Elevating Boats, Inc. v. Gulf Coast Marine, Inc., 84-3803

Citation766 F.2d 195
Decision Date22 July 1985
Docket NumberNo. 84-3803,84-3803
PartiesELEVATING BOATS, INC., et al., Plaintiffs/Appellants, v. GULF COAST MARINE, INC., et al., Defendants/Appellees. Summary Calendar.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Roy A. Raspanti, New Orleans, La., for Meldeans, Inc.

Michael J. Maginnis, New Orleans, La., for American Bankers Ins., Gulf Coast Marine, Jersey Int'l.

John J. Broders, Robert T. Lemon, New Orleans, La., for Manser Ins. Agency.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before WILLIAMS, JOLLY and HILL, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

This appeal involves the alleged breach of a marine insurance contract. The district court, exercising its admiralty jurisdiction, ruled for the insurance company. See Elevating Boats, Inc. v. Gulf Coast Marine, Inc., 595 F.Supp. 160 (E.D.La.1984). The policyholders, Meldeans, Inc. and Elevating Boats, Inc. (Elevating), one of Meldeans' sister companies, challenge the district court's factual finding that the insurer sustained prejudice from their failure to notify the insurer of an accident until two weeks before trial. Finding adequate evidence in the record supporting the district court's finding, we affirm.

I. BACKGROUND 1
A. The State Court Suit

This suit had its genesis in a state court action initiated in January 1978 by Woodrow Rivers against Meldeans, Elevating, and Schlumberger Well Surveying Corp. Rivers served as the captain and sole crew member of a vessel owned by Elevating and operated by Meldeans. In January 1977, Rivers fell into a large hole on or near a pier owned or operated by Schlumberger. A few days after the accident Meldeans and Elevating were made aware of the accident and the injury to Rivers. Rivers never returned to work, and he underwent continuous medical treatment, culminating in a major surgery to his back in November 1977. Correspondence from Rivers' counsel to Meldeans and Elevating both before and after the surgery revealed the distinct possibility that Rivers might be totally and permanently disabled.

Two months after the surgery Rivers sued Meldeans, Elevating, and Schlumberger for damages under the Jones Act, 46 U.S.C. Sec. 688 (1982), and general maritime law. After a two-day bench trial held in May 1979, nearly two and one-half years after the accident, the state district court sitting without a jury determined that Meldeans alone was the Jones Act employer of Rivers and that Meldeans breached its duty to furnish Rivers with a safe means of ingress to and egress from the vessel. It accordingly entered judgment for Rivers and against Meldeans in the amount of $229,000.00. Since the court concluded that neither Elevating nor Schlumberger were Jones Act employers of Rivers, they were exonerated of liability. The Louisiana Court of Appeal affirmed the judgment in Rivers v. Schlumberger, 389 So.2d 807 (La.Ct.App.1980).

B. The Insurance Coverage

Prior to the accident, Meldeans and Elevating had procured a marine insurance policy from defendant appellee American Bankers Insurance Company of Florida (American Bankers). The American Bankers policy afforded coverage for claims up to $1,000,000 with a $100,000 deductible, and provided that American Bankers would defend Meldeans and Elevating for suits under the policy. The notice of claim provision of the policy provided, however, that Meldeans and Elevating would use due diligence to give American Bankers prompt notice of any accident for which Meldeans or Elevating were or might become liable and would forward to American Bankers "as soon as practicable" all communications and legal documents it received. 2 The district court found as a fact, however, that despite the seriousness of Rivers' injuries and the ongoing court action neither Meldeans nor Elevating had given any notice of claim to either American Bankers or American Bankers' insurance agents at any time prior to April 16, 1979. Rather, consistent with their usual practice of independently retaining counsel and defending suits such as Rivers', Meldeans and Elevating hired their own attorney to represent them in Rivers' suit in state court. 3

On or about April 16, 1979, two weeks before Rivers' state court trial commenced and well over two years after the accident, Lynn Dean, the president of Meldeans, sent a handwritten, undated note to the marine insurance broker that had handled the American Bankers' policy advising it of the scheduled trial date and enclosing a copy of Rivers' complaint. The insurance broker forwarded this letter and the supporting information to Jersey International, Inc., the company that acted as the underwriting and servicing arm for American Bankers' marine insurance business. On April 26, 1979, Jersey wrote to Dean and Elevating on behalf of American Bankers informing them that coverage for the claim and representation in the suit would be denied since neither Meldeans nor Elevating had ever filed the required notice of claim.

Meldeans instituted this suit in federal court under its admiralty jurisdiction, 28 U.S.C. Sec. 1333(1) (1982), claiming that the defendants breached the marine insurance contract by failing either to represent Meldeans and Elevating or to afford coverage for the loss. After conducting a bench trial and making written findings of fact, the district court rejected these challenges. The court found that the notice to American Bankers only two weeks before trial did not meet the requirements of the notice of claim provision in the policy and that such failure had caused "substantial prejudice" to American Bankers. On the prejudice issue, the court concluded that the late notice deprived American Bankers of the opportunity to (1) make a prompt investigation of the claim, (2) appoint its own counsel to represent its interests, and (3) settle the case for less than the judgment actually awarded. The sole challenge Meldeans and Elevating raise in this appeal is whether the district court correctly concluded that American Bankers actually was prejudiced by their failure to notify American Bankers of the accident and suit until the eve of trial. 4

II. DISCUSSION

In this appeal, we first determine whether in an admiralty case an insurer need demonstrate prejudice from an insured's failure to comply with a notice of claim or proof of loss provision in a marine insurance contract. If so, we must next determine whether sufficient evidence exists supporting the district court's factual determinations on the prejudice issue.

A. Applicable Law

Meldeans cites a series of Louisiana cases for the established proposition that in Louisiana an insurer must demonstrate that an insured's failure to comply with a notice of claim or proof of loss provision actually prejudiced its interest before such a failure discharges its obligation to afford coverage under the policy. See West v. Monroe Bakery, Inc., 217 La. 189, 46 So.2d 122, 128 (1950); Fakouri v. Insurance Company of North America, 378 So.2d 1083, 1086 (La.Ct.App.1979); Barnes v. Lumbermen's Mutual Casualty Co., 308 So.2d 326, 328 (La.Ct.App.1975); Miller v. Marcantel, 221 So.2d 557, 559 (La.Ct.App.1969). It is equally well-established, however, that federal rather than state law governs the interpretation of a policy of marine insurance. 5 St. Paul Fire and Marine Insurance Co. v. Vest Transportation Co., 666 F.2d 932, 941 (5th Cir.1982). Our research has disclosed no case discussing whether an insurer of a marine insurance policy need demonstrate prejudice from an insured's failure to give timely notice of a claim before denying coverage or benefits. Where, as here, no federal law, legislative or judicial, relating to the question exists, the law of the state where the marine insurance contract was issued and delivered is the governing law. Eagle Leasing Corp. v. Hartford Fire Insurance Co., 540 F.2d 1257, 1261 (5th Cir.1976), cert. denied, 431 U.S. 967, 97 S.Ct. 2926, 53 L.Ed.2d 1063 (1977); Walter v. Marine Office of America, 537 F.2d 89, 94 (5th Cir.1976); Cf. Big Lift Shipping Co. v. Bellefonte Insurance Co., 594 F.Supp. 701, 704 (S.D.N.Y.1984) (since no admiralty rule exists controlling the interpretation of notice of loss provisions in marine insurance contracts, state law applies). 6 The instant policy was issued and delivered in Louisiana, and the parties implicitly conceded that in accordance with Louisiana law American Bankers needed to prove that it sustained prejudice from the failure of Meldeans and Elevating to give timely notice.

B. Prejudice

The remaining question in this appeal is whether sufficient evidence exists supporting the district court's factual determination that American Bankers sustained prejudice from Meldeans' late notification of the accident. The factual findings of the district court sitting in an admiralty case are subject to the clearly erroneous standard of review. Fed.R.Civ.P. 52(a); Domar Ocean Transportation Ltd. v. M/V ANDREW MARTIN, 754 F.2d 616, 619 (5th Cir.1985). A finding is clearly erroneous only if the appellate court is left with a definite and firm conviction that a mistake has been made. Black...

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