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September 01, 2016

A Protection and Indemnity Insurance Policy is Not a Catch-All for Marine Liabilities

​originally posted at https://www.irmi.com/articles/expert-commentary/protection-indemnity-maritime

By: Michael A. Orlando and Mike A. Orlando, Jr., Meyer Orlando LLC

Before diving into the usual questions of whether a policyholder fulfilled the conditions of a P&I policy or whether it avoided the policy’s exclusions, it is paramount that any coverage analysis begins with discovering the operative facts regarding the relationship between the insured, the accident, and a vessel. The Fifth Circuit Court of Appeals recently reaffirmed a 45 year old prerequisite for coverage under standard-wording P&I policies: a casualty or occurrence must arise out of the insured’s conduct “as owner of the vessel” before coverage can attach. Naquin v. Elevating Boats, LLC v. State National Ins. Co., No. 15-30471, 2016 WL 1138516 (5th Cir. Mar. 22, 2016).

Naquin was injured when the shipyard land-based crane on which he was working toppled over from its base. He sustained broken left and right feet and an abdominal hernia when he jumped from the crane as it was falling. In a previous decision, the Fifth Circuit upheld the District Court findings that Naquin was a Jones Act seaman and, more importantly for this case, the crane owner acted negligently in failing to provide a reasonably safe place to work and work equipment. Specifically, the crane owner was the party responsible for welding the crane to its base and the weld was found to be defective and the direct cause of Naquin’s injuries. Elevating Boats (“EB”) was the crane owner and the party found liable for Naquin’s injuries.

EB sued its P&I insurer, State National Insurance Co. (“SNIC”), for denying coverage for Naquin’s accident. SNIC filed for summary judgment against all of EB’s claims, arguing that coverage under its P&I policy did not extend to Naquin’s land-based incident. Standard wording P&I policies, including the P&I policy at issue in this dispute, describe their Indemnity coverage as: “Subject to all exclusions and other terms of this Policy, the Underwriters agree to indemnify the Assured for any sums which the Assured, as owner of the Vessel, shall have become liable to pay, and shall have paid in respect of any casualty or occurrence during the currency of the Policy, but only in consequence of any other matters set forth hereunder….”

The insurer argued the “as owner of the Vessel” wording controlled what type of claims this policy could be liable for and that Naquin’s land-based incident did not qualify. EB argued the “in respect of any casualty or occurrence” language provided a broad blanket of coverage that would include Naquin’s accident. The District Court and the Fifth Circuit sided with the insurer.

The Fifth Circuit held that EB’s reading of the coverage language was too narrow and, that when read as a whole (a Texas and Louisiana rule of interpreting insurance policies), the policy must give meaning to both “as owner of the vessel” and “any casualty or occurrence” language. “The only way to give meaning to both provisions of the Policy is to construe the Policy as limiting coverage to ‘any casualty or occurrence’ which arises out of [EB]’s conduct ‘as owner of the Vessel.’” The court ultimately held that Naquin’s incident did not arise out of EB’s conduct as owner of any vessel. The crane that toppled over was not in close proximity to a vessel and a vessel did not cause the crane to fall. As such, a P&I policy was not the proper vehicle for obtaining coverage for Naquin’s accident and the insurer properly denied coverage.

In reaching its conclusion, the court cited one of its previous decisions that also held a causal connection between the vessel and the injury was necessary for coverage under a P&I policy. See Lanasse v. Travelers Ins. Co., 450 F.2d 580 (5th Cir. 1971). In Lanasse, a crane located on an offshore fixed platform was lifting a welding machine from the deck of a vessel to the platform. The crane operator allowed the load to swing while it was only a few inches off of the vessel deck and this swing trapped the plaintiff between the crane load and other cargo on the vessel deck, causing injuries. The platform crane operator was found negligent. The platform owner pursued coverage for the plaintiff’s injuries under its P&I policy for the vessel (the platform owner was also the time-charterer of the vessel), but the Fifth Circuit held that the platform operator was found negligent in its capacity as platform owner, not as charterer of the vessel. The vessel was merely the location of the injury and had no causal connection to the injury. It was the platform owner’s actions as a platform owner that caused the injury, and that did not make it a liability of a ship owner or a P&I insurer.

In citing the same rule to be espoused 45 years later in Naquin, the Lanasse court held: “There must be at least some causal operational relation between the vessel and the resulting injury. The line may be a wavy one between coverage and noncoverage, especially with industrial complications in these ambiguous amphibious operations plus those arising from the personification of the vessel as an actor in a suit in rem. But where injury is done through nonvessel operations, the vessel must be more than the inert locale of the injury. Nothing more occurred here, for it was Chevron’s Actions as a platform operator or a crane operator that caused the harm, and does not make it a liability of a shipowner.”

The important lessons from these two cases for insureds are to make sure they have all the proper marine related coverages, including maritime employers liability and longshore and harbors works coverage, and to choose wisely form which insurance policy to seek defense and indemnity; a P&I policy is not a catch-all for marine related liabilities to marine related employees. For insurers: before investing significant costs into policy coverage opinions that review every condition and exclusion, first attempt to determine whether the casualty or occurrence arises out of the insured’s conduct as a vessel owner, as opposed to something that is more akin to land-based activity.