Court Opinion

ID: 8913694
Source: CourtListenerOpinion
Date Created: 2022-11-27 04:05:54.212191+00
Date Added: 2024-06-11T17:08:46.035250
License: Public Domain

TATE, Circuit Judge,
concurring in part and dissenting in part:
I concur in all portions of the scholarly opinion by the majority save one holding. In my opinion, by virtue of an independent “personal” contract between McDermott and Williams, Williams cannot avail itself of the statutory limitation of its liability, and the majority errs in concluding otherwise.
To recapitulate the facts: SLAM recovers over one million dollars caused by the rupture of its pipeline. The sole fault causing the damage was that of Williams, the vessel owner. Under its contract with McDermott, Williams was performing a part of McDermott’s prior contract with Sun, a performance accomplishing Sun’s agreement with SLAM.
By virtue of the statutory limitation of liability to the value of the vessel, although Williams is solely at fault, its liability to SLAM for the damages is limited to five hundred thousand dollars, the value of its vessel plus insurance available through the Louisiana direct action statute. McDermott, although not negligent, is held liable for the excess half-million loss by virtue of indemnity agreements between it and Sun and between Sun and SLAM, although the damages were caused solely by the fault of its subcontractor Williams.
It is not controverted that, if McDermott itself had secured an indemnity agreement from its subcontractor Williams, McDermott would have been totally indemnified by Williams for the damages excess, and that Williams could not avail itself of the statutory limitation of liability. Under the *1180“personal contract” doctrine, the statutory limitation of liability is applied only in accord “with the policy of limiting the owner’s risk to his interest in the ship in respect of all claims arising out of the conduct of the master and crew, . . . but leaves him liable for his own fault, neglect, and contracts.” Richardson v. Harmon, 222 U.S. 96, 106, 32 S.Ct. 27, 30 (1911) (emphasis supplied). A breach of a contractual warranty may be a personal contract to which the limitation of liability does not apply. The Soerstad, 257 S.D.N.Y.1919 (Judge Learned Hand). See also Gilmore and Black, The Law Admiralty 899-905 (2d ed. 1975) and decisions therein cited.
Here, although McDermott’s contract with Williams did not include an indemnity agreement, nevertheless McDermott entered into its contract with Williams upon the latter’s warranty that it had excess insurance to protect against all claims worldwide up to a total of three million dollars. Obviously, this would be a consequential factor in McDermott’s decision to accept Williams’ rate offer and to enter into its contractual relationship with Williams. Even outside of the sophisticated maritime activity field, the requirement of a principal that a subcontractor carry adequate insurance to protect itself from liability (and thus the principal itself from claims arising out of the subcontractor’s activities on behalf of the principal) is common in instances where a subcontractor is engaged to perform hazardous operations on behalf of a principal.
I see no reason why Williams should not be held liable for its breach of this “personal” contract by Williams to provide the contracted-for insurance coverage. If Williams (after entering into the contract) had secured from its insurer a clause excluding its risks in the McDermott operations, I am unable to see how a court could hold that this exclusion was not by a breach of the contracted-for insurance coverage, which was designed to protect McDermott against claim arising out of Williams’ performance of its contract for McDermott. Similarly, Williams’ assertion of its statutory limitation of liability defense should not, as against McDermott, enable Williams to escape the consequences of its breach of its personal contract with McDermott to provide the contracted-for insurance coverage contractually intended to protect McDermott from the very sort of consequence that the majority’s decision permits: that McDermott be held liable for tortious acts done by Williams in the performance of its contract on behalf of McDermott.
The limitation of liability act should not be expanded beyond its original function, and indeed even its contribution to that function (encouraging investment in maritime shipping operations) has been criticized as outmoded and no longer necessary. Maryland Casualty Company v. Cushing, 347 U.S. 409, 437, 74 S.Ct. 608, 623, 98 L.Ed. 806 (1954); Gilmore and Black, supra, at 821-23. (Citing jurisprudential and academic critiques.) In Cushing, the effect of the Court’s opinion was to hold that no aim of the limitation-of-liability act was impaired by permitting an injured person to recover, over and above the value of the vessel, from any proceeds of the shipowner’s liability insurance that were available through direct suit under the Louisiana direct action statute.1 Similarly, I can see no functional reason why the intent of the limitation-of-liability act, and its purpose not to expose the shipowner himself to claim in excess of the value of his vessel (in order to encourage the shipping industry), will be impaired if the vessel owner in the present instance were made unable to avail itself of the statutory limitation of liability, when it had contracted to protect the particular claimant before the court against exposure to liability (not limited to the value of the vessel) by agreeing to provide insurance coverage in a stated amount sufficient to protect the claimant against the excess of the claim over the value of the vessel. The “personal contract” doctrine *1181affords a traditionally accepted rationale that permits this equitable result and thus permits McDermott to receive the protection intended by its personal contract with Williams. And indeed, Williams by obtaining this intended insurance coverage, has in fact avoided the depletion of its own invested funds, the very purpose sought to be accomplished by the act limiting its liability to the value of its vessel.
I am thus unable to agree with the majority’s rationale that Williams did not breach its warranty to provide insurance coverage, simply because it secured coverage within the stated limits. It secured coverage that did not apply, due solely to Williams’ election, to the present liability asserted against McDermott, in violation of the warranty of the Williams-McDermott contract. By this warranty, it was contractually intended that Williams would maintain liability insurance that would (up to the contract-stated limits) provide coverage for Williams for loss caused by Williams’ tort in the performance by Williams of its contract with McDermott.
The insurance secured by Williams was intended to and did cover the loss here involved. Absent Williams’ assertion of its limitation-of-liability defense as against McDermott, the policy would indeed cover this loss. Williams’ assertion of this defense as against McDermott is a breach of its “personal” warranty to secure and maintain insurance coverage to protect McDermott against Williams-caused liability. By virtue of this personal contract between Williams and McDermott, Williams’ asserted limitation does not apply; nor does it serve any functional purpose of the limitation-of-liability act to permit this asserted limitation to apply as against McDermott under these circumstances.
Accordingly, I respectfully dissent.

. I agree with the majority that the present insurance contract, issued and delivered elsewhere than in Louisiana, does not permit a direct action against the insurer under the Louisiana statute.