Crown Zellerbach Corp. v. Ingram Industries, Inc., 82-3749

• Decision Date: 05 March 1986
• Docket Number: No. 82-3749,82-3749
• Citation: 783 F.2d 1296
• Parties: CROWN ZELLERBACH CORPORATION, Plaintiff-Appellant, Cross-Appellee, v. INGRAM INDUSTRIES, INC., et al., Defendants-Appellees, and London Steam-Ship Owners' Mutual Insurance Association, Limited, Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1296

783 F.2d 1296

1986 A.M.C. 1471

CROWN ZELLERBACH CORPORATION, Plaintiff-Appellant, Cross-Appellee, v. INGRAM INDUSTRIES, INC., et al., Defendants-Appellees and London Steam-Ship Owners' Mutual Insurance Association Limited, Defendant-Appellee, Cross-Appellant.

No. 82-3749.

United States Court of Appeals Fifth Circuit.

March 5, 1986.

Phillip A. Wittmann, Stephen H. Kupperman, C. Lawrence Orlansky, New Orleans, La., for plaintiff-appellant, cross-appellees.

Robert A. Redwine, New Orleans, La., W.P. Wray, Jr., Baton Rouge, La., for amicus, Traylor, La. Assoc. of Gen. Contractors.

Nigel E. Rafferty, Richmond M. Eustis, New Orleans, La., for Ingram Industries.

Benjamin W. Yancey, Andrew T. Martinez, New Orleans, La., for London S.S. Owners.

Appeals from the United States District Court for the Middle District of Louisiana.

Before CLARK, Chief Judge, BROWN, THORNBERRY, GEE, RUBIN, REAVLEY, POLITZ, RANDALL, TATE, JOHNSON, WILLIAMS, GARWOOD, JOLLY, HIGGINBOTHAM, DAVIS, HILL and JONES, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

The sole remaining issue ¹ for en banc determination is the validity of the provision of a marine protection and indemnity (P & I) policy fixing the underwriter's maximum liability to that of the assured shipowner's judicially declared limitation of liability. Stated obversely, the question is whether the P & I underwriter is liable in excess of the assured shipowner's admitted limited liability. Along the way we will determine the continued vitality of our earlier Nebel Towing ² decision on which the trial court and the panel majority relied. We hold that the underwriter is not liable for the excess and in doing so overrule Nebel Towing.

I.

This appeal grows out of an allision on the Mississippi River between the tow in tow of the tug F.R. BIGELOW and Crown Zellerbach's (CZ) water intake structure. Involved also was the tug's (and owners') maritime limitation of liability proceeding in which CZ brought a Louisiana direct action against prime and excess P & I underwriters of the vessel owner/operator. After trial, the District Court held that Ingram Industries, Inc. (Ingram), the tug owner/operator, was liable, but was entitled to limit its liability to the value of the vessel and the pending freight. The excess P & I underwriter was held liable for nearly $2,000,000 of the portion of CZ's damages that exceeded the limited liability of the vessel owner. We approved the trial court's holding of (i) no "privity or knowledge" by the tug owner, (ii) the valuation of the vessel, (iii) the computation of CZ's damages, and (iv) the award of prejudgment interest calculated from a date later than the accident. However, the Court by divided vote determined that the District Court was free of error in holding the tug owner's underwriter liable beyond the dollar limits fixed, or ascertainable, in the P & I policy.

How it All Happened

On February 3, 1979, the tugboat F.R. BIGELOW owned (or bareboat chartered) by Ingram, while pushing 15 loaded barges down the Mississippi River in heavy fog and rain, caused its forward lead barge to collide with and damage CZ's water intake structure, located above Baton Rouge, Louisiana. Shortly after this incident, CZ began to repair the structure, but these repairs were interrupted on May 18, 1979, when another tugboat collided with the structure and damaged the remaining portion. The structure was not rebuilt in kind, but was rebuilt in a different form.

CZ filed suit against the tugboat F.R. BIGELOW, and Ingram, her bareboat charterer, in April of 1979. Subsequently, it amended its complaint to include Cherokee Insurance Company (Cherokee), the prime P & I insurer of Ingram, with a policy limit of $1,000,000, and London Steam-Ship Owners' Mutual Insurance Association (London Steam-Ship), excess P & I insurers of Ingram, with a deductible franchise of $1,000,000.

In its answer to the suit based upon the accident of February 3, 1979, Ingram, the charterer-owner/operator of the F.R. BIGELOW, sought limitation of its liability to the value of the vessel plus freight then pending. See 46 U.S.C. Sec. 183. Ingram stipulated liability for striking the intake structure, and the issues of damages and limitation of liability were tried. Following trial, the District Court entered judgment for CZ in the "total sum" of $3,948,210.31 with prejudgment interest calculated from December 11, 1980. The District Court granted Ingram's prayer for limitation of liability, valued the vessel at $2,134,918.88, and limited the owner's liability to that amount. Since Cherokee's prime P & I policy was for $1,000,000, the District Court decreed the total sum of CZ's judgment as follows:

Table 1

(a) Total Damages to CZ $3,948,210.31

(b) Payable by Owner and

Cherokee Prime P & I $1,025,000.00

(c) Payable by Owner and

London Steam Excess P & I 1,109,918.88

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(d) Owner's Limited Liability 2,134,918.88

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(e) Balance by London Steam

Excess P & I $1,813,291.44

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Following the entry of judgment, Ingram and its two P & I underwriters made payments up to Ingram's limited liability ($2,134,918.88).

London Steam-Ship challenged the portion of the District Court's judgment holding that underwriter liable for the amount ($1,813,291.44) of CZ's claim over and above Ingram's fixed limited liability ($2,134,918.88). The panel, by divided vote, affirmed that holding.

The P & I Coverage

For its protection against claims for damage to piers and other fixed (non-vessel) structures, Ingram, as chartered owner of the tug BIGELOW, had two P & I covers. The prime cover was with Cherokee, with the amount of insurance being specified as $1,000,000. London Steam-Ship, through A. Bilbrough and Company as managers, dove-tailing Cherokee's cover with a deductible franchise of $1,000,000, supplied an excess P & I cover in accordance with its Rules.

Louisiana Enters the Fray

In what at one time was thought to be the tranquil waters of Jensen ³ with its jealous guard of admiralty uniformity unsettled by Wilburn Boat ⁴ and the intrusion of state laws into these sacred waters, our problem comes about by the Louisiana Direct Action statute, La.R.S. 22:655. ⁵

This statute, as its name implies, allows a direct action against a liability insurer for Louisiana-incurred damages. But the statute does not create new Louisiana liabilities. On the contrary, by its own terms, reinforced by Louisiana judicial decisions, the statute imposes liability on the insurer subject "to all of the lawful conditions of the policy or contract and the defenses which could be urged by the insurer to a direct action brought by the insured, provided the terms and conditions of such policy or contract are not in violation of the laws of this State."

II.

In our much discussed decision of Olympic Towing Corp. v. Nebel Towing Co., 419 F.2d 230, 1969 A.M.C. 1571, rehearing denied, 419 F.2d 238 (5th Cir.1969) (en banc), cert. denied, 397 U.S. 989, 90 S.Ct. 1120, 25 L.Ed.2d 396 (1970), the Court relied in part on the Louisiana Direct Action Statute to affirm the District Court's award of judgment in excess of the limitation value against the underwriter of the vessel at fault.

The P & I policy in Nebel Towing did not by its terms limit the insurer's liability to the vessel owner's limited liability. That meant that the P & I underwriter, in its effort to limit its liability, had to contend that as the insurer it had the right to claim the vessel owner's statutory right to limit its liability.

In holding the statutory limitation right unavailable to the insurer, the Nebel Towing court reasoned as follows: the enigmatic but undeniable Cushing ⁶ decision declined to hold the Louisiana statute to be preempted by the paramount federal maritime power. Therefore, the Court tested the insurer's claim of entitlement to the shipowner's statutory right to limit liability according to the law of Louisiana.

The insurer attempted to rely on a clause in its policy limiting its liability to "such sums as the assured * * * shall have become legally liable to pay and shall have paid on account." This no-action clause, however, directly ran afoul of the Louisiana Direct Action Statute.

The statute simply voids any policy clause which conditions the right of the injured person to enforce against the insurer its contractual obligation to pay the insured's debt upon, as prerequisite, the obtaining by the injured person of a judgment against the insured.

Hidalgo v. Dupuy, 122 So.2d 639, 644-45 (La.App.1960), quoted in Nebel Towing, 419 F.2d at 237.

The Nebel Towing court also held that the limitation of liability defense was a defense "personal" to the shipowner and could not be availed of by the insurer. See LA.CIV.CODE ANN. art. 1801 (West 1985); note 15 infra. As we discuss below, this holding was the result of a flawed analogy to Louisiana immunity law and was wholly unnecessary to the Nebel Towing decision. See infra.

III. Out of the Fog of Nebel Towing

It is here that we must part ways with Nebel Towing. In a nutshell, the distinction between this case and Nebel Towing is a simple one. Nebel Towing dealt solely with the contention that the P & I underwriter was entitled to the shipowner's statutory right to limit liability. See note 9 infra. Here the claim is quite different: the P & I underwriter is claiming only that, as prescribed by the Louisiana Direct Action Statute, the terms of its own insurance policy limits maximum liability to the dollar amount for which the shipowner-assured would be liable upon successfully maintaining the right to limit its liability. The P & I underwriter is not claiming the statutory right of the assured. To the contrary, it is here claiming only the limitation of the insurance policy defense itself. As we explain below, this policy limitation cannot be contrary to Louisiana law nor to the public policy of the state.

London Steam-Ship Coverage

London Steam-Ship ...