Opinion ID: 527894
Heading Depth: 2
Heading Rank: 2

Heading: The Order Denying the Motion to Dismiss

Text: 17 MTC, Majestic, and Mission (the MTC parties) contend that the district court lacks subject matter jurisdiction over Simon and Moss' action for bad faith breach of contract or, in the alternative, that the LHWCA bars the action. We need not address the scope of the LHWCA's preemptive force because we conclude that jurisdiction is lacking. Our review is de novo. Sample v. Johnson, 771 F.2d 1335, 1344 (9th Cir.1985), cert. denied, 475 U.S. 1019, 106 S.Ct. 1206, 89 L.Ed.2d 319 (1986). 18 Simon and Moss' claim does not arise under the laws of the United States, and the parties do not enjoy diversity of citizenship; hence, admiralty is the sole jurisdictional basis at issue in this second appeal. Federal district courts have exclusive original jurisdiction over civil cases arising in admiralty. 28 U.S.C. Sec. 1333 (1982). Two distinct tests have evolved for determining the reach of this jurisdictional grant: a locality test for tort claims and a subject matter test for contract claims. Victory Carriers, Inc. v. Law, 404 U.S. 202, 205-06, 92 S.Ct. 418, 421-22, 30 L.Ed.2d 383 (1971). The claim by Simon and Moss for bad faith breach of a duty imposed under a contract bears some of the markings of both tort and contract claims. On its face, however, the claim fails the test for maritime torts because any tort arising from MTC's refusal to consent to the settlement proposed by ICT occurred on land rather than over navigable water. 2 We therefore turn to the test for contract claims. 19 Admiralty jurisdiction extends to claims that arise from contract if the subject matter of the contract is maritime in nature. North Pac. S.S. Co. v. Hall Bros. Marine Ry. & Shipbuilding Co., 249 U.S. 119, 125, 39 S.Ct. 221, 222, 63 L.Ed. 510 (1919); Hinkins S.S. Agency, Inc. v. Freighters, Inc., 498 F.2d 411, 412 (9th Cir.1974). An abstraction of the boundaries of this contract jurisdiction sufficient to offer concrete guidance in its application has failed to emerge. See Royal Ins. Co. of Am. v. Pier 39 Ltd. Partnership, 738 F.2d 1035, 1036 (9th Cir.1984). Instead, precedent has identified sets of commonly recurring contracts that are excluded or included in the jurisdiction. Kossick v. United Fruit Co., 365 U.S. 731, 735, 81 S.Ct. 886, 890, 6 L.Ed.2d 56 (1961). The contracts forming the basis of Simon and Moss' claim are the insurance policies by Mission and Majestic and the service agreements obligating MTC to adjust its own employees' compensation claims. Our task is to compare these contracts with the established sets of maritime and nonmaritime contracts and to consider whether the interests underlying admiralty jurisdiction favor including the present action within the jurisdiction. See Royal Ins., 738 F.2d at 1036, 1038; Kennedy v. H & M Landing, Inc., 529 F.2d 987, 988-89 (9th Cir.1976) (per curiam). 20 Marine insurance policies covering vessels engaged in maritime commerce and navigation have long been established as maritime contracts. The New England Marine Ins. Co. v. Dunham, 78 U.S. (11 Wall.) 1, 20 L.Ed. 90 (1870). Whether policies insuring other activities or property with a maritime flavor qualify as maritime contracts depends upon the maritime nature of the interests that are insured as opposed to the nature of the covered risks. Royal Ins., 738 F.2d at 1036-37 & n. 1. For example, insurance on a beachfront house against damage from waves or high tides would not constitute a maritime contract; although such coverage would encompass risks from the sea, the insured interest--real property on shore--would be nonmaritime in nature. Id. 21 Simon and Moss contend that the descriptions of coverage in MTC's policies establish the maritime nature of the insured interests in this case. In particular, they emphasize that the policies expressly cover loss or damage to cargo or ships (including ships owned, managed, or chartered by MTC) arising from the operation of MTC's stevedoring business. We agree that traditional maritime interests or activities are included within the scope of this coverage. For instance, the coverage would extend to loss arising from the operation of a ship under a contract of charter (charter party) with MTC or from MTC's performance of a contract for stevedoring with a particular vessel. Charter parties and stevedoring contracts are clearly maritime in nature. Armour & Co. v. Ft. Morgan S.S. Co., 270 U.S. 253, 259, 46 S.Ct. 212, 214, 70 L.Ed. 571 (1926) (charter party); American Stevedores, Inc. v. Porello, 330 U.S. 446, 456, 67 S.Ct. 847, 852, 91 L.Ed. 1011 (1947) (stevedoring contract); Indemnity Ins. Co. of N. Am. v. California Stevedore & Ballast Co., 307 F.2d 513, 516 (9th Cir.1962) (same). But the scope of coverage in MTC's insurance policies also extends to numerous activities and interests that are nonmaritime in nature. For example, the coverage extends to losses arising from leases of piers. As a general rule, the lease of a pier or wharf is not a maritime contract unless the lease is tied to the provision of wharfage for a specific vessel. Royal Ins., 738 F.2d at 1037-38. Moreover, the coverage in MTC's policies extends to any loss or damage to person or property arising from the operation of MTC's stevedoring business. Such coverage potentially encompasses myriad injuries from business activity not directly connected to the servicing of any particular ship or any other maritime activity. As a result, the insured interests under MTC's policies comprise a mixture of nonmaritime and maritime interests and activities. 22 Ordinarily, a contract must be wholly maritime in nature to be cognizable in admiralty. Home Ins. Co. v. Merchants' Transp. Co., 16 F.2d 372, 374 (9th Cir.1926); E.S. Binnings, Inc. v. M/V Saudi Riyadh, 815 F.2d 660, 665 (11th Cir.1987); Friedell, 1 Benedict on Admiralty Sec. 183 (7th ed. 1988). Two exceptions to this general rule have developed. First, admiralty may take jurisdiction of an entire contract if the nonmaritime obligations are merely incidental to the primary maritime nature of the contract. Union Fish Co. v. Erickson, 235 F. 385, 386-87 (9th Cir.1916), aff'd, 248 U.S. 308, 39 S.Ct. 112, 63 L.Ed. 261 (1919); Kuehne & Nagel (AG & CO) v. Geosource, Inc., 874 F.2d 283, 290 (5th Cir.1989). Second, if the nonmaritime obligations are substantial, admiralty may take jurisdiction over any maritime obligations that can be severed from the nonmaritime obligations and separately adjudicated without prejudice to the parties. Natasha, Inc. v. Evita Marine Charters, Inc., 763 F.2d 468, 470 (1st Cir.1985); Kuehne & Nagel, 874 F.2d at 290; Flota Maritima Browning de Cuba S.A. v. Snobl, 363 F.2d 733, 735-36 (4th Cir.), cert. denied, 385 U.S. 837, 87 S.Ct. 82, 17 L.Ed.2d 71 (1966). The first exception is inapplicable to the present case because the nonmaritime interests insured under MTC's policies defy characterization as mere incidentals. Those interests help form the core of risks that Mission and Majestic have undertaken in insuring MTC's business. The second exception is also inapplicable for we conclude that the insured interests forming the basis of the amended complaint are nonmaritime in nature and beyond admiralty jurisdiction even if severable. 23 The insurance coverage of MTC's liability for compensation under the LHWCA forms the basis of the amended complaint. Stevedoring under contract with a particular vessel probably constitutes the closest traditional maritime interest or activity to which such liability relates. Indeed, under the terms of the LHWCA, MTC's potential for incurring compensation liability arises because MTC engages in stevedoring under contract with vessels as part of its business. But the conceptual proximity of stevedoring to liability under the LHWCA does not decide the maritime or nonmaritime nature of the coverage at issue. Stevedoring contracts are maritime because of their connection to the sea and to maritime commerce. See Atlantic Transp. Co. v. Imbrovek, 234 U.S. 52, 60-63, 34 S.Ct. 733, 734-36, 58 L.Ed. 1208 (1914). Whether insurance against liability under the LHWCA is maritime must also depend on the relationship of such coverage to maritime commerce and the sea. 24 Admiralty generally denies jurisdiction over contracts involving obligations or services that are merely preliminary to maritime contracts. E.S. Binnings, 815 F.2d at 663 (citing 7A J. Moore, Moore's Federal Practice, p .250 at 3002 & n. 2 (2d ed. 1985)). Although such contracts may relate indirectly to ships and their navigation in commerce, they bear no significant difference from shoreside services completely unrelated to the operation or navigation of ships. Id.; see also Clinton v. International Org. of Masters, Mates & Pilots, Inc., 254 F.2d 370, 372 (9th Cir.1958). In Clinton, we applied this principle to a contract between the local union and its member seamen for the allocation of available jobs on board ships. Id. at 371-72. Although a seaman's employment contract with a vessel is maritime in nature, we held admiralty jurisdiction to be lacking because the allocation contract had no direct relation to a particular ship and only indirect relation to commerce on the sea. Id. We found no significant difference between the allocation contract and other contracts in local labor unions entered into and wholly performed in land-based industry. Id. 25 MTC's insurance against liability under the LHWCA does not differ significantly from insurance or other risk allocating systems in which numerous land-based employers participate to cover their liability under state worker's compensation statutes. Furthermore, MTC's insurance bears no relationship to any particular vessel. The insurance is only indirectly connected with maritime commerce because of the relationship between MTC's potential compensation liability and its performance of stevedoring contracts. Such a relationship is far too tenuous to justify classifying the insurance for compensation liability as a maritime obligation or interest sufficient to bring the policies and their related servicing agreements within the pale of admiralty jurisdiction. 26 Seeking to avert the foregoing analysis, Simon and Moss contend that Congress intended admiralty jurisdiction to extend to claims arising from insurance coverage for compensation liability under the LHWCA. Simon and Moss maintain that such an intent was expressed in Congress' use of its maritime power to enact the LHWCA, which requires employing stevedores to insure against compensation liability. 3 We are not persuaded. Congress' use of its maritime power to create the rights and obligations of the LHWCA does not automatically confer admiralty jurisdiction on every claim that in any way relates to those rights and obligations. Sample, 771 F.2d at 1344. Where, as here, the LHWCA does not confer federal subject matter jurisdiction on a claim, the traditional tests for maritime torts and maritime contracts determine whether admiralty jurisdiction is available. See id. (no admiralty jurisdiction over claim against stevedore for wrongful controversion of an LHWCA compensation claim where claim failed traditional test for maritime torts). 27 Simon and Moss also argue that congressional intent to expand admiralty jurisdiction to cover their claim is expressed in the legislative history surrounding the LHWCA's enactment in 1927 and its amendment in 1972. LHWCA, ch. 509, 44 Stat. 1424 (1927); LHWCA Amendments of 1972, Pub.L. No. 92-576. They place special emphasis on two oblique passages regarding the relationship of the act's coverage to admiralty claims and maritime activities. The first passage states that an employing stevedore's liability for compensation under the LHWCA is a substitute for its liability at law or in admiralty. 68 Cong.Rec. 5404 (1927). Because the LHWCA provides a system of administrative review in the Department of Labor to resolve disputes over compensation claims, this substitution of remedies has the practical effect of shrinking the number of cases over which district courts may exercise original jurisdiction in admiralty. See 33 U.S.C. Secs. 919-921 (1982 & Supp. V 1987). But the substitution simply implies nothing about congressional intent to enlarge admiralty jurisdiction to include claims based on insurance coverage for an employer's compensation liability under the LHWCA. 28 The second passage describes longshore workers and other employees who may qualify for benefits under the act as engaging in maritime employment. 92 Cong. Rec. 36,381 (1972). This reference to the maritime nature of the unloading and loading of a ship's cargo is perfectly consistent with, and adds nothing, to the analysis set out above. The mere fact that stevedoring is a maritime activity and that a stevedoring contract is a maritime contract does not indicate that a contract of insurance covering a stevedore's liability for compensation under the LHWCA is also a maritime contract. 29 Our determination that Simon and Moss' claim for bad faith breach of contract lies beyond admiralty jurisdiction does not conflict with the interests supporting the constitutional and statutory grant of that jurisdiction. Simon and Moss have no need of admiralty's in rem process to preclude a ship from leaving port and escaping the reach of local process because defendants are all shoreside entities. See Kennedy, 529 F.2d at 988-89. Additionally, all of the parties are citizens of the same state, and the insurance policies and related service agreements contemplate performance in the same state. As a result, the parties to those contracts have no need of admiralty's neutral federal forum and uniform body of national maritime law to protect against the possible prejudice of local courts or the unanticipated variations of state law in a distant tribunal. See Royal Ins., 738 F.2d at 1038. Finally, given the central involvement of insurance in the dispute, state law rather than the principles of interpretation for maritime contracts is the more appropriate source of law to apply. Cf. Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955) (federal courts in admiralty should look to state law when interpreting a maritime insurance policy).