Admiralty – A Review of the Eleventh Circuit’s Opinions in 2001

By Colin A. McRae, published on July 9, 2002, in Mercer Law Review 53, no. 4.

Introduction

The Court of Appeals for the Eleventh Circuit handed down ten opinions dealing with admiralty law during the calendar year 2001. Five of these cases dealt with the traditional admiralty concepts of allision, maintenance and cure, the “savings to suitors” clause, marine insurance and indemnity. The Eleventh Circuit also decided three cargo cases dealing with the unsettled package limitation of the Carriage of Goods by Seas Act. Finally, two cases called on the Court to decide how to reconcile traditional admiralty principles with new federal environmental legislation, showing the increased interplay between environmental resource protection and admiralty law.

Allision

In the case of Bunge Corp. v. Freeport Marine Repair, Inc., the Eleventh Circuit was asked to revisit the traditional Louisiana Rule in order to determine whether its burden-shifting principles should be applied when the alliding craft is a partially-constructed vessel. Under the rule of The Louisiana, when a moving vessel strikes, or “allides” with a stationary object, it is presumed that the moving vessel is at fault. The burden of persuasion is thereby shifted onto the moving vessel, and the presumption against it is universally described as “strong” and as one that places a “heavy burden” on the moving ship to overcome.

The moving object which allided with the stationary structure in Bunge Corp. was Hull No. 40, a partially-constructed casino ship that broke free from her moorings during Hurricane Opal and allided with the Plaintiff’s grain-loading facility near Freeport, Florida. The District Court determined that the burden-shifting analysis of The Louisiana applied, and held the Defendant Freeport Marine Repair, Inc. (“Freeport”) liable for $196,500.00 in damages to the grain-loading facility.

In its first enumeration of error, Freeport averred that Hull No. 40 was not a “vessel,” and therefore admiralty law and its Louisiana Rule should not have applied. In order to determine the whether the District Court had properly applied the Louisiana Rule, the Court of Appeals undertook a fundamental admiralty jurisdiction inquiry, parsing out the “locality” and “nexus” tests as they apply to vessels under construction. The Court of Appeals conceded that caselaw exists which would suggest that a vessel under construction may not be subject to admiralty jurisdiction. The Court ultimately concluded, however, that since the allision occurred in navigable waters due to the imperfect mooring of a nearly complete vessel, the incident bore a substantial relationship to a traditional maritime activity, and was therefore properly within the purview of admiralty jurisdiction and its Louisiana Rule.

Freeport next challenged the District Court’s rejection of its argument that Hurricane Opal was a vis major, or “Act of God,” and that the drifting of the vessel was an inevitable accident which “human skill and precaution and a proper display of nautical skill could not have prevented.” The Eleventh Circuit disagreed, affirming the District Court’s factual findings that the force of the winds buffeting the partially-constructed casino ship were such that the breaking free of Hull 40 was avoidable, and therefore Freeport was not absolved from fault.

As a final defense, Freeport argued that Bunge’s grain loading facility partially obstructed the navigable waterway Four Mile Creek without a proper permit in violation of 33 U.S.C. § 403, thereby barring Bunge from recovering under the Pennsylvania Rule. The Court of Appeals reasoned that because construction of Bunge’s facility was completed before December 18, 1968, Bunge was within the purview of the Grandfather Clause, and thus its failure to procure a proper permit was not a violation of 33 U.S.C. § 403. Since there was no violation of the statute, Bunge was not subject to the preclusive effect of the Pennsylvania Rule.

Maintenance And Cure

The Eleventh Circuit Court of Appeals was faced with the challenge of reconciling the general maritime law on maintenance and cure benefits with the often inconsistent “sick wage” provisions of seamen Collective Bargaining Agreements (“CBAs”) in the two-part case of Espinal v. Royal Caribbean Cruises, Ltd. The first part of the case (“Espinal I”) dealt with the plaintiff crewmember’s back injury sustained while working aboard a Royal Caribbean Cruse (“RCC”) vessel as a “tip-earning” employee. Espinal received $766.00 per week for the remaining 112 days of his contract under the “sick wages” provision of the CBA. However, the general maritime law principle of “maintenance and cure” bases the calculation of benefits for a sick or injured “tip-earning” seaman on that individual’s average weekly tip income. Therefore, the plaintiff brought suit in the Southern District of Florida to recover his average weekly tip-based salary, which amounted to approximately $1,500.00 per week. The District Court agreed, ordering RCC to pay Espinal his average weekly tip income for the 112 sick days of wages.

The Court of Appeals reversed the District Court in Espinal I, holding that the terms of the CBA should be honored with respect to its sick wages provision, even though this provision may be inconsistent with the general maritime law. The Court of Appeals recognized that CBAs typically represent a series of trade-offs between an employer and employees in furtherance of a mutually satisfying agreement, and thus “[c]ourts should be loathe … to abrogate clauses in such contracts absent a pressing legal reason.” The Eleventh Circuit has previously allowed the remedies provided for in maritime law to be altered, although not abrogated, by CBAs. Therefore, as long as the method of calculating sick wages is explicitly provided for in the CBA, the level of sick wages may be set below the amount of average tip income received.

In Espinal II, the Court of Appeals clarified a misconception regarding the amount of time which an employer is required to pay sick wages to an injured worker. While working aboard an RCC cruise vessel during a different voyage, Mr. Espinal sustained an eye injury that required medical attention. Mr. Espinal did not receive medical attention for his eye condition, however, until after the vessel had reached its final destination on October 1, 1997, and after he had signed off the ship. His CBA specifically stated that an employee is covered until the date at which the employee signs off the ship. The Court of Appeals accordingly affirmed the District Court’s grant of summary judgment to RCC on the grounds that Mr. Espinal was not entitled to receive sick pay after October 1, 1997, the date Mr. Espinal terminated his contract by signing off the ship.

“Saving to Suitors” Clause

The Court of Appeals reexamined the longstanding principles regarding the applicability of the general maritime law to actions brought pursuant to the “saving to suitors” clause in the case of Diesel “Repower,” Inc. v. Islander Investments, Ltd. This case involved a breach of contract action brought in the District Court for the Northern District of Florida by the plaintiff engine repair yard to recover payment for work done in reconditioning and installing a diesel engine, transmission and propulsion system in the HERO, a vessel owned by Islander Investments, Ltd. (“Islander”). Islander counterclaimed, invoking admiralty jurisdiction, on theories of breach of contract, fraud and negligence. On the day discovery closed, Islander moved the court for leave to amend its counterclaim in order to (1) raise a punitive count, and (2) to recast its other counts as arising under the saving to suitors clause, thereby asking the court to apply the substantive law of Alabama. The District Court denied Islander’s motion, on the basis that allowing the counterclaim to be amended to include a punitive claim would expand the factual basis of Islander’s counterclaim. The District further reasoned that an amendment of the counterclaim to recast the counts already pled would amount to a futile gesture, since substantive admiralty law would govern even if the case were converted to a “saving to suitors” clause case.
The Court of Appeals affirmed the District Court’s decision to deny Islander’s motion for leave to amend its counterclaim. The Court began by noting that if admiralty law governed the claims brought by Islander, then recasting the counterclaim would not change the substantive law and would amount to a futile amendment. The Court invoked a three-step balancing test in deciding whether to apply an admiralty principle or a state law to the claim asserted. Under this balancing test, the court must:
identify the state law involved and determine whether there is an admiralty principle with which the state law conflicts, and, if there is no such admiralty principle, consideration must be given to whether such an admiralty rule should be fashioned. If none is to be fashioned, the state rule should be followed. If there is an admiralty-state law conflict, the comparative interest must be considered – they may be such that admiralty shall prevail or if the policy underlying the admiralty is not strong and the effect on admiralty is minimal, the state law may be given effect.

The Court examined each of the claims asserted in the counterclaim under this balancing test, and concluded that each count would be controlled by substantive admiralty principles. Since all claims would be governed by substantive principles even if cast as “saving to suitors” claims, the Court affirmed the denial of Islander’s futile motion for leave to amend the pleadings.

Cargo

In its first of three cases involving the Carriage of Goods by Seas Act’s $500.00 per package limitation provision, the Eleventh Circuit was called on in Fireman’s Fund Ins. Co. v. Tropical Shipping and Constr. Co., Ltd. to examine the often difficult question of what constitutes a “package.” This case involved a multi-party dispute which arose out of the destruction of a mobile stage during loading for transport from Palm Beach, Florida, to the island of St. Maarten for use in an HBO comedy special entitled “Sinbad’s 70’s Soul Party.” Tall Pony Productions (“Tall Pony”) had contracted with Tropical Shipping & Construction Company (“Tropical”) to transport this leased mobile stage. After the failure of crane used by the stevedores Birdsall, Inc. (“Birdsall”) caused the stage to crash to the dock, resulting in its total destruction, the shipper Tall Pony and its insurers sued Tropical in the District Court for the Southern District of Florida. The District Court held that the package limitation of COGSA § 1304(5) operated to limit the liability of Tropical to $500.00 for the stage, which the court determined to be a singular “package” under the statute.

The Court of Appeals affirmed, reasoning that the Bill of Lading listed the stage as one unit, and the stage’s walls and ceiling could be folded down and fashioned into a trailer to be pulled by a diesel rig. The Court then dismissed the plaintiffs’ argument that the listing on the Bill of Lading of the “insured value” of the cargo should be considered a “declaration of a higher value” that would defeat applicability of the package limitation provision of COGSA, since no additional freight was paid on the cargo under Tropical’s applicable tariff rate. The Court also disagreed with Tall Pony’s contention that the sophisticated technology of the stage allowed it to be shipped without further packaging, and reasoned that the packaging of the stage had in fact been incorporated into the design of the stage itself.

The COGSA package limitation provision was examined once again in another 2001 Eleventh Circuit case involving Tropical, Fishman & Tobin, Inc. v. Tropical Shipping Constr. Co., Ltd. This case involved two shippers who sued Tropical in connection with cargo lost at sea while in transit from the Dominican Republic to the United States. Both plaintiff shippers were clothing manufacturers who ship raw materials in bulk to the Dominican Republic, where the clothes are fashioned and transported back to the United States. Tropical defended the claims brought by these shippers by asserting the COGSA package limitation. The Court of Appeals affirmed the decision from the District Court that the $500.00 per package limitation applied, with the true dispute in each claim revolving around the appropriate unit to which the package limitation should apply in calculating Tropical’s liability on the claims.

The first shipper, Fishman & Tobin, Inc. (“Fishman”), had engaged Tropical to transport containers of baby’s pants manufactured in the Dominican Republic. These baby pants were bundled into units referred to as “dozens,” which were then gathered into “big packs,” which were then loaded into containers. The Court looked to the four principles set forth in Hayes-Leger Assocs., Inc. v. M/V ORIENTAL KNIGHT, to determine what shipping unit should be considered the applicable “package” for COGSA purposes. The Court ultimately decided that because the Fishman bill of lading expressly referred to 39 “big packs,” and made no mention of “dozens,” the “big pack” was properly considered the appropriate unit of measurement as a “package” for COGSA purposes, and the District Court’s limitation of Fishman’s damages award to $19,500.00 was affirmed. Fishman attempted to introduce its own internal cargo manifests and “reembarque” forms, since Fisman contended that the bill of lading miscopied relevant “package” information contained therein. The Court conceded that where a bill of lading and shipping documents do not conform, the shipping documents may prevail. The Court went on to note that in this case, both the bill of lading and the “reembarque” documents agreed as to the type and number of packages shipped, and thus there was no need to look further.

The claim presented by the second shipper MacClenny Products (“MacClenny”) presented the Court of Appeals with the recurring, unsettled question of how to treat the container in the COGSA “package” analysis. MacClenny had contracted with Tropical to transport a specially-rigged container full of approximately 5000 individually-bagged men’s jackets. MacClenny contended that each of the 5000 separately bagged jackets should be considered a package, while Tropical argued that the container in toto represented the appropriate unit of measurement for COGSA package purposes. The Court initially expressed its reluctance to define a container as a package, as it is inconsistent with the congressional purpose of establishing a reasonable minimal level of liability. Ultimately, however, the Court decided that the bill of lading was clear on its face that the parties had stipulated in the “number of packages” column that there was only one package – the container. The Court used an argument similar to a “sophisticated shipper” inquiry to justify this holding by stating that, “[a]fter more than ten years in the shipping business, MacClenny is hard pressed to argue that it did not understand the significance of correctly completing all the declaration forms and bills to COGSA recovery.”

The Court of Appeals was once again confronted with a COGSA package limitation case involving containerized cargo in Groupe Chegaray / v. de Chalus v. P&O Containers. The plaintiff shipper contracted with P&O to transport a 40-foot container filled with perfumes and cosmetics from France to Florida. The cargo consisted of 2,270 cartons of perfume and cosmetics, all but two of which were bundled onto 42 pallets and placed inside the container. After discharge, the container was stored at the Sea-Land Service, Inc (“Sea-Land”) storage site near the Port Everglades, Florida marine terminal facility. The container was stolen from the storage site, and the shipper’s subrogated cargo insurer Groupe Chegaray sued P&O, Sea-Land and Wells Fargo, the security service at the storage facility, to recover damages from the loss of the cargo. The District Court for the Southern District of Florida held that the package limitation applied, but the number of packages for the calculation of liability was 2,270, thereby making P&O and Sea-Land jointly and severally liable for damages up to $1,134,000.00.

The Court of Appeals reversed this finding with respect to the number of packages, and remanded with instructions to apply the $500 liability limitation to the 42 pallets. The Court rejected the carrier’s argument that the container should be considered one package, noting that courts should look with a”jaundiced eye” at attempts to cast containers as COGSA packages. The bundling of the cartons on pallets was considered sufficient packaging under the standards of Hayes-Leger to render these pallets COGSA “packages” for liability limitation purposes. While acknowledging that bills of lading which are ambiguous as to what constitutes a package may be construed against the carrier, the Court referred to the face of the bill of lading in this case, which described the pallets in plain language as “packages.” The Court went on to state that “the bill of lading could not have been more clear.” The Court then used the case as an opportunity to chastise the shipping industry for failing to do its part in clearing up the struggle to arrive at a sound strategy for modernizing the language of the package limitation, in order to ensure that the interests of both shippers and carriers are protected.
Indemnity

In the case of Natco Ltd. Partnership v. Moran Towing of Florida, Inc., the Eleventh Circuit Court of Appeals was asked to decide whether an indemnity provision in a maritime contract can entitle the indemnitee to its attorneys’ fees incurred in defending an action, despite no express reference to attorneys’ fees in the provision. In Natco, the plaintiff construction company Natco sued the towing company Moran and the crane lessors M.D. Moody & Sons (“Moody”) and Mobro Marine, Inc. (“Mobro”) over the loss of a crane in heavy seas while being towed from Jacksonville to a Natco construction site in New York. The District Court found that, due to the language of the various contracts between the parties and the failure of Natco to establish negligence by Moran in transporting the crane, the responsibility for ensuring that the crane was properly secured fell upon Natco. The District Court also found that the indemnity language of the towage contract entitled Moran to its attorneys’ fees incurred in defending the various claims and cross-claims.

Natco appealed the decision to award Moran its attorneys’ fees, reasoning that the indemnity provision did not expressly provide for their recovery. The Court of Appeals initially recognized the general admiralty rule against the awarding of attorneys’ fees, absent statutory or contractual language providing for their recovery. The ultimate determination in the attorneys’ fees inquiry is the intent of the parties, however, so the Court of Appeals looked to the precise wording of the indemnity clause to determine the scope intended by the parties. The Court of Appeals concluded that the parties’ use of the phrase “any and all loss, damage or liability” was consistent with other indemnity clauses that have been found to encompass attorneys’ fees, despite the fact that attorneys’ fees had not been specifically mentioned. The Court disposed of Natco’s argument that Moran’s attorneys’ fees did not “arise out of” the accident by reasoning that a sufficient causal connection had been established between the incident and Moran’s need to spend money to defend all the claims against it.

Marine Insurance

The Eleventh Circuit grappled with a marine insurance question involving the age-old doctrine of uberrimae fidei in Transamerica Leasing, Inc. v. Institute of London Underwriters. The Plaintiff Transamerica Leasing, Inc. (“Transamerica”) had entered into an arrangement in the early 1990’s with C.A. Venezolana de Navigacion (“CAVN”), a government-controlled shipping line in Venezuela, for the lease of various equipment to CAVN, including containers. Pursuant to this equipment lease agreement, CAVN was required to procure insurance coverage, which CAVN acquired through the Defendant, Institute of London Underwriters (“Underwriters”). The policy named as assureds CAVN and/or affiliated companies. Transamerica alleges there was an addendum naming it as an “additional assured,” although the authenticity of this document was disputed by the Underwriters. When it came to Transamerica’s attention that CAVN had lost approximately 500 containers over the course of the previous years, Transamerica gave a notice of claim to Underwriters as a coinsured, which Underwriters promptly denied. The Underwriters denied the claim on the grounds that the claims were too old, and that CAVN had failed to disclose the existence of these claims upon its renewals of the insurance policy, which failure voided coverage under the doctrine of uberrimae fidei.

The District Court found for Transamerica, holding that it was an additional assured and thus CAVN’s failure to disclose material information when reviewing the policy did not void Transamerica’s coverage under the policy. The District Court therefore granted partial summary judgment to Transamerica on its claim for coverage for the lost containers, and a jury awarded it $3,958,981.94 in damages. The Court of Appeals reversed and remanded, holding that there was a dispute of fact for a jury to decide as to whether Transamerica was indeed an additional assured under the policy documents. The Court of Appeals also noted that if the jury finds that Transamerica was a loss payee under the policy, then Transamerica could only recover to the extent that CAVN could. The jury would then have to decide whether the failure to disclose the claims upon renewal voided the coverage altogether.

The case of Fireman’s Fund Ins. Co. v. Tropical Shipping and Constr. Co., Ltd. also had an extensive discussion of marine insurance issues. In connection with the shipment of a mobile stage by ocean-going vessel, Tall Pony was approached by its “blanket policy” insurer, Fireman’s Fund, who informed Tall Pony by letter that it did not “wish” to underwrite risks associated with ocean transport. Tall Pony accordingly approached the carrier Tropical about the prospect of procuring marine cargo insurance coverage for the stage. Tall Pony was referred to Tropical’s sister entity, Seven Seas Insurance Company (“Seven Seas”), from whom Tall Pony obtained marine cargo insurance coverage for the leased stage. After the stage was destroyed during transit, Fireman’s Fund paid the stage owners $234,000.00 for the destruction of the stage, and paid Tall Pony over $237,000.00 for loss of use and replacement costs. After entering a loan agreement with Tall Pony, Fireman’s Fund in turn sought recovery for these expenses from the carrier Tropical, the stevedores Birdsall, and the marine cargo insurance company Seven Seas, by filing suit in the District Court for the Southern District of Florida.

The Court of Appeals reversed the ruling below which had held Seven Seas to be solely liable for damages in connection with the destroyed stage. Seven Seas pointed to the Firemen’s Fund umbrella liability policy – which did not list the stage as excluded property and did not exclude marine transport from the covered perils – in arguing that the Firemen’s Fund policy covered these damages as well. The Court of Appeals agreed, and held that the Tall Pony policy with Firemen’s Fund also provided coverage for the loss in this case. In so holding, the Court construed Florida law on the parol evidence rule in deciding that the District Court had impermissibly relied on extrinsic evidence of the Firemen’s Fund “wish” not to underwrite the risk, since the provisions of the “all risk” policy were not ambiguous such that extrinsic evidence could be considered. Therefore, the District Court’s holding that Seven Seas was exclusively liable for the losses in this case was reversed. The Court further reasoned that, under Florida law, where two insurance policies provide coverage for a loss, but both contain an “other insured” clause purporting to place primary responsibility on the other insurer, these “other insured” clauses cancel each other out, and trial court liability for damages should be apportioned on a pro rata basis between the two insurers under their respective policies. As a final note, the Court of Appeals affirmed the ruling below that the “all risk” language of the Seven Seas insurance policy did not provide for coverage of the consequential damages for loss of use of the stage or Tall Pony’s loss of profits.

Limitation of Liability

The grounding of a tug on the coral reefs of the Biscayne National Park gave the Eleventh Circuit the opportunity to decide the interplay between two competing federal statutes, the Limitation of Vessel Owner’s Liability Act (“Limitation Act”) and the Park System Resources Protection Act (“PSRPA”). This case arose when the tug ALLIE-B caused damage in the amount of $3,069,200.00 to underwater coral reefs in the National Park, and another $1,000,000.00 to the barge it was towing at the time of the grounding. The owners and operators of the tug filed a petition for exoneration from or limitation of liability under the Limitation Act, hoping to cap their liability at the figure of $1,204,860.00, the post-casualty value of the vessel plus its pending freight. The United States argued that there was a clear conflict between the Limitation Act and the PSRPA, thereby precluding a limitation of liability for the United States’ PSRPA claims. The District Court agreed, holding that the United States would be entitled to complete recovery of its damages, if proven.

The Eleventh Circuit affirmed the District Court’s determination, citing to the clear conflict between the statutory language and congressional intent of the two Acts. The Court of Appeals first reasoned that there was “nothing in the language of the PSRPA which suggests that damages under the Act should be in any way limited.” The Court further relied on the fundamentally different theories of liability of the two statutes, as the PSRPA is a strict liability statute, while the Limitation Act is premised on a theory of negligence. Furthermore, the PSRPA provides for liability either in personam or in rem, while a Limitation Act petition is in the nature of an in rem proceeding because liability is limited to the value of the res causing the damage. The Court noted that the application of the Limitation Act to a PSRPA claim would render the in personam clause meaningless, thereby violating the canon of statutory construction that discourages a reading of a statutory scheme that would render a part of a statute a mere surplusage.

The owners of the tug argued that had Congress intended to preclude the application of the Limitation Act to PSRPA claims, it would have specifically provided as such, as it did in the Oil Pollution Act of 1990 and the Marine Sanctuaries Act. The Eleventh Circuit rejected this argument by citing to the interpretation given such congressional silence in the Rivers and Harbors Act, wherein the failure to make any reference to the Limitation Act was held not to imply an intent to apply the Limitation Act. The Court ultimately concluded that because the PSRPA is the more specific and the more recent statute (by almost 140 years), the provisions thereof control and the petition for limitation of liability was properly denied.

National Marine Sanctuaries Act “NMSA”

In another marine environmental damage case arising out of the grounding of a tug boat, U.S. v. Great Lakes Dredge & Dock Co., the Eleventh Circuit had the opportunity to examine a parallel federal environmental statute, the NMSA. The environmental damage arose in connection with an attempted movement of 500-foot lengths of dredge pipe in the area of the Florida Keys National Marine Sanctuary. The Defendant Great Lakes Dredge & Dock Company (“Great Lakes”) hired Coastal Marine Towing (“Coastal”) to tow these dredge pipes using two tugs from Coastal and two assist tugs from Great Lakes. One of the pipes towed by the Coastal tug dragged the sea bottom, creating a scar on the ocean floor approximately 13 miles long. Soon thereafter, the Coastal tug CAPTAIN JOE ran aground in 7 feet of water after getting off-course, and the extrication of the grounded tug destroyed almost 7500 square meters of sea bottom. The District Court found Great Lakes strictly liable under the NMSA in the amount of $368,796.97 for damages in the sanctuary. Great Lakes appealed, arguing first that it was an innocent third party, and alternatively that the United States government had no standing to sue since the property was owned by the State of Florida. Great Lakes also challenged the District Court’s method of reaching its damage calculation. The United States cross-appealed the District Court’s ruling on what constituted the most effective resource restoration plan for the damaged underwater area, as the District Court had ruled that “no action” was the preferable plan.

The Court of Appeals began by rejecting Great Lakes’ argument that the United States had no claim since it had no proprietary interest in the damaged property. The Court cited the explicit language of the NMSA, which holds any person who injures sanctuary resources “liable to the United States” for the response costs. The Court then affirmed the District Court’s finding of strict liability against Great Lakes under the statute, as there was ample evidence of Great Lakes’ responsibility in overseeing the maneuvering of the tugs, and thus Great Lakes could not avail itself of the innocent third party defense. The Court reasoned that a contrary holding would allow barge owners to escape all liability by merely hiring out operations to tugs, thereby undermining the remedial purpose of the NMSA. Great Lakes’ Daubert challenge to the use of the HEA for calculation of damages was similarly rejected, as the Eleventh Circuit pointed to evidence in the record that this analysis had been peer reviewed and accepted for publication, thereby satisfying two prongs of the Daubert inquiry. On the United States’ cross appeal of the “no action” recommendation for restoration of the destroyed resources, the Court of Appeals noted serious evidentiary mistakes in the District Court’s ruling, and the matter was remanded for further consideration of expert testimony on what would be the most effective restoration plan.