IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 09-30378

DANOS MARINE INC; DANOS & CUROLE MARINE CONTRACTORS,

LLC,

Plaintiffs – Appellants Cross-Appellees

v.

CERTAIN PRIMARY PROTECTION AND INDEMNITY UNDERWRITERS,

Subscribing Severally to Policy Number C0I-3400773; CERTAIN EXCESS

PROTECTION AND INDEMNITY UNDERWRITERS, Subscribing Severally

to Policy Number BO702/LF0-21040T,

Defendants – Appellees Cross-Appellants

Appeal from the United States District Court

for the Eastern District of Louisiana

Before HIGGINBOTHAM, DAVIS and BENAVIDES, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Appellants filed this suit to recover costs of wreck removal from P&I

underwriters of the liftboat ANDRE DANOS resulting from the capsizing and

sinking of that vessel in the Gulf of Mexico during Hurricane Katrina. The

district court found that the wreck removal costs were covered by the policy but

that the value of the salvage of the sunken vessel exceeded the removal costs and

denied recovery.

United States Court of Appeals

Fifth Circuit

F I L E D

July 28, 2010

Lyle W. Cayce

Clerk

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We agree that the costs of removing the wreck are covered but disagree

that the value of the salvage exceeded those costs. For reasons that follow, we

reverse and remand for further proceedings.

I

Plaintiff-Appellant Danos Marine, Inc. (“Danos Marine”) is a Louisiana

corporation owned by Allen Danos. Danos Marine owned two liftboats, ANDRE

DANOS and SARAH DAVID. Plaintiff-Appellant Danos & Curole Marine

Contractors, LLC (“Danos & Curole”) is a Louisiana limited liability company

owned by Allen Danos and his brother, Hank Danos. Danos & Curole was the

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bareboat charterer and operator of the liftboat ANDRE DANOS. The bareboat

charter agreement required Danos & Curole to obtain insurance on ANDRE

DANOS. The charter also required Danos & Curole to return ANDRE DANOS

to Danos Marine in the same condition as when the charter commenced. Danos

& Curole purchased Protection & Indemnity (“P & I”) insurance from the

Underwriters, the Defendants-Appellees. The P & I policy, which included both

Danos companies as named insureds, included coverage for wreck removal

expenses. The hull of ANDRE DANOS was insured by a different insurer for

$3,285,000, with a deductible of $1,000,000. Danos & Curole owned six

liftboats, which it operated in addition to the ANDRE DANOS and the SARAH

DAVID.

In 2004, Allen and Hank Danos decided to sell all eight liftboats and

related assets owned by the two Danos companies. They hired an investment

banker to present a bid proposal package to prospective purchasers. ANDRE

DANOS was appraised for $4,000,000, and SARAH DAVID was appraised for

$4,700,000. On August 24, 2005, Hercules, a liftboat operator, submitted the

highest bid, $42,000,000 for all vessels and related assets. The Danos companies

 The plaintiffs’ companies are collectively referred to as the “Danos’ companies.” 1

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countered at $45,000,000, and Hercules conditionally accepted the counter -offer.

In that counter-offer Hercules conditionally agreed to pay the appraised value

of $4,000,000 for the ANDRE DANOS and $4,700,000 for the SARAH DAVID to

the boats’ owner, Danos Marine. The remainder of the purchase price was to be

paid to Danos & Curole.

The next day Hurricane Katrina hit the Louisiana coastline and capsized

the ANDRE DANOS. Shortly after the storm, Hercules and the Danos’

companies resumed negotiations. At that point, although the parties knew that

ANDRE DANOS suffered damage, the value of the boat could not be ascertained

because it was still submerged. Relatedly, the appellants offered evidence that

the widespread damage to oilfield equipment in the area drove up the prices of

operating liftboats, including the appellants’ seven other liftboats. According to

the appellants, although ANDRE DANOS obviously lost value, the other seven

liftboats appreciated in value due to the destruction of liftboats and other oilfield

equipment along the coastline as well as increased demand for this equipment.

In other words, the resumed negotiations not only entailed subtracting value

from the bid due to the sinking of ANDRE DANOS, the negotiations also

included adding value to the other seven liftboats because their market value

had increased due to the change in supply and demand for liftboats after the

hurricane.

The parties’ negotiations post-Katrina ultimately resulted in an agreed

purchase price of $44,000,000 for all eight vessels. In the Amended Purchase

Agreement (APA), Hercules agreed: (1) to pay $500,000 toward the cost of

raising the capsized boat; and (2) to reimburse Danos $1,000,000 for the

deductible with respect to the hull policy on ANDRE DANOS. Although ANDRE

DANOS was still submerged at the time of the agreement, the APA contained

a schedule that allocated the purchase price among the eight vessels, listing the

purchase price of “L/B Andre Danos” as $500,000. Additionally, the parties

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added Article 6.8 to the agreement to treat the transfer of ownership of ANDRE

DANOS in a different manner than the other seven liftboats, which were to be

transferred to Hercules at the closing of the transaction. They agreed to transfer

the ownership of ANDRE DANOS on the date repairs were completed or at the

closing, whichever occurred later.

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On October 17, 2005, Danos & Curole obtained a survey report indicating

that the wrecked ANDRE DANOS “has no value as it lies, capsized and partially

sunk in the Gulf of Mexico and is most likely a liability;” however, “[a]ssuming

that the vessel is salvaged under the current ‘No Cure, No Pay’ contract, it is the

opinion of the undersigned that the hull and salvaged appurtenances would have

an estimated value in the range of $450,000 depending upon the extent of

salvage related damage.” Prior to closing, Hercules inquired of Hank Danos as

Specifically, Article 6.8 provided as follows: 2

6.8 Andre Danos. The Sellers agree that they will, as soon as is reasonably practical

following the date of this Agreement, salvage and repair (to the extent it is not a

Total Loss) the Andre Danos. The Sellers shall use their commercially reasonable

best efforts to pursue their insurance claims. If the vessel is not a Total Loss, the

Sellers shall cause the Andre Danos to be repaired in a reputable shipyard, to be

mutually agreed to by the Buyer and the Sellers, and shall apply all available

insurance proceeds toward the repair of the Andre Danos. Once insurance proceeds

are completely expended, should additional repairsto the Andre Danos be required,

Buyer will be responsible for finding such repairs. If it is determined that the

damage to the Andre Danos suffered during Hurricane Katrina and/or during the

salvage operation has resulted in the vessel being a Total Loss, then the Purchase

Price shall be adjusted downward by an amount equal to the total insurance

proceeds paid by the Sellers with respect to the Andre Danos. If the full Purchase

Price has already been paid, then the Sellers will reimburse the Buyer for any

amountsthat would have been deducted from the Purchase Price under the previous

sentence. Nothing in this Section 6.8 will affect the Buyer’s obligation to pay the

salvage costs of the Andre Danos and to pay the deductible under the Sellers’

applicable insurance policies, as provided in Section 1.3 hereof. Notwithstanding

anything to the contrary set forth herein, delivery of the Andre Danos shall occur

on the later to occur of (1) the Closing, and (2) upon completion of such repairs. 

The Sellers shall deliver, and the Buyer shall accept, the Andre Danos in federal or

international waters in the Gulf of Mexico.

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to how the Danos companies wanted the purchase price divided between Danos

Marine, Inc. and Danos & Curole Marine Contractors, LLC. Hank Danos

instructed Hercules to divide the funds as per the pre-Katrina agreement. The

sale closed on November 8, 2005. At that time, ANDRE DANOS had not been

removed from the Gulf of Mexico.

On September 5, 2005, in an attempt to recover ANDRE DANOS, Danos

& Curole entered into a salvage contract with Coral Marine. Coral Marine

attempted to salvage the vessel but Hurricane Rita slammed into the Gulf,

shutting down salvage operations. Rita caused the vessel to shift in such a

position that Coral Marine’s equipment was inadequate to remove it. After Rita

struck, none of the vessel was showing above the surface of the Gulf; it was

submerged approximately six feet below the surface. Coral Marine hired Don

Jon Marine to remove the wreck. On October 19, Don Jon brought the boat to

the surface, but the slings broke and the boat sank to the ocean floor.

Eventually, on May 16, 2006, Danos & Curole contracted with Bisso Marine Inc.

to remove the vessel. On May 28, Bisso brought the wrecked vessel to shore.

Danos & Curole attempted to sell it for scrap, but the cleaning costs were

prohibitive. Instead, Danos & Curole had to pay Larose Salvage & Scrap

$150,000 to dispose of the wreck. The total cost of removal, including the

marking, raising and disposing of the wreck, was $2,049,911.22.

Pursuant to the APA, because ANDRE DANOS was a total loss, Danos &

Curole refunded $785,000 to Hercules. This amount represented the insurance

proceeds ($2,285,000) minus the deductible ($1,000,000) and Hercules’ share of

salvage costs ($500,000), all as agreed to in the APA.

The Danos’ companies filed a claim with the Defendant-Appellee

Underwriters for the costs of removing the wreck, and the Underwriters denied

coverage. The Danos’ companies then filed suit against the Underwriters,

seeking $2,040,911.22 for the costs of removal. The Danos’ companies filed a

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motion for partial summary judgment, seeking a ruling that removal costs of the

wreck were covered under the policy. The Underwriters filed a cross motion for

summary judgment, seeking a ruling that coverage was not afforded for these

expenses because the removal was not compulsory and alternatively that the

amount Danos received for the vessel from Hercules exceeded the removal costs.

The court granted Danos’ motion in part, ruling that the plaintiffs had a nondelegable duty to remove the vessel because it was an obstruction and therefore

the policy covered costs of wreck removal. The court also granted the

Underwriter’s motion in part, holding that Danos sold the wrecked vessel for

$4,000,000 and because this exceeded the cost of removing the wreck, Danos was

not entitled to any recovery. The court then entered a take nothing judgment in

favor of the defendants. The Danos’ companies filed a timely notice of appeal

and the Underwriters cross-appealed.

II

This appeal requires us to interpret and apply to the facts of this case the

following provision in defendant’s P&I policy which states that it will indemnify

the insureds for:

Liability for cost or expense of, or incident to, the removal of the

wreck of the vessel named herein when such removal is compulsory

by law, provided, however, that:

(a) There shall be deducted from such claim for cost or expenses, the

value of any salvage from or which might have been recovered from

the wreck, inuring, or which might have inured, to the benefit of the

Assured.

More specifically, the questions are: (1) whether the removal of the

wrecked vessel from the Gulf of Mexico was “compulsory by law”; and (2) what,

if any, of the funds involved in the Appellants’ sale of the liftboats to Hercules

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constitute “value of any salvage” recovered from the wreck to be deducted from

the removal costs.

A

The district court granted a partial summary judgment, holding that the

removal of the ANDRE DANOS was “compulsory by law.” This Court, sitting en

banc, has previously interpreted this particular phrase contained in an

insurance policy in a suit to recover the costs of removal of a wrecked vessel. See

Continental Oil Co. v. Bonanza Corp., 706 F.2d 1365 (5th Cir. 1983) (en banc).

Like the instant case, in Bonanza, the policy extended coverage for the expenses

involved in removal of a wrecked vessel “only when removal is compulsory by

law.” Id. at 1369. This Court rejected the Second Circuit’s position that the

phrase “compulsory by law” was a term of art that meant that removal was

covered only when a governmental body orders such removal. Id. (citing

Seaboard Shipping Corp. v. Jocharanne Tugboat Corp., 461 F.2d 500, 504 (2d

Cir. 1972)). Instead, this court concluded that the words should be “construed

in their plain, ordinary, and popular sense.” Id. (internal quotation marks and

citations omitted). Ultimately, to determine whether a removal was legally

compelled, this court adopted a test that asked whether a reasonable insured

would have effected a removal. This Court determined that removal is

compulsory “when a reasonable owner, fully informed, would conclude that

failure to remove would likely expose him to liability imposed by law sufficiently

great in amount and probability of occurrence to justify the expense of removal.”

Id. at 1372.

The district court concluded that the Appellants had a compulsory

obligation under the Wreck Act to remove the capsized vessel. The district court

relied on 33 U.S.C. § 409, which provides that “whenever a vessel . . . is wrecked

and sunk in a navigable channel, . . . it shall be the duty of the owner, lessee, or

operator of such sunken craft to commence the immediate removal of the same.”

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The Wreck Act “addresses the problem of obstructions caused by sunken

vessels.” Univ. of Tx. Med. Branch at Galveston v. United States, 557 F.2d 438,

444 (5th Cir. 1977); see 33 U.S.C. §§ 409, 411, 412, 414, and 415. Congress’s

purpose in enacting the Wreck Act was “‘the protection of other vessels plying

the same waters’ as the sunken vessels.” In re Southern Scrap Material Co., 541

F.3d 584, 588 (5th Cir. 2008) (quoting United States v. Raven, 500 F.2d 728, 732

(5th Cir. 1974)).

As Cross-Appellants, the Underwriters argue that the Wreck Act does not

impose a compulsory obligation to remove a wrecked vessel in every instance and

that whether a reasonable owner would have removed the wreck is a question

of fact. As set forth above, in this circuit, an order by a governmental authority

is not necessary to demonstrate that a removal is compulsory by law. Although

the Underwriters argue that a fact issue is presented as to whether it was

reasonable for the Appellants to effect the removal, the Underwriters do not

point to any disputed fact. For instance, with respect to the requirements of §

409 of the Wreck Act, the Underwriters do not dispute either that ANDRE

DANOS had sunk or that it sunk in a navigable channel.

The Underwriters also contend that the Wreck Act does not impose a duty

of removal on former owners or former operators of vessels. Thus, the

Underwriters assert that the plain language of the statute demonstrates that

former owners or operators have no obligation to remove a vessel under the

Wreck Act.

We need not address this legal argument because viewing the facts in the

light most favorable to Appellants, the amended purchase agreement makes

clear that the ownership of ANDRE DANOS did not transfer to Hercules until

the later of the Closing of the sale or repair of the ANDRE DANOS. Since the

vessel was never repaired, ownership was never transferred from Appellants to

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Hercules. Thus, Danos Marine was the owner of the vessel when she was

raised.

In sum, the district court correctly determined that a reasonable, fully

informed owner (Danos Marine) would conclude that failure to remove ANDRE

DANOS would likely expose him to liability pursuant to the Wreck Act and

justify the expense of removal. See Bonanza, 706 F.2d at 1372. The

Underwriters have therefore failed to demonstrate that the district court erred

in determining that the Wreck Act imposed a compulsory obligation on Danos

Marine to remove the sunken vessel.

B

After determining that the removal was compulsory by law, the district

court next had to determine whether any salvage value was recovered from the

wreck pursuant to the P & I policy. As previously set forth, the P&I policy

provided that: “There shall be deducted from such claim for cost or expenses,

the value of any salvage from or which might have been recovered from the

wreck, inuring, or which might have inured, to the benefit of the Assured.” It is

undisputed that ANDRE DANOS was a total loss when it was recovered from

the sea and Danos Marine was unable to sell the wreck for scrap. In fact, Danos

& Curole had to pay $150,000 to have the wreck taken to the scrap yard.

The district court concluded that the wrecked ANDRE DANOS had a value

of $4,000,000–its pre-hurricane appraisal and the amount allocated to the

purchase of that vessel– and because this sum exceeded the cost of removing the

vessel, plaintiffs were entitled to no recovery. Since it is uncontested that when

the ANDRE DANOS was finally raised it had a negative value, the question

narrows to what relevance, if any, should we attach to the sums allocated to the

purchase price of the ANDRE DANOS in determining the “value of any salvage”

recovered from the wreck of the ANDRE DANOS. In other words, in

determining the amount of the credit the Underwriters are entitled to deduct

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from costs of wreck removal, do we look to the actual amount recovered for the

recovered wreck or do we look to the amount of the purchase price allocated by

the Danos’ companies for the purchase price of the ANDRE DANOS?

Underwriters point to the evidence that the appellants received $4,000,000

of the total purchase price for the ANDRE DANOS which was the same value

allocated to this vessel before the hurricane and before she sank. The district

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court relied on this fact to establish the value of the “salvage recovered from the

wreck.” The district court stated “[t]here is nothing in the APA to reflect

otherwise.” This statement is incorrect. The APA contained a schedule that

allocated the purchase price of the eight vessels and listed the purchase price of

“L/B Andre Danos” as $500,000.

On the other hand, appellants contend that the district court erred in its

evaluation because none of the money paid by Hercules to Danos Marine

constituted “value of any salvage recovered from the wreck.” The plain language

of the policy supports this argument as the provision allows a credit from the

costs of removal, “the value of any salvage . . . recovered from the wreck,”

“Salvage” has been defined as: “The property saved or remaining after a fire or

other loss, sometimes retained by an insurance company that has compensated

the owner for the loss.” BLACK’S LAW DICTIONARY 1457 (9th ed. 2009). Applying

this definition, the value of the property remaining after the loss of ANDRE

DANOS was zero. See also L. Buglass, Marine Insurance and General Average

in the United States, 386 (2d ed. 1981) (explaining that “[c]redit is to be given for

the value of any salvage recovered as a result of the removal”).

The Danos’ companies explain that this allocation was used because the charter 3

agreement provided that Danos & Curole must insure or return the ANDRE DANOS to Danos

& Marine. Although the Underwriters attempt to discredit this explanation, ultimately their

brief acknowledges that the allocation was “to resolve a potential breach of charter claim.” 

Red brief at 55.

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In determining the value of the salvage, the terms of the policy control.

The policy plainly allows the insurer a credit only for the value of the salvage

recovered from the wreck, i.e., the value of the recovered property.

The economic reality in this transaction is clear: Hercules wanted seven

floating, fully operational liftboats and agreed on a price of $44,000,000 for those

boats. Two brothers owned the entities which owned the vessels and they

decided for their own reasons, how to allocate the price for the eight vessels.

This decision was an internal one between these two family businessmen and is

irrelevant to the determination of the “value of the salvage” of the wreck ANDRE

DANOS.

III

We agree with the district court that the plaintiffs had an obligation under

the Wreck Act to remove the wreck of the ANDRE DANOS and that plaintiffs

incurred removal expenses in the amount of $2,049,911.22. We conclude,

however, that the district court erred in allowing any credit against the cost of

removing the wreck because plaintiffs recovered nothing from the recovered

property. We therefore vacate the take nothing judgment and remand this case

to the district court for further proceedings consistent with this opinion.

VACATED and REMANDED.

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