Perez v. Los Fresnos State Bank

• Decision Date: 20 June 1974
• Docket Number: No. 871,871
• Parties: Pascual PEREZ et al., Appellants, v. LOS FRESNOS STATE BANK, Appellee.
• Court: Texas Court of Appeals

Page 796

512 S.W.2d 796

Pascual PEREZ et al., Appellants, v. LOS FRESNOS STATE BANK, Appellee.

No. 871.

Court of Civil Appeals of Texas,

Corpus Christi.

June 20, 1974.

Benjamin S. Hardy, Hardy, Sharpe & Rodriguez, John W. Black, III, Cox, Wilson, Duncan & Black, Brownsville, for appellants.

Harry D. Lewis, Wiech, Lewis & Gann, Brownsville, Richard D. Davis, Johnson & Davis, Harlingen, for appellee.

OPINION

BISSETT, Justice.

This is a suit on a marine insurance policy to recover the value of a boat that was totally destroyed by fire.

Pascual Perez, the insured boat-owner, sued Interstate Insurance Company and Breedlove Insurance Agency to recover the full amount of the policy issued by the insurer on a boat owned by him. Los Fresnos State Bank of Los Fresnos, Texas, which held a mortgage on the boat, intervened under an endorsement to the policy which protected its interest as a mortgagee.

At the conclusion of a jury trial, judgment was rendered that Los Fresnos State Bank (Bank) recover $4,600.00 from Interstate Insurance Company (Interstate) and $1,000.00 from Pascual Perez (Perez) and that Perez recover nothing from either of the defendants . Perez has duly perfected an appeal to this Court from that portion of the judgment rendered in favor of Interstate against him. Interstate gave timely notice of appeal from that portion of the judgment which awarded $4,600.00 to the Bank, filed a cost bond within the prescribed time, but did not file the record in this Court. Its appeal must be dismissed.

The principal facts are undisputed. In May, 1967, Perez purchased the wooden hull shrimp boat 'San Martin'. The purchase price was financed through the Bank and was secured by a mortgage on the vessel. The note was renewed from time to time. At the time judgment was rendered, $5,600.00 was due thereon.

In the late afternoon of June 17, 1971, the 'San Martin' left Port Isabel for the purpose of fishing in the Gulf of Mexico off Port Aransas. The vessel was manned by Perez and his 17 year old son, Patricio. On that day, while running north up the Texas Coast toward the fishing grounds, the elder Perez saw smoke coming from the engine room hatch. A fire had broken out below deck. Perez and his son attempted to fight the fire with extinguishers. A Coast Guard ship in the vicinity came to the aid of the burning boat. The Coast Guard vessel was equipped with a built-in fire fighting system which the crew used in an attempt to control the fire. It was impossible, due to the small size of the engine room compartment where the fire started, for more than one or two men to fight the fire. Despite the assistance by the crew of the Coast Guard ship, the fire could not be controlled and the boat was totally destroyed.

The 'San Martin', on the date of its destruction by the fire, was covered by a standard marine insurance policy for $20,000.00 less $1,000.00 deductible, which had been issued by Interstate and sold to Perez through the Breedlove Insurance Agency. The policy included hull coverage, and attached thereto were several 'special endorsements', one of which read as follows:

'WARRANTED NO COVERAGE IF OPERATING AND/OR FISHING WITH LESS THAN THREE (3) MEN (MOVING BETWEEN DOCKS, ETC. WITHIN CONFINES OF ONE PORT NOT TO BE CONSIDERED OPERATING).'

On the strengh of this endorsement, Interstate denied Perez' claim for the total loss of his boat.

The jury, among other findings, found: 'the fact that there were only two (2) men aboard the vessel at the time and on the occasion in question' was not a proximate cause of the loss by fire of the vessel (Special Issue 6); and 'on June 17, 1971, when the San Martin left Port Isabel, Texas', it was not 'unseaworthy' (Special Issue 9) .

Perez, in his points of error 1 and 2, asserts that the trial court, in rendering judgment in favor of Interstate and against him, committed reversible error in disregarding the jury's findings in response to Special Issues 6 and 9. ¹ The basic question presented by this appeal is, under what law is the '3-man clause' of the policy to be construed, Federal admiralty law or Texas law?

The leading case on this question is Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955). In that case a policy of insurance was issued on a small houseboat which was used for carrying passengers on Lake Texoma. The policy contained warranties that the insurance became void if the boat was sold, assigned, transferred, pledged or used for hire without consent of the insurer. The boat burned and the insurance company refused to pay for the loss on the grounds that the warranties had been breached. The Wilburns brought suit in a Texas state court and claimed that under Art. 6.14 of the Texas Insurance Code, V.A.T.A. the breach by the insured of the provisions of a fire insurance policy cannot be used as a defense by the insurer unless the breach contributes to the loss. After removal, a federal district court rendered judgment for the insurance company, which was affirmed on appeal. (See 5 Cir., 201 F.2d 833). The United States Supreme Court reversed the lower courts and remanded the case with directions to give effect to the Texas statutes. The Court recognized that although there is federal jurisdiction over the area of marine insurance, it did not follow that every term in every maritime contract could only be controlled by some federally defined admiralty rule. It was noted that the control of all types of insurance companies and insurance contracts had been primarily a state function 'since the States came into being'. Mr. Justice Black, in writing the majority opinion, warned against the creation by the federal courts of admiralty rules to govern marine insurance policy terms and warranties, and said:

'Under our present system of diverse state regulations, which is as old as the Union, the insurance business has become one of the great enterprises of the Nation. Congress has been exceedingly cautious about disturbing this system, even as to marine insurance where congressional power is undoubted. We, like Congress, leave the regulation of marine insurance where it has been--with the States .' 75 S.Ct. at 374.

The Supreme Court, in Wilburn, did not see fit to fashion a controlling federal rule in the area of marine insurance contracts, and established the rule that State law would regulate such contracts in the absence of federal legislation or a conflicting judicially established precedent.

Marine insurance contracts are not regulated by federal statute or regulation. Interstate seeks to avoid the effect of the Wilburn Boat Rule by asserting that its precedential value has been 'eroded' by federal decisions over the years. We do not agree. While it is true that the Supreme Court, in Kossick v. United Fruit Co., 365 U.S. 731, 81 S.Ct. 886, 6 L.Ed.2d 56 (1961), declined to extend the Wilburn Boat Rule to cover the type of maritime contract there involved, Wilburn has not been overruled with respect to marine insurance contracts. Texas law, not admiralty law, controls the case presented by this appeal. Irwin v. Eagle Star Ins. Co., 455 F.2d 827 (5th Cir. 1972), cert. denied, 409 U.S. 852, 93 S.Ct. 118, 34 L.Ed.2d 95; F. B. Walker & Sons, Inc. v. Valentine, 431 F.2d 1235, 1239 (5th Cir. 1970); Fireman's Fund Insurance Co. v. Wilburn Boat Co., 300 F.2d 631, 639--640 (5th Cir. 1962); Crispin Co. v. M/V Korea, 251 F.Supp. 878 (S.D.Tex. 1965); Travelers Indemnity Co. v. Gulf Weighing Corp., 352 F.Supp. 335, 343 (E.D.La.1972); Lemar Towing, Inc. v. Fireman's Fund Ins. Co., 352 F.Supp. 652, 659 (E.D.La. 1972), aff'd 471 F.2d 609 (5th Cir.); 2 C.J.S. Admiralty § 41.

Interstate further claims that even if the Wilburn Boat Rule is still to be given effect, this case falls outside the scope of Wilburn because there exists an 'entrenched federal precedent' that a 2-man crew on a shrimp boat renders the boat unseaworthy as a matter of law. It relies primarily upon Boudoin v. Lykes Brothers Steamship Co., 348 U.S. 336, 75 S.Ct. 382, 99 L.Ed. 354 (1955); Aguirre v. Citizens Casualty Company of New York, 441 F.2d 141 (5th Cir. 1971), cert. denied, 404 U.S. 829, 92 S.Ct. 65, 30 L.Ed.2d 58; June T, Inc. v. King, 290 F.2d 404 (5th Cir. 1961); Smith v. Seitter, 225 F.Supp. 282 (E.D.N.C.1964); and Sams v. Haines, 299 F.Supp. 746 (S.D.Ga.1969). We disagree with Interstate. None of cited cases involve a fact situation that is any way similar to the facts of this case. Most of those cases are personal injury cases which were brought by seamen who were performing some function which the court said they should not have been doing alone. The same contention made by Interstate in the instant case was made and rejected in Gulf Coast Trawlers, Inc. v. Resolute Ins. Co., 239 F.Supp. 424, 427 (S.D.Tex.1965), where the vessel sank because of a leak in the hull. Judge Garza disposed of the asserted unseaworthiness contention because of a 2-man crew in these words:

'I, therefore, find that a 2-man crew does not make a vessel unseaworthy as a matter of law for all purposes and in all respects. The failure to have a third crew member must be a proximate cause of the act complained of, . . .'

Seaworthiness of a vessel at a given time is a question of fact. Horton & Horton, Inc. v. T/S J. E. Dyer, 428 F.2d 1131, 1135 (5th Cir. 1970), cert. denied, 400 U.S. 993, 91 S.Ct. 461, 27 L.Ed.2d 441; Aguirre v. Citizens Casualty Company of New York, supra.

We have not found, nor have we been cited to any federal statute, regulation, or judicially established precedent which would take this case out of the Wilburn Boat Rule. On the contrary, recent federal decisions are explicit in holding that state law governs the construction and interpretation of marine insurance policies. We so hold. Irwin v. Eagle Star Ins. Co., supra; Rosa v. Insurance Company of State of Pennsylvania, 296 F.Supp. 167, 172 (S.D.Cal.1969), aff'd, 421 F.2d 390 (9th Cir.); Larson...