Bowhead Operations & Maintenance Solutions LLC v. Endurance American Insurance Co

Opinion

THE HONORABLE JOHN C. COUGHENOUR 1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 WESTERN DISTRICT OF WASHINGTON 8 AT SEATTLE 9 BOWHEAD OPERATIONS & CASE NO. C21-0909-JCC-JRC MAINTENANCE SOLUTIONS LLC, 10 ORDER 11 Plaintiff, v. 12 ENDURANCE AMERICAN INSURANCE 13 CO, et al., 14 Defendants. 15

16 This matter comes before the Court on the parties’ cross-objections (Dkt. Nos. 50, 55) to 17 the report and recommendation (“R&R”) of the Honorable J. Richard Creatura, U.S. Magistrate 18 Judge. (Dkt. No. 49.) Having thoroughly considered the parties’ briefing and the relevant record, 19 the Court finds oral argument unnecessary and hereby SUSTAINS Defendants’ second objection 20 as to the definition of “charterer,” SUSTAINS Plaintiff’s objection as to liability “assumed” 21 under an incidental contract, and otherwise OVERRULES their objections. 22 I. BACKGROUND 23 This is an insurance coverage case. Plaintiff Bowhead Operations & Maintenance 24 Solutions LLC sues Defendants on various causes of action after they denied Plaintiff’s 25 insurance claim for $6.5 million in repair costs resulting from the grounding of a watercraft. (See 26 generally Dkt. No. 1-2.) 1 Plaintiff is one of several subsidiaries of Ukpeaġvik Iñupiat Corporation (“UIC”). (Dkt. 2 No. 22-1 at 2–3.) Plaintiff entered a contract with the U.S. Navy (the “Navy Contract”) that 3 required Plaintiff to operate multiple vessels and provide related services at Joint Base Pearl 4 Harbor-Hickam in Hawaii. (See Dkt. No. 31-4 at 3.) Among other things, Plaintiff was to use 5 Navy vessels to retrieve torpedoes used in training exercises, transport munitions and personnel 6 around the area, and support various training activities. (See id.) 7 While performing these services in July 2020, Plaintiff apparently ran the Naval vessel 8 Multipurpose Craft 4 (“Craft”) into a submerged reef, seriously damaging the Craft. (Dkt. No. 9 31-5 at 2, 5.) The Navy’s investigation concluded human error was to blame. (See id.) Plaintiff 10 alleges it will eventually incur $6.5 million in repair costs for the Craft. (See Dkt. No. 1-2 at 6.) 11 Defendants Endurance American Insurance Company and U.S. Specialty Insurance Co. 12 insured UIC1 under a Comprehensive Marine Liability Policy (the “Policy”) in which Plaintiff 13 and several other UIC subsidiaries were named assureds. (Dkt. Nos. 31-1 at 4, 31-3 at 2.) 14 Plaintiff contends the Policy covers the funds it spent to repair the Craft. (See generally Dkt. No. 15 1-2.) 16 But perhaps surprisingly, the Policy expressly excludes coverage for “property damage 17 arising out of the ownership, maintenance, operation, [or] use . . . of any watercraft owned or 18 operated by or rented or loaned to any assured.” (Dkt. No. 23-1 at 15.) And it expressly excludes 19 “liability assumed by the assured under any contract . . . except an incidental contract.” (Id.) But 20 there is a “Contractual Liability Coverage” endorsement that broadens the definition of 21 “incidental contract” to include virtually any course-of-business contract. (Dkt. No. 23-1 at 39.) 22 Therefore, this definition paradoxically broadens coverage and thereby avoids the watercraft 23 exclusion. (See id.) In other words, the Policy covers losses incurred due to “liability assumed by 24 the assured under . . . an incidental contract.” (Dkt. No. 23-1 at 15.) Plaintiff argues that its losses 25 1 In truth, the policyholder is UIC Marine Services, LLC. (See, e.g., Dkt. No. 23-1 at 20.) But the 26 Court omits non-germane subtleties of UIC’s corporate organization chart. 1 are covered because it “assumed” liability under the Navy Contract. (Dkt. No. 55 at 13.) 2 Plaintiff’s other theory of coverage is the “Charterer’s Legal Liability Endorsement” 3 (“Charterer’s Endorsement”), which provides as follows: 4 Company agrees to indemnify the Insured . . . of all sums which the insured as charterer of vessels hereinafter described shall become obligated to pay as follows: 5 This insurance covers the legal and/or contractual liability of the Assured as 6 Charterer (other than Bareboat Charterer) in respect of the Vessel insured hereunder 7 for any . . . loss or damage, resulting from any accident in which said vessel may be involved. 8 (Dkt. No. 23-1 at 57.) 9 Both sides moved for partial summary judgment asking the Court to adopt their 10 respective interpretations of the “assumed liability” and Charterer’s Endorsement clauses. (See 11 Dkt. Nos. 28, 41.) Judge Creatura’s R&R recommends denying both cross-motions as to the 12 Charterer’s Endorsement and recommends granting Defendants’ motion as to the “assumed 13 liability” provision. (See generally Dkt. No. 49.) 14 II. DISCUSSION 15 A. Legal Standard 16 The Court reviews de novo any part of the magistrate judge’s report and recommendation 17 that a party specifically objects to in writing. Fed. R. Civ. P. 72(b); United States v. Reyna-Tapia, 18 328 F.3d 1114, 1121 (9th Cir. 2003). “[T]he court may accept, reject, or modify, in whole or in 19 part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1). 20 Summary judgment is proper if “there is no genuine dispute as to any material fact and 21 the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The Court views 22 facts in the light most favorable to the nonmoving party and resolves ambiguity in that party’s 23 favor, but it must not make credibility determinations or weigh evidence. See Anderson v. 24 Liberty Lobby, Inc., 477 U.S. 242, 248–49, 255 (1986); Bator v. Hawaii, 39 F.3d 1021, 1026 (9th 25 Cir. 1994). A fact is material if it “might affect the outcome of the suit,” and a dispute of fact is 26 genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving 1 party.” Anderson, 477 U.S. at 248. 2 The moving party has the initial burden to show the lack of a genuine issue for trial. 3 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If that party succeeds, the burden shifts to 4 the nonmoving party to demonstrate there is an issue for trial. See id. at 323–24. If the movant 5 fails, the nonmovant need not present any evidence, even if it has the ultimate burden at trial. See 6 Nissan Fire & Marine Ins. Co. v. Fritz Cos., Inc., 210 F.3d 1099, 1102–03 (9th Cir. 2000). 7 On cross-motions for summary judgment, the Court evaluates each motion independently 8 giving the nonmovant in each instance the benefit of all reasonable inferences. Lenz. v. Universal 9 Music Corp., 815 F.3d 1145, 1150 (9th Cir. 2016). 10 B. The R&R’s Definition of “Charterer” 11 Defendants’ first objection is that the R&R erred by not adopting a specialized maritime 12 definition of “charter” to interpret the Charterer’s Endorsement. (Dkt. No. 50 at 2–4.) It is not 13 clear what Defendants hope to achieve with this argument. They admit that “the parties do not 14 dispute what ‘charter’ or ‘charterer’ mean for purposes of the Policy,” (Dkt. No. 50 at 5), and 15 their underlying summary judgment briefing acknowledges there is no material difference 16 between the plain ordinary meaning of “charter” and any specialized maritime meaning they say 17 it should have (Dkt. No. 43 at 17–18). Nor do Defendants ultimately challenge Judge Creatura’s 18 application of Alaska law. (See generally Dkt. No. 50.) The Court thus OVERRULES 19 Defendants’ first objection. 20 C. Whether Plaintiff was a “Charterer” 21 Both parties’ objections clarify that the real dispute is whether Plaintiff was a “charterer” 22 of the Craft (Dkt. No. 50 at 5), and more specifically whether (1) being a “charterer” means you 23 have to pay to use the chartered vessel, and (2) there was sufficient evidence that Plaintiff 24 reasonably expected it would be covered as a “charterer.” (See Dkt. No. 55 at 7–10.) 25 Alaska courts interpreting an insurance contract look to (1) the relevant policy language, 26 (2) other provisions in the policy, (3) extrinsic evidence, and (4) precedent construing similar 1 terms. Hahn v. GEICO Choice Ins. Co., 420 P.3d 1160, 1170–71 (Alaska 2018). Coverage is 2 interpreted broadly and exclusions narrowly, and the overall policy is interpreted in accordance 3 with the insured’s reasonable expectations, even if the unambiguous policy text might negate 4 those expectations. Id. (citations omitted). Courts will not, however, ignore or rewrite the plain 5 terms of the policy. Allstate Ins. Co. v. Teel, 100 P.3d 2, 6 (Alaska 2004). The Court reads terms 6 according to their “ordinary and customary usage,” Hahn, 420 P.3d at 1171, often referring to 7 dictionaries to do so. See Teel, 100 P.3d at 5 (citing WEBSTER’S DICTIONARY); Krossa v. All 8 Alaskan Seafoods, Inc., 37 P.3d 411, 417 (Alaska 2001) (citing BLACK’S LAW DICTIONARY). 9 Plaintiff argues that, (1) because the parties agree “charter” means “to lease or hire a 10 vessel,” (2) because Black’s Law Dictionary defines “hire” as “procur[ing] the temporary use of 11 property,” and (3) because Plaintiff procured use of the Craft in serving the Navy, therefore, 12 (4) Plaintiff was a “charterer.” (See Dkt. No. 53 at 3–5.) This is a tortured interpretation and 13 strains the contractual language beyond its ordinary and customary usage. Black’s indeed defines 14 “charter” as “[t]he leasing or hiring of an airplane, ship, or other vessel.” See Charter, BLACK’S 15 LAW DICTIONARY (11th ed. 2019) (also: “to hire or rent for temporary use ”). 16 But Plaintiff is hiding the ball on how Black’s actually defines “hire,” that is: “1. To engage the 17 labor or services of another for wages or other payment. 2. To procure the temporary use of 18 property, usu. at a set price.” Hire, BLACK’S LAW DICTIONARY (11th ed. 2019) (emphasis 19 added). Paying for services or the use of property is inherent in the definition of “hire.” See also 20 Hire, MERRIAM-WEBSTER, https://www.merriam-webster.com/dictionary/hire (last visited July 21 13, 2022) (“[P]ayment for the temporary use of something”). Accordingly, the Court holds that 22 the plain language of “charterer” requires payment for the temporary use of the vessel being 23 chartered. 24 Plaintiff argues that, even if it did not pay cash to use the Craft, it “agreed to provide 25 services to the Navy, in exchange for . . . charter of the [Craft].” (Dkt. No. 55 at 8.) This is 26 transparently revisionist. Consideration is “the promised performance of one party agreed to be 1 exchanged for that of the other party.” Durkee v. Busk, 355 P.2d 588, 591 (Alaska 1960). 2 Plaintiff did not promise to perform services to the Navy so it could operate the Navy’s vessel; 3 rather, the Navy paid Plaintiff to operate the vessel for the Navy. (See Dkt. No. 21-1 at 2–4.) 4 Plaintiff no more chartered the Craft from the Navy “than a school bus driver ‘hires’ or ‘charters’ 5 a bus from the school district.” (Dkt. No. 52 at 5.) 6 The issue, then, is whether, despite the unambiguous meaning of “charterer,” there is 7 sufficient evidence to warrant summary judgment about whether Plaintiff reasonably expected 8 coverage under the Charterer’s Endorsement. There is—for Defendants. 9 Plaintiff argues that a layperson would reasonably expect a policy called an “Ocean 10 Marine Insurance Policy” providing “Comprehensive Marine General Liability Coverage” would 11 cover damage to the Craft. (Dkt. No. 55 at 9.) This argument assumes its own conclusion, brings 12 subjectivity into what should be an objective “reasonableness” standard, and has no limiting 13 principle. The Court thus rejects it. 14 Plaintiff next relies on an email from claims adjuster Mark Froggitt who said that 15 “underwriters are/were aware & therefore it would have been the intent of the policy to cover the 16 assured[’]s use of the navy’s vessel(s), as if under a charter agreement.” (Dkt. No. 32-1 at 2.) 17 What Mr. Froggitt thought is not relevant to what Plaintiff reasonably—not subjectively—would 18 have believed. Plaintiff’s own declarations do not even establish that it in fact thought it was 19 covered under the Charterer’s Endorsement. (See generally Dkt. Nos. 29–32.) Plaintiff points out 20 that Defendants’ adjusters never “suggested that the loss was not covered,” (Dkt. No. 32 at 2), 21 but that is not the sort of evidence from which a jury could find that Plaintiff reasonably believed 22 it was acting as a charterer of the Craft. 23 On the other side of the scale, Plaintiff’s disclosures to Defendants’ underwriters during 24 negotiation of the Policy indicate that the intent of the Charterer’s Endorsement was to cover a 25 separate UIC subsidiary’s tugging and towing operations between the Puget Sound and Alaska— 26 not Plaintiff’s services to the Navy in Hawaii. (compare Dkt. No. 30-2 at 3 (describing how 1 “Charterer’s Liability shall be adjusted” and listing towing activity in the Pacific Northwest), 2 Dkt. No. 22-2 at 5 (suggesting that a UIC subsidiary other than Plaintiff offered chartering 3 services in the Arctic), and Dkt. No. 23-1 at 58 (final version of Charterer’s Endorsement in the 4 Policy containing the same language), with Dkt. No. 22-2 at 4 (describing Plaintiff’s operations 5 as piloting government-owned vessels in Hawaii, California, and Florida)). Thus, there is nothing 6 from which a jury could find that Plaintiff reasonably thought it would be covered as a charterer. 7 The Court thus SUSTAINS Defendants’ second objection, OVERRULES Plaintiff’s 8 objection on this point, and GRANTS summary judgment to Defendants that Plaintiff’s loss was 9 not covered under the Charterer’s Endorsement. 10 D. Coverage for Liability under Assumed or Incidental Contracts 11 Plaintiff argues that its losses are covered because it “assumed” liability under the Navy 12 Contract. (Dkt. No. 55 at 13.) In support of this, Plaintiff points to a standard federal 13 procurement clause incorporated into the Navy Contract called “Liability and Insurance” in 14 which Plaintiff agreed to be “[l]iable to the Government for loss or damage to 15 property . . . owned by the Government or for which the Government is liable.” 48 C.F.R. 16 § 252.247-7007(a)(1) (cited in Dkt. No. 31-4 at 10.) 17 The R&R disagrees, reasoning that this provision in the Navy Contract merely stated 18 Plaintiff’s pre-existing liability “for damages arising from breach of its own contract” and thus 19 did not provide coverage. (Dkt. No. 49 at 17.) This was insufficient, the R&R explains, because 20 case law recognizes that the language “[l]iability assumed . . . under any contract” in an 21 insurance policy refers to a scenario where the insured takes on liability by agreeing to 22 indemnify or hold someone harmless; it does not include liability resulting from breach of a 23 contractual duty other than a promise to indemnify or hold harmless. See, e.g., Olympic, Inc. v. 24 Providence Wash. Ins. Co. of Alaska, 648 P.2d 1008, 1011 (Alaska 1982) (finding tenant did not 25 “assume liability” for wrongful death resulting from fire by agreeing to obtain liability insurance 26 naming landlord as an insured). Defendants take this a step further, arguing that an insured party 1 cannot “assume liability” from another under a contract unless it is that latter party’s liability to a 2 third person. (Dkt. No. 52 at 11.) None of the cases Defendants cite require this, though, and all 3 those cases either involved contractual duties other than agreeing, in advance, to pay for the 4 results of an accident (i.e., indemnification), or did not involve explicit indemnification 5 agreements at all. (See Dkt. No. 52 at 11 n.9 (citing cases).) 6 Here, Plaintiff agreed to assume liability “to the Government for loss or damage to 7 property . . . owned by the Government.” 48 C.F.R. § 252.247-7007. Defendants argue that 8 Plaintiff had certain maintenance and repair duties independent of this particular provision (see 9 Dkt. No. 52 at 9 (citing Dkt. No. 21-1 at 11–12, 18)), but the clauses imposing those duties speak 10 to prophylactic measures, routine upkeep, and ordinary-course repairs, rather than who bears the 11 risk of damages from an accident. They do not change the fact that Plaintiff expressly agreed to 12 indemnify the Navy for damage to Government watercraft. It is true that Plaintiff would breach 13 the Navy Contract had it not paid for the repairs to the Craft, but on the record here, that is 14 because “in the case of indemnification or hold harmless agreements, assumption of another's 15 liability constitutes performance of the contract.” Olympic, Inc., 648 P.2d at 1011. All other 16 things being equal, because the Navy owns the Craft, it would have had to pay to fix it unless it 17 sued Plaintiff for negligence and won. Instead, Plaintiff and the Navy prospectively allocated the 18 risk of loss of the Craft to Plaintiff. That is an “assumption” of liability. 19 Accordingly, the Court SUSTAINS Plaintiff’s objection and GRANTS summary 20 judgment to Plaintiff that the loss was covered under this provision of the Policy. 21 III. CONCLUSION 22 For the foregoing reasons, the Court OVERRULES Defendants’ first objection (Dkt. No. 23 50 at 2–4), SUSTAINS their second objection (id. at 5–8), OVERRULES Plaintiff’s objection as 24 to the Charterer’s Endorsement (Dkt. No. 55 at 7–12), and SUSTAINS Plaintiff’s objection as to 25 “assumed” liability, (id. at 12–14). The Court MODIFIES the R&R to incorporate the analysis 26 above and ADOPTS it as modified. 1 It is further ORDERED that Plaintiff’s motion for summary judgment (Dkt. No. 28) is 2 GRANTED in part and DENIED in part; and Defendants’ motion for summary judgment (Dkt. 3 No. 41) is GRANTED in part and DENIED in part. 4 DATED this 15th day of July 2022. A 5 6 7 John C. Coughenour 8 UNITED STATES DISTRICT JUDGE

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