St. Paul Travelers Cos. v. Corn Island Shipyard

• Decision Date: 18 July 2007
• Docket Number: No. 06-2137.,06-2137.
• Citation: 495 F.3d 376
• Parties: The ST. PAUL TRAVELERS COMPANIES, INC., f/k/a St. Paul Fire and Marine Insurance Company, Plaintiff-Appellee, v. CORN ISLAND SHIPYARD, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

495 F.3d 376

The ST. PAUL TRAVELERS COMPANIES, INC., f/k/a St. Paul Fire and Marine Insurance Company, Plaintiff-Appellee, v. CORN ISLAND SHIPYARD, INC., Defendant-Appellant.

No. 06-2137.

United States Court of Appeals, Seventh Circuit.

Argued December 7, 2006.

Decided July 18, 2007.

James W. Carbin (argued), Duane Morris, Newark, NJ, for Plaintiff-Appellee.

Patrick A. Shoulders, Steven K. Hahn (argued), Ziemer, Stayman, Weitzel & Shoulders, Evansville, IN, for Defendant-Appellant.

Before BAUER, MANION, and SYKES, Circuit Judges.

MANION, Circuit Judge.

The St. Paul Travelers Companies, Inc. ("St. Paul") filed a declaratory judgment action seeking a determination of its obligation, if any, to cover the claims of a Corn Island Shipyard, Inc. ("Corn Island") employee under an insurance policy St. Paul had issued to Corn Island. The district court granted summary judgment in favor of St. Paul concluding that because Corn Island failed to provide St. Paul adequate notice of its claim, coverage was barred as a matter of law. Although we reach the notice issue by a different path, we affirm the judgment for St. Paul.

I.

Corn Island owns and operates a shipyard along the Ohio River near Grandview, Indiana. Through its insurance broker, Corn Island purchased several insurance policies to cover its various liabilities, including a Workers Compensation and Employers Liability Insurance Policy from Fremont Industrial Indemnity Company ("Fremont") and an Ocean Marine bumbershoot policy from St. Paul.¹

On February 2, 2001, Rick Williams, a Corn Island employee, sustained burns over sixty-five percent of his body after his clothes ignited while he was cleaning paint equipment with flammable thinner on Corn Island's premises. After Williams received extensive treatment, the United States Department of Labor ("DOL") declared him permanently and totally disabled and entitled to payment from Corn Island of permanent total disability benefits under the Longshore & Harbor Workers' Compensation Act (the "LHWCA"), 33 U.S.C. § 901 et seq. Under the policy it had issued to Corn Island, Fremont was responsible for both Williams's medical expenses and the permanent disability benefits due under the LHWCA.² Fremont paid out under its policy $1,044,666.68 in medical expenses and $52,236.33 in benefits, but ceased paying benefits in the summer of 2003 when it became insolvent. After learning of Fremont's insolvency, Corn Island's insurance broker contacted the Indiana Insurance Guaranty Association, which agreed to accept Williams's claim up to a maximum limit of $100,000.00.³

On September 11, 2003, the DOL notified Corn Island that Corn Island remained liable for Williams's benefits under the LHWCA despite Fremont's insolvency. Nearly five months later, on February 16, 2004, Corn Island contacted St. Paul about Williams's accident and sought coverage for Williams's benefits. In its response letter, St. Paul reserved its rights under its policy to deny coverage and raised a potential issue of late notice and questioned whether its policy covered Corn Island's claim. After an investigation, St. Paul denied Corn Island's claim on June 21, 2004, stating, in part, that it had no obligation under its policy for Williams's benefits.

St. Paul then filed suit seeking a declaratory judgment that it was not obligated to pay Corn Island's claim for Williams's injuries or, alternatively, if it had an obligation under its policy, that Corn Island provided late notice of the claim thereby precluding coverage. The parties filed cross-motions for summary judgment. Without addressing the coverage issue, the district court granted St. Paul's motion and denied Corn Island's motion. The district court concluded that the notice provision of the LHWCA did not apply, but rather New York law applied, and that under New York law, Corn Island's delay in notifying St. Paul of Williams's claim barred coverage as a matter of law.

In reaching its conclusion, the district court held that the choice of law provision in the St. Paul policy that elected New York law was valid and enforceable. The district court also concluded that the LHWCA did not apply to the St. Paul policy because Corn Island never treated St. Paul as a carrier under the LHWCA and because the notice provisions of the LHWCA did not apply to excess carriers. Accordingly, the district court held that the notice provisions of New York law governed. Because Corn Island's notice to St. Paul was late under New York law, the district court concluded that coverage was barred, regardless of whether the St. Paul policy provided coverage for Williams's LHWCA claims. Corn Island appeals.

II.

On appeal, Corn Island argues that the district court erred in granting St. Paul summary judgment. Specifically, Corn Island claims that the LHWCA governed, and not New York law, the issue of notice and that under the LHWCA, it provided St. Paul with adequate notice. Corn Island further asserts that the St. Paul policy provides coverage for Williams's claims. We review a district court's grant of a motion for summary judgment de novo. Cady v. Sheahan, 467 F.3d 1057, 1060 (7th Cir.2006) (citation omitted).

It is undisputed by the parties that Williams's injuries and resulting claims fall under the LHWCA, and that Corn Island is responsible for those claims. What is disputed, though, is whether St. Paul is obligated to provide coverage for those claims under the policy it issued to Corn Island. Also, while the parties do not dispute that New York law governs the interpretation of the St. Paul policy, the parties disagree as to whether the LHWCA or New York law should govern the notice issue in this case. Under the LHWCA, notice to the employer constitutes notice to the carrier. 33 U.S.C. § 935. Under New York law, however, "compliance with the notice provisions of an insurance contract is a condition precedent to an insurer's liability." Am. Ins. Co. v. Fairchild Indus., Inc., 56 F.3d 435, 438 (2d Cir.1995) (citation omitted). An insured's failure to provide timely notice of an injury, without a valid reason for the delay, frees the insurer from covering the claim. Id. Corn Island asserts that New York's law does not govern the question of notice because it contravenes the LHWCA, particularly §§ 935 and 936. St. Paul responds that New York law does not contravene the LHWCA, and to the extent that the LHWCA applies, St. Paul is not a carrier under the LHWCA.

Because it is undisputed that the LHWCA governs the injury for which coverage is sought, we first review the LHWCA provisions concerning insurance coverage, including the role established for insurance carriers, who qualifies as an insurance carrier, and what constitutes timely notice. This backdrop is necessary to determine whether the LHWCA or New York law applies to the notice issue in this case and ultimately to determine whether St. Paul is obligated to cover Williams's claims under the policy it issued to Corn Island. We are not addressing simply an insurance contract coverage issue which generally would be governed by state law in a case based on diversity jurisdiction.⁴ Rather, we are determining whether a particular insurance policy provides coverage for a federal statutory-based claim which addresses insurance carriers and notice to them. Therefore, we must look to the LHWCA first.

As its name suggests, the Longshore and Harbor Workers' Compensation Act is a statutory scheme "created to compensate maritime employees for on-the-job injuries leading to death or disability." Bunge Corp. v. Carlisle, 227 F.3d 934, 936 (7th Cir.2000). Under the LHWCA, employers are responsible for compensating injured employees regardless of fault. See 33 U.S.C. §§ 904, 905. An employer may substitute an insurance carrier for itself to discharge its obligations and duties under the LHWCA. 33 U.S.C. § 935. Specifically, Section 935 provides, in relevant part:

In any case where the employer is not a self-insurer, in order that the liability for compensation imposed by this chapter may be most effectively discharged by the employer, and in order that the administration of this chapter in respect of such liability may be facilitated, the Secretary shall by regulation provide for the discharge, by the carrier for such employer, of such obligations and duties of the employer in respect of such liability, imposed by this chapter upon the employer, as it considers proper in order to effectuate the provisions of this chapter. For such purposes (1) notice to or knowledge of the employer of the occurrence of the injury shall be notice to or knowledge of the carrier. . . .

Id. (emphasis added).

Under the LHWCA, a carrier is "any person or fund authorized under section 932 of this title to insure under this chapter and includes self-insurers." 33 U.S.C. § 902(5). Section 932, in turn, provides:

Any marine protection and indemnity mutual insurance corporation or association, authorized to write insurance against liability for loss or damage from personal injury and death, and for other losses and damages, incidental to or in respect of ownership, operation, or chartering of vessels on a mutual assessment plan, shall be deemed a qualified carrier to insure compensation under this chapter.

33 U.S.C. § 932(b).

On appeal, St. Paul argues that it is not a carrier for purposes of the LHWCA and therefore the LHWCA's notice provisions do not apply. In support of its position, St. Paul cites Pennsylvania National Mutual Casualty Insurance v. Spence, 591 F.2d 985 (4th Cir.1979), and United States Casualty Company v. Taylor, 64 F.2d 521 (4th Cir.1933), claiming that these cases show that only those insurers identified with the DOL as carriers qualify as carriers under the LHWCA. However, contrary to St. Paul's position, neither of those cases addressed that issue. Rather, in Spence, the Fourth Circuit addressed whether the insurance carrier that provided coverage at the time of an...