I turn now to the individual items of damage defendant's claim were proximately caused by heavy weather in order to determine whether they meet the $ 7 million CTL requirement.
a. Damage to Holds 2, 5, and 8: $ 1,565,801
Relying entirely on Van Grieken's report and testimony, defendants contend that heavy weather damaged some of the side shell plating and framing in the forepeak and all of the holds except hold No. 4. They estimate the cost of repairing this damage at $ 3,356,935. The repairs to holds 2, 5, and 8 alone amount to $ 1,565,801. In his analysis, Van Grieken has relied on his external examination of the hull and his observation that its concave condition was consistent with heavy weather.
The report and Van Grieken's testimony fail to meet the defendants' burden. First, Van Grieken's survey was limited both in scope and in time. Second, and more importantly, the parameters of Van Grieken's survey were circumscribed by the assignment the owners gave him. He was not asked to and did not give an opinion on causation. Even assuming that Van Grieken intended to, and did, render an affirmative opinion on causation, however, his failure to examine carefully all of the evidence regarding the vessel's condition renders his opinion unpersuasive. He did not adequately address the effect of the corrosion and wastage of the steel on the damage he found.
The limitations in Van Grieken's evidence are best understood in the context of the defendants' theory of the case. The defendants do not contest that the corrosion and detached and buckled frames described here existed. Instead, they ask this Court to find that such defects were simply the condition of the vessel and could not, as a matter of law, be the cause of the damages for which they seek recovery. Because of this approach, the defendants have utterly failed to carry their burden as to proximate cause.
Not only have defendants failed to prove that the damage was proximately caused by heavy weather, the plaintiffs have affirmatively proven that the damage at least as to holds 2, 5, and 8, and by inference to all of the side shell and frames, was instead caused by the wasted and corroded condition of the frames. It is undisputed that damage caused by corrosion or owner's negligence is not covered under the policy. In the words of a venerable opinion from a British court, the damage to the frames and side shell arose from a weakness within and was a consequence that must happen. See Compania Transatlantica, 50 F. Supp. at 991 (quoting Ballantyne v. MacKinnon, 1896, 2 Q.B. 455, 460). It is not, therefore, recoverable as caused by a peril of the sea.
In sum, I find that the proximate cause of the damage to the side shell and frames of the ALPHA STAR's holds 2, 5, and 8, was wastage and corrosion in the frames, rather than heavy weather. Examining all of the evidence with the common sense analysis I must apply, the predominant or real and efficient cause of the damage was the severely deteriorated and wasted condition of the web, which was due to long-term neglect and failure to maintain. The breaches in and concave shape of the hull were the result of the buckled and detached frames. Given the level of wastage in the structure of the vessel, which included corrosion far in excess of the allowed 25%, this damage was inevitable from the mere fact of being at sea and under way. Thus, it is not surprising that the first breach in the integrity of the hull occurred on the port side of the vessel while it was in the Atlantic and the weather was striking its starboard side, and indeed, before it encountered any significant weather.
Accordingly, the defendants have failed to prove that the damage to the hull structure of at least cargo holds 2, 5, and 8 of the ALPHA STAR was caused by an insured peril.
b. Collapse of the No. 2 Hold Hatch Cover: $ 2,436,992
Defendants claim that the damages associated with the collapse of the hatch cover of the No. 2 hold are the result of heavy weather experienced during the voyage and in January 1994 when the vessel was towed out to sea by the French Navy.
Altogether they estimate that the cost of these repairs is $ 2,436,992.
The collapse of the No. 2 hold hatch cover and the consequent damage to surrounding areas was directly caused by the changes in pressure with the flow of water through the port side breaches in the hull of the No. 2 hold. These breaches were not the result of weather damage, but instead were directly caused by the buckling and detachment of corroded frames. As already noted, water had begun to leak into the No. 2 hold through cracks in the port side shell plating while the weather was still on the starboard side of the vessel. Once such a breach has begun, it will inevitably increase in size where the plating is unsupported by firm framing. Even then, the collapse of the No. 2 hatch cover and surrounding areas could have been avoided by opening hatches to release the pressure from the suction effect of the seawater moving in and out of the hold,
as the attending surveyors advised the owners' representatives and crew to do. Thus, it was first the corrosion of the frames and then the owners' negligence, and not heavy weather, which was the proximate cause of this damage.
c. Cable Trays: $ 529,660
I find that the cause of the damage to the electric cables, trays, and covers, was corrosion of the steel supports, and not heavy weather. The support structure was severely corroded and at some points completely wasted through.
d. Miscellaneous Testing Expenses: $ 398,000
Defendants claim as part of their CTL calculation expenses related to testing the alignment of the vessel, including drydocking. While such testing may be a prudent exercise, there is no evidence in the record that the alignment of the hull was in fact altered or that the alteration was due to an insured peril such as heavy weather. The policy does not permit expenses incurred in testing to be included in the CTL computation when the testing reveals no damage was incurred. A fortiori, it does not permit recovery when the testing is not even done and the existence of the damage remains entirely speculative.
e. Sue and Labor Costs: $ 551,000
Defendants argue that sue and labor costs may be considered in the calculation of constructive total loss. If an insured does show that a peril of the sea or other covered event caused the damage, and that sue and labor costs were incurred to prevent a total loss or a CTL, the insured is entitled to add to the value for determination of constructive total loss, the sue and labor costs incurred after notice of abandonment.
I find that the sue and labor costs cannot be included in the calculation of CTL. First, the FISH expenses of $ 210,000 were incurred prior to notice of abandonment, and therefore may not be aggregated in the CTL calculation. Second, the Smit Tak expenses of $ 341,000 were not incurred to save the vessel from an insured peril, and therefore cannot be included in determining CTL. Smit Tak was called in after the French Navy took the ALPHA STAR out to sea to prevent her from sinking near the port. This action was taken because of the breaches in the hull, which were caused by corrosion, not by heavy weather. Accordingly, the need for Smit Tak's services was not proximately caused by an insured peril.
Under the hull policy at issue in this case, the insured must prove that the damage to the ALPHA STAR caused by an insured peril rendered the vessel a constructive total loss. In order to do this, the insured must show that the damages to the ALPHA STAR exceed the agreed value of $ 7,000,000.
The total amount excludable from defendants' $ 8,595,958 total estimate
under the above analysis is at least $ 4,930,453. Defendants have failed to prove that $ 7 million in damages were caused by heavy weather.
In sum, I find that defendants have met their burden that the ALPHA STAR encountered heavy weather, an insured peril of the sea, on her voyage from Port Cartier to Fos. I also find, however, that defendants have failed to carry their burden of showing that the damage they have identified to the ALPHA STAR was proximately caused by the heavy weather.
Had the defendants succeeded on their claim, the plaintiffs would not have escaped liability by resort to their affirmative defenses that they are relieved from liability under the policy because the ALPHA STAR was unseaworthy. "Seaworthiness is the ability of a vessel adequately to perform the particular services required of her on the voyage she undertakes." McAllister Lighterage Line, Inc. v. Insurance Co. of N. Am., 244 F.2d 867, 870 (2d Cir.), cert. denied, 355 U.S. 871, 2 L. Ed. 2d 76, 78 S. Ct. 123 (1957). Plaintiffs argue that defendants breached two warranties of seaworthiness which they contend are implied into time hull insurance policies. The two warranties are: (1) an absolute implied warranty of seaworthiness which operates at the inception of the policy; and (2) a negative implied warranty of seaworthiness which "applies only after the policy attaches." Employers Ins. of Wausau v. Occidental Petroleum, 978 F.2d 1422, 1431 (5th Cir. 1992), cert. denied, 510 U.S. 813, 126 L. Ed. 2d 30, 114 S. Ct. 61 (1993).
Both English and American law recognize a warranty similar to what the American cases call the negative implied warranty of seaworthiness in time policies. The existence of an absolute implied warranty of seaworthiness for time hull policies, however, is not without dispute. In England there is the equivalent of an absolute implied warranty of seaworthiness for voyage insurance policies, which "insure against losses caused during a single voyage." Employers Ins. of Wausau, 978 F.2d at 1432 & n.10. But English law does not recognize an absolute implied warranty of seaworthiness for time insurance polices, which insure the hull of the vessel for a set period of time.
Today, virtually all policies issued in both the American and British markets are time policies.
Moreover, the "American rule" -- that is, the rule that the absolute implied warranty of seaworthiness exists -- is not universally accepted by all American authorities. In fact, the Second Circuit case law is mixed on this question. For example, the Second Circuit in McAllister Lighterage Line, 244 F.2d at 871, stated that "it is clear that implied in every policy of full insurance is a covenant of seaworthiness." It also stated that "with a term policy of insurance the warranty of seaworthiness arises at the time when the insurance becomes effective." Id. at 870. Similarly, in Henjes v. Aetna Ins. Co., 132 F.2d 715, 719 (2d Cir.), cert. denied, 319 U.S. 760, 87 L. Ed. 1711, 63 S. Ct. 1316 (1943), the Court, citing Union Ins. Co. v. Smith, 124 U.S. 405, 427, 31 L. Ed. 497, 8 S. Ct. 534 (1888), noted that "there is in the United States an implied warranty by the insured in a time marine policy that the ship is seaworthy at the time the policy period begins." See also Neubros Corp. v. Northwestern Nat'l Ins. Co., 359 F. Supp. 310, 315-16 (E.D.N.Y. 1972).
But earlier in the same year as McAllister Lighterage Line was decided, the Second Circuit rejected the existence of such a warranty, stating that "appellees correctly disclaimed defense of an implied warranty of seaworthiness, since these are time policies." Gray, 240 F.2d at 466. The Gray Court noted that the earlier cases such as Henjes, which had stated that there was an implied warranty of seaworthiness in time policies, had only done so in dicta. Id. at 466 n.10. See also Gregoire v. Underwriters at Lloyds, 559 F. Supp. 596, 599 (D. Alaska 1982) (not reaching the issue, but noting that the absolute implied warranty is "the aspect of the implied warranty that has been most heavily criticized.").
The Fifth Circuit has clearly recognized the existence of the absolute implied warranty. In Employers Ins. of Wausau, that Court recently reaffirmed its holding in Saskatchewan Gov't Ins. Office v. Spot Pack, Inc., 242 F.2d 385 (5th Cir. 1957), that the American rule is that there are two implied warranties of seaworthiness, one that is absolute, and one that is a "negative" warranty. Employers Ins. of Wausau, 978 F.2d at 1434. See also 5801 Assoc., Ltd. v. Continental Ins. Co., 983 F.2d 662, 664 (5th Cir. 1993); Insurance Co. of North Am. v. Board of Comm'rs of the Port of New Orleans, 733 F.2d 1161, 1165 (5th Cir. 1984); Tropical Marine Prods., Inc. v. Birmingham Fire Ins. Co. of Pa., 247 F.2d 116, 119 (5th Cir.), cert. denied, 355 U.S. 903, 2 L. Ed. 2d 260, 78 S. Ct. 331 (1957); Texaco, Inc. v. Universal Marine, Inc., 400 F. Supp. 311, 322-23 (E.D. La. 1975); Lemar Towing Co., Inc. v. Fireman's Fund Ins. Co., 352 F. Supp. 652, 660-61 (E.D. La. 1972), aff'd, 471 F.2d 609 (5th Cir.), cert. denied, 414 U.S. 976, 38 L. Ed. 2d 219, 94 S. Ct. 292 (1973).
Other Circuits have followed the lead of the Fifth Circuit. See, e.g., L&L Marine Service, Inc. v. Insurance Co. of N. Am., 796 F.2d 1032, 1034-36 (8th Cir. 1986), cert. denied, 479 U.S. 1065, 93 L. Ed. 2d 1000, 107 S. Ct. 952 (1987); Kilpatrick Marine Piling v. Fireman's Fund Ins. Co., 795 F.2d 940, 945 (11th Cir. 1986). In Employers Ins. of Wausau, the Fifth Circuit recognized that there is some controversy over this issue, but nevertheless decided to continue recognizing these warranties. The Court stated that
Although we described the American rule in Spot Pack as being settled, we recognized that "how this came to be the rule of general acceptance for all Time policies is obscure." Commentators were also perplexed by the source of the so-called American rule regarding time policies, and our decision in Spot Pack was criticized as resting on "quite slender" authority.