Ship Repair is not equal to Wreck Removal under Marine Insurance Policy No Coverage for Claims or Duty to Defend

Ship Repair is not equal to Wreck Removal under Marine Insurance Policy

No Coverage for Claims or Duty to Defend

Written By: Sarah Didlake

Edited By: Andrew Lifsey

Great Am. Ins. Co. v. Toms Welding, Inc., No. 13-6797, 2015 WL 5059788 (E.D. La. Aug. 26, 2015).In a declaratory action filed against Tom’s Welding, Inc. (hereinafter “TWI”), Great American Insurance Company (hereinafter “Great American”) argued that it owed neither coverage nor a duty to defend TWI in separate, pending litigation (hereinafter “Texas Litigation”) in the Eastern District of Texas. In that case, TWI was among the defendants against whom the United States sought a judgment declaring responsibility for removal costs and civil penalties for a 2009 oil spill, which allegedly originated from a barge for which TWI had contracted to provide wreck removal services.In the present case, however, the insurer filed suit to establish that the policy at issue did not provide TWI coverage for potential liability or a defense in the Texas Litigation.The first issue in this case concerned the scope of the Marine Commercial Liability Limited Pollution Coverage Endorsement (hereinafter “Endorsement”) contained within the policy. The Endorsement provided coverage only for pollution resulting from TWI’s “marine operations,” which the policy defined as “ship repair.” TWI asserted that wreck removal was included in the term ship repair.Great American argued that ship repair and wreck removal not only served different functions but also posed different risks. Additionally, the insurer noted that, unlike ship repair, coverage for wreck removal is typically provided under a P&I policy—exactly the type of policy that TWI had previously obtained from Great American for wreck removal projects. TWI, however, attempted to rebut this argument by claiming that wreck removal is, in fact, within the scope of ship repair and that “Great American’s argument [was] mere semantics....”.Noting the “scant case law” distinguishing wreck removal from ship repair, the Court interpreted the policy by applying the “general rule of construction that words in an insurance contract are to be construed with their plain and ordinary meaning.” As a result, the Court found “a clear distinction between moving a vessel from the water to a facility and dismantling a vessel for scrap while it remains in the water, as was attempted here.” Accordingly, the Court held that TWI’s wreck removal operations exceeded the scope of coverage under the Endorsement.The Court then provided additional support for finding in favor of Great American by addressing a number of the insurer’s remaining arguments asserting a lack of coverage for TWI’s operations. In each of its remaining arguments, Great American applied the clear language of the contract to address several explicit coverage exclusions and further define the scope of the policy. Notably, TWI did not attempt to rebut any of the insurer’s following arguments.First, the contract excludes coverage for damages that did not become known to to the insured within 72 hours of the incident. On December 15, 2009, the Coast Guard notified TWI via letter that it believed TWI’s barge was the source of an oil spill that occurred on or about December 7, 2009. Because TWI offered no evidence to suggest it was aware of the event before receipt of the letter, the contract precluded coverage under the 72-hour discovery exclusion.Second, the policy stipulated that the insured must notify Great American within 30 days of knowledge of an occurrence. TWI admitted that it did not notify Great American until July 2013—six months after the Texas Litigation was filed. Accordingly, policy coverage was expressly barred due to TWI’s failure to provide timely notice to the insurer.Third, each of the complaints against TWI in the Texas Litigation arose under the Oil Pollution Act of 1990 or under the Clean Water Act. The Endorsement excluded coverage for actual or alleged liability arising “solely from any obligation imposed by any statute rule, ordinance, [or] regulation.” Similarly, the policy did not cover “fines, penalties, exemplary or punitive damages.” Accordingly, the Court noted that the civil penalties sought by the United States in the Texas Litigation fell squarely within these expressed exclusions.The final issue the Court addressed was whether, under the policy, Great American owed a duty to defend TWI in the Texas Litigation. Looking only to the four corners of the complaint and the insurance policy, the Court again turned to the language of the contract to apply the so-called “eight corners rule” to determine whether Great American had a duty to defend that suit against TWI. The United States’ complaint against TWI in the Texas Litigation made no mention of ship repair; instead, it clearly stated that TWI was providing salvage and removal services for the barge. Additionally, as the Court previously concluded, the unambiguous language of the policy did not provide coverage for the wreck removal asserted in the United States’ complaint. Therefore, the Court held that Great American owed no duty to defend TWI in the pending Texas Litigation.In sum, after finding the language of the policy “clear and unambiguous as to the scope of coverage,” the Court granted summary judgment in favor of the insurer. Accordingly, Great American does not owe TWI coverage for potential liability or a defense in the Texas Litigation.