In re US Lines, Inc., Bankruptcy No. 86-B-12240

Citation169 BR 804
Decision Date05 July 1994
Docket NumberBankruptcy No. 86-B-12240,86-B-12241. Adv. No. 93-8004A.
PartiesIn re UNITED STATES LINES, INC. and United States Lines (S.A.), Inc. f/k/a Moore McCormack Lines, Inc., Debtors. UNITED STATES LINES, INC. and United States Lines (S.A.), Inc. Reorganization Trust, Plaintiff, Asbestosis Claimants, Plaintiff-Intervenors, v. AMERICAN STEAMSHIP OWNERS MUTUAL PROTECTION AND INDEMNITY ASSOCIATION INC., West of England Owners Mutual Protection and Indemnity Association, Inc., Continental Insurance Corporation, United Kingdom Mutual Steamship Assurance Association (Bermuda) Limited, Assuranceforeningen Skuld, Liverpool & London Mutual Steamship Protection and Indemnity Association Limited, Marine Office of America Corporation, and The Travelers Insurance Company, Defendants.
CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York




H. Benzie (Gregory J. Mayer, on the brief), Bigham Englar Jones & Houston, New York City, for Aetna Cas. and Sur. Co., CIGNA Property and Cas. Ins. Co., Great American Ins. Co., Hartford Fire Ins. Co., U.S. Fire Ins. Co. ("Fulton Survivors") and Continental Ins. Co. ("Continental").

R. Brown (James E. Pratt, on the brief), Kirlin, Campbell, Meadows & Keating, New York City, for American S.S. Owners Mut. Protection and Indem. Ass'n, Inc. ("American Club").

D. Dougherty, Kirlin, Campbell, Meadows & Keating, New York City, for Liverpool & London Mut. S.S. Protection and Indem. Associated Ltd. ("Liverpool & London").

M. Corrigan (Nicholas Even, on the brief), Simpson Thacher & Bartlett, New York City, for Travelers Ins. Co. ("Travelers").

A. Gropper, White & Case, New York City, for Creditors' Committee ("Committee").

J. Harwood and J. Kimball, Healy & Baillie, New York City, for United Kingdom Mut. S.S. Assur. Ass'n (Bermuda) Ltd. ("UK Club").

W. Hogan (Alexander F. Vitale, on the brief), Freehill, Hogan & Mahar, New York City, for West of England Ship Owners Mut. Ins. Ass'n ("West of England").

A. Kellman, The Maritime Asbestosis Legal Clinic, Detroit, MI, for Asbestosis Claimants ("Claimants").

M. Stern (Nancy J. Heller and Susan G. Wood, on the brief), Stern, Dubrow & Marcus, Maplewood, NJ, for U.S. Lines, Inc. and U.S. Lines (S.A.), Inc. Reorganization Trust ("Trust").

G. Sullivan, Lilly Sullivan Purcell Barkan & Junge, P.C., New York City, for Assuranceforeningen Skuld ("Skuld").

Memorandum of Decision on Defendants' Motions to Dismiss and for Summary Judgment

FRANCIS G. CONRAD,* Bankruptcy Judge.

Before us1 are summary judgment motions2 by eight maritime insurers to dismiss the Trust's complaint on the grounds that the issues presented are, inter alia, nonjusticiable, noncore, inadequately pleaded, worthy of abstention, and, according to several foreign insurers, subject to mandatory arbitration. The motions will be denied in part and granted in part.

Plaintiff herein, United States Lines, Inc. and United States Lines (S.A.), Inc. Reorganization Trust ("Trust"), is Debtors' successor in interest under a personal injury claims resolution procedure established in Debtor's First Amended and Restated Joint Plan of Reorganization, dated February 23, 1989, as supplemented and amended by order dated February 6, 1990 ("Plan"). The Trust alleges breach of insurance contracts issued to the debtors, United States Lines, Inc. and United States Lines (S.A.) Inc., (collectively, "Debtors") and their successors in interest, and seeks primarily declaratory relief.

The defendants are Debtors' foreign and domestic maritime insurers ("Defendants" or "Clubs").


Debtors are engaged in the worldwide transportation of containerized freight on ocean-going vessels. Throughout their history as one of the world's largest shipping companies, Debtors employed thousands of seafarers to operate and maintain their vessels. Approximately 8000 of Debtors' former employees ("Claimants") have filed 15,000 claims alleging exposure to and injury from asbestos aboard Debtors' ships.3 The Claimants seek damages for their injuries under the Jones Act, 46 App.U.S.C. ? 688, et seq., and the General Maritime Law.

During the forty-year period preceding their petition for relief, Debtors purchased insurance contracts, known as Protection and Indemnity policies ("P & I policies"), from the Clubs. Such policies generally constitute the major form of liability insurance for ocean-going vessels and protect the insured against "liability for bodily injury (including death) or property damage arising out of specified types of accidents, and . . . certain unexpected vessel-related expenditures." A. Flitner & A. Brunck, Ocean Marine Insurance, vol. 1, 27 (2d ed. 1992). See Dicola v. American S.S. Owners Mut. Protection and Indem. Ass'n, Inc. (In re Prudential Lines, Inc.), 148 B.R. 730, 736-38 (Bankr.S.D.N.Y. 1992) (recounting history of P & I insurance).

The P & I policies relevant here, with minor exceptions, contain the following standard terms and conditions:

The Club agrees to indemnify the assured against any loss, damage or expense which the assured shall become liable to pay and shall pay by reason of the fact that the assured is the owner (or operator, manager, charterer mortgagee, trustee, receiver or agent, as the case may be) of the insured vessel and which shall result from the following liabilities, risks, events, occurrences and expenditures:
Liability for loss of life, or personal injury to, or illness of any person.
Liability for costs, charges and expenses reasonably incurred and paid by the assured in connection with any liability insured under this policy, subject, however, to the same deduction that would be applicable under this policy to the liability defended; provided, that if any liability is incurred and paid by the assured as aforesaid, the deduction shall be applied to the aggregate of the claim and expenses.

See Complaint, ? 12.

P & I Clubs are mutual insurance associations. In a recent English decision from the House of Lords, Lord Brandon described P & I insurance in the following manner:

It is the long-established practice of shipowners to enter their ships in protection and indemnity associations (P & I clubs) for the purpose of insuring themselves against a wide range of risks not covered by an ordinary policy of marine insurance. By so entering one or more of their ships in a P & I club shipowners become members of that club. P & I clubs operate on a system of mutual insurance under which the successful claim of one member is paid out of the contributions of, and the calls made on, all the members including himself. Each member is accordingly both an insurer and an insured.

Firma C-Trade S.A. v. Newcastle Protection and Indem. Assoc., 2 ALL E.R. 705, 708 (1990). Fewer than twenty P & I clubs exist worldwide. Most if not all Clubs are members of the International Group of Protection and Indemnity Associations, an organization where member clubs share information and intelligence and "most importantly, pool their losses and share in the purchase of reinsurance." A. Flitner & A. Brunck, supra, vol. II, 2 (2d ed. 1992). See Paulyson Cert. I ? 11 (American Club, UK Club, Liverpool & London, West of England, and Skuld are known members of the International Group.)

P & I policies often contain a "pay to be paid" or "pay first" provision which, in the event of a shipowner's insolvency and absent creative undertakings, may render the policies unenforceable. See, e.g., Liman v. American S.S. Owners Mut. Protection and Indem. Assoc., 299 F.Supp. 106 (S.D.N.Y.), aff'd, 417 F.2d 627 (2d Cir.1969), cert. denied, 397 U.S. 936, 90 S.Ct. 946, 25 L.Ed.2d 116 (1970) (permitted insolvent P & I policy holder to borrow funds necessary to satisfy policy's pay first provision); In re Prudential Lines, Inc., supra, 148 B.R. at 747-50 (same).

Generally, but with some notable exceptions, a Club would insure Debtors' entire ocean-going fleet for a particular year. Paulyson Cert. I, ? 4. Deductibles for each accident or occurrence ranged between $250 and $100,000. See Complaint, ?? 12, 13. Policy limits also varied from year to year.

Procedural History

Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. ? 101 et seq. on November 24, 1986. Debtors' Plan was confirmed on May 16, 1989.

The Plan as amended transfers all of Debtors' maritime insurance rights to the Trust and the Reorganization Trustee ("Trustee"). See Plan, Art. VII(A)(1)(i) ("U.S. Lines and U.S. Lines (S.A.) will transfer to the USL Reorganization Trust . . . all the insurance rights of such Debtors, including without limitation their Protection and Indemnity Coverage. . . .") The Trustee, in turn, must collect all monies owed under applicable insurance policies. See Id. ("The USL Reorganization Trustee shall attempt to secure for the benefit of the holders of the Personal Injury Claims all such insurance rights and Indemnification and Contribution Rights.")

The Trustee is empowered to resolve disputed personal injury claims and to distribute Debtor's assets to personal injury claimants. See United States Lines, Inc. and United States Lines (S.A.), Inc. Reorganization Trust Agreement, ? 3.5 (the "Trust Agreement") ("The Reorganization Trustee shall be entitled . . . to enforce such Insurance Rights and Indemnification and Contribution Rights and to receive and retain as Reorganization Trust Assets any payments made with respect to such rights.")

The Plan vests all Trust enforcement powers in the Trustee to collect funds owed by the Clubs:

The Clubs shall fund the portion of the Allowed Claim equal to the Allowed Excess P.I. Claims. To the extent any Club shall refuse to consent to such a program, the USL Reorganization Trustee is authorized and directed to bring suit against the Clubs and to take all reasonable steps to obtain the benefits of Insurance above the deductible and the

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