Comm'l Union Ins. v. Flagship Marine Serv.

• Decision Date: 11 March 1999
• Docket Number: Docket Nos. 98-7306
• Citation: 190 F.3d 26
• Court: U.S. Court of Appeals — Second Circuit
• Parties: (2nd Cir. 1999) COMMERCIAL UNION INSURANCE COMPANY, Plaintiff-Appellant-Cross-Appellee, v. FLAGSHIP MARINE SERVICES, INC., d/b/a Sea Tow Services of Lee County and SEA TOW OF LEE COUNTY, Defendants-Appellees-Cross-Appellants, BRISOTTI & SILKWORTH, INC., Third-Party Defendant. COMMERCIAL UNION INSURANCE COMPANY, Plaintiff-Appellant, v. FLAGSHIP MARINE SERVICES, INC., d/b/a Sea Tow Services of Lee County, GARY MACLEAN, Defendants-Appellees. (L), 98-7536(XAP), 98-7532 August Term 1998

Page 26

190 F.3d 26 (2nd Cir. 1999)

COMMERCIAL UNION INSURANCE COMPANY, Plaintiff-Appellant-Cross-Appellee, v. FLAGSHIP MARINE SERVICES, INC., d/b/a Sea Tow Services of Lee County and SEA TOW OF LEE COUNTY, Defendants-Appellees-Cross-Appellants, BRISOTTI & SILKWORTH, INC., Third-Party Defendant.

COMMERCIAL UNION INSURANCE COMPANY, Plaintiff-Appellant, v. FLAGSHIP MARINE SERVICES, INC., d/b/a Sea Tow Services of Lee County, GARY MACLEAN, Defendants-Appellees.

Docket Nos. 98-7306(L), 98-7536(XAP), 98-7532

August Term 1998

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued March 11, 1999

Decided: August 24, 1999

Appeal from the judgments of the United States District Court for the Southern District of New York (Jed S. Rakoff, District Judge), dismissing plaintiff-appellant-cross-appellee's complaint, the counterclaims of defendant-appellee-cross-appellant Flagship Marine Services, Inc., and Commercial Union's second, separate complaint.

Reversed.

[Copyrighted Material Omitted] DAVID R. HORNIG (Julia Moore, Of Counsel, on the brief) Nicoletti Hornig & Sweeney New York, NY for Plaintiff-Appellant-Cross-Appellee

STEVEN G. SCHWARTZ Mattlin & McClosky Boca Raton, FL, and JOHN J. McLAUGHLIN Wagner, Vaughan & McLaughlin Tampa, FL for Defendants-Appellees-Cross-Appellants

WILLIAM M. BILLINGS Jacobowitz, Garfinkel & Lesman New York, NY for Third-Party-Defendant

Before: WALKER, McLAUGHLIN, and KEITH,^* Circuit Judges.

WALKER, Circuit Judge:

Plaintiff-appellant-cross-appellee Commercial Union Insurance Company ("Commercial Union") seeks to disclaim coverage for an accident that occurred aboard a ship operated by defendant-appellee Flagship Marine Services, Inc. ("Flagship Marine"). The United States District Court for the Southern District of New York (Jed S. Rakoff, District Judge), entered a March 6, 1998 judgment dismissing Commercial Union's first action for a declaratory judgment and Flagship Marine's counterclaims for breach of contract and bad faith insurance practices. The district court also entered a March 31, 1998 judgment dismissing Commercial Union's second action. For the reasons set forth below, we reverse.

BACKGROUND

Flagship Marine is in the business of providing emergency and non-emergency marine assistance to vessels. It is one of approximately seventy companies licensed nationally to provide such services under the trademark of Sea Tow International. Services are provided through two types of arrangements: vessels may pay an annual fee, or they may contract for services on an ad hoc basis. Only operators of non-commercial pleasure craft qualify for the annual fee membership.

Prior to 1994, all of the Sea Tow licensees were insured under a master insurance policy issued by the New Hampshire Insurance Group. When that policy was not renewed, the Sea Tow licensees obtained a policy issued by Commercial Union, but each licensee had to obtain its own policy. Flagship Marine obtained one such policy, which went into effect on September 15, 1994. The policy, which consisted largely of pre-printed provisions that are standard in the industry, insured Flagship Marine for a variety of circumstances, including accidents aboard its vessels. The policy contained a "Tow Endorsement" provision as follows:

In consideration of the rate and premium charged, it is understood and agreed that coverage is hereby provided for the towage of yachts up to 50 feet in length. The towage of yachts in excess of 50 feet is subject to prior approval of underwriters with additional premium to be agreed, if any.

On November 13, 1994, a Flagship Marine vessel was involved in an accident. While assisting a vessel in distress, the Flagship Marine vessel's captain, Gary MacLean, caught his leg in a rope, was pulled overboard, and sustained serious injury. Flagship Marine promptly notified Commercial Union of the accident. Commercial Union disclaimed coverage based on the Tow Endorsement and later rescinded the policy ab initio. According to Commercial Union, its policy did not provide coverage because, at the time of the accident, MacLean was towing a non-yacht vessel that was in excess of 50 feet in length. Flagship Marine agrees that the distressed vessel was not a yacht and was 61 feet in length.

On January 23, 1995, Commercial Union brought an action for a declaratory judgment in the United States District Court for the Southern District of New York. About six weeks later, MacLean sued Flagship Marine and Commercial Union in Florida state court, seeking recovery for his injuries. Commercial Union tried to have the Florida action dismissed on the basis of the Tow Endorsement; when it did not succeed, it refused to participate further in the action. The Florida action ultimately was settled on September 20, 1996 by an agreement between Flagship Marine and MacLean, and judgment was entered in favor of MacLean for $545,000. When Commercial Union refused to pay MacLean, his state action against Commercial Union was reinstated in the Florida court.

In the meantime, Commercial Union pursued its declaratory judgment action in the Southern District of New York. In that suit, Commercial Union sought a declaration that, in light of the Tow Endorsement, it was not liable for any expenses incurred by Flagship Marine as a result of the MacLean accident. Flagship Marine counterclaimed, alleging that Commercial Union had breached its insurance contract and had engaged in bad faith insurance handling in violation of Florida law.

The district court rejected Commercial Union's construction of the Tow Endorsement. Ruling from the bench, the district court held that the policy did not preclude coverage for Flagship Marine's towage of vessels in excess of 50 feet. The district court focused on the use of the term "yacht" in the Tow Endorsement, as contrasted with the term "vessel" elsewhere in the contract. In the district court's view, the Tow Endorsement was properly read as excluding coverage for the towage of yachts (i.e., non-commercial vessels) in excess of 50 feet, but not other types of vessels, regardless of size.

The district court then conducted a bench trial. Having lost its first motion for summary judgment based on the language of the Tow Endorsement, Commercial Union argued at trial that the policy was void for insufficient disclosure by the insured under the maritime doctrine of uberrimae fidei. It further argued, and pressed in a second motion for summary judgment, that it should not be held liable because the policy was one of indemnity rather than liability, and Flagship Marine had not yet paid MacLean. After four days of testimony and argument, the district court ruled in favor of Flagship Marine on Commercial Union's declaratory judgment action, and dismissed Commercial Union's second summary judgment motion as well as Flagship Marine's state law counterclaim.

On June 20, 1997, Commercial Union filed a second declaratory judgment action in the Southern District of New York, raising the same issues it had raised in its second summary judgment motion. The district court dismissed the second action on abstention grounds under Brillhart v. Excess Insurance Co., 316 U.S. 491 (1942), in light of the pendency of the Florida state action.

Both parties appeal. Because we find that the district court erred in its construction of the Tow Endorsement, we reverse.

DISCUSSION

I. Choice of Law

Neither party has raised or briefed the issue of what law applies to the issues raised in this case, and the district court did not engage in a choice of law analysis. Absent a specific federal rule, federal courts look to state law for principles governing maritime insurance policies, see Wilburn Boat Co. v. Fireman's Fund Ins., 348 U.S. 310, 319-21 (1955), and apply federal maritime choice of law rules to determine which state's law to apply, see Advani Enters., Inc. v. Underwriters at Lloyds, 140 F.3d 157, 162 (2d Cir. 1998); Sundance Cruises Corp. v. American Bureau of Shipping, 7 F.3d 1077, 1080 (2d Cir. 1993). There is no specific federal rule governing construction of maritime insurance contracts. See Wilburn Boat, 348 U.S. at 321. Nevertheless, we find it unnecessary to determine which state's law applies, since, as we discuss below, it appears that the outcome would be the same under either New York or Florida law, and neither party has suggested otherwise.

II. Construction of the Contract

We review the district court's construction of the policy de novo. See Associated Metals & Minerals Corp. v. S/S Jasmine, 983 F.2d 410, 413 (2d Cir. 1993); Bellefonte Reinsurance Co. v. Aetna Cas. & Sur. Co., 903 F.2d 910, 912 (2d Cir. 1990). The first question that we must address is whether the Tow Endorsement constitutes a warranty. Commercial Union contends that the Tow Endorsement represents a warranty by Flagship Marine that it will tow only yachts less than 50 feet in length. According to Commercial Union, the legal effect of a finding that the provision is a warranty is that Flagship Marine's breach of the provision precludes any recovery under the insurance policy. Flagship Marine contends that the provision is not a warranty, but merely an exclusion from liability that should be construed against the insurer.

A. Whether the Tow Endorsement Is a Warranty

We agree with Commercial Union that the Tow Endorsement constitutes a warranty by Flagship Marine, rather than an exclusion from coverage, the significance of which we address in a moment. The district court did not address whether the Tow Endorsement constituted a warranty or an exclusion.

Although, at first glance, the Tow Endorsement does not appear to be a warranty, a closer inspection of its contents, read in the context of the contract in its entirety, leads to the conclusion that it is a warranty whereby Flagship Marine promised to limit its towing activities to the towing of yachts less than 50 feet in length. For example, the Tow Endorsement appears in a...