Courts of Appeal Split Over Whether Attorney's Fees Recoverable in Marine Insurance Contract Disputes
April, 2002
by Kimbley A. Kearney and
The Eleventh Circuit Court of Appeals created a definitive split in the circuits by awarding attorney’s fees against an insurer in a marine insurance contract dispute. All Underwriters v. Weisberg, 222 F.3d 1309, 2000 AMC 2926 (11th Cir.).
Facts
In Weisberg, Underwriters at Lloyds of London issued a policy providing hull and machinery coverage for a motor vessel. The owners made a claim for constructive total loss when the boat sank. Invoking admiralty jurisdiction, Underwriters filed a declaratory judgment action in federal court in Florida, seeking to void the contract based on the owners’ alleged misrepresentations in their application for insurance. The vessel owners counterclaimed for breach of contract and requested attorney’s fees under a Florida statute awarding such fees to a prevailing party. The district court struck the attorney’s fees request, finding that the Florida statute conflicted with federal maritime law.
The parties then settled the claim. In the settlement agreement, however, the vessel owners reserved their right to seek attorney’s fees and to appeal the district court’s order striking their prior request. After the court found for the owners on their counterclaim, they did just that.
Analysis
The Eleventh Circuit reversed. Finding that the Florida attorney’s fees statute was substantive, the court then had to decide whether a federal court sitting in admiralty could award attorney’s fees without interfering with a uniform federal maritime law. The court held that there would be no interference.
The court initially noted that although the general rule is that attorney’s fees are not recoverable in admiralty actions, that rule does not apply to actions involving marine insurance contracts. Citing Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U.S. 310 (1955), the court stated that there was room for state law to apply in the absence of a specific and controlling federal rule. The court found that there was no established federal maritime policy addressing the specific issue of whether attorney’s fees are recoverable in marine insurance litigation. Further, there was no reason to require a uniform federal rule.
The Second Circuit had reached the opposite conclusion five years earlier in American National Fire Ins. Co. v. Kenealy, 72 F.3d 264 (2d Cir. 1995). In Kenealy, insurers of a sunken yacht sought a declaratory judgment that there was no coverage for the loss because the boat was outside the policy’s navigation limits. The yacht owners counterclaimed for attorney’s fees, among other things, under a New York statute. The Second Circuit took the position that under Wilburn Boat, the state law could not apply because there was an established, controlling federal rule prohibiting attorney’s fees in admiralty actions. The court saw no reason to apply a different rule where an insurer sues an insured.
The Eleventh Circuit in Weisberg explicitly rejected the Second Circuit’s position. The Weisberg court found that the cases cited by Kenealy were “unpersuasive,” and did not support the notion of an emerging federal rule of law relating to attorney’s fees in maritime insurance litigation.
Learning Point:
There is a clear rift among the Courts of Appeal over whether attorney’s fees are recoverable in marine insurance contract disputes. The point of contention is whether, under Wilburn Boat, there is a specific and controlling rule of law in admiralty which precludes the recovery of attorney’s fees. The Weisberg decision may represent a trend towards allowing state law to supplement the general maritime law on this issue. As most states now statutorily permit the recovery of attorney’s fees in contract actions, marine insurers who do business nationwide should be wary of expanded liability. Unless and until the Supreme Court resolves the issue definitively, insurers should figure the cost of attorney’s fees into the overall decision to litigate insurance contract disputes.
Back to CM Report of Recent Decisions (2002v2) 2002 Volume 2 Table of Contents
