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Royal Insurrance Company of America v. Deep Sea International

March 24, 2006

ROYAL INSURANCE COMPANY OF AMERICA, PLAINTIFF,
v.
DEEP SEA INTERNATIONAL, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Frank Maas, United States Magistrate Judge.

REPORT AND RECOMMENDATION TO THE HONORABLE KIMBA M. WOOD

I. Introduction

This declaratory judgment action brought by plaintiff Royal Insurance Company of America ("Royal") arises out of the sinking of the R/V ALOHA ("Aloha"), a research vessel owned by defendant Deep Sea International ("Deep Sea") in 2002, while it was en route to Juneau, Alaska, to participate in the attempted salvage of the wreck of another vessel. Royal issued a series of insurance policies to Deep Sea covering the Aloha and certain specialized scientific equipment, such as underwater robots, that it had on board. In its second amended complaint, Royal seeks a declaration that it is released from its obligation to make payment for the losses arising out of the sinking of the Aloha because (a) the policy in effect at the time was void ab initio; (b) Deep Sea cannot prove that the loss resulted from a covered peril; (c) the loss was not fortuitous; (d) the Aloha's unseaworthiness was the proximate cause of its sinking; and (e) Deep Sea breached the warranties of seaworthiness. (Second Am. Compl. at 16-17). Deep Sea, in turn, seeks to recover damages on its counterclaims arising out of Royal's refusal to pay any money for the loss of the Aloha and its equipment.

Following extensive discovery, Royal and Deep Sea each have moved for summary judgment and to exclude the expert testimony and reports of certain opposing experts.*fn1 For the reasons that follow, I recommend that both motions for summary judgment be denied. I further recommend that the motions to preclude expert testimony be denied without prejudice to the filing of more focused motions.

II. Facts

The undisputed facts are as follows:

A. Aloha and its Registry

The Aloha, which was 140 feet long and 32 feet wide, was built in 1960 as a supply boat. (Aff. of John A.V. Nicoletti, Esq., sworn to on Oct. 22, 2004 ("Nicoletti Aff."), Ex. 3 (Dep. of Eric Galerne, taken on Jan. 30, 2003 ("Galerne Dep.")), at 553).*fn2 In 1978, the Aloha was converted to a research vessel. (Decl. of Eric Galerne, dated Oct. 21, 2004 ("10/21 Galerne Decl.") ¶ 40). Deep Sea acquired the Aloha in 1977. (Id. ¶ 6). The vessel took its last ill-fated voyage in connection with a charter pursuant to which it was to salvage the wreck of the S.S. Islander off the coast of Juneau, Alaska. (Id. ¶ 31). At that time, the Aloha had on board underwater research equipment for use in the salvage operation. (Id. ¶ 29).

The Aloha originally was built to meet the standards of the American Bureau of Shipping ("ABS"), a member of the International Association of Classification Societies ("IACS"), an elite group that provides standards for the construction and maintenance of "classed" vehicles. (Royal's R. 56.1 Stmt. ¶¶ 14-15; Deep Sea's R. 56.1 Stmt. ¶ 60; see also Decl. of Cary R. Wiener, Esq., dated Nov. 12, 2004 ("11/12 Wiener Decl."), Ex. BB at 7). When it acquired the Aloha in 1977, Deep Sea opted to sail it under Panamanian registry, which subjected it to the rules and regulations of the Panama Maritime Authority ("PMA") and its enforcement arm, the Panama Bureau of Shipping, rather than the ABS. The PMA is not an IACS member. (10/21 Galerne Decl. ¶ 6; Ex. 8 (Dep. of Mario Breton, taken on Feb. 5, 2003 ("Breton Dep.")), at 11-12).

Under PMA Decree 45, a vessel registered in Panama weighing less than 500 gross tons (such as the Aloha) must be inspected periodically to ensure its seaworthiness. (Ex. 9 (Dep. of Napoleon Smith, taken on Mar. 20, 2003 ("Smith Dep.")), at 69-70). Among the inspections required from time to time are inspections prior to the issuance or reissuance of a vessel's Cargo Ship Safety Certificate -- to certify, inter alia, the soundness of its hull -- and inspections of the area of the vessel above the waterline prior to the issuance of a Load Line Certificate. (Ex. 11 (Dep. of Michael F. Telschow, taken on Jan. 22, 2003 ("Telschow Dep.")), at 94-98). The PBS oversees the process of surveying vessels registered by the PMA, but the surveys are actually accomplished by independent surveyors. (Breton Dep. at 14; Smith Dep. at 11). At all relevant times, the surveys of the Aloha were undertaken on behalf of the PMA by Michael Telschow, a surveyor approved by the PBS, doing business under the name "Acquarian Marine Consultants." (Telschow Dep. at 38).

B. Maintenance History of the Aloha

With the passage of time, the hull plating on vessels with steel hulls, such as the Aloha, obviously is subject to corrosion and wastage. Accordingly, such hulls must be inspected periodically so that any damage threatening the seaworthiness of the vessel can be repaired. (See 11/12 Wiener Decl. Exs. GG, HH).

Between 1996 and 2002, the Aloha was in dry-dock on four occasions when its hull was examined and repairs were undertaken. The first time was in September 1996, when the Aloha was dry-docked at the Calcasieu Shipyard in Louisiana. (Ex. 10 (Dep. of Rick Bastian, taken on Jan. 10, 2003 ("Bastian Dep.")), at 80-81). Prior to its arrival, Eric Galerne, the Vice-President and General Manager of Deep Sea, requested that the shipyard bid on certain items of work, including the cropping (i.e., removal) and renewal (i.e., replacement) of the hull plating under the rudder room. (See Bastian Dep. at 35-39).

Once the Aloha was out of the water, James Moon, an independent contractor, took ultrasonic measurements of the thickness of the metal plating on the vessel's hull. (Bastian Dep. at 68-69; Ex. 12 (Dep. of William Lance Devillier, taken on July 23, 2002 ("Devillier Dep.")), at 94). After learning the results, Deep Sea opted to have the shipyard crop and renew certain plates on the Aloha's hull which showed more than a 25% diminution in thickness from the Aloha's original "as built" measurements. (Decl. of Eric Galerne, dated Nov. 11, 2004 ("11/11 Galerne Decl.") ¶¶ 4-5). In other instances, repairs were effected using either "doubler" (or "strap") plates welded from the outside onto the existing plates or smaller "pad welds." (Id. at ¶¶ 6-7). The total cost of the work performed at the shipyard during the 1996 dry-docking exceeded $150,000. (Bastian Dep. at 128-31).

While the Aloha was in dry-dock, it was attended at least twice by Telschow. (Telschow Dep. at 134). At the time of his first visit, the Aloha had already been dry-docked and ultrasonically gauged. (Id. at 125-26). Based on his inspection, Telschow made a series of recommendations. (Id. at 126). After the final survey, Telschow issued interim Load Line and Cargo Ship Safety Certificates. (See id. at 138-39). Thereafter, Telschow submitted his survey report and a copy of the shipyard's invoice to the PBS, which was charged with issuing the permanent certificates. (Id. at 139, 151). The invoice reflects the cropping and renewal of certain plates and the use of doublers elsewhere. (Ex. 32).

In February 1999, the Aloha was dry-docked in Encinada, Mexico, for replacement of its bilge piping, a project which was overseen by the captain of the vessel. (Ex. 14 (Dep. of Douglas Bartee, taken on Nov. 18, 2002 ("Bartee Dep.")), at 96). Although Deep Sea inquired about the cost of having Telschow attend the vessel during this period, he did not do so. (Telschow Dep. at 212-13; 11/12 Wiener Decl. Ex. KK).

In September 1999, the Aloha again was dry-docked after it grounded near Morgan City, Louisiana, and sustained rudder and propeller damage. (Ex. 15 (Dep. of Earl Kenneth Maughmer, taken on Dec. 18, 2002 ("Maughmer Dep.")), at 47-54). At this time, the hull was sandblasted and repainted. (Id. at 55-57). As the Aloha was being refloated, water entered the engine room. (Id. at 59-60). The leak was in an area different than the one repaired due to the grounding. (Id. at 60-61). The Aloha then was raised out of the water so that the problem could be evaluated. (Id. at 61-62). At that point, the vessel's captain could see daylight through pinholes in the hull. (Id. at 63, 70). The affected plating was not cropped and renewed; instead, repairs were made using doublers or straps. (Id. at 81; Gelerne Dep. at 492).

There is no indication that Telschow attended the Aloha during this drydocking.

In March 2000, the Aloha was dry-docked at Hudson Drydock in Morgan City, Louisiana. (Ex. 16 (Dep. of John P. Yates, Sr., taken on July 24, 2002 ("Yates Dep.")), at 11, 18). Deep Sea solicited bids before the vessel arrived at the yard for the cropping and renewal of the plating under the engine room and the steering compartment, but, after the hull was inspected and audio gauged, that work was not undertaken. (Id. at 22-27; 11/11 Galerne Decl. ¶¶ 14-15). Once again, however, doublers or straps were installed in several locations. A crack discovered in the engine room shell plating also was repaired and welded from both sides. (11/11 Galerne Decl. ¶¶ 12-13). The amount invoiced by the yard for the work during this dry-docking was approximately $147,000. (Ex. 37).

During this dry-docking, Telschow attended the vessel to conduct a survey. (Telschow Dep. at 439-41). He did not, however, recall whether he saw any doublers or straps on the hull. (Id. at 443).

In addition to this hull work, on February 2, 2002, the Aloha experienced an electrical blackout. (Galerne Dep. at 380-82). To evaluate the problem, Deep Sea retained MC Electric, which concluded that the cause was the failure of an MOV on the portside generator, one of two permanent generators on the Aloha. The MOV is a device designed to protect a generator from over-voltage conditions. (Id. at 380, 384-86; Ex. 17 (Dep. of Byron Wayne Comeaux, taken on Feb. 25, 2003 ("Comeaux Dep.")), at 25). Because a replacement part was unavailable, the MOV was removed and the portside generator was put back on line without one. (Comeaux Dep. at 30-31).

C. Sinking of the Aloha

On February 3, 2002, the Aloha left Morgan City, Louisiana, for Juneau, a voyage which was intended to take it through the Panama Canal. (10/21 Galerne Decl. ¶ 29). On February 4 and 5, 2002, the Aloha encountered beam seas of eight to ten feet.*fn3

(Ex. 4 (Dep. of Michael Murphy, taken on Nov. 20, 2002 ("Murphy Dep.")), at 122). Thereafter, on February 6, 2002, a seawater leak was discovered in the refrigeration room "below deck forward on the starboard side." (10/21 Galerne Decl. ¶ 33). The flooding caused by the leak was contained to the refrigeration room. (Id.).

Early on the morning of February 7, 2002, the oiler found water in the bilge*fn4 below the floor plate in the center passageway forward of the Aloha's engine room. (Id. ¶ 34). The oiler alerted the chief engineer and the two of them engaged the Aloha's bilge pump in an attempt to pump out the water. (Id. ¶ 35). Shortly thereafter, however, there was an electrical blackout on the Aloha. (Id.; Galerne Dep. 379). The members of the Aloha crew were unable to locate the short circuit, and thus to restore electrical power to the Aloha, but they did determine that the short circuit was caused by the entry of water. (Galerne Dep. at 390-92; Ex. 7 (Crew Stmts.)).

The crew of the Aloha also was unable to determine the location from which seawater was entering the hull. (Murphy Dep. at 66-67). Since they were unable to do anything to counteract the incoming water, the Aloha began to list heavily to port within two or three hours after the oiler first noticed the leak. (Ex. 7 (Crew Stmts.)). At approximately 0730 hours, the crew abandoned the vessel. (Murphy Dep. at 73). The Aloha sank some time later. (Ex. 6 (Logbook)). According to records from a nearby rescue vessel, at the time the Aloha sank, the wind force was a "3" on the Beaufort scale, and the seas were at 1.5 meters.*fn5 (Galerne Dep. at 232). Galerne also noted that the wind speed was fourteen knots. (Id.). Thus, in terms of the Beaufort scale, the Aloha was sailing in a gentle to moderate breeze with small waves. (See www.spc.noaa.gov/faq/ tornado/beaufort.html (last visited Mar. 22, 2006).

D. Insurance Coverage

Deep Sea had a long-standing relationship with an insurance underwriter named John Ellis, who initially helped Deep Sea secure coverage for its fleet while he was employed by an insurance wholesaler. (Ex. 18 (Dep. of John E. Ellis, taken on May 2, 2003 ("Ellis Dep.")), at 7-15). In 1996, Ellis joined Royal as an underwriting specialist. (Id. at 5-6). In that capacity, and later as Royal's underwriting manager, Ellis participated in the procurement of insurance coverage for the Aloha from Royal. (Id. at 5-6, 23-24). Royal became the sole underwriter of that coverage in or around 1999 or 2000. (Id. at 50-52).

The policy in effect at the time of the Aloha's sinking was Policy P2OH006873 (the "Policy"), which covered the period from August 5, 2001, until August 5, 2002. (Aff. of John E. Ellis, sworn to on Oct. 21, 2004 ("Ellis Aff."), Ex. A (Policy)).

The Policy provided three categories of coverage: (1) hull and machinery; (2) research scientific equipment; and (3) protection and indemnity. (Id.). Only ...


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