No coverage under mel endorsement for crew injury
September, 2007
By
Marilyn Raia
Sentry Select Insurance Company, et al. v Royal Insurance Company of America, et al.
481 F.3d 1208 (9th Cir. 2007)
This action arose out of an accident that occurred in Alaska during the movement of a modular prefabricated house from a barge to a remote construction site. Kelly–Ryan, Inc., a Seattle-based construction company, shipped prefabricated houses from Washington and installed them in native Alaskan villages under a contract with the federal government. When the barge carrying the houses reached Alaska, the houses were unloaded from the barge onto large treaded vehicles known as "house movers" that carried them to the construction sites.
In September 2007, James Okada, a maritime employee of Kelly-Ryan, Inc. who regularly worked on a tugboat, suffered electrical shock injuries while he was helping a Kelly-Ryan shore-based crew deliver a prefabricated house to a site approximately 1-1/2 miles from the shore.
When the accident occurred, Kelly-Ryan had several insurance policies in place covering various aspects of its operations. Sentry Select and Lloyd's insured Kelly-Ryan's vessel operations and crew members under a Marine Protection and Indemnity (P&I) policy; Alaska National insured various shore-based risks, including employee-related injuries. Part I of the Alaska National policy covered Washington and Alaska State worker's compensation claims and claims under the Longshore and Harbor Workers' Compensation Act. Part II of the same policy provided employer's liability coverage for injuries arising out of and in course of employment but excluded obligations imposed by worker's compensation laws. Royal Insurance Co issued an excess/umbrella policy to Kelly Ryan that provided excess coverage over Part II (employer's liability) of the Alaskan National policy.
In 1995, Kelly-Ryan obtained from Royal a Marine Coverage Endorsement (MEL) to Part II of the Alaskan National policy (employers' liability) and the Royal excess policy. The MEL endorsement extended coverage for bodily injuries suffered by a "master or member of the crew of any vessel" performing work "necessary or incidental" to the following tasks:
"Painting and/or scraping of decks of tugs or barges, and loading and unloading as applicable in Washington and Alaska."
Okada filed suit against Kelly-Ryan for negligence under the Jones Act, 46 U.S.C. § 30104(a), and eventually obtained a settlement in excess of $5.2 million.
In December 2001, during the pendency of Okada's action, Kelly-Ryan and its P&I insurers filed suit against Alaska National, requesting a declaratory judgment on coverage and allocation of liability. Following the settlement of Okada's action, Kelly-Ryan and its P&I underwriters moved to amend their complaint to add Royal as a defendant to establish coverage for Okada's injuries under the MEL endorsement. Royal moved for summary judgment arguing, inter alia, that the MEL endorsement was void ab initio because Kelly-Ryan violated the federal maritime doctrine of uberrimae fidei, the duty of utmost good faith, because it failed to disclose to Royal several material facts prior to the issuance of the MEL. The District Court granted Royal's motion because it found that Kelly-Ryan failed to disclose material facts about the type of work its vessel employees performed.
Kelly-Ryan and its P&I insurers appealed the District Court's summary judgment in favor of Royal on the ubberimae fidei issue. The Ninth Circuit affirmed the District Court's summary judgment in favor of Royal. Although it found the doctrine of ubberimae fidei inapplicable, the Ninth Circuit ruled that Okada's accident was not an event covered by the MEL endorsement or by the excess policy.
The Ninth Circuit first addressed the issue of whether admiralty jurisdiction existed over Kelly-Ryan's claim against Royal, which the court stated hinged on whether the excess policy with the MEL endorsement was a maritime insurance contract. Citing the United States Supreme Court's decision in Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14 (2004), the Ninth Circuit stated that whether the policy and its MEL endorsement constituted a maritime contract turned on whether the principal objective of the contract was maritime commerce. The court found that the principal purpose of the policy was to provide umbrella coverage in excess of Kelly-Ryan's shore-side policies, not to protect Kelly-Ryan's maritime commerce operations. Thus, it was not a maritime contract and federal admiralty jurisdiction could not be exercised over Kelly-Ryan's claim against Royal. The Ninth Circuit explained that the excess policy excluded traditional maritime risks such as pollution and contained a Watercraft Limitation. While the MEL endorsement extended coverage for bodily injury to a master or
member of the crew of a vessel, the description of the work covered under the MEL was confined to the typical shore-side activities of "painting and/or scrubbing of decks of tugs or barges, and loading and unloading as applicable in Washington and Alaska. "
Although admiralty jurisdiction did not extend to the excess policy, the Ninth Circuit found that the District Court had supplemental jurisdiction over Kelly-Ryan's claim against Royal under 28 U.S.C. § 1367 because that claim and the initial suit filed by Kelly-Ryan were so related "that they form part of the same case or controversy." Nonetheless, because admiralty jurisdiction did not extend to Kelly-Ryan's claim against Royal, federal admiralty law did not apply. Therefore, the federal maritime doctrine of ubberimae fidei did not apply.
Applying Washington State law which requires an intent to deceive before a policy will be voided due to misrepresentation, the Ninth Circuit concluded that the excess policy and MEL endorsement were not void for misrepresentation or for failure to disclose material facts because Kelly-Ryan did not have the requisite intent to deceive.
Finally, applying Washington State law, the Ninth Circuit held that Royal was not obligated to provide indemnity for the Okada settlement because Okada's injuries did not result from an accident covered by the MEL endorsement. As stated above, the MEL endorsement extended coverage by Royal for bodily injury suffered by a "master or member of the crew" of a Kelly-Ryan vessel when such person was performing work "necessary or incidental" to "Painting and/or scraping of decks of tugs or barges, and loading and unloading as applicable in Washington and Alaska." The Ninth Circuit found that Okada was not injured during the performance of any of those tasks. In particular, the Ninth Circuit held that he was not "unloading" the house.