Cont. Ins. v. Lone Eagle Shipping Ltd. (Liberia), 94 CIV. 3306 (DLC).
| Citation | 952 F.Supp. 1046 |
| Decision Date | 17 January 1997 |
| Docket Number | No. 94 CIV. 3306 (DLC).,94 CIV. 3306 (DLC). |
| Parties | CONTINENTAL INSURANCE COMPANY, Corvette Cover Underwriters 1993, Tugu Insurance Company, China Insurance Company, Protector Forsikring as, Oslo, Mitsui Marine and Fire Insurance Co., Ltd. Tokyo, FAI General Insurance Company Limited (Australia), New York Marine and General Insurance Co., Homestead Insurance Co., and Certain Underwriters at Lloyds, Plaintiffs, v. LONE EAGLE SHIPPING LTD. (LIBERIA), and The Royal Bank of Scotland PLC, Defendants. |
| Court | U.S. District Court — Southern District of New York |
John A.V. Nicoletti, Thomas M. Rittweger, Nicoletti Hornig & Sweeney, New York City, for Plaintiffs.
Terry L. Stoltz, Barbara Gonzalez, Burlingham Underwood L.L.P., New York City, for Defendants.
This is an admiralty action arising out of damage to the M/V ALPHA STAR ("ALPHA STAR"), a 21-year-old Ore/Bulk/Oil ("OBO") carrier, sustained during a voyage from Port Cartier, Quebec to Fos-Sur-Mer, France, in December 1993. Plaintiffs are various insurance companies which issued a time hull insurance policy to the ALPHA STAR. Defendant Lone Eagle Shipping Ltd. (Liberia) ("Lone Eagle") is the owner of the ALPHA STAR, and defendant The Royal Bank of Scotland PLC ("Royal Bank") is the mortgagee of the vessel. Plaintiffs bring this action pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, for a declaration of nonliability on the policy for the ALPHA STAR's constructive total loss ("CTL"), and to recover money paid by plaintiffs to a salvor based on a theory of unjust enrichment. Defendants have counterclaimed for the value of the policy.
Following trial, this Court holds that the defendants have failed to prove that sufficient damage to the ALPHA STAR was caused by heavy weather to trigger the policy's coverage. Rather, plaintiffs have proven that a substantial amount of the damage was caused by advanced corrosion of the structure of the cargo holds of the vessel. Therefore, defendants have failed to show that a constructive total loss resulted from an insured peril. Finally, this Court holds that because the vessel was not endangered due to an insured peril, plaintiffs are entitled to recover the money paid to a salvor under a guarantee.
Plaintiffs filed this action on May 6, 1994, and subsequently filed an Amended Complaint dated August 31, 1995. In the Amended Complaint, plaintiffs allege (1) that the ALPHA STAR's loss was due to corrosion and wear and tear on the vessel rather than an insured peril such as a peril of the sea; (2) that the weather encountered by the ALPHA STAR during the voyage at issue was normal, expectable, and foreseeable, and therefore did not constitute a peril of the sea under the policy; (3) that defendants cannot prove that the damages to the ALPHA STAR were proximately caused by an insured event; (4) that the defendants cannot prove that the cost of repairing the ALPHA STAR would exceed $7,000,000, and thus the cost is insufficient to constitute a CTL; (5) that the defendants breached two separate implied warranties of seaworthiness; and (6) that the defendants were unjustly enriched by plaintiffs' payment to a salvage company of $159,000 for salvage expenses because plaintiffs are not liable for such a payment under the policy. Defendants have counterclaimed for the value of the policy, $2,650,000.
At trial, pursuant to this Court's rules and with the consent of counsel, the direct testimony of all witnesses was presented by affidavit. Witnesses appeared at trial only for cross-examination and redirect testimony.
Plaintiffs presented affidavits from Robert A. Raguso, a weather expert; James L. Dolan, an expert in classification societies; Emanuel Silkiss, a metallurgical corrosion expert; George Petrie, a naval architecture expert; Paul Bartolo, an underwriter for the All American Marine Slip ("AAMS"); and Brian Sales, a claims manager for AAMS. Plaintiffs presented deposition excerpts from Bruno Storms, a surveyor from Comite d'Etudes et de Services des Assureurs Maritimes ("CESAM") who performed a survey of the ALPHA STAR in October 1993; Vassilios Roussopoulos, the Chief Mate of the ALPHA STAR; Petros Tsacaleris, Master of the ALPHA STAR; Stylianos Bithizis, Bosun of the ALPHA STAR; Mihail Karanikos, Chief Engineer of the ALPHA STAR; Alexandros Moshos, Second Engineer of the ALPHA STAR; Panagiatis Tzanetatos, Managing Director of the companies managing the ALPHA STAR; Paul Labrinakos, technical consultant and engineer for the companies managing the ALPHA STAR; Andre Fabiao, a court appointed hull surveyor for the Port Authority of Marseilles; Jacques Mordelle, CESAM surveyor; Johan Van Grieken, the surveyor hired by the ALPHA STAR's owner; Bernd Ustorf, the owner's claims adjuster; Thomas Dushas, chairman of one of the companies managing the ALPHA STAR; David Burbridge, an expert marine surveyor; and John Waite, an expert naval architect.
Defendants presented affidavits from Van Grieken, Ustorf, Dushas, and Anthony Amanatides, chief financial officer for Le Timon. Defendants presented deposition excerpts from Storms, Roussopoulos, Tsacaleris, Bithizis, Karanikos, Moshos, Tzanetatos, Labrinakos, Burbridge, Waite, Fabiao, Mordelle, Bartolo, and Sales.
At a trial held on January 6 through January 9, 1997, the following witnesses were subject to cross-examination: Bartolo, Raguso, Dolan, Silkiss, Petrie, and Ustorf. Based on the testimony provided at trial and the exhibits admitted into evidence, following are the Court's findings of fact and conclusions of law.
The ALPHA STAR was an 841 foot long, 101,700 dead weight ton, 9-hold OBO carrier, built in 1972.1 The vessel was constructed with double bottom tanks extending to side hopper tanks. The ship had 300 internal side shell structural frames which supported the external side shell plating between top side tanks and the lower hopper tanks. The frames are in effect the ribs of the vessel, while the plating is the skin of the ship. The frames are referred to as the web of the vessel.2 Each cargo hold extended the entire width of the ship.
From the time of its construction until its purchase by Lone Eagle, the ALPHA STAR was classed with one of the thirteen of the world's thirty-nine classification societies who are members of the International Association of Classification Societies ("IACS"). Classification societies provide minimum standards addressed to the technical requirements for vessels during construction and throughout their service life. As of 1991, the ALPHA STAR was classed with the Det Norske Veritas Classification Society ("DNV"). DNV was and is a member of IACS.
In February 1991, Lone Eagle purchased the ship for $6,995,000, renamed her ALPHA STAR, and registered her in Greece. Following the purchase, the owners reclassed the vessel with the Hellenic Register of Shipping Classification Society ("HRS"). HRS has applied to IACS for membership but has been rejected. It is acknowledged by the parties in this matter that HRS has adopted standards for vessels that are very similar if not identical to those adopted by the members of IACS, but that HRS is criticized within the industry for employing inspectors who do not apply those standards with the rigor presumed to govern their enforcement by IACS member societies. At the time ALPHA STAR was reclassed with HRS, HRS did not have a worldwide network of competent surveyors working exclusively for HRS, a requirement for IACS membership. Nor did it have sufficient technical expertise on hand both to develop and apply classification standards. Following their purchase of the vessel, the owners immediately put a riding crew on board to conduct repairs and maintenance since the vessel was already over 18 years old.
The mortgagee of the ALPHA STAR was the Royal Bank. Olympic Shipping and Brokerage Agency ("Olympic") and Le Timon Transport Co. ("Le Timon"), which manage three other similar bulk carriers, were hired to manage the ALPHA STAR. Le Timon's U.S. agent is Dover Agency and Brokerage, Inc. ("Dover").
Lone Eagle's marine insurance broker in the United States was Rollins Hudig Hall ("RHH"). RHH applied to All American Marine Slip ("AAMS"), a slip of insurance underwriters led by Continental Insurance Co., for coverage for the four vessels managed by Olympic and Le Timon. On November 10, 1993, AAMS issued a Hull and Machinery Marine Insurance Policy for the ALPHA STAR, which provided insurance coverage from November 20, 1993 to November 20, 1994. The insurance rate for the ALPHA STAR was 4.2%; the premium $294,000. Older ships such as the ALPHA STAR pay higher insurance premiums because, among other reasons, insurance companies expect that they will have a certain amount of rust and corrosion. The policy required that the classification society for all four vessels be changed from HRS to another classification society approved by AAMS no later than February 1994.3
For the heavy weather damage claim asserted here, the policy only provides coverage for a total loss or a CTL. The insurer did not provide coverage for partial loss due to heavy weather or a peril of the sea because it considered older vessels like the ALPHA STAR to be more susceptible to such damage. A CTL claim requires that Lone Eagle prove that the cost of recovering and repairing the ALPHA STAR would be at least $7,000,000. If a CTL is proven, the policy provides coverage of $5,000,000, with 53% being insured by the U.S. market with AAMS as lead underwriter, 20.4% insured through a line of French underwriters, and 26.6% being self insured. The underwriters' payment is minus the net scrap amount collected by the vessel interests, including the mortgagee, from the sale of the vessel to the ship breakers.
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