Opinion ID: 726085
Heading Depth: 2
Heading Rank: 1

Heading: American

Text: 8 The first and perhaps most difficult question we face with regard to defendant American is one of choice of law. Plaintiffs argue, and the District Court agreed, that federal maritime law must govern. The District Court concluded that the strong interest in uniformity in maritime matters generally, and in the treatment of injured seamen in particular, counsels a single rule of admiralty on this question. American contends that the question is really one of insurance law, ordinarily the province of the states, and should be decided here according to New York law. 9 The starting point for our analysis is Wilburn Boat Company v. Fireman's Fund Insurance Company, 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955), in which the Supreme Court faced the precise question of what law to apply to the interpretation of a marine insurance contract. Wilburn Boat involved a dispute between an insurance company and the owners of a small houseboat destroyed by a fire on a small artificial lake located between Texas and Oklahoma. The company denied liability for the loss on the grounds that the owners of the boat, who had used it to carry paying passengers around the lake, had breached a warranty in the policy stating that they would use the boat for private pleasure purposes only. Id. at 311, 75 S.Ct. at 369. 10 Although the Court noted that the insurance policy was a maritime contract and therefore within the federal jurisdiction conferred by the Admiralty Clause of the Constitution, it concluded that it does not follow ... that every term in every maritime contract can only be controlled by some federally defined admiralty rule. Id. at 313, 75 S.Ct. at 370. The Court reasoned that when admiralty law intersects with a field traditionally left to regulation by the states, such as insurance, and when Congress has passed no federal statute on the question, the Court must ask two questions: (1) is there is a judicially established federal admiralty rule that governs the issue, and (2) if not, should the court fashion one? Id. at 314, 75 S.Ct. at 370. If the answer to both questions is no, as it was in the case of Wilburn Boat, state law may govern the question, despite the existence of admiralty jurisdiction. 11 Some courts have mistakenly read Wilburn Boat to mean that any question related to marine insurance must be answered under state law. See,e.g., Ahmed v. American S.S. Owners Mut. Protection and Indemnity Ass'n, 640 F.2d 993, 996 (9th Cir.1981), cert. denied after remand on other grounds, 464 U.S. 826, 104 S.Ct. 98, 78 L.Ed.2d 103 (1983); Liman, 299 F.Supp. at 108. If that were the case, we would apply New York law and our analysis would end here. Wilburn Boat, however, does not so hold. Rather, it provides a method by which to resolve the question of choice of law in maritime insurance disputes. Therefore, we proceed with the two-step Wilburn Boat inquiry on the facts before us. 12 We ask first whether there is already judicially established federal admiralty law governing the right of an injured sailor to sue directly his former employer's indemnity insurer. Except for the ruling in this case by the court below, no federal court appears to have fashioned a federal maritime rule that provides such an affirmative right. Indeed, if any rule could be said to exist, it is the holding of the Fifth Circuit that direct actions are not allowed. See Conoco v. Republic Ins. Co., 819 F.2d 120 (5th Cir.1987) (finding a bar to direct actions based primarily on contract interpretation rather than devising explicit federal admiralty principles); Continental Oil Co. v. Bonanza Corp., 677 F.2d 455 (5th Cir.1982) (same). For the purposes of the Wilburn Boat analysis, we find that no clearly articulated federal principle either permits or prohibits the right of direct action sought by plaintiffs. 13 We ask, then, whether we should fashion such a rule. We agree with the District Court that the circumstances here differ markedly from those in Wilburn Boat and that a single maritime law solution would be preferable to a hodge-podge of state law rules. In Wilburn Boat, as Justice Frankfurter noted in his concurrence, the demands of uniformity relevant to maritime law were significantly diminished by the fact that the case involved a single houseboat on a small lake between Texas and Oklahoma. Wilburn, 348 U.S. at 322, 75 S.Ct. at 375 (Frankfurter J., concurring). The case fell in the category of matters that are so predominantly restricted in their significance that a uniform admiralty rule need not be recognized or fashioned. Id. Moreover, the issue at the center of the Wilburn Boat controversy related generally to the business of insurance, and was not particularly maritime in nature. It did not, for example, affect the interests concerned with shipping in its national and international aspects. Id. 14 In contrast, the present case involves a large class of mariner plaintiffs who were injured on the high seas during the course of many years. It affects the interests of not only a single shipowner and insurer, as in Wilburn Boat, but a whole class of claimants who have been deemed entitled to special solicitude, American Export Lines, Inc. v. Alvez, 446 U.S. 274, 285-86, 100 S.Ct. 1673, 1679-80, 64 L.Ed.2d 284 (1980), as wards of the admiralty court, Miller v. American S.S. Owners Mut. Protection and Indemnity Co., 509 F.Supp. 1047, 1051 (1981) (citing Garrett v. Moore-McCormack Co., 317 U.S. 239, 247-48, 63 S.Ct. 246, 251-52, 87 L.Ed. 239 (1942)). 15 Equally important, the defendant Associations are entities peculiar to the maritime setting. A protection and indemnity association is not a traditional insurance company; it is a group of shipowners who have agreed to insure one another's vessels for the mutual benefit of all. Psarianos v. Standard Marine, Ltd., Inc., 728 F.Supp. 438, 451 (E.D.Texas 1989). The associations function in a non-profit manner. They do not pay premiums in the way that insureds pay premiums to their insurance carrier. Rather than pay premiums, the members of associations pay advance calls to cover claims for the year; when claims exceed funds available, members must pay supplementary calls to make up the shortfall. See Norman J. Ronneberg, Jr., An Introduction to the Protection & Indemnity Clubs and the Marine Insurance They Provide, 3 U.S.F. Mar. L.J. 1, 10 (1990/1991). Shippers band together in these associations because the unusual risks of the world-wide shipping industry render private insurance largely unavailable. 16 For these reasons, the maritime protection and indemnity policies at issue here are readily distinguishable from the insurance policy at issue in Wilburn Boat. Whereas the dispute in Wilburn Boat might have occurred over an on-land structure as readily as over the houseboat in question, the instant conflict is uniquely maritime in nature and demands a uniform rule in admiralty. 17 The uniform rule we apply in this case is narrow. The central problem is one of timing. The long-latent effects of asbestosis did not become apparent to plaintiffs until after their former employer--the entity arguably liable for their injuries--went bankrupt and was out of business. The narrow question presented is whether, five years after the close of the bankruptcy of a member, a maritime protection and indemnity association with a pay first clause in its contract is liable to seamen in direct actions. We conclude that the pay first clause in this contract may not be set aside and that it defeats plaintiffs' cause of action. The pay first clause is a clear provision of the contract and, absent more compelling facts than are presented here, it must be enforced. 18 We recognize that our decision here deprives the plaintiffs of compensation for their injuries with respect to States. (Defendants allege, and plaintiffs do not deny, that these plaintiffs maintain actions for personal injury against other, solvent companies.) It may be that defendant American receives some windfall from not having to pay a claim for which they would be liable had States survived and paid it. But the clear pay first language of the contract limiting the Association's liability takes precedence over the solicitude of the maritime law for its seamen. On these facts, there is no valid policy reason to ignore the explicit language of the contract or to contrive a set of legal fictions to avoid its purpose.