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Weeks Marine, Inc v. American Steamship Owners Mutual Protection and Indemnity Association

August 25, 2011


The opinion of the court was delivered by: Naomi Reice Buchwald United States District Judge


Plaintiff Weeks Marine, Inc. ("plaintiff" or "Weeks Marine") brought this action against defendants American Steamship Owners Mutual Protection and Indemnity Association, Inc. (the "American Club") and Shipowners Claims Bureau, Inc. ("SCB") (collectively, "defendants"), seeking a declaration that it complied with the terms of its insurance contract with the defendants, and an award of damages for the defendants' alleged breach of the contract. Presently before the court is defendants' motion for summary judgment. For the reasons set forth below, the motion is granted.


I.Factual Background*fn1

A.The Parties

The American Club is a non-profit mutual insurance association whose daily activities are conducted by its manager, SCB. Defs.' 56.1 at ¶¶ 1-2. It provides protection and indemnity insurance ("P&I Insurance") for shipowners and charterers. Moore Aff. at ¶ 3. Weeks Marine is a corporation involved in commercial marine contracting, including dredging operations. Langan Decl. at ¶ 3.

B.Weeks Marine's Membership in The American Club

Weeks Marine first became a member of the American Club on March 31, 2002. Moore Aff. at ¶ 4. Membership in the American Club is evidenced by a document called a "Certificate of Entry." Defs.' 56.1 at ¶ 3. On or about April 1, 2005, The American Club issued Weeks Marine a Certificate of Entry to commence on February 20, 2005 and with a renewal date of February 20, 2006. Moore Aff. at ¶ 4. This Certificate of Entry covered the time period relevant to this case.

C.Weeks Marine's 2005-2006 Certificate of Entry

Weeks Marine's 2005-2006 Certificate of Entry provided a coverage limit of $3 million for liability for claims by crew or employees, subject to a self-insured deductible of $1 million. Thus, under the terms of the Certificate of Entry, Weeks Marine was responsible for $1 million of liability resulting from claims by crew or employees, and the American Club was responsible for a maximum of $2 million. Id. at ¶ 7; Pl.'s 56.1 at ¶ 7.

Weeks Marine's Certificate of Entry included a "Crew Claims Procedure," which provided:

It is noted and agreed that Crew Claims Procedure reads as follows with effect from inception: The Insured shall be responsible for the investigation, settlement, defense or appeal of any claim made or suit brought, or proceeding instituted against the Insured and shall give prompt notice to Shipowners Claims Bureau, upon the Insured's Risk Management department being notified of any of the following:

(a) any claim, suit or proceeding that appears to involve indemnity by the American Club;

(b) any occurrence, claim, award or proceeding judgment which exceeds 50% of the Insured's retention under this policy;

(c) any occurrence which causes serious injury (disability for a period of nine months or more) to two or more employees;

(d) any case involving: 1. Amputation of a major extremity, 2. Brain or spinal cord injury, 3. Death,

4. Any second or third degree burn of 50% of the body or more;

(e) the reopening of any case in which further award might involve liability to the American Club.

Defs.' 56.1 at ¶ 9.

The Certificate of Entry (as well as the American Club's By-Laws) was governed by New York law. See Moore Aff., Ex. 1 (the "By-Laws") at 37 ("These Rules and any contract of insurance between the Association and a Member shall be governed by and construed in accordance with the law of the State of New York.").

D.The Garza Claim

The present dispute results from an injury suffered on February 15, 2006 by one of Weeks Marine's crew members, Maximino Garza ("Garza"), after he was struck by a lever in his head, while wearing a hardhat. See id. at ¶ 9; Pl.'s 56.1 at ¶

9. After the accident, Garza went to Montet's Occupational Medical Service and was diagnosed with a concussion and a cervical sprain. Defs.' 56.1 at ¶ 10.*fn2 Garza returned to work after the incident, and continued working until April 26, 2006, the date on which his regularly scheduled rotation ended. Langan Decl. at ¶¶ 9, 12. Garza was supposed to return to work on May 4, 2006 but did not show up or contact Weeks Marine to explain his absence. Id. at ¶ 12. He was fired two weeks later, on May 17, 2006. Id.

On the same day that he was fired, Garza filed a lawsuit against Weeks Marine in the 381st Judicial District Court of Starr County, Texas. Id. at ¶ 12. In January of 2008, after discovery had ended and on the eve of trial, Garza made a settlement demand of $850,000. See Moore Aff., Ex. 4 at CLUB 000160. Weeks Marine offered $200,000, and provided its counsel with the authority to offer up to $300,000 to settle the case in full. Id.

On February 5, 2008, the state court entered a judgment in favor of Garza for $3,715,620.36. Pl.'s 56.1 at ¶ 13. Two days later -- after the American Club called Weeks Marine to ask about a verdict against Weeks Marine in Starr County (i.e. the Garza verdict) that it had heard about (Moore Aff. at ¶ 7) --the American Club received notice of Garza's injuries and lawsuit for the first time. Defs.' 56.1 at ¶ 14. Weeks Marine appealed the verdict in the Garza litigation, but it was affirmed by the Texas Court of Appeals. Langan Decl. at ¶ 18.

E.The Parties' Claims

Defendants argue that plaintiff "breached the requirement of prompt notice in the Crew Claims Procedure by failing to provide notice of Mr. Garza's claim involving a brain injury to the American Club for almost two years." Defs.' 56.1 at ¶ 15. Thus, they contend, plaintiff is not entitled to indemnification with respect to the Garza claim.

Plaintiff presents a number of arguments in opposition to defendants' motion. First, it contends that its compliance with the Crew Claims Procedure clause in its Certificate of Entry is not a condition precedent to coverage for the Garza claim. Second, it contends that, even if compliance is a condition precedent to coverage, defendants must show that they were prejudiced by plaintiff's alleged breach of the contract. Third, it argues that Garza's concussion was not a "brain or spinal cord injury" under the terms of the contract, and that the term "brain injury" is ambiguous. And fourth, plaintiff argues that there ...

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