Petition — Foremost Insurance v. Progress Marine, Inc.

ALEXAN:

CLERK

JUL 13 1981

Supreme Court af the United States

OCTOBER TERM 1981

FOREMOST INSURANCE COMPANY,

GRAND RAPIDS, MICHIGAN,

Petitioner

Vv.

PROGRESS MARINE, INC.,

Respondent

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

THOMAS A. BROWN

Brown, SIMS & AYRE

Suite 1735

2000 South Post Oak Boulevard

Houston, Texas 77056

(713) 629-1580

Lead Counsel for Petitioner

Alpha Law Brief Co., One Main Plaza, No. 1 Main St., Houston, Texas 77002

I

QUESTIONS PRESENTED FOR REVIEW

1. Whether the United States Court of Appeals for

the Fifth Circuit erred in deciding that the term “com-

pulsory by law” in the context of the applicable policy

of marine insurance did not preclude recovery by Re-

spondent, Petitioner’s insured, of costs of wreck removal

expenses in absence of an order of the United States

Government or a United States Court or a similar au-

thority making the removal of the Respondent’s barge

compulsory in accordance with Seaboard Shipping Cor-

poration v. Jocharanne Tug Boat Corporation, 461 F.2d

500 (2nd Cir. 1972).

2. Whether the United States Court of Appeals for

the Fifth Circuit erred in deciding that the term “com-

pulsory by law” in the context of the marine insurance

policy in question was not a term of art, thereby allowing

the Court to fashion its own definition in direct opposi-

tion to the evidence in the record and the holding of the

United States Court of Appeals for the Second Circuit

in Seaboard Shipping Corporation v. Jocharanne Tug

Boat Corporation, (supra).

LIST OF ALL PARTIES BELOW

1. Progress Marine, Inc. — Plaintiff/Appellant/

Respondent.

2. Foremost Insurance Company of Grand Rapids,

Michigan — Defendant/Appellee/Petitioner.

il

TABLE OF CONTENTS

Page

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Reference to Opinions Below ........-..seesseeeeseeees 1

Jurisdictional Grounds in This Court ..........+s+0000+ 2

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B. Related Decisions Below ..........++ssseeeeee05 B-1

C. Judgment Sought to be Reviewed .............. C-1

Certificate of Service

TABLE OF AUTHORITIES

CASES Page

Continental Oil] Company v. Bonanza Corporation, (S.D.

Tex. 1980) [unreported] .........sceceeseeeceeees 8, 13, 14,15

Dow Chemical (U.K.) v. S/S Giovanella D’Amico,

297 F. Supp. 699, 701 (S.D. N.Y. 1969) ........+5e6- 21

Southern and Florida Railway Company v. Perry,

326 F.2d 921, 925 (Sth Cir. 1964) ......ccceseeeeees 21

Seaboard S Boat

Corporation v. Jocharanne Tug

461 F.2d 500, 504, 1972 A.M.C. 2151 (2nd

GH ASTED BiNadeicocvevievcicbes 3, 7, 8,9, 10, 12, 13, 15, 20, 22

Page

UNITED STATES STATUTES

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SUPREME COURT RULES

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TEXTS

2 Wigmore on Evidence, § 285 .......cscscscceceesers 21

MISCELLANEOUS

Heep L. Buglass, Marine Insurance and General Average in

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NO.

Supreme Court af the United States

OCTOBER TERM 1981

FOREMOST INSURANCE COMPANY,

GRAND RAPIDS, MICHIGAN,

Petitioner

Vv.

PROGRESS MARINE, INC.,

Respondent

PETITION FOR WRIT OF CERTIORARI

REFERENCE TO OPINIONS BELOW

The Judgment and Findings of Fact and Conclusions

of Law entered by the United States District Court for

the Southern District of Texas—Houston Division in

favor of Petitioner are printed in Appendix A hereto

and are reported at 1979 A.M.C. 70 (S.D. Tex. 1978).

The order of the United States Court of Appeals for

the Fifth Circuit granting Respondent’s appeal and vacat-

ing and remanding the trial court judgment is printed in

Appendix A and is reported at 642 F.2d 816 (Sth Cir.

1980).

2

JURISDICTIONAL GROUNDS IN THIS COURT

The order of the United States Court of Appeals for

the Fifth Circuit granting Respondent’s appeal and vacat-

ing and remanding the trial court judgment is printed in

Appendix “C” hereto and was entered on April 15, 1981.

The jurisdiction of this Honorable Court is invoked

under 28 U.S.C. § 1254(1) and under Rule 17 1.(a) and

(c) of the Supreme Court Rules, the latter which states

as follows:

1. A review on writ of certiorari is not a matter

of right, but of judicial discretion, and will be

granted only when there are special and important

reasons therefor. The following, while neither con-

trolling nor fully measuring the Court’s discretion,

a the character of reasons that will be con-

sidered.

(a) When a federal court of appeals has rendered

a decision in conflict with the decision of another

federal court of appeals on the same matter;.. .

(c) When a... federal court of appeals has de-

cided an important question of federal law which

has not been, but should be settled by this Court,

STATEMENT OF THE CASE

Petitioners seek Certiorari to review the opinion of the

United States Court of Appeals for the Fifth Circuit

which vacated and remanded a Judgment rendered in the

Petitioner’s favor by the United States District Court for

the Southern District of Texas, Houston Division. The

District Court rendered Judgment on behalf of your Peti-

tioner, the Defendant at the trial level, on the grounds

that the words “compulsory by law” in the relevant

3

protection and indemnity policy between your Petitioner

as Insurer and Plaintiff at the trial level as Insured, re-

stricted coverage to costs or expenses of, or incidental

to, the removal of the wreck of the vessel named herein

when such removal had been directed by an express order

from a governmental body and that, as a matter of fact,

there was no compulsion under a direct order or other-

wise from anyone to remove the wreck. The said removal

was unilaterally effected by the Insured as a matter of

general prudence.

The United States Court of Appeals for the Fifth Cir-

cuit vacated and remanded the District Court’s Judgment

and held that, under the protection and indemnity policy

insuring against “. . . costs or expenses of, or incidental

to, the removal of the wreck of the vessel named herein,

when such removal is compulsory by law... ,” the

words “compulsory by law” were not terms of art and not

restricted to situations in which an express direct order

from a governmental body or any other authoritative

source, directed removal; rather where failure to remove

would have reasonably exposed Insured to liability im-

posed by law sufficiently great to justify expense of re-

moval, such removal could be considered “compelled by

law.” Both the result and the reasoning of the Court of

Appeals for the Fifth Circuit brings that Court’s decision

in direct conflict with the decision in Seaboard Shipping

Corporation v. Jocharanne Tug Boat Corporation, 461

F.2d 500, 504, 1972 A.M.C. 2151 (2nd Cir. 1972),

printed in Appendix B.

THE FACTS

This was a suit for reimbursement of wreck removal

expenses allegedly due under the policy of marine pro-

4

tection and indemnity insurance covering, among other

vessels, the jack-up workover barge PMI II, which policy

was in effect at the time of a casualty involving the cap-

sizing and sinking of said barge in the Gulf of Mexico

approximately eleven nautical miles off the coast of

Louisiana in waters within an approximate depth of 56

feet, in the vicinity of producing platforms, pipelines and

other marine offshore properties and in an area frequently

navigated by vessels, including those servicing properties.

Plaintiff in this action was the demise charterer and

operator of the jack-up workover barge PMI II and the

Insured under the relevant marine protection and indemn-

ity insurance covering this barge. The Defendant was the

insurance company that issued said policy.

The barge PMI II, while in tow, by the tug ADMIRAL

LEE on June 1, 1975, in daylight in calm waters, cap-

sized and sank in the Gulf of Mexico as a result of negli-

gence on the part of the tool pusher of the PMI II and

of her barge captain and as a result of the vicarious

negligence of Progress Marine, Inc., the Plaintiff, their

employer and the operator of the barge. The United States

Coast Guard cabled Plaintiff on June 5, 1975, advising

it that the wreck constituted a hazard to navigation and

instructed the Plaintiff to properly mark the wreck by

day and by night.

Plaintiff and the barge PMI II were covered by the

policy of marine protection and indemnity insurance

which was issued by Defendant in San Francisco, Califor-

nia on September 19, 1974, on a standard printed form

designated as “SP-38”. Plaintiff relies on lines 19-21 of

this policy and they read as follows:

“Costs of expenses of, or incidental to, the removal

of the wreck of the vessel named herein where such

5

removal is compulsory by law, provided however

that there shall be deducted from such claim the

value of any salvage recovered from the wreck by

the insured. . . .” (Emphasis added)

' Shortly after June 1, 1975 Plaintiff unsuccessfully

attempted to salvage the barge and on or about June 10,

1975 Plaintiff attempted to abandon the wreck to hull

underwriter, which abandonment was rejected. On or

about June 10, 1975 Plaintiff gave notice to Defendant

of the capsizing of the PMI II. On or about June 20,

1975 after soliciting bids for the removal of the wreck

Plaintiff entered into a no cure no pay salvage contract

with Sun Salvage, Inc. and pursuant to that salvage con-

tract, the wreckage of the PMI II was brought by the

contractor to Morgan City, Louisiana on or about

August 21, 1975. The wreckage of the barge was sold

to the highest bidder, proceeds of the sale being $127,-

557.00 minus $1,580.00 representing reasonable ex-

penses connected with the sale. Progress sought recovery

of net wreck removal expenses after salvage sale of re-

covered parts amounting to $641,552.98.

Plaintiff indicated that once sue and labor activities

had been completed and hull writers had rejected aban-

donment, it was advised by its own lawyer that it was

legally obligated to immediately remove the wreck. Plain-

tiff did not discuss any of the procedures with the De-

fendant Insurer at the time nor were any of the salvage

contract bids submitted to its Insurer for approval. At no

time prior to its actual removal by Plaintiff did the U.S.

Corp of Engineers or any other governmental body or

court of competent jurisdiction order, nor did anyone

private or otherwise, ever request Plaintiff to remove

6

the capsized barge. The PMI II after the sinking and prior

to its salvage was some eleven nautical miles off the coast

of Louisiana in open and unobstructed navigable waters

of the Gulf of Mexico.

Regarding negotiations and execution of the relevant

policy, Plaintiff Insured and its broker thoroughly re-

viewed and accepted the particular policy without objec-

tion. Coverage for the expenditure involved in this liti-

gation was available and is demonstrated by the fact

that Plaintiff maintained appropriate “debris removal”

coverage on other equipment where removal was un-

restricted. Plaintiff chose to buy the cheaper coverage so

restricted by the term “compulsory by law” for this

particular rig.

The present action was commenced on October 21,

1977. After a full trial on liability and damages, judg-

ment was entered for Defendant on May 30, 1978. The

Findings of Fact and Conclusions of Law of the trial

court are produced in Appendix A to this petition.

The trial court in its Conclusions of Law found that

the Rivers and Harbor Act, 33 U.S.C.A. § 409, did not

extend to the site of the wreck of the PMI II because the

U. S. Corps of Engineers’ removal authority through that

act is confined to vessels or other craft “wrecked and sunk

in a navigable channel”. This term “navigable channel”

applies to inland waterway locale and the PMI II sunk

eleven nautical miles off the coast of Louisiana in open

and unrestricted waters of the Gulf of Mexico and there-

fore the wreck situs of the barge was not a “navigable

channel” within the meaning of the Rivers and Harbor

Act, § 409.

7

The trial court further found that the coverage of the

Rivers and Harbor Act, § 409, was not extended by the

Outer Continental Shelf Lands Act, 43 U.S.C. § 1333

and therefore did not give the Secretary of the Army

authority to compel the removal of a wreck situated as

was the PMI II and further that the Outer Continental

Shelf Lands Act did not expressly or impliedly deal with

wreck removal. The trial court found that under the cir-

cumstances of this case that Plaintiff was not compelled

by law and could not be so compelled under the Rivers

and Harbor Act to remove the wreck and therefore

Plaintiff took nothing by its suit.

Plaintiff Progress Marine, appealed the District Court’s

denial of its claim against Foremost Insurance Company

for expenses incurred in removing the wreck. The deci-

sion of the Fifth Circuit on appeal of this case is re-

produced in Appendix “A”.

In its decision that the District Court erred in its inter-

pretation of the term “compulsory by law” and therefore

applied an improper legal standard in the resolution of

this case, the Fifth Circuit stated that its primary object

was to determine the meaning of the words “compulsory

by law” as they were used in the protection and indemnity

policy in issue in this case.

The Fifth Circuit, noting that this question was one

of first instance before it, addressed the decision in

Jocharanne, supra, out of the Second Circuit and defined

that case as “certainly a close cousin of the policy in our

case, if not an identical twin”. The Second Circuit in

Jocharanne addressed the term “compulsory removal,”

stating that this term “is a term of art in admiralty law

and refers to a situation in which a hull has been aban-

doned by the owner and the hull underwriter but, pur-

suant to government order, must be removed from navi-

gable waters. Under those circumstances, the P & I under-

writer, absorbing costs which no one else remains liable

to pay, must remove the wreck or reimburse the govern-

ment for removal.” (Emphasis added).

The Fifth Circuit further stated that the District Court’s

decision in the instant case made findings consistent with

Jocharanne, concluding that the removal by Plaintiff was

not “compulsory by law” because at no time prior to its

actual removal by Plaintiff did the U.S. Corps of Engi-

neers, any governmental body, or any Court of competent

jurisdiction order Plaintiff to remove the wreck and that

no governmental body had authority to order removal

of the wreck. The Fifth Circuit noted that another district

court, Continental Oil Company v. Bonanza Corporation,

(S.D. Tex. 1980) [unreported at the time of preparation

of this Petition; but which Findings of Fact and Conclu-

sions of Law are presented in Appendix “B”] had found

subsequent to the District Court Judgment for your Peti-

tioner for the charterer of a sunken vessel seeking to

recover reimbursement for wreck removal from its Insurer

under a policy which contained a provision requiring

payment of wreck removal expenses when such removal

was compulsory by law. In that case the Insurer Defendant

pointed to the decision in Jocharanne and the District

Court decision in the case before this Court as standing

for the proposition that removal is “compulsory by law”

only where a written demand has been made by a gov-

ernmental authority. The District Court found in Con-

tinental Oil that “such a restricted interpretation of the

language is unjustified”. Continental Oil v. Bonanza is

not on point or relevant to this case.

9

The Fifth Circuit found itself unable to agree with the

Second Circuit decision in Jocharanne that removal

which is “compulsory by law” requires a peremptory

order by an authoritative governmental agency or Court.

The Fifth Circuit by implication, in this instant decision,

no longer defined terms such as “compulsory removal”

or its twin, “compulsory by law” as a term of art in

admiralty law. The Fifth Circuit further redefined this

term. This term of admiralty law has under Jocharanne

two elements, the first being (1) reference to a situation

in which a hull has been abandoned by the owner and

the underwriters and (2) pursuant to governmental order,

must be removed from navigable waters. The Fifth Circuit

has removed the second element of the definition and con-

sequently is in conflict with the Second Circuit.

REASONS FOR GRANTING THE WRIT

I,

CERTIORARI SHOULD BE GRANTED TO RE-

SOLVE A CONFLICT BETWEEN THE COURTS OF

APPEALS REGARDING WHETHER THE TERMS

“COMPULSORY BY LAW” AND “COMPULSORY

REMOVAL” PRECLUDE RECOVERY OF WRECK

REMOVAL EXPENSES IN THE ABSENCE OF AN

ORDER OF THE UNITED STATES GOVERNMENT,

A UNITED STATES COURT OR SIMILAR AU-

THORITY.

When the United States Court of Appeals for the

Fifth Circuit determined in the present case that the term

“compulsory by law” in the context of the applicable

policy of marine insurance did not preclude recovery by

the insured of its costs of wreck removal expenses in

10

the absence of an order of the United States Government,

a United States Court or similar authority making the

removal of the Respondent’s barge compulsory, the Fifth

Circuit came in direct conflict with the decision of the

United States Court of Appeals for the Second Circuit,

in Seaboard Shipping Corporation v. Jocharanne Tug Boat

Corporation, supra, which decided in 1972 that the term

“compulsory removal” required more than the pressure

from the Coast Guard, other governmental authorities in

the area and hypothetical disasters.

The resolution of the conflict of opinion between the

United States Court of Appeals for the Fifth Circuit,

in this present case, and the decision in Jocharanne by

the United States Court of Appeals for the Second Cir-

cuit is necessary for the establishment of a uniformity of

judgments. The conflict between the Fifth Circuit and

Second Circuit decisions is a genuine conflict in fact and

in principle. The conflict between the Circuit Courts re-

quires clarification by this tribunal of a contractual

ground rule of fundamental significance in the admiralty

and marine insurance industry. Without resolution of this

conflict, members of this industry, whether insured or

insurer, will enter into contractual relationships without

assurance of the interpretation of the terms of art

“compulsory by law” and “compulsory removal”.

Seaboard Shipping Corporation v. Jocharanne Tug

Boat Corporation, 461 F.2d 500 (2nd Cir. 1972) was

an action against a tug boat corporation to recover for

the rental of barge and tug to offload gasoline from the

corporation’s barge; Plaintiff served an amended com-

plaint upon three underwriters, one of which cross-

claimed against the others to recover for a sum expended

in defense and settlement of third party litigation insti-

11

tuted by salvors. Oceanus Mutual Underwriting Associa-

tion, Ltd. (Oceanus) appealed from a judgment of the

United States District Court for the Southern District of

New York which required it to contribute a portion of

a sum expended by Lloyd’s of London, another of the

three underwriters, to remove the stranded and damaged

barge insured by both parties, from its grounding. The

portion of the trial court judgment holding Oceanus liable

to Lloyd’s was reversed on the grounds that the basis for

Oceanus’ obligation to reimburse Lloyd’s lay in a term of

Oceanus’ policy insuring against “costs or charges of

raising or removing the wreck of the ship named herein

when such removal is compulsory”.

The Oceanus policy did not contain a “sue and labor”

clause whereas the policies of Lloyd’s and the third

insurance company did, these being expenses spent by

the insured or its representative in an effort to mitigate

damage and loss once an accident has occurred.

Lloyd’s argued before the Second Circuit that pressure

from the Coast Guard and other governmental authorities

in the area was sufficient to make the removal of the

barge compulsory. The Second Circuit disagreed and the

basis for its reversal on behalf of Oceanus was “that

compulsory removal is a term of art in admiralty law,

referring to a situation in which a hull has been aban-

doned by the owner and the hull underwriters, but, pur-

suant to government order, must be removed from navig-

able waters. Under those circumstances, the P & I under-

writers, absorbing costs which no one else remains liable

to pay, must remove the wreck or reimburse the govern-

ment for removal.” The bottom line from the Second

Circuit was that “there was no ‘compulsory removal’ of

12

the VAL 51, the barge in question.” In the facts of

Jocharanne, Lioyd’s and Jocharanne far from abandon-

ing their interest in the vessel, had it towed to New York

for salvage of the hull; no government order existed,

just as no government order existed in the present case,

The Second Circuit concluded on this point that “the

cost of the operation were therefore not chargable to

Oceanus as removal under its policy.”

The Fifth Circuit, ia the present case, not only noted

the existence of Jocharanne but found kinship as a

“close cousin” if not twinship, to the instant case before

the Fifth Circuit, Before the Fifth Circuit, Progress

sought to distinguish this present case on its facts from

Jocharanne stating that there was no “true abandonment”

of the hull in Jocharanne, but that the case represented a

salvage and sue and labor operation on behalf of hull

and/or cargo underwriters and not a wreck removal

situation. Foremost readily admits that the Court in

Jocharanne was faced with the initial determination of

whether the facts and circumstances illustrated an in-

tent on the part of the owners to abandon and undertake

wreck removal operations or attempt the salvage opera-

tion. This is precisely the threshold issue in the instant

litigation. Foremost argued before the Fifth Circuit that

Progress did in fact and without legal compulsion under-

take a salvage operation and ultimately hauled the

various component parts of the PMI II by barge to

Morgan City, Louisiana. Progress made no attempt to

notify its insurer of any problem until after salvage

operations were undertaken. A further indication of the

kinship between Jocharanne and the present case lies in

their common element of hypothetical disaster. In the

instant case, the Respondent has contended that denial

13

of its claim under the term “compulsory by law” would

force it to engage in what it considered impermissible

abandonment, exposing lives and property in the area to

danger while awaiting a governmental order to remove

the sunken barge. The Second Circuit in Jocharanne con-

fronted a situation of similar danger in that gas leaking

from the VAL 51 barge at all times presented an ex-

plosion hazard immediately offshore Oswego, New York.

Nevertheless, the Second Circuit held that the expense of

the removal to be covered must be compeiled by govern-

mental order and not a hypothetical disaster.

The Fifth Circuit in the instant decision also based its

decision for overruling the trial court on a conflict within

its own circuit between district courts, the conflict lying

between the district court decision in this instarit case

and that in Continental Oil Company v. Bonanza Cor-

poration, H-78-944, August 25, 1980, [not reported at

the time of the preparation of this petition; the Findings

of Fact and Conclusions of Law in Bonanza are presented

in Appendix “B”.] .

The primary issue in Bonanza was whether or not

there had been a change in management and navigation

of the offending vessel M/V AQUA SAFARI, there-

fore avoiding recovery under the marine hull and machin-

ery and protection and indemnity insurance policy. The

District court found that at no time had there been any

such change.

In the portion of the Bonanza opinion related to the

issues in this petition, the trial court merely states that

recovery for wreck removal when “compulsory by law”

requires legal compulsion to remove the wreck, but that

“compulsory by law” did not require a written demand

14

made by a governmental authority. The Court cited

Heep L. Buglass, Marine Insurance and General Average

in the U.S. (1973): “protection and indemnity under-

writers do cover wreck removal expenses but it must be

emphasised that, absent any specific agreement to the

contrary, underwriters insuring wreck removal expenses

are only liable if their assured is legally liable for re-

moving the wreck.” The District Court, Appendix “B”’,

states that the plaintiff Conoco who had spent money to

remove the wreck from its own lease was required under

its lease agreement with the United States government to

remove all equipment and debris from the lease premises

one year after termination of the lease. This was a legal

obligation. Conoco was certainly legally compelled by the

terms of that contract with the United States govern-

ment to remove the wreck of the M/V AQUA SAFARI

regardless of the circumstances of her sinking.

In this present case, Respondent Progress Marine, Inc.

was not the lessee of the bottom or surface of the waters

in which its drilling barge was wrecked, but to the con-

trary, Progress Marine had no contractual liability to any-

one nor any statutory liability to anyone to remove the

wreck of the drilling barge PMI II.

The effect of the district court opinion in Bonanza is

tha: if Plaintiif/assured, Conoco, had a contractual

obligation with the United States government to clear

debris from the lease premises, the terms and conditions

of that lease provided the legal obligation to make said

removal “compulsory by law”.

In short, the terms of the insurance policy and the

terms of the contract between the insured and its lessor

combined in Bonanza to assure the plaintiff that its wreck

15

removal expense under the circumstances of the case

were indeed covered by its insurance policy. The cir-

cumstances of the lease and the insurance contract meet

the explanation of Buglass, supra: . . . “underwriters

insuring wreck removal expenses are only liable if their

assured is legally liable for removing the wreck.” (Em-

phasis added). In Bonanza, the assured was legally

liable for removing the wreck through its lease.

The present case bears no resernblance in this issue

to Bonanza.

The resultant reasoning of the Fifth Circuit in the

above discussion demonstrates genuine legal and factual

conflict with the facts and legal reasoning ii the decision

of the Second Circuit in Jocharanne and Certiorari should

be granted to reslove that conflict.

Il.

THE UNITED STATES COURT OF APPEALS,

FIFTH CIRCUIT, ERRED IN DECIDING THAT THE

TERM “COMPULSORY BY LAW” IN THE CONTEXT

OF THE MARINE INSURANCE POLICY IN QUES-

TION WAS NOT A TERM OF ART, THEREBY AL-

LOWING THE COURT TO FASHION ITS OWN

DEFINITION IN DIRECT OPPOSITION TO THE

EVIDENCE IN THE RECORD, THE HOLDING OF

THE TRIAL COURT AND THE HOLDING OF THE

UNITED STATES COURT OF APPEALS, SECOND

CIRCUIT, IN JOCHARANNE.

The Fifth Circuit chose to strip the term “compulsory

by law” of its characteristics as a term of art and to

construe the term “compulsory by law” and each of its

16

member words in their “plain, ordinary and popular

sense” in direct opposition to the evidence presented

before the trial court and without any cited authority.

Foremost Insurance Company presented three witnesses

that were qualified as experts on the subject of marine

insurance policies and the specific language in issue.

Luther C. Fuqua, with more than 20 years of experi-

ence as a representative of marine insurance underwriters,

testified to the following in response to questions from

counsel for Foremost:

Q)

A)

Q)

A)

Q)

A)

Q)

Can. you tell us what a broker’s function is and

what an underwriter’s function is? And I sup-

pose you were serving in that function as a

managing agent in placing the underwriting, is

that correct?

Well, an agent/broker represents his client to the

underwriter. Then the managing general agent or

surplus broker represents the—he acts as inter-

mediary between the insurance company and the

client or client/broker. (p. 105, 1. 6-14, trial

transcript)

Would you explain to the Court what under-

writers special risks is and what the majority of

your responsibilities are?

Well, underwriters special risks is an intermedi-

ary or correspondent with Lloyd’s and other

companies.

. . . tell us primarily what you underwrite, Mr.

Fuqua.

Well, primarily it’s the business of the oil ex-

ploration and production type, platforms, rigs.

a rigs, service vessels and other related

items

17

A) Right. (p. 105, 1. 21 through p. 106 1. 8, trial

transcript. )

Q) Have you become or had occasion to become

familiar with various types of coverage available

wea: 3 to do with wreck removal or debris re-

moval

A) Yes. (p. 106, 1. 14-17, trial transcript).

Witness Fuqua distinguished the language in removal

of debris clause and hull policies insuring drilling vessels

which do not contain “compulsory by law” language from

lines 19 through 21 containing “compulsory by law” in

protection and indemnity form SB-38 in litigation before

the trial court.

Q)

A)

In your opinion what do the words “compulsory

by law” mean in the industry or trade as they

are used in that clause?

Well, I think that it means in the insurance in-

industry that the body having jurisdiction over

the removal of this thing can compel you to

remove it. In which case, it is usually the Corp

of Engineers. If they say the vessel must be

moved, it is therefore considered to be compul-

sory. (p. 110, 1. 24 through p. 111, 1. 11, trial

transcript).

The Court: Suppose I were to be insured by one of

your companies and a drilling rig capsized and

I contacted Fd Would you tell me I had to

wait for the Corp of Engineers, under that clause,

I would have to do this and wait for them to

order us before you could do anything?

A) Yes, I think so. We would want some advice

from whomever had jurisdiction in that matter

to say, yes, it must or—

The Court: You would tell the insured that?

18

A) Yes, I think we would. I mean in some cases it’s

not necessary. I think the Corp might say you

can destroy it or cut it up where it is without

actually removing it. But whatever they say, we

look to them as the jurisdiction over it. (p. 112,

1, 3-25, trial transcript).

Petitioner’s second expert witness on this term of art

was Walter E. Tesch, an underwriter, claimsman and

broker continually since 1923. His testimony at trial was:

Q) How does a company—let’s use XYZ drilling

company? How did they go about getting insur-

ance? .. . (Deletion)

A) They would normally contact one of several dif-

ferent agents and present a program to them

and we would make our recommendations. (p.

138, 1. 4-8, trial transcript).

In reference to a hypothetical question presented by

Foremost Insurance Company’s counsel regarding the

clause pertaining to wreck removal expenses which carried

the relevant lines 19 through 21, Mr. Tesch testified:

Q) Assume that no one—I mean no entity at all—

either orally or in writing demanded that XYZ

company remove the rig . . . (deletions).

A) I see lines 19 through 21 are reinstated .

no, it would not be covered by this form (p.

142, 1. 7 through p. 143, 1. 1, trial transcript).

On cross-examination by counsel for Progress Marine,

Mr. Tesch testified:

Q) ty ie = these words mean to you, compulsory

law

A) They mean that you have to be put on notice

by the Engineers that they have to be removed.

(p. 145, 1. 24-26, trial transcript).

19

Albert Ortiz, with 19 years of experience in marine

insurance and related business, was qualified as an expert

in regard to marine insurance policies and testified for

Foremost as follows regarding the meaning of “compulsory

by law”.

A) My interpretation, of course, would be that my

insured would have to be compelled by some

board, government board with proper authority

to remove the wreck. And we would cover such

expenses,

Q) But only in the event of such compulsion?

A) Right. Oh, yes sir.

Q) Such as a wire from the Corp of Engineers?

A) The Corp of Engineers would be it. (p. 163, 1.

25 through p. 164, 1. 7, trial transcript).

It should be noted that no credible evidence demonstrat-

ing an ambiguity in the phrase “compulsory by law” was

presented by Progress at the time of trial. Plaintiff’s wit-

ness in chief, Raymond Ellison, testified he had only

a layman’s knowledge of insurance, the same being con-

fined to his personal home insurance policy. (p. 19, 1. 22

through p. 20, 1. 4, trial transcript). He made mention

of what he wanted or hoped this wreck removal coverage

would be but could not presume and did not attempt to

hold himself out as being qualified to testify to what

“compulsory by law” meant in the policy in question.

(p. 30, 1. 17 through p. 20, 1. 22, trial transcript).

Further Mr. Ellison testified that coverage in regard

to the equipment in question was investigated, managed

and obtained by Robert Duncan, insurance manager for

Progress, and the company’s insurance brokers, the latter

being by inference members of the trade and industry.

(p. 100, 1. 14 through 1. 22; p. 169, 1. 13 through p. 170,

1, 11, trial transcript).

20

Progress produced only one witness, James W. Hunt,

in rebuttal to Foremost’s three experts on the issue of the

meaning of “compulsory by law” beforementioned, but

this witness nullified the value of his testimony regarding

the meaning of “compulsory by law” when he admitted

that his company, the Diamond M Drilling Company,

through which he had gained his insurance “expertise”

does not use the questioned SP-38 forms, but rather the

SP-23 form. Mr. Hunt further admitted in response to

questioning by the Court that he has never had occasion

to make a claim on the SP-38 form. His assertion that

the SP-38 and SP-23 form wreck removal provisions are

identical is rank hearsay, the best evidence of the latter

form’s language being a copy of same. Such a document

was not offered by Progress nor admitted at any time

during the trial of this case, (p. 172 through p. 179,

trial transcript).

On cross examination, Mr. Hunt admitted that he

has never received any advice from anyone on the inter-

pretation of the SP-38 form, thereby fully corroborating

his lack of expertise in the area examined. He disqualified

himself as an expert on the legal meaning of “compulsory

by law” in his response to questions about the definition

of “compulsory by law” as defined by the United States

Court of Appeals, Second Circuit in Jocharanne (p. 182,

1. 10 through 1. 17).

The trial record demonstrates that no evidence was

presented by Progress to refute Foremost’s expert testi-

mony that “compulsory by law” was a term of art; Mr.

Ellison and Mr. Hunt, witnesses for Progress on this

subject, testified that they were not experts in this area.

It is noted that Robert Duncan, identified by Mr. Ellison

as Progress’ insurance manager and the member of the

21

insurance trade and industry who initiated and negotiated

the questioned coverage, was present in the courtroom at

the time of trial but did not testify during the trial to the

issue of term of art or to any other issue in litigation.

Where a witness is available to testify, has superior and

non-cumulative testimony to offer, or peculiar or special

knowledge or facts essential to a particular party’s case,

failure to call that witness creates an inference that his

testimony would have been unfavorable. Georgia Southern

and Florida Railway Company v. Perry, 326 F.2d 921,

925 (Sth Cir. 1964), 2 Wigmore on Evidence, § 285.

This rule is particularly true where it can be inferred

that this witness’ testimony would ordinarily tend to be

favorable to the party which failed to call him. Dow

Chemical Company (U.K.) v. S/S Giovanella D’Amico,

297 F. Supp. 699, 701 (S.D. N.Y. 1969).

In addition, although it is true that the parties stipu-

lated at trial that the marine insurance policy was issued

on a standard P & I form (denominated SP-38) and that

there were no formal negotiations between Progress and

Foremost regarding the form of the policy, (Vol. I, p.

176, trial transcript), it is also true that Progress as well

as its own broker thoroughly reviewed and accepted the

particular policy without objection. (p. 169, 1. 13 through

p. 170, 1. 11, trial transcript). Coverage for “non-com-

pulsory” wreck removal or wreck removal at the insured’s

option, generally termed “debris removal,” was indeed

available, as corroborated by the fact that Progress

maintained “debris removal” coverage on other equip-

ment. (Vol. I, p. 13, trial transcript). Progress may have

acted prudently under all of the circumstances. That,

however, is irrelevant since the clause in question did

not propose to insure Petitioner’s prudent removal of

22

the wreck of the PMI II, but only such removal as

compelled by law.

CONCLUSION

This Court, as were the United States Court of Appeals,

Fifth Circuit and the District Court at trial, is primarily

faced with construction of the phrase “compulsory by

law” as used in the applicable policy of marine insurance.

Petitioner respectfully submits that this phrase has one

meaning which has been established in Jocharanne, said

decision now in direct conflict with the decision in the

present case by the United States Court of Appeals,

Fifth Circuit. Petitioner further submits that the Fifth

Circuit’s construction of a new definition for the phrase

“compulsory by law” outside the mode of term of art

is in direct opposition to the evidence in the record, and

that in fact Respondent Progress did not present evidence

to rebut Petitioner’s evidence that “compulsory by law”

was a term of art in the marine insurance industry.

WHEREFORE, Petitioner respectfully prays that a

Writ of Certiorari be granted.

R bmitted,

THoMasS A. BROWN

Suite 1735

2000 South Post Oak Boulevard

Houston, Texas 77056

(713) 629-1580

Lead Counsel for Petitioner

Of Counsel:

Brown, Sims & AYRE

APPENDIX

A-l

APPENDIX “A”

PROGRESS MARINE, INC.

Plaintiff-Appellant,

Vv.

FOREMOST INSURANCE COMPANY,

GRAND RAPIDS, MICHIGAN,

Defendant-Appellee.

No. 78-2321.

United States Court of Appeals,

Fifth Circuit.

April 15, 1981.

Insured brought suit against insurer for expenses in-

curred in removing wreck of one of its barges. The United

States District Court for the Southern District of Texas,

at Houston, Robert O’Conor, Jr., J., denied claim, and

insured appealed. The Court of Appeals, Brown, Circuit

Judge, held that under protection and indemnity policy

insuring against “* * * Costs or expenses of, or incidental

to, the removal of the wreck of the vessel named herein

when such removal is compulsory by law * * *,” words

“compulsory by law” were not restricted to situations in

which express direct order from government body directed

removal; rather where failure to remove would have

reasonably exposed insured to liability imposed by law

sufficiently great to justify expense of removal, such re-

moval could be considered “compelled by law.”

Vacated and remanded.

A-2

Appeal from the United States District Court for the

Southern District of Texas.

Before BROWN, GEWIN and POLITZ, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

Progress Marine, Inc. (PMI) appeals the District

Court’s’ denial of its claim against Foremost Insurance

Company (Insurer) for expenses incurred in removing

the wreck of a Jackup Workover Barge (PMII) which

sank some 11 miles off the Louisiana coast. PM II was

covered by a marine P&I insurance policy which provided

recovery for wreck removal expenses when “such re-

moval is compulsory by law.” Because we find that the

District Court erred in its interpretation of the term

“compulsory by law”, and accordingly applied an im-

proper legal standard in the resolution of this case, we

vacate and remand.

Eight Fathoms Of Barge In Nine

Fathoms Of Water

The essential facts of this case are not in dispute. On

the afternoon of June 1, 1975, PMI’s Jackup Workover

Barge PM II capsized and sank, while being towed, in

approximately 56 feet of water some 11 miles off the

Louisiana coast. The capsizing and sinking was the result

of negligence on the part of the tool pusher and barge

captain of the PMII and thus of PMI. In its submerged

position, the PM II was located approximately 1500 feet

south of a manned Shell Oil production platform and

300 feet southeast of an Exxon Pipeline Company 10-

1. Progress Marine, Inc. v. Foremost Insurance Co., 1979 A.M.C.

70 (S.D. Tex. 1978).

A-3

inch high-pressure pipeline. Also in the vicinity were other

offshore platforms, pipelines and additional offshore de-

velopmental properties.

At the time of this unfortunate incident, the PM II was

covered by a standard P&I insurance policy, form SP-38,

issued by Insurer. The Protection and Indemnity policy

obligated Insurer to reimburse PMI for such sums as

PMI shall have become legally liable to pay and shall

have paid on account of:

. . . Costs or expenses of, or incidental to, the re-

moval of the wreck of the vessel named herein when

such removal is compulsory by law. . .”

After the sinking of the PM II, little time was wasted

by PMI in dealing with the situation. First, after con-

siderable effort, PMI was able to rescue five crewmen

trapped inside the submerged barge. PMI then pursued,

unsuccessfully, various “sue and labor” activities, designed

to prevent the barge from becoming a total loss. Finally,

on June 10, 1975, PMI notified Insurer that the barge

was a constructive total loss and that PMI had abandoned

the wreck to Insurer. Insurer, in turn, rejected abandon-

ment,

Unsuccessful in its sue and labor efforts PMI proceeded

on the advice of counsel, to make arrangements for re-

moving the PM II. On June 20, after receiving various

bids, PMI contracted with Sun Salvors on a “No Cure-

No Pay” basis to remove the wreck to PMI’s premises

in Morgan City, Louisiana. By August 21, Sun Salvors

had performed the removal and PMI paid over $760,000

2. The clause continued “. . . provided, however, that there shall

be deducted from such claim, the value of any salvage recovered

from the wreck by the assured.”

A-4

under the terms of the contract. In addition to this sum,

PMI had incurred an additional $17,529.98 in expenses

for wreck removal. PMI was able to recover $127,557

from the sale of the salvaged PMII, yielding a net

recovery of $125,977 after deduction of expenses con-

nected with the sale. Accordingly, after deducting these

sums, and the $10,000 policy deductible, PMI made

demand on Insurer in the total amount of $641,522.98

plus interest and attorneys’ fees. This demand was refused

by Insurer, although, for purposes of this litigation, In-

surer has agreed that the expenses incurred were reason-

able.

There is no question that PMI fit the bill of the “pru-

dent company” in removing the PMII. At the time of

these activities, hurricane season was approaching and the

submerged barge posed a threat to neighboring oil pro-

duction facilities and workers. In addition, the PM II,

once it had settled, lay only eight feet below the surface

of the water and posed a threat to navigation in the

area, as PMI was clearly informed by the Coast Guard.*

Nevertheless, Insurer argues that the removal, although

perhaps compelled by prudence, was not “compulsory

by law” as required by the express terms of the policy.

The District Court agreed with Insurer and denied re-

covery by PMI. This appeal followed.

Compulsory By Law? A Judicial Sounding

The primary tasks before this Court—the successful

resolution of which paves the way for the ultimate

3. Four days after the si of the PM II, the United States

Coast Guard cabled PMI advising that the wreck constituted a

hazard to navigation and instructing PMI to properly mark the

wreck. Progress Marine, 1979 AMC at 71.

A-5

decision of the whole case—does not, at first blush,

appear to be of Herculean proportions. We are simply

asked to determine the meaning of the words “compul-

sory by law” as they are employed in the P&I policy

which Insurer issued and PMI purchased. As simple as

this task may initially appear, however, it is probably

safe to say that the parties, and the courts, have already

devoted more time and effort in resolving the meaning

of these three words than was required in the cleaning

of all the Augean stables.

At the outset, we emphasize that whether we employ

California law, as PMI suggests may be required by

Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 US.

310, 75 S.Ct. 368, 99 L.Ed. 337, 1955 A.M.C. 467

(1955),* or some other law is not particularly material

to the resolution of this issue since there is no indication

that land-based insurance principles concerning the con-

struction of insurance policies vary significantly from

marine principles. See Calcasieu-Marine Nat. Bank, Etc.

v. Am. Emp. Ins., 533 F.2d 290, 295 (Sth Cir. 1976).

A review of some of these principles provides us with

buoys for interpreting this policy.

In Calcasieu-Marine this Court recognized these gen-

eral principles:

[W]ords are to be construed in their plain, ordinary,

and ny se sense. [Citations omitted]. This rule is

varied from only if a word is used as a ‘term of art’,

4. The insurance policy was apparently issued in California, The

parties themselves do not consider the choice of law question to be

a significant issue in this case. To the extent that Wilburn Boat does

require the application of California law, we find the al prin-

Gf coniaatiies adi 00 tdhy Ge te ta eam to bo condemns

th the law of that state.

A-6

in which case its meaning in the area for which it is

a term of art is applied.

Id., 533 F.2d at 295-96.

This Court further reiterated in Walter v. Marine Office

of America, 537 F.2d 89, 95, 1977 A.M.C. 1471, 1477-

78 (5th Cir. 1976) what we had many times pronounced:

Considering that a reviewing Court should view a

contract in the light of the setting of the parties and

the reasonable expectations as to risks and protection

against them, an insurance policy should be con-

strued in such a way as to effectuate its purpose.

Finally, it is a well established insurance law principle

that the “insurance policy if uncertain in meaning should

be construed against the insurer who wrote it and should

be read literally so as to indemnify the insured.” /d., 537

F.2d at 94-95, 1977 A.M.C. at 1477; see also Calcasieu-

Marine, 533 F.2d at 295.

This Court has never had occasion to address the pre-

cise questions raised by this case. Prior to launching into

an independent analysis of the meaning of the term

“compulsory by law”, however, we deem it appropriate

to briefly discuss decisions of other courts on this point.

The Second Circuit has authored an opinion as to the

purport of a policy insuring against “costs or charges

of raising or removing the wreck of the ship numed herein

when such removal is compulsory.” This is certainly a

close cousin of the policy in our case, if not an identical

twin. In Seaboard Shipping Corporation v. Jocharanne

Tugboat Corporation, 461 F.2d 500, 504, 1972 A.M.C.

2151, 2154 (2d Cir. 1972) that Court declared in awe-

some terms:

A-7

gen prac removal’ is a term of art in admiralty

law and refers to a situation in which a hull has been

abandoned by the owner and the hull underwriter

but, pursuant to government order, must be removed

from navigable waters. Under those circumstances,

the P&I underwriter, absorbing costs which no one

else remains liable to pay, must remove the wreck

or reimburse the government for removal. (Em-

phasis added).

District Courts in our own Circuit are evidently split

in their interpretation of the meaning of removal “com-

pulsory by law” in a marine insurance policy. The District

Court in the instant case, although not citing Jocharanne,

made findings seemingly consistent with the Second Cir-

cuit opinion. While stating that Insurer admitted that

under the circumstances the wreck removal was prudent,

and that the capsized PMII constituted a hazard to

navigation, the District Court in concluding that the

removal was not “compulsory by law”, found that “at no

time prior to its actual removal by piaintiff, did the

United States Corps of Engineers, any other governmental

body, or any court of competent jurisdiction order plain-

tiff to remove” the wreck. 1979 A.M.C, at 72-73. The

Court further found that no governmental body had

authority to order removal of the wreck. Id. at 73.

In a more recent opinion, another District Court in this

Circuit reached a conclusion apparently at odds with

Jocharanne and the District Court opinion in this case.

In Continental Oil Co. v. Bonanza Corporation, ——

A.M.C (S.D. Tex. 1980) [H-78-944, Aug. 25,

1980], the charterer of a vessel, which sank alongside an

offshore rig, removed the wreck and then sought reim-

bursement from the insurer. In permitting direct action

A-8

against, and ultimately recovery from, the insurer, Judge

Cire found:

The policy contains a provision requiring the pay-

ment of wreck removal expenses, as here, when such

removal is compulsory by law. [Insurer] points to

the decisions of [Jocharanne] and [Progress Marine]

as standing for the proposition that removal is “com-

pulsory by law’ only where written demand has been

made by a governmental authority. But such a re-

strictive interpretation of the language is unjustified.

Although the Court in Bonanza did not articulate an

interpretation as to the precise meaning of the term “com-

pulsory by law”, the Court clearly backed away from the

notion that removal must be made pursuant to direct

governmental order in order to warrant recovery.

As discussed previously, were we to conclude, as Joch-

aranne clearly suggests, that “compulsory by law” is a

term of art in the marine insurance business, our initial

inquiry would be at an end. We would simply apply the

term of art meaning and conclude, as the Second Circuit

stated, that removal must be specifically ordered by a

governmental body to warrant coverage. Although we

incline strongly to agree with PMI that the quoted section

of the Jocharanne opinion which discusses compulsory

removal is mere dicta,’ we are unable simply to ignore

the fairly unequivocal pronouncement by a distinguished

Court so experienced in dealing with marine insurance.

5. The vessel in Jocharanne was removed as part of “sue and

labor” activities. The vessel owner never attempted abandonment but

rather had the vessel removed for the sole purpose of salvaging the

hull. The “compulsory removal” provision of the insurance policy,

therefore, never came into play. 461 F.2d at 504, 1972 A.C,

at 2154.

A-9

However, upon independent examination of the author-

ities cited in Jocharanne® we are unable to agree with that

Court that removal “compulsory by law” requires a per-

emptory order by an authoritative governmental agency.

Stripped of reliance on “compulsory by law” imposed

by widely accepted maritime law as a term of art we

must, as previously discussed, try to construe these words

in their “plain, ordinary, and popular sense.” Calcasieu-

Marine, 523 F.2d at 295-96. Although these three words

in and of themselves do not appear particularly inscrut-

able, in the lexicon of marine insurance we find resort

to the dictionary to be useful, and find Black’s Law Dic-

tionary (4th ed.) particularly helpful.

Taking first the word “compulsory” Black’s provides

the following definition:

Involuntary; forced; coerced by legal process or by

force of statute.

For the word “by” Black’s provides the following defi-

nition:

In consequence of . . . through the means, act,

agency or instrumentality of.

Finally, Black’s defines “law” as:

That which is laid down, ordained, or established.

A rule or method according to which phenomena

6. At 461 F.2d at 504, 1972 A.M.C. at 2154, appears the follow-

ing citation of authorities:

See the Wreck Removal Act, 33 U.S.C. §§ 409-414; Dover, A

Handbook to Marine Insurance (6th ed. 1964) at 439. Cf.

Wyandotte Transportation Co. v. United States, 389 US. 191,

88 S.Ct. 379, 19 L.Ed.2d 407 (1967).

A-10

or actions co-exist or follow each other. That which

must be obeyed and followed by citizens, subject

to sanctions or legal consequences, is a ‘law’.

Viewing these three words together as a phrase, it

seems evident that “compulsory by law” in the context

of this insurance policy should not be viewed as restricted

to situations in which an express direct order from a

governmental body directs removal. Clearly, for example,

removal occasioned to avoid a violation of a criminal

statute subject to criminal sanctions, although not specifi-

cally ordered by governmental authority, would neverthe-

less be compelled by law. On the other hand we are not

prepared to say that removal occasioned by any “legal

obligation” is “compulsory by law”, as PMI would seem

to suggest.”

7. As authority for the proposition that removal “compulsory by

law” connotes any removal performed pursuant to a “legal obligation”

PMI refers us to L. Buglass, Marine Insurance and General Average

in the United States (1973), pp. 64-65:

Protection and Indemnity underwriters do cover wreck re-

moval expenses but it must be emphasized that, err

specific agreement to the contrary, underwriters insuring

removal expenses are only liable if their assured is legally liable

for removing the wreck. Under such Protection and Indemnity

coverage the assured usually remains protected and indemnified

for as long as he has a possible liability. Thus, if the insured

vessel sinks as a result of the original accident and the wreck

cannot be located but resurfaces at a later date, any /egal

liability falling on the assured to remove the wreck is covered

wk the original insurance. (Emphasis the author’s).

le Buglass may correctly state a general proposition concerning

insurance for wreck removal, we are disinclined to rely on this author-

ity in resolving the present controversy. It is certainly arguable that

the inclusion of the words “comp by law” in the insurance

policy before us was reasonably intended, and reasonably understood,

to restrict noe cases where something more than simple ex-

posure to “legal ility” exists.

A-11

As stated in Walter, 537 F.2d at 95, 1977 A.M.C. at

1477-78, in construing an insurance policy reference must

be made to the reasonable expectations of the parties as

to the risks and protection against them. As applied to

this case, removal occasioned by an unarticulated or un-

reasonable apprehension of criminal or civil liability could

not be corisidered “compelled by law”. On the other hand,

where removal was reasonably required by law, or where

failure to remove would have reasonably exposed an

insured to liability imposed by law sufficiently great to

justify the expense of removal, then, we believe, such

removal could be considered “compelled by law” for

purposes of recovery. However, an additional inquiry

must be made as to whether the removal was in fact

“compelled by law,” that is, whether removal was per-

formed as a result of a subjective belief on the part of

the insured that such was reasonably necessary to avoid

legal consequences of the type contemplated by this

policy.*

While we do not pass final judgment on this case, nor

make a forecast as to the ultimate judgment of the Dis-

trict Court on remand, we believe that on the facts

presently before the Court it at least cannot be said that

no possibility for recovery by PMI exists under the legal

standard which we have announced, Certainly, for ex-

ample, potential exposure to PMI resulting from its wreck

8. This “objective” and “subjective” inquiry which we deem

appropriate in this case is akin to the dual ry as to the avail-

ability of “good faith” immunity in certain actions under 42 U.S.C.

§ 1983. Cf. Wood v. Strickland, 420 U.S. 308, 321, 95 S.Ct. 992, 1000,

43 L:Ed.2d 214 (1975); Dilmore v. Stubbs, 636 F.2d 966 (Sth Cir.

1981); Bryan v. Jones, 530 F.2d 1210, 1214 (Sth Cir.) (En Banc),

cert. denied, 429 U.S. 865, 97 S.Ct. 174, 50 L.Ed.2d 145 (1976).

A-12

rupturing an oil pipeline or breaching the hull of an oil

carrying vessel could have been enormous. Although we

do not undertake to address the reasonable probabilities

of the occurrence of these or similar casualties, we never-

theless raise here several points of liability which such

casualties could have engendered.

We note that at the time of the sinking of the PM II,

the Federal Water Pollution Control Act of 1972, 33

U.S.C. § 1321,’ prohibited the discharge of oil into or

upon waters adjoining the United States at least within

twelve miles from shore.’® This Act expressly provided

for third party liability to the United States Government,

in certain circumstances, for oil spill removal costs. /d.,

at § 1321(g). Furthermore, PMI would have been with-

out resort to any available limitation if it could have

been shown that the oil discharge “was the result of

willful negligence or willful misconduct within the privity

and knowledge of [PMI].” Jd. We raise, without ad-

dressing, the potential relevance of the fact that legisla-

tion enacted after the 1975 sinking of the PM II im-

poses increased statutory liability for oil spills. See, e.g.,

the Clean Water Act of 1977, 33 U.S.C. § 1321.

In addition to this statutory liability to the United

States, in the event of a major oil spill caused by its

negligence PMI also could have potentially faced enor-

9. The FWPCA has been amended by the Clean Water Act of

1977, 33 U.S.C. § 1321. The complete text of the FWPCA may be

found in 3 Benedict on Admiralty (7th ed. 1975), 9-23-9-40.3.

10. The actual language of the Act proscribes discharge of oil

into or upon “waters of the contiguous zone.” 33 U.S.C. § 1321

(b)(1). The contiguous zone was contemplated as extending 12 miles

from the coast of the United States. See § 1321(a)(9) together with

37 Fed. Ree: 11906 (1972); see also 3 Benedict on Admiralty at

9-11, n.10,

‘A-13

‘mous damages under private’ actions for pollution dam-

age. For these claims, even if PMI could have estab-

lished that the PM II was a “vessel” entitling PMI

to limitation under the Limitation of Liability Act of

1851, 46 U.S.C. §§ 181 et seq., it is quite possible that

PMI still could not have successfully invoked limitation

for the sinking of the PM II. And in any event, its liability

in these possible risk situations would have been for

failure to remove the wreck which might constitute per-

sonal fault within the privity and knowledge of the owner.

See, e.g., University of Texas Medical Branch at Galves-

ton v. United States, 557 F.2d 438, 448, 1977 A.M.C.

2607, 2618-19, and cases discussed in n.13 (5th Cir.

1977).

Hauling The Dispute Back To Port

Since the District Court’s opinion was rendered in the

light of an interpretation of the controlling language in

the insurance policy which was erroneous, we cannot

credit the findings of the Court as presently made. See

Kirksey v. City of Jackson, Mississippi, 625 F.2d 21,

21-22 (5th Cir. 1980); NLRB v. Alterman Transport

Lines, 587 F.2d 212, 220 (Sth Cir. 1979); Theriault v.

Silber, 547 F.2d 1279, 1280 (Sth Cir.), cert. denied,

434 US. 871, 98 S.Ct. 216, 54 L.Ed.2d 150 (1977);

Costello v. Lipsitz, 547 F.2d 1267, 1276-77 (Sth Cir.),

cert. denied, 434 U.S. 829, 98 S.Ct. 109, 54 L.Ed.2d

88 (1977). We similarly do not pass on the Court’s

legal finding that no governmental authority was em-

powered to order removal of the wreck of the PM II

sunk 11 miles off the Louisiana coast since this finding,

even if true, is not necessarily dispositive of the case.

We reiterate that by our observations concerning potential

A-14

liability to PMI for failure to remove the wreck we make

no intimations as to the ultimate disposition of this case.

We remand this action in full to the District Court to

make the dual inquiry described in this opinion, leaving

initially to the parties and the District Court to determine

the extent to which the present record should or need be

supplemented.

VACATED and REMANDED.

A-15

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

CIVIL ACTION NO. 76-H-121

PROGRESS MARINE, INC.

v

FOREMOST INSURANCE COMPANY,

GRAND RAPIDS, MICHIGAN

FINDINGS OF FACT AND CONCLUSIONS OF LAW

PRELIMINARY STATEMENT

This is a suit for reimbursement of wreck removal ex-

penses allegedly due under a policy of marine protection

and indemnity insurance covering, among other vessels,

the Jackup Workover Barge PMI II, which policy was

in effect at the time of a casualty involving the capsizing

and sinking of said barge in the Gulf of Mexico approxi-

mately eleven (11) nautical miles off the coast of Louisi-

ana in waters with an approximate depth of fifty-six (56)

feet and in the vicinity of producing platforms, pipelines

and other marine offshore properties and in an area fre-

quently navigated by many vessels including those servic-

ing said properties. Prior to its removal, the capsized

PMI II lay in the vicinity of production platforms, pipe-

lines and other marine offshore properties. The defendant,

Foremost Insurance Company, admits that under the

circumstances its removal was prudent but uninsured.

A-16

FINDINGS OF FACT

I.

Plaintiff, Progress Marine, Inc., was at all times ma-

terial and now is a corporation duly organized and exist-

ing under the laws of the State of Texas, having its prin-

cipal office and place of business in Houston, Texas.

At all times material, plaintiff was the demise character

(under a financing arrangement) and operator of the

Jackup Workover Barge PMI II, a steel jackup workover

rig. Said vessel consisted of two barges one over the other,

the lower barge of which was called the “mat” of the rig

and which served as a base of the rig when same was

jacked-down and operating. The dimensions of the mat

were seventy-cight (78) feet wide by seventy-eight (78)

feet long by four (4) feet deep, and the mat was con-

nected to the upper hull (dimensions 50 feet wide by 96

feet long by 10 feet deep) by four (4) legs (48 in. in

diameter by 122 feet in length) on which the main hull

could be jacked-up or down by hydraulic pumps.

Il.

The Barge PMI II, while in tow by the Tug Admiral

Lee on June 1, 1975, in daylight in calm water, capsized

and sank in the Gulf of Mexico in about fifty-six (56)

feet of water approximately eleven (11) nautical miles

from the Louisiana coast as a result of negligence on the

part of the Tool Pusher of the PMI II, and of her Barge

Captain and thus as a result of the vicarious negligence

of Progress Marine, Inc., their employer and the operator

of said barge.

Ill.

On June 5, 1975, the United States Coast Guard cabled

plaintiff advising that the wreck constituted a hazard to

‘A-17

navigation and instructed plaintiff to properly mark same

by day and by night. At that time, and all times follow-

ing the capsizing and sinking, the PMI II lay in a sunken

position approximately 500 yards in a southerly direction

from a manned Shell Oil Company production platform

and 100 yards southeastward of an Exxon pipeline com-

pany 10-inch high-pressure pipeline. There were other off-

shore platforms, pipelines and offshore development prop-

erties in that vicinity. There is substantial navigation in

the area. Furthermore, the hurricane season was beginning

in the Gulf of Mexico.

IV.

Plaintiff and the Barge PMI II were covered by the

policy of protection and indemnity insurance (Exhibit A

to Plaintiff's Original Complaint), which was issued by

defendant in San Francisco, California, on September

19, 1974, on a standard printed form (designation “SP-

38”) with various riders and endorsements and without

any negotiation as to the specific terms set forth in the

policy form. Plaintiff relies on lines 19-21 of the said

protection and indemnity policy which read as follows:

“Costs or expenses of, or incidental to, the removal

of the wreck of the vessel named herein where such

removal is compulsory by law, provided however,

that there shall be deducted from such claim the

value of any salvage recovered from the wreck by

. the assured.”

V.

Following the casualty of June 1, 1975, aforesaid, plain-

tiff took steps to save the lives of five people trapped

below the surface of the water in the main barge, which

A-18

operations were successful. Thereafter, plaintiff unsuccess-

fully attempted to salvage the barge which latter activities

plaintiff claims were unsuccessful. Subsequently, plaintiff

on or about June 10, 1975, attempted to abandon the

wreck to hull underwriters, which abandonment was re-

jected. On or about June 10, 1975, plaintiff gave notice

to defendant of the existence of the capsizing of the PMI

II.

VI.

Subsequently, on or about June 20, 1975, after solicit-

ing bids for removal of the wreck, plaintiff entered into a

“no cure-no pay” contract with Sun Salvage, Inc., to re-

move the wreck to Morgan City, Louisiana. Said contract

was negotiated through the salvage master on this oc-

casion, Captain Al Veverica, who received a portion of

the contract proceeds for his services herein.

Vil.

Pursuant to the aforesaid contract, on or about August

21, 1975, following removal operations of an excess of

sixty (60) days, all of the wreckage of the PMI II had

been brought by the contractor to Morgan City, Louisiana,

as required by the contract. Thereafter, the wreckage

of the barge was sold to the highest bidder, proceeds

of the sale being $127,557.00 less $1,580.00 represent-

ing reasonable expenses connected with the sale.

Vil.

The “no cure-no pay” contract having been performed

as aforesaid, plaintiff became liable to pay and did pay

to the successful contractors $760,000.00, the contract

price under said contract.

A-19

IX.

In addition to the $760,000.00 paid as the contract

price aforesaid, plaintiff incurred additional costs and

expenses from wreck removal amounting to the sum of

$17,529.98, which it also paid. These additional expenses

were necessary and reasonable expenses of wreck removal.

X.

The capsized PMI II constituted a hazard to navigation.

However, at no time prior to its actual removal by plain-

tiff, did the United States Corps of Engineers, any other

governmental body, or any court of competent wenn

tion order plaintiff to remove same.

CONCLUSIONS OF LAW

I,

The Court has jurisdiction of the parties and the sub-

ject matter under Title 28 U.S.C.A. § 1333.

Il.

This Court finds that the Rivers and Harbor Act,

33 U.S.C.A. § 409 does not extend to the situs of the

wreck of the PMI II since the Corps of Engineers re-

moval authority thereunder is confined to vessels or other

craft “. . . wrecked and sunk in a navigable channel .. .”

The term “navigable channel” is confined to an inland

waterway locale. The wreck situs of the PMI II having

been found to be some eleven (11) nautical miles off

the coast of Louisiana, in the open and unrestricted waters

of the Gulf of Mexico, it was not in a “navigable channel”

within the meaning of the Rivers and Harbor Act, § 409.

A-20

Ii.

This Court further finds that the coverage of the Rivers

and Harbor Act, § 409 is not extended by the Outer

Continental Shelf Lands Act § 1333 so as to give the

Secretary of the Army authority to compel removal of a

wreck eleven (11) nautical miles off the Louisiana coast

in the open and unrestricted waters of the Gulf of Mexico.

The Outer Continental Shelf Lands Act § 1333 neither

expressly nor impliedly deals with wreck removal.

IV.

Under the circumstances of this case, plaintiff was not

compelled by law to remove the wreck.

V.

Plaintiff therefore takes nothing by its suit.

VI.

In the event that any of the foregoing Findings of Fact

also constitute Conclusions of Law, they are also adopted

as Conclusions of Law. In the event that any of the fore-

going Conclusions of Law also constitute Findings of

Fact, they are also adopted as Findings of Fact.

Defendant will prepare a draft of judgment for signa-

ture by the Court.

Signed at Houston, Texas, this 10th day of May, 1978.

/s/ ROBERT O’CONOR, JR.

Robert O’Conor, Jr.

United States District Judge

A-21

IN THE

DISTRICT COURT OF THE UNITED STATES

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

C. A. NO. 76-H-121

PROGRESS MARINE, INC.

v

FOREMOST INSURANCE COMPANY,

GRAND RAPIDS, MICHIGAN

FINAL DECREE

Upon consideration of the evidence introduced at the

trial of this cause, arguments of counsel and trial briefs

and upon the findings and conclusions incorporated in

the Findings of Fact and Conclusions of Law entered

on the 10th day of May, 1978, the Court finds that the

costs or expenses of, or incidental to, the removal of the

wreck of the Drilling Barge PMI II incurred by the Plain-

tiff as owner or owner pro hac vice of the said vessel,

were not insured by the Defendant since the removal

of the wreck of the said vessel was not “compulsory by

law.” The applicable policy of insurance only insured

those expenses when the removal of the wreck of the

insured vessel was “compulsory by law.” It is, therefore

ORDERED, ADJUDGED and DECREED that the

Plaintiff do have and recover nothing of and from the

Defendant herein and that its Complaint on file be and

the same hereby is dismissed with prejudice with all

costs of Court to be paid by the said Plaintiff.

A-22

All further relief sought herein which is not expressly

granted is denied.

SIGNED this the 23rd day of May, 1978, at Houston,

Texas.

/s/ ROBERT O’CONOR, JR.

United States District Judge

‘Bel

| APPENDIX “B”.

SEABOARD SHIPPING CORPORATION,

Plaintiff,

v.

JOCHARANNE TUGBOAT CORPORATION

et al., Defendants,

and

Oceanus Mutual Underwriting Association, Ltd.,

Defendant-Appellant,

Vv.

G. I. SIBRING and all other Underwriters at Lloyd’s

Subscribing Policy of Insurance 64/60630 and Edin-

burgh Assurance Co., Limited and all other Institutes

of London Underwriters Companies Subscribing

Policy of Insurance No. 60630, Defendants and

Cross-Claimants-Appellees.

No. 616, Docket 71-2183.

United States Court of Appeals,

Second Circuit.

Argued April 10, 1972.

Decided May 25, 1972.

Action against tugboat corporation to recover for rental

of barge and tug to off-load gasoline from corporation’s

barge following her grounding, in which plaintiff served

an amended complaint against three underwriters, one of

B-2

which cross-complained against the others to recover for

sum expended in defense and settlement of third-party

litigation instituted by salvors. From an order of the

United States District Court, Southern District of New

York, Dudley B. Bonsal, J., 334 F.Supp. 1112, one of

the underwriters appealed. The Court of Appeals, J.

Joseph Smith, Circuit Judge, held, inter alia, that where

insurer of hull and machinery and barge owner, far from

abandoning their interests in grounded vessel, had it

towed to New York in vain hope of salvaging the hull,

and no governmental order was necessary to spur the

removal, the costs of operation were not chargeable to

insurer under protection and indemnity policy which in-

sured against “costs or charges of raising or removing the

wreck of the ship named herein when such removal is

compulsory.”

Reversed and cross claim ordered dismissed.

Before FRIENDLY, Chief Judge, and SMITH and

OAKES, Circuit Judges.

J. JOSEPH SMITH, Circuit Judge:

Interpretation of the hoary and often poetic provisions

of two marine insurance policies is necessitated by this

appeal by Oceanus Mutual Underwriting Association,

Ltd. (Oceanus) from a judgment of the United States

District Court for the Southern District of New York

(Dudley B. Bonsal, Judge) requiring the company to

B-3

contribute a portion of a sum expended by Lloyd’s of

London to remove from its grounding a stranded and

damaged barge insured by both parties. The court found

that the salving operation redounded to the benefit of all

three of the vessel’s insurers and ordered each to reim-

burse Lloyd’s for one-third of the costs. Oceanus appeals,

and we reverse that portion of the lower court’s order

which held it liable to Lloyd’s.

On June 16, 1964, the VAL 51, a barge owned by the

Jocharanne Tugboat Corporation (Jocharanne), carrying

50,000 barrels of gasoline, went aground in Lake Ontario,

immediately offshore Oswego, New York, and began

leaking gasoline into the water and onto the adjacent

shoreline. Notified of the grounding and of the possibility

of explosion of the vessel, the Salvage Association of

London appointed an independent surveyor, Mr, Paul J.

Ranahan, to survey the casualty and proceed with salvage

operations. Though Mr. Ranahan testified that he was

acting on behalf of “all concerned underwriters,” Lloyd’s «

was the insurer actively involved in the project, and

Oceanus was not notified of the incident until completion

of the salvage work. Seaboard Shipping Corporation (Sea-

board) was hired to offload the usable gasoline cargo

remaining on the barge; Sequin Salvage Company was

employed to refloat and work on the hull, which continued

to present an explosion hazard. The ship was made ready

for towing by June 29, and arrived in New York City,

where it was declared a constructive loss, on July 4,

1964.’

1. Mr. Ranahan urged that the vessel be towed to Kingston,

Ontario, directly across the lake, but Jocharanne, apparently intent

on trying to save the hull, insisted on New York. The portion of the

B-4

In November, 1965, Seaboard instituted this action

against Jocharanne to collect the $7,800 owed for Sea-

board’s services in offloading the gasoline from the VAL

51. Seaboard obtained a default judgment against the

insolvent Jocharanne and, after Jocharanne had tendered

the policies on the vessel to the court, Seaboard was

permitted to amend its complaint to name the insurers

as defendants. At the time of the accident, Jocharanne

had three policies covering the barge: a $200,000 Hull

and Machinery policy issued by Lloyd’s of London, an

$80,000 Open Cargo Legal Liability policy issued by

Phoenix Assurance Company of New York (Phoenix),

and a $200,000 Protection and Indemnity (P & 1) policy

issued by appellant Oceanus. The coverage of the three

policies was not redundant, as Lloyd’s insured for damage

to the hull and machinery of the vessel; Phoenix was

liable for loss or damage to the cargo; and Oceanus was

responsible for personal injury, loss of life, damage to

docks, piers, etc., and certain other extraordinary ex-

2

total cost due to the unnecessary length of the voyage was charged

solely to Liloyd’s, the hull underwriter. Neither party objects to the

allocation of this cost.

2. The Oceanus policy is a representative protection and indemnity

agreement; the historical roots of this variety of marine insurance

explain certain of its unique characteristics. icies were first

issued by clubs of shipowners to insure against risks for which they

‘or any loss, damage, or liability which

could be covered or would be payable under the standard form of hull

P & I policy. Clause 2, Oceanus policy

(42a); Landry v. Steamship Mutual Underwriting Association, 177

( 1959), aff'd 281 F.2d 482 (1st Cir. 1960);

Arnould on Marine Insurance (14th ed.), paragraphs 129-134. The

covered by the policy are therefore a somewhat miscellaneous

B-5

[1] In its answer to the amended complaint, Lloyd’s

cross-claimed against Oceanus and Phoenix to recover

part of the $83,000 Lloyd’s had paid in settlement of

state court actions brought by Sequin and other local

salvors for labor and materials used to remove the VAL

51 and its cargo. The Seaboard claim was settled before

trial; the only remaining issue was the liability as between

the insurers for the state court settlement costs.’

{2] These expenses, for removal of cargo and barge,

are known in maritime insurance circles as “sue and

labor” expenses; they arc sums spent by the insured or its

representative in an effort to mitigate damage and loss

once an accident has occurred; and the insurance com-

pany pays them even where, as in this case, the ship is

ultimately declared a total loss, in order to encourage

diligence in the prevention of excessive liability or loss.

See Gilmore and Black, The Law of Admiralty (1957),

pp. 64-69; Home Ins. Co. v. Ciconett, 179 F.2d 892 (6th

Cir. 1950); White Star SS Co. v. North British and Mer-

cantile Ins. Co., 48 F.Supp. 808, 812 (E.D. Mich. 1943).

The Lloyd’s and Phoenix policies contained a “sue and

labor” clause; that of Oceanus did not.

The court below found that the leaking and damaged

condition of the ship threatened the separate and distinct

interest of each insurer and that Jocharanne, in incurring

3. It is important to distinguish this situation from that in which

several insurers of the same risk are involved. In that instance, when

losses are suffered or sue and labor expenses incurred, all contribute

ratably to the payment. Great West Casualty Co. v. Truck Ins.

Exchange, 358 F.2d 883 (10th Cir. 1966); American Dredging Co.

v. Federal Ins. Co., 309 F.Supp. 425 (S.D. N.Y. 1970); Milan v.

Providence Washington Ins. Co., 227 F.Supp. 251 (E.D. La. 1964).

In this case, different risks were insured against by the three policies

and the equitable doctrine of contribution between co-insurers of the

same risk does not apply.

B-6

towing and removal charges, was seeking to protect the

hull, save the cargo, and prevent explosion and resultant

disaster.‘ The terms of the Lloyd’s and Phoenix policies

which authorize sue and labor efforts to protect the hull

and cargo in case of accident were held the source of

those underwriters’ responsibility. The basis for Oceanus’

obligation to reimburse Lloyd’s was found in a term of the

Oceanus policy which insures against “costs or charges

of raising or removing the wreck of the ship named herein

when such removal is compulsory.” It is not clear whether

the court considered the salvors’ charges “costs of raising

the wreck” under the policy o1 preventive medicine which

by forestalling explosion and sinking would relieve Ocean-

us of the future obligation to raise or remove the wreck.

(3, 4] If the court meant the former, Oceanus argues

persuasively that the clause was not applicable to this

situation. Lloyd’s argues that the pressure from the Coast

Guard and other governmental authorities in the Oswego

area made the removal of the barge compulsory. But

“compulsory removal” is a term of art in admiralty law

and refers to a situation in which a hull has been aban-

doned by the owner and the hull underwriter but, pur-

suant to government order, must be removed from navi-

gable waters. Under those circumstances, the P & I

underwriter, absorbing costs which no one else remains

liable to pay, must remove the wreck or reimburse the

government for removal. See the Wreck Removal Act,

4. The district court found that Jocharanne was suing and labor-

ing on behalf of all three insurers. It seems strange that, even if all

the policies covered the expenses incurred, no effort was made to

notify Oceanus during the 20-day salvage and towing period. In light

of our disposition, we do not find it necessary to decide what effect

the failure to notify might have if Oceanus’ policy were construed to

cover a portion of those expenses.

B-7

33 U.S.C. §§ 409-414; Dover, A Handbook to Marine

Insurance (6th ed. 1964) at 439. Cf. Wyandotte Trans-

portation Co. v. United States, 389 U.S. 191, 88 S.Ct.

379, 19 L.Ed.2d 407 (1967). There was no “compulsory

removal” of the VAL 51. Lloyd’s and Jocharanne, far

from abandoning their interest in the vessel, had it towed

to New York in the vain hope of salvaging the hull.

No governmental order was necessary to spur the re-

moval and the costs of the operation were therefore not

chargeable to Oceanus as removal costs under its policy.®

[5] The other possibility is that the benefit the lower

court found Oceanus had received from the sue and labor

efforts was the avoidance of explosion and potential lia-

bility for injury to persons and damage to docks or piers

5. Further, any attempt to place liability on Oceanus on the hasis

of its “wreck removal” clause 1(g) would have to withstand the

language of that clause providing that Oceanus “is not liable for

such costs, or expenses as would be covered by full insurance under

the standard form of policy on hull, machinery, etc., issued by the

American Marine Insurance Syndicate. [Identical in all material

respects to Lloyd’s policy.]

Moreover, Oceanus c that even were this a wreck removal for

which it might be liable, if was obligated under its policy to in-

demnify Jocharanne only when the latter “shall have in fact paid”

the costs of removal. Stuyvesant Ins. Co. of New York v. Nardelli,

286 F.2d 600 (Sth Cir. 1961); Burke v. London Guarantee &

Accident Co., 47 Misc. 171, 93 N.Y.S. 652 (Sup. Ct. 1905), aff’d

126 App. Div. 933, 110 N.Y.S. 1124 (1908). aff'd 199 N.Y. 557,

93 N.E. 1117 (1910). This court recently held that this condition

is fulfilled when the judgment against the insured is satisfied in

some fashion and the loss has been sustained (Liman v. American

Steamship Owners Mutual Protection & Indemnity Association, 299

F.Supp. 106 (S.D. N.Y.), aff'd 417 F.2d 627 (2d Cir. 1969), cert.

denied, 397 U.S. 936, 90 S.Ct. 946, 25 L.Ed.2d 116 (1970) but

Oceanus claims that despite this liberalization, there must at least

have been a judgment against the insured and the action for reim-

bursement must have been brought in its name. We need not deter-

ee ee ere Seite eT eee

met .

NN

B-8

as well as for wreck removal. Oceanus admits that had

such a disaster occurred, it might have been liable for

substantial amounts, but it claims that any calculation

based on that possibility is extremely hypothetical and in-

sists that the terms of its policy preclude holding it for

any part of the expenses even if they tended to lessen the

chance of explosion. Although we appreciate the motives

of the district court in apportioning the costs, we are con-

strained to conclude that Oceanus is correct.

First we note that despite Lloyd’s rhetoric, none of the

expenses was incurred solely to avert those occurrences

or protect those interests for which Oceanus alone was

liable. All the costs were essential to any attempt to save

the hull and cargo, so any benefit to Oceanus was in a

sense incidental. More important, clause 2 of the Oceanus

policy excepts from coverage “claims for any loss, dam-

age, liability, or expense which would be payable under

the present standard form of policy of the American

Marine Insurance Syndicate on hull and machinery [iden-

tical in all essential respects to the Lloyd’s policy] .. .

and sufficient in amount to pay such loss, damage, liabil-

ity or expense in full.” As sue and labor expenses are

covered by hull policies, they normally would not be re-

covered from the P & I policy underwriter. United States

v. American Ins. Co. of Newark, N. J., 89 F.2d 8 (2d

Cir. 1937); Landry v. Steamship Mutual, supra.

{6, 7] Despite the lack of coverage under the Oceanus

policy, one might under these circumstances consider ap-

plying equitable principles and hold those who benefited

from the services rendered for a portion of their cost,

under a theory of equitable contribution or restitution.

See Restatement of Restitution § 115. Within certain

B-9

limits, courts sitting in admiralty are free to apply these

equitable rules. See Gilmore and Black, pp. 37-39; Swift

& Co. Packers v. Compania Colombiana Del Caribe,

S.A., 339 U.S. 684, 70 S.Ct. 861, 94 L.Ed. 1206 (1950).

Whether such principles could and ought to be applied

here, however, is rendered academic by the presence of a

contractual provision on this very point, which states that

“[w]here the Assured is, irrespective of this Association,

insured or deemed to be insured against any loss or

claim which would otherwise have been paid by the Asso-

ciation, there shall be no contribution by the Association

on the basis of double insurance or otherwise.” Clause

5, Oceanus policy. It is clear that in the absence of Ocean-

us Lloyd’s would have been liable for the whole of the

salvage expense, at least until the hull was abandoned

in New York. Therefore, as these “escape” or “no-con-

tribution” clauses have repeatedly been held valid and

legal.* Oceanus has successfully contracted out of liability

for contribution, under any theory, to a sum paid by another

insurer, even though Oceanus might have otherwise been li-

able for that sum. Although this term, permitting Oceanus

to reap benefits at no expense, seems somewhat odd, the

intent that P & I inurance apply mainly or exclusively in

situations to which no other coverage extends and the fact

that Lloyd’s has spent no more than it would have had

there been no Oceanus policy mitigate the seeming harsh-

ness of the clause.

6. United States Fire Ins. Co. v. Gulf States Marine & Mining

Co., 262 F.2d 565 (Sth Cir. 1959); Hartford Accident & Indemnity

Co. v. American Employers Ins. Co. of Boston, Mass., 200 F.2d 5

(7th Cir. 1952); Penn v. National Union Indemnity Co., 68 F.2d

567 (Sth Cir. 1934); Marine Transit Corp. v. Northwestern Fire

and Marine Ins. Co., 67 F.2d 544 (2d Cir. 1933).

B-10

[8] Concluding as we do that the cross-claim against

Oceanus must be dismissed, we need not reach the ques-

tion of the district court’s use of the pre-trial settlement

with Seaboard, except to note that the use of such settle-

ments to establish liability is forbidden as a matter of

sound judicial policy. McCormack on Evidence, § 251;

Hawthorne v. Eckerson Co., 77 F.2d 844 (2d Cir. 1935);

Winkler-Koch Engineering Co. v. Universal Oil Products

Co., 79 F.Supp. 1013 (S.D.N.Y. 1947).

Judgment against Oceanus reversed and cross-claim or-

dered dismissed.

B-11

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

CIVIL ACTION NO. H-78-944

CONTINENTAL OIL COMPANY

Vv.

BONANZA CORPORATION and

REPUBLIC INSURANCE COMPANY

FINDINGS OF FACT

AND CONCLUSIONS OF LAW

This is an admiralty and maritime action under Rule

9(h) of the Federal Rules of Civil Procedure and was

tried to the Court without a jury. The Plaintiff has filed

suit against the owners and insurers of the M/V AQUA

SAFARI to recover damages incurred following the sink-

ing of the AQUA SAFARI on January 1, 1977.

After hearing the testimony, reviewing the stipulations

and pleadings and weighing all of the evidence, the Court

makes the following:

Findings of Fact

1

On December 28, 1976, a charter party was entered

into between Continental Oil Company (“CONOCO”)

and the Bonanza Corporation (“Bonanza”) to provide

the vessel] AQUA SAFARI as a standby vessel for off-

shore oil exploration activities carried on by CONOCO.

B-12

2.

Under the charter, Bonanza was required to maintain

marine hull and machinery and protection and indemnity

insurance coverage. The insurance was to name CONOCO

as an additional assured under the policies and waive

subrogation rights against CONOCO,

3.

On December 27, 1976, an insurance binder was issued

setting forth the existence of the insurance policies and

subsequently Insurance Policy No. MI-6494 was issued

by Republic Insurance Company (“Republic”) insuring

the AQUA SAFARI and naming CONOCO as an addi-

tional assured and waiving subrogation rights against

CONOCO.

4.

‘Under the charter agreement with CONOCO, Bonanza

had the AQUA SAFARI report to High Island Block

110, offshore Texas for work as a standby boat during

drilling operations carried on by the Transworld Drilling

Rig No. 64 and the Drill Tender ERNIE MILLER.

5.

On the morning of January 1, 1977, at 5:30 a.m.,

the AQUA SAFARI came to Transworld Rig 64 to

pick up a mud log report to be transported to the ERNIE

MILLER. Upon arrival at Transworld 64, the vessel

was told to stand by for several minutes until the report

could be brought down to it. The AQUA SAFARI then

set anchor and drifted back on her anchor line, crossing

the anchor line of the Transworld 64,

B-13

6.

When the AQUA SAFARI was advised to come along-

side the drilling rig, she began to pick up her anchor.

- As the AQUA SAFARI pulled in her anchor rope, her

crew lost control of the vessel. The captain and deck-

hand of the AQUA SAFARI were seen to run to the

stern of the vessel and then to the wheelhouse.

7.

By the time the captain returned to the wheelhouse,

the AQUA SAFARI had drifted underneath the Trans-

world 64, entangling her prop and radio antenna and

bridle lines placed there. The master and deckhand of

the AQUA SAFARI then abandoned the AQUA SA-

FARI and the vessel sank directly beneath the Transworld

64.

Soon after the sinking of the AQUA SAFARI, the

Transworld 64 completed the well at the location. Be-

cause of possible dangers in moving the drilling rig,

demand was made by CONOCO on Bonanza to remove

the wreck of the AQUA SAFARI. Both Bonanza and

Republic refused to proceed with the removal of the

AQUA SAFARI.

9.

In order to begin production of the completed wells at

the site, CONOCO was required to bring in a fixed plat-

form and place it on location. CONOCO contracted with

Brown & Root to place the fixed structure on location.

B-14

10.

The presence of the AQUA SAFARI constituted a

continuing hazard to the placement of the fixed structure

and CONOCO therefore decided that the Brown & Root

derrick barge previously mobilized to place the fixed

structure on location would be the most reasonable means

of removing the AQUA SAFARI from the location so

that the wreck would not cause danger to any other

structures or pipelines in the area.

11.

The total cost of the various surveying, diving and

removai operations incurred by CONOCO in connection

with the removal of the AQUA SAFARI totalled $109,-

000.00.

12.

Republic alleged in its answer to the instant action that

there had been a change of management of the vessel in

violation of the terms of the policy issued by that de-

fendant. Republic further alleged that under said policy,

such a change of management would void policy coverage.

13.

But the Court finds from the testimony of Mr. Jim

Fuller and Gary Freeman, and the documents introduced

in conjunction with such testimony that at no time was

there any change of management of the AQUA SAFARI.

Although negotiations were entered into for the sale of

the vessel to Mr. Gary Freeman, Mr. Fuller and Mr.

Freeman make clear that the terms and conditions of

the sale were never carried out by Mr. Freeman and the

B-15

contract, whether characterized as a lease-purchase agree-

ment or otherwise, never came into being.

Conclusions of Law

1,

This suit comes under the admiralty and maritime

jurisdiction of the Court. 28 U.S.C. § 1333; Irwin v.

Eagle Star Insurance Company, 455 F.2d 827 (5th Cir.

1972).

2.

Where a vessel strikes a stationary object, there is a

presumption of fault on the part of the moving vessel.

A. T. & T. v. Steuart Transportation Company, 1978

AMC 1680 (D. Md. 1977); Standard Dredging Co. v.

The SS SYRA, 290 F.Supp. 260 (D. Md. 1968). The

Court finds that Bonanza has failed to overcome this

presumption of fault on the part of the AQUA SAFARI

in striking first the anchor line of the Transworld 64

and then coming into collision with the underside of

the stationary drilling rig.

3

The Court likewise finds that negligence on the part

of Bonanza, its master and crew has been established

by a preponderance of the evidence and the Court finds

that the sole cause of the sinking of the AQUA SAFARI

and all damages resulting as a consequence of the sinking

were the fault of Bonanza,

B-16

4.

Argument was made by Republic that under the laws

of the State of Texas, no action could proceed directly

against it in this action. But the Court finds that there

are a number of possible bases for the institution and

continuance of this proceeding, not only against Bonanza

but against Republic.

5.

CONOCO may proceed directly against Republic be-

cause of the privity of contract between CONOCO and

Republic. The insurance policy issued by Republic named

CONOCO as an assured, and it is well settled that as an

additional assured, CONOCO has the same rights as any

other assured under the policy. See generally R. Keeton,

Insurance Law §§ 4.1(b)(c) and (d) (1971).

6.

Likewise, the Court finds that CONOC%D would have

standing to proceed directly against Republic because it

was a third-party beneficiary to the contract of insurance

between Republic and Bonanza. Cumis Insurance Society,

Inc. v. Republic National Bank, 480 S.W.2d 762 (Tex.

Civ. App.—Dallas, 1972). The policy of marine insur-

ance was obtained pursuant to the requirements of the

charter party between CONOCO and Bonanza, and it

was for this reason that Republic sold the policy to

Bonanza.

7

The Court, having found that CONOCO may proceed

directly against Republic, as well as Bonanza, holds that

B-17

under the policy of insurance issued by Republic, there

is a basis for a finding of liability against Republic.

The policy contains a provision requiring the payment

of wreck removal expenses, as here, when such removal

is compulsory by law. Republic points to the decisions

of Seaboard Shipping Corp. v. Jocharanne Tugboat Corp.,

461 F.2d 500 (2d Cir. 1972) and Progress Marine, Inc.

v. Foremost Insurance Co.,. 1979 AMC 70 (S.D. Tex.

1978), as standing for the proposition that removal is

“compulsory by law” only where written demand has

been made by governmental authority. But such a restric-

tive interpretation of the language is unjustified. Heep

L. Buglass, Marine Insurance and General Average in the

U.S. (1973), “Protection and indemnity underwriters do

cover wreck removal expenses but it must be emphasized

that, absent any specific agreement to the contrary, under-

writers insuring wreck removal expenses are only liable

if their assured is legally liable for removing the wreck.”

Id. at 64-65. See, also E. R. Ivamy Marine Insurance,

(2d Edition 1974).

9.

The Court further finds that under the Outer Conti-

nental Shelf Lands Act, 43 U.S.C. § 1331, et seq., and

the regulations issued thereunder, the removal of the

AQUA SAFARI was compulsory by law. Both 43 C.F.R.

§ 3307.3-6 and the Lease Agreement required CONOCO

to remove all equipment from the leased premises within

one year after termination of the lease. And a crewboat

has been held to be “equipment” used in oil well ex-

ploration. Continental Casualty Co. v. Associated Pipe

B-18

& Supply Co., 447 F.2d 1041 (Sth Cir. 1971). Although

the Court recognizes that the equipment removal pro-

visions generally address themselves to removal not later

than one year following termination of the lease, the

earlier removal by CONOCO was prudent in order to

mitigate damages and losses and to enable CONOCO

to continue drilling and producing the lease. Tennessee

Valley Sand & Gravel Co. v. M/V DELTA, 598 F.2d

930 (Sth Cir. 1979).

10.

Under the provisions of the insurance policy, there is

protection from liability for damages or expenses in con-

nection with fixed or moveable objects or other property.

The evidence reflected that CONOCO, as an additional

assured, has reason to believe that it was exposed to

potential liability for damage to other property in the

area of the sinking. CONOCO could have been liable

in its capacity as owner of the vessel. Wedlock v. Gulf

Mississippi Corp., 554 F.2d 240 (Sth Cir. 1977). Under

the terms of the policy, having expended money in con-

nection with “movable objects or other property,” CON-

OCO, as an assured under the policy, is entitled to recover

its expenses from Republic.

11,

Because the Court finds that CONOCO has already,

as an assured, spent money for the removal of the wreck,

both under the wreck removal provisions and the damages

or expenses in connection with “movable objects or other

property” provisions in the policy, the argument by Re-

public that it need make no payment because the policy

is one of indemnity is without merit.

B-19

12.

There is ample evidence that the cost to CONOCO for

the removal of the AQUA SAFARI represented the rea-

sonable salvage expenses. The use of the Brown & Root

derrick barge already under contract was both prudent

and appropriate. Accordingly, because the sinking of the

AQUA SAFARI was the sole fault of Bonanza, judgment

is rendered herein in favor of CONOCO and against

Bonanza in the amount of $109,000.00. Judgment is

also rendered in favor of CONOCO and against Republic,

as insurer for Bonanza and CONOCO, for the reasons

set forth above.

13,

The Court further finds that there are no peculiar cir-

cumstances here that would cause it to deviate from the

general rule that prejudgment interest is to be allowed

as a matter of course. For that reason, there shall be

an award of such interest at the rate of 9% from the

date of the sinking. Mobil Oil Corp. v. Tug of Pensacoia,

472 F.2d 1175 (Sth Cir. 1973); and Southern Pacific

Transportation Co. v. The Tug CAPTAIN VIC, 443

F.Supp. 722 (E.D. La. 1977).

14,

Finally, the Court finds that there is no evidence to

support the plea of limitation of liability raised by

Bonanza in its answer. 46 U.S.C. § 183(a). It is well

settled that the burden is on Bonanza to establish that

it lacked privity or knowledge with respect to the events

leading to liability herein. Tug OCEAN QUEEN, Inc.

v. Tanker FOUR LAKES, 398 F.Supp. 1062 (S.D.N.Y.

B-20

1974). There was overwhelming evidence that the Master,

Gary Freeman, was the managing agent of Bonanza with

respect to affairs relating to the vessel. Indeed, the very

charter with CONOCO in this matter had been executed

on behalf of Bonanza by Gary Freeman. Gary Freeman

was present on the AQUA SAFARI at the time of the

casualty herein with full knowledge of the negligence of

the vessel, including the failure of the crew, including

himself, to maintain a proper lookout for the anchor line

of the Transworld 64. Clearly, the negligence of the

vessel and her crew was within the privity and knowledge

of Bonanza and limitation will be denied. States Steam-

ship Company v. United States, 259 F.2d 458 (9th Cir.

1958). |

SIGNED and ENTERED this 25th day of August

1980. j ?

/s/ GEORGE E. CIRE

George E. Cire

United States District Judge

B-21

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

CIVIL ACTION NO. H-78-944

CONTINENTAL OIL COMPANY

v.

BONANZA CORPORATION and

REPUBLIC INSURANCE COMPANY

FINAL JUDGMENT

Upon consideration of the testimony and evidence in

this case, and in accordance with the findings of fact

and conclusions of law, it is hereby

ORDERED that judgment is for the plaintiff, Con-

tinental Oil Company, in the amount of $109,000.00

plus interest at the rate of nine (9) percent from January

1, 1977.

Costs of this action shall be taxed to defendants.

SIGNED and ENTERED this 25th day of August

1980.

/s/ GEORGE E. CIRE

George E. Cire

United States District Judge

C-1

APPENDIX “C”

PROGRESS MARINE, INC.

Plaintiff-Appellant,

v.

FOREMOST INSURANCE COMPANY,

GRAND RAPIDS, MICHIGAN,

Defendant-Appellee.

No. 78-2321.

United States Court of Appeals,

Fifth Circuit.

April 15, 1981.

Insured brought suit against insurer for expenses in-

curred in removing wreck of one of its barges. The United

States District Court for the Southern District of Texas,

at Houston, Robert O’Conor, Jr., J., denied claim, and

insured appealed. The Court of Appeals, Brown, Circuit

Judge, held that under protection and indemnity policy

insuring against “* * * Costs or expenses of, or incidental

to, the removal of the wreck of the vessel named herein

when such removal is compulsory by law * * *,” words

“compulsory by law” were not restricted to situations in

which express direct order from government body directed

removal; rather where failure to remove would have

reasonably exposed insured to liability imposed by law

sufficiently great to justify expense of removal, such re-

moval could be considered “compelled by law.”

Vacated and remanded.

C2

Appeal from the United States District Court for the

Southern District of Texas.

Before BROWN, GEWIN and POLITZ, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

Progress Marine, Inc. (PMI) appeals the District

Court’s' denial of its claim against Foremost Insurance

Company (Insurer) for expenses incurred in removing

the wreck of a Jackup Workover Barge (PMII) which

sank some 11 miles off the Louisiana coast. PM II was

covered by a marine P&I insurance policy which provided

recovery for wreck removal expenses when “such re-

moval is compulsory by law.” Because we find that the

District Court erred in its interpretation of the term

“compulsory by law”, and accordingly applied an im-

proper legal standard in the resolution of this case, we

vacate and remand,

Eight Fathoms Of Barge In Nine

Fathoms Of Water

The essential facts of this case are not in dispute. On

the afternoon of June 1, 1975, PMI’s Jackup Workover

Barge PM II capsized and sank, while being towed, in

approximately 56 feet of water some 11 miles off the

Louisiana coast. The capsizing and sinking was the result

of negligence on the part of the tool pusher and barge

captain of the PM II and thus of PMI. In its submerged

position, the PM II was located approximately 1500 feet

south of a manned Shell Oil production platform and

300 feet southeast of an Exxon Pipeline Company 10-

1. Progress Marine, Inc. v. Foremost Insurance Co., 1979 A.M.C.

70 (S.D. Tex. 1978).

C3

inch high-pressure pipeline. Also in the vicinity were other

offshore platforms, pipelines and additional offshore de-

velopmental properties.

At the time of this unfortunate incident, the PM II was

covered by a standard P&I insurance policy, form SP-38,

issued by Insurer. The Protection and Indemnity policy

obligated Insurer to reimburse PMI for such sums as

PMI shall have become legally liable to pay and shall

have paid on account of:

. . . Costs or expenses of, or incidental to, the re-

moval of the wreck of the vessel named herein when

such removal is compulsory by law . . .”

After the sinking of the PM II, little time was wasted

by PMI in dealing with the situation. First, after con-

siderable effort, PMI was able to rescue five crewmen

trapped inside the submerged barge. PMI then pursued,

unsuccessfully, various “sue and labor” activities, designed

to prevent the barge from becoming a total loss. Finally,

on June 10, 1975, PMI notified Insurer that the barge

was a constructive total loss and that PMI had abandoned

the wreck to Insurer. Insurer, in turn, rejected abandon-

ment.

Unsuccessful in its sue and labor efforts PMI proceeded

on the advice of counsel, to make arrangements for re-

moving the PMII. On June 20, after receiving various

bids, PMI contracted with Sun Salvors on a “No Cure-

No Pay” basis to remove the wreck to PMI’s premises

in Morgan City, Louisiana. By August 21, Sun Salvors

had performed the removal and PMI paid over $760,000

2. The clause continued “. . . provided, however, that there shall

be deducted from such claim, the value of any salvage recovered

from the wreck by the assured.”

C4

under the terms of the contract. In addition to this sum,

PMI had incurred an additional $17,529.98 in expenses

for wreck removal. PMI was able to recover $127,557

from the sale of the salvaged PMII, yielding a net

recovery of $125,977 after deduction of expenses con-

nected with the sale. Accordingly, after deducting these

sums, and the $10,000 policy deductible, PMI made

demand on Insurer in the total amount of $641,522.98

plus interest and attorneys’ fees. This demand was refused

by Insurer, although, for purposes of this litigation, In-

surer has agreed that the expenses incurred were reason-

able.

There is no question that PMI fit the bill of the “pru-

dent company” in removing the PMII. At the time of

these activities, hurricane season was approaching and the

submerged barge posed a threat to neighboring oil pro-

duction facilities and workers. In addition, the PM II,

once it had settled, lay only eight feet below the surface

of the water and posed a threat to navigation in the

area, as PMI was clearly informed by the Coast Guard.*

Nevertheless, Insurer argues that the removal, although

perhaps compelled by prudence, was not “compulsory

by law” as required by the express terms of the policy.

The District Court agreed with Insurer and denied re-

covery by PMI. This appeal followed.

Compulsory By Law? A Judicial Sounding

The primary tasks before this Court—the successful

resolution of which paves the way for the ultimate

3. Four days after the sinking of the PM II, the United States

Coast Guard cabled PMI advising that the wreck constituted a

hazard to navigation and instructing PMI to properly mark the

wreck. Progress Marine, 1979 AMC at 71.

C-5

decision of the whole case—does not, at first blush,

appear to be of Herculean proportions. We are simply

asked to determine the meaning of the words “compul-

sory by law” as they are employed in the P&I policy

which Insurer issued and PMI purchased. As simple as

this task may initially appear, however, it is probably

safe to say that the parties, and the courts, have already

devoted more time and effort in resolving the meaning

of these three words than was required in the cleaning

of all the Augean stables.

At the outset, we emphasize that whether we employ

California law, as PMI suggests may be required by

Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U.S.

310, 75 S.Ct. 368, 99 L.Ed. 337, 1955 A.M.C. 467

(1955),* or some other law is not particularly material

to the resolution of this issue since there is no indication

that land-based insurance principles concerning the con-

struction of insurance policies vary significantly from

marine principles. See Calcasieu-Marine Nat. Bank, Etc.

v. Am. Emp. Ins., 533 F.2d 290, 295 (Sth Cir. 1976).

A review of some of these principles provides us with

buoys for interpreting this policy.

In Calcasieu-Marine this Court recognized these gen-

eral principles:

[W]Jords are to be construed in their plain, ordinary,

and ular sense. [Citations omitted]. This rule is

varied from only if a word is used as a ‘term of art’,

4. The insurance policy was apparently issued in California. The

themselves do not consider the choice of law question to be

a significant issue in this case. To the extent that Wilburn Boat does

require the application of California law, we find the general prin-

ciples of construction which we rely on in this case to be consistent

with the law of that state.

C-6

in which case its meaning in the area for which it is

a term of art is applied.

Id., 533 F.2d at 295-96,

This Court further reiterated in Walter v. Marine Office

of America, 537 F.2d 89, 95, 1977 A.M.C. 1471, 1477-

78 (Sth Cir. 1976) what we had many times pronounced:

Considering that a reviewing Court should view a

contract in the light of the setting of the parties and

the reasonable expectations as to risks and protection

against them, an insurance policy should be con-

strued in such a way as to effectuate its purpose.

Finally, it is a well established insurance law principle

that the “insurance policy if uncertain in meaning should

be construed against the insurer who wrote it and should

be read literally so as to indemnify the insured.” Id., 537

F.2d at 94-95, 1977 A.M.C. at 1477; see also Calcasieu-

Marine, 533 F.2d at 295.

This Court has never had occasion to address the pre-

cise questions raised by this case. Prior to launching into

an independent analysis of the meaning of the term

“compulsory by law”, however, we deem it appropriate

to briefly discuss decisions of other courts on this point.

The Second Circuit has authored an opinion as to the

purport of a policy insuring against “costs or charges

of raising or removing the wreck of the ship named herein

when such removal is compulsory.” This is certainly a

close cousin of the policy in our case, if not an identical

twin. In Seaboard Shipping Corporation v. Jocharanne

Tugboat Corporation, 461 F.2d 500, 504, 1972 A.M.C.

2151, 2154 (2d Cir. 1972) that Court declared in awe-

some terms:

C-7

‘[C]ompulsory removal’ is a term of art in admiralty

law and refers to a situation in which a hull has been

abandoned by the owner and the hull underwriter

but, pursuant to government order, must be removed

from navigable waters. Under those circumstances,

the P&I underwriter, absorbing costs which no one

else remains liable to pay, must remove the wreck

or reimburse the government for removal. (Em-

phasis added).

District Courts in our own Circuit are evidently split

in their interpretation of the meaning of removal “com-

pulsory by law” in a marine insurance policy. The District

Court in the instant case, although not citing Jocharanne,

made findings seemingly consistent with the Second Cir-

cuit opinion. While stating that Insurer admitted that

under the circumstances the wreck removal was prudent,

and that the capsized PMII constituted a hazard to

navigation, the District Court in concluding that the

removal was not “compulsory by law”, found that “at no

time prior to its actual removal by plaintiff, did the

United States Corps of Engineers, any other governmental

body, or any court of competent jurisdiction order plain-

tiff to remove” the wreck. 1979 A.M.C. at 72-73. The

Court further found that no governmental body had

authority to order emoval of the wreck. Id. at 73.

In a more recent opinion, another District Court in this

Circuit reached a conclusion apparently at odds with

Jocharanne and the District Court opinion in this case.

In Continental Oil Co. v. Bonanza Corporation, —

A.M.C..._._ (S.D. Tex. 1980) [H-78-944, Aug. 25,

1980], the charterer of a vessel, which sank alongside an

offshore rig, removed the wreck and then sought reim-

bursement from the insurer. In permitting direct action

C-8

against, and ultimately recovery from, the insurer, Judge

Cire found:

The policy contains a provision requiring the pay-

ment of wreck removal expenses, as here, when such

removal is compulsory by law. [Insurer] points to

the decisions of [Jocharanne] and [Progress Marine]

as standing for the proposition that removal is “com-

pulsory by law’ only where written demand has been

made by a governmental authority. But such a re-

strictive interpretation of the language is unjustified.

Although the Court in Bonanza did not articulate an

interpretation as to the precise meaning of the term “com-

pulsory by law”, the Court clearly backed away from the

notion that removal must be made pursuant to direct

governmental order in order to warrant recovery.

As discussed previously, were we to conclude, as Joch-

aranne clearly suggests, that “compulsory by law” is a

term of art in the marine insurance business, our initial

inquiry would be at an end. We would simply apply the

term of art meaning and conclude, as the Second Circuit

stated, that removal must be specifically ordered by a

governmental body to warrant coverage. Although we

incline strongly to agree with PMI that the quoted section

of the Jocharanne opinion which discusses compulsory

removal is mere dicta,” we are unable simply to ignore

the fairly unequivocal pronouncement by a distinguished

Court so experienced in dealing with marine insurance.

5. The vessel in Jocharanne was removed as part of “sue and

labor” activities. The vessel owner never attempted abandonment but

rather had the vessel removed for the sole purpose of salvaging the

hull. The “compulsory removal” provision of the insurance fe

therefore, never came into play. 461 F.2d at 504, 1972 A.M.C,

at 2154.

C-9

However, upon independent examination of the author-

ities cited in Jocharanne® we are unable to agree with that

Court that removal “compulsory by law” requires a per-

emptory order by an authoritative governmental agency.

Stripped of reliance on “compulsory by law” imposed

by widely accepted maritime law as a term of art we

must, as previously discussed, try to construe these words

in their “plain, ordinary, and popular sense.” Calcasieu-

Marine, 523 F.2d at 295-96. Although these three words

in and of themselves do not appear particularly inscrut-

able, in the lexicon of marine insurance we find resort

to the dictionary to be useful, and find Black’s Law Dic-

tionary (4th ed.) particularly helpful.

Taking first the word “compulsory” Black’s provides

the following definition:

Involuntary; forced; coerced by legal process or by

force of statute.

For the word “by” Black’s provides the following defi-

nition:

In consequence of . . . through the means, act,

agency or instrumentality of.

Finally, Black’s defines “law” as:

That which is laid down, ordained, or established.

A rule or method according to which phenomena

6. At 461 F.2d at 504, 1972 A.M.C. at 2154, appears the follow-

ing citation of authorities:

See the Wreck Removal Act, 33 U.S.C. §§ 409-414; Dover, A

Handbook to Marine Insurance (6th ed. 1964) at 439. Cf.

Wyandotte Transportation Co, v. United States, 389 US. 191,

88 S.Ct. 379, 19 L.Ed.2d 407 (1967).

C-10

or actions co-exist or follow each other, That which

must be obeyed and followed by citizens, subject

to sanctions or legal consequences, is a ‘law’.

Viewing these three words together as a phrase, it

seems evident that “compulsory by law” in the context

of this insurance policy should not be viewed as restricted

to situations in which an express direct order from a

governmental body directs removal. Clearly, for example,

removal occasioned to avoid a violation of a criminal

statute subject to criminal sanctions, although not specifi-

cally ordered by governmental authority, would neverthe-

less be compelled by law. On the other hand we are not

prepared to say that removal occasioned by any “legal

obligation” is “compulsory by law”, as PMI would seem

to suggest.”

7. As authority for the proposition that removal “compulsory by

law” connotes any removal performed pursuant to a “legal obligation”

PMI refers us to L. Buglass, Marine Insurance and General Average

in the United States (1973), pp. 64-65:

Protection and Indemnity underwriters do cover wreck re-

moval expenses but it must be emphasized that, absent an

specific agreement to the contrary, underwriters insuring

removal expenses are only liable if their assured is legally liable

for removing the wreck. Under such Protection and Indemnity

coverage the assured usually remains protected and indemnified

for as long as he has a possible liability. Thus, if the insured

vessel sinks as a result of the original accident and the wreck

cannot be located but resurfaces at a later date, any /egal

liability falling on the assured to remove the wreck is covered

by the original insurance. (Emphasis the author's).

While Buglass may correctly state a general proposition concerning

insurance for wreck removal, we are disinclined to rely on this author-

ity in resolving the present controversy. It is certainly arguable that

the inclusion of the words “com by law” in the insurance

policy before us was reasonably intended, and reasonably understood,

to restrict “eat cases where something more than simple ex-

posure to “legal lity” exists,

C-11

Soundings Reveal: Risk Evaluation

As stated in Walter, 537 F.2d at 95, 1977 A.M.C. at

1477-78, in construing an insurance policy reference must

be made to the reasonable expectations of the parties as

to the risks and protection against them. As applied to

this case, removal occasioned by an unarticulated or un-

reasonable apprehension of criminal or civil liability could

not be considered “compelled by law”. On the other hand,

where removal was reasonably required by law, or where

failure to remove would have reasonably exposed an

insured to liability imposed by law sufficiently great to

justify the expense of removal, then, we believe, such

removal could be considered “compelled by law” for

purposes of recovery. However, an additional inquiry

must be made as to whether the removal was in fact

“compelled by law,” that is, whether removal was per-

formed as a result of a subjective belief on the part of

the insured that such was reasonably necessary to avoid

legal consequences of the type contemplated by this

policy.®

While we do not pass final judgment on this case, nor

make a forecast as to the ultimate judgment of the Dis-

trict Court on remand, we believe that on the facts

presently before the Court it at least cannot be said that

no possibility for recovery by PMI exists under the legal

standard which we have announced. Certainly, for ex-

ample, potential exposure to PMI resulting from its wreck

8. This “objective” and “subjective” inquiry which we deem

in this case is akin to the dual ry as to the avail-

lity of “good faith” immunity in certain actions under 42 U.S.C.

§ 1983. Cf. Wood v. Strickland, 420 U.S, 308, 321, 95 S.Ct. 992, 1000,

43 L.Ed.2d 214 (1975); Dilmore v. Stubbs, 636 F.2d 966 (Sth Cir.

1981); Bryan v. Jones, $30 F.2d 1210, 1214 (Sth Cir.) (En Banc),

cert. denied, 429 U.S. 865, 97 S.Ct. 174, 50 L.Ed.2d 145 (1976).

C-12

rupturing an oil pipeline or breaching the hull of an oil

carrying vessel could have been enormous. Although we

do not undertake to address the reasonable probabilities

of the occurrence of these or similar casualties, we never-

theless raise here several points of liability which such

casualties could have engendered.

We note that at the time of the sinking of the PM II,

the Federal Water Pollution Control Act of 1972, 33

U.S.C. § 1321,’ prohibited the discharge of oil into or

upon waters adjoining the United States at least within

twelve miles from shore.’® This Act expressly provided

for third party liability to the United States Government,

in certain circumstances, for oil spill removal costs. /d.,

at § 1321(g). Furthermore, PMI would have been with-

out resort to any available limitation if it could have

been shown that the oil discharge “was the result of

willful negligence or willful misconduct within the privity

and knowledge of [PMI].” Id. We raise, without ad-

dressing, the potential relevance of the fact that legisla-

tion enacted after the 1975 sinking of the PM II im-

poses increased statutory liability for oil spills. See, e.g.,

the Clean Water Act of 1977, 33 U.S.C. § 1321.

In addition to this statutory liability to the United

States, in the event of a major oil spill caused by its

negligence PMI also could have potentially faced enor-

9. The FWPCA has been amended by the Clean Water Act of

1977, 33 U.S.C. § 1321. The complete text of the FWPCA may be

found in 3 Benedict on Admiralty (7th ed. 1975), 9-23-9-40.3,

10. The actual language of the Act proscribes discharge of oil

into or og “waters of the contiguous zone.” 33 U.S.C. § 1321

(b)(1). The contiguous zone was contemplated as extending 12 miles

from the coast of the United States. See § 1321(a)(9) together with

37 Fed. Reg. 11906 (1972); see also 3 Benedict on Admiralty at

9-11, n.10,

C-13

mous damages under private actions for pollution dam-

age. For these claims, even if PMI could have estab-

lished that the PM II was a “vessel” entitling PMI

to limitation under the Limitation of Liability Act of

1851, 46 U.S.C, §§ 181 et seq., it is quite possible that

PMI still could not have successfully invoked limitation

for the sinking of the PM II. And in any event, its liability

in these possible risk situations would have been for

failure to remove the wreck which might constitute per-

sonal fault within the privity and knowledge of the owner.

See, e.g., University of Texas Medical Branch at Galves-

ton v. United States, 557 F.2d 438, 448, 1977 A.M.C.

2607, 2618-19, and cases discussed in n.13 (Sth Cir.

1977).

Hauling The Dispute Back To Port

Since the District Court’s opinion was rendered in the

light of an interpretation of the controlling language in

the insurance policy which was erroneous, we cannot

credit the findings of the Court as presently made. See

Kirksey v. City of Jackson, Mississippi, 625 F.2d 21,

21-22 (Sth Cir. 1980); NLRB v. Alterman Transport

Lines, 587 F.2d 212, 220 (Sth Cir. 1979); Theriault v.

Silber, 547 F.2d 1279, 1280 (Sth Cir.), cert. denied,

434 U.S. 871, 98.S8.Ct. 216, 54 L.Ed.2d 150 (1977);

Costello v. Lipsitz, 547 F.2d 1267, 1276-77 (Sth Cir.),

cert, denied, 434 U.S. 829, 98 S.Ct. 109, 54 L.Ed.2d

88 (1977). We similarly do not pass on the Court’s

legal finding that no governmental authority was em-

powered to order removal of the wreck of the PM II

sunk 11 miles off the Louisiana coast since this finding,

even if true, is not necessarily dispositive of the case.

We reiterate that by our observations concerning potential

C-14

liability to PMI for failure to remove the wreck we make

no intimations as to the ultimate disposition of this case.

We remand this action in full to the District Court to

make the dual inquiry described in this opinion, leaving

initially to the parties and the District Court to determine

the extent to which the present record should or need be

supplemented,

VACATED and REMANDED.

CERTIFICATE OF SERVICE

I hereby certify that three (3) copies of the foregoing

Petition for Writ of Certiorari filed on behalf of Peti-

tioners, Foremost Insurance Company, Grand Rapids,

Michigan, were duly served upon Respondent, Progress

Marine, Inc., by placing same in the United States mail,

first-class postage prepaid and addressed to Mr. E. V.

Greenwood, Fulbright and Jaworski, Bank of the South-

west, Houston, Texas 77002, Attorneys for Respondent

in accordance wi 28.3 of the Rules of the Su-

preme Court, this day of July, 1981.

Tuomas A. BROWN

Lead Counsel for Petitioner