Crown Zellerbach Corporation, Plaintiff-appellant Cross-appellee, v. Ingram Industries, Inc., et al., Defendants-appellees,andlondon Steam-ship Owners' Mutual Insurance Association,limited, Defendant- Appellee Cross-appellant, 745 F.2d 995 (5th Cir. 1985)

What took 16 years for our answer in Nebel Towing¹  to the enigmatic 4-1-4 riddle of the Jane Smith² , is now back again in part 13 years later. Based presumably on Nebel Towing the District Court granted judgment against the excess P & I Underwriter for nearly $2,000,000 in excess of the owner's judicially declared limited liability. Faithful as we are and must be to Nebel Towing, the Court, by divided vote holds that the trial court was correct in this judgment and we affirm as to this issue.^*  As to all other issues the Court unanimously affirms the judgment of the District Court.

This appeal grows out of an allision between the tow in tow of the tug F.R. BIGELOW and Crown Zellerbach's (CZ) water intake structure on the Mississippi River above Baton Rouge. Involved also was the tug's (and owners') maritime limitation of liability proceeding in which CZ brought a Louisiana direct action against the prime and excess P & I Underwriters of the vessel owner/operator. After trial, the District Court held that Ingram, the tug owner/operator, was liable, but was entitled to limit its liability to the value of the vessel and the pending freight. The excess P & I underwriter was held liable for nearly $2,000,000 of the portion of the CZ's damages that exceeded the limited liability of the vessel owner. We find no error in the court's holdings (i) of no "privity or knowledge" by the tug owner, (ii) the valuation of the vessel, (iii) the computation of CZ's damages, and (iv) the award of pre-judgment interest from a date later than the accident. However, the Court by divided vote determines that the District Court was free of error in holding the tug owner's underwriter liable beyond the dollar limits fixed, or ascertainable, in the P & I policy. Accordingly, we affirm.

How it All Happened

On February 3, 1979, the tugboat F.R. BIGELOW owned (or bareboat chartered) by Ingram Industries, Inc. (Ingram), while pushing 15 loaded barges down the Mississippi River in heavy fog and rain, caused its forward lead barge to come into contact with and damage Crown Zellerbach's (CZ) water intake structure, on the Mississippi above Baton Rouge. Shortly after this incident, CZ began to repair the structure, but these repairs were interrupted on May 18, 1979, when another tugboat collided with the structure and damaged the remaining portion. The structure was not rebuilt in kind, but was rebuilt in a different form.

Suit was filed by CZ against the tugboat F.R. BIGELOW, and Ingram, her bareboat charterer, in April of 1979. Subsequently, the complaint was amended to include Cherokee Insurance Company, the prime P & I insurer of Ingram, with a policy limit of $1,000,000, and London Steam-Ship Owners' Mutual Insurance Association, excess P & I insurers of Ingram, with a deductible franchise of $1,000,000.

In its answer to the suit based upon the accident of February 3, 1979, Ingram, the chartered-owner/operator of the F.R. BIGELOW sought limitation of its liability to the value of the vessel plus freight then pending. 46 U.S.C. § 183. Ingram stipulated liability for striking the structure, and the issues of damages and limitation of liability were tried. Following trial, the District Court entered judgment in favor of CZ in the "total sum" of $3,948,210.31, with pre-judgment interest from December 11, 1980. The District Court granted Ingram's prayer for limitation of liability, valued the vessel at $2,134,918.88 and limited the owner's liability to that amount. Cherokee's prime P & I policy was for $1,000,000. In tabular form, the District Court decreed the total sum of CZ's judgment as follows:

(a) Total Damages to CZ $3,948,210.31 (b) Payable by Owner and Cherokee Prime P & I $1,025,000.00 (c) Payable by Owner and London Steam Excess P & I 1,109,918.88 ------------- (d) Owner's Limited Liability 2,134,918.88 ------------- (e) Balance by London Steam Excess P & I $1,813,291.44 -------------

Following the judgment, Ingram and its two P & I underwriters made payments up to the limits of Ingram's fixed liability ($2,134,918.88).

On appeal, CZ raises several issues as errors in the District Court's judgment, all of which we affirm. London Steam-Ship Owners' Mutual Insurance Association challenges that portion of the District Court's judgment holding that underwriter liable for the amount ($1,813,291.44) of the plaintiff's claim over and above Ingram's fixed limited liability ($2,134,918.88). Affirming the District Court by a divided vote on that issue obviously warrants publication of our opinion.1.

Limitation of Liability^** 

Limitation: Valuation of the Vessel^**

Effect of Stipulation of Damages^**

Pre-Judgment Interest^**

P & I Underwriter Liable in Excess Limited Liability Amount

For its protection against claims for damage to piers and other fixed (non-vessel) structures, Ingram, as chartered owner of the tug BIGELOW had two P & I covers. The prime cover was with Cherokee, the amount of insurance being specified as $1,000,000. London Steam-Ship Owners' Mutual Insurance Association, Ltd. (London Steam-Ship), through A. Bilbrough and Company, as managers, dove-tailing Cherokee's cover with a deductible franchise $1,000,000 supplied an excess P & I cover in accordance with the Rules of the Association.

Without specific articulation of the reasons for its decision, the trial court--obviously feeling bound by Nebel Towing--held the P & I underwriter liable for approximately $2,000,000 more than the owner's limited liability.

Despite the dissent to the denial of rehearing en banc in Nebel Towing and criticism of that opinion³  we are bound by that decision and to justify a different result in this case the Court would have to demonstrate that this case and the rationale presented here is different from that in Nebel Towing.

Unable to find any valid distinction, and bound by Nebel Towing, we are both bound and persuaded that the District Court was correct in holding the P & I underwriter liable for this excess amount.

Conclusion

The upshot is that the Court affirms the holding of the District Court.

AFFIRMED.

THORNBERRY, Circuit Judge, with whom TATE, Circuit Judge, joins, concurring specially:

While I agree the district court should be affirmed, I write specially to say why Nebel Towing is still the law and applies in this case.

In Nebel Towing we held that under the public policy of Louisiana expressed in its Direct Action statute, "limitation of liability under the federal statute is a personal defense which cannot be availed of by an insurer under Louisiana law." 419 F.2d at 238. We further found that "the Limitation Act was designed to assist the maritime industry and that it was in no way intended to benefit the insurance industry ...; the status of insurer is not covered by the public policy underlying the Limitation Act." Id.

In Nebel Towing we found the Limitation Act to be a defense personal to the ship-owner because it would be contrary to public policy to allow the insurer to reduce its liability solely on the basis of the ship-owner's statutory right to limit his liability. In this case London Steam-Ship is attempting to do indirectly, by means of a policy provision (Rule 8(i)), precisely what Nebel Towing held the insurer could not do directly.

Because it is contrary to Louisiana public policy for an insurer to reduce its liability to an amount less than the full P & I coverage solely on the basis of the ship-owner's right to limit his liability under the Limitation Act, Rule 8(i) is contrary to public policy. Therefore, Rule 8(i) is invalid and is not a valid, effective term and condition of the P & I coverage. The district court did not err.

JOHN R. BROWN, Circuit Judge, dissenting in part:

I concur fully in all of the Court's opinion except the holding that the P & I underwriter is liable in excess of the shipowner's limited liability.

First, I wish to emphasize that while I dissented with some fervor in Nebel Towing, 419 F.2d at 238, for the purposes of our present case (and all others like it) I accept the holding and rationale of Nebel Towing. In a nutshell my present dissent is the simple one: Nebel Towing dealt solely with the contention that the P & I underwriter is entitled to the shipowner's statutory right to limit liability. Here the claim is quite different: the P & I underwriter is claiming only that, as prescribed by the Louisiana Direct Action statute, the terms of its own insurance policy limits maximum liability to the dollar amount for which the shipowner-assured would be liable on its successfully maintaining the right to limitation of liability. In Nebel Towing the underwriter was claiming the statutory right of the assured; in our present case, it is claiming only the limitation of the insurance policy defense itself. I sum it up as follows.

In Nebel Towing the P & I policy did not by its terms limit liability to what the vessel owner's limited liability would be. That meant that the P & I underwriter in its effort to limit its liability had to contend that it, as the insurer, had a right to claim the vessel owner's statutory right to limitation of liability. My subsequent analysis of the Nebel Towing opinion I think bears this out.

In sharp contrast to that situation, here the London Steam-Ship "excess" P & I policy by Rule 8(i) does have a policy term which limits its liability to that of the owner's limited liability. This is a policy, not statutory defense. The P & I insurer is not claiming the owner's statutory right to a shipowner's limited liability, but merely the right to assert its policy defense.

Such an issue was not the subject of, or involved in, Nebel Towing so we are not constricted by that decision in the independent adjudication by this panel.

Without so much as even a genuflect to Nebel Towing, supra, the trial court--in a sort of everyone knows a P & I underwriter cannot obtain the benefit of the assured's right to shipowner's limitation of liability--held the P & I underwriter liable for nearly $2,000,000 more than the owners' limited liability.¹ 

By the deposition of John Hawkes, director of Bilbrough, it is uncontradicted that London Steam-Ship, the "Club," is an association composed of a number of members, all of whom are shipowners, who, "severally and individually, not jointly nor in partnership, nor the one for the other of them, but each only in his own name" agree to protect and indemnify each other in respect of the vessel entered for protection and indemnity risk in accordance with the Rules.

The deposition of Hawkes--a director of Bilbrough--tracing the history of London Steam-Ship rules from those in 1881-82²  to 1952-53 and then to those in 1955-56 reflected how the problem of the dollar (pound Sterling) limits of the insurance was recognized.

On reaching the financial condition in which the Association could extend its liability and without the limitation being and expressed in a specific monetary amount per ton (or tons entered), the Association became faced with the problem of determining what, how and in what manner its total liability exposure could be expressed. Beginning in 1955--long before Nebel Towing--this is handled by Rule 8(i):

When a Member for whose account a ship is entered in this Class, is entitled to limit his liability, the liability of this Class shall not exceed the amount of such limitation....³ 

Since there can be no question that this--Rule 8(i)--is one of the "... lawful conditions of the policy or contract," it brings us face to face with the critical provision of the Louisiana Direct Action Statute⁴  that "any action brought hereunder shall be subject to ... the defenses which could be urged by the insurer to a direct action brought by the insured...." (emphasis added).

We start with our decisions which today are still very intact. For example, see Degelos v. Fidelity and Cas. Co., 313 F.2d 809 (5th Cir. 1963)⁵  and Tokio Marine & Fire Insurance Co. v. Aetna Cas. Co., 322 F.2d 113, 1964 A.M.C. 308 (5th Cir. 1963).⁶ 

Not only is the Louisiana Direct Action Statute so precise, so have been the decisions of her courts: there must be a legal liability on part of the assured for the insurer to have a direct action liability. In Burke v. Massachusetts Bonding & Insurance Co., 209 La. 495, 24 So. 2d 875 (1946) the question was whether under the law of Mississippi a wife had a right of action against her husband for a tort committed against her in Mississippi for which she can recover against the liability insurer in Louisiana. The Supreme Court stated:

The statute does not give plaintiff any more rights than she has under the law of Mississippi. It only furnishes her with a method to enforce in Louisiana whatever rights she has in Mississippi. Since she has no cause of action under the law of Mississippi, necessarily Act No. 55 of 1930 confers upon her no cause of action in Louisiana. The mere fact that under the statute plaintiff was able to obtain jurisdiction against her husband's liability insurer in a direct action in this State does not create, as against her husband, or as against her insurer, a substantive cause of action that does not exist under the law of the State where the wrongful act occurred.

24 So. 2d at 877 (emphasis added). See also, Hebert v. General Accident Fire & Life Assurance Corp., 48 So. 2d 107, 108 (La.Ct.App.1950):

Neither the liability policy on which this suit is based nor Act No. 55 of 1930 makes the insurance company liable merely because of the occurrence of the accident. There is liability in the insurer only if the insured--plaintiff's husband--was guilty of negligence which caused the accident.

Although the trial court, having been Nebel-awed, presumably thought that anything which forbade 100% recovery was somehow outlawed, it is plain that application of any such approach would produce absurd results which even the most potent Nebelizer would protest.

For example--and there are literally hundreds in the some-time esoteric world of marine insurance--consider this particular P & I cover by the London Steam-Ship Club. By provision 7(b) of the Association Rules liability for damage to any other "ship, boat or craft," is excluded insofar as it is not covered by the usual hull policy with Running Down Clause.⁷ 

Suppose a Louisiana registered steam vessel of 300 tons entered for P & I risk with the London Steam-Ship Club and also covered by the typical marine Hull policy is in a collision in Louisiana coastal waters (not on the Continental Shelf) and severely damages an ocean-going barge. The barge owner files a joint admiralty suit against the offending ship and the London Steam-Ship Club under the direct action statute seeking $100,000 in hull damages. Obviously, this being the classic case since at least 1836 of a liability insured under the 3/4 Running Down Clause⁸  of the hull policy, the P & I underwriter would have no liability for such hull damages. Under no stretch of the imagination--or the importation of quaint civil law codal provisions--would there be any possible basis for holding the P & I underwriter liable for such damages. Does anyone suppose that any Louisiana court, or one sitting Erie-bound as a federal court, would somehow conjure up the idea that this collision-liability-exclusion (see supra note 7) is "personal" and hence unavailable to the P & I underwriter as an absolute threshold defense?

On the other hand, suppose the same vessel, entered in the P & I risks of the Club, but also insured with traditional hull cover with Running Down Clause⁹  smashes into a dock. Here the claimant, unaware of the security he can obtain by a suit in rem, under 46 U.S.C. § 740, files his joint suit against the owner and the hull underwriter--who is, after all, a liability insurer. Would anyone suppose that the usual exclusion of non-vessel damage¹⁰  would be ignored, overruled, or rejected by a Louisiana court or a Louisiana-based federal court?

Before analyzing the impact which these thoughts should have on whether Nebel Towing drives this Court to rejecting the ascertainable dollar limit to the P & I underwriters commitment, two further cases warrant comment. The first is Alcoa Steamship Co. v. Charles Ferran & Co., 383 F.2d 46, 1967 A.M.C. 2578 (5th Cir. 1967), cert. denied, 393 U.S. 836, 89 S. Ct. 111, 21 L. Ed. 2d 107 (1968).¹¹  There this Court expressly limited the direct action insurer's liability to the shipyard's $300,000 Red Letter Limitation Clause.

The other case is Ta Chi Navigation (Panama) Corp. S.A. v. United States, 728 F.2d 699 (5th Cir. 1984).¹² 

If--and the if cannot be a very big one--both Louisiana and local federal courts would recognize these policy defenses as complete defenses to these supposed Louisiana direct action suits against the insurer, the question arises whether there is anything about the wording of Rule 8(i) (see supra text at p. 1000 and note 3) which limits liability to the liability of the vessel owner in a successful limitation proceeding which would compel a different result. On the face of the Rule, it is plain and unequivocal. It does not speak in terms of possibilities or even probabilities. It speaks, not in terms of the hypothetical power of a non-vessel owner to claim the benefit of shipowner limitation of liability (see infra note 17, quoting Nebel Towing, 419 F.2d at 236 n. 22), rather, it speaks in terms of an insured who is entitled to limit his liability (see supra text at p. 1000 and note 3 (Rule 8(i)) . Nothing is left to speculation. The trial court, on a full trial--and approved by us--has judicially determined that Ingram is entitled to limitation and has fixed that sum precisely to $2,134,918.88.

The only thing possibly standing in the way of this sensible result is Nebel Towing. This brings us face to face with our prior celebrated opinion in Olympic Towing Corp. v. Nebel Towing Co., 419 F.2d 230, 1969 A.M.C. 1571 rehearing denied, 419 F.2d 238 (5th Cir. 1969) (en banc), cert. denied, 397 U.S. 989, 90 S. Ct. 1120, 25 L. Ed. 2d 396 (1970). The Nebel Towing court precisely prescribed the issue:

The appellants and the amicus curiae launch a broad scale and many-faceted attack on the district court's holding that Nebel's insurer could not take advantage of Nebel's right to limit its liability.

419 F.2d at 234 (emphasis added).

The Court was not dealing with a condition or provision of the policy which limited insurer's liability. Rather, it was dealing with the contention that the insurer was entitled to urge the vessel owner's statutory right to limit its liability.¹³ 

After first disposing of the question reserved in the Jane Smith, supra, by holding that there was no unconstitutional conflict between the Louisiana Direct Action Statute and the Federal Limitation of Shipowners Liability Act and the likelihood of increase in actual cost to a vessel owner from higher insurance premiums (see part II) 419 F.2d at 234,¹⁴  the Court (part III)¹⁵  proceeded to determine the P & I underwriter's "remaining contentions [which] depend upon the interpretation of Louisiana law." 419 F.2d at 236. First, the Court on the basis of Coleman v. Jahncke Service, Inc., 341 F.2d 956, 1965 A.M.C. 535 (5th Cir. 1965), cert. dismissed, 382 U.S. 967, 86 S. Ct. 525, 15 L. Ed. 2d 463, cert. denied, 382 U.S. 974, 86 S. Ct. 538, 15 L. Ed. 2d 465 (1966) rejected out of hand the claim that the no-action clause of the P & I policy forbad direct suit on the policy prior to judgment or payment by the assured. 419 F.2d at 236.¹⁶ 

Since London Steam-Ship Rule 8(i) (see supra text at p. 1000 and note 3, and infra note 18) has been the target of CZ's attack that Nebel Towing requires a like result here, it is important to point out here that the only mention of somewhat similar language in the P & I policy in Nebel Towing was in the Court's note 22. Note 22 was in response to the P & I underwriter's contention that the policy did not permit a direct action and the Court mentioned that "the appellants" refer to several clauses of the policy.¹⁷ 

This suppositious condition (see supra [i] note 17) could have had no significance in Nebel Towing since it was uncontradicted that the insured vessel was under bareboat charter to the assured which the Court properly considered as an owner. See 419 F.2d 230, 231 n. 1.

I have obtained and carefully considered all of the record and briefs in Nebel Towing including the P & I policy. The P & I policy expressly provided (line 9) that the "amount hereby insured [is] $175,000 as per schedule [of vessels by name as covered], [and] the underwriter ... hereby undertakes to pay up to the amount hereby insured ... such sums as the assured, as owner of the [vessels covered] shall become legally liable to pay and shall have paid on account of [enumerated liabilities]."

Unlike London Steam-Ship cover which under Rule 8(i) expressly provided that "the liability" should not exceed the amount of the shipowner's limitation¹⁸ , the Nebel Towing P & I policy made no reference whatsoever to liability being limited in terms of a shipowner's limitation of liability, but rather expressly provided that the "amount hereby insured" is $175,000.

The only reference in the policy to liability being stated in terms of shipowner's limitation of liability was the clause (lines 99-102 of the policy) quoted in Nebel Towing, 419 F.2d at 236 n. 22 and set forth in note 17 supra:

It is expressly understood and agreed if and when the assured has any interest other than as a shipowner in the vessel named herein, in no event shall this Company be liable hereunder to any greater extent than if the assured were the sole owner and entitled to petition for limitation of liability in accordance with present and future law.

(emphasis added).

Thus, in Nebel Towing there was nothing in the P & I policy which by words or implication, would limit the P & I underwriter's liability to the owner's statutory limitation of liability. Nor was the P & I underwriter making any such claim. In other words, the sole question before the Court and asserted by the P & I underwriter was whether by reason of the Louisiana Direct Action Statute the P & I underwriter had the right to claim the benefit of the owner's federal statutory right to shipowner's limited liability.

The case, therefore, did not involve a claim that under the terms of the P & I policy there was no liability for amounts in excess of the vessel owner's limited liability. What, and all, it involved was whether, under the Louisiana Direct Action Statute, this non-policy defense of the owner's statutory right to limit liability was a defense, and if so, whether it was or was not "personal" to the assured. In other words, the P & I underwriter was contending, not that the terms of the P & I policy itself, as a policy defense, limited its liability to that of the owner's statutory right to limit, rather it was contending that this was a federal, statutory defense which, under general Louisiana law was not personal to the assured and could be availed of by the underwriter.¹⁹ 

Faced with this very precise claim the Court then likened this non-policy, statutory defense--claiming the right to the shipowner's limitation of liability--to other analogous non-policy defenses held by Louisiana courts to be personal.²⁰  These include such non-policy defenses such as infancy, coverture, charitable immunity, governmental immunity, bankruptcy, etc. that are not available to the insurer.

Faced with this problem then of importing a non-policy defense--not a defense based upon the terms of the P & I policy--but rather the Louisiana concept of the statutory defense of a shipowner's right to limit its liability arising in a direct action, this Court plainly held:

We therefore hold that limitation of liability under the federal statute is a personal defense which cannot be availed of by an insurer under Louisiana law²¹ .

Nebel Towing, 419 F.2d at 238 (emphasis added).

The Court made clear that in this holding it was dealing with a statutory, non-policy defense when it stated that:

There is no question that the Limitation Act was designed to assist the maritime industry and that it was in no way intended to benefit the insurance industry.

Nebel Towing, 419 F.2d at 238. The Court continued this emphasis by its further statement:

It is patent that statutory limitation of liability is only available to a shipowner; the status of insurer is not covered by the public policy underlying the Limitation Act.

Id. (emphasis added).

The result is that Nebel Towing dealt solely with an asserted statutory defense which the Court, under Louisiana in solido principles, held to be "one personal" to the shipowner, not the P & I underwriter. Here, on the other hand, for the very first time this Court faces the problem of a defense, based not upon the owner's (assured's) statutory right to limit liability, but rather based on the terms and conditions of the P & I coverage itself. This is an issue not previously ruled upon by this Court and as to which this panel ought to be free of restraints to reach its considered judicial decision. To sum it up: this panel for the present case accepts the Nebel Towing holdings of this Court that (i) there is no constitutional conflict between the Federal Statutory Limitation of Liability Act and the Louisiana Direction Action Statute, (ii) the P & I policy no action clause is no defense to a claim under the Louisiana Direct Action Statute, (iii) the application of 28 U.S.C. § 1332(c) (1964) is not controlling, and (iv) the statutory, non-policy defense of the vessel owner's right to limit liability is a "personal defense," under the Louisiana Direct Action Statute.

But Nebel Towing, not being an impediment to unconstricted adjudication, we should be free to, and ought to hold that Rule 8(i) is clear in its meaning and is a valid, effective term and condition of the P & I coverage (see items (b), (c) and (d), Table p. 997. The contrary ruling of the District Court (see item (e) $1,813,291.44, Table p. 997) is wrong and the Court should reverse.

I therefore dissent.

SUGGESTION FOR REHEARING EN BANC.

Before CLARK, Chief Judge, GEE, RUBIN, REAVLEY, POLITZ, RANDALL, TATE, JOHNSON, WILLIAMS, GARWOOD, JOLLY, HIGGINBOTHAM, DAVIS and HILL, Circuit Judges.

BY THE COURT:

A member of the Court in active service having requested a poll on the application for rehearing en banc and a majority of the judges in active service having voted in favor of granting a rehearing en banc,

IT IS ORDERED that this cause shall be reheard by the Court en banc with oral argument on a date hereafter to be fixed. The Clerk will specify a briefing schedule for the filing of supplemental briefs.