Catlin (Syndicate 2003) At Lloyd'S v. San Juan Towing & Marine Servs., Inc.

• Citation: 974 F.Supp.2d 64
• Decision Date: 30 July 2013
• Docket Number: Civil Nos. 11–2093 (FAB), 11–2116(FAB).
• Court: U.S. District Court — District of Puerto Rico
• Parties: CATLIN (SYNDICATE 2003) AT LLOYD'S, Plaintiff, v. SAN JUAN TOWING & MARINE SERVICES, INC., Defendant.

974 F.Supp.2d 64

CATLIN (SYNDICATE 2003) AT LLOYD'S, Plaintiff,

v.SAN JUAN TOWING & MARINE SERVICES, INC., Defendant.

Civil Nos. 11–2093 (FAB), 11–2116(FAB).

United States District Court, D. Puerto Rico.

July 30, 2013.

Marco A. Gonzalez, Jr., James W. Carbin, Ryan McElduff, Duane Morris LLP, Newark, NJ, for Plaintiff.

Luis N. Saldana–Roman, Ian P. Carvajal–Zarabozo, Saldana, Carvajal & Velez–Rive, Psc., San Juan, PR, for Defendant.

OPINION AND ORDER

BESOSA, District Judge.

Before the Court are Catlin (Syndicate 2003) at Lloyd's (“Catlin”)'s motion for summary judgment, (Docket No. 134), and San Juan Towing & Marine Services, Inc. (“SJT”)'s motion for summary judgment, (Docket No. 136). Having considered Catlin's motion and memorandum of law, (Docket No. 135); SJT's opposition, (Docket No. 140); and Catlin's reply, (Docket No. 146); the Court GRANTS IN PART AND DENIES IN PART Catlin's motion for summary judgment. Having also reviewed SJT's motion and memorandum of law (Docket No. 138); Catlin's opposition, (Docket No. 142); and SJT's reply (Docket No. 150); the Court GRANTS IN PART AND DENIES IN PART SJT's motion for summary judgment.

I. BackgroundA. Financial History Relating to SJT and the Dry Dock Perseverence

On August 27, 2006, SJT—a Puerto Rico corporation in the Ship Repair business based in San Juan, Puerto Rico—purchased a floating drydock called the Perseverence for $1,050,000 from Formel Marine Services. (Docket Nos. 79 at 1; 81 at 1; 134–1 at 1; 139 at 1.) Around that same time, SJT obtained a line of credit with a limit of $1,540,000 from Banco Popular de Puerto Rico (“Banco Popular”). (Docket Nos. 134–1 at 2; 139 at 1.) The line of credit was used to pay for, and was secured by, the drydock. Id. In 2008, SJT began having difficulty making payments on the Banco Popular loan, and in September 2009, SJT asked Banco Popular for a “moratorium” on payments of the loan principal. (Docket Nos. 134–1 at 2; 139 at 2.) Banco Popular granted the moratorium, which permitted SJT to only pay the interest and not repay principal on the loan. (Docket Nos. 134–1 at 3; 139 at 2.) SJT stopped operating the drydock in 2008 or 2009 because there was no business for it. (Docket Nos. 134–1 at 2; 139 at 2.) In 2009, SJT decided to sell the drydock because there was no business for it, and it advertised the Perseverence for sale for $1,350,000. (Docket Nos. 134–1 at 3; 139 at 2.) SJT had a net operating loss of $147,557 in 2009. (Docket Nos. 134–1 at 3; 139 at 2.) SJT had an operating loss of $177,675 in 2010, and the value of equity in SJT to its sole shareholders, Mark and Jayne Payne (“Mr. Payne” and “Mrs. Payne,” respectively), in 2010 was negative $274,000. (Docket Nos. 134–1 at 1 & 3; 139 at 2.) At the end of 2010, SJT also had two unsecured lines of credit with a total balance of $140,449, and Mrs. Payne was using a personal line of credit secured by her residence to pay SJT's operating expenses. (Docket No. 139 at 2.) The 2010 year-end balance on Mrs. Payne's personal credit loan was $183,940. (Docket Nos. 134–1 at 4; 139 at 2.)

During January 2011, SJT continued to advertise the drydock for sale for $1,350,000. (Docket Nos. 134–1 at 4; 139 at 2.) On January 3, 2011, Hendry Corporation offered to purchase the drydock for $700,000, and Mr. Payne, reporting the offer to Banco Popular, stated, “It seems to me that the [$700,000] offer I am attaching is very close to reality.” Id. Over the course of that month, SJT and Hendry Corporation bargained over the selling price of the Perseverence. On January 21, 2011, SJT offered to sell the drydock to Hendry for $850,000; Hendry responded to SJT's counteroffer on January 21, 2011 with $775,000, and on January 29, 2011, SJT offered to sell the drydock to Hendry for $800,000. (Docket Nos. 134–1 at 5, 139 at 2–3.) Hendry did not ultimately purchase the Perseverence.

From 2006 to 2011, SJT had insured the drydock with RLI Insurance Company (“RLI”). (Docket No. 134–1 at 5; 139 at 3.) In 2006, SJT had hired the services of Marine Consultants, Inc. to perform a condition and valuation survey of the drydock. (Docket Nos. 139 at 9; 147 at 1.) In that survey, which was dated April 17, 2006, the Perseverence was valued at $1,500,000. Id. After purchasing the drydock on August 27, 2006, SJT modified it so that it could be towed from Louisiana to Puerto Rico. Id. Marine Consultants, Inc. then issued another condition and valuation report on November 21, 2006, in which it valued the drydock at $1,750,000. Id. The increase in value of the drydock from one report to another was due to the value added to the drydock by the modifications made to it. Id. The hull coverage for the drydock placed with RLI began in 2006, with a declared hull value of $1,750,000. Id. Mr. John Kirchhofer was the underwriter in charge of the SJT file with RLI. (Docket Nos. 139 at 10; 147 at 3.) Mr. Kirchhofer handled SJT's account at RLI up until he left RLI to work at Catlin, in January 2011. Id. On February 9, 2011, RLI advised SJT that it was cancelling the insurance mid-term, and on February 14, 2011, RLI issued a Notice of Cancellation/Nonrenewal, which stated the reason as “Loss History.” (Docket No. 134–1 at 5; 139 at 3.) In April 2011, SJT advertised the drydock for sale for $800,000; Banco Popular approved the advertisement before it ran. (Docket Nos. 134–1 at 6; 139 at 3.)

Mr. John Toscani was the insurance broker for SJT who placed the marine insurance coverage for SJT with Catlin. (Docket No. 134–1 at Ex. 12, p. 20.) His relationship with SJT began roughly in 2002, and he ceased working with SJT shortly after the Perseverence sank and SJT submitted its insurance claim to Catlin. Id. at pp. 20 & 25. In 2011, Mr. Toscani “placed a package policy consisting of hull, P & I, ship repairs, legal, general liability and contractor's equipment” for SJT with Catlin, and he considered it a marine insurance policy. Id. at pp. 28–20. In placing the SJT account, Mr. Toscani communicated with Mr. John Kirchhofer at Catlin. Id. at p. 30. Mr. Kirchhofer had moved from RLI to Catlin and was working as a marine underwriter in Catlin's marine department. (Docket Nos. 134–1 at 6; 139 at 3.) All communications between Catlin and SJT, prior to the issuance of the insurance policy covering the Perseverence, were made through SJT's broker and were limited to phone and e-mail conversations. (Docket No. 137 at 2; 141 at 2.) On April 12, 2011, Mr. Toscani e-mailed Mr. Kirchhofer regarding insurance coverage for SJT. (Docket No. 134–1 at Ex. 18.) The e-mail advised that the drydock was “currently up for sale” and included a copy of the “SRLL/CGL Hull P & I policy with RLI, which depicted the Perseverence's value at $1,750,000. Id. Mr. Toscani did not provide Catlin with a copy of RLI's notice of cancellation. Id. On April 18, 2011, Mr. Kirchhofer sent Catlin's marine coverage quote via e-mail, and SJT accepted Catlin's quote on April 25, 2011. Id. at Ex. 19; Docket Nos. 134–1 at 9; 139 at 4. The Ocean Marine Insurance Policy No. HLO–3464–0411 (“the Policy”) became effective April 29, 2011. (Docket No. 50–1.)

Endorsement 5 to the Policy provided coverage for the Perseverence. (Docket Nos. 50–1 at 54–56; 134–1 at 12; 139 at 8.) Endorsement 5 identifies the perils insured against:

DRYDOCK

....

TOUCHING THE ADVENTURES AND PERILS which we, the said Assurers, are contended to bear and take upon us, they are of the Seas, Rivers, Lakes, Harbours. Men–of–War, Fire, Enemies, Pirates, Rovers, Thieves, Jettisons, Letters of Mart of Counter Mart, Surprisals, Takings at Sea, Arrests, Restraints and Detainments of all Kings, Princes and Peoples, of what nation, condition or quality soever, Barratry of the Master and Mariners, Explosions, Riots, or other causes of whatsoever nature arising either on shore or otherwise, causing Loss of or injury to the Property hereby insured, and of all other Perils, Losses, and Misfortunes that have or shall come to the Hurt, Detriment, or Damage of the said Dock, & c., or any part thereof.

(Docket Nos. 50–1 at 54; 134–1 at 12–13; 139 at 8.)

On May 17, 2011, SJT advised Damco Marine Management, Inc. that the drydock was still for sale for $800,000. (Docket Nos. 134–1 at 10; 139 at 5.) On June 5, 2011, Mr. Richard Ortego—Vice–President and General Manager Repair of Leevac Shipyards, LLC, a Louisiana-based company—traveled to Puerto Rico to look at the drydock. (Docket Nos. 137 at 2; 141 at 5.) Mr. Ortego has experience inspecting, preparing, and using floating drydocks. When he visited Puerto Rico, he inspected the Perseverence. (Docket Nos. 137 at 3; 141 at 5.) Spending half a day between the drydock and SJT's premises, Mr. Ortego talked to Mr. Payne about the maintenance given to the drydock; entered into about half of the drydock's holds; crawled around the holds and inspected them and the valves for decay, damage, and general conditions; and determined that the drydock was “suitable for purchase.” (Docket Nos. 137 at 4; 141 at 6–10.) When Mr. Ortego returned to Louisiana, he gave his report to Leevac's owner and recommended the purchase of the Perseverence; negotiations for the sale of the drydock then began between Leevac and SJT. Id. On or around September 4, 2011, SJT agreed to sell the Perseverence to Leevac, (Docket No. 81–16 at 7), and on September 19, 2011, SJT accepted Leevac's offer to purchase the drydock for $700, 000 when Mr. Payne, on behalf of SJT, signed a purchase and sale agreement. (Docket Nos. 134–1 at 10; 139 at 5.)

B. The Perseverence Sinks

On September 28, 2011, SJT was ballasting the drydock in its back portion in order to raise its front portion and perform repairs on the front. (Docket Nos. 137 at 7; 141 at 14.) The ballasting process included the use of two 175–cubic–feet water tanks (each holding up to 5 tons of water) and a 6,000– to 7,000–pound concrete block. Id. Before leaving work at noon to attend his son's school function, Mr. Payne gave instructions to...