Indemnity Insurance Co. of North America v. United States

PUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

INDEMNITY INSURANCE COMPANY OF 
NORTH AMERICA; CONTINENTAL
INSURANCE COMPANY; BALTIMORE
HARBOR SHUTTLE, LLC, d/b/a
Seaport Taxi; NATIONAL HISTORIC
SEAPORT OF BALTIMORE,
INCORPORATED; LIVING CLASSROOMS
FOUNDATION, INCORPORATED,
 No. 08-2148

Plaintiffs-Appellants,
v.
UNITED STATES OF AMERICA,
Defendant-Appellee.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
William D. Quarles, Jr., District Judge.
(1:06-cv-00422-WDQ)

Argued: May 13, 2009

Decided: June 25, 2009

Before DUNCAN, Circuit Judge, HAMILTON, Senior
Circuit Judge, and Malcolm J. HOWARD, Senior United
States District Judge for the Eastern District of North
Carolina, sitting by designation.
2 INDEMNITY INSURANCE v. UNITED STATES
Affirmed by published opinion. Senior Judge Hamilton wrote
the opinion, in which Judge Duncan and Senior Judge How-
ard joined.

COUNSEL

ARGUED: Robert Hopkins, DUANE MORRIS, LLP, Balti-
more, Maryland, for Appellants. Stephen Robert Campbell,
UNITED STATES DEPARTMENT OF JUSTICE, Washing-
ton, D.C., for Appellee. ON BRIEF: Susan M. Euteneuer,
DUANE MORRIS, LLP, Baltimore, Maryland; George R.
Zacharkow, Faust Mattioni, MATTIONI, LTD., Philadelphia,
Pennsylvania, for Appellants. Michael F. Hertz, Acting Assis-
tant Attorney General, UNITED STATES DEPARTMENT
OF JUSTICE, Washington, D.C., Rod J. Rosenstein, United
States Attorney, Baltimore, Maryland, Robert E. Kelly,
UNITED STATES DEPARTMENT OF JUSTICE, Torts
Branch, Civil Division, Washington, D.C., for Appellee.

OPINION

HAMILTON, Senior Circuit Judge:

The present civil action stems from the capsizing in the
Baltimore Harbor of a double-pontoon vessel called the "Lady
D," resulting in the death of five persons thrown overboard
and numerous injuries to others on board (the Accident). Prior
to the Accident, the United States Coast Guard (the Coast
Guard) had certified the Lady D to carry no more than
twenty-five persons, based upon the results of a stability proof
test performed on a sister vessel called the Fells Point Prin-
cess. After the Accident, the Coast Guard’s retesting of the
Fells Point Princess established that such vessel should have
been certified to carry no more than fifteen persons.
 INDEMNITY INSURANCE v. UNITED STATES 3
After the owners and operators of the Lady D settled the
personal injury and death claims flowing from the accident,
the owners and operators of the Lady D and their insurers
(collectively Plaintiffs) filed the present civil action against
the United States of America (the Government) under the
Suits in Admiralty Act (SIAA), 46 U.S.C. §§ 30901-309181,
and the Federal Tort Claims Act (FTCA), 28 U.S.C.
§§ 1346(b), 2671-2680. In such action, Plaintiffs have alleged
causes of action for negligence, negligent misrepresentation,
contribution, indemnity, equitable subrogation, and violations
of the Good Samaritan Doctrine. Plaintiffs initially based each
cause of action upon two actions of the Coast Guard: (1) the
Coast Guard’s waiver of the Lady D undergoing its own sta-
bility proof test (the Failure to Test Error); and (2) negligence
in the performance of the original stability proof test on the
Fells Point Princess (the Underlying Testing Error). Upon the
Government’s motion, the district court dismissed Plaintiffs’
civil action in toto for lack of subject matter jurisdiction on
the basis that the entire action was barred by the discretionary
function exception to the Government’s respective waivers of
sovereign immunity under the SIAA and the FTCA.

On appeal, Plaintiffs challenge the district court’s dismissal
of their action to the extent their causes of action are premised
on the Underlying Testing Error. Plaintiffs expressly do not
challenge the district court’s dismissal of their action to the
extent their causes of action are premised upon the Failure to
Test Error. For reasons that follow, we affirm the district
court’s dismissal of Plaintiffs’ action for lack of subject mat-
ter jurisdiction.

I.

The Lady D weighed approximately two gross tons and
measured thirty-six feet in length. Construction of the Lady D
1
Prior to October 6, 2006, the SIAA was cited as 46 U.S.C. app.
§§ 741-752.
4 INDEMNITY INSURANCE v. UNITED STATES
began in 1995. The Coast Guard inspected the Lady D’s pon-
toons in November 1995.2 The Coast Guard also conducted a
dry-dock inspection on the nearly completed Lady D on
March 18, 1996. In accordance with the authority and discre-
tion provided under the then applicable administrative regula-
tions and guidance, the Coast Guard’s Officer in Charge for
Marine Inspection deemed the Lady D a sister vessel of the
Raven and waived the requirement that the Lady D undergo
its own stability proof test before being issued a Certificate of
Inspection. 46 C.F.R. § 170.175 (1996); 46 C.F.R. § 175.400
(1996); 46 C.F.R. § 178.115 (1996). The Raven’s stability
proof test, in turn, had been waived based upon its sister ship
status with the Fells Point Princess a/k/a the Patricia P.

The Coast Guard had performed the original stability proof
test upon the Fells Point Princess in 1992. The record on
appeal contains the deposition testimony of Charles Collins
(Inspector Collins), the Coast Guard inspector who was in
charge of conducting the stability proof test on the Fells Point
Princess in 1992. Inspector Collins testified that, in conduct-
ing the transverse stability portion of such test, he "did not
move the weight to the extreme outboard position," (J.A.
182), as "recommended" by the Marine Safety Manual for
conducting a stability proof test on a pontoon-type small pas-
senger vessel, (J.A. 202). Instead, for that singular portion of
the test, Inspector Collins testified that he inadvertently
applied the weight-shift procedure used for a monohull vessel.
As a result, the stability calculations for the Fells Point Prin-
cess were inaccurate.3

The Coast Guard issued a Stability Letter for the Lady D
on March 29, 1996, "deem[ing it] to have satisfactory stability
2
By statute, the Coast Guard is charged with inspecting small passenger
vessels like the Lady D. See 46 U.S.C. § 3301(8).
3
As previously stated, stability testing of the Fells Point Princess con-
ducted after the Lady D capsized showed that the Fells Point Princess
could only qualify to be certified to carry no more than fifteen persons.
 INDEMNITY INSURANCE v. UNITED STATES 5
for passenger service under reasonable operating conditions
for the carriage of not more than 25 total persons on protected
waters." (J.A. 36). The record also contains a Certificate of
Inspection for the Lady D, issued by the Coast Guard on Feb-
ruary 28, 2002, with an expiration date five years later, certi-
fying the Lady D to carry no more than twenty-five persons.

The Lady D operated in the Baltimore Harbor without inci-
dent until the Accident on March 6, 2004. On that day, the
Lady D encountered a wind storm en route from Fort
McHenry to Fells Point and capsized. At the time of the Acci-
dent, twenty-three passengers and two crew members were
aboard the Lady D. A total of five persons perished and
numerous others were injured. The Lady D also suffered
physical damage.

At the time of the Accident, the owners and operators of the
Lady D were Baltimore Harbor Shuttle, LLC, d/b/a Seaport
Taxi, National Historic Seaport of Baltimore, Inc., and Living
Classrooms Foundation, Inc.4 Their insurers were Indemnity
Insurance Company of North America and Continental Insur-
ance Company. As previously stated, the owners and opera-
tors of the Lady D and their insurers have brought the present
action.

II.

On appeal, Plaintiffs seek reversal of the district court’s
dismissal of their action and a remand for further proceedings
to the extent their causes of action are based upon the Under-
lying Testing Error of the Fells Point Princess in 1992.
According to Plaintiffs, "[b]ut for the Underlying [Testing]
Error, the Lady D would not have been certified as safe to
carry 25 individuals, and the Accident would not have
occurred." (Plaintiffs’ Reply Br. at 3).
4
On October 7, 2004, victims of the Accident settled all tort claims filed
in a prior separate action against the owners and operators of the Lady D.
6 INDEMNITY INSURANCE v. UNITED STATES
Plaintiffs contend that the Underlying Testing Error does
not fall within the discretionary function exception to the
Government’s respective waivers of sovereign immunity
under the SIAA and the FTCA, and therefore, the district
court committed reversible error in dismissing their action to
the extent their causes of action are based upon the Underly-
ing Testing Error. In support, Plaintiffs argue, in relevant part,
that "pursuant to Coast Guard policy between the 1960’s and
March 11, 1996 . . ., Coast Guard inspectors were not permit-
ted to apply the Monohull Weight Shift in the test of a pon-
toon vessel, because to do so would be contrary to established
scientific procedures of naval architectural and marine engi-
neering and would provide invalid test results." (Plaintiffs’
Opening Br. at 13).

Whether the Underlying Testing Error falls within the dis-
cretionary function exception is a narrow question, which we
review de novo. Suter v. United States, 441 F.3d 306, 310 (4th
Cir. 2006); Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th
Cir. 1999). Under the discretionary function exception to the
Government’s waiver of sovereign immunity under the
FTCA, the Government is not liable for "[a]ny claim . . .
based upon the exercise or performance or the failure to exer-
cise or perform a discretionary function or duty on the part of
a federal agency or an employee of the Government, whether
or not the discretion involved be abused." 28 U.S.C.
§ 2680(a). Although the SIAA does not expressly contain a
parallel exception to the Government’s waiver of sovereign
immunity under the SIAA, we have previously held that one
implicitly exists by virtue of the constitutional doctrine of
separation of powers. McMellon v. United States, 387 F.3d
329, 338 (4th Cir. 2004) (en banc) (noting that the SIAA does
not contain a statutory exception from suit for discretionary
functions, but holding that such an exception nonetheless
implicitly exists by virtue of the constitutional doctrine of
separation of powers).

Notably, Plaintiffs bear the burden of proving that the dis-
cretionary function exception does not apply to the Underly-
 INDEMNITY INSURANCE v. UNITED STATES 7
ing Testing Error. Welch v. United States, 409 F.3d 646 (4th
Cir. 2005). If the discretionary function exception does apply,
the district court must dismiss the affected claims for lack of
subject matter jurisdiction. Williams v. United States, 50 F.3d
299, 304-05 (4th Cir. 1995) (federal court lacks subject matter
jurisdiction if discretionary function exception applies).

"To determine whether conduct by a federal agency or
employee fits within the discretionary function exception, we
must first decide whether the challenged conduct ‘involves an
element of judgment or choice.’" Suter v. United States, 441
F.3d 306, 310 (4th Cir. 2006) (quoting Berkovitz v. United
States, 486 U.S. 531, 536 (1988)). "[T]he discretionary func-
tion exception will not apply when a federal statute, regula-
tion, or policy specifically prescribes a course of action for an
employee to follow" because "the employee has no rightful
option but to adhere to the directive." Berkovitz, 486 U.S. at
536.

If we determine that the challenged "conduct does involve
such discretionary judgment, then we must determine
‘whether that judgment is of the kind that the discretionary
function exception was designed to shield,’ i.e., whether the
challenged action is ‘based on considerations of public pol-
icy.’" Suter, 441 F.3d at 311 (quoting Berkovitz, 486 U.S. at
536-37). Critical to proper analysis, this inquiry focuses "not
on the agent’s subjective intent in exercising the discretion
. . ., but on the nature of the actions taken and on whether they
are susceptible to policy analysis." United States v. Gaubert,
499 U.S. 315, 325 (1991). Thus, "in the usual case" a court
should "look to the nature of the challenged decision in an
objective, or general sense, and ask whether that decision is
one which we would expect inherently to be grounded in con-
siderations of policy." Baum v. United States, 986 F.2d 716,
721 (4th Cir. 1993). "Moreover, when a statute, regulation, or
agency guideline permits a government agent to exercise dis-
cretion, ‘it must be presumed that the agent’s acts are
8 INDEMNITY INSURANCE v. UNITED STATES
grounded in policy when exercising that discretion.’" Suter,
441 F.3d at 311 (quoting Gaubert, 499 U.S. at 324).

Application of the legal principles just outlined reveals that
Plaintiffs’ appeal is without merit. First, the Marine Safety
Manual was the only administrative guidance on the subject
of conducting a stability proof test on pontoon-type small pas-
senger vessels such as the Lady D and the Fells Point Princess
in existence in 1992 when the Coast Guard conducted its sta-
bility proof test on the Fells Point Princess, and such manual
did not set forth a mandatory testing methodology. Rather, the
Marine Safety Manual only set forth a recommended testing
methodology. In relevant part, the Marine Safety Manual pro-
vided:

Pontoon Type Vessels. Figures 6-2 and 6-3 outline
the recommended procedures for a stability proof
test for pontoon-type small passenger vessels under
65 feet in length and restricted to protected waters.
. . . A proof test is to be used when the number of
pontoons does not exceed two.

(J.A. 97) (bold emphasis added). Because the testing method-
ology for conducting a stability proof test on a pontoon-type
small passenger vessel, such as the Fells Point Princess, was
only recommended at the time the Coast Guard performed the
stability proof test on the Fells Point Princess, logic dictates
that the Coast Guard was permitted to use its discretion in
how it conducted such test. Indeed, the Marine Safety Manual
makes such discretionary authority clear by stating in a pre-
ceding portion of the manual that "the policies and guidance
issued herein are intended as a guide for the consistent and
uniform execution of the marine safety program, without
undue restriction of independent judgment and action on the
part of marine safety personnel." (J.A. 333). Thus, with
respect to the first inquiry prescribed by the applicable discre-
tionary function analysis, we hold that the Coast Guard pos-
sessed discretion in conducting the stability proof test on the
 INDEMNITY INSURANCE v. UNITED STATES 9
Fells Point Princess and certifying it to carry no more than
twenty-five persons.

We so hold despite the Marine Safety Manual’s statement
that: "A proof test is to be used when the number of pontoons
does not exceed two." (J.A. 97). Focusing on the word "is,"
Plaintiffs seize upon this sentence to argue that the procedures
outlined in Figures 6-2 and 6-3 of the Marine Safety Manual
are mandatory. It is a particular weight-shifting step set forth
in Figure 6-2 that Plaintiffs contend the Coast Guard improp-
erly performed in conducting the stability proof test on the
Fells Point Princess in 1992. Plaintiffs’ argument is without
merit for two reasons. First, language in the same paragraph
as the sentence upon which Plaintiffs seize expressly states
that the "procedures for a stability proof test for pontoon-type
small passenger vessels under 65 feet in length and restricted
to protected waters," as outlined in Figures 6-2 and 6-3, are
only "recommended." (J.A. 97) (emphasis added). Second, the
use of the indefinite article "a" at the beginning of the sen-
tence upon which Plaintiffs seize means that such sentence
does not specify a particular stability proof test. In sum, the
answer to the first inquiry of the applicable discretionary
function analysis favors the Government.

Having determined that the challenged conduct involves
discretionary judgment, we must next determine whether the
challenged conduct is "based on considerations of public pol-
icy." Berkovitz, 486 U.S. at 537. We hold in favor of the Gov-
ernment on this inquiry also. We do so because, "[w]hen," as
here, "established governmental policy, as expressed or
implied by . . . agency guidelines, allows a Government agent
to exercise discretion, it must be presumed that the agent’s
acts are grounded in policy when exercising that discretion,"
Gaubert, 499 U.S. at 324, and Plaintiffs have put forward no
evidence to carry their burden of showing that, in certifying
the number of persons a vessel can carry (based in part upon
the results of a stability proof test), the Coast Guard’s acts are
not grounded in considerations of public policy.
10 INDEMNITY INSURANCE v. UNITED STATES
Moreover, the fact that Inspector Collins characterized his
failure to shift the weight to the extreme outboard position in
conducting the stability proof test on the Fells Point Princess
in 1992 as a mistake, as opposed to an exercise in judgment,
is of no moment in our analysis. This is because, according
to the Supreme Court, "[t]he focus of the inquiry is not on the
agent’s subjective intent in exercising the discretion conferred
by statute or regulation, but on the nature of the actions taken
and on whether they are susceptible to policy analysis." Id. at
325. With respect to inspecting pontoon-type small-passenger
vessels, the Coast Guard inspector’s judgment concerning the
application of inspection standards based on the intended use
of the vessel is the type of policy decision the discretionary
function exception is designed to protect. Cassens v. St. Louis
River Cruise Lines, Inc., 44 F.3d 508, 514-15 (7th Cir. 1995)
(judgments made by Coast Guard employees in conducting
vessel inspections "require balancing considerations of safety
and economics with reference to the needs and uses of the
particular vessel being inspected").

This situation is materially analogous to the aviation
inspections at issue in United States v. Varig Airlines, 467
U.S. 797 (1984). In that case, the Supreme Court considered
whether the Federal Aviation Administration’s (FAA) system
of spot-checking airplanes fell within the discretionary func-
tion exception. The Court held that not only was the FAA’s
creation of the spot-checking system discretionary, but so too
were the acts of the FAA employees in executing the program
since they had a range of discretion to exercise in deciding
how to carry out the spot-check activity. Id. at 820.

Based upon the foregoing analysis, the district court was
correct in holding that the discretionary function exception to
the Government’s respective waivers of sovereign immunity
under the SIAA and the FTCA barred Plaintiffs’ action
against the Coast Guard to the extent Plaintiffs’ causes of
action are based upon the Underlying Testing Error. Accord-
 INDEMNITY INSURANCE v. UNITED STATES 11
ingly, we affirm the district court’s dismissal of Plaintiffs’
action for lack of subject matter jurisdiction.

AFFIRMED