Suydam v. Reed Stenhouse of Washington, Inc.

• Decision Date: 06 July 1987
• Docket Number: No. 86-3885,86-3885
• Citation: 820 F.2d 1506
• Parties: Kevin SUYDAM and Brock Williamson, Plaintiffs-Appellants, v. REED STENHOUSE OF WASHINGTON, INC., a Washington corporation; Reed Stenhouse, Ltd., a Canadian corporation; Reed Stenhouse Marketing of London, a British corporation; and Dennis Edward Jennings, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1506

820 F.2d 1506

1988 A.M.C. 441

Kevin SUYDAM and Brock Williamson, Plaintiffs-Appellants, v. REED STENHOUSE OF WASHINGTON, INC., a Washington

corporation; Reed Stenhouse, Ltd., a Canadian corporation;

Reed Stenhouse Marketing of London, a British corporation;

and Dennis Edward Jennings, Defendants-Appellees.

No. 86-3885.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 6, 1987.

Decided July 6, 1987.

Arnold J. Barer, Seattle, Wash., for plaintiffs-appellants.

Forrest Booth, San Francisco, Cal., for defendants-appellees.

On Appeal from the United States District Court for the Western District of Washington.

Before BROWNING, Chief Judge, WRIGHT and HALL, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

Appellant Brock Williamson ("Williamson") was injured while working on a vessel owned by Kevin Suydam ("Suydam"). After settling with Suydam, Williamson sued several excess underwriters to recover under Suydam's Protection and Indemnity insurance policy. The district court granted summary judgment in favor of the excess underwriters. Williamson appeals.

The district court had jurisdiction over the action pursuant to its admiralty jurisdiction. Wilburn Boat Co. v. Fireman's Fund Insurance Co., 348 U.S. 310, 313, 75 S.Ct. 368, 370, 99 L.Ed. 337 (1955). This court has jurisdiction over the appeal pursuant to 28 U.S.C. Sec. 1291. We reverse and remand.

I.

Suydam, a commercial fisherman, purchased a vessel from a boat building firm in 1981. He elected to finish work on the vessel himself. On March 25, 1981, Suydam purchased a ninety-day Builder's Risk insurance policy through Reed Stenhouse ("Reed") to cover the work. Initially, the work took place in the boatyards at Marysville, Washington. Later, Suydam sailed the vessel to Seattle, where work continued.

On June 25, 1981, Suydam returned to Reed to renew his policy. Instead of buying another Builder's Risk insurance policy, Suydam purchased a Protection and Indemnity policy. The policy contained a warranty which required that the vessel be "operated and maintained in the commercial fishing industry." Oceanus Mutual ¹ was the primary underwriter, and several Lloyd's underwriters were the excess underwriters. ²

The parties vigorously dispute the status of the vessel on June 25, 1981. Suydam claims that the vessel was nearly complete and was merely being "outfitted." Jennings, on the other hand, claims that the vessel was "under construction" and, hence, was not being "operated and maintained in the commercial fishing industry." The parties also dispute what Suydam told Reed at the time he purchased the Protection and Indemnity policy.

On July 2, 1981, Williamson, a welder hired by Suydam to finish off the vessel, was severely burned in an accident while working on the boat. He sued Suydam to recover damages. Eventually, Williamson settled his lawsuit with Suydam; in exchange, Suydam assigned his rights under the Protection and Indemnity policy to Williamson. Williamson then sued Jennings to recover under the policy. The district court entered summary judgment in favor of Jennings, finding that the policy at issue did not cover Suydam's vessel since it was under construction at the time of the accident. The court affirmed this order in a subsequent order denying reconsideration. Williamson appeals.

II.

We review the district court's order granting summary judgment de novo. Miller v. Fairchild Industries, Inc., 797 F.2d 727, 730 (9th Cir.1986). On appeal the relevant inquiry is "whether there is any genuine issue of material fact, and whether the substantive law has been applied correctly." Id. In the absence of a federal statute, a judicially fashioned admiralty rule, or a need for uniformity in admiralty practice, we look to state law, in this case Washington law, in determining the consequences of a breach of warranty in a marine insurance policy. See Wilburn Boat Co. v. Fireman's Fund Insurance Co., 348 U.S. 310, 321, 75 S.Ct. 368, 374, 99 L.Ed. 337 (1955); Bohemia, Inc. v. Home Insurance Co., 725 F.2d 506, 510 (9th Cir.1984).

III.

Jennings argues the parties' misunderstanding as to the nature of the risk precluded mutual assent to the contract and, therefore, that summary judgment was appropriate. The district court did not rule on this basis. Nonetheless, we may affirm on any ground finding support in the record. Smith v. Block, 784 F.2d 993, 996 n. 4 (9th Cir.1986).

Where there is no element of estoppel, a meeting of the minds is required to make a contract. Auve v. Wenzlaff, 162 Wash. 368, 373, 298 P. 686, 688 (1931); Swanson v. Holmquist, 13 Wash.App. 939, 942, 539 P.2d 104, 106 (1975). Summary judgment is inappropriate on this issue. First, there is a material issue of fact regarding whether Jennings understood the nature of the risk. Williamson argues that Jennings had constructive knowledge of the risk through his agent, Reed. See Part V below. Second, there is a material issue of fact regarding estoppel. Jennings' failure to take prompt action to deny coverage may estop him from denying the existence of a contract. See Part VI below. At a minimum, Jennings' inaction is evidence that he believed the policy covered Suydam's vessel and, hence, that there was mutual assent to the insurance contract.

IV.

Jennings next argues that Williamson cannot recover because Suydam breached an express warranty in the policy that the vessel would be operated and maintained in the commercial fishing industry. The district court agreed and granted summary judgment in favor of Jennings on this basis.

The question of whether a given sentence in a marine insurance policy is to be given the effect of a warranty depends upon the intention of the parties. G. Gilmore & C. Black, The Law of Admiralty Sec. 2-7, p. 67 (2d ed. 1975). In Stender v. Twin City Foods, Inc., 82 Wash.2d 250, 510 P.2d 221 (1973), the Washington Supreme Court addressed the question of intent in contract law. According to the court:

Determination of the intent of the contracting parties is to be accomplished by viewing the contract as a whole, the subject matter and objective of the contract, all the circumstances surrounding the making of the contract, the subsequent acts and conduct of the parties to the contract, and the reasonableness of respective interpretations advocated by the parties.

82 Wash.2d at 254, 510 P.2d at 224.

Applying the analysis set forth in Stender, it is evident that summary judgment is inappropriate on the intent issue. Jennings' failure to take prompt action to deny coverage suggests that the parties intended the policy to cover Suydam's boat. See Part VI below. Moreover, Reed submitted a declaration which suggests that Williamson's interpretation of the insurance policy is reasonable. According to James D. Livingstone, an experienced employee in the marine insurance business:

[T]here is no clear or sharp line delineating when a vessel should go off a builder's risk cover and commence operating coverage. This is particularly so in the somewhat unusual case of the LADY ALASKA where the owner took delivery of the vessel from the original builder, then navigated the vessel to Lake Union and undertook completion of construction and/or outfitting himself.... [I]t is not possible to determine that an insured breached a warranty that the vessel will be operated and maintained in the commercial fishing industry or that a vessel is not covered by the terms of an operating policy simply by the fact that welding and carpentry work were being done on the vessel. An operating policy would cover this type of activity if the work being done is outfitting the vessel or preparing to engage in a particular type of fishery.

In cases such as this one, where the primary issue is one of intent, summary judgment is generally inappropriate. SEC v. Seaboard Corp., 677 F.2d 1297, 1298 (9th Cir.1982).

V.

Even assuming that a breach of warranty occurred, there are other issues of material fact which preclude summary judgment in this case. Williamson argues that Jennings waived the right to object to any breach of warranty. His argument proceeds as follows: Reed knew that the vessel was not completed before it issued the insurance policy. Since Reed was acting as the agent of Jennings, Jennings had constructive knowledge that the vessel was not completed. Because Jennings knew that the vessel was not being "operated and maintained in the commercial fishing industry" before the insurance policy was issued, he cannot object to the breach of warranty by Suydam. See Fox v. Bankers Life & Casualty Co., 61 Wash.2d 636, 638, 379 P.2d 724, 726 (1963) ("a warranty clause in a policy of insurance will not be held breached for a cause known to the agent before the application was signed. The underlying principle in cases of this sort is that knowledge of the agent is the knowledge of the principal, without regard to whether the agent communicates the facts to it.").

We agree that summary judgment was inappropriate on the waiver issue. There is a material issue of fact regarding Reed's knowledge of the status of Suydam's vessel. Judy Rodosevich, the Reed employee who issued the insurance policy, testified that she had assumed that the vessel would be ready to depart in two weeks to a month. She admitted that she had been told that "[m]inor carpentry work, incidental odds and ends on deck and so forth, and foaming the tanks and stability test" remained to be done. Suydam, on the other hand, testified that he told Rodosevich that the vessel was still being outfitted and that it would be a month, or several months, before it was ready to go fishing.

There is also a material issue of fact regarding whether Reed was acting as the agent of Jennings. Jennings argues that Reed was the agent of the insured, Suydam, as a matter of law. Jennings misrepresents agency law. Since there...