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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1986
- **Citation:** 475 U.S. 1046

## Text

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
RE ET RE UIUEE Bh BBB sacwincssnsssacacseccrcnsesevsadgvasceneaces iv
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

aa Anal oece uni andicinabnanaanendvanaeans 1]
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)............
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) ...

————— ———. 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.

A-17

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

A-18

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385018_1253%3A1. Public record. Not legal advice.