Port Lynch, Inc. v. NEW ENGLAND INTERN. ASSURETY OF AM.

• Decision Date: 07 January 1991
• Docket Number: No. C89-465Z.,C89-465Z.
• Citation: 754 F. Supp. 816
• Court: U.S. District Court — Western District of Washington
• Parties: PORT LYNCH, INC. and Interstate Production Credit Association, Plaintiffs, v. NEW ENGLAND INTERNATIONAL ASSURETY OF AMERICA, INC., Atlantic Gulf Marine Ins. Inc., American Marine & General Ins. Co., Ltd., American Atlantic Ins. Co., Ltd. and American Trade Ins. Co., Ltd., Monroe Ins. Brokerage, William Monroe, Barnhardt Marine Ins. Inc. and Frank L. Barnhardt, Defendants.

754 F. Supp. 816

PORT LYNCH, INC. and Interstate Production Credit Association, Plaintiffs, v. NEW ENGLAND INTERNATIONAL ASSURETY OF AMERICA, INC., Atlantic Gulf Marine Ins. Inc., American Marine & General Ins. Co., Ltd., American Atlantic Ins. Co., Ltd. and American Trade Ins. Co., Ltd., Monroe Ins. Brokerage, William Monroe, Barnhardt Marine Ins. Inc. and Frank L. Barnhardt, Defendants.

No. C89-465Z.

United States District Court, W.D. Washington, N.D.

January 7, 1991.

Allan L. MacDougall, Madden, Poliak, MacDougall & Williamson, Seattle, Wash., for Port Lynch, Inc., and Interstate Production Credit Ass'n.

Robert J. Bocko, Bradbury, Bliss & Riordan, Seattle, Wash., for American Marine & General Ins. Co. Ltd.

Lloyd B. Ericsson and Robert John Ericsson, Martin, Bischoff, Templeton, Ericsson & Langslet, Portland, Or., for American Atlantic Ins. Co., Ltd. and American Trade Ins. Co., Ltd.

Barbara L. Holland and Anne F. Preston, Garvey, Schubert & Barer, Seattle, Wash., for Monroe Ins. Brokerage, and William Monroe.

Joseph Stephen Stacey, LeGros, Buchanan, Paul & Whitehead, Seattle, Wash., for Barnhardt Marine Ins. Inc., and Frank L. Barnhardt and Atlantic Gulf Marine Ins., Inc.

ORDER GRANTING UNDERWRITERS' MOTIONS FOR SUMMARY JUDGMENT

ZILLY, District Judge.

This matter comes before the Court on a motion for summary judgment by American Trade Insurance Company and American Atlantic Insurance Company ("American Trade" and "American Atlantic," respectively) against the plaintiff Port Lynch, Inc. (docket no. 72). Atlantic Marine and General Insurance Company ("Atlantic Marine") joins in American Trade and American Atlantic's motion for summary judgment (docket no. 84), and also makes an independent motion for summary judgment, based solely on the issue of Port Lynch's breach of its warranty of navigation (docket no. 85). The Court, having considered these motions and all papers filed in support of and in opposition to the motions, and having heard oral argument on November 16, 1990, does hereby GRANT the underwriters' motions for summary judgment (docket nos. 72, 84 and 85).

I. BACKGROUND

This is a dispute over insurance coverage for a fire that occurred aboard the fishing vessel HAWAIIAN PRINCESS on July 2, 1988, causing the total loss of the vessel. The loss occurred while the vessel was in transit from crab fishing grounds in the Bering Sea, more than 1000 miles from southeast Alaska. Plaintiff Port Lynch is the owner of the vessel.

Port Lynch procured hull and machinery insurance for six of its vessels, including the HAWAIIAN PRINCESS, through its insurance brokers, Monroe Insurance and Brokerage and William Monroe (collectively, "Monroe"). In attempting to place the insurance, Monroe enlisted the assistance of other brokers, Frank Barnhardt and Barnhardt Marine Insurance (collectively, "Barnhardt"), who work almost exclusively in marine insurance. Barnhardt, with the assistance of Monroe, placed the first $300,000 of hull and machinery insurance with New England International Assurety of America ("New England"). New England is now in receivership in Louisiana and unable to pay on the policy. Barnhardt and Monroe also placed an excess $200,000 hull and machinery insurance policy with the Atlantic Gulf and West Indies Underwriting Group ("AGWI"). Atlantic Gulf & Marine Insurance ("Atlantic Gulf"), an affiliate of Barnhardt, acted as an agent for the hull and machinery underwriters for this excess $200,000 policy. The underwriters for this excess policy included, among others, American Trade Insurance Company, American Atlantic Insurance Company, and Atlantic Marine and General Insurance Company (collectively, the "Underwriters").

Some time after Port Lynch filed a claim for the loss to the HAWAIIAN PRINCESS, the Underwriters denied coverage for the loss. Port Lynch then brought this action against New England and the Underwriters for the excess hull and machinery policy seeking recovery under the primary and excess policies for the loss. The Underwriters now move for summary judgment, asserting that no coverage is available to Port Lynch as a matter of law for four reasons. First, they argue that the policy is void ab initio because of material misrepresentations by the plaintiff in attempting to procure the marine insurance. Second, they contend that Port Lynch breached the warranty of navigation by using the HAWAIIAN PRINCESS in the Bering Sea instead of processing shrimp at anchor in southeast Alaska. Third, they claim that the plaintiff breached the trading warranty in that the vessel was under power and engaged in crabbing instead of being anchored and processing shrimp. Finally, the Underwriters argue that Port Lynch breached the warranty of seaworthiness in that the vessel sailed without the fire fighting equipment which had been recommended by the hull surveyor prior to the loss.

II. DISCUSSION

A. Summary Judgment Standard

Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Thus, the question is whether the evidence, together with permissible inferences drawn from that evidence, is sufficient to establish a "genuine issue as to any material fact." United Steelworkers of America v. Phelps Dodge Corp., 865 F.2d 1539 (9th Cir.), cert. denied, ___ U.S. ___, 110 S.Ct. 51, 107 L.Ed.2d 20 (1989).

B. Applicable Law

Of primary importance for the purpose of deciding these motions for summary judgment is whether state insurance law or federal admiralty law applies to the dispositive issues in this case. Unlike many other cases which have confronted this issue, there are significant differences here between federal admiralty precepts and state insurance law as it relates to some issues. If federal law applies, plaintiff's insurance policy may be held void ab initio because federal cases hold that any misrepresentation or nondisclosure of a material fact will void the policy ab initio, regardless of the intent of the party who omitted or misrepresented the material fact. Puritan Ins. Co. v. Eagle S.S. Co. S.A., 779 F.2d 866, 870 (2d Cir.1985); Gulfstream Cargo, Ltd. v. Reliance Insurance Co., 409 F.2d 974, 980-81 (5th Cir.1969). Moreover, with respect to breaches of express warranties in a marine insurance contract, there is federal case law which calls for strict construction and renders policies void where such warranties are violated, even if there is no causal connection between the breach and the loss which has occurred. Lexington Ins. Co. v. Cooke's Seafood, 835 F.2d 1364 (11th Cir.1988).

If state law applies, plaintiff has a greater chance of recovering from its excess hull and machinery underwriters. Under Washington law, a misrepresentation or omission does not void an insurance policy unless the misrepresentation is material to the loss. Miller v. Commercial Union Assur. Co., 69 Wash. 529, 125 P. 782, 784 (1912); Rondys, Inc. v. Insurance Co. of North America, 1988 AMC 2234, 1986 WL 22350 (D.Or. 1986) (applying Washington law). Moreover, Washington law provides that no oral or written misrepresentation can be deemed material or defeat an insurance contract unless the misrepresentation or warranty was made with the intent to deceive. RCW 48.18.090(1).

To resolve this issue, the court must consider the application of Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955). In Wilburn Boat, the Supreme Court considered whether federal admiralty law or state law governed the validity and scope of warranties in a marine insurance policy. In that case, the original owners of a small houseboat insured the houseboat against loss from fire and other perils. Subsequent owners of the boat used the boat for commercial carriage of passengers on a small artificial inland lake. While moored on the lake, the boat was destroyed by fire. In an action brought by the original owners, the insurers denied liability because of breaches of policy warranties providing that the boat would not be transferred without the insurers' consent and that the boat would be used for pleasure purposes only.

The district court and the court of appeals had applied, as a matter of federal admiralty law, the "literal performance" rule. This rule requires literal fulfillment of every policy warranty so that any breach would bar recovery. The Supreme Court reversed and remanded the case, holding that there was no established federal admiralty rule governing warranties of the kind involved in Wilburn Boat, that it would be inappropriate for the Court to fashion such a rule, and that in the absence of a federal rule of law, the scope and validity of such warranties were governed by state law. The Court emphasized that the Court had always treated marine insurance contracts, like all others, as subject to state control, and that the judicial and legislative history of insurance regulation warned against the judicial creation of admiralty rules to govern marine policy terms and warranties.

Federal courts have struggled in their application of Wilburn Boat, calling the decision "confusing" and "enigmatic." See, e.g., Albany Ins. Co. v. Wisniewski, 579 F.Supp. 1004, 1013 (D.R.I.1984); Transit Casualty Co. v. Pedersen Fisheries, Inc., C83-1471 (W.D. Wash. February 8, 1985). In Bohemia, Inc. v. Home Ins. Co., 725 F.2d 506 (9th Cir.1984), an action was brought by the insured and its excess insurer on a marine insurance policy against the Home Insurance Company. Applying Wilburn Boat, the court approved the application of federal admiralty law rather than state law for interpreting the marine policy. The Bohemia court concluded that Wilburn Boat, when read together with Kossick v. United Fruit Co., 365 U.S. 731, 741-42, 81 S.Ct. 886, 893-94,...