Seattle Maritime Law Blog

Insurance Law Does Not Have to be Boring

ldarling@mikkelborg.com (Lafcadio Darling) — Tue, 01 Dec 2009 13:53:16 -0800

Although insurance law sometimes has the reputation of being “dry” and boring, as marine insurance practitioners, we come across a variety of cases that show how interesting and creative insurers and claimants can be.

One example we recently discovered was Peters v. Firemen's Ins. Co., 67 Cal. App. 4th 808 (1998), in which the issue was the scope of the word "use" in an insurance policy covering a luxury yacht. The insured had been sued in an underlying action by an ex-girlfriend for negligence, battery, intentional transmission of an incurable disease (herpes), and fraud. The insured yacht owner tendered the action to Firemen's, his liability insurer. Firemen's denied coverage on the ground, in pertinent part, that the liability did not arise out of the "use" of the yacht. The underlying action settled, and the insured then filed a lawsuit against Firemen's for its failure to defend and indemnify him.

While the complaint in the underlying action mentioned nothing about a boat, the insured maintained that the policy provided coverage for the action because it arose out of the "ownership, maintenance or use" of his yacht. The trial court granted summary judgment to Firemen's, and the insured appealed.

On appeal, the insured argued that it was a "fateful romantic boat voyage at Thanksgiving" that caused the damage, because it was the "prestigious" yacht that led to the "sexfilled sailing adventure and oral copulation which resulted in the transmission of the herpes virus." Id. at 812.

In a brief opinion, the appellate court disagreed and found that there was no causal connection between the yacht and the transmission of the disease, stating:

[I]t is apparent that the extrinsic facts raised by appellant do not come within the "use" provision of his yacht policy. Neither the movement of appellant's yacht nor the manner of its operation had anything to do with the transmission of the herpes virus from appellant to Susan L. Appellant is not claiming that his yacht plunged into a wave trough, causing him to stumble and fall, mouth open, onto Susan L.'s vagina. Rather, the yacht merely provided a situs--along with appellant's house and Susan L.'s house--wherein appellant executed his plan to engage in a variety of "very free sexual activities" with Susan L. This is not the type of boat "use" contemplated by appellant's yacht policy. Id. at 813.

The court also noted the following in a footnote:

Appellant does, however, hypothesize that the disease may have been transmitted if "he helped steady [Susan L.] on the rocky boat" or if the amorous couple hit an ocean swell causing them to fall and a herpes infection on his finger caused a herpes infection on her finger which was then somehow transferred to her vagina. Apart from its absurdity, appellant's speculation is unsupported by the record. There is no proof that appellant ever steadied Susan L. on the boat, and certainly not by grabbing her crotch. . . . Appellant cannot establish a potential for coverage unless there are some colorable facts supporting his theories.

Further proof that even marine insurance law need not always be boring.

King County Jury Imposes Punitive Damages in Maritime Maintenance and Cure Claim

ldarling@mikkelborg.com (Lafcadio Darling) — Tue, 24 Nov 2009 10:45:27 -0800

A King County jury recently awarded an injured seaman $1.5 million in damages, which included $1.2 million in punitive damages against his employer, Icicle Seafoods of Seattle. The plaintiff Dana Clausen argued, and the jury found, that Icicle had failed to pay for necessary treatment and had withheld a medical report substantiating the need for this treatment. The jury found that the company "callously" refused to pay for this medical care, which justified a punitive damages award.

This case is notable in that it comes shortly after the U.S. Supreme Court's decision of Atlantic Sounding Co. v. Townsend (previously discussed on the Seattle Maritime Blog), which held that that a seaman can recover punitive damages on a maritime maintenance and cure case if there is a showing of “willful and wanton” conduct by the defendant.

The jury's finding in this case appears to follow the logic of Atlantic Townsend in justifying punitive damages in a maritime injury claim, but it will be interesting to see whether Icicle will challenge this award or seek further clarification of this punitive damages rule from the appellate courts.

A brief story about this verdict was recently published by the Seattle Times.

Lafcadio Darling specializes in maritime and commercial litigation, representing a wide variety of business and consumer clients. In addition to being licensed in Washington and California, Lafcadio also holds an LL.M. from University College London and is a licensed solicitor in England & Wales

Coast Guard Proposes New Rules for Merchant Mariners

ldarling@mikkelborg.com (Lafcadio Darling) — Mon, 23 Nov 2009 11:11:16 -0800

On November 17, 2009, the U.S. Coast Guard published proposed amendments to its regulations to fully incorporate the 1978 International Convention on Standards of Training Certification and Watchkeeping for Seafarers (STCW Convention) and the Seafarer's Training Certification and Watchkeeping Code (STCW Code) into the Coast Guard's rules.

These amended rule changes can be found on the Federal Register website.

Comments on the proposed rules must be submitted to the Coast Guard's online docket no later than February 16, 2010 or send via mail to the USCG Docket Management Facility.

The Coast Guard's proposed new regulations make numerous important changes to the rules for licensing and credentialing merchant mariners. These regulations also extend the STCW requirements to all seagoing vessels of less than 200 Gross Register Tons/500 Gross Tonnage on international voyages.

It will be interesting to observe the public comments on these proposed rules and what changes, if any, the Coast Guard will make before they go into effect.

Second Circuit Continues to Erode the Power of Rule B

sbuckholtz@mikkelborg.com (Shelley Buckholtz) — Tue, 27 Oct 2009 15:30:08 -0800

The US Court of Appeals for the Second Circuit upheld the equitable vacatur of a maritime attachment, even though all the requirements for the Rule B attachment had been met. In Proshipline v. Aspen Infrastructures, the plaintiff sought and obtained a Rule B attachment in the Southern District of New York, based on the (correct) assertion that defendant was not present in the District. Defendant moved to vacate the attachment, pointing out that the parties were engaged in a similar maritime lawsuit in the Southern District of Texas, where plaintiff had its corporate headquarters and where defendant was subject to personal jurisdiction. The District Court vacated the attachment because, among other things, the party that attached the funds and the party that owned the funds were present in another federal jurisdiction. Plaintiff appealed. In affirming the vacatur, the Appellate Court noted that equitable vacatur of writs of attachment, in contrast to vacatur for failure to comply with Rule B, turns not on the owner of attached funds’ relationship with the jurisdiction of attachment, but on both parties’ relationship with another jurisdiction. See ProShipLine v. Aspen Infrastructures, www.ca.2.uscourts.gov/decisions.

Problems with Washington Excise Tax and Coast Guard Documented Vessels

sbuckholtz@mikkelborg.com (Shelley Buckholtz) — Fri, 23 Oct 2009 13:35:25 -0800

An increasing number of clients have had difficulty with the Washington State Department of Revenue's interpretation of RCW 88.02, regarding the registration of pleasure vessels in the State of Washington. Washington imposes an excise tax on vessels over 16 feet in length for the privilege of using Washington waters for their vessels or yachts. Boat owners obtain a Washington decal which they obtain paying the excise tax, measured at .5% of the vessel's value. However, owners with vessels documented with the U.S. Coast Guard have often been told by Washington State Department of Licensing that only a decal is needed, not the registration, which would imply that the excise tax is not required.

This apparent interpretation problem could result in a variety of results which is always a problem when dealing with taxing authorities.

End of the Winter Storm: Second Circuit Reverses Course on Rule B

ldarling@mikkelborg.com (Lafcadio Darling) — Sun, 18 Oct 2009 10:44:08 -0800

On October 16, 2009, the Second Circuit Court of Appeals issued its decision of The Shipping Corporation of India v. Jaldhi Overseas PTE, Ltd., reversing its controversial 2002 decision of Winter Storm, Ltd. v. TPI. The Winter Storm court had held that electronic fund transfers (EFTs) could be seized under Admiralty Rule B as they momentarily pass through intermediary banks on the way to their final destination. Because this case applied to New York's intermediary banks, which handle the vast majority of international dollar transactions, the Winter Storm case caused an explosion of Rule B claims being filed in New York courts and against New York banks, attempting to seize funds being sent to and from defendants all over the world. This in turn gave rise to a large "cottage industry" within New York maritime firms, who quickly mastered this Rule B process and used the Winter Storm rule to great advantage for their clients and for themselves.

Although the Jaldhi Overseas court recognized that it should not reverse prior precedents lightly, the court found that (1) the Winter Storm court had incorrectly concluded that prior case law in the circuit supported the finding that EFTs were attachable and (2) in the absence of controlling admiralty law precedent, the court should have used New York state law, which says that EFTs are not the property of the transferor or transferee while in transit. The court also cited the significant and negative consequences of Winter Storm on New York courts and banks as justification for changing the law of the circuit.

Assuming this ruling stands, it is not an exaggeration to say that this case will send a shock wave through the maritime law community, particularly in New York City. Since 2002, hundreds of plaintiffs and their attorneys have used the Winter Storm rule to massively increase the Rule B practice in New York federal courts. This has obviously resulted in a significant new line of business for many New York maritime firms. The Second Circuit’s reversal of Winter Storm will not only change the legal landscape in the circuit, but will also likely deal a blow to the balance sheets and employment prospects of many New York attorneys and firms. In the current economic climate, that will hardly be welcome news for the admiralty bar in the Big Apple.

A longer discussion and description of this decision, is available on our firm website.

You can also view a copy of the Jaldhi Overseas decision.

Recent Admiralty Jurisdiction Case Law

ldarling@mikkelborg.com (Lafcadio Darling) — Tue, 06 Oct 2009 16:53:24 -0800

A few recent federal maritime decisions have shed further light on the boundaries of admiralty jurisdiction in the U.S. courts:

In Vasquez v. GMD Shipyard Corp., No. 08-4566 (2nd Cir., September 15, 2009), the Second Circuit Court of Appeals found that a tort claim arising out of a death at a shipyard "graving dock" was properly in admiralty, even though the dock had no water in it at the time of the incident.

In In re Complaint of Mission Bay Jet Sports, LLC, No. 08-56142 (9th Cir. June 24, 2009), the Ninth Circuit Court of Appeals found that a tort claim by passengers on a Sea-Doo watercraft who were injured while riding in San Diego's Mission Bay was subject to admiralty jurisdiction.

In New Hampshire Ins. Co. v. Home Sav. and Loan Co. of Youngstown, Ohio, No. 08-3902 (6th Cir. September 24, 2009), the Sixth Circuit Court of Appeals rejected the argument by an insurer that its policy, styled a "marine insurance policy," was sufficient to implicate federal admiralty jurisdiction in a declaratory judgment action, when a large number of the coverages in the policy were non-maritime.

Although none of these cases is ground-breaking or controversial, they do give lawyers valuable clues as to the positions the federal courts will take regarding admiralty jurisdiction with in certain common types of cases.

Further description and commentary on these cases can be found here.

Fish Tender Operators Need to Read the Fine Print on Their Tender Charters

JGWebster@Mikkelborg.com (Jess G. Webster) — Fri, 02 Oct 2009 18:14:16 -0800

Fish tender vessels transport fresh fish from the catcher vessels on the fishing grounds to processing facilities. Some fish tender vessels are specialized tenders, while others are vessels primarily engaged in other trades, such as crabbing, that supplement their annual income conducting fish tender operations. The agreement for the use of the tender vessel usually takes the form of a tender charter, under which the processor charters the exclusive use of the tender vessel for a term.

The terms most important to the tender vessel operators appear to be the daily charter hire rate, and the guaranteed minimum number of days of the charter. Equally important should be which . . .

of the parties is insuring the cargo of fish carried on the tender vessel, and making sure the insurance extends to protect the tender vessel and owners, and not just the processor. This can be easily accomplished by having the tender vessel and its owner named as an additional assured on the cargo policy and/or securing a waiver of subrogation from the cargo underwriters.

Many tender charters do not address the subject of insurance of the fresh fish cargo. The tender charters are typically written by the processor or its legal counsel, and seldom do the forms favor the tender owner/operator. Some forms essentially make the tender owner/operator a guarantor of the continued quality of the cargo, and leave little or no respite for mechanical breakdowns, groundings or other casualties that could lead to damage to or loss of the cargo.

In our experience, we have seen numerous instances where fresh fish carried aboard tenders spoils. The processor then makes a claim and is compensated for the loss by its cargo insurers, who then sue the tender vessel and its owner for recovery of their subrogation claims. The value of a full hold of fish can be substantial, easily exceeding $250,000, which is far more than most tender operators can hope to earn in tender fees over the course of an entire fishing season.

Tender operators need to be mindful of insuring their risks and carefully reviewing tender charters, or having their legal counsel review them. As they tend to be short, fairly simple documents, the cost for legal review should be manageable, but seldom do we review tender charters before there is a problem. Like they said on the old Fram oil filter commercials: “You can pay me now, or you can pay me later.” The big difference is that waiting until later can be VERY expensive.

Who Should Hold Title While Constructing a Yacht?

JGWebster@Mikkelborg.com (Jess G. Webster) — Thu, 01 Oct 2009 10:21:31 -0800

Investing in yacht construction can be risky business for owners and builders alike. Defaulting buyers can cause huge cash flow problems for builders, which spill over to impact other projects under construction. Buyers are concerned about their projects getting bogged-down by or absorbed into a builder’s insolvency.

When a builder files for bankruptcy, who owns the projects under construction is frequently an issue. At such times, owners holding title to what they have paid for can usually extricate those assets from the builder’s bankruptcy and move the project elsewhere for completion. Builders, on the other hand, often prefer to hold title to the yacht until they have been paid in full. Further complicating the issue may be sales tax concerns and the blurring of when and where the sale of the yacht occurred. If the builder holds title to the yacht until completion and delivery, the yacht, in its incomplete state, becomes an asset of the builder’s bankruptcy estate and is potentially available to pay the claims of creditors if the builder is in a liquidation proceeding (Chapter 7) or abandons the construction contract in a reorganization proceeding (Chapter 11).

Where the builder holds title until completion and delivery, the best way to protect the buyer is usually to have the builder grant the buyer a UCC security interest in the uncompleted hull and all materials purchased for the construction of the yacht. To properly protect their interests, buyers must properly perfect their security interest and ensure that all materials purchased for the construction of the yacht are promptly and properly identified (labeled) as being allocated to the project, and preferably segregated from other materials in the builder’s yard. But there are also additional means to protect a buyer’s interest in purchasing a yacht that are beyond the scope of this post.

Ninth Circuit Holds that Pennsylvania Rule Does Not Apply to Maritime Personal Injury Claims

ldarling@mikkelborg.com (Lafcadio Darling) — Fri, 18 Sep 2009 15:25:19 -0800

In a recent decision (MacDonald v. Kahikolu, 2009 U.S. App. LEXIS 20162 (9th Cir. 2009)), the Ninth Circuit Court of Appeals held that the Pennsylvania Rule--which effectively shifts the burden of proving fault from plaintiff to defendant in certain maritime collision cases--should not be applied to maritime personal injury claims.

Although prior case law had suggested this conclusion, the MacDonald case has made the Ninth Circuit's position clear. However, the MacDonald court also recognized that other federal appeals courts, including the Second, Third and Fifth Circuits, have read the Pennsylvania Rule more broadly and applied it to non-collision cases.

A further discussion of this case and a link to the court's opinion can be found here.

Lafcadio Darling specializes in maritime and commercial litigation, representing a wide variety of business and consumer clients. In addition to being licensed in Washington and California, Lafcadio also holds an LL.M. from University College London and is a licensed solicitor in England & Wales.

U.S. Supreme Court Confirms that Punitive Damages Available in Maritime Maintenance and Cure Claims

ldarling@mikkelborg.com (Lafcadio Darling) — Mon, 27 Jul 2009 10:43:43 -0800

Last month, the U.S. Supreme Court in Atlantic Sounding Co. v. Townsend, 2009 WL 1789469 (U.S. June 25, 2009) held that a seaman can recover punitive damages on a maritime maintenance and cure case if there is a showing of “willful and wanton” conduct.

In July 2005, Edgar Townsend was allegedly injured while working aboard the tug boat Thomas. His employer, Atlantic Sounding Co., Inc. sought declaratory judgment in a federal district court to determine its obligations toward him under maritime law. Mr. Townsend counterclaimed, alleging in part that Atlantic Sounding’s arbitrary and willful failure to pay maintenance and cure for his injuries justified punitive damages. Atlantic Sounding moved to dismiss and, when the motion was denied, appealed.

The United States Court of Appeals for the 11th Circuit affirmed the district court. The court held it was bound by its prior decision in Hines v. J.A. LaPorte, Inc. There, it concluded a seaman may recover punitive damages when an employer arbitrarily and willfully refuses to pay maintenance and cure for his injuries. It reasoned that the Supreme Court’s decision in Miles v. Apex Marine Corp. did not apply. In that case, the Court held that recovery for "non-pecuniary loss in the wrongful death of a seaman was not available under general maritime law". The court of appeals reasoned that Miles was not "clearly on point" to the facts in Mr. Townsend's case.

On appeal, the Supreme Court agreed with the lower courts, explaining that: "Because punitive damages have long been an accepted remedy under general maritime law, and because nothing in the Jones Act altered this understanding, such damages for the willful and wanton disregard of the maintenance and cure obligation should remain available in the appropriate case as a matter of general maritime law.” The Court also observed that “limiting recovery for maintenance and cure to whatever is permitted by the Jones Act would give greater pre-emptive effect to the Act than is required by its text, Miles [v. Apex Marine Corp., 498 U.S. 19 (1990)], or any of this Court's other decisions interpreting the statute."

In one sense, this case is not controversial since it only purports to maintain the existing rule for maritime cases. However, the Supreme Court's significant reduction in punitive damages in the recent EXXON VALDEZ case suggested that the current Court disfavors punitive damages, particularly in maritime cases. The Atlantic Sounding decision is interesting because shows that, despite its ruling in the EXXON case, the Court remains willing to recognize punitive damages in maritime cases.

A copy of the Court’s opinion can be found at http://www.supremecourtus.gov/opinions/08pdf/08-214.pdf

Ninth Circuit Rules that Exxon Must Pay 12 Years' Interest on Punitive Damage Award

ldarling@mikkelborg.com (Lafcadio Darling) — Mon, 27 Jul 2009 10:10:12 -0800

In 2008, the U.S. Supreme Court limited the punitive damages award in the infamous Exxon Valdez case, holding that under maritime law the a punitive damages award is limited to 100% of the compensatory damages (see the Supreme Court’s 2008 opinion).

On remand, the Ninth Circuit Court of Appeals in Exxon Valdez v. Exxon Mobil Corp., 2009 WL 1652256 (June 15, 2009), held that interest on the punitive damages award should accrue from September 1996, the date of the original verdict against Exxon), not in 2008 when the final punitive damages award was fixed. Therefore, interest ran at a rate of 5.9% (the average accepted federal interest rate set by the Treasury) on the $507.5 million punitive damages award since September 24, 1996. The Ninth Circuit also held that each party must bear its own costs for the protracted appeals; Exxon had sought to have the plaintiffs bear all, or at least 90%, of Exxon’s appellate costs, since it had successfully reduced the original punitive damages award of $5 billion to $507.5 million.

Although hardly compensation for the large reduction in punitive damages by the Supreme Court, this ruling will give those who were damaged by the EXXON VALDEZ oil spill a somewhat better outcome and, perhaps more importantly, will move this case towards completion, more than 20 years after the spill. You can view a copy of the Ninth Circuit’s opinion.

New Year's Boating Safety Takes Effect In Washington

sbuckholtz@mikkelborg.com (Shelley Buckholtz) — Mon, 05 Jan 2009 11:24:09 -0800

If you are under the age of 25, you are required, as of January 1, 2009, to have a Boating Safety Education Card in order to operate a powerboat of 15 horsepower or more in the State of Washington. In 2008, this card was only required for boaters under the age of 20. By the year 2014, all boaters, regardless of age will need this card.

To obtain your Boating Safety Education Card, you need to take an approved boater safety education course, either online, in a classroom, or at home. After you have taken the course, you can complete an application and send it, along with proof of your course completion, and $10 to the Washington State Parks. The Safety Card is good for life.

Oregon and Canada also have similiar requirements for Boater Safety and Education. For more information, visit:

Washington: www.parks.wa.gov/boating

Oregon: www.boatoregon.com

Canada: www.boaterexam/canada

Second Circuit Rejects Challenge of Broad Rule B Attachment Case

ldarling@mikkelborg.com (Lafcadio Darling) — Mon, 20 Oct 2008 13:18:02 -0800

An earlier entry on the Seattle Maritime Law Blog reported the appeal in Consub Delaware, in which the defendant had requested that the Second Circuit Court of Appeals overturn its prior decision in Winter Storm v. TPI regarding Admiralty Rule B attachment of Electronic Fund Transfers (“EFTs”) to satisfy maritime claims. See Federal Appeals Court Considers Key Maritime Attachment Case (June 10, 2008).

The defendant in Consub Delaware argued that the Winter Storm court was incorrect in ruling that Rule B could be used to attach EFTs passing through New York banks, even if the claim had no relationship to New York and regardless of whether the defendant knew the funds would be passing through the jurisdiction. Consub Del. LLC v. Schahin Engenharia Limitada, 2008 U.S. App. LEXIS 20097 (2d Cir. N.Y. Sept. 23, 2008). The defendant also argued that the Winter Storm case was inconsistent with New York state law, which arguably provides that EFT payments are not the property of the sender or the recipient while in the hands of the intermediary bank. Id.

On September 23, 2008, the Second Circuit issued its decision in Consub Delaware, upholding Winter Storm and affirming the principle that EFTs can be attached while in the hands of intermediary banks, even when the underlying dispute has no relationship with either New York or with the funds being attached. Holding that prior decisions should only be overruled under certain narrow circumstances, the Consub Delaware court declined to overrule its prior decision and found that the Winter Storm case was correctly decided in any event. The court also held that New York law does not apply to Rule B actions, since federal law requires that the Admiralty Rules be applied uniformly and without regard to local law.

Interestingly, the Consub Delaware court stated in a footnote that “[w]e do not reach today the question of whether funds involved in an EFT en route to a defendant are subject to Rule B attachment.” 2008 U.S. App. LEXIS 20097 at p. *13 (emphasis in original). Although this suggests that the question remains open, prior Second Circuit cases have made clear that “EFTs to or from a party are attachable by a court as they pass through banks located in that court's jurisdiction." Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 436 (2d Cir. 2006) (citing Winter Storm, 310 F.2d at 263). Therefore, this footnote may pose somewhat of a puzzle for observers, but offers little hope to those who want future courts to hold that EFT payments from defendants are outside the scope of Rule B attachment suits.

While the Winter Storm rule will remain controversial, the Consub Delaware decision has made clear that this is the established law of the Second Circuit. Since New York banks continue to play a prominent role in international business, those who may be involved in maritime claims should be aware of this rule and plan accordingly.

A link to the Second Circuit’s decision of Consub Delaware can be found here.

Ninth Circuit Opinion: Maintenance and Cure Subject to Child Support Order

sbuckholtz@mikkelborg.com (Shelley Buckholtz) — Tue, 05 Aug 2008 15:21:37 -0800

The US Court of Appeals for the Ninth Circuit ruled that maintenance and cure payments are subject to withholding for child support, so long as those payments constitute income pursuant to applicable state law. Specifically, the Court of Appeals affirmed the district court’s holding that state law controlled the issue and not maritime law, pursuant to 28 U.S.C. §1738B(h)(2).

The court noted that seaman’s wages are subject to attachment for the support and maintenance of the spouse or minor children and could find no reasoned basis to distinguish between a seaman’s wages and a seaman’s maintenance and cure payments in this regard. Aguilera v. F/V Alaska Juris, No. 07-35148 (9th Cir., August 4, 2008).

Senator Cantwell Intrdouces Bill to Repeal Foreign Shipping Income Tax Rules

sbuckholtz@mikkelborg.com (Shelley Buckholtz) — Tue, 05 Aug 2008 15:09:21 -0800

Senator Cantwell introduced a bill (S. 3359) to amend the Internal Revenue Code of 1986 to repeal the shipping investment withdrawal rules in I.R.C. Section 955 and to provide an incentive to reinvest foreign shipping earnings in the United States.

A copy of the legislation is available at: http://cantwell.senate.gov/issues/legislation.cfm

5th Circuit: No Exception to East River For Post Sale Negligence

sbuckholtz@mikkelborg.com (Shelley Buckholtz) — Thu, 24 Jul 2008 16:52:16 -0800

The US Court of Appeals for the Fifth Circuit ruled that a maritime plaintiff is restricted to warranty remedies when a defective product damages only the product itself. In the instant case, plaintiff’s helicopter made an emergency landing in the Gulf of Mexico due to engine trouble. The pilot and passenger escaped safety, but the helicopter inverted and was a total loss. Evidence indicated that the problem was the result of a manufacturing defect on the part of the engine manufacturer. The helicopter owner brought suit against the engine manufacturer and the helicopter manufacturer, alleging post-sale failure to warn of a pre-sale product defect. The court held that, under US maritime jurisprudence, such economic loss, when not accompanied by damage to other property, is recoverable, if at all, only for breach of warranty. Turbomeca, S.A. v. Era Helicopters LLC, No. 07-30885 (5th Cir., July 16, 2008).

Limited Punitive Damages Under Exxon Valdez Case

tpedreira@mikkelborg.com (Tom Pedreira) — Thu, 10 Jul 2008 10:15:37 -0800

For the first time in U.S. jurisprudence, the Supreme Court Supreme Court has approved an award of punitive damages under maritime law.

The Supreme Court has established that as a general rule, punitive damages in general maritime law cases should be in the range of 0.65:1, with a maximum of 1:1. What will the impact be on other cases involving punitive damages and statutory causes of action under maritime law?

Interestingly, the Supreme Court was divided on the important issue of whether under maritime law, a ship owner may be vicariously liable for the acts of a managerial employee such as a vessel’s master. The Supreme Court’s opinion leaves the decision of the Ninth Circuit that there is such liability intact, but does not overrule contrary decisions in other circuits.

The Supreme Court's opinion may be read in full at:
http://www.supremecourtus.gov/opinions/07slipopinion.html

Private Yachts and Loss of Use Damages

tpedreira@mikkelborg.com (Tom Pedreira) — Thu, 10 Jul 2008 10:02:54 -0800

The general rule, particularly as applied by courts in the Ninth Circuit, is that loss of use of a private pleasure boat is not a compensable item of damages under the General Maritime Law of the United States. The rule is predicated upon the unremarkable principle that one seeking damages must show an actual loss and a reasonable proof of the amount. The seminal case is The Conqueror, 166 U.S. 110, 17 S. Ct. 510, 41 L. Ed. 937 (1897).

The seminal case is The Conqueror, 166 U.S. 110, 17 S. Ct. 510, 41 L. Ed. 937 (1897), wherein Frederick Vanderbilt sued the United States collector of customs for loss of use resulting from detention of Vanderbilt's yacht, which was designed for pleasure only and never put to any other use. The lower court awarded Vanderbilt damages at the rate of $100 per day for the 150-day detention. The United States Supreme Court reversed and denied such damages, holding that "demurrage will only be allowed when profits have actually been, or may be reasonably supposed to have been, lost, and the amount of such profits is proven with reasonable certainty." Id., 166 U.S. 125. Despite expert testimony setting a high market value for the charter of such a yacht, the Court vacated the loss of use damage award, emphasizing, "[T]here must be a pecuniary loss, or at least, a reasonable certainty of pecuniary loss, and not a mere inconvenience arising from an inability to use the vessel for the purposes of pleasure ...there must be actual loss and reasonable proof of the amount,'" Id., at 133, citation omitted. The Court further observed there was not "an atom of testimony tending to show that [Vanderbilt] bought her for hire, or would have leased her if he had been able to do so, even for the large sum of $100 per day." Accordingly, the Court concluded that Vanderbilt was not entitled to recover for the loss of use of the CONQUEROR Id. at 134, 136.

The holding of The Conqueror, supra, has long stood for the principle that under Maritime Law, loss of use of a private pleasure boat is not a compensable item of damages. Oppen v. Aetna Ins. Co., 485 F.2d 252, 257 (9th Cir. 1973): "Under federal maritime law loss of use of a private pleasure boat is not a compensable item of damages."; Cont'l Ins. Co. v. Muradyan, 2003 U.S. Dist. LEXIS 18643, 2003 AMC 1536, (D. Cal. 2003), dismissing loss of use damage claim under Fed. R. Civ. P. 12, and noting, "As Supreme Court and Ninth Circuit law make clear ... loss of use damages are unavailable where, as here, a private pleasure boat is damaged".

Other Courts have similarly denied loss of use damages for destruction of a private yacht. Parrillo v. Commercial Union Ins. Co., 85 F.3d 1245, 1251 (7th Cir. 1996): (Absent evidence that, during ownership of the yacht destroyed in fire plaintiff actually had chartered it, loss of use damages dismissed on summary judgment); In re Palmer Johnson Savannah, Inc., 1 F. Supp. 2d 1386, 1389-1390 (D. Ga. 1997): (no loss of use damages in breach of workmanlike performance claim involving private yacht damaged by repair facility); Snavely v. Lang, 592 F.2d 296, 300 (6th Cir. 1979): ("It is precisely these types of claims for damages which render too 'highly speculative and immeasurable an award for demurrage in the case of a vessel used purely for recreation."); Nordasilla Corp. v. Norfolk Shipbuilding & Drydock Corp., 1982 A.M.C. 99 (E.D. Va. 1981): (denying loss of use damages when plaintiff was without the use of its vessel for a period of approximately 14 months as a direct result of a fire. The vessel "had no history of income and ... was never intended to be used for anything other than the pleasure of its owner's shareholders.").

To recover loss of use damages, "There must be a pecuniary loss, or at least, a reasonable certainty of pecuniary loss, and not a mere inconvenience arising from an inability to use the vessel for the purposes of pleasure ...there must be actual loss and reasonable proof of the amount," The Conqueror 166 U.S. 110, 133 (1897). This is a basic rule of damages and remains the rule even as to commercial vessels, which must prove damages arising from loss of use with sufficient certainty to allow calculation without resort to speculation. E.g., Mitsui O.S. K. Lines, K. K. v. Horton & Horton, Inc., 480 F.2d 1104 (5 Cir. 1973). So loss of use damages have been awarded (at least outside of the Ninth Circuit), when a yacht owner proved "with reasonable certainty" that its vessel "would have been available for commercial charter... but for a collision. Yachts, Inc. v. The Edward F. Farrington, 146 F. Supp. 754, 758 (D.N.C. 1956), emphasis added.

In the typical situation involving damage to, or the loss of, a private vessel, a claimant cannot come forward with evidence that the boat was under charter before or at the time of her loss; and generally there is scant evidence that there was a plan to put her under charter. The owner of a yacht or other private vessel usually claims that “loss of use” damages are based upon days that he or she missed from the cruising season, often citing use of the boat for trips with family and friends or for entertaining clients and business prospects. That does not amount to evidence showing pecuniary loss, or reasonable certainty of pecuniary loss.

As an illustration, see Snavely v. Lang, 592 F.2d 296, 300 (6th Cir. 1979), a case involving severe damage to a pleasure craft by fire and a claim for loss of use damages. There plaintiff Snavely testified that he used the vessel for about nineteen days per year, which use the court deemed "intermittent”. The problem with Snavely's claim, the court concluded, was a lack of certainty of proof of damages, observing:

[A]n award of damage for such a loss opens the courts to imagination and speculation in evaluation of damages. It is precisely these types of claims for damages which render too "highly speculative and immeasurable" an award for demurrage in the case of a vessel used purely for recreation. The Court does not herein decide whether pecuniary loss is an absolute requirement for recovery of demurrage. The facts of this case, showing loss of intermittent use of a vessel utilized solely for pleasure, certainly do not justify such an award. For the foregoing reasons, the award of damages for loss of use must be reversed. Snavely v. Lang, supra, at 300, (citations omitted).

On the other hand, it may be consistent with recognized law to allow recovery of the reasonable costs of chartering a replacement vessel for use by the owner for planned recreation where a replacement vessel is chartered”, Staples v. H & A Trading, 1994 A.M.C. 1729 (D.P.R. 1993). In that case, a plaintiff who lived on board a boat damaged in an accident was allowed to recover reasonable sums paid to lease another sailboat on which to live.

Further support for this position is perhaps found in dicta in Nordasilla Corp. v. Norfolk Shipbuilding & Drydock Corp., 1982 A.M.C. 99 (E.D. Va. 1981):

It strikes one as fundamentally unfair that a yacht owner can be deprived of the use of an asset of substantial value for a substantial period solely as a result of another's negligence and yet be wholly denied money damages for such loss of use simply because the asset was a pleasure craft. One wonders why the tortfeasor should benefit from the fact that an asset owner chose to forgo commercial operations when there is far less speculative nature or other question concerning ascertainable damages in these circumstances than there is concerning general damages in the run-of-the-mill personal injury case.

As a general proposition however, courts cannot award damages claimed for the loss of use of a pleasure craft, absent proof it was chartered, leased, rented or otherwise engaged in some commercial activity. Simply stated, a plaintiff must prove pecuniary damages arising from loss of use of a vessel with sufficient certainty to allow calculation without resort to speculation. In the absence of such evidence, a Court should dismiss a claim for loss of use damages.

Maritime Lingo

tpedreira@mikkelborg.com (Tom Pedreira) — Tue, 10 Jun 2008 18:21:07 -0800

All areas of the law, have their own lingo and their own insider ‘speak’. The following is a list, of common fisheries acronyms, more on what they mean later, in a different post.

ABC—acceptable biological catch

ACL—annual catch limit

ACT—annual catch target

AM—accountability measures

CCF—capital construction fund

CFQ—community fishing quota

EEZ—Exclusive Economic Zone

FMP—fishery management plan

GRT—Gross registered tonnage

IBQ—individual bycatch quota

IFQ—individual fishing quota

IMO—International Maritime Organization

MARAD—US Department of Transportation, Maritime Administration

MSA—Magnuson-Stevens Act

MSRA—Magnuson-Stevens Fishery Conservation and Management Reauthorization Act

NOAA—US Department of Commerce, National Oceanic and Atmospheric Administration

OFL—Overfishing limit

QS—quota share

SFA—Sustainable Fisheries Act

TAC—total allowable catch

USCG—United States Coast Guard

VMS—vessel monitoring system

WTO—world trade organization