StarNet Insurance Company v. LA Marine Service LLC et al, No. 2:2016cv13511 - Document 62 (E.D. La. 2017)

Court Description: ORDER AND REASONS granting 30 Motion for Partial Summary Judgment. Defendants' claims for statutory penalties and lay up damages are DISMISSED. Denying 57 Motion for Extension of Deadlines. Signed by Judge Sarah S. Vance on 8/14/2017. (cg)

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StarNet Insurance Company v. LA Marine Service LLC et al Doc. 62 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA STARNET INSURANCE COMPANY VERSUS CIVIL ACTION NO. 16-13511 LA MARINE SERVICE LLC AND LEONARD J OURDAN, J R SECTION “R” (3) ORD ER AN D REASON S Before the Court are plaintiff’s m otion for partial sum m ary judgm ent 1 and plaintiff’s m otion for an extension of the dispositive m otion deadline. 2 For the following reasons, the Court grants the m otion for partial sum m ary judgm ent and denies the m otion for an extension of deadlines. I. BACKGROU N D This case arises out of the sinking of Defendant LA Marine Service LLC’s vessel, the M/ V CAPT. LJ . 3 Defendant Leonard J ourdan, J r. is the owner of LA Marine Service. 4 Plaintiff StarNet Insurance Com pany supplied 1 2 3 4 R. Doc. 30 . R. Doc. 57. R. Doc. 1 at 2-3. Id. at 3. Dockets.Justia.com Hull and Machinery coverage to the defendants to cover losses or damages to the M/ V CAPT. LJ for the policy period of September 24, 20 15 to September 24, 20 16. 5 The M/ V CAPT. LJ was afloat near Empire, Louisiana on April 7, 20 16, when it capsized and sank during the night. 6 After being notified of the sinking, plaintiff approved a salvage plan on April 8, 20 16. 7 The M/ V CAPT. LJ was refloated, and Austin Glass of Rivers and Gulf Marine Surveyors conducted a survey of the vessel. 8 Glass’s prelim inary report found that the vessel was left unm anned overnight with the generator running, and concluded that the vessel sank after the generator failed. 9 The report further noted that the vessel’s stuffing boxes were believed to be leaking, and a bilge pum p was being used to keep water out of the vessel. 10 After the generator stopped running, the bilge pum p lost power and water filled the engine room . 11 On April 15, 20 16, plaintiff issued a Reservation of Rights letter to LA Marine asserting that the insurance policy would not cover losses caused by 5 6 7 8 9 10 11 Id. at 3; R. Doc. 30 -2 at 1-30 . R. Doc. 30 -2 at 32-33. Id. at 45. Id. at 32-43. Id. at 32-33. Id. at 32. Id. at 33. 2 a vessel owner, through bad faith or neglect, knowingly perm itting the vessel to go to sea in an unseaworthy condition. 12 Plaintiff’s letter further stated that, based on Glass’s prelim inary survey report, the sinking of the M/ V CAPT. LJ m ay have resulted from a known leak that rendered the vessel unseaworthy. 13 Plaintiff also requested inform ation from LA Marine to assist in its investigation of the claim , including m aintenance records, accident reports, and inform ation about the leak and the operation of the generator and bilge pum p. 14 In response, LA Marine stated that no m ajor maintenance was perform ed on the M/ V CAPT. LJ within the past year but that vessel parts, pum ps, and other item s were replaced as needed. 15 In J une 20 16, plaintiff took a sworn statem ent from Leonard J ourdan and written statements from two deckhands about the vessel’s sinking. 16 On J uly 28, 20 16, a m arine surveyor, Nicholas Paternostro, provided a survey report on the M/ V CAPT. LJ . 17 Paternostro concluded that “the m ost probable cause of the vessel’s sinking was the result of uncontrolled seawater 12 13 14 15 16 17 R. Doc. 30 -2 at 49-50 . Id. at 51. Id. at 53. Id. at 55-57. Id. at 63-67 and 71-72. Id. at 75-98. 3 ingress into the vessel’s engine room through the packing gland assem blies; however, it is not the result of a failure, but as a result of a lack of m aintenance and norm al wear and tear.”18 On J uly 29, 20 16, plaintiff inform ed LA Marine Services that it would deny coverage related to the sinking of the M/ V CAPT. LJ because the incident was caused by the unseaworthy condition of the vessel and a lack of proper m aintenance. 19 On August 2, 20 16, plaintiff filed a com plaint for a declaratory judgm ent that it does not owe insurance coverage for losses arising out of the sinking of the M/ V CAPT. LJ . 20 Defendants filed an answer, affirmative defenses, and a counterclaim requesting declaratory judgm ent and dam ages arising out of plaintiff’s failure to provide coverage. 21 Defendants further assert that they are entitled to com pensation under the insurance contract’s “Lay-Up Return Clause,” which provides for paym ents for the tim e period that a vessel is out of com m ission. 22 18 19 20 21 22 R. Doc. 30 -2 at 97. Id. at 99-10 3. R. Doc. 1. R. Doc. 13. Id. at 13-15. See also R. Doc. 30 -2 at 13. 4 Plaintiff now m oves for partial sum m ary judgment to dism iss defendants’ counterclaim s for statutory penalties and “lay up” paym ents. 23 Plaintiff also m oves for an extension of the dispositive m otion deadline. 24 II. LEGAL STAN D ARD Sum m ary judgment is warranted when “the m ovant shows that there is no genuine dispute as to any m aterial fact and the m ovant is entitled to judgm ent as a m atter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Little v. Liquid Air Corp., 37 F.3d 10 69, 10 75 (5th Cir. 1994). When assessing whether a dispute as to any m aterial fact exists, the Court considers “all of the evidence in the record but refrain[s] from m aking credibility determ inations or weighing the evidence.” Delta & Pine Land Co. v. Nationw ide Agribusiness Ins. Co., 530 F.3d 395, 398-99 (5th Cir. 20 0 8). All reasonable inferences are drawn in favor of the nonm oving party, but “unsupported allegations or affidavits setting forth ‘ultim ate or conclusory facts and conclusions of law’ are insufficient to either support or defeat a m otion for sum m ary judgment.” Galindo v. Precision Am . Corp., 754 F.2d 1212, 1216 (5th Cir. 1985); see also Little, 37 F.3d at 23 24 R. Doc. 30 . R. Doc. 57. 5 10 75. “No genuine dispute of fact exists if the record taken as a whole could not lead a rational trier of fact to find for the non-m oving party.” EEOC v. Sim baki, Ltd., 767 F.3d 475, 481 (5th Cir. 20 14). If the dispositive issue is one on which the m oving party will bear the burden of proof at trial, the m oving party “m ust come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial.” Int’l Shortstop, Inc. v. Rally ’s, Inc., 939 F.2d 1257, 1264-65 (5th Cir. 1991) (internal citation om itted). The nonm oving party can then defeat the motion by either countering with evidence sufficient to dem onstrate the existence of a genuine dispute of m aterial fact, or “showing that the m oving party’s evidence is so sheer that it m ay not persuade the reasonable fact-finder to return a verdict in favor of the m oving party.” Id. at 1265. If the dispositive issue is one on which the nonm oving party will bear the burden of proof at trial, the m oving party m ay satisfy its burden by pointing out that the evidence in the record is insufficient with respect to an essential element of the nonm oving party’s claim . See Celotex, 477 U.S. at 325. The burden then shifts to the nonm oving party, who m ust, by subm itting or referring to evidence, set out specific facts showing that a genuine issue exists. See id. at 324. The nonm ovant m ay not rest upon the 6 pleadings, but m ust identify specific facts that establish a genuine issue for trial. See, e.g., id.; Little, 37 F.3d at 10 75 (“Rule 56 m andates the entry of sum m ary judgment, after adequate tim e for discovery and upon m otion, against a party who fails to m ake a showing sufficient to establish the existence of an elem ent essential to that party’s case, and on which that party will bear the burden of proof at trial.”) (quoting Celotex, 477 U.S. at 322). III. D ISCU SSION A. Partial Su m m ary Ju d gm e n t o n Co u n te rclaim 1. Statu to ry Pe n altie s Under Louisiana Revised Statutes § 22:1892 and § 22:1973, an insurer m ay be liable for statutory penalties for failure to tim ely pay the amount of a claim when the failure to pay is “arbitrary, capricious, or without probable cause.” La. R.S. 22:1892; La. R.S. 22:1973. 25 To recover statutory penalties, the insured “has the burden of proving that his insurer (1) received satisfactory proof of loss, (2) failed to pay within the required tim e, and (3) acted in an arbitrary and capricious m anner.” Dickerson v. Lexington Ins. Co., 556 F.3d 290 , 297 (5th Cir. 20 0 9). The Louisiana Supreme Court has 25 These provisions were previously numbered La. R.S 22:658 and La. R.S. 22:1220 , respectively. See Oubre v. Louisiana Citizens Fair Plan, 79 So. 3d 987, 990 n.1 (La. 20 11). 7 explained that the “arbitrary or capricious” standard in both statutes requires “vexatious refusal to pay,” and that these “statutory penalties are inappropriate when the insurer has a reasonable basis to defend the claim and acts in good-faith reliance on that defense.” Reed v. State Farm Mut. Auto Ins. Co., 857 So. 2d 10 12, 10 21 (La. 20 0 3). As the insured party, defendants bear the burden of proof on a claim for statutory penalties. Dickerson, 556 F.3d at 297. Defendants have not m et their burden in this case. Plaintiff provided evidence that it prom ptly initiated an investigation into the sinking of the M/ V CAPT. LJ . and denied the insurance claim only after receiving two survey reports that indicated the vessel m ay not have been seaworthy at the tim e of the sinking. 26 Defendants have not set forward any specific facts to challenge plaintiff’s tim eline or the content of the two survey reports. 27 Defendants instead m ake several legal arguments that plaintiff acted arbitrarily and capriciously. Defendants first contend that plaintiff lacked a reasonable basis to deny coverage when it issued its April 15, 20 16, Reservation of Rights letter. 28 26 But this letter was not a final denial of R. Doc. 30 -2 at 32-10 3. Defendants attach both the Glass and Paternostro reports to their m em orandum in opposition. See R. Doc. 36-1 at 50 -61; 90 -113. 28 R. Doc. 36 at 1. 8 27 coverage. 29 See Mosadegh v. State Farm Fire and Cas. Co., 330 F. App’x 65 (5th Cir. 20 0 9) (finding that a reservation of rights letter is not a denial of coverage). The letter instead informed LA Marine that the loss of the M/ V CAPT. LJ m ay not be covered and that plaintiff would be requesting additional inform ation to investigate the claim . 30 This represented the beginning of plaintiff’s investigation, and is therefore not evidence of an arbitrary or capricious failure to pay. Defendants further argue that plaintiff lacked a reasonable basis to deny coverage because seaworthiness was adm itted in the insurance contract and plaintiff failed to diligently inspect the vessel before issuing insurance. 31 This argum ent is meritless. The insurance contract includes a “Seaworthiness Adm itted Clause,” which states that “[t]he seaworthiness of the vessels insured hereunder as between the Assured and the Assurer is hereby adm itted.”32 Defendants cite no authority for the proposition that adm itting the seaworthiness of a vessel at the tim e of issuance of insurance precludes a defense that the vessel later becam e unseaworthy. 29 30 31 32 R. Doc. 30 -2 at 49-52. Id. R. Doc. 36 at 2, 6. R. Doc. 30 -2 at 14. 9 Further, defendants’ interpretation of the insurance contract is contrary to established law. The Fifth Circuit has explained that “federal m aritim e law im plies two warranties of seaworthiness in a tim e hull insurance policy,” an absolute warranty of seaworthiness at the inception of the policy and “a m odified, negative warranty, under which the insured prom ises not to knowingly send a vessel to sea in an unseaworthy condition.” Em ploy ers Ins. of W ausau v. Occidental Petroleum Corp., 978 F.2d 1422, 1431-32 (5th Cir. 1992). The “Am erican Rule” provides that, if a vessel owner perm its the “vessel to break ground in an unseaworthy condition,” the insurer may deny coverage for “loss or dam age caused proxim ately by such unseaworthiness.” Saskatchew an Governm ent Insurance Office v. Spot Pack, Inc., 242 F.2d 385, 388 (5th Cir. 1957). The “Seaworthiness Adm itted Clause” of the contract is relevant to the absolute warranty of seaworthiness at the inception of the insurance policy, but there is no basis to believe that this provision waived the defendants’ continuing obligation not to send the vessel to sea in an unseaworthy condition. The insurance contract includes a separate “Liner Negligence Clause,” which explicitly excludes from coverage loss or dam age that has “resulted from want of due diligence by the Assured(s), the Owner(s) or 10 Manager(s) of the Vessel, or any of them .”33 This provision indicates that the contract preserved the plaintiff’s right under the “American Rule” to deny coverage for losses that resulted from defendants’ negligence. At a m inim um , plaintiff had reasonable grounds to believe that it could defend against a claim on this basis. See Reed, 857 So. 2d at 10 21. There is also no merit to defendants’ argument that plaintiff should have inspected the vessel before issuing coverage. Under the im plied absolute warranty of seaworthiness, the insured bears the risk of loss if the vessel is not seaworthy at the tim e of the contract. See Em ploy ers Ins. of W ausau, 978 F.2d at 1433 (explaining that the insured is “best able to have the vessel adequately prepared for th[e] voyage” and the warranty “place[s] the risk of loss on the cheapest cost avoider”). Plaintiff therefore did not have a general duty to ensure the seaworthiness of the vessel before issuing coverage, and defendants do not point to any contractual provision that would create such a duty. Finally, defendants contend that plaintiff has not presented evidence that defendants failed to exercise due diligence. 34 But the subject of this sum m ary judgment m otion is whether plaintiff had a reasonable basis to 33 34 R. Doc. 30 -2 at 18-19. R. Doc. 36 at 4. 11 deny coverage, not whether plaintiff will ultim ately prevail on the m erits of its declaratory judgm ent claim . Defendants bear the burden of showing that plaintiff is liable for statutory penalties, and they have failed to present any evidence indicating that plaintiff’s failure to pay was arbitrary, capricious, or without probable cause. 2 . Lay U p D am age s Defendants also request com pensation under the “Lay Up Return Clause” of the insurance contract. 35 This provision provides for insurance payments when a vessel “is laid up and out of com m ission and not under repairs for which the Underwriters m ay be liable” (em phasis added). 36 Defendants represent that the M/ V CAPT. LJ is being stored at Shipyard Services in Venice, Louisiana. 37 Plaintiff argues that defendants are not entitled to lay up dam ages because the vessel is in line for repairs. 38 Although defendants contend that the M/ V CAPT. LJ is not under repair, 39 they do not provide an alternative explanation for why the vessel is out of com m ission. Defendants instead acknowledge that “the only reason the repairs have not been initiated is that StarNet has not paid for covered 35 36 37 38 39 R. Doc. 13 at 13-15. R. Doc. 30 -2 at 13. R. Doc. 36 at 7; R. Doc. 36-1 at 114. R. Doc. 30 -1 at 13. R. Doc. 36 at 2. 12 dam ages.”40 Plaintiff is seeking a declaratory judgment that it is not liable for dam age to the vessel, but it is undisputed that plaintiff m ay be liable for repairs if it does not prevail in this action. If defendants had paid for the repairs themselves, placed the vessel back into com m ission, and later sought reimbursement from plaintiff for the cost of the repairs, plaintiff would not be liable for lay up dam ages under the contract. Defendants have the burden of proof on their counterclaim , and have failed to present any facts or legal authority to support an entitlem ent to lay up dam ages where a vessel is laid up for an extended period of time only because of a failure to pay for repairs. Plaintiff is entitled sum m ary judgm ent on defendants’ claim for lay up dam ages. B. Exte n s io n o f D is p o s itive Mo tio n D e ad lin e The deadline for the subm ission of dispositive m otions in this m atter was May 10 , 20 17, requiring a filing date of April 25, 20 17. 41 On J une 2, 20 17, the Court continued the trial date but did not reset the motions deadline. 42 Trial is scheduled to begin November 13, 20 17. 43 Plaintiff now m oves to 40 41 42 43 Id. R. Doc. 16. See also Local Rule 7.2. R. Doc. 47. R. Doc. 58. 13 extend the dispositive m otion deadline because it wishes to file a m otion for sum m ary judgment. 44 Defendants oppose an extension of the deadline. 45 Federal Rule of Civil Procedure 16(b) provides that “[a] schedule m ay be m odified only for good cause and with the judge’s consent.” Fed. R. Civ. P. 16(b)(4). The “good cause standard requires the party seeking relief to show that the deadlines cannot reasonably be m et despite the diligence of the party needing the extension.” S & W Enterprises, L.L.C. v. SouthTrust Bank of Ala., N A, 315 F.3d 533, 535 (5th Cir. 20 0 3) (internal citation om itted). In m aking scheduling decisions, the Court’s “judgm ent range is exceedingly wide,” for it “m ust consider not only the facts of the particular case but also all of the dem ands on counsel’s tim e and the court’s.” HC Gun & Knife Show s, Inc. v. City of Houston, 20 1 F.3d 544, 549-50 (5th Cir. 20 0 0 ); see also Versai Managem ent Corp. v. Clarendon Am erica Ins. Co., 597 F.3d 729, 740 (5th Cir. 20 10 ). Plaintiff asserts that it has good cause for an extension because it chose not to file a m otion for sum m ary judgm ent in reliance on defendants’ representation that their expert’s report and testim ony would create a potential issue of fact. 46 In response, defendants argue that plaintiff had 44 45 46 R. Doc. 57. R. Doc. 59. R. Doc. 57-1 at 6. 14 am ple tim e to depose the expert, Andrew Minster, before the Court’s deadline. 47 Defendants further contend that they will be prejudiced if plaintiff is given another opportunity to m ove for sum m ary judgment. 48 The Court finds that plaintiff has failed to show that the original dispositive m otion deadline could not reasonably be m et despite due diligence. Defendants’ counsel produced their Rule 26 expert disclosures by em ail on March 21, 20 17, identifying Andrew Minster and Austin Glass as defense experts. 49 The following day, defendants’ counsel informed plaintiffs’ counsel that Minster and Glass were available for deposition April 13, April 14, April 21, and April 24. 50 Based on the em ail records before the Court, plaintiff’s counsel did not respond until April 10 , 20 17, and asked to schedule Glass’s deposition for April 24. 51 Plaintiff states that it did not depose Minster at this tim e because only Glass had issued an expert report. 52 Plaintiff represents that, after Glass’s deposition, defendants’ counsel inform ed plaintiff’s counsel that defendants intended to rely on the expert opinion of Minster and that Minster would issue a supplem ental report. 53 47 48 49 50 51 52 53 R. Doc. 59 at 2-3. Id. at 1. R. Doc. 59-1 at 1. Id. at 3. Id. at 4-6. Id. R. Doc. 57-1 at 3-4. 15 This conversation purportedly occurred on April 24, 20 17, the day before the deadline to file dispositive m otions. 54 Minster did not subm it an expert report, and he testified in his May 30 , 20 17, deposition that he was not asked to issue any additional reports. 55 The Court is not persuaded that defendants’ purported representations regarding Minster’s expert testim ony prevented plaintiff from m eeting the dispositive motion deadline. Plaintiff was on notice as of March 21, 20 17, that defendants planned to use Minster as an expert but did not attem pt to depose him before the dispositive m otion filing deadline. 56 Although plaintiff subm its em ail correspondence dem onstrating its efforts to schedule Minster’s deposition and ascertain whether he would subm it an expert report, all this correspondence took place after the filing deadline. 57 Moreover, the deadline for the defendants to subm it expert reports in this m atter was April 10 , 20 17. 58 Plaintiff was free to subm it a dispositive m otion by the Court’s deadline and then challenge any possible new report by Minster as untimely. 54 Id. at 3. R. Doc. 57-2 at 24. 56 Plaintiff also had the option to depose Austin Glass earlier in April, but chose to schedule his deposition for the day before the dispositive m otion filing deadline. 57 Id. at 7-14. 58 R. Doc. 16 16 55 Given the absence of good cause for an extension, the Court will not reset the dispositive m otion deadline. IV. CON CLU SION For the foregoing reasons, plaintiff’s m otion for partial sum m ary judgm ent is GRANTED. Defendants’ claim s for statutory penalties and lay up dam ages are DISMISSED. Plaintiff’s m otion for an extension of deadlines is DENIED. New Orleans, Louisiana, this _ _ _ _ _ day of August, 20 17 14th _____________________ SARAH S. VANCE UNITED STATES DISTRICT J UDGE 17

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