Underwriters at Lloyd's v. Labarca

          United States Court of Appeals
                     For the First Circuit


No. 00-2142

                UNDERWRITERS AT LLOYD’S, AND THE
                    COX SYNDICATE AT LLOYD’S,

                      Plaintiff, Appellee,

                               v.

                       CARLOS H. LABARCA,

                     Defendant, Appellant.


         APPEAL FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF PUERTO RICO

     [Hon. Jaime Pieras, Jr., U.S. Senior District Judge]


                             Before

                    Torruella, Circuit Judge,

              Campbell and Bownes, Circuit Judges.



     Carlos J. Quilichini for appellant.
     José F. Sárraga with whom Jorge L. Arroyo were on brief for
appellee.




                         August 2, 2001
              CAMPBELL, Senior Circuit Judge.              On June 5, 1999, the

M/V GYPSY sank at her slip in San Juan Bay Marina, San Juan,

Puerto Rico.          Defendant Carlos Labarca, the owner of the GYPSY,

filed a claim with the vessel’s insurer, plaintiff Underwriters

at Lloyd’s (“Underwriters”). Underwriters denied coverage under

the     marine    insurance        policy,       asserting   that    the      policy

explicitly excluded coverage for two reasons:                      (1) GYPSY was

unseaworthy and her unseaworthy condition caused her to sink,

and (2) the loss of the vessel was due to repairs, restoration

or remodeling.          Underwriters then filed a declaratory judgment

action with the district court for the purpose of deciding the

rights     of    the     parties    under        the   insurance    policy.       On

Underwriters’ motion for summary judgment, the district court

held that, on the undisputed facts, the vessel was unseaworthy

at the time she sank and that her unseaworthy condition was the

cause    of     the    sinking,     thus    relieving     Underwriters     of    any

obligation under the insurance policy.                  Labarca appeals.

                            I.     Factual Background

              The relevant facts are undisputed.

              Underwriters issued a contract of marine insurance to

Labarca for his boat, GYPSY, for one hundred seventy thousand

dollars.      That policy became effective on July 15, 1998 and was

up for renewal on July 15, 1999.                 Under the policy, Underwriters


                                           -3-
agreed, subject to various terms and conditions, to pay Labarca

for “direct physical loss or damage to the Vessel [resulting]

from any external cause, including direct physical loss or

damage to the Vessel caused by any hidden defect (excluding the

cost of repair or replacement of the defective part) . . . .”

This promise was limited by the following exclusion:         “[W]e will

not pay for any damage or loss of the Vessel . . . caused, in

whole or in part by . . . [y]our failure to maintain the Vessel

in a sound and reasonably fit condition; or loss or damage

occurring    during   or   resulting   from   repairs,   restoration   or

remodeling.”    The policy also contained a warranty on the part

of the insured owner, Labarca,

            that the Vessel shall be maintained in a
            seaworthy condition at all times.   In the
            event of a loss or damage affecting the
            seaworthiness of the Vessel, the Vessel
            shall be restored to a seaworthy condition
            as soon as reasonably possible and the
            Vessel   will  not   be   operated pending
            completion of such repair without Our
            express written approval.1

            Several days before the GYPSY sank at her slip, Labarca

and a mechanic, whom he hired, removed two of the four air-



    1  The policy defined the term “warranty” “whereby the
Insured Person undertakes to do or not to do something or to
fulfill some condition . . . . If the Insured Person does not
strictly comply with the terms of a Warranty, cover under this
policy may not exist or cease and any loss that occurs at that
time or thereafter may not be paid.”

                                  -4-
conditioning     units     from   the     vessel   in    order    to    paint    the

vessel’s interior.         All four of the vessel’s air-conditioning

units were cooled with raw sea water that was pumped, via a

single Oberdorfer brand Model 104M pump, through four individual

hoses that ran from the ocean into each unit.                    When two of the

four units were removed, the two hoses that carried sea water to

those two units were left unsealed at the ends that would have

been attached to the units. The other two air-conditioning units

remained installed on-board.

           On    June    4,   1999,   after   working     aboard       the   GYPSY,

Labarca returned home but left running the air-conditioning

system aboard the vessel.          He did not know that two of the four

hoses connected to the pump that supplied raw sea water to all

four units were left unsealed after the previous day’s work.

The next morning, he was told that overnight the vessel had sunk

at its slip in perfectly calm waters.

           Experts for both the plaintiff and the defendant agree

that the boat sank because of sea water intrusion through the

two   uncapped    hoses,      resulting    from    the   fact    that    the    air-

conditioning system was left running when Labarca disembarked

from the GYPSY on the evening of June 4, 1999.                   This had caused

water to be pumped through all four houses simultaneously, two




                                        -5-
of which cooled the remaining two air-conditioning units and two

of which dumped sea water into the vessel.

         Also,     one    marine   surveyor,    Doug   Wagner,   hired   to

investigate the sinking of the GYPSY, found a one-inch uncapped

through-hull    fitting    on   the    starboard   side   of   the   vessel

approximately 2.75 inches above the load waterline.                  A 1998

marine survey performed on the GYPSY in order to obtain the

marine insurance policy at issue did not mention this uncapped

through-hull fitting.

                            II.    Discussion

         When ruling in Underwriters’ favor at summary judgment,

the district court relied on its determination that the GYPSY

was unseaworthy due to the two unsealed air-conditioner hoses.

By this reasoning, Labarca had thus breached his warranty of

seaworthiness thereby losing coverage under the policy for the

damage to the vessel proximately caused by its unseaworthy

condition.     We review the district court’s decision on summary

judgment de novo, considering the record in the light most

favorable to Labarca.       See Acevedo-Garcia v. Vera-Monroig, 204

F.3d 1, 4 (1st Cir. 2000).             We affirm the district court’s

ruling for the reasons that follow.

         A warranty of seaworthiness is an absolute duty owed

by a ship owner to its crew and, in this case, to its insurer,


                                      -6-
to provide “a vessel and appurtenances reasonably fit for their

intended use.”         Mitchell v. Trawler Racer Inc., 362 U.S. 539,

550 (1960); Carr v. PMS Fishing Corp., 191 F.3d 1, 3 (1st Cir.

1999); Ferrara v. A.V. Fishing Inc., 99 F.3d 449, 453 (1st Cir.

1996).     “The       duty    includes    maintaining      the        ship    and   her

equipment in . . . proper operating condition, and can be

breached either by transitory or by permanent defects in the

equipment.”       Ferrara, 99 F.3d at 453.                Even “temporary and

unforeseeable malfunction or failure of a piece of equipment

under    proper         and       expected     use    is         sufficient          to

establish . . . unseaworthiness.“              Hubbard v. Faros Fisheries,

Inc., 626 F.2d 196, 199 (1st Cir. 1980).                     See also Trawler

Racer, 362 U.S. at 549 (“[T]he duty [of seaworthiness] is [no]

less onerous with respect to an unseaworthy condition . . .

which may only be temporary”).

           The    duty       of   seaworthiness    applies       no    less    to   the

quality of the vessel’s equipment and working procedures than to

the integrity of the vessel’s physical structure.                      For example,

in   Michalic    v.    Cleveland      Tankers,    Inc.,    364    U.S.       325,   331

(1960), the Supreme Court held that the evidence was sufficient

to create a jury question as to whether a wrench with a worn

grip that slipped from a crewman’s hand and damaged his foot was

unfit for its intended use rendering the vessel unseaworthy.


                                         -7-
And in Martinez v. Sea Land Servs. Inc., 763 F.2d 26, 27 (1st

Cir. 1985), this court held that the vessel was unseaworthy when

a crewman was injured after the plastic sleeve covering one of

the boxes of soft drinks he was carrying aboard came loose,

causing him to twist his back.          We ruled that “the seaworthiness

warranty of fitness for duty extends to material in which ships’

stores [such as those destined for the crew’s consumption on

board] are wrapped.”         See also Usner v. Luckenback Overseas

Corp., 400 U.S. 494, 499 (1971) (“[O]ur cases have held that the

scope of unseaworthiness is by no means . . . limited [to

defective conditions of a physical part of the ship itself.]               A

vessel’s   condition    of    unseaworthiness    might   arise    from   any

number of circumstances.”); Vargas v. McNamara, 608 F.2d 15, 18

(1st Cir. 1979) (holding that sufficient evidence existed from

which a jury could conclude that the vessel was unseaworthy due

to the unsafe procedure crewman were directed to employ for

cleaning the engine room); Webb v. Dresser Indus., 536 F.2d 603

(5th Cir. 1976) (failure to provide proper foot apparel for ice

and snow conditions to seaman ordered ashore to pick up supplies

is an unseaworthy condition).            When, as in this case, it is

undisputed   that   the      vessel’s    equipment,   such   as   its    air-

conditioning system, was temporarily rendered unfit for its

intended   use,   and   that    this    unseaworthy   condition    was   the


                                       -8-
proximate cause of the vessel’s sinking, see Ferrara, 99 F.3d at

453, coverage under the marine insurance policy is properly

denied for breach of the warranty of seaworthiness.

             Two further points merit comment.             First, a finding of

unseaworthiness is not affected by whether the owner was or was

not negligent or at fault.             See Trawler Racer, 362 U.S. at 548

(reaffirming that “the duty to provide a seaworthy ship depends

not    at   all   upon    the    negligence    of   the    ship   owner    or   his

agents”); Ferrara, 99 F.3d at 453 (same).                   The fact that the

air-conditioning system could have been run safely had Labarca

thought to seal the disconnected hoses does not change the fact

that operating the air conditioning system with the unsealed

hoses created an unseaworthy condition, as the result of which

the GYPSY sank.          See Hubbard, 626 F.2d at 200.            Second, when a

vessel sinks in calm waters a presumption of unseaworthiness

arises.     See Pace v. Ins. Co. of North America, 838 F.2d 572,

577 (1st Cir. 1988).              It is for the insured to rebut the

presumption       by    producing      competent    evidence      from    which    a

factfinder could determine that the vessel sank for some reason

other than the alleged unseaworthy condition.                See Insurance Co.

of North America v. Lanasa Shrimp Co., 726 F.2d 688, 690 (11th

Cir.    1984).         Labarca   did   not    provide     evidence   capable      of

rebutting this presumption.


                                        -9-
            On appeal, as he did below, Labarca contends that the

sinking of the GYPSY was caused by a latent defect, to wit, the

one-inch uncapped through-hull fitting on the starboard side of

the vessel.     He argues that because he had no knowledge of the

uncapped through-hull fitting, and because the marine survey in

1998 did not discover it, it is just the type of latent defect

the policy protects against (“We will pay for . . . direct

physical loss or damage to the Vessel caused by any hidden

defect . . . .”, see note 2 infra).                Alternatively, Labarca

argues that the sinking caused by the intrusion of sea water

from the unsealed air-conditioner hoses is a fortuitous act of

the kind covered by a typical “perils of the sea clause” in a

marine insurance policy taking the accident out from under the

seaworthiness    warranty.       See    Pace,    838   F.2d    at   576   (“Even

supposing     [the   defective    equipment]       was    unseaworthy,      its

contribution to the sinking would not be dispositive if the jury

found another, covered cause was the predominant efficient cause

of the loss.”).

            The district court rejected both of these arguments out

of hand, as do we.      For one: the undisputed proximate cause of

the GYPSY’s sinking was not the uncapped through-hull fitting on

the starboard side but the intrusion of sea water pumped from

the   ocean   into   the   vessel      through   the     two   unsealed     air-


                                    -10-
conditioner hoses.       There is no evidence whatsoever that the

one-inch through-hull fitting, which was above the waterline,

would have caused the boat to sink on a calm night were it not

for the unsealed air-conditioner hoses.2               And two:   the marine

insurance policy under which Labarca insured the GYPSY has no

“perils    of   the    sea”    clause    on    which    Labarca   relies    in

analogizing his act of turning on the vessel’s air-conditioning

system with sailing into a storm or a submerged object.                    See

Ferrara,   99   F.3d   at     454   (stating   that    “a   submerged   object

lurking below the surface of apparently navigable waters” is a

peril of the sea).          Moreover, even were we to consider the

“external cause” language in the “Perils Insured” paragraph3 to

include the fortuitous acts typically covered by a “perils of

the sea” clause, we could not conclude that turning on a partly



    2  We doubt the uncapped through-hull fitting was, in any
case, a latent defect, but need not decide this given the
absence of evidence that the through-hull fitting was the
proximate cause of the sinking.
    3   That paragraph, quoted in relevant part supra, states in
full:
     PERILS INSURED
          Subject to all the terms and provision in this
    policy of insurance, We will pay for direct physical
    loss or damage to the Vessel [resulting] from any
    external cause, including direct physical loss or
    damage to the Vessel caused by any hidden defect
    (excluding the cost of repair or replacement of the
    defective part) minus any applicable deductible shown
    on the Declaration page.

                                      -11-
disassembled air-conditioning system aboard a vessel is a “peril

of the sea” against which marine insurance policies protect.

See, e.g., R.T. Jones Lumber Co., Inc. v. Roen Steamship Co.,

270 F.2d 456, 458 (2d Cir. 1959) (stating that “[p]erils of the

sea are understood to mean those perils which are peculiar to

the sea, and which are of an extraordinary nature or arise from

irresistible force or overwhelming power and which cannot be

guarded against by the ordinary exertions of human skill and

prudence”).   The sinking of the GYPSY was likely (and not at all

fortuitous) given that sea water was allowed to pour into the

vessel through the disconnected air-conditioner hoses earlier

left unsealed.   See, e.g., Commercial Union Ins. Co. of New York

v. Daniels, 343 F. Supp. 674, 677 (S.D. Tex. 1972) (holding that

a sea valve left open causing the boat to sink at its mooring

was not a peril of the sea, as the latter clause “covers only

fortuitous events” rather than events that although unfortunate

are nonetheless “certainties”).       See also 2 Thomas Schoenbaum,

Admiralty and Marine Law, § 10-28 (3d ed. 2001) (citing cases

that hold that negligence or fault prevents a vessel owner from

coming within the definition of a peril of the sea such that

“[a] collision or stranding due to negligent navigation” or

“[l]ack of due diligence in providing a seaworthy vessel is

fatal to establishing the defense of peril of the sea”).


                               -12-
            It is true that while the duty of seaworthiness is

implied in every marine insurance policy, see The Caledonia, 157

U.S. 124, 132 (1895), it is not an indefinite warranty and does

not apply at all times.        See, e.g., West v. United States, 361

U.S. 118, 122 (1959) (determining that “it would be an unfair

contradiction to say that the owner held the vessel out as

seaworthy”    where   vessel    was     turned      over   to   ship   repair

contractor for complete overhaul for sole purpose of making her

seaworthy); Roper v. United States, 368 U.S. 20, 21-22 (1961)

(where vessel is not “in navigation” -- i.e., no longer used to

travel the seas -- it carries no warranty of seaworthiness).

Labarca’s    marine   insurance    policy     implied      as   much   in   the

seaworthiness clause by eliciting the additional promise from

the insured that “[i]n the event of a loss or damage affecting

the seaworthiness of the Vessel, the Vessel shall be restored to

a seaworthy condition as soon as reasonably possible and the

Vessel will not be operated pending completion of such repair

without Our express written approval.”              Here, however, the risk

to the vessel caused by    removal of the two air-conditioners was

readily capable of being resolved at all times by the simple

expedient of capping the hoses or else refraining from operating

the   air-conditioning    system      until   the    two   units   that     were

removed had been reconnected.         In such circumstances, given the


                                   -13-
ease       with   which   the   equipment     could   safely   be   temporarily

removed, we think Labarca’s warranty of seaworthiness remained

in     effect     throughout     the   occurrence      of   the     events   that

proximately caused the sinking of the GYPSY.4

              In sum,

                     [w]hat has been said is not to suggest
              that [Labarca] is obligated to furnish an
              accident-free ship.   The duty is absolute,
              but it is a duty only to furnish a vessel
              and appurtenances reasonably fit for their
              intended   use.     The   standard   is   not
              perfection, but reasonable fitness; not a
              ship that will weather every imaginable
              peril of the sea, but a vessel reasonably
              suitable for her intended service.

Trawler Racer, 362 U.S. at 550.               Although the air-conditioning

system aboard the GYPSY need not, therefore, have been perfect,

it was obviously left so as to be both unfit for its intended

use and highly dangerous to the vessel’s continued viability.

              The judgment below is affirmed.           Costs to appellee.




       4
      Concluding, as we do, that the district court was correct
in holding that Underwriters had no obligation to Labarca on the
ground that the GYPSY was unseaworthy, we do not reach the
merits of Underwriters’ second stated explanation for declining
coverage under the policy, that being the policy’s exclusion for
“loss or damage occurring during or resulting from repairs,
restoration or remodeling.”

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