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ZURICH INS. CO. v. PATEMAN

October 27, 1987

ZURICH INSURANCE COMPANY, Plaintiff
v.
RONALD MALCOM PATEMAN, et al., Defendants



The opinion of the court was delivered by: LECHNER

 ALFRED J. LECHNER, JR., DISTRICT JUDGE

 Facts1

 Insurance Coverage

 Zurich issued a marine insurance policy (No. OM71-53-069) to the Liberty Fishing Corporation ("Liberty Fishing"), the owners of the fishing vessel F.V. LIBERTY. This policy included hull and machinery coverage in the amount of $ 350,000.00 (the "hull coverage") and protection and indemnity ("P & I") coverage with a combined single limit of $ 100,000.00 for each occurrence (the "P & I coverage").

 The hull coverage ensured the F.V. LIBERTY, her hull, tackle, apparel, engines, boilers, machinery, appurtenances, equipment, stores, boats and furniture. The relevant part of the policy is as follows:

 
In case of any loss or misfortune it shall be lawful and necessary for the assured, their factors, servants and assigns, to sue, labor and travel for, in and about the defense, safeguard and recovery of the vessel named herein, or any part thereof, without prejudice to this insurance, to the charges whereof this Company will contribute as hereinafter provided. It is agreed that the acts of the assured or this Company, or their agents, in recovering, saving and preserving the property insured in case of disaster shall not be considered a waiver or an acceptance of an abandonment, nor as affirming or denying any liability under this policy; but such acts shall be considered as done for the benefit of all concerned, and without prejudice to the rights of either party
 
. . . .
 
In the event of expenditure under the sue and labor clause, this Company will pay the proportion of such expenses that the amount insured hereunder bears to the agreed valuation of the vessel named herein, or that the amount insured hereunder, less loss and/or damage payable under this policy, bears to the actual value of the salved vessel, whichever proportion shall be less.
 
. . . .
 
No recovery for a constructive total loss shall be had hereunder unless the expense of recovering and repairing the vessel named herein shall exceed the agreed valuation.
 
In ascertaining whether the vessel named herein is a constructive total loss the agreed valuation shall be taken as the repaired value, and nothing in respect of the damages or break-up value of the vessel or wreck shall be taken into account.

 (emphasis added.)

 The relevant provisions of the P & I coverage provide as follows:

 
In consideration of the premium and subject to the warranties, terms and conditions herein mentioned, this Company hereby undertakes to pay up to the amount hereby insured and in conformity with lines 5 and 6 hereof, such sums as the assured, as owner of the "LIBERTY" shall have become legally liable to pay and shall have paid on account of:
 
Loss of life, or injury to, or illness of, any person;
 
Hospital, medical, or other expenses necessarily and reasonably incurred in respect of loss of life of, injury to, or illness of any member of the crew of the vessel named herein;
 
Costs or expenses of, or incidental to, the removal of the wreck of the vessel named herein when such removal is compulsory by law ; provided, however, that there shall be deducted from such claim the value of any salvage recovered from the wreck by the assured;
 
Fines and penalties, including expenses reasonably incurred in attempting to obtain the remission or mitigation of same, for the violation of any of the laws of the United States, or of any state thereof, or of any foreign country; provided, however, that this Company shall not be liable to indemnify the assured against any such fines or penalties resulting directly or indirectly from the failure, negligent, or default of the assured or his managing officers to exercise the highest degree of diligence to prevent a violation of any such laws;
 
Costs and expenses, incurred with this Company's approval, of investigating and/or defending any claim or suit against the assured arising out of a liability or an alleged liability of the assured covered by this policy.

 (emphasis added).

 The defendants, Ronald Malcom Pateman, et al. ("Excess P & I") are various syndicates at Lloyds of London who agreed to insure Liberty Fishing for P & I coverage in excess of the $ 100,000 P & I limit insured by Zurich. Commercial Marine & Insurance Specialists of Florida, acting on behalf of the owners of the F.V. LIBERTY, or their placing brokers, bound excess insurance in three layers in London. *fn2" There were three covernotes providing the excess protection and indemnity insurance.

 Covernote AL-0105 provided up to $ 100,000 in coverage for any one accident in excess of the $ 100,000 Zurich coverage. Covernote LH-1341 provided up to $ 800,000 in coverage for any one accident in excess of Zurich $ 100,000 coverage plus the covernote A-0105 $ 100,000 coverage. Covernote H-3183 provided up to $ 4,000,000 in coverage for any one accident in excess of the $ 100,000 Zurich coverage plus the $ 100,000 covernote AL-0105 coverage plus the $ 800,000 LH-1341 coverage. The validity of the insurance policies reflected in all of the covernotes is not disputed. The parties have agreed that the underlying or primary carrier referred to in all of the covernotes is Zurich.

 The Incident

 On December 12, 1981 the F.V. LIBERTY, an eighty-two foot steel hulled fishing vessel, capsized and sank while attempting to enter the Manasquan Inlet along the coast of New Jersey. This area of the inlet is bordered by two stone jetties and has a width of one hundred twenty five feet. The United States Coast Guard ("USCG") arrived at the scene and rescued a number of the crew; some of the crew died.

 After the casualty, the USCG in Sandy Hook began transmitting a Safety Message Broadcast which stated in part:

 
Salvage operations are ongoing on the F.V. Liberty which is capsized on the south side of Manasquan Inlet. A tug, barge, and many small craft are working in the immediate vicinity. The inlet is partially blocked and all mariners are required to transit the area at slow speed and with extreme caution.

 Shortly after the F.V. LIBERTY sank, a Mr. Dick Williams of Liberty Fishing contacted the USCG station at Manasquan, New Jersey. The USCG issued SITREP (situation report) Two concerning the conversation with Williams. This report stated: "Advised Mr. Williams of his responsibility concerning poll, marking wreck, salvage, property damage."

 The Insurance Adjustment Bureau ("IAB") appointed Captain Charles Dodd, a marine surveyor from Avon-by-the-Sea, New Jersey, to attend on the scene. "IAB also appointed Messrs. Standard, Weisberg, Heckerling & Roscow, P.C. [a law firm] ("Standard, Weisberg") to protect the interests of the Excess P & I and the primary P & I." *fn3" (Stip. 20) In addition, IAB appointed U.S. P & I, a marine survey firm, to attend the United States Coast Guard hearings and to investigate the P & I claims in general.

 On December 12, 1987, Caldwell Diving Service ("Caldwell") began work to remove the F.V. LIBERTY from the inlet. The USCG station in Sandy Hook notified the Corps of Engineers of the capsized vessel. On December 13, 1983, the Commanding Officer of the United States Coast Guard ...


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