number: Nos. 82-3666,82-3667,s. 82-3666
• Citation: 725 F.2d 506
• Parties: BOHEMIA, INC., a corporation, and Employer's Mutual Casualty Co., a corporation, Plaintiffs-Appellants Cross-Appellees, v. The HOME INSURANCE COMPANY, a corporation, Defendant-Appellee Cross-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 506

725 F.2d 506

BOHEMIA, INC., a corporation, and Employer's Mutual Casualty Co., a corporation, Plaintiffs-Appellants Cross-Appellees, v. The HOME INSURANCE COMPANY, a corporation Defendant-Appellee Cross-Appellant.

Nos. 82-3666, 82-3667.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Sept. 8, 1983.

Decided Feb. 7, 1984.

Thomas H. Tongue, Morrison, Dunn, Miller, Carney & Allen, Portland, Or., for plaintiffs-appellants cross-appellees.

J.P. Graff, Ken Roberts, Schwabe, Williamson, Wyatt, Moore & Roberts, Portland, Or., for defendant-appellee cross-appellant.

Appeal from the United States District Court for the District of Oregon.

Before FLETCHER and ALARCON, Circuit Judges, and JAMESON, ^* District Judge.

JAMESON, District Judge:

Bohemia Inc., the insured, and Employer's Mutual Casualty Co., its excess insurer, appeal from a judgment dismissing an action on a marine insurance policy against The Home Insurance Company, the primary insurer, based upon the decision of the district court that Home was neither negligent nor guilty of bad faith in its investigation of and refusal to settle a wrongful death claim against Bohemia. We affirm.

I. Facts

On June 26, 1978, a barge and tug owned by Bohemia collided with a small boat on the Umpqua River in Oregon. Albert Balkema and his wife were fishing from the boat, and Albert drowned in the accident. His wife allegedly suffered personal injuries. Bohemia was covered by two insurance policies--a primary policy issued by Home and an excess policy by Employer's. Home immediately retained a Portland law firm to investigate the accident, and the firm assigned Clemens E. Ady to the case. Balkema's estate brought a $1 million dollar wrongful death action in state court against Bohemia. Home considered its policy limit to be $100,000 and, through Ady, offered $20,000 prior to trial and $50,000 on the first day of trial to settle the case. The estate's attorney proposed a settlement for $100,000, but the district court found that the estate at no time made a definite offer to settle within the policy limit. The case went to trial, and the jury awarded $250,000, reduced to $175,000 by Balkema's 30% contributory negligence. Home paid $100,000 less defense costs, and Employer's paid the balance including $5,000 to settle all potential claims by Mrs. Balkema personally.

II. Proceedings in District Court

Bohemia and Employer's then brought an admiralty action against Home in federal district court under 28 U.S.C. Sec. 1333 alleging that (1) Home's policy limit was $200,000; (2) Home owed Employer's and Bohemia the same duty of good faith and due care in its evaluation and settlement of the Balkema claims; and (3) Home breached its duty by (a) negligently evaluating the claims, (b) failing to inform Employer's of settlement progress, (c) failing to settle the claims within the primary policy limits, and (d) failing to recognize and settle Mrs. Balkema's personal claims.

The district court granted partial summary judgment on the policy limit issue, holding that the limit was $100,000. The court tried the remaining issues without a jury. In detailed findings of fact and conclusions of law the court determined that: (1) "Home owed a good faith duty to Employer's to consider Employer's interests while evaluating its settlement decisions, and a duty to balance those interests as if Home were liable for any excess judgment ..."; (2) while Ady misjudged the settlement value of the case, neither he nor Home was negligent or acted in bad faith during their evaluation of the claims and the settlement negotiations; (3) Home owed no duty to keep Employer's informed of the progress of the case after initially notifying Employer's of the claims, absent requests from Employer's for information; and (4) Home's failure to settle Mrs. Balkema's claim before trial caused Employer's no damage.

Employer's and Bohemia contend on appeal that each of the foregoing findings was clearly erroneous. In its cross-appeal, Home contends (1) that Bohemia and Employer's breached a duty to participate in the evaluation and defense of the claims, and (2) that Bohemia was not injured by Home's alleged negligent conduct and therefore could not subrogate a claim on which Employer's could sue.

III. Standard of Review

With respect to the summary judgment on the policy limit issue, we conduct de novo review, viewing the evidence in the light most favorable to the losing party, to determine if the prevailing party was clearly entitled to judgment as a matter of law. Roberts v. Elaine Powers Figure Salons, Inc., 708 F.2d 1476, 1478 (9 Cir.1983).

With respect to the remaining issues, in reviewing the findings of the district court we are "bound by the 'clearly erroneous' standard of Rule 52(a), Federal Rules of Civil Procedure." Inwood Laboratories v. Ives Laboratories, 456 U.S. 844, 855, 102 S.Ct. 2182, 2188, 72 L.Ed.2d 606 (1982). Unless we are "left with the 'definite and firm condition that a mistake has been committed,'United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948), [we] must accept the trial court's findings." Id.

IV. Primary Policy Limit

The policy separately named and insured each of Bohemia's vessels for liability up to $100,000. The policy limited coverage "in respect to any one accident or occurrence ... to the amount hereby insured," which, Employer's contends, equals $200,000 since two vessels were involved--the barge and the tug. (emphasis added). As Home points out, however, Bohemia's underlying liability arises from its ownership of the negligent tugboat--not from ownership of the barge. Similarly, the policy specifically indemnified Bohemia for damages that it "shall as owners of the vessel named herein have become liable to pay...." From these provisions, Home contends, and the district court held, that policy coverage is limited to the tugboat ($100,000) since ownership of the tug is the sole source of Bohemia's liability. ¹

In concluding that the coverage was limited to $100,000 insurance on the tug, the district court relied primarily on St. Paul Fire & Marine Insurance v. Vest Transportation Co., 500 F.Supp. 1365, 1372-77 (N.D.Miss.1980), aff'd per curiam, 666 F.2d 932 (5 Cir.1982). In Vest a barge being towed by a tug collided with a bridge and sank. The question arose whether the insurance policy covering the barge and tug would pay the cost of removing the sunken barge. The critical language of the policy was identical to the provisions now before us. The court held that the policy indemnified the vessel owner only for liability arising from his ownership of the insured vessel. Since liability arose solely from ownership of the tug, the policy did not cover removal of the sunken barge. The court supported its conclusion with an exhaustive review of the federal case law which, we conclude, sufficiently establishes a federal admiralty rule governing the policy provisions at issue here.

Employer's and Bohemia contend that the court erred in applying federal admiralty law rather than state law for interpreting insurance policies. They argue that Wilburn Boat Co. v. Fireman's Fund Insurance Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955) requires this court to apply state rules for construing contracts in the absence of a controlling federal rule. ²

In Kalmbach, Inc. v. Insurance Co. of Pennsylvania, 529 F.2d 552, 554-55 (9 Cir.1976), we observed that "[w]hether federal or local law applies to a maritime insurance contract can present a troublesome question." There we applied state law "because both parties urge us to do so and because there is no statutory or judicially established federal admiralty rule governing the provisions in question." Id. Similarly, when we considered an equal protection attack on a state statute affecting marine indemnity policies, we noted that "this matter is not substantively governed by a federal admiralty rule, and that state law therefore applies to the regulation of marine insurance indemnity contracts." Ahmed v. American Steamship Mutual Protection & Indemnity Assoc., 640 F.2d 993, 996 (9 Cir.1981) (dictum), cert. denied, --- U.S. ----, 104 S.Ct. 98, 78 L.Ed.2d 103 (1983). ³ Our decisions rely on Wilburn Boat Co., supra, 348 U.S. at 313-14, 75 S.Ct. at 370, and Kossick v. United Fruit Co., 365 U.S. 731, 741-42, 81 S.Ct. 886, 893-94, 6 L.Ed.2d 56 (1961) which, when read together, hold that state law will control the interpretation of a marine insurance policy only in the absence of a federal statute, a judicially fashioned admiralty rule, or a need for uniformity in admiralty practice. As noted above, we conclude that a federal admiralty rule governs the policy provisions at issue here. We therefore affirm the district court's summary judgment setting the policy limit at $100,000.

V. Negligence in Evaluating and Processing Claim

The district court found that neither Home nor its attorney was negligent in "evaluating, handling, and processing" the Balkema claim. We conclude that this finding is not clearly erroneous and is supported by substantial evidence.

Employer's and Bohemia rely on Portland Electric Co. v. Pacific Indemnity Co., 574 F.2d 469, 474 (9 Cir.1978) and Rova Farms Resort v. Investors Ins. Co. of Amer., 323 A.2d 495, 65 N.J. 474 (1974) in support of their contentions that the district court erred in its findings that Home did not act negligently or in bad faith. In Portland Electric we mentioned as factors which should be considered during the evaluation of a claim: (1) potential for a plaintiff's verdict exceeding primary coverage; (2) elements and extent of loss; (3) jury appeal of parties, witnesses, and the case; and (4) local verdict history. 574 F.2d at 474.

After receiving expert testimony at trial, the district court found "the reasonable settlement value of this case was between $75,000 and $125,000." Ady, Home's attorney, evaluated the...