N.Y. Marine & Gen. Ins. Co. v. Cont'l Cement Co.
| Decision Date | 17 July 2014 |
| Docket Number | No. 13–2313.,13–2313. |
| Citation | 761 F.3d 830 |
| Parties | NEW YORK MARINE AND GENERAL INSURANCE COMPANY; Starr Indemnity & Liability Company Plaintiffs–Appellees v. CONTINENTAL CEMENT COMPANY, LLC; Summit Materials, LLC Defendants–Appellants Summit Materials, LLC; Continental Cement Company, LLC Counter Claimants–Appellants v. New York Marine and General Insurance Company; Starr Indemnity & Liability Company Counter Defendants–Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
OPINION TEXT STARTS HERE
James K. Mondl, argued, Courtney C. Stirrat, Tonkin & Mondl, St. Louis, MO, for appellees.
Neal W. Settergren, argued, Alan K. Goldstein, Theresa M. Mohin, Goldstein & Price, St. Louis, MO, for appellants.
Before WOLLMAN, MURPHY, and GRUENDER, Circuit Judges.
The Mark Twain, a cement barge owned by Continental Cement Company, LLC and Summit Materials, LLC (Continental Cement), sank in the Mississippi River at St. Louis on the morning of February 7, 2011. Insurers for the barge, Starr Indemnity & Liability Company and New York Marine & General Insurance Company (Starr Indemnity), investigated the sinking and declined coverage for both the loss of the hull and the expense of removing the barge from the river. The insurers then brought this action in the district court seeking a determination of their rights and obligations under Continental Cement's insurance policies. Continental Cement counterclaimed for breach of contract and vexatious refusal to pay under Missouri law.
The insurers later located a survey of the Mark Twain from 2008 which indicated that the barge had not been watertight at the time Continental Cement obtained its policies. On the grounds that Continental Cement had breached its duty of utmost good faith by withholding this survey from its insurance application, Starr Indemnity amended its complaint to assert that the insurance policies were void. Continental Cement responded with a motion for partial summary judgment, asserting in part that this circuit had not recognized the defense of utmost good faith in maritime insurance cases. The district court 1 disagreed, concluded that the defense was “entrenched” federal law, and denied the summary judgment motion. The case proceeded to trial, and the jury returned a general verdict in favor of the insurers. The district court entered a corresponding final judgment, and Continental Cement appeals. We affirm.
On this appeal we view the facts in the light most favorable to the insurers because the jury ruled in their favor. Friedman & Friedman, Ltd. v. Tim McCandless, Inc., 606 F.3d 494, 496 (8th Cir.2010). Summit Materials is the majority owner of Continental Cement Co., a cement manufacturing company. Continental Cement had been using five barges to transport cement from its manufacturing facility in Hannibal, Missouri down the Mississippi River to its distribution facility in St. Louis. The Mark Twain was among these barges. Built in the 1920s, the Mark Twain was a steel hulled barge with riveted construction. It had ten compartments along the perimeter, each separated by a bulkhead. These bulkheads were intended to be watertight to protect the vessel from sinking should a leak develop in any one compartment.
In 2008 Continental Cement considered retiring the Mark Twain as a transport barge to use as a stationary dock barge. It hired marine engineer Wade McGrady to survey the barge for its fitness for this purpose. McGrady inspected the barge and prepared a “General Condition Survey” summarizing his findings. In his survey McGrady noted that while there were no active hull leaks, “numerous rivets appeared to have been leaking in the past.” He also observed that some of the bulkheads were no longer watertight because they were missing rivets. He also inspected the bilge system, which is designed to pump water out of the ship, and testified at trial that it was “not even close” to functioning. The system was in such a “deteriorated state” that water could flow through it and between compartments in the event of a leak. McGrady's survey ended with ten recommendations, including “further subdivision” of the perimeter compartments to isolate water from a leak, and repairs to the bilge system “to prevent progressive flooding.” After reviewing this survey, Continental Cement decided not to convert the Mark Twain into a dock barge, and instead put it back into transport service without making any repairs.
On November 4, 2010 Continental Cement applied to Starr Indemnity for a marine insurance policy for all five of the company's barges, including the Mark Twain. Starr Indemnity's form application stated that “QUOTES ARE SUBJECT TO SATISFACTORY CONDITION & VALUATION SURVEYS; USUALLY AT THE EXPENSE OF THE APPLICANT / ASSURED” and requested that the applicant “PLEASE INCLUDE RECENT SURVEYS, IF AVAILABLE.” Continental Cement attached to its application an “Appraisal Report” from 2006 that listed the value of each barge but did not list any problems with the Mark Twain. Continental Cement did not attach McGrady's 2008 “General Condition Survey” of the Mark Twain. Starr Indemnity issued the company a primary marine insurance contract and an excess policy that went into effect on December 31, 2010. The underwriter later testified in the district court that he was not aware of the 2008 survey when he reviewed the company's application. If the survey had been provided, he indicated it would have raised in his mind “a serious issue of seaworthiness.”
The Mark Twain was at Continental Cement's dock in St. Louis when it sank on the morning of Monday, February 7, 2011. Evidence presented at trial indicates that Continental Cement employees noticed the barge was sitting low in the water three days before it sank, but they conducted only a cursory inspection, performed limited pumping, and left the barge unattended from Saturday afternoon until the barge went under at 6 a.m. on Monday. Shortly after the barge sank, Continental Cement reprimanded its terminal manager for his “lack of proper judgment and supervision (not notifying any of your superiors, nor staffing and pumping the Mark Twain with Continental [Cement] personnel until the known leak was repaired).” Continental Cement did not share either this communication or the 2008 survey with Starr Indemnity.
After Starr Indemnity conducted an independent investigation into why the barge sank, it sent a letter on May 9, 2011 declining insurance coverage for the loss of the Mark Twain's hull, as well as for wreck removal expenses. With respect to hull coverage, Starr Indemnity's claims agent stated that Continental Cement had not identified a peril covered by the policy that caused the barge to sink, and asserted that “the loss appears to have been due to a lack of due diligence” by Continental Cement. As to wreck removal, the claims agent stated that in the absence of a governmental order requiring Continental Cement to remove the sunken barge, removal was unnecessary and unwarranted under the policy. That same day Starr Indemnity filed an action in federal court seeking a declaration of its rights and obligations under the insurance policies.
During the discovery process Starr Indemnity learned about the 2008 survey, and on August 14, 2012 it filed a fourth amended complaint that added two affirmative defenses. Starr Indemnity argued (1) that by withholding the 2008 survey from its insurance application, Continental Cement had breached its duty of utmost good faith, and (2) that the Mark Twain was unseaworthy at the time Continental Cement applied for insurance and the company thus breached its absolute warranty of seaworthiness. If these arguments were proven, either or both of the affirmative defenses could void the insurance policies.
Continental Cement filed its answer and counterclaim on August 30, 2012, alleging breach of the insurance contract and vexatious refusal to pay. Continental Cement then brought several motions for partial summary judgment. In one of its motions Continental Cement argued that the Eighth Circuit does not recognize the defense of utmost good faith in maritime insurance cases. In denying the motion, the district court concluded that the doctrine of utmost good faith is “entrenched” federal law and that it was a question for the jury whether Continental Cement had violated its duty by withholding the 2008 survey.
The case went to trial. At the close of evidence Continental Cement moved for judgment as a matter of law, partially based on Starr Indemnity's utmost good faith defense. Continental Cement argued (1) that withholding the 2008 survey was at most an innocent omission and thus there was insufficient evidence to submit the defense to the jury, and (2) that Starr Indemnity had waived this defense by not including it in its initial letter declining coverage. After this motion was denied, Continental Cement challenged the jury instruction on utmost good faith “for the same reasons stated in Continental [Cement]'s motion for judgment as a matter of law.” The court rejected this challenge.
The parties disputed whether special interrogatories or a general verdict should be submitted to the jury. The insurers proposed a series of special interrogatories, but the district court decided these would be “more confusing than beneficial to the jury.” The district court instead offered to edit a general verdict form so the jury could “identify which affirmative defense they had found,” but Starr Indemnity declined this option. Among the district court's instructions to the jury was one instructing it to find insurance coverage for the removal expenses of the wrecked barge unless it found the policies void from their inception on either of Starr Indemnity's affirmative defenses. On May 1, 2013 the jury returned a general verdict in favor of the insurers. The district court accordingly entered judgment in favor of Starr Indemnity, stating that “based upon the...
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