Petition for Writ of Certiorari — Employers Insurance of Wausau v. Ingersoll-Rand Financial Corp.

86-1077).

. NO. Spee Court, U.S,

wkibelinls D

DEG 20 es

In the :

} JOSEPH F. SPANIOL, JR.

Supreme Court of the United Staten

OCTOBER TERM, 1985

EMPLOYERS INSURANCE OF WAUSAU,

A MUTUAL COMPANY,

Petitioner

VERSUS

INGERSOLL-RAND FINANCIAL CORPORATION,

Respondent

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

* S. DANIEL MEEKS

LAWRENCE E. ABBOTT

Abbott, Webb, Best & Meeks

400 Lafayette Street, Suite 200

New Orleans, Louisiana 70130

Telephone: 504/568-9393

Attorneys for Petitioner,

Employers Insurance of

Wausau,

A Mutual Company

*Counsel of Record

A B Letter Service, Inc., 327 Chartres St., New Orleans, La. (504) 581-5555

i

QUESTIONS PRESENTED FOR REVIEW

Should this Honorable Court review its previous

decision in Wilburn Boat Co. v. Fireman's Fund Insurance

Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 377 (1955), due to

a conflict between the United States Court of Appeals for

the Second Circuit and the United States Court of Appeals

for the Fifth Circuit concerning the proper law to apply

when there is no ‘‘applicable”’ state law regarding a par-

ticular marine insurance issue?

Should this Honorable Court review its previous

decision in Wilburn Boat in light of the possible inap-

plicability of the decision to the facts of this case, given the

paucity of Louisiana precedent interpreting “standard”

mortgage clauses in Louisiana insurance policies?

Should this Honorable Court review its previous

decision in Wilburn Boat, due to the need for uniformity in

the marine insurance industry?

Have the United States District Court for the

Eastern District of Louisiana and the United States Court

of Appeals for the Fifth Circuit departed from the

established distinction between ‘‘named peril’’ and ‘“‘all

risk" marine hull insurance policies by granting recovery

to a mortgagee under a standard mortgage clause when the

risk which caused the loss was not among the named perils

covered by the ‘‘named peril’’ marine hull insurance policy

issued to the mortgagor?

il

LIST OF PARTIES

Pursuant to Supreme Court Rule 21.1(b) and 28.1,

counsel for the Petitioner certifies that all parties to this

proceeding are named in the caption of the case. Petitioner,

Employers Insurance of Wausau, a Mutual Company, has

the following affiliate: American Marine Underwriters, Inc.

ill

TABLE OF CONTENTS

PAGE(S)

QUESTIONS PRESENTED FOR REVIEW.......0000.........

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Ce Us snsnessrsssccassescaecsecusensesencssseieneneness iil

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I isaac andawnscanheahasanacaseusensacscavenstasanssecs l

JURISDICTIONAL STATEMENT......................0.0. a

CONSTITUTIONAL PROVISIONS AND

EE i A GED cnn nssansnccvsconssventsesscesssveccacsvecerens l

ee ly eee 2

REASONS FOR GRANTING THE PETITION............. 6

I. THIS. HONORABLE COURT SHOULD

REVIEW ITS PREVIOUS DECISION IN

WILBURN BOAT CO. v. FIREMAN'S

PR IEEE ED SOTA, vacncavanscacasccncsecracersesevaseass 6

A) The Fifth Circuit has extended Wilburn

Boat beyond its proper bounds in the in-

stant case, to the detriment of uniformi-

ty and certainty in the marine insurance

field.

Il. NOTWITHSTANDING THE CHOICE OF

LAW ISSUE, THE FIFTH CIRCUIT

MISCONSTRUED THE VARIOUS STATE

DECISIONS CITED BY IT AND DEPARTED

FROM THE ESTABLISHED MARINE IN-

SURANCE DISTINCTION BETWEEN “NAM-

ED PERIL” AND “ALL RISK" MARINE

HULL INSURANCE POLICIES BY GRANT-

ING RECOVERY TO A MORTGAGEE

UNDER A STANDARD MORTGAGE

CLAUSE WHEN THE RISK WHICH CAUSED

THE LOSS WAS NOT AMONG THE NAMED

PERILS COVERED BY THE MARINE HULL

INSURANCE POLICY ISSUED TO THE

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Nee enn cian cacseuvessnsniuassattancansssacseneansouses 30

ee ec inh scan niauncdhondarssnannsndaanes snnataetersnencd A-]

Nee okies cccnencenesancasnngnsenansnananaventcmeivounees A-10

iv

TABLE OF AUTHORITIES

CASES PAGE(S)

American National Bank & Trust Co. v. Young. 329

es OF 5 Se SUD ING BP hcsticiccniincuttanenunsicaplacunnisucnsabennnn 25,26

Antilles S.S. Co. v. Members of American Hull Ins.,

ce A 8 Me: ff a | Ce 6.10.11

Avemco Ins. Co. v. Jefferson Bank & Trust Co., 613

S.W.2d 436 (Mo. App. 1980)... ee eeeeeee 19,20,21

Charter Bank of Boonville v. Shelter General

Insurance, 664 S.W. 2d 44 (Mo. App. 1984)................ 29

Christopher & John, Inc. v. Maryland Casualty Co..

404 F.Semm. GOO, GSD. NY. 10D pa nvccciccccscccscccsenccscsscss. 14

Don Chapman Motor Sales v. National Savings

Insurance Co., 626 S.W. 2d 592 (Tex. App. 1981).29.30

Dow Chemical Co. v. Royal Indem. Co., 635 F.2d

es Ee Re, I Reteatisccectieaccntetdis tenants: 12

Fort Hill Fed. S & Lv.S. C. Farm Bur. Ins., 316 S.E.

2d 684 (S.C. App. 1984)........ sakcudaiaunnancinchauaadaniaiaaaekienl 28

General Motors Acceptance Cerp. v. Western Fire

Ins. Co., 457 S.W.2d 234 (Mo. App. 1970).............. 18,19

Hartford Fire Ins. Co. v. Associates Capital Corp.,

323 Soa.3d 404 (Migs. 1975)............<ccscccscecisrcceessess 28

Lenfest v. Coldwell, 525 F.2d 717 (2d Cir. 1975)..............11

May v. Market Insurance Co., 387 So.2d 1081, 1084

Bic “A ahusidinbiiebcshcasntexscalauishicsicons zraabediceiae caseonacubiniacanikccs 13

Morrison Grain Co. v. Utica Mut. Ins. Co., 632 F.2d

a I I iach cndcsencesuciadaienbaiions el >

Security Ins. Co. v. Commercial Credit Equip., 399

ee TE GPA, BO Biasicccsnnncscsncicercccniccnsscsstenannne 26,27

Underwriters, Etc. v. United Bank Alaska, 636 P.2d

DEE CARI BB nas. iss ns cstcesicsivssnrsensconrmapnnerasi 23.24,25

U.S. Trust & Guaranty Co. v. West Texas State

Bank, 272 S.W. 2d 627 (Tex. App. 1954)........... 21,22,23

—— Le Le

y

TABLE OF AUTHORITIES (continued)

CASES PAGE(S)

Western Leasing, Inc. wv. Occidental Fire &

Casualty Co, 521 P.2d 352 (Ore. 1974)

Sy a a a nd 15.18.26

Wilburn Boat Co. v. Fireman's Fund Insurance Co..

348 U.S. 310. 75 S.Ct. 368. 99. LEd. 337

ate Bae re SS aneiens e

CONSTITUTION

Art. IIT. §2. cl. 1

STATUTES

BO WIM. BABIED. oo ccsicssccccrsansscssies i . i |

28 U.S.C. $1333........... 1.2

RULES

Rule 9(h), Federal Rules of Civil Procedure 1.2

OTHER AUTHORITIES

Appleman and Appleman, Insurance Law and

Practice (1970)............... cebaakailecenniad s —_ 14

Couch on Insurance, 2d (Rev. ed. 1982) 13.14

Gilmore & Black, The Law of Admiralty (2d ed. 1975)...9

Parks. The Law of Tug. Tow. and Pilotage (2d. ed. 1982) 10

l

OPINIONS BELOW

The opinion of the United States Court of Appeals

for the Fifth Circuit (hereinafter referred to as ‘‘App. A’)

is reported at 771 F.2d 910. The opinion of the United

States District Court for the Eastern District of Louisiana

(hereinafter referred to as ‘‘App. B’’) is not reported.

JURISDICTIONAL STATEMENT

The judgment of the United States Court of Appeals

for the Fifth Circuit was entered on September 23, 1985.

The jurisdiction of this Honorable Court is invoked under

28 U.S.C. §1254(1).

CONSTITUTIONAL PROVISIONS AND

STATUTES INVOLVED

Article III, §2, cl.1 of the Constitution of the United

States provides, in pertinent part:

The judicial Power shall extend ... to all Cases of ad-

miralty and maritime Jurisdiction ..

28 U.S.C. §1333 provides, in pertinent part:

The district courts shall have original jurisdiction, ex-

clusive of the courts of the States, of:

1) Any civil case of admiralty or maritime jurisdic-

tion, saving to suitors in all cases all other

remedies to which they are otherwise entitled.

Rule 9(h) of the Federal Rules of Civil Procedure pro-

vides, in pertinent part:

ADMIRALTY AND MARITIME CLAIMS.

‘‘A pleading or count setting forth a claim for

relief within the admiralty and maritime jurisdic-

tion that is also within the jurisdiction of the

district court on some other ground may contain

a statement identifying the claim as an admiralty

or maritime claim for the purposes of Rules 14(c),

ree ee

2

38(e), 82, and the Supplemental Rules for Certain

Admiralty and Maritime Claims. If the claim is

cognizable only in admiralty, it is an admiralty or

maritime claim for those purposes whether so

identified or not....””

STATEMENT OF THE CASE

The controversy in suit arises from the disap-

pearance of M/V SUZIE, an aluminum hull, offshore

crewboat owned and operated by Mire Marine Service, Inc.

[hereinafter referred to as ‘“‘Mire”™ or as tix ‘‘mortgagor’’].

Original jurisdiction was proper in the United States

District Court for the Eastern District of Louisiana

[hereinafter referred to as the ‘District Court’’] based upon

28 U.S.C. §1333, and Fed. R. Civ. P. 9(h).

The capital used to purchase M/V SUZIE, fifth-five

thousand and NO/100 dollars ($55,000.00), was loaned to

Mire by Ingersoll-Rand Financial Corporation (hereinafter

referred to as ‘‘Ingersoll’’, the Respondent’’, or the ‘*Mor-

tgagee’’) on October 8, 1980. To secure the loan, Mire

granted a First Preferred Ship Mortgage on M/V SUZIE to

Ingersoll.

M/V SUZIE was insured under a ‘named peril”

marine hull insurance policy bearing Policy No. EWH-3090

[hereinafter referred to as the ‘‘Policy’’], issued by

Employers Insurance of Wausau, a Mutual Company,

(hereinafter referred to as ‘“‘Employers” or as the ‘‘Peti-

tioner’’) to Mire. Pursuant to Endorsement Number 14-A

{hereinafter referred to as the ‘“‘Endorsement’’] of the

Policy, Ingersoll was an additional assured under the

Policy, as to M/V SUZIE. Coverage as to Ingersoll was

limited to the unpaid principal on the amount loaned to

Mire to purchase M/V SUZIE. The amount of unpaid prin-

cipal was stipulated between the parties to be forty-five

thousand four hundred eighty and 38/100 dollars

($45,480.38).

3

The loss of M/V SUZIE was caused by theft. Indeed,

the District Court held “the great weight of the credible

evidence reflects that the SUZIE was stolen.” (App.B, p.

A-12). The United States Court of Appeals for the Fifth

Circuit (hereinafter referred to as the ‘Fifth Circuit’’) also

noted, ‘‘Under the findings of fact of the district court,

which are not clearly erroneous...the loss of the vessel was

caused by the theft of the vessel.....° (App. A. p. A-1).

The District Court held further the vessel was stolen

as a result of the negligence of Mire, who was Employers’

assured and the owner and manager of M/V SUZIE (App.

B, p. A-13). In particular, the District Court held Mire had

failed “to properly light its dock, to properly guard the

vessel and in failing to adequately monitor the keys to the

vessel.’ (App. B, p. A-13). The District Couit then further

noted.”’...the theft of the vessel would not have occurred

but for the negligence of Mire Marine.’ (App. B, p. A-13)

In affirming the judgment of the District Court, The Fifth

Circuit noted, ‘‘[T]he loss of the vessel was caused by the

theft of the vessel, but the theft resulted from the negligent

acts or omissions of the insured, Mire.” (App. A, p. A-1).

The ‘named peril’ marine hull insurance policy

issued by Employers to Mire insured M/V SUZIE, her hull,

tackle, apparel, engines, boilers, machinery, ap-

purtenances, equipment, stores, boats and furniture from

losses resulting from “the adventures and perils...of the

waters named herein, fire, lightening, earthquake, assailing

thieves, jettisons, barratry of the master and mariners and

all other like perils that come to the hurt, detriment or

damage of the vessel named herein.’ Acknowledging the

restrictive nature of the named peril marine hull insurance

policy, the District Court properly held ‘‘no coverage for

the theft of the vessel [was] afforded in the underlying

policy, including the Inchmaree Clause.”’ (App. B, p. A-16).

The Fifth Circuit further noted, ‘‘[bjoth parties agree that

loss by theft of the vessel was not among the named perils

covered by the policy; so that the insured mortgagor -

4

owner (Mire) could not itself recover on the policy for the

present loss if occasioned by a theft of the vessel’’. (App.

A, p. A-4).

Notwithstanding the restrictive nature of the named

peril marine hull insurance policy, the respondent has con-

tended throughout this litigation it is afforded coverage for

the loss of M/V SUZIE under Endorsement 14-A of the

policy. In the Endorsement, Employers entered into an

agreement with Ingersoll, the mortgagee, admitted the

seaworthiness of M/V SUZIE, and further agreed:

[T]he interest of the mortgagee shall not be impaired

or invalidated by any act of or omission or neglect of

the mortgagor, owner, master, agent, crew, of the

vessel(s) insured by this policy or by any failure to

comply with any warranty or condition over which the

mortgagee had no control or over which the mortgagee

could, but has not exercised such control, or by any

change in the title, ownership, or management of such

vessel(s)...(App. A, p. A-4).!

The first major issue decided by both the District

Court and the Fifth Circuit concerned the choice of law to

be applied. Noting the absence of a specific and controlling

federal rule, and citing to this Honorable Court's decision

in Wilburn Boat Co. v. Fireman's Fund Insurance Co., 348

U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955), both courts

decided to determine the outcome of the case by reference

to ‘appropriate’ state law, which, in this case, was the law

of Louisiana.

After deciding to apply Louisiana law, however, the

District Court noted, **... Louisiana jurisprudence on the

precise issues involved in this case is not well defined and

IThe specific clause at issue in this case (i.e., ‘'[T]he interest of the

mortgagee shall not be impaired or invalidated by any act of or omission

or neglect of the mortgagor...) shall be hereinafter referred to

throughout this Petition as a “standard mortgage clause).

ao

5

thus this Court must extrapolate a rule from available case

law and from the decisions of other jurisdictions."’ (App. B,

p. A-14). The ‘‘issue’’ was whether the standard mortgage

clause in Endorsement No. 14-A could operate to enlarge

the risks enumerated in the original named peril marine in-

surance policy, so as to afford coverage to Ingersoll for loss

by theft. The Fifth Circuit further noted, ‘‘... the precise

issue before us has not surfaced *: any reported Louisiana

decision we could find...’’. (Ap), 4, p. A-7). Thus, bereft of

any state court precedent, both the District Court and the

Fifth Circuit looked to other jurisdictions for guidance.

Citing a potpourri of varied state jurisprudence for what it

considered to be controlling precedent, the Fifth Circuit

noted:

..{T]he modern decisions are unanimous, and the

earlier decisions virtually so, in holding that a mort-

gagee under a standard mortgage clause may (where

not guilty himself of any breach of policy conditions)

recover from the insurer for a loss sustained by the

mortgaged property, even though the risk be excluded

from the policy coverage, where any act of the mor-

tgagor has caused or contributed to the loss as

resulting from an excluded risk; and even though as

between the mortgagor - insured and the insurer there

is no coverage because of some default by the mor-

tgagor.”’ (App. A, p. A-6).

Thus, the Fifth Circuit held coverage was afforded to In-

gersoll, the mortgagee, through Endorsement 14-A of

Policy EWH-3090.

The petitioner respectfully suggests the Fifth Circuit

erred in the following particulars:

a) __ By noting no Louisiana precedent could be

found on the precise issue before it, and thereafter

citing a potpourri of varied state precedent which it

asserted supported its view, the Fifth Circuit may

have wrongfully extended this Honorable Court’s

—iiialaaaiaa aaa a

6

holding in Wilburn Boat Co. v. Fireman's Fund In-

surance Co., supra, beyond its intended breadth. In-

stead of attempting to decide what Louisiana courts

would have done, in the absence of applicable

jurisprudence, it is submitted the Fifth Circuit should

have fashioned a general maritime rule of law of first

impression, based on the clear distinction in the

marine insurance field between ‘‘named peril’’ and ‘‘all

risk’’ marine hull insurance policies. Further, instead

of looking to the law of other states for guidance,

which was not countenanced in the Wilburn Boat deci-

sion, the Fifth Circuit should have looked to the law of

England, the ‘‘great field’’ of the marine insurance

business. Antilles S.S. Co. v. Members of American

Hull Ins., 733 F.2d 195, 198 (2nd Cir. 1984).

b) Notwithstanding the choice of law issue, the

Petitioner further respectfully suggests the case law

cited by the Fifth Circuit does not support its holding.

In fact, just the opposite is true. Jurisprudence from

other states clearly supports the Petitioner's conten-

tion Endorsement Number 14-A did not insure the

Respondent against the negligence of the mortgagor

when no coverage for loss by theft existed in named

peril marine Policy EWH-3090.

REASONS FOR GRANTING THE PETITION

I.

THIS HONORABLE COURT SHOULD REVIEW

ITS PREVIOUS DECISION IN WILBURN BOAT

CO. V. FIREMAN’S FUND INSURANCE CoO.

A) The Fifth Circuit has extended Wilburn Boat

beyond its proper bounds in the instant case, to the

detriment of uniformity and certainty in the marine in-

surance field.

As heretofore noted, both the District Court and the

Fifth Circuit attempted to apply Louisiana law to ad-

judicate the issue at bar. However, in both decisions, it was

7

noted Louisiana jurisprudence on the precise issue in suit

was not well defined, and thus both lower courts borrowed

what they thought was controlling precedent from

available case law in other jurisdictions. Such an extrapola-

tion was not intended by this Honorable Court's decision in

Wilburn Boat.

In Wilburn Boat Co. v. Fireman's Fund Insurance

Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed 337 (1955), this

Honorable Court held Texas law governed the considera-

tion of a warranty contained in a fire insurance policy insur-

ing a pleasure boat on a small man-made lake located bet-

ween the states of Texas and Oklahoma. In determining

the correct law to apply, this Honorable Court noted the

crucial inquiries to be made in the case were: ‘*(1) Is there

a judicially established federal admiralty rule governing

the warranties? (2) If not, should we fashion one?’'Jd., 348

U.S. at 314, 75 S.Ct. at 370. Finding no judicially establish-

ed federal admiralty rule, this Honorable Court noted two

specific Texas statutes which may have controlled the

issue at bar. Jd., 348 U.S. at 312, 75 S.Ct. at 369. After fur-

ther noting the historically pervasive nature of the states’

regulatory power regarding insurance matters, this

Honorable Court held Texas law should apply to the alleg-

ed breaches of certain warranties in the marine insurance

contract.

In a concurring opinion, Mr. Justice Frankfurter

stated, ‘‘(w)hile not able to join the dissenters, [he could] on-

ly hope that what [were] essentially dicta [would] not be

found controlling when situations which [had] not called

them forth, and to which they [were] not applicable, [came]

before the Court for adjudication. Jd., 348 U.S. at 324, 75

S.Ct. at 376. More particularly, Justice Frankfurter was of

the opinion ”’ ... the question, and the only question ... to be

decided [was] whether the demands of uniformity relevant

to maritime law require[d] that maritime insurance on a

houseboat yacht brought to Lake Texoma for private

sient ia

8

recreation should be subject to the same rules of law as

marine insurance on a houseboat yacht ‘confined,’ after ar-

rival, to the waters of Lake Tahoe or Lake Champlain.”’ /d.,

348 U.S. at 322, 75 S.Ct. at 375. It was obvious Justice

Frankfurter desired the holding be confined to its facts, as

he further noted ‘‘ for reasons that [he did] not appreciate,

the Court's opinion [went] beyond the needs of the problem

before it.’ Jd.

Mr. Justice Reed and Mr. Justice Burton dissented

from the majority opinion, and took great pain to outline

the need for uniformity in marine insurance matters:

State power may be exercised where it is complimen-

tary to the general admiralty law. It may not be exer-

cised where it would have the effect of harming any

necessary or desirable uniformity. The cases decided

by this Court make it plain that state legislation will

not be permitted to burden maritime commerce with

variable rules of law that destroy that uniformity.

A vessel moves from State to State along our coasts

and rivers. State lines may run with the channel or

across it. Under maritime custom an insurance policy

usually covers the vessel wherever it may go. If unifor-

mity is needed anywhere, it is needed in marine in-

surance. It is like the question of seaworthiness which

must be controlled by one law .... Insurers must

know the risks they are assuming when they fix their

premiums. What law is to govern - that of the State

where the insurance contract was issued, the State of

the accident, or the State of the forum? It seems an

unreasonable interference with maritime activity to

allow the many States to declare the substantive law

of marine insurance.” Jd., 348 U.S. at 332 -334, 75

S.Ct. at 381 -382.

This Honorable Court's decision in Wilburn Boat has

not been without its critics. Two respected commentators

ie)

t CF

have noted:

“The decision in Wilburn is hard indeed to

reconcile with the postulate of there being a federal

maritime law at all; it is even harder to square with the

assumption that the law of marine insurance is a part

of that law. The opinion of the Court poses as its first

question, ‘‘Is there a judicially established federal ad-

miralty rule governing these warranties?’’ This seems

to suggest the possibility that those questions of law

concerning which litigation in the federal courts has

been active enough to satisfy the Court's criteria of

‘‘establishment’’ are to be considered as ruled by

maritime admiralty law, while those which for any

reason (in this relatively non-litigious field) happen not

to have reached the federal courts in volume are to be

relegated to the legislative competency of the States.

This is, with deference, a nightmarish solution; yet if

it is not the one envisioned, why pose the question that

way?...

Wilburn may mean merely that the States are to have

a limited competency to regulate certain terms of

marine policies. It could as a matter of cold logic be

read to mean there is no federal maritime law at all. it

may very well turn out to mean anything between

these extremes.‘ Gilmore & Black, The Law of Ad-

miralty, §2-8 at pp. 69-71 (2d Ed. 1975). (citations

omitted).

A second commentator further noted:

‘‘In the United States, prior to the Wilburn Boat deci-

sion, and in many instances after the Wilburn Boat

decision, the courts have adhered to the English Rule

and held that a breach of warranty discharged the

underwriter. Wilburn is an anomaly and should, when

properly construed, be applicable only where there is

a countervailing state statute which conflicts with the

10

English rule as to warranties.’’ A. Parks, The Law of Tug,

Tow, and Pilotage, (2d ed. 1982) p.541.

It is respectfully submitted the interpretation of a

standard mortgage clause contained in a maritime in-

surance contract requires the application of a uniform rule.

One must wonder what would happen if an identical stan-

dard mortgage clause was contained in an insurance policy

covering a vessel owned by a New York corporation, which

was insured by a Delaware corporation, and stolen in Loui-

siana. As will be discussed further infra, the exact opposite

conclusion would have been reached by the Fifth Circuit,

had it properly applied the law of Oregon, Missouri, or

Texas to the facts of this case. It is submitted uniformity

as to the meaning of these clauses would result in vessel

owners, mortgagees, and vessel insurers understanding the

precise meaning of such clauses. The application of a

uniform rule would avoid the possibility of ‘‘crazy-quilt

regulation of the different states what so long has been the

business of the Courts[.]’’ Wilburn Boat Co. v. Fireman's

Fund Insurance Co., 348 U.S. at 323, 75 S.Ct. at 376.

The novel distinguishing feature between the case at

bar and the plethora of jurisprudence applying Wilburn

Boar is that the precise issue in this case (i.e., the scope of

an insurance endorsement containing a standard mortgage

clause which is attached to a named peril marine insurance

policy) is one step removed from this Honorable Court's

decision in Wilburn Boat. Not only is there no admiralty

precedent concerning this issue, there is similarily no Loui-

siana precedent regarding this specific issue. In this situa-

tion, the holding of Wilburn Boat may not apply.

In an analogous situation, the United States Court of

Appeals for the Second Circuit [hereinafter referred to as

the ‘‘Second Circuit’’] looked to English precedent, rather

than a ‘“‘crazy guilt’ pattern of state jurisprudence, in

deciding a marine insurance issue which had not been ad-

dressed by ‘applicable’ state precedent. In Antilles S.S.

11

Co. v. Members of American Hull Ins., 733 F.2d. 195 (2d

Cir. 1984), a shipowner brought suit under a marine hull

and machinery insurance policy to recover for the costs of

removing cargo debris following a shipboard explosion.

The Second Circuit first noted no ‘‘American”’ judicial

precedent existed. Jd. The Second Circuit presumably

meant no American maritime judicia! precedent existed,

given its citation to Wilburn Boat, the previously discussed

two step Wilburn Boat analysis, and the Second Circuit's

subsequent discussion of New York precedent. /d., 733

F.2d at 196-198.

The first issue before the Second Circuit concerned

the proper law to apply. Instead of looking to the law of

other states, as the Fifth Circuit did in the case at bar, the

Second Circuit iooked toward English precedent, since no

New York precedent existed:

‘To the extent that no New York precedent exists, the

maritime nature of this insurance contract dictates

that we anticipate that New York courts would look to

English law in view of the ‘special reasons for keeping

in harmony with the marine insurance laws of

England, the great field in this business’. . . These

sophisticated contracting parties should be presumed

familiar with basic English law principals that have

shaped custom and practice in the hull insurance

field.”’ /d., 733 F.2d at 198 (Other citations omitted.)

See also, Lenfest v. Coldwell, 525 F.2d 717, 724 (2d Cir.

1975).

Thus, a clear dispute exists between the Second and Fifth

Circuit Courts of Appeal concerning the proper choice of

law when no “‘applicable’’ state precedent exists.

I].

NOTWITHSTANDING THE CHOICE OF LAW

ISSUE, THE FIFTH CIRCUIT MISCONTRUED

THE VARIOUS STATE DECISIONS CITED BY IT

12

AND DEPARTED FROM THE ESTABLISHED

MARINE INSURANCE DISTINCTION BET-

WEEN “NAMED PERIL” AND “ALL RISK”

MARINE HULL INSURANCE POLICIES BY

GRANTING RECOVERY TO A MORTGAGEE

UNDER A STANDARD MORTGAGE CLAUSE

WHEN THE RISK WHICH CAUSED THE LOSS

WAS NOT AMONG THE NAMED PERILS

COVERED BY THE MARINE HULL INSURANCE

POLICY ISSUED TO THE MORTGAGOR.

As the Fifth Circuit correctly noted in its decision,

Employers’ marine hull insurance policy covering M/V

SUZIE ‘‘was a ‘named peril’ policy, in which it insured the

vessel against all the risks named in the perils clause (and,

by implication, risks not named were not covered)” (App.

A, p. A-3), (Other citations omitted). There is agreement

among all parties the marine hull insurance »olicy in ques-

tion was a ‘‘named peril”’ policy. Conversely, an ‘‘all risk”

insurance policy creates a special type of coverage that ex-

tends to risks not usually covered under other insurance;

recovery under an all-risk policy would be allowed for for-

tuitous losses not resulting from misconduct or fraud,

unless the policy contains a specific provision expressly ex-

cluding the loss from coverage. Dow Chemical Co. v Royal

Indem. Co., 635 F.2d 379, 386 (5th Cir. 1981); See also, Mor-

rison Grain Co, v. Utica Mut. Ins. Co., 632 F.2d 424, 430

(5th Cir. 1980). As was discussed further infra, there is

universal agreement the loss of M/V SUZIE by theft in the

suit at bar was not a covered risk, so as to allow the mort-

gagor coverage under the policy. However. the respondent

argues Endorsement No.14-A provides policy coverage

distinct and separate from the coverage provided to the

mortgagor, despite the restrictive language of the Policy.

Under the terms of a standard mortgage clause, such

13

as is the case at bar,"’...an independent or separate under-

taking exists between the mortgagee and the insurer.

which contract is measured by the terms of the mortgage

clause itself. There are accordingly in substance two con-

tracts of insurance, the one with the mortgagee and the

other with the mortgagor."’ May v. Market Insurance Co..

387 So.2d 1081, 1084 (La. 1980); quoting, Couch on In-

surance 2d (1963), §42:694, now at 10A Couch on In-

surance, 2d (Rev. ed. 1982) §42:728. (App. A,p.A-5).

It is as this point however, that the Petitioner

respectfully maintains the Fifth Circuit did not follow

through with the ‘separate’ insurance analogy. The Court

did not explain the ‘‘terms”’ of this ‘“‘separate’’ insurance

contract between the insurer, Employers, and the mor-

tgagee, Ingersoll. The limitations on the ‘‘separate’’ con-

tract between the mortgagee and the insurer are noted fur-

ther on in the same commentary previously cited by the

Fifth Circuit:

“The rule that the standard loss clause creates a

separate contract between the mortgagee and the in-

surer cannot be literally applied, to the exclusion of

other provisions of the policy, for without those other

provisions there would be no definition of the terms of

the insurance, such as the property covered, the

amount, and so-on. Rather the standard mortgage

clause creates an independent contract of insurance

for the mortagee’s separate benefit, engrafted upon

the main contract of insurance contained in the policy

itself, which is rendered certain and understood by

reference to the policy which makes it complete.

In view of the applicability of the other policy provi-

sions, a mortgagee claiming under a standard mor-

tgage clause asserts his right subject to all the terms

and conditions of the contract of insurance, except

those which are expressly waived in the mortgage

14

clause....10A Couch on Insurance, 2d (Rev. ed. 1982)

§42:731 at pp. 765-766 (emphasis supplied) (other cita-

tions omitted).

A standard mortgage clause then, simply ‘‘insure{s]

that the mortgagee will not lose the protection accorded it

by the policy because of acts or omissions of the insured

that defeat its rights under the policy.’ Christopher &

John, Inc. v. Maryland Casuaity Co., 484 F.Supp. 609, 611

(S.D. N.Y. 1980) (emphasis supplied).

The limitation on the ‘‘separate’’ insurance analogy

is further noted by another respected commentator:

A distinction which is rather important to grasp is

that the policy terms are themselves not nullified by a

standard mortgage clause. It is, rather, that a new

contract containing those provisions is made with the

mortgagee personally; and the mortgagee is not bound

by the mortgagor's contract which, while it may be

identical in language, may be breached by the mor-

tgagor’s act.’ 5A Appleman and Appleman, In-

surance Law and Practice, (1970) §3401 at p. 292 (em-

phasis supplied).

Notwithstanding the restrictive nature of ‘‘named

peril’’ Policy No. EWH-3090, the Respondent argues, with

the sanction of both lower courts, it can expand the perils

included in the policy through the use of Endorsement

14-A. As will be discussed further infra, such an extrapola-

tion is clearly not countenanced by the available case law.

The end result of the Fifth Circuit's decision is the destruc-

tion of the clear distinction between all risk and named

peril marine hull insurance policies, to the detriment of

uniformity and certainty in the marine insurance field.

To properly understand the nature of the Respon-

dent's argument, one must question what would happen in

15

the event there was no “‘act’’, “‘omission’’, or ‘neglect’ on

the part of Mire, the mortgagor, in the captioned suit. For

example, if Mire had provided a watchman and had other-

wise guarded M/V SUZIE in an adequate manner, and the

vessel was still stolen, could the Respondent have

recovered under Policy EWH-3090? This question must be

answered in the negative, since, by reference to the terms

of Policy No. EWH-3090, the ‘‘loss’’ in question did not

result from a named peril. However, the Respondent

argues, since an act or omission on the part of Mire caused

the loss by theft in the instant case (which loss, by

reference to the terms of Policy EWH-3090, is still not a

covered risk), it is covered under Policy EWH-3090. Such

is a remarkable conclusion, given the fact the named perils

clause in Policy EWH-3090 has not changed. It is respect-

fully submitted it is essential there be coverage for the loss

under the Policy itself for the provisions of Endorsement

No. 14-A to come into play.

Ingersoll clearly has not one, but two dist-

inguishable ‘‘interests’’ in the situation at bar. Naturally

Ingersoll has a financial interest in M/V SUZIE. The com-

pany also has an interest in the separate insurance policy

it purchased. The parameters of this insurance policy,

however, are measured by the original ‘‘named peril’’ policy

purchased by Mire. Thus, Ingersoll’s insurance “interest”

can rise no higher vis-a-vis the provisions of the named

peril policy than Mire’s interest. Mire’s ‘‘act’’ did not, and

could not, have caused Ingersoll to lose the protection ac-

corded it by the Policy, since loss by theft was not a protec-

tion offered by Employers under the Policy. In effect, there

was no insurance coverage to “‘lose."’ It is respectfully sub-

mitted other courts have followed this line of reasoning in

analyzing standard mortgage clauses in insurance policies

subjected to the laws of other forums.

In Western Leasing, Inc. v. Occidental Fire and

Casualty Co., 521 P.2d 352 (Ore. 1974)(en banc), suit was

16

brought by the of a damaged trailer against an in-

surer seeking sums allegedly payab!e to the lessor as the

‘loss payee’ under a standard loss payable endorsement

(standard mortgage clause) on an insurance policy issued to

the lessee of the trailer. The policy issued to the lessee in-

cluded ‘‘collision or upset’’ coverage under which the defen-

dant insurer agreed:

‘“[T]Jo pay for direct and accidental loss of/or damage to

the [trucks] hereinafter called loss, caused by collision

of the [truck] with another object or by upset of the

[truck[ .. .“‘ Jd., 521 P.2d at 352.

Under the standard loss payable endorsement, the

insurer agreed:

.. [T]his insurance as to the interest of the bailment

lessor, .. . shall not be invalidated by any act o)

neglect of the lessee, mortgagor, or owner of the within

described automobile or other debtor, nor bv any

change in the title or ownership of the property Id.,

521 P. 2d at 353 (emphasis supplied).

The lessor’s claim involved damage to one of the

trailers leased by the lessee. A truck driver employed by

the lessee struck a bridge in lowa, and damaged the top of

the trailer. The driver then continued on toward Portland,

Oregon, notwithstanding the accident. The trailer collaps-

ed in Montana and apparently became a total loss. The in-

surance company tendered payment of $2,500.00 for

damages to the trailer caused by the initial accident. but

refused to pay for the total loss of the trailer. The trial

court previously found the lessee’s driver negligently and

carelessly continued to pull the loaded trailer approximate-

ly one thousand miles prior to the trailor collapsing, which

resulted in the trailer’s total destruction. Using important

language, the Supreme Court of Oregon held the lessor was

not entitled to recover from tl! insurer unde

17

the provisions of the standard loss payable clause (stan

dard mortgage clause) where the evidence supported the

conclusion the damage to the trailer was not within the pro

vision of the lessee’s original policy for ‘collision’

coverage:

|A| ‘standard’ loss peyable clause constitutes

an independent contract between the insurance com

pany and the loss payee.

Nevertheless, the coverage of the policy is not, as a

result, extended to risks not otherwise covered by the

policy. In other words, such a loss payee is entitled to

payment for losses arising from risks that are covered

by the policy, but is not, by the addition of a ‘stan

dard’ loss payable clause, entitled to payment for

losses arising from risks that are not covered by the

policy

lt follows that the first question to be decided in such

a case is whether the loss was one which arose from a

risk that was covered by the terms of this insurance

policy, in this case, its provisions for ‘collision or upset

coverage

In this case, the trial court made an express finding of

fact that ‘the damage resulting from the trailer strik

ing the bridge fi.e.. from the ‘collision’] totaled

$3,000.00 and that it was the ‘subsequent operation

of the truck and trailer that ‘caused the trailer to be

totally destroyed’. J/d., 521 P. 2d at 353-354. (Other

citations omitted)

The foregoing decision is indistinguishable from the

situation at bar. Both lower courts in the instant case

found the loss of M/V SUZIE was caused by theft. Since

the theft was not a risk covered by the terms of the named

peril marine insurance policy, coverage cannot be afforded

to Ingersoll, notwithstanding the language of the standard

18

mortgage clause contained therein. As was the case in

Western Leasing, Inc. v. Occidental Fire and Casualty Co.,

supra, notwithstanding an “‘act*‘‘or ‘‘omission** on the part

of the mortgagor/lessee, if the loss did not arise from a

covered risk, the loss was not covered under the terms of

the applicable insurance policy.

Two Missouri appellate decisions also do not allow a

mortgagee covered under a standard mortgage clause to

recover when the loss arises from a risk which is not in-

sured by the main insurance policy. In General Motors Ac-

ceptance Corp. v. Western Fire Ins. Co., 457 S.W.2d 234

(Mo. App. 1970), the plaintiff, a mortgagee of a 1965

automobile, sought to recover as a loss payee named on an

insurance policy issued by the defendant insurance com-

pany. By the terms of the policy, coverage was specifically

eliminated when the automobile in question was driven by

a Mr. Willard L. Betterton. While being driven by the

aforesaid person on April 23, 1966, the automobile was

damaged by collision. After the collision, the plaintiff/mor-

tgagee presented proof of loss and demanded payment,

since its interest was allegedly covered under a standard

mortgage clause in the policy which provided ‘‘this in-

surance as to the interests of the . . .mortgagee. . .shall not

be invalidated by any act or neglect of the lessee, mor-

tgagor or owner of the within described automobile nor by

any change in title or ownership of the property... ."’ /d.,

457 S.W.2d at 236. Notwithstanding the standard mor-

tgage clause, the Missouri Appellate Court denied coverage

to the mortgagee:

..[T]he plain and inescapable fact is that the [mor-

tgagors| the named insureds, and ... [the insurer,|

covenanted and agreed at the beginning of the con-

tract year that the policy in suit would provide no in-

surance coverage whatever on [the automobile] while it

was being operated by Willard L. Betterton. Hence, in-

surance on the [automobile] having been nonexistent

19

while he was driving, there was no coverage during

such periods of Willard’s operation which could have

been ‘invalidated’, i.e. nullified ... Furthermore, this

state of noncoverage during such periods existed by

reason of the unambigious terms of the policy contract

and not ‘by any act or neglect of the owners-

mortgagors. . .‘In the stated circumstances, we agree

with the learned trial judge that the standard mor-

tgage clause in the [insurance] policy did not create

coverage never afforded by that policy and that [the

mortgagee] cannot compel payment of a loss against

which [the insurer] never contracted to indemnify.

As mortgagee of the. . [automobile] [the plaintiff] had

an insurable interest therein. . .and with notice that

the [insurance] policy afforded no coverage on that

automobile while it was operated by Willard, [the

plaintiff] could have obtained, or could have required

the owners-mortgagors of the [automobile] to provide

coverage on its insurable interest at all times. . . hav-

ing failed to do so, it cannot avoid the consequences of

its own inaction by shifting its loss onto the insurer in

a policy which plainly provided no coverage while

Willard was driving.” Jd, 457 S.W.2d at 236-239. (em-

phasis supplied).

Similarly, in Avemco Ins. Co. v. Jefferson Bank

& Trust Co., 613 S.W.2d 436 (Mo. App. 1980), a mor-

tgagee claimed he was covered by an aircraft in-

surance policy for damages resulting from seizure of

an aircraft by the Mexican government after the

airplane crashed in Mexico. The owner of the aircraft,

Mr. Fred Tomlin, obtained the policy of insurance

from the insurance company which covered [alll loss or

damage to the aircraft’’ including damage while in

flight. Id., 613 S.W.2d at 437. Specifically excluded

from coverage in Exclusion (g) were ‘‘losses due to [1]

.. any taking of the aircraft or any loss or damage

20

by any Government or Governmental authority or

agent ...’’ [d. The policy also contained a standard

mortgage clause which provided “‘. . . this insurance as

to the interest of the... mortgagee. . . will not be in-

validated by any act or neglect of the lessee, mor-

tgagor, or owner of the within described aircraft... .”’

Id., 613 S.W.2d at 438.

On February 7, 1983, the mortgagor’s aircraft

crashed in Mexico. At the time of the crash, it was not

being operated in violation of any condition or exclu-

sion within the terms of the policy of insurance. /d.,

613 S.W.2d at 438. The insurer refused to pay, premis-

ing its refusal on Exclusion (g). The Missouri Ap-

pellate Court held the loss sustained by reason of the

aircraft’s seizure was not covered by the insurer's

policy, notwithstanding the standard mortgage

clause: .

‘Although the [standard mortgage] endorsement

creates an independent agreement, it is not a complete

contract in itself, rather it is “‘ingrafted upon the main

contract of insurance contained in the policy itself [and

is] to be rendered certain and understood by reference

to the policy ...’ It assures the leinholder that the

coverage provided by the policy will not be invalidated

by any act or neglect on the part of the mortgagor...

By Exclusion [g] the mortgagor was not insured

against any loss to the aircraft resuiting from seizure

of the aircraft by the Mexican government. The

seizure was not occasioned by any act or neglect of

[the mortgagor] but rather was an incident specifically

excluded from coverage under the terms of the policy.

Exclusion [g] is not a condition, the violation of which

would work a forfeiture or void the coverage. By the

terms of the policy, seizure by a foreign government

21

was a risk that was never assumed by the insurer. .. .

The loss sustained by reason of the seizure of the air-

craft was not covered by the insurer's policy.’ Jd., 613

S.W.2d at 438-439. (other citations omitted)(emphasis

supplied).

In analyzing these two decisions, the Fifth Circuit

noted ‘.. .the Missouri intermediate courts in each instance

specifically found that no act of the mortgagcr-insured had

contributed to the loss excluded by the policy. (App. A.

p.A-8). The effect of this statement requires analysis. In

both cases, the loss involved was specifically not covered

by the policy of insurance. The real holding in both cases

is that no coverage existed by reason of the terms of the

policy and not by any act or neglect of the owners/mor-

tgagors. The foregoing assertion of the Fifth Circuit was,

therefore, essentially dicta and, in fact, aids the Petitioner,

rather than the Respondent. In the case at bar, no coverage

existed because loss by theft was not covered by the named

peril policy and not because an “‘act™’ or ‘‘omission”’ of Mire

contributed to the loss. Mire's acts and/or neglect are inap-

posite since the loss, fi.e. theft of the vessel,) was not

covered by the named peril marine hull insurance policy.

Mire’s acts and/or neglect would only come into play under

Policy EWH-3090 where the loss was otherwise covered

under the terms oi the named peril policy.

Finally, in U.S. Trust & Guaranty Co. v. West Texas

State Bank, 272 S.W.2d 627 (Tex. App. 1954), the mor-

tgagee of an automobile brought suit against the

automobile’s insurer to recover on the insurer's accident

policy. The insurance policy in question covered damages

caused by accidents occurring ‘‘while the automobile is

within the United States of America, its Territories or

Possessions, Canada or Newfoundland... Jd. 272 S.W 2d

a

22

at 628. By endorsement, the policy contained a standard

mortgage clause which read, ‘loss or damage, if any, under

the policy shall be payable as interest may appear to [the

mortgagee] and this insurance, as to the interest of the-

mortagagee-shall not be invalidated by any act or neglect

of mortgagor-. .. "' Jd. The mortgagor's automobile was

damaged in Mexico. On appeal, the mortgagee contended

the purpose of the standard mortgage clause was to protect

the mortagee from the act of the mortgagor in taking the

automobile into Mexico. Disagreeing, the Texas appellate

court rendered judgment for the insurer:

‘‘We think said endorsement does not grant additional

coverage under the policy to anyone and that the

unambiguous provision that the policy covers only ac-

cidents which occur ‘while the automobile is within the

United States of America. . .'. excludes coverage of ac-

cidents which occur outside said territorial limits.

Therefore, there was no coverage of the accident which

occurred in Mexico.

We recognize that the clause making the loss payable

to the mortgagee regardless of any acts or neglect of

the mortgagor, permits the mortgagee’s recovery

despite any violation of a ‘“‘condition’’ by the mor-

tgagor unknown to the mortgagee...The question here

is not relative to such a matter. The question is

whether the accident that damaged the automobile

was covered by the policy. The plain. unambigious

language of the policy compels the conslusion that

while the automobile was without the territory

covered by the Policy there was no coverage under the

policy. This was not a condition, the breaking of which

by the mortgagor was, according to the contract, not

to affect the right of the innocent mortgagee.

23

The Policy simply provided there was no insurance

while the car was without the territory stated... .

Since the [mortgagee’s] claim is for damage to the

automobile suffered outside of [the covered territory]

it was not covered by the Policy.”’ Jd., 272 S.W.2d at

628-630. (emphasis supplied) (other citations omitted).

The Fifth Circuit cited seven state court decisions,

from states other than Louisiana, in support of its holding.

(App. A,p. A-6). The Petitioner respectfully suggests the

cited cases and holding of the Fifth Circuit misses the

ultimate issue in this case. Before addressing whether an

act or neglect of the mortgagor impaired the mortgagee’s

interest under the policy, the Fifth Circuit should have

determined whether the risk (i.e. loss by theft) was covered

by the terms of the marine insurance policy. In the cases

cited by the Fifth Circuit, the risk which ultimately caused

the loss in each insurance policy was a covered risk. The

cases are to be distinguished from the cases cited infra, in

which the risk was not coverd by the terms of the policy.

In Underwriters, Etc. v. United Bank Alaska, 636

P.2d 615 (Alaska 1981) an airplane leinholder brought suit

against the aircraft owner and the aircraft insurer, who had

extended coverage to the aircraft lessee, following destruc-

tion of the airplane in a crash. The aircraft had originally

been purchased in 1977 from Mr. Linwood Marshall by Mr.

Richard Burnette. On March 8, 1978, the appellant insurer

isued a policy of airplane hull insurance under which Mr.

Marshall was the named insured and under which various

aircraft, several of which were not owned by Mr. Marshall.

were particulary described. Included in the description was

the aircraft owned by Mr. Burnette. The appellee bank was

listed as the leinholder of Mr. Burnette’s aircraft. On

August 10, 1978, Mr. Marshall terminated a lease agree-

ment with Mr. Burnette and deleted the aircraft from the

reporting form, required by the insurance policy, on which

he was to list those planes owned or leased by him. On

24

August 13, 1978 the airplane crashed and was totally

destroyed. The relevant insurance policy clauses covered

‘direct physical loss of/or damage to the aircraft....° and

further provided:

‘The insurance afforded under this policy shall apply

to all standard licensed Fixed Wing Land ~xircraft own-

ed by the Insured or operated under a le .. or other

agreement at the inception date of this Policy and it

shall automatically apply to any additional standard

licensed aircraft....' Jd., 636 P.2d at 617.

The policy also contained an endorsement containing

a standard mortgage clause which identified the aircraft in

question as subject to the lien of the bank. The endorse-

ment also contained a notification clause and a clause

which obligated the bank to pay any premiums Mr.

Marshall failed to pay.

On appeal, the insurer argued the insurance coverage

was limited to those aircraft which were owned or operated

by the insured at the time of the accident. The insurer fur-

ther argued that since, at the time of the crash, August 13,

1978, Mr. Burnette's aircraft was not operated by the in-

sured, Mr. Marshall, under a lease or other agreement, the

insurance policy provided no coverage. The Supreme Court

of Alaska did not find the argument persuasive:

‘The aircraft covered clause speaks onlv to the incep-

tion of coverage, not to its cessation. The clause pro-

vided that coverage will begin for any aircraft which is

owned or operated by the insured either at the incep-

tion date of the policy or thereafter during the policy

term.

With respect to [the lienholder], it is clear that none of

the other clauses of the policy apply to defeat coverage

25

in this case. [The breach of warranty endorsement|

contains three relevant provisions. First, the acts or

neglect of the insured, Linwood Marshall, could not in-

validate [the Bank’s] lienhold interest. Second, [the

Bank] was obligated to pay any premiums which Lin-

wood Marshall failed to pay. Finally, the bank was en-

titled to 30 days notice before coverage could be

cancelled.

The fact that Marshall terminated the lease and did

not report the aircraft as a covered plane after August

10, 1978, does not impair [the Bank's} right to recover.

The breach of warranty clause [i.e. standard mortgage

clause] specifically protects the bank against ‘acts’ of

the insured, including unilateral cancellation, absent

effective notice.’ Jd., 636 P.2d at 618.

Thus, in this case, the risk (direct physical loss of the

airplane) was specifically covered under the terms of the in-

surance policy. The insured's ‘‘acts’’ could not prejudice the

lienholder’s right to collect under the insurance policy for

a loss which was specifically covered under the policy.

In American National Bank & Trust Co. v. Young, 329 N.W.

2d 805 (Minn. 1983), a mortgagee bank filed suit against an

insurer who furnished coverage on an airplane. The policy

included an endorsement with a standard mortgage clause.

The airplane was flown to Columbia, where it was seized by

the Columbian government.

Neither party disputed the fact the airplane was being used

in drug trafficking operations at the time of its seizure. Two

exclusions in the policy noted coverage was not provided

‘during or in connection with a flight involving any traffick-

ing in narcotics, drugs, or involving the unlawful importa-

tion or exportation of property or persons... or

26

any loss due to ... seizure ... or any taking of the aircraft or

any loss or damage thereof by any Government or govern-

mental authority...’’ Id., 329 N.W. 2d at 808. The policy also

noted ‘‘The policy applies only to occurrences, accidents and

losses during the policy period while the aircraft is in the

Western Hemisphere north of 16° North Latitude. Jd., 329

N.W. 2d at 809. The Minnesota Supreme Court affirmed the

grant of coverage, holding:

‘The mortgagor by his acts or neglect breached the con-

ditions and exclusion of his policy. He may not recover

under his policy of insurance. However, his conduct can-

not defeat [the mortgagee’s] right to recover.”’ /d., 329

N.W. 2d at 813.

The decision is the only decision cited by the Fifth Cir-

cuit which lends some support to its holding. However, the

decision fails to address the most important issue in the

situation at bar, which the Oregon Supreme Court address-

ed in Western Leasing, Inc. v. Occidental Fire and Casual-

ty, supra, (i.e. Did the loss arise from a risk covered by the

applicable insurance policy?) Once this question is

answered in the affirmative, then, and only then, should a

court determine if an ‘‘act’’ or ‘‘omission”’ of the mortgagor

caused a loss which was otherwise covered by the insurance

policy, to be excluded from coverage. The Minnesota

Supreme Court did not address whether the loss(seizure by

a foreign government) was a covered risk.

A similar airplane loss resulted in an interesting deci-

ion in Security Ins. Co. v. Commercial Credit Equip., 399

So.2d 31 (Fla. App. 1981). In that case, an airplane owner

purchased insurance which provided coverage for ‘any

direct physical loss...’ Jd., 339 So.2d at 32. In addition, the

owner purchased coverage of the mortgagee's interest

under a breach of warranty endorsement to the policy

through a telex binder. The binder provided “‘all risk

27

ground and flight hull’’ coverage. Jd. An exclusion in the

owner's policy noted no coverage was afforded for deten-

tion or restraint by a governmental authority. However,

the breach of warranty endorsement (which contained a

standard mortgage clause) contained its own exclusions,

none of which excluded loses for detention or restraint by

governmental authorities.

The owner's airplane was subsequently flown to Col-

umbia, South America, where it was detained by the Col-

umbian government. When the mortgagee sued for its loss.

the insurance company denied coverage. The Florida ap-

pellate court affirmed the grant of coverage in favor of the

mortgagee, and held inter alia, the terms of the warranty

endorsement itseif created all risk coverage in favor of the

mortagee:

‘The only insurance agreement delivered to [the mor-

tgagee] was the Telex binder ... providing all risk

coverage ...

We, therefore, conclude that exclusions in the main

policy do not apply to the breach of warranty endorse-

ment which provides coverage for ‘loss or damage .

Next, the insurer...contends that ‘loss’ must be a

direct physical loss, such as damage to the aircraft,

but not its detention or destruction. We disagree. The

breach of warranty endorsement uses the term ‘loss’

not direct physical loss.”” Jd., 399 So.2d at 34.

Instead of supporting its holding, as the Fifth Cir-

cuit maintains, just the opposite is true. Implicit in the

Florida appellate court's holding is the underlying principle

that coverage would not have been afforded to the mor-

tgagee had the endorsement not expressly expanded the

risks covered in the original policy.

circ ii aii ei i is

28

In Hartford Fire Ins. Co. v. Associates Capital Corp..

313 So.2d 404 (Miss. 1975), a mortgagee filed suit against

a fire insurer to recover on an insurance contract issued to

the mortgagor. The fire insurance contract in question con-

tained standard mortgage clause language, which pro-

tected the mortgagee from ‘‘any act or neglect of the mor-

tgagor...... Id., 313 So.2d at 408. The thrust of the

testimony at the trial level was that the mortgagor

employed two persons to burn the insured property. Thus,

the case is easily distinguishable from the case at bar, since

the risk insured against (fire) was obviously covered under

both the mortgagee and the mortgagor policies. If the mor-

tgagor had not burned the property, the mortgagee was en-

titled to recover under the loss-payable clause. /d., 313

So.2d at 406. If the mortgagor had the property destroyed,

the mortgagee was still covered, since this was an ‘‘act”’ or

‘“‘“omission”’ of the mortgagor which would have precluded

coverage for a risk which otherwise would have been

covered.

In Fort Hill Fed. S & Lv. S.C. Farm Bur. Ins., 316

S.E.2d 684 (S.C. App. 1984), an insurer issued a fire policy

to the mortgagors, which policy contained a standard

mortgage clause naming the mortgagee as loss payee. The

mortgagors forwarded a bad check for the insurance

premium. The insurance company mailed a notice of

cancellation to the mortgagors and the mortgagee.

However, the fire insurance policy in question provided “°...

in case the mortgagor or owner shall neglect to pay any

premium due under this policy, the mortgagee... shall. on

demand pay the same....This company reserves the right to

cancel this policy at any time as provided by its terms, but

in such case this policy shall continue in force for the

benefit only of the mortgagee for ten days after notice to

the mortgagee ... of such cancellation..."’ Jd., 316 S.E. 2d

686. The South Carolina appellate court affirmed the grant

of coverage, notwithstanding the mortgagors’ failure to

pay the policy premium.

29

Once again, the risk insured against (loss by fire) was

clearly a risk covered under the terms of the policy agree-

ment. However, an act of the mortgagors (failure to pay the

premium) could not abrogate the right of the mortgagee to

recover for a risk clearly covered by the fire insurance

policy.

In Charter Bank of Boonville v. Shelter General In-

surance, 664 S.W.2d 44 (Mo.App. 1984), the bank, whose

predecessor was named as loss payee in an automobile colli-

sion policy, brought suit to recover under the loss payable

clause (standard mortgage clause) for collision damages

caused to a pickup truck. The insureds permitted the policy

Lo lapse by not paying the insurance premium. Subsequent

to allowing the policy to elapse, the insureds purchased a

replacement truck for the truck previously covered under

the collision policy. The insurance policy required the

lienholder (Bank) be given notice of cancellation or termina-

tion. The policy also mandated the bank be provided with

the election within ten days after such termination to pay

the premium and continue the policy in force. The Missouri

appellate court, in this instance, held there was valid

coverage vis-a-vis the bank's interest. The risk which caus-

ed the loss (collision) was obviously a risk insured against

under the collision policy. The fact that the insureds allow-

ed the policy to lapse was of no moment, since this was an

‘act’ which precluded coverage as to the insureds, but had

not effect on the policy as to the lienholder.

In Don Chapman Motor Sales v. National Savings

Insurance Co., 626 S.W. 2d 592 (Tex. App. 1981) the mor-

tgagee. a loss payee on a physical damage automobile

policy,sued the insurance company for recovery under the

policy. The policy contained a standard mortgage clause

endorsement. An exclusion in the policy provided: ‘this

30

policy does not apply... while the automobile is operated

by...any person under the minimum age required to obtain

a license to operate a private passenger automobile...’ /d..

626 S.W. 2d at 594. The automobile was subsequently

wrecked by the mortgagee’s son, who did not have a

driver's license. The Texas court affirmed the grant of

coverage. Once again, the risk (loss through physical

damage) was obviously covered under the terms of the in-

surance policy. An act of the mortgagor (allowing her son

to drive the automobile without a license) triggered an ex-

clusion which otherwise would have resulted in coverage

under the policy.

CONCLUSION

For the reasons set forth above, it is respectfully sub-

mitted this Petition for Certiorari should be granted.

SL? Fanuc Mesh,

*S. DANIEL MEEKS

LAWRENCE E. ABBOTT

Attorneys for Petitioner

*Counsel of Record

A-]

APPENDIX A

INGERSOLL-RAND FINANCIAL CORP.,

Plaintiff-Appellee

y

EMPLOYERS INSURANCE OF WAUSAU,

a Mutual Co.,

Defendant-Appellant

No. 84-3463

United States Court of Appeals

Fifth Circuit.

sept 23, 1985

Appeal from the United States District Court for the

Eastern District of Louisiana.

Before WISDOM, POLITZ, and TATE, Circuit

Judges

TATE, Circuit Judge:

Based upon admiralty and maritime jurisdiction, 28

U.S.C. § 1333, Fed. R. Civ. P. 9(h), the plaintiff-mortgagee

(‘Ingersoll-Rand’) sues the defendant hull insurer

(‘Employers’) of a vessel to recover under a ‘‘standard”

loss-payee mortgage clause. The hull insurance policy

issued to the insured owner-mortgagor (‘‘Mire’’) of the

vessel covered only named perils; these did not include the

theft of the vessel. Under the findings of fact of the district

court, which are not clearly erroneous, Fed.R.Civ.P. 52(a).

the loss of the vessel was caused by the theft of the vessel,

but the theft resulted from the negligent acts or omissions

of the insured, Mire. The district court granted Ingersoll.

Rand. the _ plaintiff-mortgagee, recovery against

A-2

Employers, the defendant insurer; the latter appeals, con-

tending that the mortgagee cannot recover for a risk not

covered by the insuring agreement between the owner-

mortgagor and the insured.

We affirm. The standard mortgage clause creates a

separate contract of insurance between the insurer and the

mortgagee, and this clause provided that the interest of the

mortgagee shall not be impaired ‘‘by any act of or omission

or neglect’ of the mortgagor-owner—in the present case.

being the negligent acts and omissions that resulted in the

theft of the insured vessel.

[1,2] Preliminarily, althougth the present marine hull

insurance policy is a maritime contract falling within the

admiralty jurisdiction of the federal courts, New England

Marine Insurance Company v. Dunham, 78 U.S. (11 Wall.)

1, 34-36, 20 L.Ed. 90, 100-01 (1871), nevertheless, the inter-

pretation of a contract of marine insurance is—in the

absence of a specific and controlling federal rule—to be

determined by reference to appropriate state law. Wilburn

Boat Company v. Firemen’s Fund Insurance Company, 348

| U.S. 310, 312-16, 75 S.Ct. 368, 369-71, 99 L.Ed. 337 (1955).

No countervailing federal rule is cited to us. The district

court correctly determined that Louisiana law was—in the

view of that state's substantial and legitimate interest—

the appropriate state law to resort to for the interpretation

of the present marine hull insurance contract and en-

dorsements: The policy was delivered in Louisiana to in-

sure Louisiana property of the Louisiana mortgagor-owner,

with the loss occurring in Louisiana, and with both parties

to the present action being foreign corporations authorized

to do business in Louisiana, out of which Louisiana

A-3

doing business arose the present litigation. Walter v.

Marine Office of American, 537 F.2d 89, 94 (5th Cir. 1976);

Irwin v. Eagle Star Insurance Company, 455 F.2d 827,

829-30 (5th Cir.), cert, denied, 409 U.S. 852, 93 S.Ct. 118, 34

L.Ed.2d 95 (1972).!

Employers’ hull insurance policy covering the vessel

was a ‘“‘named peril’’ policy, in which it insured the vessel

against all the risks named in the perils clause (and, by im-

plication, risks not named were not covered). Gilmore and

Black, The Law of Admiralty, § 2-9 at pp. 71-72 (2d ed.

1975).2 In the present policy, for instance, the named perils

included ‘‘the adventures and perils of the waters ..., fire,

lightning, earthquake, ’’etc.; also, loss of or damage to the

vessel caused by accidents ‘‘in loading, discharging or

handling cargo, or in bunkering,”’ breakdown of motor

generators or other electrical equipment, ‘‘negligence of

charterers and/or repairers,’ ‘‘negligence of master.

mariners, engineers or pilots, ‘etc. (The accidental loss was

not cove, however, if it ‘resulted from want of due

diligence by the assured, the owners or managers of the

vessel, or any of them.’’)

| We advert to these well-settled principles only because the defen-

dant Employers on appeal contests their application, without advancing

arguable reasons to the contrary. Employers does not, for instance,

point to any federal rule contrary to the interpretations adopted by the

Louisiana courts, which are, moreover. in accord with the interpreta-

tions adopted by the great majority of other American state

jurisdictions.

2 “Named peril’ policy is to be differentiated from an ‘all risks”

policy. A policy of insurance insuring against ‘all risks’ creates a special

type of coverage that extends to risks not usually covered under other

insurance; recovery under an all-risk policy will be allowed for all for-

tuitous losses not resulting from misconduct or fraud, unless the policy

contains a specific provision expressly excluding the loss from

coverage.’ Dow Chemical Company v. Royal Indemnity Company. 635

F.2d 379, 386 (5th Cir. 1981).

A-4

Both parties agree that loss by theft of the vessel

was not among the named perils covered by the policy: so

that the insured mortgagor-owner (Mire) could not itself

recover on the policy for the present loss if occasioned by

a theft of the vessel. The crux of the insurer Employers’

argument, not supported however by most if not all of the

cases cited by it (see note 3, infra), is that the mortgagee-

additional insured Ingersoll-Rand could not receive

coverage by its standard mortgage clause (see II below) for

a risk not covered by the principal policy to which this

standard mortgage clause was an endorsement.

II

The plaintiff Ingersoll-Rand had loaned Mire, the

owner-insured of the stolen vessel, $55,000 and had been

granted a first preferred ship mortgage on the vessel to

secure the note. Ingersoll-Rand by endorsement to the hull

policy issued by Employers to Mire was made an additional

loss payee with regard to the insured vessel. By further en-

dorsement, and in consideration of the premium included,

the insurer Employers entered into an agreement with

Ingersoll-Rand, the mortgagee; that seaworthiness of the

vessel was admitted, and further agreed that:

[T]he interest of the mortgagee shall not be impaired or

invalidated by any act of or omission or neglect of the

mortgagor, owner, master, agent, crew, of the vessel(s)

insured by this Policy or by any failure to comply with

any warranty or condition over which the mortgagee

had no control or over which the mortgagee could, but

has not exercised such control, or by any change in the

title, ownership, or management of such vessel(s) ...

————— ———<<«<_—

A-5

[3] This is what is known as a ‘“‘standard”’ or ‘‘union™’ mor-

tgage clause. May v. Market Insurance Company, 387

So.2d 1081, 1083-84 (La.1980); 10 Couch on Insurance 2d

(Rev.ed), § 716 (1982). Under this clause, ‘‘an independent

or separate undertaking exists between the mortgagee and

the insurer, which contract is measured by the terms of the

mortgage clause itself. There are accordingly in substance

two contracts of insurance, the one with the mortgagee,

and the other with mortgagor.’’ May, supra, 387 So.2d at

1084, quoting § 42:694, Couch on Insurance 2d (1963) now

at Couch on Insurance 2d (Rev.ed. 1982) § 42:728. As is

uniformly held, under a standard mortgage clause the mor-

tgagee may recover for the loss of the insured property (up

to the amount of his debt and within the limits of the mor-

tgage clause) despite a policy defense against the

mortgagor-insured himself, at least where (as here) the

fault or neglect of the latter has occasioned the loss to the

detriment of the interest of an insured mortgagee, See also

Couch on Insurance 2d, supra, §§ 717, 719, 720,725, 728,

736-739; 5 Appleman and Appleman, Insurance Law and

Practice, § 3401 at pp. 282, 289-93 (1970). An notation, *‘In-

sured’s Fraud—Loss Payee’s Rights,” 24 ALR 3d 435.

439-40 (1969).?

3The “standard” or ‘‘union™ mortgage clause here applicable is to

be distinguished from the “simple” or “‘open’’ mortgage clause. The lat-

ter simply provides that the proceeds of the policy shall first be paid to

the mortgagee as his interest appears. but it does not provide a separate

undertaking that the mortgagee’s interest shall not be impaired by any

act or neglect of the insured-mortgagor. In effect, the ‘simple ‘mortgage

clause is simply to make the mortgagee an appointee of the insurance

fund. with a right of recovery no greater than that of the mortgagor

insured. See May, supra, 387 So.2d at 1083; Couch on Insurance 2d.

supra, §§ 42:693, 694; Appleman, Insurance Law and Practice, supra. §

3401 at pp. 282-84, 293-95; Annotation. supra, 24 ALR 3d at 437.

In Employer's argument that the loss-payee mortgage clause can

afford the mortgagee no greater rights than the coverage afforded by

the principal policy. at least some of the decisions relied upon b\

Employers, e.g., Wells Fargo Bank International Corporation v. London

a

A-6

Where the issue has been squarely presented, the

modern decisions are unanimous. and the earlier decisions

virtually so, in holding that a mortgagee under a standard

mortgage clause may (where not guilty himself of any

breaches of policy conditions) recover from the insurer for

a loss sustained by the mortgaged property. even though

the risk be excluded from the policy coverage, where any

act of the mortgagor has caused or contributed to the loss

as resulting from an excluded risk; and even though as bet-

ween the mortgagor-insured and the insurer there is no

coverage because of some default by the mortgagor. The

more recent decisions include: Underwriters at Lloyd's

London v. United Bank Alaska, 636 P.2d 615, 618 (Alaska

1981); American National Bank and Trust Company v.

Young, 329 N.W.2d 805, 811-13 (Minn.1983); Hartford Fire

Insurance Company v. Associates Capital Corporation, 313

So.2d 404, 407-08 (Miss.1975); Fort Hill Federal Savings

and Loan Association v. South Carolina Farm Bureau In-

surance Company, 281 S.C. 532, 316 S.E.2d 684, 687-88

(1984); Security Insurance Company of Hartford v. Com-

mercial Credit Equipment Corporation, 399 So.2d 31,34

(Fla.App.), pet. for rev. denied,411 So.2d 384 (Fla.1981);

Charter Bank of Boonville v. Shelter General Insurance.

664 S.W.2d 44, 46-47 (Mo. App.1984); Don Chapman Motor

Sales, Inc. v. National Savings Ins. Co., 626 S.W.2d 592,

596-97 (Tex.App.1982), writ refused. no reversible error

(Tex.1983).

The rationale of these decisions may be summarized

as follows:

The provision in the standard mortgage clause that

with respect to the mortgagee the insurance shall not be

(footnote 3 continued)

Steam-Ship Owners’ Mutual Insurance Associations. 408 F.Supp. 626

(S.D.N.Y.1976). distinguishably concern a “simple” mortgage clause.

A-7

invalidated by any act of the mortgagor does ‘“‘not refer

merely to acts prohibited by the contract or to failure to

comply with the terms thereof, but literally embrace[s] any

act of the mortgagor’”’ that leads to impairment of the mor-

tgagee’s insurance protection afforded by the clause. 10

Couch on Insurance 2d (Rev.ed.) § 42:719, p. 755)(emphasis

added). ‘‘This clause constitutes an independent contract

between the insurer and the mortgagee covering the mor-

tgagee’s insurable interest, and not merely the property,

and is affected only by acts of the mortgagee.’’ Don Chap-

man Motor Sales, Inc., supra, 626 S.W.2d at 597. The in-

tent of the standard mortgage clause is that ‘‘the mor-

tgagee’s right to recover will not be invalidated by the act

or negligence of the mortgagor’ and that ‘‘no act or default

of any person other than the mortgagee ... shall affect the

rights of the mortgagee to recover in case of loss.’ Hart-

ford Fire Insurance Company, supra 313 So.2d at 407. See

Couch on Insurance 2d, supra, § 42:736. ** ‘[I]nsofar as the

provisions of the policy are inconsistent with or an-

tagonistic to the clause protecting the interest of the mort-

gagee, they must be regarded as inapplicable in determin-

ing his rights.’ "’ Security Insurance Company of Hartford.

supra, 399 So.2d at 34 (quoting from treatise text now

found at Couch on Insurance 2d (Rev.ed.) § 42:720 (1982)).

[4] Although the precise issue before us has not sur-

faced in any reported Louisiana decision we could find.

there is no reason to conclude that Louisiana would not

adopt the nigh-uniform construction by other jurisdictions

of the protection afforded a mortgagee’s interest a stan-

dard mortgage clause, which Louisiana recognizes as affor-

ding independent coverage to the mortgagee in accord with

the terms of the clause. May v. Market Insurance Com-

pany, 387 So.2d 1081, 1084 (La.1980). Thus, although here

the theft of the insured vessel was not a risk covered by the

A-8

policy between the mortgagor-insured and the insurer. the

loss of the vessel was nevertheless insured as to the mor-

tgagee s interest under the terms of the standard mortgage

clause agreement between the mortgagee and the insurer,

because the theft-loss of the vessel resulted from the

negligence of the mortgagor.

Only two decisions cited by Employers lend some

support to its contention that the protection afforded a

mortgagee by a standard mortgage clause may not afford

the mortgagee coverage excluded by the unambiguous

terms of the policy: Avemco Insurance Company v. Jeffer-

son Bank & Trust Company, 613 S.W.2d 436, 438

(Mo.App.1980) and General Motors Acceptance Corpora-

tion v. The Western Fire Insurance Company, 457 S.W.2d

234, 237 (Mo.App.1970). There, however, the Missouri in-

termediate courts in each instance specifically found that

no act of the mortgagor-insured had contributed to the loss

excluded by the policy.4 However, if—as here—an act or

neglect of the mortgagor had invalidated the insurance,

Missouri would like all other jurisdictions have given the

standard mortgage clause a broad construction that afford-

ed independent coverage te the mortgagee. Charter Bank of

Boonville, supra, 554 S.W.2d at 46; Equality Savings and

Loan Association v. Missouri Property Insurance Place-

ment Facility, 5387 S.W.2d 440, 441-42 (Mo.App.1976).

4In so doing, the Missouri intermediate courts characterized an

“act of the mortgagor that impaired coverage less broadly than did the

decisions cited in this opinion (which included not only the mortgagor's

act but also its foreseeable consequences within the clause’s protection

against impairment of the mortgagee’s security), a distinction critically

noted in American National Bank and Trust Company v. Young, 329

N.W.2d 805. 811-12 (Minn.1983) as representing an isolated view.

A-9

We thus find no merit to the defendant Employers’

contentions on appeal.”

Conclusion

Accordingly, we AFFIRM the judgment of the

district court granting the mortgagee Ingersoll-Rand

recovery under its standard mortgage clause for the unpaid

secured debt upon the stolen vessel.

°The defendant finally contends that a ruling that protects the

mortgagee in this case will promote deliberate and fraudulent acts by a

mortgagor that lead to loss of his vessel and the payment of his debt

through the insurance proceeds. This argument overlooks that the stan-

dard mortgage clause provides that, upon payment to the mortgagee,

the mortgagee’s claim and security interest are assigned to the in-

surance company to the extent of the payments received, thus giving

the insurance company the right to collect from the mortgagor the debt

still owed by him to the mortgagee.

;

A-10

APPENDIX B

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

INGERSOLL-RAND CIVIL ACTION

FINANCIAL CORPORATION

VERSUS NUMBER 82-5665

EMPLOYERS INSURANCE SECTION “L”

OF WAUSAU,

A Mutual Company

Filed June 4,1984

Date of Entry June 5, 1984

JUDGMENT

Considering the written reasons on file herein and

the direction of the Court as to the entry of judgment:

accordingly:

IT IS ORDERED, ADJUDGED AND DECREED

that there be judgment in favor of plaintiff, Ingersoll-Rand

Financial Corporation and against defendant, Employers

Insurance of Wausau in the sum of $45,480.38 plus interest

from the date of loss and all costs of this proceeding.

New Orleans, Louisiana, this 31 day of May, 1984.

___/si Veronica D. Wicker |

UNITED STATES DISTRICT JUDGE

A-11

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

INGERSOLL-RAND CIVIL ACTION

FINANCIAL CORPORATION

versus NUMBER 82-5665

EMPLOYERS INSURANCE SECTION L

OF WAUSAU

A Mutual Company Filed

May 29, 1984

Date of Entry May 30, 1984

Plaintiff, Ingersoll-Rand Financial Corporation.

brings suit against defendant, Employers Insurance of

Wausau, claiming that it is entitled to recover under a hull

insurance policy issued by the defendant covering the MV

SUZIE. The MV SUZIE was lost on December 14, 1981. It

was owned and operated by Mire Marine Services, Inc., not

a party to this suit. This matter was submitted to the

Court on a former date. After considering the record, the

stipulations of the parties, the evidence adduced at trial,

the briefs of counsel and the applicable law, the Court

issues the following Findings of Fact and Conclusions of

Law, to wit:

FINDINGS OF FACT

1. Plaintiff, Ingersoll-Rand Financial Corporation

(hereinafter Ingersoll-Rand) is the holder of a promissory

note secured by a First Preferred Ship Mortgage executed

by Mire Marine Service, Inc., the owner of the MV SUZIE.

(Exhibits A and B)

ee

A-12

2. At all times pertinent hereto, the SUZIE was

covered by a hull insurance policy issued by the defendant.

Employers Insurance of Wausau, which named plaintiff as

an additional loss payee. (Exhibit F) Also in effect was a

breach of warranty endorsement to the policy, admitting

the seaworthiness of the vessel. whereby Employers agreed

that the interest of the mortgagee, Ingersoll-Rand, was not

to be impaired or invalidated by any negligence of the mor-

tgagor, owner, master, agent or crew of the vessel. (Exhibit

G)

3. On or about December 11, 1981, Owen Mire, Presi-

dent of Mire Marine, moored the vessel at its dock on the

Intercoastal Waterway. On December 14, Mire discovered

that the SUZIE was missing. Immediately thereafter, Mire

contacted the bridge tender at the Louisa Street Bridge

and the lockmaster at the Bayou Bouef locks. Both

reported that their logs did not reflect that the vessel had

effected passage through the locks or the bridge and the

vessel has never been recovered to this date. (deposition of

Owen Mire)

4. It is undisputed that the premiums on the policy

were timely paid and that demand for payment was proper-

ly made to the defendant.

5. After defendant refused to make payment on the

policy, Ingersoll instituted this suit to recover the outstan-

ding principal under the policy.

6. Defendant contends that the vessel was stolen and

accordingly is not covered under the poiicy provisions. The

great weight of the credible evidence reflects that the

SUZIE was stolen. The vessel had been left unattended for

two or three days, and the keys were easily obtainable and

—_—

A-13

transferable by the various crew members and other

employees of Mire Marine. Moreover. the Mire Marine

dock was poorly lighted and in a remote and isolated area.

(Deposition of Owen Mire) It is undisputed that the vessel

could have been navigated into the Gulf of Mexico or the

Atchafalya River without passing the Louisa Street Bridge

or through the Bayou Bouef locks. Plaintiff's contention

that the vessel was rammed by an oncoming tug or swept

away by acurrent is based on mere speculation. There was

no debris found at the Mire dock after the disappearance

which would have indicated loss by collision, or heavy cur-

rent. Furthermore, there was no evidence presented that

the SUZIE was improperly moored, nor was any trace of

the vessel ever discovered. (Deposition of Owen Mire)

7. However, the evidence reflects that Mire Marine,

the owner of the MV SUZIE was negligent in failing to pro-

perly light its dock, to properly guard the vessel and in fail-

ing to adequately monitor the keys to the vessel. In his

deposition, Owen Mire, President of Mire Marine testified

that a watchman should have been posted over the SUZIE,

and that many employees of the company possessed keys

to the vessel and that these keys were unmonitored by the

Company and easily copied. Accordingly, the Court finds

that the theft of the vessel would not have occurred but for

the negligence of Mire Marine.

8. It is undisputed that the indebtness of Mire

Marine to plaintiff under the aforementioned note as of

time of the loss is $45,480.38.

CONCLUSIONS OF LAW

1. This is an admiralty and maritime claim within the

meaning of Rule 9(h). 28 U.S.C. §1333; Insurance Co. v.

Dunham, 78 U.S. (11 Wall) 1 (1970).

A-14

2. The first legal isue to be decided is what law should

be applied in interpreting the relevant portions of the

policy in question. In Wilburn Boat Co. v. Fireman's Fund

Ins. Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955), the

Supreme Court held that in the absence of applicable

federal statutes or judicially established federal admiralty

law, the district court should look to the law of the ap-

propriate state for guidance. Since none of the cases cited

by the parties in their briefs, nor any other cases

discovered by this Court reveal that this matter has been

addressed by federal authorities, the Court must turn to

state law. See Walter v. Marine Office of America, 577 F.2d

89 (5th Cir. 1976); Travelers Indem. v. Certain Under-

writers at Lloyds, 566 F. Supp. 267 (E.D. La 1983). Loui-

siana law would undoubtably be the appropriate state law

to apply, since the loss of the vessel occurred in Louisiana,

the owner of the vessel is a Louisiana resident and the par-

ties are corporations doing business in Louisiana. Walter v

Marine Office of America, supra, at 94; Travelers Indem. v.

Certain Underwriters at Lloyds, supra, at 269. Unfor-

tunately, Louisiana jurisprudence on the precise issues in-

volved in this case is not well-defined and thus this Court

must extrapolate a rule from available case law and from

the decisions of other jurisdictions.

3. Plaintiff contends, inter alia, that it is afforded

coverage for the loss of the SUZIE under Endorsement

14-A of the policy. Endorsement 14-A provides, in perti-

nent part, that

{IJn consideration of an additional premium... seawor-

thiness of the vessel(s) insured by this Policy as bet-

ween this Company and [plaintiff] hereinafter [called]

the mortgagee...is hereby admitted, and the interest of

the mortgagee shall not be impaired or invalidated by

ee |

A-15

any act of or omission or neglect of the mortgagor.

owner, master, agent, crew of the vessel(s) insured by

this Policy or by any failure to comply with any war-

ranty or condition over which the mortgagee has no

control or over which the mortgagee could, but has not

exercised such control or by any change in the title,

ownership, or management of such vessel(s); the in-

terest of the mortgagee being that interest more par-

ticularly set forth in the mortgage on such vessel(s) in

favor of the mortgagee and the note attached thereto,

said mortgage and [note] being assignable to this Com-

pany upon demand provided full payment of the in-

terest...of the mortgagee has first been paid. This

coverage includes, but [is] not limited to Inchmaree

protection....In the event of cancellation or modifica-

tion of this Policy this Company shall give 30 days

written notice of such cancellation or modification to

the mortgagee prior to the effective date thereof. All

other terms and conditions and valuations remaining

unchanged. (Exhibit G)

4. Under Louisiana law, Endorsement 14-A is a stan-

dard mortgage clause. May v. Market Ins. Co., 387 So2d

1081 (La. 1980). Notwithstanding the fact that it is merely

a rider on the insurance policy between the mortgagor and

the insurance company, a standard mortgage clause

creates a separate and independent contract between the

insurer and the mortgagee. as if the mortgagee had pro-

cured a separate policy naming himself as the insured. May

t. Market Ins. Co., supra, at 1084.

>. Defendant argues that a standard mortgage clause

merely precludes an insurer from denying to the mortgagee

coverage under the ‘‘main”™ policy if a condition of the

policv is breached by the mortgagor, but that it

A-16

does not create additional coverage. Therefore, it is argued

that because Mire Marine. the mortgagor. could not

recover under the policy. !coverage by plaintiff is also

precluded. The Court rejects this contention. Although

some jurisdictions have adopted such a restrictive inter-

pretation, see, e.g. Avemco Ins. Co. v. Jefferson Bank &

Trust Co., 613 S.W. 2d 436 (Mo. App. 1980); General

Motors Accceptance Corp. v. Western Fire Ins. Co., 457

S.W.2d 234 (Mo. App. 1970), the better rule, and the one

most likely to be adopted by the Louisiana Courts. is that

a standard mortgage clause broadens the scope of coverage

afforded the mortgagor in the undelying policy. This is the

majority view. White Motor Corp. v. Northland Insurance

Co., 315 F. Supp. 689 (S.D. 1970); American National Bank

& Trust Co. v. Young, 329 N.W. 2d 805 (Mn. 1983);

Southwestern Funding Corp. v. Motors Ins. Corp., 59 Cal.

2d 91, 378 P.2d 361, 28 Cal. Rptr. 161 (Cal. 1963). Piedmont

Fire Ins. Co. v. Fidelity Mortgage Co., 35 So.2d 352 (Ala.

1948); Don Chapman Motor Sales, Inc. v. National Savings

Ins. Co., 626 S.W.2d 592 (Tex. App. 1982); Underwriters at

Lloyds v. American Aviation Ground Services, Inc., 421

So.2d 12 (Fla. App. 1982); Security Ins. Co. of Hartford v.

Commercial Credit Equip. Corp., 399 So.2d 31 (Fla. App.)

pet. for rev. denied, 411 So.2d 384 (1981); Airvac, Inc. v.

Ranger Ins. Co., 266 So.2d 178, 180 (Fla. App. 1972); Na-

tional Cas. Co. v. GMAC, 161 So.2d 848 (Fla. App. 1964)

Reed v. Firemans Ins. Co., 80 A. 462 (N.J. App. 1911).

6. While all clauses of an insurance contract

should be construed together. and the provi-

sions of a mortgage clause must be read

lWwe agree with the defendant s contention that no coverage for

the theft of the vessel is afforded in the underlying policy. including the

Inchmaree clause. See Cambre v. Travelers Indemnity Co. 404 So 2d

511 (La. App. 4th Cir. 1981) and the cases cited therein.

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together and harmonized with the balance of

the policy when reasonably possible. the

mortgage clause must prevail in the case of

an irreconcilable conflict between it and

other provisions of the policy. That is, in-

sofar as the provisions of the policy are in-

consistent with and antagonistic to the

clause protecting the interest of the mor-

tgagee, they must be regarded as inap-

plicable in determining his rights.

American National Bank & Trust Co. v. Young, supra, at

812 (quoting 11 G. Couch, Couch on Insurance §42:686 at

345 (1963 and Supp. 1976)): Security Ins. Co. v. Commercial

Credit Equip. Co., supra, at 34.

~

A contract of insurance, like any other agree-

ment. is the law between the parties, and

every stipulation therein must be construed

as written. The rules established for the in-

terpretation of written instruments in

general apply in the construction of in-

surance policies.

Cambre v. Travelers Indem. Co., 404 So.2d 511, 513 (La.

App. 4th Cir. 1981\(quoting Harmon v. Lumberman’s

Mutual Cas. Co., 247 La 263. 170 So.2d 646, 651 (La. 1965)).

8. By its plain terms, Endorsement 14-A insures the

interest of the mortgagee against ‘‘any act of omission or

neglect of the mortgagor.’ (Emphasis supplied) Since the

negligence of the mortgagor was the proximate cause of the

loss of the vessel by theft; and since it is not contended that

the plaintiff was in any way negligent or had any control

over the activities of Mire Marine with regard to the

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safekeeping of the SUZIE. plaintiff is entitled to recover

under the policy.

9. In any event, if the meaning of Endorsement 14-A

is unclear, under Louisiana law, it must be construed

‘against the insurer who wrote it and should be read

liberally so as to indemnify the insured.’ Walter v. Marine

Office of America, 537 F.2d at 95.

10. Let judgment be entered in favor of plaintiff.

Ingersoll-Rand Financial Corporation and against defen-

dant, Employers Insurance of Wausau in the sum of

$45,480.38, plus interest from the date of loss and all costs

of this proceeding.

New Orleans, Louisiana this 25th day of May, 1984.

_____/s/ Veronica D. Wicker ,

UNITED STATES DISTRICT JUDGE