USCA1 Opinion
June 22, 1995 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 94-1764
WINDSOR MOUNT JOY MUTUAL INSURANCE COMPANY,
Plaintiff - Appellant,
v.
JOHN GIRAGOSIAN AND DEBORAH GIRAGOSIAN,
Defendants - Appellees.
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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.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
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Before
Torruella, Chief Judge,
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Coffin, Senior Circuit Judge,
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and Cyr, Circuit Judge.
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Michael J. Calabro, with whom Flanagan & Hunter, P.C., was
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on brief for appellant.
Thomas M. Neville, with whom Segalini & Neville, was on
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brief for appellees.
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June 16, 1995
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TORRUELLA, Chief Judge. Windsor Mount Joy Mutual
TORRUELLA, Chief Judge.
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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
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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
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model 34-foot Catalina sailboat with a 12-horsepower diesel
auxiliary. The Giragosians insured the Escape with Windsor under
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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,
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Mr. Giragosian's adverse experiences relating to the vessel were
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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
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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
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for the season. Giragosian and Likely rowed to where the Escape
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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
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rainwater.
After retrieving the key from the Coast Guard,
Giragosian and Likely returned to the Escape, boarded the boat,
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and prepared to cast off. Before the Escape left Scituate
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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Williams v. Poulos, 11 F.3d 271, 278 (1st Cir. 1993); Blanchard
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v. Peerless Ins. Co., 958 F.2d 483, 487 (1st Cir. 1992). The
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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,
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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
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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.
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"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
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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
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standard for interpreting the warranty of
standard for interpreting the warranty of
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seaworthiness?
seaworthiness?
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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
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Ins. Co., 348 U.S. 310, 320-21 (1955), the court explained that
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"regarding matters of insurance, . . . the doctrine of uberrimae
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fidei gives way to the state's . . . interests in regulating the
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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
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Ins. Co. v. Wisniewski, 579 F. Supp. 1004, 1013 (D.R.I.
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1984)(citing Kossick v. United Fruit Co., 365 U.S. 731, 735
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(1961); Wilburn Boat, 348 U.S. at 313). When, however, no
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established maritime rule governs the issues of a marine
insurance dispute, the Wilburn Boat inquiry becomes applicable.
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In the absence of a settled federal maritime rule, Wilburn Boat
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has generally been interpreted, "in deference to state hegemony
over insurance, to discourage the fashioning of new federal law
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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
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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.
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Bernard & Co. v. Ingersoll Milling Mach. Co., 484 U.S. 1042
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(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.,
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844 F.2d 1044 (3d Cir. 1988); Coastal Iron Works, Inc. v. Petty
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Ray Geophysical, Div. of Geosource, Inc., 783 F.2d 577 (5th Cir.
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1986); Steelmet, Inc. v. Caribe Towing Corp., 747 F.2d 689, 695
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(11th Cir. 1984); Fireman's Fund Am. Ins. Co. v. Boston Harbor
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Marina, Inc., 406 F.2d 917, 919 (1st Cir. 1969); cf. Pace v.
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Insurance Co. of No. Am., 838 F.2d 572 (1st Cir. 1988)(holding
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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
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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
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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
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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.
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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.
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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
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3 The doctrine traditionally applied to insurance law in
general. See Stipchich v. Metropolitan Life Ins. Co., 277 U.S.
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311, 316 (1928)("Insurance policies are traditionally contracts
uberrimae fidei and a failure by the insured to disclose
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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
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Anh Thi Kieu, 927 F.2d at 888 (tracing history of doctrine).
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Today, virtually the sole remaining vestige of the doctrine is in
maritime insurance law. Id. Even then, however, it is debatable
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whether the doctrine can still be deemed an "entrenched" rule of
law. Id. at 889-90 (discussing marine insurance cases in which
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courts refused to apply doctrine in its strictest form).
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condition. Austin v. Servac Shipping Line, 794 F.2d 941 (5th
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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,
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see 348 U.S. at 316-317 (explaining limitations of doctrine in
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marine insurance contract context). Whatever the exact extent of
the applicability of the strict uberrimae fidei standard, we
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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
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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
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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
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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 -
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- 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
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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
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inconsistent?
inconsistent?
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Windsor also claims that the district court's factual
finding that the sinking of the Escape was due to a "latent
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defect" is inconsistent with its alleged finding that the
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5 We agree with the Giragosians that the case of Prado, Inc. v.
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Lexington Ins. Co., 1990 WL 255535, *8 (D. Mass. 1990), aff'd,
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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
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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
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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.
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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
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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
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7 Windsor also argues that accepting the district court's
finding that the leak in the Escape's hull was a "latent defect,"
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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
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the district court.
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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
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F.3d 1480, 1483 (1st Cir. 1994); FDIC v. Caporale, 931 F.2d 1, 2
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(1st Cir. 1991).
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