State Nat'l Ins. Co. v. Anzhela Explorer, L.L.C.

• Decision Date: 23 August 2011
• Docket Number: Case No. 07–61162–CIV.
• Citation: 812 F.Supp.2d 1326
• Parties: STATE NATIONAL INSURANCE COMPANY, Plaintiff, v. ANZHELA EXPLORER, L.L.C., Jeff Dorsey, Mark Rosandich, Defendants.
• Court: U.S. District Court — Southern District of Florida

812 F.Supp.2d 1326

STATE NATIONAL INSURANCE COMPANY, Plaintiff,

v.ANZHELA EXPLORER, L.L.C., Jeff Dorsey, Mark Rosandich, Defendants.

Case No. 07–61162–CIV.

United States District Court, S.D. Florida.

Aug. 23, 2011.

Christopher Rogers Fertig, Andrew Nicholas Mescolotto, Darlene M. Lidondici, Fertig & Gramling, Fort Lauderdale, FL, for Plaintiff.

Daniel P. Harris, Charles Phillip Moure, Harris & Moure, Seattle, WA, Donald Warren Strader, Miami, FL, for Defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

EDWIN G. TORRES, United States Magistrate Judge.

This matter is before the Court following a bench trial conducted by the undersigned, upon consent of the parties [D.E. 159] and referral by the Honorable Federico A. Moreno [D.E. 160]. A bench trial was held over many days involving seventeen fact and expert witnesses. Thereafter, extensive proposed findings and conclusions of law were submitted for the Court's consideration, [D.E. 188, 189], together with supplemental authorities subsequently submitted at the Court's request. The case was ably presented by counsel for both sides, who prepared equally compelling presentations and arguments. Numerous issues of fact and law were in dispute, many of which presented very close questions for the Court's resolution, which took some time to sort through and consider. The Court reviewed all the exhibits admitted in evidence, the trial testimony, depositions of witnesses who did not testify at trial, as well as the many legal authorities submitted by the parties on multiple issues in the case.

After careful review of the record and the arguments presented, and based upon critical credibility findings necessary to resolve many disputed issues of fact in the case, the Court finds as follows.

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                I.  FINDINGS OF FACT                                                    1333
                

    A.   Procedural Background                                          1333
                    B.   The Purchase of the Anzhela Explorer                           1333
                    C.   The Insurance Application and Policy                           1334
                    D.   The Loss of the Anzhela Explorer                               1338
                    E.   The Causes of the Loss of the Vessel                           1342
                    F.   Post–Loss Claims                                               1348
                

                II. CONCLUSIONS OF LAW                                                  1350
                

    A.   Uberrimae Fidei–Good Faith                                     1351
                

         1.  Status of COI                                              1354
                         2.  Groundings & Navigational Warranty                         1355
                         3.  Deficiencies in Watertight Bulkheads                       1356
                

    B.   Breach of the Navigational Warranty                            1360
                

         1.  Oral Modification of the Navigational Warranty             1360
                         2.  Held Covered Clause Applies                                1362
                

    C.   Unseaworthiness                                                1363
                

         1.  Seaworthiness Defined                                      1363
                         2.  Absolute Warranties of Seaworthiness                       1365
                

             (a) Competency of the Crew                                 1366
                             (b) Inadequate Bilge Pumping Capacity                      1369
                             (c) Lack of Watertight Integrity                           1372
                

         3.  Warranties of Continuing Seaworthiness                     1377
                

    D.   Counts V and VI Are Mooted                                     1378
                    E.   Count VII–Reimbursement of Costs                               1379
                    F.   Counterclaims                                                  1379
                

                III. CONCLUSION                                                         1379
                

I. FINDINGS OF FACT¹

A. Procedural Background

1. Plaintiff, State National Insurance Company (“Plaintiff” or “State National”), filed an eleven-count Complaint against Defendants Anzhela Explorer LLC (“Anzhela”), Jeff Dorsey, Mark Rosandich, on August 15, 2007, seeking declaration by the Court with respect to a marine insurance policy issued by State National to Anzhela Explorer LLC.

2. The causes of action as to Dorsey and Rosandich individually were dismissed without prejudice for failure to effect service of process on Jan. 25, 2008. [D.E. 11]. The remaining counts against Anzhela were for Breach of Duty of Good Faith, Breach of Absolute Warranty of Seaworthiness, Breach of Warranty of Continuing Seaworthiness, Breach of Navigational Warranty, Declaration by the Court of No Coverage for Pollution, Declaration by the Court of No Coverage for Fines and Penalties and Reimbursement for $613,421.50 for the Costs to Mark and Removal of the Wreck.

3. Anzhela filed a Counterclaim alleging six counts: Breach of Contract, Breach of Statutory Obligations, Tortious Breach of Contract, Breach of Fiduciary Duty, Fraudulent Misrepresentation and Spoliation and Conversion of Evidence and Property. On May 29, 2008, the Court dismissed [D.E. 48] Counts II (Breach of Statutory Obligations i.e. Bad Faith), III (Tortious Breach of Contract), IV (Breach of Fiduciary Duty), and V (Fraudulent Misrepresentation) and Anzhela was granted leave to amend its Counterclaim.

4. The Amended Counterclaim consisted of two counts-Count I Breach of Contract and Count II Conversion of Property. Those counts remain at issue.

5. State National seeks for the Court to determine and declare the duties, rights, and obligations under the policy for a loss sustained to the Anzhela Explorer (“the Anzhela” or “the vessel”) on March 26, 2007. It seeks a declaration of non-coverage premised upon breach of navigational warranty, breach of absolute warranty of seaworthiness, breach of continuing warranty of seaworthiness, breach of duty of good faith, and the pollution and fines and penalties exclusions.

6. State National also seeks an award of $612,421.50 plus interest from April 16,2007 for the salvage costs to mark and remove the wreck.

7. Anzehla, through its counterclaim, seeks an award of at least $1,000.000.00 for breach of contract on the subject insurance policy, together with attorneys' fees, costs, and interest. Anzehla also seeks damages for conversion of the salvaged parts of the vessel by State National and/or its agents following the loss of the vessel.

B. The Purchase of the Anzhela Explorer

8. On July 7, 2006, Rosandich entered into a purchase agreement for the Bottom Time II on behalf of Jeff Dorsey. (PX 201). The vessel was a 70' twin hull catamaran for use as a commercial dive/passenger vessel. It was intended for commercial use in that it was to be chartered as a dive boat for operations for the oil and gas industry off the shore of Louisiana. Rosandich, a vessel captain and marine consultant, was involved in the transaction because he was contracted by Dorsey to look for a vessel such as this one and assist in preparing the vessel for the intended commercial use. He had particular experience in doing such work for vessel owners who needed assistance in obtaining approved Certificates of Inspection (“COI”) from the United States Coast Guard.

9. This vessel was a Coast Guard documented vessel and had previously been a certified vessel for commercial use as a small passenger vessel. Its COI, however, had expired in 2003. The COI is a required certification from the Coast Guard before a vessel can be placed in service as a commercial vessel for the transportation of passengers or cargo. 46 U.S.C. § 3306(a); 46 C.F.R. § 176.100. Vessels without a Coast Guard COI are not banned from operating on navigable waters, but cannot do so for the purposes specified in the regulations.

10. The purchase price of the vessel was $200,000.00. The vessel was purchased on an “as is where is” basis. The sale of the vessel was consummated on October 27, 2006. The vessel was renamed the Anzhela Explorer. Dorsey and Rosandich then began work and incurred considerable expense, up to $200,000, to bring the vessel to the point of a COI inspection.

11. On August 22, 2006, the Coast Guard conducted an initial inspection of the vessel. Subsequent to that first inspection the Coast Guard issued a Critical Deficiency Report that itemized 34 different deficiencies that would need to be rectified before the Coast Guard would issue a new COI for the vessel. (PX 176).

12. The Coast Guard inspected the vessel again and issued a hull credit for the vessel on December 15, 2006 (PX 176), which is an important, but not complete, part of the overall COI inspection process. See 46 C.F.R. § 176.610. The hull credit confirms compliance with Coast Guard regulations as to the hull's underwater body, the hull fittings, plating and planking, appendages, propellers, shafts, bearings, rudders, sea chests, sea valves, and sea strainers. It also confirms compliance as to the internal structure of the hull including the major internal framing, the hull plating and planking, voids, and ballast, cargo, and fuel oil tanks.

13. The hull credit itself is not enough to comply with all regulations for a COI, which include a compliance bilge piping system, 46 C.F.R. § 182.510, and watertight bulkheads, 46 C.F.R. § 179.320.

14. At the time of the last Coast Guard inspection in December 2006, six of the deficiencies originally identified by the Coast Guard had not been fully resolved or corrected. Three of these remaining deficiencies related to administrative paperwork like an updated stability letter. The other deficiencies were more substantive, including existing penetrations in the transverse watertight bulkheads that were not fully sealed that compromised the integrity of the watertight compartments, plus deficiencies in the bilge pump system. (PX 176).

15. The work necessary for COI inspection on the vessel was to be completed upon its arrival at Golden Meadow, Louisiana, which is also from where the vessel would...