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

• Citation: 979 F.Supp.2d 181
• Decision Date: 08 October 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.

979 F.Supp.2d 181

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.

Oct. 8, 2013.

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

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

MEMORANDUM, FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER

BESOSA, District Judge.

This case was tried before the Court without a jury between August 12th and August 15th, 2013. Plaintiff Catlin (Syndicate 2003) at Lloyd's (“Catlin”) and defendant San Juan Towing & Marine Services, Inc. (“SJT”) subsequently submitted proposed findings of fact and conclusions of law. (Docket Nos. 185 & 184, respectively.) Upon consideration of the evidence presented at trial, post-trial memoranda, and the entire record in the case, the Court makes the following findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52.

I. Findings of Fact¹

On August 27, 2006, SJT—a Puerto Rico corporation in the ship repair business based in San Juan—purchased a floating drydock called the Perseverence for $1.05 million. (Docket Nos. 79 at p. 1; 81 at p. 1; 134–1 at p. 1; 139 at p. 1.) In 2009, SJT put the Perseverence up for sale for $1.35 million “because there was no business” for it. (Docket Nos. 134–1 at p. 3; 139 at p. 2; Trial Ex. 218, p. 104.) In February 2010, SJT advertised the drydock for sale in Boats & Harbors—a marine industry publication—for $1.35 million. (Trial Exs. 6 & 218, p. 104.) In January 2011, SJT continued to advertise the Perseverence for sale for $1.35 million in Boats & Harbors. Id. at Exs. 11 & 18.

On January 3, 2011, the Hendry Corporation of Tampa, Florida offered to purchase the drydock for $700,000. Id. at Ex. 5. Mr. Payne, the head of SJT, reported the offer to Banco Popular de Puerto Rico (“Banco Popular”) ², stating, notwithstanding having advertised the drydock for sale for $1.35 million, “The original cost for the dry dock was about [$]1,100,000 four years ago. 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 bargained over the selling price of the Perseverence: On January 21, 2011, SJT offered to sell the drydock for $850,000; Hendry responded to SJT's counteroffer that same day with a $775,000 offer; and on January 29, 2011, SJT offered to sell the drydock for $800,000. (Docket Nos. 134–1 at p. 5, 139 at pp. 2–3; Trial Exs. 12 & 13.) Hendry did not ultimately purchase the Perseverence.

In April 2011, after obtaining Banco Popular's approval, SJT again advertised the Perseverence for sale in Boats & Harbors, this time for $800,000. (Docket Nos. 134–1 at p. 6; 139 at p. 3; Trial Exs. 9 & 218, pp. 115–16.) 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 p. 10; 139 at p. 5.) On June 5, 2011, Mr. Richard Ortego—the Vice President and General Manager of Repair at Leevac Shipyards, LLC—traveled to Puerto Rico to inspect the drydock. (Docket Nos. 137 at pp. 2–3; 141 at p. 5.) After examining the drydock's general conditions, Mr. Ortega determined that the drydock was “suitable for purchase.” (Docket Nos. 137 at p. 4; 141 at pp. 6–10.) On or around September 4, 2011, SJT agreed to sell the Perseverence to Leevac, (Docket 81–16 at p. 7), and on September 19, 2011, when Mr. Payne signed a purchase and sale agreement, SJT accepted Leevac's offer to purchase the drydock for $700,000. (Docket Nos. 134–1 at p. 10; 139 at p. 5.)

From 2006 to 2011, SJT insured the drydock with RLI Insurance Company (“RLI”). (Docket Nos. 134–1 at p. 5; 139 at p. 3.) The drydock's value when RLI first underwrote the policy was determined through a condition and valuation survey performed by Marine Consultants, Inc. (Docket Nos. 139 at p. 9; 147 at p. 1.) The value of the drydock according to the survey, and later reflected in RLI's policy, was $1.75 million.³Id. Mr. John Kirchhofer was RLI's underwriter who handled SJT's account up until he left to work as a marine underwriter for Catlin in January 2011. (Docket Nos. 139 at p. 10; 134–1 at p. 6; 139 at p. 3; 147 at p. 3.) A month after Mr. Kirchhofer left RLI, RLI advised SJT that it was canceling its insurance policy mid-term. (Docket Nos. 134–1 at 5; 139 at 3.) Five days later, RLI issued a Notice of Cancellation/Nonrenewal, citing “Loss History” as the reason for canceling the policy. Id.

In February or March of 2011, Mr. Toscani, an insurance broker for SJT, called Mr. Kirchhofer to explain that RLI was going to drop its insurance coverage of the Perseverence, and to ask whether Mr. Kirchhofer would be interested in creating a quote for Catlin because he was familiar with the account. (Docket 134–1 at Ex. 12, pp. 20–30; Trial Ex. 217, pp. 30–32; Docket 178 at p. 70.) Mr. Toscani told Mr. Kirchhofer that the drydock was up for sale and was non-operational at that time. (Trial Ex. 217, pp. 34 & 39.) He claims to have first learned that the drydock was up for sale “approximately six months” prior to securing an insurance policy with Catlin; he denies, however, that he ever learned SJT's asking price for the Perseverence. Id. at 44–45. Had Mr. Toscani been aware of the market value of the drydock, he would have disclosed it to Catlin, because the information would have been material to the insurance risk. Id. at 55–57.

On April 12, 2011, Mr. Toscani e-mailed Mr. Kirchhofer about Catlin's insurance quote. (Docket 134–1 at Ex. 18.) Mr. Toscani's email was a typical marine risk “submission,” which is a request from a broker to an underwriter for a coverage quote for a particular risk. (Docket 178 at pp. 70, 75–76.) 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 listed the Perseverence 's value at $1.75 million.⁴(Trial Ex. 19.) Mr. Kirchhofer testified that Mr. Toscani gave no affirmative indication as to the drydock's value or condition during their discussions regarding SJT's insurance application to Catlin. (Docket 178 at pp. 72.) He admitted, however, that he did not ask for that information because “the broker and the insured have a duty of utmost good faith to disclose any material information regarding the risk.” Id. In the absence of any disclosure of information regarding the drydock's condition by the insured or the broker, Mr. Kirchhofer “assumed[,] and it was implied[,] that there was no serious issue with the condition of the drydock.” Id. Mr. Kirchhofer also explained that, although he was aware that the drydock was for sale, he was not informed of the selling price and “assumed that the selling price was in line [with] the insured value.” (Docket 178 at p. 78.) From his communications with Mr. Toscani, Mr. Kirchhofer understood that Catlin would be underwriting a drydock that was up for sale, a port risk, and nonoperational. Id. at 99–100. Because those circumstances represent “a lesser risk to underwriters,” Mr. Kirchhofer did not believe there was any “cause of alarm” to order a condition and valuation survey of the drydock. Id. at 99–100, 115. On April 18, 2011, Mr. Kirchhofer sent Catlin's marine coverage quote to Mr. Toscani via e-mail, and SJT accepted Catlin's quote on April 25, 2011. (Docket Nos. 134–1 at Ex. 19; 134–1 at p. 9; 139 at p. 4.) The Ocean Marine Insurance Policy No. HLO–3464–0411 (“the Policy”) became effective on April 29, 2011. (Docket 50–1.)

Mr. Kirchhofer testified that Catlin never received any request from SJT to change the value of coverage for the Perseverence from the $1.75 million amount originally provided. (Docket 178 at p. 84.) He stated that no one informed him of the $1.35 million asking price contained in the Boats & Harbors February 3, 2010 advertisement, and that he did not become aware of that information until after this litigation had begun. Id. at 88–89. He testified that he “was surprised [about the $1.35 million asking price,] because that was not in line with what we were insuring the dry-dock for.” Id. at 90. It was also not until the lawsuit that Mr. Kirchhofer became aware of the Hendry Corporation's January 2011 offer to purchase the drydock for $775,000; SJT's counter-offer for $800,000; or Mr. Payne's representation to Banco Popular that the $775,000 offer from Henry Corporation was “very close to reality.” Id. at 90–94. Mr. Kirchhofer also was not told that the drydock was being advertised for $800,000 in the April 2011 issue of Boats & Harbors. Id. at 91–92. He explained that the advertising price of “over half the difference in insured value” would be important to Catlin because “the purpose of the insurance is to insure at a fair market value, to prevent the insured from profiting from his insurance.” Id. at 92–95. Mr. Kirchhofer opined that because SJT had made representations to the public marketplace and to its bank that the Perseverence 's value was much less than $1.75 million, the insured should also have notified its insurance broker and underwriter of that information. Id. at 96–97. To Catlin, the overrepresentation of the Perseverence 's value served as an additional reason for rescinding the Policy. Id. at 95.

At the end of September 2011, Mr. Toscani contacted Mr. Kirchhofer to notify him of the drydock's sinking. Mr. Kirchhofer forwarded the claim to Mr. John Competiello, a marine claims manager at Catlin, who contacted a surveying company called GL Noble Denton to examine the claim. (Docket 178 at pp. 106–07.) Noble Denton investigated the drydock, took photographs of the drydock, issued “advices” or reports to Mr. Competiello, and ultimately advised Catlin (1) that the Perseverence was in poor condition, (2) that significant deterioration and corrosion of the structure had occurred,...