United States: Warranty And Pollution Provisions Of Marine Policies Upheld

Case:     Guam Indus. Servs. v. Zurich Am. Ins. Co.
              United States Court of Appeals for Ninth Circuit
              No. 13-17005, 787 F.3d 1001 (9 Cir. 06/01/15)

In January 2011, a dry dock in Apra Harbor, Guam, owned and operated by Guam Industrial Services Inc., sank during a typhoon, along with 113,000 gallons of oil stored in containers on the dock. After Guam was instructed by the U.S. Coast Guard to retrieve the oil containers or face fines and strict liability for any resulting contamination, Guam spent approximately $647,000 recovering the oil containers. Fortunately for Guam, no oil had leaked out prior to the containers being retrieved.

Guam then made claims under its Hull and Machinery insurance policy underwritten by Zurich American Insurance Company and Starr Indemnity and Liability Company, which provided coverage for damage to the dry dock itself, and its Ocean Marine policy, also underwritten by Zurich, which provided coverage for liability for property damage caused by pollutants. The insurers denied coverage under both policies and Guam instituted the instant coverage suit in the United States District Court of Guam. The insurers prevailed on summary judgment at the District Court, which found no coverage available under the Hull and Machinery Policy due to Guam's breach of a warranty provision and likewise found that the Ocean Marine Policy coverage for property damage caused by pollution was never triggered because the oil never left the containers. Guam appealed the District Court's decision but the Ninth Circuit affirmed the grant of summary judgment in favor of the insurers.

Important to the court's holding, the Hull and Machinery Policy issued to Guam contained a Navy Certification Warranty, which required Guam to obtain and maintain Navy Certification for the dry dock, the purpose of which was to ensure that the dry dock satisfied a certain level of structural integrity. However, Guam never obtained the Navy Certification as required. Instead, Guam obtained a lower standard "commercial" certification; however, even that certification had expired approximately three months prior to the loss. Although the state courts of Guam had not yet spoken on the issue, the Ninth Circuit found it reasonable to conclude that the Supreme Court of Guam would follow the "majority rule" and hold that the law requires strict compliance with marine insurance policy warranties – even when the breach of the warranty did not cause the loss. The court found there was "no question" that Guam failed to comply with the Navy Certification warranty. Thus, it was not entitled to coverage under the policy.

The Ocean Marine Policy covered Guam's liability for property damage caused by pollutants and limited coverage to claims "arising out of the discharge, dispersal, release, or escape of . . . oil . . . or pollutants into or upon . . . any watercourse or body of water." As it was undisputed that no oil actually leaked out the containers and into the water of the harbor, the court reasoned that the policy's coverage could only be triggered if the sinking of the containers themselves constituted a "discharge, dispersal, release, or escape" of oil or pollutants into the waters – which it did not. Thus, since there was no actual discharge of pollutants, even though the containers of oil were submerged after the sinking, Guam's costs of retrieving the containers from the sea were not covered by the policy's allowance of coverage for cleanup after the "discharge, dispersal, release, or escape" of pollutants.

Aimed mostly at the denial of coverage under the Ocean Marine policy, the dissenting judge called the denial of coverage "absurd" and "the type of slimy conduct that gives insurance companies a bad name." The position of the dissent was simply that if the barrels were discharged, dispersed, or released, then so were their contents. Overall, the dissenting judge strongly believed that the cost of fishing out submerged oil barrels at the command of the Coast Guard is the kind of risk for which dry dock owners would seek coverage when buying insurance and that it did not matter whether oil mixes with water immediately or sometime later - the risk is the same. In sum, the dissenting judge commented, "If you slap a silk suit on a monkey, you still won't want to take it to prom. And if you pour crude oil into a barrel, you still won't want it in your hot tub."

To the majority, the plain language of the policy's pollution coverage provision was not ambiguous and the court was required to and did appropriately construe the provision as written.

As it concerns the strict construction and enforcement of the warranty provision, the court held the breach of warranty need not be material to the cause of the loss. This is interesting, particularly since in this case there actually appeared to be a legitimate connection between the insured's breach of the Navy Certification Warranty and the sinking of the dry dock.

In any event, while express warranties in marine insurance contracts may be strictly construed in the Ninth Circuit; i.e., enforced without the requisite showing of any relationship between the breach of the warranty and loss, the Federal Fifth Circuit and jurisdictions included within the Gulf Coast region do not necessarily follow suit and do generally require the showing of a casual connection between the breach of an express warranty and a loss in order for insurers to avoid coverage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.