Opinion ID: 594404
Heading Depth: 1
Heading Rank: 5

Heading: displacement of the implied warranty of seaworthiness at

Text: THE INCEPTION OF A TIME HULL POLICY 77 Our decision concerning the absolute nature of the implied warranty of seaworthiness at the inception of a time policy does not resolve this dispute, because the district court held that two provisions in Occidental's time hull policy effectively waive or displace that warranty. The district court first concluded that the Liner Negligence Clause of the policy effectively supersedes the warranty. The district court also ruled that the Separate Policy of Insurance Treatment Clause (Separate Policy Clause) provides coverage for the loss of the Oxy Producer even though Hvide, a co-insured, was found partly responsible for the vessel's unseaworthiness. We address each of these holdings in turn.
78 Almost every time hull policy now contains an Inchmaree Clause. This clause affords coverage for certain perils that are not included within the classic perils clause. See generally 1 ALEX L. PARKS, THE LAW AND PRACTICE OF MARINE INSURANCE AND AVERAGE 363-406 (1987); Francis L. Tetreault, The Hull Policy: The Inchmaree Clause, 41 TUL.L.REV. 325 (1967). The purpose of such a clause is to broaden the coverage under a marine insurance policy. Goodman v. Fireman's Fund Ins. Co., 600 F.2d 1040, 1042 (5th Cir.1979). Today, a typical Inchmaree Clause covers loss of or damage to the vessel caused directly by latent defects in the machinery or hull or by operational negligence on the part of certain individuals. 15 79 Instead of an Inchmaree Clause, the insurance policy issued to Occidental contains a Liner Negligence Clause. This latter clause, it is recognized, provides even broader coverage than the standard Inchmaree Clause. See 1 PARKS, supra, at 403; Tetreault, supra, at 334-35. In particular, the Liner Negligence Clause covers the following risks: 80 a. Breakdown of motor generators or other electrical connections thereto; a bursting of boilers; breakage of shafts; or any latent defect in the machinery or hull; 81 b. Loss of or damage to the subject matter insured caused directly by: 82 1. Accidents on shipboard or elsewhere, other than breakdown of or accidents to nuclear installations or reactors on board the insured vessel; 83 2. Negligence, error of judgment or incompetence of any person; 84 excluding under both a and b above only the cost of repairing, replacing or renewing any part condemned solely as a result of a latent defect, wear and tear, gradual deterioration or fault or error in design or construction; 85 provided such loss or damage (either as described in said a or b or both) has not resulted from want of due diligence by the Assured(s), the Owner(s) or Manager(s) of the vessel, or any of them. Masters, mates, engineers, pilots or crew not to be considered as part owners within the meaning of this clause should they hold shares in the vessel. 86 (emphasis added). According to one commentator, the Liner Negligence Clause is really a species of an 'all risks' policy, under which the underwriter must prove that the cause of the loss was one which was excluded by the words of the policy. 1 PARKS, supra, at 404. 87 The district court concluded that the Liner Negligence Clause in the policy issued to Occidental supplants and is a substitute for any implied warranty of seaworthiness at the inception of the policy. The district court focused specifically on the language which indicates that coverage is provided for loss caused directly by the negligence, error of judgment or incompetence of any person; ... provided such loss ... has not resulted from want of due diligence by the Assured(s), the Owner(s), or Manager(s) of the vessel, or any of them. This provision, the district court reasoned, effectively underwrites the pre-attachment negligence and/or error of judgment by Hvide and Avondale that rendered the Oxy Producer ITB unseaworthy. 88 Wausau argues that, because Occidental breached the absolute warranty of seaworthiness implied at the inception of a time policy, the policy is void and the question of coverage under the Liner Negligence Clause need not be reached. In support of its argument, Wausau cites two cases: D.J. McDuffie, Inc. v. Old Reliable Fire Insurance Co., 1979 AMC 595 (E.D.La.1977), aff'd, 608 F.2d 145 (5th Cir.1979), cert. denied, 449 U.S. 830, 101 S.Ct. 97, 66 L.Ed.2d 35 (1980), and The Natalie, 1959 AMC 2379 (arbitration). According to Wausau, these two cases demonstrate that, once the insured breaches its implied warranty of seaworthiness at the inception of the policy, recovery is precluded despite the presence of a clause in the policy expanding coverage. 89 Although Wausau's argument has some logic, it ultimately must be rejected. If we were to adopt Wausau's reasoning, the insured would effectively be precluded from disclaiming this absolute implied warranty of seaworthiness in the policy itself. We decline to adopt such a drastic rule. Moreover, McDuffie and The Natalie are distinguishable from this case because the policies at issue in those cases contained only Inchmaree Clauses--not Liner Negligence Clauses. At the most, those cases stand only for the proposition that an Inchmaree Clause does not effect an across the board waiver of the implied warranty of seaworthiness at the inception of a time hull policy. 90 Thus, in deciding whether the district court erred in construing the Liner Negligence Clause, we must answer a difficult question: Does the Liner Negligence Clause, at least with respect to pre-attachment negligence or error in judgment by parties involved in the construction of the vessel, effectively supplant or waive the absolute implied warranty of seaworthiness at the inception of a time hull policy? This question, although it has received some attention from commentators, has not yet been squarely addressed by any court. We therefore proceed with caution. 16 91 Although we have indicated that the implied warranties of seaworthiness in a time hull policy may be disclaimed or waived, we have never specified exactly how such a waiver may be accomplished. Language in Insurance Co. of North America v. Board of Commissioners of the Port of New Orleans, 33 F.2d 1161 (5th Cir.1984), suggests that the warranties must be expressly waived. Id. at 1165 (A warranty of seaworthiness by the owner is implied in every hull insurance policy unless expressly waived ) (emphasis added). In Tropical Marine Products, Inc. v. Birmingham Fire Insurance Co. of Pennsylvania, 247 F.2d 116 (5th Cir.), cert. denied, 355 U.S. 903, 78 S.Ct. 331, 2 L.Ed.2d 260 (1957), however, we recognized that an Inchmaree Clause--which does not expressly mention any implied warranties of seaworthiness--affords both an additional series of perils insured against and markedly affects the warranties of seaworthiness between Shipowner and Underwriter. 247 F.2d at 119. 92 We think that the common sense approach embodied in Tropical Marine is the correct one. In that case, the insurer argued that the vessel's unseaworthy condition arising after a time policy had attached voided the policy. We rejected the insurer's argument primarily on the basis of language in the Inchmaree Clause. The plain language of the clause, we observed, provided coverage for the loss that had resulted from the vessel's unseaworthy condition. We stated: 93 Indeed, far from voiding the policy, it was as to just such unseaworthiness that the policy was meant to apply. An Inchmaree clause insures against damage or loss occasioned by latent defects in machinery or hull. Of course, a defect in machinery or a defect in a hull means that the vessel is thereby unseaworthy since, with such defect, the machinery or hull cannot comply with the classic definition of 'reasonably suitable' for the purposes intended.... The only limitation on this is that the defect be latent and one not known or discoverable by the owner or one in privy with him. 94 247 F.2d at 120-21. Therefore, in determining the extent to which a clause in a time hull policy supersedes or waives an implied warranty of seaworthiness, a court should look to the language of the provision to see if it unambiguously covers risks which would ordinarily be excluded by a breach of the implied warranty of seaworthiness. If the clause does cover such a risk, then it may be said that the clause underwrites that particular type of unseaworthiness. See id. at 123. 95 A careful reading of the Liner Negligence Clause in the policy issued to Occidental demonstrates that it effected at least a partial waiver of the absolute warranty of seaworthiness implied at the inception of the policy. The language of the clause is clear and unambiguous: it provides coverage for loss caused by the [n]egligence, error of judgment or incompetence of any person. (emphasis added). This provision, unlike the negligence provisions in the Inchmaree Clause, does not limit coverage to operational negligence. Instead, it is worded broadly enough to include the negligence of shipbuilders and the construction manager. See 1 PARKS, supra, at 406 (subparagraph (b) of the standard Liner Negligence Clause covers the negligence of a builder, and is not limited to masters, crew, engineers, pilots, and repairers or charterers as in the ordinary Inchmaree Clause); LESLIE J. BUGLASS, MARINE INSURANCE AND GENERAL AVERAGE IN THE UNITED STATES 139 (2d ed. 1981) (negligence of builders is covered under the Liner Negligence Clause but not under the Inchmaree Clause). 96 The only limit to the partial waiver of the implied warranty of seaworthiness at the inception of the risk under the Liner Negligence Clause is that the loss must not have resulted from a want of due diligence by the Assured(s), the Owner(s), or Manager(s) of the vessel. Under the Separate Policy of Insurance Treatment Clause, see infra Part V.B., Occidental is treated as the only assured under the due diligence portion of the Liner Negligence Clause. Therefore, to come within the protection of the Liner Negligence Clause, the loss in this case must not have resulted from a want of due diligence by Occidental, in its role as assured or owner, or from a want of due diligence by Hvide in its role as manager of the vessel. 97 In our view, the undisputed facts demonstrate that the loss of the Oxy Producer was not caused by any lack of due diligence on the part of Occidental in its status as assured/owner, nor by any lack of due diligence on the part of Hvide as manager of the vessel. In the first lawsuit, it was determined that the actions of Hvide, as construction supervisor, and Avondale, as the builder of the vessel, were the sole cause of the loss. See Employers Ins. of Wausau v. Suwannee River Spa Lines, Inc., 866 F.2d at 773. There is no contention by Wausau that Occidental itself was somehow responsible for the vessel's unseaworthy condition. In addition, contrary to Wausau's argument, Hvide's want of due diligence as construction supervisor cannot, as a matter of law, be imputed to Occidental, because Hvide was not an agent of Occidental's, but instead an independent contractor. See id. at 773-74 (concluding that Hvide, in its role as construction supervisor, had no actual or apparent authority to bind Occidental). Finally, we decline to impute Hvide's lack of due diligence as construction supervisor to Hvide as manager. Therefore, the due diligence portion of the Liner Negligence Clause does not exclude the type of unseaworthiness at issue here. 98 In sum, we hold that the district court correctly granted summary judgment in favor of Occidental on the basis of the Liner Negligence Clause. The plain language of that clause effectively underwrites the unseaworthiness that caused the sinking of the Oxy Producer. In essence, it covers loss caused by the negligence of any person other than the insured, the owner, or the manager of the vessel. For purposes of this case, it is broad enough to cover the negligence of Hvide as the construction supervisor and the negligence of Avondale as the ship builder. At least to this extent, then, the Liner Negligence Clause waives or displaces the absolute warranty of seaworthiness implied at the inception of a time policy. 99
100 The district court also granted summary judgment on the basis of the Separate Policy of Insurance Treatment Clause, under which all terms, conditions, and exclusions [are] treated as if a separate policy of insurance were issued to each assured. This clause, the district court reasoned, prevents the negligence of Hvide in supervising the mating of the vessel from being imputed to Occidental. The district court accordingly concluded that the Separate Policy Clause independently provides Occidental with coverage for the loss of the Oxy Producer. 101 We hold that the district court erred in granting summary judgment solely on the basis of the Separate Policy Clause. This clause, unlike the Liner Negligence Clause, does not displace or waive the implied warranty of seaworthiness at the inception of the risk. Instead, as Wausau points out, the Separate Policy Clause requires each assured to comply with policy requirements 'as if a separate policy of insurance were issued' to that assured individually. Thus, under Occidental's hypothetical separate time hull policy, it would have been required--but for the Liner Negligence Clause--to independently comply with the absolute warranty of seaworthiness implied at the moment the policy attached. The Separate Policy Clause, while it affected the operation of the Liner Negligence Clause, by itself neither displaced nor changed the terms of the implied warranty of seaworthiness at the inception of the policy.