Windsor v. Giragosian

USCA1 Opinion









June 22, 1995 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________

No. 94-1764

WINDSOR MOUNT JOY MUTUAL INSURANCE COMPANY,
Plaintiff - Appellant,

v.

JOHN GIRAGOSIAN AND DEBORAH GIRAGOSIAN,
Defendants - Appellees.

____________________

ERRATA SHEET

The opinion of this court issued on June 16, 1995 is amended
as follows:

Bottom of page 8, the last two lines should be placed in
quotation marks and read: "in deference to state hegemony over
insurance, to discourage the fashioning of new federal law and to
favor the application of state law."









































UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________

No. 94-1764

WINDSOR MOUNT JOY MUTUAL INSURANCE COMPANY,

Plaintiff - Appellant,

v.

JOHN GIRAGOSIAN AND DEBORAH GIRAGOSIAN,

Defendants - Appellees.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge] ___________________

____________________

Before

Torruella, Chief Judge, ___________

Coffin, Senior Circuit Judge, ____________________

and Cyr, Circuit Judge. _____________

_____________________

Michael J. Calabro, with whom Flanagan & Hunter, P.C., was ___________________ ________________________
on brief for appellant.
Thomas M. Neville, with whom Segalini & Neville, was on __________________ ___________________
brief for appellees.



____________________

June 16, 1995
____________________



















TORRUELLA, Chief Judge. Windsor Mount Joy Mutual TORRUELLA, Chief Judge. ____________

Insurance Company ("Windsor") sought a declaration from the

district court of its rights and obligations with respect to an

insurance policy held by John and Deborah Giragosian for their

34-foot sailboat Escape, which had sunk in Boston Harbor. The ______

Giragosians counterclaimed for contract damages due to Windsor's

allegedly improper failure to honor the policy.1 After a bench

trial, the district court determined that Windsor had a

contractual duty to indemnify the Giragosians in the stipulated

loss amount of $58,000. Windsor now appeals this ruling. For

the following reasons, we affirm.

BACKGROUND BACKGROUND

In 1989, the Giragosians purchased the Escape, a 1987 ______

model 34-foot Catalina sailboat with a 12-horsepower diesel

auxiliary. The Giragosians insured the Escape with Windsor under ______

a fairly standard marine insurance policy which contained the

following warranty of seaworthiness:

Seaworthiness Warranty. Warranted that
at the inception of this Policy the
vessel shall be in a seaworthy condition
and, thereafter, during the term of this
Policy, the Assured shall exercise due
diligence to maintain the boat in a
seaworthy condition.

In the months before the Escape was lost, ______

Mr. Giragosian's adverse experiences relating to the vessel were
____________________

1 The Giragosians also counterclaimed for violations of Mass.
Gen. L. chapters 93A and 176D, prohibiting unfair and deceptive
practices in the business of insurance. The district court ruled
that Windsor did not commit any unfair or deceptive trade
practices, and the Giragosians do not appeal this decision.

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limited to the following: During one excursion, Giragosian ran

the vessel aground, and called for help using his radio.

Occasionally, the diesel engine stalled. In August of 1991, the

engine stalled as Giragosian was entering Scituate Harbor after a

pleasure cruise. He was unable to restart the engine, and thus

obtained permission to moor the vessel in Scituate Harbor. Most

significantly, on October 19, 1991, someone noticed that the

Escape was lying very low in the water and the Coast Guard was ______

called to pump the boat out. The Coast Guard pumped out the

vessel and promptly informed the Giragosians of the situation.

Giragosian went to Scituate Harbor on October 24, 1991,

accompanied by his friend Daniel Likely. The two planned to sail

the Escape to the Bay Point Marina in Quincy to have it hauled ______

for the season. Giragosian and Likely rowed to where the Escape ______

was moored. Once on board, however, they realized that the locks

to her cockpit had been changed by the Coast Guard personnel who

had pumped the boat out five days earlier. Giragosian came

ashore and retrieved the key from the Coast Guard station. At

the station, Giragosian had a conversation with Coast Guard

officials, who suggested that perhaps the water had gotten into

the vessel's bilges by running down the mast, i.e., that it was ____

rainwater.

After retrieving the key from the Coast Guard,

Giragosian and Likely returned to the Escape, boarded the boat, ______

and prepared to cast off. Before the Escape left Scituate ______

Harbor, Giragosian looked into the bilge and noticed one to two


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inches of water. He considered this to be normal. He also

noticed water stains indicating that there had been about six

inches of water in the bilges at one time.

Giragosian unsuccessfully attempted to start the

vessel's diesel engine. Because the batteries were low,

Giragosian turned off the radio, but kept the depthfinder on

throughout most of the voyage. Because he intended to operate by

"dead reckoning" from Scituate Harbor to the Bay Point Marina,

Giragosian did not think that he needed the electronic equipment.

He also decided to make the trip solely under sail, as the winds

were light, the day clear, and the sea calm.

At about 3:00 p.m., Giragosian headed the Escape out of ______

Scituate Harbor under sail, towing a small inflatable dingy

behind. He sailed northeast out of Scituate Harbor, navigating

by compass and dead reckoning. He estimated that he was sailing

at about six knots. At around 4:30 p.m., his depthfinder failed.

Later, between 5:00 and 6:00 p.m. and well out in greater Boston

Harbor, Giragosian noticed that his floorboards were now covered

with sloshing water and that they had begun to float. He checked

the bilges and found that they contained about four feet of

water, so he and Likely attempted to pump the water out manually.

At this point, the Escape still had sufficient power to operate ______

the navigation lights, but only dimly. Giragosian tried to go

below to get a flashlight, but could not find one as the water

was now flooding the cockpit and the flashlight was underwater.

He tried to use his radio tocall for help, but could raise noone.


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It was getting close to sunset, and the sea had become

slightly choppy. Giragosian and Likely donned life preservers,

retrieved the flare gun, dropped the sails, and hooked up the

outboard motor to the inflatable dinghy. They abandoned the

Escape and started toward a drilling rig light some distance away ______

in the harbor. Their dinghy engine ran out of gas, so it took

them two hours to paddle by hand to the rig, where they were

rescued after some time by the Coast Guard. Neither Giragosian

nor Likely saw the Escape go down. The Coast Guard searched for ______

the vessel but was unable to find any sign of it.

The Giragosians gave proper notice to Windsor. Windsor

conducted its own search for the vessel with underwater detection

devices. This search, however, proved futile, and the Escape was ______

never seen again. Windsor eventually denied Giragosian's claim.

The district court found, based on the totality of the

facts and circumstances presented during trial, that the water

pumped out of the hold of the vessel by the Coast Guard had not

actually come down the mast, but rather was the result of a leak

in the hull, a defect which was aggravated by Giragosian's

attempts to sail the boat. The court went on to find, however,

that Giragosian was not actually aware that the vessel was

leaking at or below the waterline, and he did not know or

appreciate that sailing the vessel was aggravating the leak.

The district court found that the Escape was in a ______

seaworthy condition at the commencement of the policy's coverage,

and that the Giragosians exercised due diligence to maintain the


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boat in this condition. The court went on to find that the

Escape was, however, unseaworthy on October 24, 1991 when ______

Giragosian and Likely sailed her out into open waters. The court

specifically found, however, that Giragosian did not know of the

boat's unseaworthy condition, and that the condition was not

caused by any lack of due diligence on Giragosian's part.

The court nevertheless ruled as a matter of law that

Giragosian was negligent in taking the Escape out to sea on ______

October 24, 1991. According to the court, the "objective

combination of the facts" -- that he knew that his boat had been

low in the water and had been pumped out by the Coast Guard, and

that he was aware that he had no auxiliary power and that his

batteries were low -- rendered Giragosian's decision to sail the

Escape negligent. Yet this negligence, the court explained, did ______

not necessarily preclude coverage under the insurance policy.

Despite his negligence, the court concluded, Giragosian had not

failed to exercise due diligence in maintaining the boat's

seaworthiness, and therefore he is entitled to indemnification

from Windsor under the policy. Windsor now appeals.

STANDARD OF REVIEW STANDARD OF REVIEW

Our standard for reviewing a district court's findings

of fact and conclusions of law made in conjunction with a bench

trial is well settled. We review claimed errors of law de novo. __ ____

Williams v. Poulos, 11 F.3d 271, 278 (1st Cir. 1993); Blanchard ________ ______ _________

v. Peerless Ins. Co., 958 F.2d 483, 487 (1st Cir. 1992). The __________________

district court's findings of fact, however, will not be set aside


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unless they are demonstrated to be clearly erroneous. Williams, ________

11 F.3d at 278; Fed. R. Civ. P. 52(a). In other words, we will

give such findings effect unless, after carefully reading the

record and according due deference to the trial court, we form "a

strong, unyielding belief that a mistake has been made."

Cumpiano v. Banco Santander Puerto Rico, 902 F.2d 148, 152 (1st ________ ____________________________

Cir. 1992). Where there are two permissible views of the

evidence, the interpretation assigned by the trial court will

therefore be adopted. Williams, 11 F.3d at 278. ________

"The clearly erroneous standard also ordinarily applies

to our review of a district court's resolution of mixed questions

of law and fact. In such situations, however, we are obligated

to determine whether the court's decision was infected by legal

error. And if a trial court bases its findings upon a mistaken

impression of applicable legal principles, the reviewing court is

not bound by the clearly erroneous standard." Id. (internal __

quotations omitted).

ANALYSIS ANALYSIS

Windsor appeals the district court's decision on

several grounds. First, Windsor contends that the court applied

an incorrect legal standard both to the interpretation of the

warranty of seaworthiness in the marine insurance policy, and to

the warranty's "due diligence" requirement. Windsor also argues

that certain factual findings of the district court are

inconsistent, and that as a matter of law, the terms of the




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insurance policy preclude coverage for loss due to a "latent

defect." We address these arguments in turn.

A. Did the district court apply the appropriate legal A. Did the district court apply the appropriate legal __________________________________________________
standard for interpreting the warranty of standard for interpreting the warranty of __________________________________________________
seaworthiness? seaworthiness? _____________

In interpreting the marine insurance policy,

particularly the warranty of seaworthiness, the district court

applied principles of Massachusetts insurance law rather than the

maritime doctrine, applicable in marine insurance cases, of

uberrimae fidei.2 Citing Wilburn Boat Co. v. Fireman's Fund ________________ _________________ _______________

Ins. Co., 348 U.S. 310, 320-21 (1955), the court explained that ________

"regarding matters of insurance, . . . the doctrine of uberrimae _________

fidei gives way to the state's . . . interests in regulating the _____

relationship between insurer and insured." Appellant Windsor now

argues that this choice of law ruling was erroneous.

The propriety of maritime jurisdiction over a suit

involving a marine insurance policy is unquestionable. Albany ______

Ins. Co. v. Wisniewski, 579 F. Supp. 1004, 1013 (D.R.I. __________ __________

1984)(citing Kossick v. United Fruit Co., 365 U.S. 731, 735 _______ _________________

(1961); Wilburn Boat, 348 U.S. at 313). When, however, no ____________

established maritime rule governs the issues of a marine

insurance dispute, the Wilburn Boat inquiry becomes applicable. _____________

In the absence of a settled federal maritime rule, Wilburn Boat ____________

has generally been interpreted, "in deference to state hegemony

over insurance, to discourage the fashioning of new federal law

____________________

2 "The most perfect good faith." Black's Law Dictionary 1363
(5th ed. 1979).

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and to favor the application of state law." Albany Ins. Co., 579 _______________

F. Supp. at 1013-14 (listing cases). Where, on the other hand, a

settled maritime rule directly governs the litigation, that rule

controls. See Ingersoll Milling Mach. Co. v. M/V Bodena, 829 ___ ____________________________ __________

F.2d 293, 305-06 (2d Cir. 1987), cert. denied sub nom. J.E. _______________________ ____

Bernard & Co. v. Ingersoll Milling Mach. Co., 484 U.S. 1042 _______________ _____________________________

(1988). State law may supplement maritime law when maritime law

is silent or a local matter is at issue, but state law may not be

applied where it is materially different from maritime law, or

where it would defeat the reasonably settled expectations of

maritime actors. See Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d ___ ________________ ____________

882, 887 (5th Cir. 1991); Floyd v. Lykes Bros. S.S. Co., Inc., _____ ___________________________

844 F.2d 1044 (3d Cir. 1988); Coastal Iron Works, Inc. v. Petty _________________________ _____

Ray Geophysical, Div. of Geosource, Inc., 783 F.2d 577 (5th Cir. _________________________________________

1986); Steelmet, Inc. v. Caribe Towing Corp., 747 F.2d 689, 695 ______________ ___________________

(11th Cir. 1984); Fireman's Fund Am. Ins. Co. v. Boston Harbor ____________________________ _____________

Marina, Inc., 406 F.2d 917, 919 (1st Cir. 1969); cf. Pace v. ____________ __ ____

Insurance Co. of No. Am., 838 F.2d 572 (1st Cir. 1988)(holding ________________________

that the admiralty clause of the U.S. Constitution did not

necessarily bar a state law claim against a maritime insurer for

its bad faith refusal to honor a claim).

Given these choice-of-law principles, the narrower

issue is whether an established rule of maritime law is

applicable to the dispute at bar. If a maritime rule controls

the disputed issue, and that rule is materially different from ___

state law, then the district court's decision to abandon maritime


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law was legal error. Windsor argues that the doctrine of

uberrimae fidei3 is directly applicable here, and that the ________________

district court should have employed this doctrine rather than

Massachusetts insurance law in formulating its conclusions.

We need not undertake this analysis, however, because

we find that the stringent uberrimae fidei doctrine does not ________________

relieve Windsor of its liability to the Giragosians under the

policy. True, the doctrine requires the parties to a marine

insurance policy to accord one another the highest degree of good

faith. Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 13 (2d Cir. ______ ___________________

1986). In particular, the doctrine imposes a strict duty on the

insured to disclose to the insurer all known circumstances that

materially affect the insurer's risk, the default of which duty

renders the insurance contract voidable by the insurer. Id. __

Once policy coverage has commenced, the doctrine imposes an

equally strict, continuing obligation on the vessel owner to

ensure that the vessel will not, through either bad faith or

neglect, knowingly be permitted to break ground in an unseaworthy _________
____________________

3 The doctrine traditionally applied to insurance law in
general. See Stipchich v. Metropolitan Life Ins. Co., 277 U.S. ___ _________ __________________________
311, 316 (1928)("Insurance policies are traditionally contracts
uberrimae fidei and a failure by the insured to disclose ________________
conditions affecting the risk, of which he is aware, makes the
contract voidable at the insurer's option."). Insurance law is
primarily a matter of state concern, however, and over the years
most states, including Massachusetts, have abandoned the strict
uberrimae fidei doctrine for insurance policies generally. See _______________ ___
Anh Thi Kieu, 927 F.2d at 888 (tracing history of doctrine). _____________
Today, virtually the sole remaining vestige of the doctrine is in
maritime insurance law. Id. Even then, however, it is debatable __
whether the doctrine can still be deemed an "entrenched" rule of
law. Id. at 889-90 (discussing marine insurance cases in which __
courts refused to apply doctrine in its strictest form).

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condition. Austin v. Servac Shipping Line, 794 F.2d 941 (5th ______ _____________________

Cir. 1986)(citations omitted)(emphasis added).4 The doctrine

has long been considered to be one of limited applicability,

however, in light of the Supreme Court's Wilburn Boat decision, ____________

see 348 U.S. at 316-317 (explaining limitations of doctrine in ___

marine insurance contract context). Whatever the exact extent of

the applicability of the strict uberrimae fidei standard, we ________________

cannot believe that in these times it requires a pleasure boat

owner to notify the insurer every time the craft takes on a small

amount of water, or has engine trouble, at pain of losing

coverage.

As the district court specifically found, the Escape ______

was indeed unseaworthy when Giragosian set sail, but he did not

know of its unseaworthy condition, and the condition was not the

result of his neglect or lack of due diligence. Windsor does not

challenge these factual findings, but instead argues that

Giragosian failed to exercise due diligence in ascertaining the

vessel's condition before setting sail on August 24, 1991. We

disagree. Although the Coast Guard had recently pumped her out,

the officials told Giragosian that the water had probably run

down the mast, and Giragosian was certainly reasonable in

accepting their opinion. Windsor claims that Giragosian should

have consulted a marine mechanic in Scituate. As a matter of

law, however, we do not think that the doctrine of uberrimae _________

____________________

4 Although strict, this continuing obligation is not "absolute,"
contrary to Windsor's assertions.

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fidei requires boat owners to hire mechanics, at the risk of _____

losing their insurance coverage, every time a boat takes on small

amounts of water. As any boat owner knows, most boats leak at

some time. Moreover, a full five days after the Coast Guard had

pumped water out of the vessel, Giragosian found only one to two

inches of water in the bilges -- a normal amount for the Escape - ______

- and the water was easily pumped out.5 These circumstances

simply do not support a conclusion that the district court

committed clear error in finding Giragosian duly diligent in

maintaining and ascertaining the seaworthiness of the Escape ______

before setting sail on August 24, 1991. We therefore affirm the

district court's determination that Giragosian did not breach the

warranty of seaworthiness of the insurance policy.6

B. Were the district court's factual findings B. Were the district court's factual findings __________________________________________________
inconsistent? inconsistent? ____________

Windsor also claims that the district court's factual

finding that the sinking of the Escape was due to a "latent ______

defect" is inconsistent with its alleged finding that the
____________________

5 We agree with the Giragosians that the case of Prado, Inc. v. ___________
Lexington Ins. Co., 1990 WL 255535, *8 (D. Mass. 1990), aff'd, ___________________ _____
930 F.2d 906 (1st Cir. 1991), is entirely distinguishable. In
that case, although their vessel had been leaking considerably
for an extended period of time, the insureds made absolutely no
attempt to ascertain the source of the highly unusual amount of
water in the vessel, and did not consult with either Coast Guard
personnel or mechanics. These facts are not present here.

6 Our conclusion is unaffected by the district court's
determination that Giragosian was negligent for setting sail in
the Escape that day because he had no auxiliary power and a low ______
radio battery. For as the district court also correctly held,
his decision to set sail, negligent or not, is simply irrelevant
to whether he was in breach of the insurance policy's warranty of
seaworthiness.

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Giragosians were "on notice" of the boat's condition. In support

of this argument, Windsor claims that "latent defect" is a term

of art meaning a flaw which is not discoverable through

inspection by a reasonably skilled person. Because Giragosian

was "on notice" of the vessel's condition, Windsor argues, the

Escape's defect could not have been latent, and Giragosian lacked ______

due diligence in finding it.

As the Giragosians correctly point out, however,

nothing in the district court's findings even suggest that

Giragosian was "on notice" of the boat's defect; to the contrary,

the court specifically found that Giragosian did not know of it. ___

Based on the evidence, we see no inconsistency, much less clear

error, in the court's factual findings. Furthermore, when read

in context, it is clear that the district court did not employ

the term "latent defect" as a term of art, but merely in the

ordinary, common-sense meaning of the phrase -- i.e., an unknown ____

or unsuspected flaw. Essentially, Windsor's argument here is a

reiteration of their previous contention that Giragosian should

have located the source of the water in the bilges, and that his

failure to do so constitutes lack of due diligence. As we

explained above, however, the district court's determination that

Giragosian was duly diligent was not clear error. Accordingly,

we affirm the district court's findings and reject Windsor's

contention on this point.7
____________________

7 Windsor also argues that accepting the district court's
finding that the leak in the Escape's hull was a "latent defect," ______
the policy does not provide coverage for the boat's loss. In

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CONCLUSION CONCLUSION

For the foregoing reasons, we affirm the judgment of ______

the district court.



























____________________

support of this contention, Windsor points to two paragraphs in
the policy. The first paragraph states that the policy provides
coverage for any physical loss or damage from "any external
cause." The second paragraph specifically excludes from coverage
"loss, damage or expense arising from or in consequence of . . .
the repair or replacement of a part in which a latent defect has
been found, mechanical breakdown or faulty manufacture. . . ."
Under the language of these clauses, Windsor contends, coverage
should have been denied.

Windsor raises these arguments now for the first time, never
having presented any evidence nor, as far as the record shows,
even discussed these clauses before the district court. Because
Windsor most certainly could have raised these arguments below
and gives no explanation for its failure to do so, we deem the
arguments waived. Havinga v. Crowley Towing & Trans. Co., 24 _______ ____________________________
F.3d 1480, 1483 (1st Cir. 1994); FDIC v. Caporale, 931 F.2d 1, 2 ____ ________
(1st Cir. 1991).

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