Second Circuit Recognizes Admirality Jurisdiction Over Insurance Policies Which Are Primarily "Maritime" In Nature
December, 2005
by Kimbley A. Kearney and
In Folksamerica Reinsurance Co. v. Clean Water of New York, Inc., 2005 AMC 1747, 2005 U.S. App. LEXIS 13041 (2d Cir. 2005), the Second Circuit reversed a district court’s conclusion that an insurance coverage action did not sound in admiralty. The Second Circuit ruled that a policy providing commercial general liability (CGL) including Shipowners legal liability (SLL) coverages to several named insureds engaged in various “maritime support” roles is primarily maritime and therefore within federal admiralty jurisdiction.
Facts
Milton Rivera was a tank cleaner in New York Harbor. While climbing out of the tank on an oil barge, he fell backwards down into the tank, hitting the steel deck below. He was injured and subsequently brought a lawsuit in state court against his employer, the barge owner, and the company that hired him for this particular job, Clean Water of New York, Inc. The insurer’s successor in interest, Folksamerica Reinsurance Company, subsequently filed a declaratory judgment action in federal court invoking admiralty jurisdiction and seeking a ruling that it had no obligation to defend or indemnify Clean Water under the CGL policy. The CGL policy also included a Shiprepairers’ Legal Liability (SRLL) section. Folksamerica argued that the policy was a maritime contract. Clean Water disagreed.
Analysis
The lower court concluded that the CGL policy was not marine insurance and did not have a purely or wholly maritime character. The lower court held that CGL coverage was insurance used by many businesses to cover day-to-day business operations, and that any maritime risks under the policy were “merely incidental.” The district court compared the policy to more traditional hull, cargo, and protection and indemnity coverages. On appeal, the Second Circuit disagreed.
The Second Circuit conducted a threshold inquiry into the subject matter of the underlying dispute, which it noted was not done by the district court. This inquiry showed that the parties’ dispute concerned an insurance claim based on a ship maintenance-related injury sustained by a ship oil tank cleaner aboard an oceangoing vessel in navigable waters. The court confirmed that the business of ship maintenance has long been recognized as maritime in nature and, therefore, an insurance claim arising out of an onboard injury has a connection to maritime commerce and implicates admiralty and maritime jurisdiction.
The Second Circuit felt that the Supreme Court’s recent decision in Norfolk Southern Railway Co. v. James N. Kirby Pty Ltd., 543 U.S.14, 2004 AMC 2705 (2004), suggested a shift in analysis. Under Kirby, the relevant inquiry is not whether the non-maritime obligations are incidental, but rather, whether the primary object of the contract is maritime. The Second Circuit reasoned that the policy was, in fact, primarily concerned with maritime objectives, even though there were some incidental non-marine elements. The Court found that there is nothing intrinsically “shore side” about a CGL policy.
Even though the CGL policy excluded various maritime risks, it insured against others. The Second Circuit held that certain CGL risks were in fact marine in nature. The ultimate inquiry for the court was whether the policy “reach[es] maritime risks.” Considering the CGL and SLL coverage together, the court concluded that the policy was marine in nature. Thus, the CGL policy was determined to be a maritime contract and the federal court had admiralty jurisdiction to hear the insurance coverage dispute.
Learning Point:
Where an insurance policy provides coverage for marine risks, parties seeking to litigate coverage issues in a federal forum may invoke admiralty jurisdiction. •
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