In re Prudential Lines, Inc.
| Decision Date | 12 June 1997 |
| Docket Number | Bankruptcy No. 86-11773,Adversary No. 90-6830A.,No. 97 Civ. 0720 (CSH),97 Civ. 0720 (CSH) |
| Citation | 209 BR 621 |
| Parties | In re PRUDENTIAL LINES, INC., Debtor. Lee DICOLA, Trustee of the PLI Disbursement Trust, Plaintiff, Asbestos Claimants Represented By Maritime Asbestosis Legal Clinic, Intervenor-Plaintiff-Appellees, v. AMERICAN STEAMSHIP OWNERS MUTUAL PROTECTION AND INDEMNITY ASSOCIATION, INC., Defendant-Appellant. |
| Court | U.S. District Court — Southern District of New York |
Alan Kellman, The Maritime Asbestosis Legal Clinic, The Jaques Admiralty Law Firm, P.C., Detroit, MI, for Intervenor-Plaintiff-Appellee.
Christy & Viener, New York City, Richard H. Brown, Jr., Kirlin, Campbell, Meadows & Keating, New York City, for Defendant-Appellant.
The American Steamship Owners Mutual Protection & Indemnity Association, Inc. ("American Club" or "the Club") appeals from an opinion and order of the Bankruptcy Court for this District (Arthur J. Gonzalez, Judge), reported at 202 B.R. 13 (Bankr. S.D.N.Y.1996), following a remand from this Court for further proceedings consistent with an opinion reported at 170 B.R. 222 (S.D.N.Y.1994), appeal dismissed, 59 F.3d 327 (2d Cir.1995).
Familiarity with all prior opinions in this case is presumed. For present purposes, it is sufficient to say that this Court found a measure of ambiguity in that provision in the insurance policies at issue which reads: "Claims hereunder, other than for burial expenses, are subject to a deduction of $___ with respect to each accident or occurrence." Affirming the bankruptcy court (opinion of Conrad, Judge, reported at 148 B.R. 730 (Bankr.S.D.N.Y.1992)), I held that the phrase "claims hereunder" was not ambiguous, should be read as "all claims hereunder," served only as an introductory phrase not directly linked to the application of deductibles, and consequently required only that the deductible be applied to each "occurrence."
However, reversing the bankruptcy court, I held that the term "occurrence" was ambiguous, and remanded the case to the bankruptcy court for the taking of extrinsic evidence as to its meaning. American Club and its intervening opponent in this adversary proceeding, the Maritime Asbestosis Legal Clinic ("MALC"), offer two competing interpretations of "occurrence" which could plausibly be utilized in asbestosis claims. They are aptly summarized by Judge Gonzalez in his opinion on remand: 202 B.R. at 18. These conflicting interpretations have profound effects upon the calculation of deductible amounts under the policies. As the bankruptcy court observed, Id.
American Club's position is that a practice in respect of deductibles, consistent with its interpretation, had evolved over time between the Club and its shipowner insureds, including PLI. When the case was previously before this Court, the only pertinent evidence, an American Club officer's affidavit and an agreed statement of facts, "failed to sufficiently detail the parties' practice, as distinguished from American Club's policy, in applying deductibles." 170 B.R. at 239. In remanding the case, I said: 170 B.R. at 239. Prior proceedings in the bankruptcy court had been conducted before Judge Francis G. Conrad, but the remand fell to Judge Gonzalez.
In a paradigmatic example of the parental relationship between a wish and a thought, American Club expressed the thought to Judge Gonzalez that the scope of remand was sufficiently broad to allow the meaning of the phrase "claims hereunder" to be revisited and extrinsic evidence offered on that subject as well. As Judge Gonzalez properly recognized, extrinsic evidence was inadmissible with respect to that phrase, because both the bankruptcy court and this Court had held that the phrase was unambiguous, thereby establishing the law of the case at these levels of the judicial hierarchy. 202 B.R. at 17. Judge Gonzalez also rejected American Club's contention that the meaning of "claims hereunder" was reopened by a phrase that the court of appeals used en passant, 59 F.3d at 332, in dismissing the appeal from this Court's prior order for lack of appellate jurisdiction. Id.
On remand, American Club called two witnesses and introduced nine exhibits. MALC called no witnesses and offered one exhibit. I will consider the evidence infra. At the conclusion of the hearing, the bankruptcy court held that the preponderance of the evidence demonstrated "that American Club's policy for asbestosis claims resulting prior to 1989 has been to apply a deductible for each policy year in which a seaman worked," but that the preponderance of evidence did not demonstrate "that PLI either acquiesced to American Club's policy of applying deductibles or concurred with American Club's definition of `occurrence.'" 202 B.R. at 19. The bankruptcy court reasoned that since the extrinsic evidence on remand "did not demonstrate any practice between the parties which indicates they attached a similar meaning to the provision," the ambiguity which this Court found the term "occurrence" remained unresolved, so that the application of contra proferentem required adoption of MALC's interpretation. Id. at 24.
This appeal followed.
In this "core" proceeding, the bankruptcy court's findings of fact are reviewed for clear error and its conclusions of law de novo. Brunner v. New York State Higher Educ. Services, 831 F.2d 395, 396 (2d Cir.1987).1
The two witnesses called by American Club were Thomas J. McGowan and William Craig. They are respectively president and senior vice president of Shipowners Claims Bureau ("SCB"), American Club's manager.
McGowan testified that American Club began to receive claims for asbestosis reimbursement in about 1980. The Club adopted a practice of applying "one deductible for each policy year in which there was exposure." Tr. 24. According to McGowan, that policy "was generally accepted by the members," with the sole exception of Farrell Lines. Tr. 32.2 Farrell Lines' insurance manager, Richard LePage, took the position that the Club "should take only one deductible," by which he meant "one deductible per claim," no matter how many policy years were involved. Tr. 33. No shipowner member ever suggested that "there should be less than one deductible per claim." Id.
McGowan testified that any member who disagreed with SCB's practices had the right to raise the issue with the Club's board of directors. The question of application of deductibles to asbestos claims was first raised before the board at a meeting on September 17, 1987, where a lengthy opinion of counsel on the subject was presented. Tr. 37-38. Counsel concluded that "although there is ample room for argument on both sides of the question, we believe a full deductible for each policy year is proper under the policy terms." Ex. B at 8533. The board took no action and tabled the matter, not returning to it until a meeting on September 14, 1989. I need not recite in detail what then occurred, since PLI had left the Club in 1986. It is pertinent to note, however, that at the September 1989 meeting the board approved the manager's recommendation that "for exposures occurring prior to February 20, 1989 the present practice of using multiple deductibles be continued." Ex. C at 8683.
McGowan testified that all the asbestos claims against the Club have been reimbursed on the basis of one deductible per policy year; that PLI accepted reimbursement on the basis of one deductible per policy year; and that, although shipowner members can sue the Club if they disagree with its disposition of claims, no member, including PLI, has brought an action to challenge that calculation of deductibles in respect of asbestos claims. Tr. 48-49.
Craig, presently SCB's senior vice president in charge of claims administration, joined the company in June, 1985. Tr. 68. Prior to that time he had worked for 39 years in claims administration with Isthmian Lines, another American-flag shipowner. In that capacity Craig became familiar with American Club's deductible practice, which was to calculate Furthermore, "it was always one deductible per accident per year." Tr. 75-76. After Craig joined SCB, American Club continued to follow the practice of "one deductible per policy year for asbestos claims." Tr. 78.
American Club offered documents with respect to eleven claims for asbestos reimbursement submitted by PLI. Judge Gonzalez found that those eleven claims were referred to in internal worksheets prepared by SCB at McGowan's direction prior to the September 1987 board meeting "for the purpose of comparing the effect of...
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