Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-01076/USCOURTS-cand-4_04-cv-01076-4/pdf.json

Nature of Suit Code: 120
Nature of Suit: Marine Contract Actions
Cause of Action: 28:1331 Fed. Question

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

DONALD F. CHIARIELLO,

Plaintiff,

 v.

ING GROEP NV, a Netherlands

corporation,

Defendant. /

No. C 04-1076 CW

ORDER DENYING

PLAINTIFF'S MOTION

FOR ATTORNEYS' FEES

 Following the Court's March 2, 2006 Order addressing the

parties' cross-motions for summary judgment, Plaintiff Donald F.

Chiarello moves for an award of attorneys' fees in his favor. 

Defendant opposes the motion, and the matter was taken under

submission on the papers. Having considered all of the papers filed

by the parties, the Court DENIES Plaintiff's motion for attorneys'

fees and awards prejudgment interest at the rate specified in 28

U.S.C. § 1961(a), as described below. 

BACKGROUND

This case involves a dispute over insurance coverage for

Plaintiff's former boat, the ATTU, which sank off the South China

Sea on October 12, 2003. Plaintiff obtained an insurance policy for

the ATTU through Blue Water Insurance Company (hereinafter, Blue

Water). Blue Water did business with T.L. Dallas (Special Risk)

Ltd. (hereinafter, T.L. Dallas), a United Kingdom-based company that

Case 4:04-cv-01076-CW Document 134 Filed 07/10/06 Page 1 of 10
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 2

acts as a managing agent for marine insurance companies. T.L.

Dallas is authorized to underwrite insurance and handle claims for

insurance companies, including Defendant ING GROEP NV. For a

detailed account of Plaintiff's application for and receipt of a

marine insurance contract with Defendant, see the Court's March 2,

2006 Order, pages 1-9. 

The insurance policy at issue contains the following choice-oflaw provision, which the Court has found applies to Plaintiff's

claims, and which the parties now agree also applies to the

application for attorneys' fees:

It is hereby agreed that any dispute arising hereunder shall be

adjudicated according to well established, entrenched

principles and precedents of substantive United States Federal

Admiralty law and practice, but where no such well established,

entrenched precedent exists, this insuring agreement is subject

to the substantive laws of the state of New York.

Following notification of the loss of the ATTU, T.L. Dallas

hired the firm of Wager and Associates to investigate the

circumstances of the loss. Guy Matthews, a trained marine insurance

adjuster, determined that Plaintiff's solo operation of the ATTU did

not cause or contribute to the vessel's sinking, and that

Plaintiff's operation of the ATTU did not breach the implied

warranty of seaworthiness. Mr. Matthews concluded that the ATTU was

certainly a total loss, and recommended payment of Plaintiff's

claim. Ultimately, however, Mark Thomas, T.L. Dallas' claims

manager, decided to deny Plaintiff's claim on the basis that

Plaintiff's solo operation of the boat constituted a material nondisclosure in violation of the doctrine of uberrimae fidei. In

support of this decision, Mr. Thomas cited a case called La Reunion

Case 4:04-cv-01076-CW Document 134 Filed 07/10/06 Page 2 of 10
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 3

Francaise, S.A. v. Haugen, No. 98-7129-Civ-Ferguson/Snow (S.D. Fla.

Jan. 20, 2000), in which the court decided that single-handed

sailing was a special condition affecting insurance coverage that

should have been disclosed pursuant to uberrimae fidei. 

Plaintiff, a lawyer, originally filed his complaint in propria

persona on March 17, 2004, alleging one cause of action for recovery

of sums due under the maritime insurance policy. Defendant answered

and brought counterclaims seeking a declaratory judgment voiding the

policy. Defendant agreed to dismiss a prior action it had brought

against Plaintiff for declaratory judgment in the District of

Maryland. 

In its March 2, 2006 Order, the Court found that the singlehanded navigation clause included in the Blue Water application was

not incorporated into the insurance contract between Plaintiff and

Defendant. The Court concluded that there was no evidence that

Plaintiff violated his duty under uberrimae fidae or under New York

State law, and therefore that Defendant was not entitled to void the

policy on those grounds. The Court found in Plaintiff's favor on

the otherwise undisputed issues of Defendant's breach of the policy

and the total amount owed ($163,000). 

DISCUSSION

I. Entitlement to Attorneys' Fees

Plaintiff maintains that he is entitled to an award of

attorneys' fees because Defendant acted in bad faith in denying his

claim for coverage. Defendant argues (1) that no well established,

entrenched principle or precedent of substantive United States

federal admiralty law allows courts to award attorneys' fees on a

Case 4:04-cv-01076-CW Document 134 Filed 07/10/06 Page 3 of 10
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 4

finding of bad faith in a marine insurance dispute; and (2) that

Plaintiff is not entitled to attorneys' fees under New York State

law. These issues are addressed in turn. 

A. Well-Established Federal Admiralty Law

The United States Supreme Court has held that a sick seaman may

recover attorneys' fees as part of his damages where his employer

wrongfully withheld maintenance and cure (i.e. support "designed to

provide a seaman with food and lodging when he becomes sick or

injured in the ship's service"). Vaughan v. Atkinson, 369 U.S. 527,

531-33 (1962); see also Madeja v. Olympic Packers, 310 F.3d 628 (9th

Cir. 2002) (affirming district court's finding of no bad faith but

noting that district court "clearly" has discretion to award

punitive attorneys' fees where shipowners frustrate seamen's

claims). The Second Circuit has extended the recovery of attorneys'

fees in maritime cases by announcing a "general rule . . . that the

award of fees and expenses in admiralty actions is discretionary

with the district judge upon a finding of bad faith." Ingersoll

Milling Mach. Co. v. M/V Bodena, 829 F.2d 293, 309 (2nd Cir. 1987),

cert. denied sub nom. J.E. Bernard & Co. v. Ingersoll Milling Mach.

Co., 484 U.S. 1042 (1988). The Second Circuit has since

characterized the Ingersoll rule as an established federal admiralty

rule that must be followed instead of State law. Am. Nat'l Fire

Ins. Co. v. Kenealy, 72 F.3d 264, 270 (2nd Cir. 1995). However, the

Eleventh Circuit has disagreed with this holding in Kenealy,

observing that "the cases which underlie the court's rationale in

Kenealy do not support the notion of an emerging federal rule of law

relating to attorney's fees in maritime insurance litigation." All

Case 4:04-cv-01076-CW Document 134 Filed 07/10/06 Page 4 of 10
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 5

Underwriters v. Weisberg, 222 F.3d 1309, 1314 (11th Cir. 2000)

(citing David W. Robertson, Court-Awarded Attorneys' Fees in

Maritime Cases: The 'American Rule' in Admiralty, 27 J. Mar. L. &

Com. 507, 566 (1996)); see also INA of Texas v. Richard, 800 F.2d

1379, 1381 (5th Cir. 1986) (applying Wilburn Boat Co. v. Fireman's

Fund Ins. Co., 348 U.S. 310 (1955), and holding that State law

controls determination of whether an award of attorneys' fees is

allowable in marine insurance controversies). 

Defendants argue that, in light of this inter-circuit conflict,

the Ingersoll rule that a district court may award attorneys' fees

upon a finding of bad faith is not the type of well-settled federal

maritime law that replaces State law under Wilburn Boat. Plaintiff

points to other decisions approving the award of attorneys' fees in

maritime disputes; however, none of those cases, apart from those in

the Second Circuit, apply Vaughan to allow attorneys' fee awards

based on underlying bad faith conduct regarding marine insurance

contracts. Cf., e.g., Gradmann v. Holler GMBH v. Continental Lines,

S.A., 679 F.2d 272, 274 (1st Cir. 1982) (noting that district court

has inherent power in an admiralty suit to assess attorneys' fees

when a party to litigation has acted in bad faith, wantonly,

vexatiously or for oppressive reasons). Tibbs v. Great American

Insurance Co., 755 F.2d 1370 (9th Cir. 1985), is likewise inapposite

because it involved the application of California law, not federal

admiralty law. Plaintiff criticizes Richard and Weisberg for

failing to acknowledge the Supreme Court's holding in Vaughan as

contrary precedent, but makes no effort to address the reasoning in

the Robertson article on which the Eleventh Circuit relied. 

Case 4:04-cv-01076-CW Document 134 Filed 07/10/06 Page 5 of 10
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

For a brief overview of the doctrine of uberrimae fidae, see

the Court's March 2, 2006 Order, pages 15-16. 

6

Robertson addresses Vaughan at length and concludes that the Second

Circuit erred in applying it to allow, as a matter well-established

federal maritime law, recovery of attorneys' fees based on

underlying bad faith conduct in the marine insurance context. 

Robertson, 27 J. Mar. L. & Com. at 558-59, 562-566. Nor does

Plaintiff address the distinction, highlighted by Robertson, between

an attorneys' fee award based on a party's bad faith conduct during

litigation versus a fee award based on a party's bad faith conduct

during the underlying transaction. The Court therefore finds that

Plaintiff has failed to identify a well established, entrenched

principle or precedent of substantive United States federal

admiralty law that would allow him to recover attorneys' fees based

on Defendants' underlying conduct in this marine insurance dispute. 

Nor has Plaintiff shown, as a matter of well-established

federal admiralty law, that he may recover attorneys' fees from

Defendant based on a breach of the admiralty principle of uberrimae

fidae.1 As the Court noted in its prior order, the Supreme Court's

decision in Wilburn Boat has generally been interpreted "in

deference to state hegemony over insurance, to discourage the

fashioning of new federal law and to favor the application of state

law." Albany Ins. Co. v. Wisniewski, 579 F. Supp. 1004, 1013-14 (D.

R.I. 1984) (listing cases). The cases on which Plaintiff relies for

the proposition that Defendant had an obligation to notify him at

the time coverage was granted of any changes that would result in a

loss of coverage do not involve well-established federal law. See

Case 4:04-cv-01076-CW Document 134 Filed 07/10/06 Page 6 of 10
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 7

Navegacion Goya, S.A., v. Mut. Boiler & Mach. Ins. Co., 411 F. Supp.

929, 936 (S.D. N.Y. 1975) (noting insurer must notify the insured at

the time coverage is granted of any changes which will result in

loss of coverage); Yonkers Contracting Co., Inc., v. Gen. Star Nat.

Ins. Co., 14 F. Supp. 2d 365, 373 (S.D. N.Y. 1998) (denying New York

State law claim against insurer for breach of contractual duty of

good faith based on allegations of failure to negotiate). 

Because there is no well-established federal law governing the

recovery of attorneys' fees in connection with a marine insurance

dispute, the terms of the policy require the Court to apply New York

State law to Plaintiff's fee motion. 

B. New York State Law

Under New York law, the general rule is that a prevailing party

cannot recover the costs of litigation. Employers Mut. Cas. Co. v.

Key Pharm., 75 F.3d 815, 824 (2nd Cir. 1996). An exception to this

prohibition against recovery of attorneys' fees arises when a

policyholder "has been cast in a defensive posture by the legal

steps an insurer takes in an effort to free itself from its policy

obligations." Mighty Midgets, Inc., v. Centennial Ins. Co., 47 N.Y.

2d 12, 21 (1979). However, New York courts have clarified that this

exception is also based on the insurer's "duty to defend" the

insured against lawsuits. Aetna Cas. & Sur. Co. v. Dawson, 44

N.Y.S. 2d 10, 12 (N.Y. App. Div. 1981), aff'd, N.Y. 2d 1022 (1982). 

Therefore, the Mighty Midgets exception arises only "when a

policyholder has been cast in a defensive posture by its insurer in

a dispute over the insurer's duty to defend." Key Pharm., 75 F.3d

at 824 (citing Dawson, 44 N.Y.S. 2d at 12). 

Case 4:04-cv-01076-CW Document 134 Filed 07/10/06 Page 7 of 10
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 8

According to New York law, even assuming that Plaintiff has

been put in a defensive posture in this litigation based on

Defendant's filing suit in Maryland for declaratory relief or

Defendant's counterclaims in this lawsuit, he still cannot recover

attorneys' fees. This is because the disputed insurance contract

here does not involve a duty to defend. In his reply, Plaintiff

identifies no other New York authority that could support an award

of attorneys' fees to a prevailing party in a dispute such as this. 

Therefore, the Court denies Plaintiff's motion for attorneys' fees. 

Moreover, even if Plaintiff had identified applicable authority

allowing him to recover attorneys' fees upon a showing of

Defendant's bad faith, the Court would not award attorneys' fees. 

Plaintiff's theory of bad faith states that Defendant relied on a

strained or contrived reading of the policy in order to avoid its

obligation to pay, ignoring the recommendation of its own hired

investigator, Mr. Matthews. Even though the Court ultimately

rejected Defendant's theory that Plaintiff had violated the duty of

uberrimae fidae, reasonable minds could differ on this legal

question. Although the unpublished decision in La Reunion

Francaise is not binding and, in the Court's view, is

distinguishable on the facts, it did provide direct support for

Defendant's position. Mr. Matthews' recommendations were based on

his findings regarding the incident itself, e.g. that Plaintiff's

conduct was not responsible for the sinking of the ATTU, a fact

which was neither disputed nor relevant to Defendant's rationale for

denying coverage. See Oksenendler Reply Decl., Ex. 4, June 11, 2003

Email from Mark Thomas to Thierry Serck ("The view of Wager &

Case 4:04-cv-01076-CW Document 134 Filed 07/10/06 Page 8 of 10
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

28 U.S.C. § 1961(a) provides for interest to be "calculated

from the date of the entry of the judgment, at a rate equal to the

weekly average 1-year constant maturity Treasury yield, as

published by the Board of Governors of the Federal Reserve System,

for the calendar week preceding the date of the judgment." 

9

Associates may well be cogent on any issue of seaworthiness but it

will not affect any argument under uberrimae fidae (the duty of the

utmost good faith).") In the circumstances of this case, the fact

that Defendant wrongfully denied coverage is not tantamount to bad

faith. 

For these reasons, the Court denies Plaintiff's motion for

attorneys' fees. 

II. Pre-judgment Interest

In its March 2, 2006 order, the Court found that Plaintiff is

entitled to pre-judgment interest. The parties dispute the

appropriate rate. 

The Ninth Circuit has held that in suits involving maritime

issues, federal law applies to the determination of pre-judgment

interest rates. Columbia Brick Works, Inc., v. Royal Ins. Co. of

Am., 768 F.2d 1066, 1070 (9th Cir. 1985). The interest rate

prescribed for post-judgment interest in 28 U.S.C. § 1961(a)2 is

"appropriate for fixing the rate of prejudgment interest unless the

equities of a particular case demand a different rate." Id. at 1071

(citing W. Pacific Fisheries, Inc., v. SS President Grant, 730 F.2d

1280, 1289 (9th Cir. 1984)). If the equities so demand, the

district court may choose to award the local rate of interest. Id.

The California statutory rate for prejudgment interest chargeable

after a breach of contract is ten percent per annum. Cal. Civ. Code

Case 4:04-cv-01076-CW Document 134 Filed 07/10/06 Page 9 of 10
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

This amount is to be calculated according to the following:

Interest = Principal*Rate*Time, and compounded annually. 

10

§ 3289(b). 

Plaintiff has not shown any reason why the equities in this

particular case favor application of the California statutory rate

rather than the federal rate, especially in light of the dispute's

lack of connection to California. Therefore, pursuant to Columbia

Brick, the Court awards interest as provided in 28 U.S.C.

§ 1961(a).3

CONCLUSION

For the foregoing reasons, the Court DENIES Plaintiff's motion

for attorneys' fees (Docket No 123). The Court awards Plaintiff

prejudgment interest as provided in 28 U.S.C. § 1961(a). Defendant

shall bear Plaintiff's costs of the action. The Clerk shall enter

judgment accordingly. 

IT IS SO ORDERED.

Dated: 7/10/06 

CLAUDIA WILKEN

United States District Judge

Case 4:04-cv-01076-CW Document 134 Filed 07/10/06 Page 10 of 10