United States District Court, D. Alaska
ATLANTIC SPECIALTY INSURANCE COMPANY, a New York corporation, et al., Plaintiffs,
v.
JAY THOMASSEN, an individual and Alaska resident, Defendant.
ORDER RE PENDING MOTIONS
SHARON
L. GLEASON UNITED STATES DISTRICT JUDGE
Before
the Court at Docket 18 is Defendant Jay Thomassen's
Motion for Summary Judgment. Plaintiffs Atlantic Specialty
Insurance Company, Travelers Property Casualty Company of
America, Navigators Insurance Services of Washington, Inc.,
and Great American Insurance Company (collectively,
Underwriters) filed an opposition and cross-motion for
summary judgment at Docket 21. Both motions are fully
briefed. Also before the Court, at Docket 22, is a motion to
intervene filed by Yolanda Perez Orozco, a crew member of the
vessel at the center of this dispute.[1] Plaintiffs opposed that
motion at Docket 31; Ms. Perez replied at Docket 33. The
Court heard oral argument on the motions for summary judgment
on March 31, 2016. Oral argument was not requested on the
motion to intervene, and was not necessary to the Court's
determination of that issue.
BACKGROUND
Mr.
Thomassen is the sole owner of Angelette, LLC.[2] Angelette, LLC,
purchased the KUPREANOF, a 73-foot tender vessel, in March
2015.[3] On or about March 18, 2015, through an
insurance agent, Sea-Mountain Insurance, Plaintiffs agreed to
underwrite for Mr. Thomassen a marine insurance policy
providing coverage for the KUPREANOF.[4] Mr. Thomassen is listed as
the "Named Insured." The policy includes the
following two provisions relevant to this dispute:
Layup Warranty Vessel warranted laid up and
out of commission from August 20 to June 20, annually.
Permission granted to make alterations and repairs, to dock
and undock, go on or off ways, gridirons and drydocks and to
move about port for said purposes.
Held Covered Clause: Held covered
in respect to breach of trading warranty, and/or lay-up
warranty provided Underwriters are advised within 72 hours
from inception of the breach, at additional premiums, if any,
to be determined by Underwriters.[5]
On or
before June 6, 2015, Mr. Thomassen had hired a captain,
Stephen Berry, and a crew that included Ms. Perez for the
vessel's 2015 season.[6] In early June 2015, the vessel was in
Petersburg, Alaska undergoing repairs at Piston and Rudder
Services. On June 6, 2015, the vessel left Piston and Rudder
Services and moved a few hundred yards to the dock at Petro
Marine Services in order to take on hydraulic
fluid.[7] The KUPREANOF left the dock at Petersburg
sometime in the morning of June 7, 2015. The precise time of
the departure is disputed. Plaintiffs assert "the
KUPREANOF departed Petersburg for Juneau at approximately
0400 on June 7, 2015 with Captain Berry and the three crew
members."[8] In support of this position, Plaintiffs
cite to a copy of a U.S. Coast Guard Report of Marine
Casualty Form 2892 that states the departure was at "6/7
4:AM."[9]Mr. Thomassen has stated that he "was
not at the dock at the time" and "[o]n information
and belief, according to Captain Berry, the Vessel left
Petersburg dock as late as 8:00 a.m. or 9:00 a.m. or later
Alaska time and not at '4 AM' as stated on the Coast
Guard Form 2892."[10] Ms. Perez's declaration in
support of her motion to intervene states the "KUPREANOF
left the dock on June 7, 2015 at around 0800 ADT. . . . We
left the waters of the Petersburg area around 0830
ADT."[11]
Early
in the day on June 10, 2015, the vessel sank, although all
crewmembers were successfully rescued. Captain Berry informed
Mr. Thomassen of the sinking, and Mr. Thomassen has indicated
that he was not aware of any potential breach of the
insurance policy prior to that point.[12] All parties
agree that Mr. Thomassen notified the Underwriters (through
Sea-Mountain) of the sinking at 8:04 a.m. Alaska
time.[13]
Plaintiffs
filed suit on August 25, 2015, seeking a declaratory judgment
that there is no coverage under the policy for hull or
protection and indemnity (P&l) claims because the
KUPREANOF and crew claims arise "from the sinking on
June 10, 2015 that occurred in breach of the lay-up
warranty."[14] Several months later, on November 19,
2015, Mr. Thomassen wrote to Sea-Mountain, "I advised
Underwriters via your office of the breach within 72 hours
from inception of the breach of the lay-up warranty. Would
you discuss with the Underwriters what 'additional
premiums, if any, to be determined by Underwriters' are
required to be forwarded by me to continue
coverage?"[15] One of the Underwriters responded on
December 7, 2015 that "[w]ith respect to the question
regarding additional premium pursuant to the held covered
provision of the policy, Counsel has determined factually
that there was no notice of the breach within the 72 hours
after inception. We will pass the assured's inquiry to
underwriters with Counsel's comments in that
regard."[16]The parties' cross-motions for
summary judgment followed.
DISCUSSION
I.
Jurisdiction
Plaintiffs
have designated this as a suit in admiralty under Federal
Rule of Civil Procedure 9(h), and Defendant agrees that the
Court has original admiralty jurisdiction pursuant to 28
U.S.C. § 1333. The Court also has jurisdiction under 28
U.S.C. § 1332 because there is complete diversity
between the parties and the amount in controversy exceeds
$75, 000, and under 28 U.S.C. § 2201, the Declaratory
Judgment Act.
II.
Summary Judgment Standard
Federal
Rule of Civil Procedure 56(a) directs a court to "grant
summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law." The burden of showing the
absence of a genuine dispute of material fact lies with the
moving party.[17] If the moving party meets this burden,
the non-moving party must present specific factual evidence
demonstrating the existence of a genuine issue of
fact.[18] The non-moving party may not rely on
mere allegations or denials.[19] Rather, that party must
demonstrate that enough evidence supports the alleged factual
dispute to require a finder of fact to make a determination
at trial between the parties' differing versions of the
truth.[20]
When
considering a motion for summary judgment, a court views the
facts in the light most favorable to the non-moving party and
draws "all justifiable inferences" in the
non-moving party's favor.[21] When faced with cross-motions
for summary judgment, a court "review[s] each
separately, giving the non-movant for each motion the benefit
of all reasonable inferences."[22] To reach the level of a
genuine dispute, the evidence must be such "that a
reasonable jury could return a verdict for the non-moving
party."[23] If the evidence provided by the
non-moving party is "merely colorable" or "not
significantly probative, " summary judgment is
appropriate.[24]
III.
Applicable Law
Here,
the parties dispute the meaning of two clauses in the marine
insurance policy: the lay-up warranty and the held covered
clause. To interpret these disputed terms, the Court must
first determine whether to apply state or federal
law.[25] The general rule is that courts
"apply state law unless an established federal rule
address[es] the issues raised, or there [is] a need for
uniformity in admiralty practice."[26] "In
Wilburn Boat Co. v. Fireman's Fund Insurance
Co., the Supreme Court declared that no established
federal rule addressed marine insurance policy warranty
clauses, and that the clauses should be interpreted using
state law."[27] Therefore, the Court will apply Alaska
law to the lay-up warranty.[28]
As to
the held covered clause, Plaintiffs contend that state law
also controls.[29] But Mr. Thomassen urges the Court to
find that there is "judicially established and
entrenched federal admiralty law" that continues
coverage pursuant to a held covered clause so long as the
owner notifies the insurer of the breach promptly upon
learning of the breach, and pays an additional
premium.[30] Mr. Thomassen extrapolates this proposed
federal rule from a collection of federal cases interpreting
held covered clauses. But those held covered clauses contain
language quite different from the language at issue here. For
example, in Kalmbach, Inc. v. Insurance Co. of the State
of Pennsylvania, Inc., the first of the cases Mr.
Thomassen relies on, the Ninth Circuit applied
"local" law-relying on state law authorities from
both California and Alaska-"because both parties urge us
to do so, and because there is no statutory or judicially
established federal admiralty rule governing the provisions
in question."[31] Accordingly, Kalmbach does not
establish any federal rule for the interpretation of held
covered clauses. Nor does Campbell v. Hartford Fire
Insurance Co., [32] also cited by Mr. Thomassen. In
Campbell, the parties stipulated that coverage under
the policy should be governed by English law, and the court
then relied on English authorities to interpret the held
covered clause.[33]
Mr.
Thomassen also cites Northwestern National Insurance Co.
v. Federal Intermediate Credit Bank of Spokane, in which
the Ninth Circuit held that, consistent Kalmbach,
"[w]hen the held-covered clause is unambiguous, courts
must apply it as written."[34] Based on the unambiguous
terms of that particular held covered clause, the Court of
Appeals held that "[e]ven if the assured does not notify
the insurer until after the loss, the held-covered clause
extends coverage, provided the assured did not know of the
breach before that time."[35] But the outcome in that case
derived not from an "established and entrenched federal
admiralty rule, " but instead from the explicit and
unambiguous terms of the contract.[36] Northwestern
does not support the existence of an established federal
rule.[37]
Finally,
Mr. Thomassen cites to Hilton Oil Transport v.
Jonas, in which the Eleventh Circuit observed that
"in the absence of a 'held covered' clause,
federal admiralty law, not state law, would
control."[38] Here, in the contract before the Court,
there is a held covered clause. Thus, even if the Ninth
Circuit were to follow the Eleventh Circuit's approach,
the Hilton rule would not apply.
The
Court is not persuaded that Mr. Thomassen's proposed rule
is an "established federal rule" that should be
applied in this case. If the cases cited by Mr. Thomassen
support any federal rule, it is that marine insurance held
covered clauses should be interpreted according to their
terms. And Congress has expressly discouraged federal, as
opposed to state, regulation of insurance.[39] Accordingly,
under the presumption that state law applies established by
Wilburn Boat and under Ninth Circuit precedent, the
Court will apply Alaska's interpretive framework to the
held covered clause at issue in this case as well as to the
lay-up warranty.
IV.
Interpretation of the Policy
a.
General Principles of Alaska Insurance Law
Under
Alaska law, "[t]he construction of an insurance contract
is a matter for the court, unless its interpretation is
dependent upon the resolution of controverted
facts."[40]The Alaska Supreme Court has observed
that "[t]he first and generally most important rule is
that '[w]ords and other conduct are interpreted in the
light of all the circumstances, and if the principal purpose
of the parties is ascertainable it is given great
weight."[41] But "insurance policies are
contracts of adhesion and must be interpreted according to
the reasonable expectations of the
insured."[42] "To determine the parties'
reasonable expectations, we examine (1) the language of the
disputed policy provisions; (2) the language of other
provisions in the same policy; (3) extrinsic evidence; and
(4) case law interpreting similar
provisions."[43] "When the language of a contract
provision is unambiguous, we determine 'the parties'
intention from the instrument
itself.'"[44] "[W]here a clause in an insurance
policy is ambiguous in the sense that it is reasonably
susceptible to more than one interpretation, we accept the
interpretation that most favors the
insured."[45] And '"[a]n interpretation which
gives a reasonable, lawful, and effective meaning to all the
terms is preferred to an interpretation which leaves a part
unreasonable, unlawful, or of no
effect.'"[46]
b.
Lay-up Warranty
The
lay-up provision consists of two sentences. The first
sentence is "Vessel warranted laid up and out of
commission from August 20 to June 20, annually." Neither
party seems to assert that this sentence is ambiguous, and
the Court finds it clear: to be covered under the policy, the
default status of the KUPREANOF from August 20 to June 20 is
meant to be "removed from active operation or
navigation."[47]
The
second sentence is "Permission granted to make
alterations and repairs, to dock and undock, go on or off
ways, gridirons and drydocks and to move about port for said
purposes." The parties dispute the meaning of this
provision, but "[t]he fact that the parties dispute a
contract's meaning does not establish that the contract
is ambiguous."[48]
Defendant's
position appears to be that he could reasonably interpret
this provision to allow the vessel to transit from Petersburg
to Juneau and head to the fishing grounds, all without
breaching the lay-up warranty.[49] This is not a reasonable
interpretation of the "permission granted" clause
because it entirely swallows up the "laid-up"
provision: the KUPREANOF would be covered year-round, in and
out of port, virtually without limit. Mr. Thomassen could not
have a reasonable expectation that this policy would provide
such extensive coverage when the policy specifies that the
KUPREANOF is to be "laid up and out of commission"
for ten months of the year.
Plaintiffs
offer their own equally unconvincing interpretation. They
argue that it does not matter what time the vessel left the
dock on June 7 because, under their interpretation of the
"permission granted" clause, the vessel was already
in breach on June 6.[50] Plaintiffs assert that under the
"permission granted clause" "the only
permitted activity was making alterations and repairs,
"[51] such that the vessel was no longer laid
up once its repairs were completed and it had started getting
ready to leave Petersburg. In Plaintiffs' view,
"[w]hen the KUPREANOF left Piston and Rudder Services on
June 6, 2015 and docked at Petro Marine Services in
Petersburg where hydraulic oil was put in the tank, it was
not docking or moving about the port for the purpose of
making alterations and repairs."[52] Plaintiffs
assert that "it cannot be reasonably disputed that the
vessel was not 'laid up and out of commission' where
it was moored with fuel and a full crew ready for the
imminent voyage to Juneau on the morning of June
7th."[53] But, in light of the permission granted
clause, "laid up and out of commission" is not the
only status allowed of the vessel during the lay-up
period.[54]
The
Court finds the "permission granted" provision
unambiguous. It uses three distinct infinitives to permit
three distinct classes of activity. The policy first provides
permission "to make alterations and repairs."
Second, it provides permission "to dock and undock, go
on or off ways, gridirons and drydocks." And third, it
provides permission "to move about port for said
purposes, " that is, for the purposes of "mak[ing]
alterations or repairs" or "dock[ing] and
undock[ing], go[ing] on or off ways, gridirons and
drydocks."[55]
Plaintiffs'
interpretation is unreasonable because it would deny
permission to move the vessel to and from the designated
locations within the port-docks, ways, gridirons, and
drydocks-unless that movement was for the purpose of making
alterations and repairs.[56]Contrary to Plaintiffs' argument,
the policy necessarily permits receiving fuel and hydraulic
oil because-if the vessel may move about the port for the
stated purposes-Mr. Thomassen could reasonably expect the
policy allows him to keep the vessel operational. Moreover,
the clause expressly grants permission "to dock"
and "to move about port" for the purpose of
docking-precisely what the vessel did when it left Piston and
Rudder Services and docked at Petro Marine Services on June
6, 2015.
The
Court finds that the lay-up warranty would be breached when
the vessel left a particular location for any purpose other
than (1) to make alterations and repairs, or (2) to dock and
undock, or to go on or off ways, gridirons, and drydocks
within the port. For example, the vessel could move about
port as necessary to conduct repairs or alterations, such as
when testing newly installed equipment. Or, the vessel could
be taken out of a drydock and moved to a dock within the same
port when-repairs completed-the drydock was needed for
another vessel. There would be no breach if the vessel
relocated from Dock A to Dock B within the same port when
directed to do so by the port operators, even if such
movement was not related to alterations or repairs. And,
based on the current record, there was no breach when, on
June 6, 2015, the vessel "move[d] about port"
"to dock" at Petro Marine Services. But it would
violate the lay-up warranty when the vessel left a dock in
Petersburg for the purpose of heading out to sea, even when
it was still within the harbor, because such movement would
not be one of the permitted activities in the permission
granted clause. Thus the lay-up warranty would be breached
when the vessel moved about the port-that is, at the moment
the last line was cast away-for purposes other than of making
alterations or repairs, docking or undocking, or going on or
off ways, gridirons, or drydocks within the same port.
c.
Held Covered Clause
The
policy provides that the KUPREANOF is "[h]eld covered in
respect to breach of trading warranty, and/or lay-up warranty
provided Underwriters are advised within 72 hours from
inception of the breach, at additional premiums, if any, to
be determined by Underwriters."[57] Mr. Thomassen asserts
that "[e]very interpretation of a 'held covered'
clause states that the owner must not be aware of a breach
and then, when the owner is aware of a breach, must provide
immediate notice to underwriters."[58] But "[a]
typical [held covered] clause is as follows: . . . The Vessel
is held covered . . . provided (a) notice is given to the
Underwriters immediately following receipt of knowledge
thereof by the assured . . . ."[59] The held covered clause
in this case is not typical, as it contains no such
provision. Plaintiffs correctly assert that, in this case,
"the held covered clause does not require notice only
after 'becoming aware' of the event and does not
require privity on the part of the owner. Rather, the held
covered clause extends coverage in the event of a breach of
the lay-up warranty 'provided Underwriters are advised
within 72 hours from inception of the
breach.'"[60] By the policy's plain and
unambiguous terms, the KUPREANOF was covered under the policy
only if the Underwriters were notified within 72 hours of the
precise time a breach of the lay-up warranty began, without
regard to when Mr. Thomassen learned of the breach.
V.
Application
Applying
the foregoing interpretation of the policy, it is clear that
a genuine dispute of material fact precludes summary judgment
for either party. Both parties agree that the Underwriters
were notified that the vessel had sunk on the open seas, and
thereby informed that the vessel had not been laid up, at
8:04 a.m. Alaska time on June 10, 2015.[61] Under the
contract, as explained above, this notification properly
invoked the held covered clause only if the breach began not
more than 72 hours prior to that time.[62]That breach,
as explained above, occurred when the vessel left the dock in
Petersburg to begin transit to Juneau. The essential
question, then, is whether the vessel left the dock before or
after 8:04 a.m. on June 7, 2015.
There
is a genuine dispute between the parties as to when,
precisely, the vessel cast off. If the KUPREANOF left the
dock headed for open water at or after 8:04 a.m. Alaska time,
the June 10 notice was sufficient to invoke the held covered
clause. If the vessel cast off before 8:04 a.m. on June 7,
2015, then the notice requirement of the held covered clause
was not met. Plaintiffs have asserted, relying on an official
document filed by Captain Berry with the U.S. Coast Guard,
that "the KUPREANOF departed Petersburg for Juneau at
approximately 0400 on June 7, 2015."[63] Mr. Thomassen
responded to an interrogatory that "[o]n information and
belief, according to Captain Berry, the Vessel left the
Petersburg dock as late as 8:00 a.m. or 9:00 a.m. or later
Alaska time and not at '4 AM' as stated on the Coast
Guard Form 2892, "[64] and Ms. Perez stated in her
declaration that "KUPREANOF left the dock on June 7,
2015 at around 0800 ADT."[65]
Both
motions for summary judgment will be denied because the
evidence as to when precisely the breach began is such that a
reasonable jury could return a verdict for either party.
VI.
Motion to Intervene
Ms.
Perez seeks to intervene under Rule 24, and her memorandum in
support of that motion focuses on intervention as of
right.[66] Mr. Thomassen did not respond to Ms.
Perez's motion. Plaintiffs oppose the motion and dispute
each element of the test for intervention.[67]
a.
Intervention as of Right
Federal
Rule of Civil Procedure 24(a)(2) gives a person a right to
intervene when "[o]n timely motion, " the applicant
"claims an interest relating to the property or
transaction that is the subject of the action, and is so
situated that disposing of the action may as a practical
matter impair or impede the movant's ability to protect
its interest, unless existing parties adequately represent
that interest." "The Ninth Circuit requires an
applicant for intervention as of right under Fed.R.Civ.P.
24(a)(2) to demonstrate that (1) it has a significant
protectable interest relating to the property or transaction
that is the subject of the action; (2) the disposition of the
action may, as a practical matter, impair or impede the
applicant's ability to protect its interest; (3) the
application is timely; and (4) the existing parties may not
adequately represent the applicant's
interest."[68] "Each of these four requirements
must be satisfied to support a right to
intervene."[69] "While Rule 24 traditionally
receives liberal construction in favor of applicants for
intervention, it is incumbent on the party seeking to
intervene to show that all the requirements for intervention
have been met."[70]
"An
applicant for intervention has a significantly protectable
interest if the interest is protected by law and there is a
relationship between the legally protected interest and the
plaintiffs claims."[71] A "specific legal or equitable
interest" is not required, and it is "generally
enough that the interest is protectable under some law, and
that there is a relationship between the legally protected
interest and the claims at issue."[72] Ms. Perez
asserts that the insurance "policy at issue contains
provisions of direct interest and obligations regarding the
no-fault cure claims of the crew of the vessel
KUPREANOF."[73]Plaintiffs maintain that Ms. Perez's
"contingent economic interest in insurance policy
proceeds is insufficient to satisfy the [protectable
interest] requirement for ...