Opinion ID: 594404
Heading Depth: 2
Heading Rank: 2

Heading: Events Surrounding the Sinking of the Oxy Producer

Text: 7 The Oxy Producer ITB was delivered to Occidental on June 9, 1981, and thereafter made one successful trip to the Soviet Union. However, on its second trip to the Soviet Union--in September 1981--the Oxy Producer ITB ran into rough weather, which caused substantial movement between the Oxy Producer (the tug unit of the vessel) and the Oxy 4102 (the barge unit of the vessel). Ultimately, the movement of the barge unit against the Oxy Producer opened holes in the hulls of the tug and caused it to sink. 3 C. Events Surrounding the First Lawsuit 8 Shortly after the Oxy Producer sank, Wausau, on behalf of the American and London Underwriters, began investigating the loss. When the investigation moved too slowly for Occidental, it pressured the underwriters to pay the claim. To avoid jeopardizing any subrogation rights through litigation with the insured, the underwriters decided to pay the claim--but only under a reservation of all policy defenses. 9 After the underwriters paid the claim under the time hull insurance policy, they and Occidental filed suit against the various parties involved in constructing the Oxy Producer ITB. The underwriters and Occidental argued that Henry was liable for the loss because of its role in preparing the plans and specifications for the vessel. Avondale was liable, the underwriters and Occidental contended, for not following the architectural plans and for using defective bumper pads in constructing the vessel. Because it supplied the allegedly defective bumper pads, Victoria was also named as a defendant. And finally, the underwriters and Occidental sued Hvide for its role in supervising the construction of the Oxy Producer ITB. 10 On July 23, 1984, almost two years after the sinking of the Oxy Producer, Occidental, the American Underwriters, and Hvide executed a Standstill Agreement. 4 The general purpose of this agreement is undisputed: it was to allow Occidental, the American Underwriters, and Hvide to present a united front against Henry, Avondale, and Victoria in the already pending lawsuit. 5 The agreement limited the types of claims that would be advanced in the pending action against Henry, Avondale, Victoria, and Hvide. The agreement also discussed the types of claims that could be asserted among the three parties in a subsequent action. The meaning and effect of the agreement on the latter subject, however, is the subject of considerable dispute. See infra Part III. 11 The lawsuit against Henry, Avondale, Victoria, and Hvide finally proceeded to trial in 1986. After a three-month bench trial on the issue of liability, the district court concluded that the sinking of the Oxy Producer was caused solely by improper mating of the vessel and that therefore the vessel was unseaworthy on delivery. The only parties found liable for the improper mating were Avondale and Hvide. The district court found that Avondale was negligent in performing its construction contract 6 and that Avondale had breached the contract and its express warranty of seaworthiness. Hvide, according to the district court, had breached its supervision agreement with Occidental, had breached its warranty that the plans for the vessel would assure its seaworthiness, and finally, had been negligent in supervising the mating of the vessel. Both Henry and Victoria were dismissed from the suit, because the district court found that they were in no way responsible for the improper mating of the vessel. 12 On appeal of the first lawsuit, we affirmed the district court's holdings that the vessel was improperly mated and unseaworthy on delivery and that this condition alone caused the Oxy Producer to sink. We reversed the district court's dismissal of claims against Henry and Victoria, however, as being premature. Finally, we remanded the case for a determination of damages in a manner consistent with our opinion. See Employers Ins. of Wausau v. Suwannee River Spa Lines, Inc., 866 F.2d 752, 755 (5th Cir.), cert. denied, 493 U.S. 820, 110 S.Ct. 77, 107 L.Ed.2d 43 (1989). 13 D. Wausau's Cross-Claim for the Return of Insurance Proceeds 14 On remand, Wausau filed a cross-claim against Occidental on behalf of the American Underwriters, seeking recovery of the proceeds paid to Occidental under a reservation of rights. In this cross-claim, Wausau asserted that, because the Oxy Producer ITB was unseaworthy at delivery, Occidental breached the warranty of seaworthiness implied at the inception of the time hull policy. Wausau reasoned that Occidental's breach of the implied warranty of seaworthiness at the inception of risk prevented the time hull policy, under which Occidental had claimed the proceeds, from attaching. 15 Occidental moved for summary judgment, asserting that there were no genuine issues of material fact and that Wausau's cross-claim was barred as a matter of law. In support of its motion, Occidental advanced numerous arguments. Occidental first argued that the Standstill Agreement between Occidental, Hvide, and Wausau expressly precludes the cross-claim. Occidental also contended that, under a time hull policy like the one issued to Occidental, there is no absolute implied warranty of seaworthiness at the inception of coverage. Occidental further maintained that, even if there is such an absolute warranty implied at the inception of coverage, its particular time hull policy--through the Liner Negligence Clause and the Separate Policy of Insurance Treatment Clause--nonetheless provides coverage for the loss incurred in this case. Occidental finally argued that Wausau and the American Underwriters had waived or are estopped from asserting their right to seek recovery of the insurance proceeds. 16 The district court agreed with at least three of Occidental's arguments, and therefore granted summary judgment in Occidental's favor. As one ground for granting summary judgment, the district court relied on the clear and unambiguous language of the Standstill Agreement, which it held bars Wausau's cross-claim as a matter of law. The district court also held that the Liner Negligence Clause in the insurance policy supported summary judgment in Occidental's favor. In particular, the district court reasoned that the due diligence provision in the Liner Negligence Clause displaces any implied warranty of seaworthiness at the inception of risk. As a third ground for granting summary judgment, the district court cited the Separate Policy of Insurance Treatment Clause in the insurance policy. This clause, in the district court's view, provides an additional basis for coverage of Occidental's loss. Wausau thereafter filed a timely notice of appeal from the district court's order granting summary judgment in favor of Occidental.