Walter v. Marine Office of America

• Decision Date: 16 August 1976
• Docket Number: No. 73-3866,73-3866
• Citation: 1977 AMC 1471,537 F.2d 89
• Parties: Ahto WALTER, Plaintiff-Appellant, v. MARINE OFFICE OF AMERICA et al., Defendants-Appellees, Firemen's Insurance Co., Defendant-Third Party-Plaintiff-Appellee, Insurance Company of the State of Pennsylvania et al., Third Party-Defendants-Appellees, United States of America, Intervenor-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 89

537 F.2d 89

Ahto WALTER, Plaintiff-Appellant, v. MARINE OFFICE OF AMERICA et al., Defendants-Appellees, Firemen's Insurance Co., Defendant-Third Party-Plaintiff-Appellee,

Insurance Company of the State of Pennsylvania et al., Third

Party-Defendants-Appellees,

United States of America, Intervenor-Appellant.

No. 73-3866.

United States Court of Appeals, Fifth Circuit.

Aug. 16, 1976.

L. Glen Kratochvil, T. G. Schirmeyer, Houston, Tex., Harold B. Carter, Jr., John B. Gooch, Jr., New Orleans, La., for Walter.

Gerald J. Gallinghouse, U. S. Atty., John R. Schupp, Asst. U. S. Atty., Chief, Civil Div., New Orleans, La., David V. Hutchinson, Trial Atty., Admiralty & Shipping Sect., Dept. of Justice, Wash., D. C., Leonard Schaitman, Thomas G. Wilson, Eloise E. Davies, Attys., Dept. of Justice, Civil Div., Washington, D. C., for U. S.

George W. Healy, III, Thomas J. Wagner, New Orleans, La., for Ins. Co. of Pa., and others.

Charles E. Lugenbuhl, William J. Larzelere, Jr., New Orleans, La., for Marine Office of Am. & Firemen's Ins. Co.

Clarence A. Frost, New Orleans, La., for Underwriters of Lloyd.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before BROWN, Chief Judge, COLEMAN and DYER, Circuit Judges.

JOHN R. BROWN, Chief Judge:

On April 5, 1967, Captain Ahto Walter (Owner), on the eve of seeing a lifetime dream come into being, witnessed, as an active participant, the capsizing of his incompleted, sophisticated factory processing fishing vessel MARY ANN as she was being oozed over the muddy bottom of Bayou Lafourche on her way to Bollinger shipyard for further outfitting preparatory to completion, later expected sea trials and ultimate acceptance. Now a decade later we must determine whether the District Court was correct in denying recovery to Owner as an additional assured against the shipyard's Builder's Risk insurer and on behalf of himself and the mortgagee against the two underwriters on the Builder's Risk policies issued to Owner. This result was reached on the decisive holding that there was no coverage for the casualty because MARY ANN had been "delivered" by Shipyard to Owner. We disagree and reverse.

The Insurance Coverage

Walter (Owner) in 1965 contracted with the St. Charles Steel Works, Inc. (St. Charles) to have the shipyard supply materials and labor for the construction of a 110 foot fishing vessel designed by him and to be built under his direction and supervision for cost plus 10%. It was to be built at the St. Charles yard on Bayou Lafourche, at Thibodaux, Louisiana.

There are basically two coverages involved (although the second splits into two policies). At the outset St. Charles had a policy with Firemen's Insurance Company (Firemen's) a Builder's Risk policy which insured it "and/or any owner of the vessel as interest may appear" at the time of the loss in an amount ultimately increased to $200,000 (for which Owner paid the additional premiums). It was a time policy, but provided in the typed cover sheet ¹ for termination on "delivery." There was no definition of that term. It provided broad and virtually "all risk" coverage, both generally ² and specifically, ³ including sea trials ⁴ and to proceed to and from docks, wet or dry, harbors, etc. ⁵

In 1966, prior to the completion of the vessel, but after it had been documented, Owner upon a promissory note borrowed $397,506 ⁶ from the United States to finance construction. This note was secured by a preferred ship mortgage covering the MARY ANN, her engines, etc. As security for the payment of the promissory note, two mortgagee builder's risk insurance policies were obtained and paid for by him through Trans-Atlantic Marine, Inc. of Bridgewater, Mass. One was with Penn, ⁷ for $100,000, ⁸ the other with Lloyd's for $500,000, ⁹ so that Lloyd's had 5/6ths of the risk. These covered "any owner or owners of the vessel" with the United States as "sole payee," with a standard union mortgagee indorsement.

Penn prescribed calendar expiration dates or "until delivery if delivered at an earlier date," and then spelled out that "in no case shall this Policy extend beyond delivery of the Vessel." It insured the hull, fittings, materials, etc. "belonging to and destined for D/V MARY ANN building at the yard of the Builder at St. Charles Steel Works, New Orleans, Louisiana." In sweeping terms it provided "This policy insures against all risks of physical loss of or damage except as hereinafter provided." Although in different language, it provided substantially the same coverage as Firemen's with respect to movement to and from the location of the building site, sea trials, etc. ¹⁰

The Construction And Fitting Out Of MARY ANN

Walter, an experienced mariner, was himself to supervise and direct the work to be performed by employees of St. Charles. The ship was expected to have a draft of approximately 10 feet but Bayou Lafourche where the St. Charles yard was located was only about 9 feet deep with about 3 or 4 feet of soft silt through which a boat could slide. After MARY ANN's hull was launched, her superstructure was added while she was moored in a hole in the bank of the Bayou at the St. Charles yard, where she would not obstruct passage in the narrow Bayou. MARY ANN was not floating while she being outfitted, but was sitting on the bottom of the silt.

In December 1966, the vessel was inspected on the construction site by the United States Salvage Association, at the request of Penn, and recommendations were made to Owner looking toward a final inspection upon completion. The surveyors recommended that a stability test be made when all equipment was installed a condition which obviously called for her to be afloat.

By late March 1967 the vessel was complete except for connecting the propeller shaft to the main engine, testing and aligning the engine, and the pipes and pumps, and painting the hull with an anti-fouling paint. ¹¹ The pumps could not be tested at St. Charles yard because mud would be sucked into the machinery and the main shaft and engine could not be connected and aligned because the ship was on the bottom. Accordingly, Walter undertook (with tugs and trucks furnished through St. Charles but not then under its direction) to have MARY ANN moved to a pier at Bollinger's shipyard, about 15 miles down the Bayou, where the water was deeper and all of the work, except the painting which required dry dock facilities, would be done by St. Charles workmen. ¹² Walter had not made any arrangements for any work to be done at Bollinger's yard by Bollinger's employees.

MARY ANN Takes A Bath

On April 5, 1967 tugs hired by Walter from Bourgeois arrived to move MARY ANN to Bollinger's yard. The ship had no propulsion system of her own because her engine was not connected to the shaft. However, all of the equipment to outfit the ship had been put aboard the vessel since she was not to return to St. Charles yard but would proceed from Bollinger's yard either to Avondale or Houma shipyards to be dry docked and have anti-fouling paint applied to her hull. Thereafter, Walter planned to proceed to the Mississippi River for a trial run.

The tugs pulled MARY ANN from the hole in the bank where she was berthed into the Bayou, where she may have floated briefly, but probably still dragging the bottom, she listed sharply to port then rolled on her port side and capsized. As a result much of her gear was lost overboard, and other equipment although salvaged was fouled with silt. This accident occurred about 100 yards from the St. Charles yard. Two marine surveyors were sent by the Marine Office of America to inspect the boat after she had capsized and to observe her righting and flotation. A few days later MARY ANN was successfully moved by aid of a barge and tugs to Bollinger's yard.

The Repair And Completion Of MARY ANN

Eleven days after the casualty Bourgeois wrote Walter a letter asking him to come from Bollinger's to St. Charles yard to look over his final invoices for the construction of MARY ANN and notifying him that he was sending his brother and another St. Charles employee to line up the engines and test the pumps. The St. Charles employees' attempt to align the engine to the propeller shaft was unsuccessful due to damage from the capsizing but they were able to test the piping system. The damage which was caused by the capsizing was repaired by Owner at Bollinger's shipyard at a claimed expense of $76,550.59. A naval architect inspected the vessel and certified that it was completed on May 25, 1967, ¹³ whereupon Walter proceeded to Avondale Shipyard where the anti-fouling paint was applied to the ship's hull and subsequently in late May or early June a trial run on the Mississippi River was accomplished.

Claims were made by Owner and the United States under the insurance policies but neither the claim of Owner or the mortgagee has been paid.

The Controlling Legal Regime

The Supreme Court in Wilburn Boat Company v. Fireman's Fund Insurance Co., 1955, 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337, 1955 A.M.C. 46, reversing this Court, 5 Cir., 1953, 201 F.2d 833, 1953 A.M.C. 284, set out the now familiar principle applicable in the maritime insurance situations that, in the absence of federal legislation or a conflicting rule of law judicially established by the Federal Courts, state law would apply to the regulation of marine insurance matters. See also Irwin v. Eagle Star Insurance Co., 5 Cir., 1972, 455 F.2d 827, 829. With respect to the issues to be decided in this case there is no firmly established regime of federal law and consequently we find ourselves controlled by Louisiana law. However, there is more than a mere dutiful dependence upon Wilburn Boat which dictates the application of Louisiana law in this factual setting. Here, Louisiana has a substantial and a legitimate interest. Not only was the vessel being constructed in Louisiana by Louisiana shipbuilders but also the parties, with...