United States Court of Appeals,
Fifth Circuit.
No. 94-40021.
Summary Calendar.
THANH LONG PARTNERSHIP, Plaintiff-Appellant,
v.
HIGHLANDS INSURANCE COMPANY, Defendant-Appellee.
Sept. 19, 1994.
Appeal from the United States District Court for the Western
District of Louisiana.
Before GARWOOD, SMITH and DeMOSS, Circuit Judges.
DeMOSS, Circuit Judge:
This insurance dispute arises from the ill-fated and final
voyage of the M/V BIG TOM, a Florida-style double rig shrimp
trawler which sank in the Gulf of Mexico at Vermillion Block 122-A.
Thanh Long Partnership (Thanh Long), the vessel owner, sued
Highlands Insurance Company (Highlands), its maritime hull insurer,
claiming that the BIG TOM was lost due to the master's operational
negligence, which is a covered peril under the Inchmaree Clause of
the policy. Highlands denied coverage, claiming alternatively that
(1) the vessel was intentionally scuttled; (2) the owners breached
an express warranty requiring an operable high water bilge alarm;
or (3) the Inchmaree Clause did not provide coverage because the
owners breached the implied warranty of continuing seaworthiness,
demonstrating a lack of due diligence. The district court denied
coverage, finding that the BIG TOM did not sink due to a covered
peril of the sea. Because we find the district court's findings of
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fact and conclusions of law amply supported by the evidence, we
affirm, although we navigate a slightly different legal course to
reach that destination.
Insured Perils of the Sea
Thanh Long insured the BIG TOM under the Highlands maritime
hull policy in the amount of $150,000. The policy includes an
express warranty obligating Thanh Long to install and maintain in
an operable condition a high water bilge alarm system.1 The
Highlands policy also includes an Inchmaree clause. An Inchmaree
clause significantly expands the hull insurer's undertaking by
specifying coverage for a variety of perils in addition to the
"adventures and perils" of the sea specified in the ancient
language of the standard form policy. Highland's Inchmaree clause
provided, in relevant part, that the policy insured against "latent
defects in the machinery or hull" and against operational
negligence committed by the "master, mariner, engineer or pilot."
Excluded from coverage under the Inchmaree clause, however, is any
loss caused by a lack of due diligence on the part of the "assured,
the owner or manager of the vessel or any of them." The policy
also obligated Thanh Long to comply with any recommendations made
by marine surveyors hired by Highlands as soon as practicable and,
1
The "Special Terms and Conditions" of the policy includes
the following conspicuous provision:
HIGH WATER BILGE ALARM SYSTEM
Warranted that a high water bilge alarm system is installed
in the engine room, fully audible in the pilot house and
maintained in an operative condition.
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in any event, before any further fishing operation.
The Loss of the BIG TOM
BIG TOM was owned by the Thanh Long Partnership which was in
turn owned 50 percent by Quang Tran and 50 percent by Nguyet D. Le.
Nguyet Le's husband, Son Le, was the initial purchaser and business
manager of the vessel.2 He conducted quarterly inspections and was
responsible for the purchase and installation of electrical
equipment, including the high water bilge alarm. Quang Tran
generally acted as master of the vessel on fishing voyages but Son
Le's testimony established that Quang Tran was also responsible for
equipment used in shrimping, some maintenance on shore, and
preparations for voyage.
At about mid-day on November 30, 1990 the BIG TOM left port at
Intercoastal City for a two-week fishing trip with master/owner
Quang Tran (Tran) and two other crew members on board. After
motoring six hours, the vessel reached Vermillion Block 122-A,
about 30 miles offshore, and tied off to an uninhabited oil
platform for the night because Tran determined that the four- to
six-foot seas were too rough for shrimping.
After tying the boat off to the platform, Tran testified that
he began using the vessel's sea water piping system to clean the
boat. The plumbing system included a suction pump and three gate
valves: (1) the sea suction valve opened to allow sea water to be
sucked through the suction pump near the bilge; (2) the deck gate
2
Highlands contends that BIG TOM was placed in Nguyet Le's
name to evade Coast Guard regulations because Son Le was not a
United States citizen.
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valve opened to allow the flow being discharged from the pump to be
released into hoses for cleaning: and (3) the bilge suction valve,
when opened, allowed the suction pump to be used to evacuate water
from the bilge for discharge overboard. A marine surveyor hired by
the Highlands had recommended the installation of an additional
valve, a check valve, on the bilge suction line to prevent sea
water from entering the bilge if, by some error, both the sea
suction valve and the bilge suction valve were left open. Thanh
Long claims that it did install the recommended valve.
Tran testified that on the evening of November 30 he first
opened the sea suction valve and the deck gate valve to use sea
water to wash down the deck and the fish hold. Tran gave differing
accounts explaining what he did after he finished cleaning the deck
and fish hold. In his initial statement, he claimed not to have
pumped any water from the bilge that night because it was not
needed. At trial, however, he testified that he did pump the
bilges, at the same time removing the check valve from the bilge
suction line to facilitate faster flow.
After Tran completed his washdown operations, he retired for
the evening at about 11 p.m. Near 4 a.m. a member of the crew woke
Tran because the deck light was flickering and there was a foul
smell. The two men went to the engine room where they discovered
that the engine room had taken on a substantial amount of water,
enough to cover the bilge suction valve and half the generator.
Tran and the two crew members then abandoned ship by swimming to
the platform where they waited several hours until oil workers
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arrived who called the Coast Guard. Later that morning the Coast
Guard delivered two pumps and Tran and another crew member returned
to the BIG TOM, which was at that point still afloat. While the
men tried to pump the vessel the BIG TOM rolled, the men abandoned
ship, and the BIG TOM finally sank. It is undisputed that from
start to finish the high water bilge alarm system never sounded.
The Evidence
Divers hired to investigate the wreck found that the sea
suction valve, the deck gate valve and the bilge suction valve were
all in the open position. The divers also located and retrieved
the bilge suction line, which was found to be without a check
valve. The district court found that, contrary to the testimony of
Son Le and Quang Tran, the condition of the suction line was such
that it did not support any claim that a check valve had ever been
installed. The consequence of leaving all three valves open and
the absence of a check valve on the bilge suction line would be
that water could flow freely from the sea into the bilge of the
vessel. Credible expert testimony established that there was no
legitimate reason for opening all three gate valves at the same
time.
The district court held that the Inchmaree clause did not
cover loss of the BIG TOM because Tran demonstrated a lack of due
diligence by knowingly permitting the BIG TOM to break ground on
November 30 in an unseaworthy condition. See Saskatchewan Gov't
Ins. Office v. Spot Pack, Inc., 242 F.2d 385 (5th Cir.1957)
(stating that although an Inchmaree clause clearly insures against
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some forms of unseaworthiness, there exists a modified implied
warranty which prohibits the owner from knowingly permitting an
unseaworthy vessel to break ground). The court found
unseaworthiness was based on its fact findings that, when the
vessel sailed on November 30, Quang Tran knew that it sailed
without a check valve on the bilge suction line and without an
operable high water bilge alarm.
Although Thanh Long contends that the check valve was present
when the BIG TOM sailed, it concedes in its brief that the high
water bilge alarm did not sound because, "of the two wires to the
horn, one had corroded and come off." The bilge alarm consisted of
a float mechanism in the bilge and a horn mounted in the
pilothouse. If water rose above a certain level in the bilge, a
mercury switch in the float connected and the alarm would sound.
According to Son Le, the float assembly was anchored with a piece
of angle iron.
The divers investigating the wreck did not find either the
float or the angle iron used to anchor the assembly, although over
three and one-half hours were expended in two separate dives
searching for the equipment in the engine room, which measured
approximately 10 feet by 10 feet. The diver testified that, based
on his past experience with similar wreckage, the equipment would
have been located if it had been in the engine room. The diver did
locate and videotape the horn in the pilothouse, noting that one of
the essential wires was corroded and disconnected. Although the
investigative dive occurred some six months after the BIG TOM sank,
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the diver testified that such corrosion exceeded what would
typically occur underwater in that period. No one testified that
the alarm did sound the night BIG TOM sank. Thanh Long did not
offer any evidence suggesting that the horn wire was disconnected
or the float mechanism was displaced from the bilge after the BIG
TOM left port. Based on this evidence and other evidence in the
record, we hold that the district court did not clearly err in its
factual finding that the BIG TOM left Intercoastal City without an
operable bilge alarm.
Son Le testified that he tested the high water bilge alarm
personally sometime between November 22 and November 30, when the
BIG TOM left Intercoastal City. He stated that he examined the
wires to be sure none were disconnected. He further testified that
standard procedure required Quang Tran to check operation of the
bilge alarm, including the horn, prior to embarking on a voyage,
and that the wires to the horn could be easily seen in the
pilothouse. Quang Tran testified that he "checked everything"
before leaving Intercoastal City. Although the record does not
contain abundant evidence that Quang Tran or Son Le knew that the
bilge alarm was inoperable before the BIG TOM left Intercoastal
City, we are not left with the firm and definite conviction that an
error has been made. See Glass v. Petro-Tex Chemical Corp., 757
F.2d 1554, 1559 (5th Cir.1985) (a finding is not clearly erroneous
unless reviewing court is left with a firm and definite conviction
that a mistake has been committed). If these owners conducted the
investigation they claim, the loose wire would have been
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discovered. There is no indication that the wire became loose in
the 12 or so hours between the time the vessel departed
Intercoastal City and the time it began sinking. The trial judge,
who heard all the testimony, was entitled to infer from the
evidence presented that these owners knew the alarm was inoperable.
We therefore hold that the district court did not clearly err in
finding that Quang Tran knowingly permitted the BIG TOM to break
ground in an unseaworthy condition.
Implied Warranty of Seaworthiness and the Inchmaree Clause
Thanh Long argues that the predominant cause of the sinking
was Quang Tran's negligence in removing the check valve and opening
all three gate valves before retiring for the night. Since Tran
was acting in his capacity as master rather than as owner of the
vessel, and since the Inchmaree clause covers negligence of the
master, Thanh Long contends that the Inchmaree clause provides
coverage. This Court has never recognized the functional
master/owner distinction urged by Thanh Long. The cases cited by
Thanh Long reclassified part owners as masters for purposes of the
Inchmaree clause only when the master/owner was discharging some
professional duty in navigating the vessel at sea. Allen N.
Spooner & Son, Inc. v. Connecticut Fire Ins. Co., 314 F.2d 753 (2d
Cir.1963), cert. denied, 275 U.S. 819, 84 S.Ct. 56, 11 L.Ed.2d 54
(1963) and Read v. Agricultural Ins. Co., 219 Wis. 580, 263 N.W.
632 (1935). Even if this Court were willing to recognize such a
distinction as to Tran's alleged removal of the check valve while
tied off to a platform performing what were basically dockside
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activities, we would not extend it to Thanh's shoreside decision to
proceed without an operable bilge alarm. We hold that Quang Tran,
as owner, knowingly permitted the BIG TOM to proceed without an
operable high water bilge alarm, rendering the vessel unseaworthy
and demonstrating a lack of due diligence which removed the
casualty from coverage under the Inchmaree clause.
Ordinarily, the law of the state where the contract was
formed governs construction of marine insurance contracts, except
where the state law is displaced by admiralty law. Wilburn Boat
Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 75 S.Ct. 368, 99
L.Ed. 337 (1955). Thanh Long argues that Wilburn Boat therefore
requires this Court to apply Louisiana law, which prohibits implied
warranties in insurance policies. We find this argument
unpersuasive. Entrenched federal precedent exists on the implied
warranty of seaworthiness and the interpretation of Inchmaree
clauses in maritime insurance contracts, which displaces Louisiana
law and makes Wilburn Boat inapplicable to the seaworthiness issue.
E.g., Saskatchewan Gov't Ins. Office v. Spot Pack, Inc., 242 F.2d
385 (5th Cir.1957); see also 5801 Assoc., LTD. v. Continental Ins.
Co., 983 F.2d 662, 666 (5th Cir.1993) ("entrenched federal
precedent exists on the interpretation of the Inchmaree clause").
We hold that federal admiralty law displaces state law as to the
implied warranty of seaworthiness in maritime insurance contracts.
Breach of Express Warranty
Although we affirm the district court's finding that vessel
owner Quang Tran knowingly permitted the BIG TOM to depart
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Intercoastal City on November 30, 1990 without an operable bilge
alarm, we need not rest our decision, as the district court did, on
the modified implied warranty of seaworthiness that survives an
Inchmaree clause. By sailing without an operable high water bilge
alarm, Thanh Long breached its express warranty to maintain an
operable alarm which voids coverage altogether and makes
application of the Inchmaree clause to this dispute unnecessary.
Breach of the express warranty in this maritime insurance
policy voids coverage under either Louisiana law or federal
maritime precedent. Assuming Louisiana law applies, the Court must
then determine whether the express warranty is ambiguous. Graham
v. Milky Way Barge, Inc., 824 F.2d 376, 380-81 (5th Cir.1987). The
parties raise no argument, nor does there appear to be room for
any, that the Highlands clause is ambiguous. Under Louisiana law,
breach of an unambiguous express warranty in a maritime policy
operates to void coverage unless statutory provisions dictate a
different result. Milky Way Barge, 824 F.2d at 383; see also
Steptore v. Masco Construction Co. 619 So.2d 1183, 1186 (La.App.
1st Cir.1993). Appellant Thanh Long does not offer nor has this
Court found any Louisiana statutes which alter the result as to
this marine policy. Therefore, we hold that Thanh Long's breach of
the express warranty to maintain an operable high water bilge alarm
voids coverage as to this casualty.
Breach of warranty, either express or implied, is
insufficient to deny recovery unless the breach is also the cause
of the loss. The district court found that even if Quang Tran had
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negligently opened all three gate valves the vessel would not have
sunk if there had been an operable high water bilge alarm. After
reviewing the record, particularly the expert testimony, we agree
that it is more likely than not that the crew would have been able
to prevent the total loss of the BIG TOM if they had received the
early notice of the problem that would have been provided by an
operable bilge alarm system. Testimony established that the engine
room had taken on a significant amount of water before the men were
alerted to the danger and that they had to abandon ship almost
immediately.
Allowing the BIG TOM to sail without an operable alarm
breached Thanh Long's unambiguous and express warranty to maintain
such an alarm in an operable condition. Breach of the express
warranty caused the loss of the BIG TOM. Coverage was, therefore,
void as to this casualty. The decision of the district court is
AFFIRMED.
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