Chapter 15f Marine and Aviation Insurance

• Library: The Handbook on Additional Insureds (ABA) (2018 Ed.)

CHAPTER 15F Marine and Aviation Insurance

Joe Grasso and Laura Ann Keller¹

As a general matter, coverage for additional insureds under marine and aviation insurance policies operates in much the same way as coverage for additional insureds under other types of insurance, and the issues that most often arise are the same. As with most insurance contracts, the terms of the insurance policy are determinative of the parties' rights and obligations. However, marine insurance policies are subject to federal admiralty case law rather than any particular state's law, unless there is no entrenched federal case law on point.² Thus, marine insurance policies are generally not subject to state laws, such as the Louisiana Oilfield Anti-Indemnity Act, which otherwise invalidates any indemnification provisions in contracts pertaining to oilfields in Louisiana.

Inasmuch as the issues arising for additional insureds under marine and aviation policies are generally the same as other policies, the following is a survey of recent case law addressing coverage of additional insureds in marine and aviation related policies. The issues arise with some frequency in the maritime context but only rarely in the aviation context.

I. Marine Insurance

A. Additional Insured's Coverage May Exceed Coverage of the Named Insured

Seabulk Offshore Ltd. v. American Home Assurance Co.³ Seabulk entered into a manning agreement with Dyn Marine whereby Dyn Marine would provide crews to two vessels owned by Seabulk. Under the Agreement Dyn Marine was to secure and maintain a comprehensive general liability (CGL) policy that included, in addition to the usual CGL coverage, in rem coverage, contractual liability coverage, and "completed operations" coverage for Seabulk as an additional insured. The Dyn Marine policy also included a footnote that indicated the policy functions with respect to Dyn Marine "To Cover Dyn Marine's US Office Exposures Only" ("the exposures footnote"). Dyn Marine's insurer, American Home, was to waive its rights of subrogation against Seabulk. Seabulk agreed to secure and maintain full protection and indemnity insurance (P&I) and to name Dyn Marine as a co-insured with a waiver of subrogation.

The Seabulk New Hampshire, manned by a Dyn Marine crew, collided with another vessel, injuring two crewmen on the other vessel, who sued Seabulk and Dyn Marine, both of which settled. Seabulk then demanded indemnification and defense from Dyn Marine's insurer, which denied the claim. Dyn Marine's insurer, American Home, argued that because Dyn Marine was not covered by the policy, Seabulk could not be afforded more coverage than Dyn Marine. American Home also argued it was not obligated to cover Seabulk, which had been reimbursed by its P&I insurer. The court rejected both arguments, noting that the accident fell within the ambit of the CGL policy; thus, the accident fell within the coverage afforded to the additional insureds. Additionally, since the exposures footnote did not apply to the additional insureds provision, there was no limitation to coverage as a result of the footnote. The court dismissed American Home's reliance on its earlier decision in Tidewater Equipment Co. v. Reliance Insurance Co.,⁴ as support for the proposition that "[w]henever a party receives coverage as an additional insured, that party's rights are limited by the terms and conditions of the insurance contract, as are the Named Insured."⁵ The court noted that Tidewater involved a single named insured, while the policy at issue before the court provided differing coverage to a number of named insureds. Because American Home did not specify in the policy that the additional insured's coverage was limited to that provided to the named insured through which it acquired its coverage, there was nothing in the policy as issued that limited Seabulk's coverage to that coverage provided to Dyn Marine.

B. Insurer May Collect Losses outside the Policy from Additional Insured

Adams v. Unione Mediterranea di Sicurta.⁶ Two barges owned by the Canal Barge Company carrying a cargo of 158 slabs of steel destined for A.K. Steel in Ohio, broke free from their flotilla and sank in the Mississippi River. The steel cargo, owned by Duferco, was insured under a marine cargo policy underwritten by Steven Henry Adams, an underwriter and representative of certain underwriters at Lloyd's of London, and issued to the Canal Barge Company, naming Duferco as an additional insured. In addition, Duferco was separately insured under its own open cargo policy issued by Unione Mediterranea di Sicurta ("UMS"). The Adams policy carried a policy limit of $5 million and the UMS policy carried a limit of $20 million per shipment. Duferco filed a claim with UMS for the loss. After salvage attempts failed, UMS denied the claim. Duferco then pursued its claim against Adams and abandoned the sunken cargo to Adams. Meanwhile, an outside salvage company, believing the cargo to be entirely abandoned, successfully salvaged 127 slabs and sold them to A.K. Steel for a profit of $190,975.68.

Adams brought an action seeking a declaratory judgment (1) identifying whom it should pay for the loss of cargo under the policy issued to Canal Barge; (2) stating that UMS was obligated under the open cargo policy to contribute to payment for the loss; and (3) deciding that Adams and underwriters were obligated to pay only their proportionate share of the loss. The district court ruled that Adams could not recover contribution against UMS without fully compensating Duferco for the loss. They therefore paid Duferco $986,351.41 for the loss and obtained an assignment of Duferco's rights against UMS. Adams then learned of the salvage and demanded return of the cargo or payment of its value from the salvage company and A.K. Steel, amending the complaint to add a claim against the salvage company and A.K. Steel; UMS then cross-claimed against the salvage company and A.K. Steel for its share of the salvage value. The district court found that UMS was required to contribute pro rata with Adams for the loss according to their respective policy limits, and awarded Adams 80 percent of the payment it made to Duferco. The district court also split the tort award of $190,975.68 against AK Steel pro rata between Adams and UMS.

Adams appealed. The Fifth Circuit found that since UMS had made no payment to Duferco, it was not subrogated to Duferco's right to assert a claim against A.K. Steel. The Fifth Circuit remanded to the district court to allow UMS an opportunity to satisfy Adams's judgment against it, in which case UMS would be entitled to an equitable portion of the A.K. Steel recovery. A.K. Steel argued that because it was an additional insured of UMS, UMS would never be entitled to recover its share of the salvage profits. The Fifth Circuit disagreed, observing that an insurer may recover damages for losses outside the policy. Here, A.K. Steel suffered no loss and was unjustly enriched at the expense of Adams (and potentially UMS) by the conversion of the lost steel. Once UMS paid its share of the loss, it would be entitled to recover against A.K. Steel, even if A.K. Steel was an additional insured under the policy issued to Duferco.

C. Where Insured's Incurred Expenses Mitigate Covered Collateral Damage to Another Insured on the Policy, the Insured Was Entitled to Recover Those Costs

Assicurazioni Generali S.P.A. v. Black & Veatch Corp.⁷ Black & Veatch bought components for Heat Recovery Steam Generators ("HRSG") in support of an electricity-generating facility it was building for the benefit of MEP Pleasant Hill LLC ("MEP"). The project was called the Aries Project. Black & Veatch bought the HRSG components from Toshiba and obtained a policy of marine cargo insurance from Assicurazioni Generali ("Generali"). In addition to coverage for physical loss during the transport of equipment, machinery, supplies, and materials, the policy included coverage for delay-in-start-up losses and for expenditures incurred to avoid or diminish such losses. Projects were added the policy by endorsement. Consequential loss coverage was limited to those projects covered for physical loss. The Aries project was added by endorsement. In addition, the policy included an endorsement that limited the delay-in-start-up coverage to MEP only.

The vessel carrying the components intended for Black & Veatch was caught in a typhoon, which caused severe damage to most of the HRSG components on board. The replacements arrived at the delivery site approximately six months after the originally scheduled delivery date. In anticipation of this delay, Black & Veatch changed the construction sequencing and employed additional labor to minimize the impact of the delayed delivery on its overall schedule in starting up a new plant. These efforts resulted in $38 million in additional costs. Black & Veatch submitted claims to Generali for the consequential costs. Generali filed a declaratory action, in which, inter alia, Generali claimed that they were not obligated to pay those consequential costs Black & Veatch incurred, which minimized the losses incurred by MEP. The court disagreed, finding that the Generali was obligated to pay those consequential costs Black & Veatch incurred which mitigated the delay in start losses MEP would have incurred otherwise.

D. Indemnification Did Not Extend to Damages to Additional Insured Caused by Additional Insured's Own Breach of Contract

Ingalls Shipbuilding v. Transocean Offshore Inc.⁸ An employee of CESI was injured while working pursuant to a Contract Labor Agreement between CESI and Ingalls Shipbuilding, which had contracted with Transocean Offshore to install drilling modules on board Transocean's vessel. Ingalls was one of several contractors Trans-ocean had hired. Each Transocean contract required the contractor to name Trans-ocean as an additional insured under its comprehensive general liability policy. However, Ingalls did not...