Sentry Select Ins. v. Royal Ins. Co. of America

• Decision Date: 06 April 2007
• Docket Number: No. 05-35323.,No. 05-35354.,05-35323.,05-35354.
• Citation: 481 F.3d 1208
• Court: U.S. Court of Appeals — Ninth Circuit
• Parties: SENTRY SELECT INSURANCE COMPANY; Lloyd's Syndicates 588, 861 and 1209; Kelly-Ryan Inc., Plaintiffs-Appellants, v. ROYAL INSURANCE COMPANY OF AMERICA; Alaska National Insurance Company, Defendants-Appellees. Sentry Select Insurance Company; Lloyd's Syndicates 588, 861 and 1209; Kelly-Ryan Inc., Plaintiffs-Appellees, v. Royal Insurance Company of America, Defendant-Appellant, and Alaska National Insurance Company, Defendant.

481 F.3d 1208

SENTRY SELECT INSURANCE COMPANY; Lloyd's Syndicates 588, 861 and 1209; Kelly-Ryan Inc., Plaintiffs-Appellants, v. ROYAL INSURANCE COMPANY OF AMERICA; Alaska National Insurance Company, Defendants-Appellees.

Sentry Select Insurance Company; Lloyd's Syndicates 588, 861 and 1209; Kelly-Ryan Inc., Plaintiffs-Appellees, v. Royal Insurance Company of America, Defendant-Appellant, and Alaska National Insurance Company, Defendant.

No. 05-35323.

No. 05-35354.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 17, 2006.

Filed April 6, 2007.

Donald K. McLean, Seattle, WA, for the plaintiffs-appellants/appellees.

Michael D. Helgren, Seattle, WA, for the defendants-appellees/appellants.

Appeal from the United States District Court for the Western District of Washington; Ricardo S. Martinez, District Judge, Presiding. D.C. No. CV-01-01956-RSM.

Before: D.W. NELSON, DAVID R. THOMPSON, and RICHARD A. PAEZ, Circuit Judges.

THOMPSON, Senior Circuit Judge.

Appellants and cross-appellees Kelly-Ryan, Inc., Sentry Select Insurance Company, and Lloyd's Syndicates 588, 861, and 1209 (collectively, "Kelly-Ryan and the P & I Underwriters") appeal the district court's summary judgment in favor of appellee and cross-appellant Royal Insurance Company ("Royal"). The district court held that Kelly-Ryan is not entitled to indemnity from Royal under the Marine Coverage Endorsement ("MEL") to the Big Shield Commercial Catastrophe Liability Insurance Policy ("Big Shield policy") issued by Royal, because Kelly-Ryan breached its duty of uberrimae fidei (utmost good faith) to Royal under federal maritime law.

Kelly-Ryan sought indemnification from Royal after settling a Jones Act suit, 46 U.S.C. § 30104(a) (formerly codified as 46 U.S.C. § 688(a)), with one of its maritime employees who was electrocuted during the delivery of a prefabricated house in remote Alaska. The district court held that, under federal maritime law, the doctrine of uberrimae fidei required Kelly-Ryan to disclose to Royal the material fact that employees covered under the MEL endorsement routinely worked with electrical power lines. Kelly-Ryan had not made that disclosure.

Kelly-Ryan and the P & I Underwriters contend that the Royal Big Shield policy and the MEL endorsement do not constitute marine insurance over which we may exercise admiralty jurisdiction, and as a result the uberrimae fidei doctrine does not apply to bar indemnification from Royal. We agree, but affirm the district court's summary judgment in favor of Royal on the ground that Royal is not obligated to provide indemnity for the injured seaman's injuries because those injuries did not occur in an accident covered by the MEL endorsement.

We do not reach the question whether the injured seaman's injuries were covered under the Alaska State Workers' Compensation Act; whether covered or not under that Act, Royal is not obligated to provide indemnity for them under the facts of this case.

We have jurisdiction under 28 U.S.C. § 1291 and we affirm the district court's summary judgment in favor of Royal.

I. BACKGROUND

This litigation arises out of an accident which occurred on land in Napakiak, Alaska during the movement of a modular prefabricated house from a barge to a remote construction site. Kelly-Ryan, a construction company based in Seattle, Washington, shipped prefabricated houses from Washington and installed them in various Native Alaskan villages under a contract with the federal government. When the barge carrying the houses reached Alaska, the houses were unloaded from the barge onto "house movers," which were large treaded vehicles used to carry the houses to the construction sites.

On September 27, 2000, James Okada, a maritime employee of Kelly-Ryan working on the tugboat Casey Marie, was electrocuted while he was helping a Kelly-Ryan shore-based crew deliver a prefabricated house to a building site located approximately one and a half miles from the shore. The shore-based crew enlisted Okada to stand on top of the house and lift up what were supposed to be de-powered electrical power lines so that the house and the house mover could pass underneath. Unfortunately, the high voltage electrical power line running into Napakiak from another village had not been de-powered, and Okada was electrocuted, suffering severe injuries.

Although Okada normally worked as a "seaman," on the day of the accident a Kelly-Ryan shore-based crew "borrowed" Okada to help them deliver the houses. For his work with the shore-based crew, Kelly-Ryan paid Okada "cargo time" or "lashing pay" in addition to his daily rate as a seaman. Okada sued Kelly-Ryan for negligence under the Jones Act, 46 U.S.C. § 30104(a) (formerly codified as 46 U.S.C. § 688(a)), and eventually obtained a settlement in excess of $5.2 million.

When the accident occurred, Kelly-Ryan had several insurance policies in place covering multiple aspects of its operations. Sentry Select and Lloyd's insure Kelly-Ryan's vessel operations and crewmembers under a Marine Protection and Indemnity policy ("P & I policy"). Alaska National insures Kelly-Ryan for various shore-based risks, including employee-related injuries. Part One of the Alaska National policy covers Washington and Alaska State workers' compensation, unemployment, and disability claims, as well as claims under the Longshore and Harbor Workers' Compensation Act, 33 U.S.C. § 901, et seq. Part Two of the Alaska National policy, the employers' liability portion, provides coverage for bodily injuries arising out of and in the course of employment, but excludes "any obligation imposed by a workers compensation ... law."

Royal is the excess/umbrella insurer for Kelly-Ryan; its Big Shield policy provides excess coverage over Part Two of the Alaska National policy, Kelly-Ryan's automobile insurance, and Kelly-Ryan's Commercial General Liability ("CGL") policy with Alaska National. The Big Shield policy does not provide excess coverage over claims under Part One of the Alaska National policy or the P & I policies, and contains a workers' compensation exclusion excepting from coverage "[a]ny obligation of the insured under a workers compensation ... law." At the time of the accident, Kelly-Ryan paid a flat yearly premium of $17,000 for the Royal Big Shield policy.

In 1995, Kelly-Ryan obtained from Royal an MEL endorsement to Part Two of the Alaska National policy (employers' liability) and the Royal Big Shield policy. The MEL endorsement extended coverage for bodily injuries suffered by a "master or member of the crew of any vessel" performing work "necessary or incidental" to the following tasks: "Painting and/or scraping of decks of tugs or barges, and loading and unloading as applicable in Washington and Alaska." The coverage limit on the MEL endorsement to the employers' liability insurance with Alaska National is $1 million; any liability in excess of $1 million, so far as applicable in this case, is covered by the Royal Big Shield policy.

After the accident, Kelly-Ryan, on behalf of Okada, filed a claim for Alaska workers' compensation benefits under Part One of the Alaska National policy. Although Alaska National initially processed the claim and paid benefits, it notified Kelly-Ryan on November 9, 2000 that it was controverting the claim because Okada was a "Jones Act crewman" whose claim was covered under the P & I policy. Kelly-Ryan contested Alaska National's denial of coverage under Part One of the policy. However, rather than challenge the loss of workers' compensation benefits, Okada in July 2001 filed suit in the Western District of Washington against Kelly-Ryan for damages under the Jones Act, 46 U.S.C. § 30104(a), and general maritime law.

In May 2001, the P & I Underwriters entered an agreement with Kelly-Ryan to defend and indemnify Kelly-Ryan for Okada's claim in the event Alaska National denied coverage. The P & I Underwriters also agreed to waive two coverage limitations that could have operated to exclude Okada's claim. In return, Kelly-Ryan assigned to the P & I Underwriters any and all causes of action it had against Alaska National.

On December 3, 2001, Kelly-Ryan and the P & I Underwriters filed the instant suit against Alaska National, requesting a declaratory judgment on coverage and allocation of liability. Kelly-Ryan and the P & I Underwriters later stipulated to Okada's "seaman" status¹ at the time of his injury. On April 18, 2002, Kelly-Ryan and the P & I Underwriters moved for summary judgment, asking the court to determine that coverage for Okada's injuries fell under Part Two of the Alaska National policy, the employers' liability provision, rather than under the P & I policies. The district court issued an order on July 11, 2002 directing Alaska National to defend the claim because Kelly-Ryan was "entitled to look to [Alaska National's] MEL policy for defense and indemnification." The court also awarded Sentry Select attorney fees "based on the Court's determination that coverage for Okada's claims are properly under the Alaska National policy." The district court further clarified that although liability had not yet been found, liability would implicate Kelly-Ryan as the employer of Okada, and therefore the P & I policy would not cover Okada's claims because that policy covered Kelly-Ryan only "as owner" of the vessel Casey Marie.

Alaska National then moved for reconsideration, arguing that the district court's order failed to separate the duty to defend from the duty to indemnify. The district court denied the motion for reconsideration, but clarified that the previous order held only that Alaska National had a duty to defend. The district court further held it would not look to extrinsic evidence of the parties' intent to determine if the Alaska National policy covered Okada's claim. Alaska National sought interlocutory review from our court and on October 14, 2003, we affirmed the district court's decision....