In-House Attorneys Feel Targeted by Hyper Regulation

The Daily Business Report has an excellent article, wherein they report that key players, including corporate counsel, are increasingly finding themselves under intense regulatory scrutiny. As a result, in-house lawyer liability for corporate misconduct is edging up.

It is reported that between six and nine criminal or civil and administrative cases are brought against  companies' top attorney every year. However panelists at the Association of Corporate Counsel annual meeting in Denver were unable to agree on the severity of the problem. Some have suggested that the job of general counsel is not safe. Others counter than the SEC is not on a witch-hunt for inside lawyers. Nevertheless, regulatory and economic pressures on in-house lawyers are underlying themes across many of the annual meeting's 80-plus panels and other events.

Corporate counsel were generally considered exempt from scrutiny, as they were considered a corporation's legal advisers. However, corporate counsel are now considered key players and therefore prime targets for government investigations. Some speculate that when the top lawyer gets in trouble, it is because that individual was wearing "two hats" by doubling in another senior management level position, such as chief financial officer. However where the top lawyer relied on the advice of outside counsel for similar matters, they have almost never been targeted.

This advice that should be taken away from this article is that the general counsel of a company has the broadest responsibility for the well-being of a company. As a result, the general counsel should not allow their advocacy skills to overwhelm their role as counselor and should rely more on the advice of outside counsel when faced with a corporate dilemma.

If you are interested in receiving a complete copy of the DBR article or wish to contact me, you may do so at miamipandi@comcast.net or motero@houckanderson.com.

Major Expansion of Cuba's Mariel Port

The Caribbean Maritime magazine has published in their "Grapevine" section for October-December 2011 that the Cuban Port of Mariel is undergoing a major expansion. Mariel, 28 miles west of Havana, is the largest port on the north coast of Cuba, second only to Havana. The first stage of the port development reportedly involves the construction of 765 yards of berthing space. This is expected to be completed by 2014. When completed, the terminal will have an annual capacity of about 850,000 teu, compared with Havana's 350,000 teu.

It is reported that all industrial port facilities of the Port of Havana will be moved to Mariel so as to free Havana harbor to handle cruise ships and recreational boating activity. Once this is accomplished, the industrial land area near the Port of Havana will be redeveloped for tourist and eco-friendly uses.

Mariel is tapped to be the location for logistics facilities for offshore oil exploration and will have a container terminal, cargo storage facilities, a marine technical school and an area for light manufacturing.

If you are interested in receiving a complete copy of the Caribbean Maritime article or wish to contact me, you may do so at miamipandi@comcast.net or motero@houckanderson.com.

Man Thrown from Boat Recovers Little for Injuries

The Daily Business Review reports today that in the case of Trivision v. Chabrier, a jury awarded only $403 to a passenger who was thrown from a boat. In 2005, Richard Trivision, 45 years old at the time of the accident, allowed his friend Linda Chabrier, to operate his boat. Trivision claimed Chabrier was not paying proper attention, failed to avoid a large wake and that Chabrier should not have got behind the helm if she could not properly operate the vessel. Trivision claimed a herniated cervical disc, a lumbar disc protrusion and a torn labrum in each shoulder resulting from the accident.

The defense claimed the wake came out of nowhere and could not be avoided. Chabrier also claimed Trivision was negligent for allowing her to operate his boat, since he had more experience that her. The defense also argued that Trivision's injuries were caused by his age and excessive weight and also pointed out gaps in his medical treatment. Trivision was found 10% liable for the accident, reducing the jury award.

I do not have a full copy of this decision, which was handed down in Palm Beach Circuit Court, case number 502007CA011788. You can obtain a copy of the decision from the Clerk of Court. If you are interested in contacting me, please feel free to reach me at miamipandi@comcast.net or motero@houckanderson.com.

Family of Man Who Died on Cruise Settles for $250k

The Daily Business Review reports on November 10, 2011 that in the case of Estate of Racoma v. Ocean Development LLC in Palm Beach Circuit Court, a family recovered a $250,000 settlement for a man who died while on a cruise. In 2008, Phil Racoma, 78, suffered a cardiac arrest and died. His family claimed that the vessel owner Platinum Real Estate, vessel operator Ocean Development and its officers failed to timely treat the man. The family claimed that there was no automated external defibrillator on board the ship, which was alleged to be standard on most cruise ships, and the ship never radioed the US Coast Guard for help.

The defense claimed that Racoma failed to take his medication before going on the ship and would have died regardless of any resuscitation efforts because of his advanced age and heart conditions. The parties settled after the defendants filed for bankruptcy.

If you are interested in receiving the small clip on the article from the Daily Business Review or wish to reach me, you may do so at miamipandi@comcast.net or motero@houckanderson.com.

Marine Insurance Policy Found to Be Void Ab Initio

In the case of State National Insurance Company v. Anzhela Explorer, L.L.C., 2011 WL 3703223 (S.D. Fla. Aug. 23, 2011), the trial court found that based on an insured's material non-disclosure concerning the Coast Guard’s assessed deficiencies in the water tight bulkhead systems of a 70' catamaran, there was a breach of duty of good faith or Uberrimae Fidei such that the policy was void ab initio. The court also held that the unsatisfactory condition of the water tight bulkhead system rendered the vessel unseaworthy at the time coverage was bound, therefore violating the absolute warranty of seaworthiness at the time of policy inception. Because the court found the policy void ab initio,  it held that such a finding provides a complete affirmative defense to the insured’s breach of contract counterclaim.

Plaintiff, State National Insurance Company (“State National”) filed an eleven (11) count complaint for a declaratory judgment against Defendants, Anzhela Explorer L.L.C., Jeff Dorsey, and Mark Rosandich (collectively “Anzhela”) seeking a declaration of non-coverage by the court on an insurance policy issued by State National to Anzhela based on the theories of: breach of continuing and absolute duties of seaworthiness and breach of navigation warranty. The Plaintiff also sought declarations of the court of no coverage for pollution as well as declaration of no coverage for fines and penalties and reimbursement for costs pertaining to the marking and removal of the wreck. The Defendants counterclaimed for breach of contract and conversion of property.

The facts of the case are lengthy but are summarized herein as follows:

Purchase of Vessel

·         On July 7^th, 2006 Rosandich, on behalf of Dorsey, entered into a purchase agreement for a 70’, twin-hull catamaran to be used as a commercial passenger/dive vessel, primarily geared toward servicing the oil and gas industry in Louisiana.

o   Rosandich was retained by Dorsey to assist in the location and purchase of the vessel, as well as to utilize Rosandich’s experience in bringing vessels up to date with Coast Guard Certificates of Inspection (“COI”).

·         The vessel, now named Anzhela Explorer, was formerly certified for commercial use as a small passenger vessel, but its COI for such use expired in 2003, requiring it to obtain a new inspection to engage in its intended commercial use.

·         An August 22^nd, 2006 Coast Guard initial inspection resulted in a “Critical Deficiency Report” listing 34 different deficiencies that had to been remedied before the Coast Guard would issue the COI.

·         A second inspection on December 15^th, 2006 resulted in the vessel being issued a “hull credit”, which while representing an important step towards gaining a COI, does not represent the attainment of the required certification. At the time of this inspection, six issues identified in the 8/22/06 inspection had not been fully resolved or corrected.

o   The hull credit confirms the vessel’s compliance with Coast Guard regulations with respect to various parts of the hull’s underwater body, but notably does not include compliant bilge pumping systems

o   Of the remaining items to be addressed:

§  Three involved administrative paperwork issues

§  Non-water tight bulkheads compromising the integrity of the watertight compartments

§  Deficiencies in the bilge pumping system

·         The facts provided suggest that the remaining work to be done on the vessel to achieve its COI was to be accomplished in Louisiana, which is where the vessel would be operated.

Insurance Application and Policy

·         In February 2007, Rosandich (again acting for Dorsey) contacted USI, an insurance brokerage, to procure insurance for the vessel. At that time, Rosandich indicated that the vessel would be used for commercial purposes (as a dive boat) out of Golden Meadow, Louisiana.

o   The facts indicated that USI acted as agent for Anzhela in procuring insurance.

·         USI then prepared and submitted materials to WFT, the managing agent for State National with authority to bind marine insurance. The application was processed by an underwriter for WFT.

·         On February 15^th, 2007, the underwriter received an email from USI (via Robichaux) which had as an attachment an email from Rosandich with an written survey dating from August of 2006, indicating that that the vessel did not currently possess a COI.

o   The survey was not a complete survey, and was of the limited variety used for insurance purposes.

o   The survey indicated the bilge pump capacity as “good”; the survey similarly indicated that the watertight compartments as being in “good” condition.

·         On February 15, 2007, at 1:04pm Robichaux (USI) sent another email to WFT indicating that the vessel did have a current COI.

o   In total, and on the same day, WFT had in her possession three written documents saying that the vessel did not have a current COI, and two saying that it did. The underwriter did not follow up to reconcile the discrepancy.

·         The facts specified that the navigational limits of the policy were to be the “Gulf of Mexico, not to exceed 100 miles offshore.”

·         On March 22, 2007 USI requested that coverage be bound and WFT agreed to bind coverage.

o   USI received a binder for coverage sent by WFT. USI then informed Anzhela of the binding coverage within navigational limits.

·         Evidence showed that on March 19, 2007, USI and WFT reached an oral agreement for “trip coverage” that would cover the vessel while in route to Golden Meadows.

Loss of the Anzhela Explorer

·         The original plan was to move the vessel from Ft. Lauderdale, up the inter-coastal waterway to Stuart, where the vessel would cross the Okeechobee east-west canal to the gulf coast, stopping at Ft. Myers, Florida for repairs to the propeller.

·         Evidence and testimony from the Defendants suggested that at the time the vessel was set to depart for Golden Meadow, LA that it was in a seaworthy condition

o   This assurance came both from defendant Dorsey, who had taken the vessel for several test runs after undergoing unspecified repairs, as well as the crew provided by “Fish Offshore”, the company who would be operating the vessel at its base of operations in Golden Meadow.

o   Fish Offshore was known personally to the underwriter from WFT, and provided some “comfort” to her in agreeing to bind coverage for the vessel and trip.

o   The facts indicated that the fixed bilge pump in the starboard hull was not installed; however the facts indicated that the vessel had multiple sources of bilge pumping capability.

·          The vessel departed on March 24, 2007 on its intended voyage and course; however, upon reaching the eastern lock (St. Lucie), the Captain was informed that there was not sufficient water in the passage on the other side of the state for the vessel to proceed based on the its draft. Despite Rosandich testifying that he ordered the vessel to return to Ft. Lauderdale the same way it had departed, the Captain ordered the vessel to proceed through Jupiter Inlet, known to be shallow and difficult to pass, and into the open Atlantic, where winds were in the 15-20 knot range and seas up to six feet.

o   The facts indicated that the deckhand called Rosandich and notified him of the change in course; Rosandich apparently did not order the vessel to return to the inter-coastal waterway.

o   The crew denied any groundings occurring in the passage through Jupiter Inlet, although the court would later speculate that groundings likely did occur.

·         Approximately 9:00pm on March 24^th, the vessel allegedly began experiencing a steering problem with the starboard “paddle” (used to steer the vessel by directing the forward thrust). The Captain claimed this was the result of a hydraulic hose leak that he could see, but chose not to fix due to the existing challenging conditions. The vessel was then anchored in 28’ of water approximately one quarter mile off Golden Beach, Florida.

o   The crew gave no indication of any engine overheating problems or high-heat alarms. However, the court later suggested that there was evidence of overheating on the starboard engine, and no evidence was provided of any leaking hydraulic hoses. The court further inferred that the likely engine overheating was possibly due to unreported groundings which caused sand to collect in the water strainers, limiting the ability of the engine to properly cool its exhaust gases.

o   Rosandich testified that after the loss, the crew told him they had experienced high heat alarms; this was later denied at trial. 

·         Approximately 1:00am on March 25^th, the engineer woke the rest of the crew to alert them that the starboard exhaust line had broken open and water was spilling into the starboard engine room. Three of the four portable submersible pumps were put into operation and the hull was de-watered to the point where only about six to eight inches of water remained.

·         Once they had the hull de-watered, the Captain and deckhand left the engineer to stay on watch. They chose not to try and fix the exhaust hose. At approximately 4:30 am on March 25^th, the engineer again woke the crew to alert them that the vessel was listing hard to starboard. Water in the engine room at this point covered the engine in the starboard hull. The port hull, with engine doors apparently still open, was also beginning to fill with water due to the wave action, which had now risen to eight feet. Deciding it was too dangerous to try and pump out the vessel, the crew made the decision to abandon ship. The Captain called Rosandich and requested that he alert the Coast Guard. Rosandich then called both the Coast Guard and Sea Tow. The Coast Guard arrived just in time to evacuate the crew before the vessel sank.

Post-Loss Claims

·         After the vessel was lost, Rosandich signed a salvage contract on a per diem/hourly basis with Sea Tow the morning of the sinking. No representative for insurers was present.

·         Rough weather prevented the vessel from being raised immediately; therefore the superstructure of the vessel was battered by the seas, ultimately being destroyed and scattered across the bottom of the ocean.

·         A day after the sinking, Dorsey signed a Notice of Tender of Abandonment to Harold Heno, a claims representative initially assigned to the claim. The insurance company rejected the tender reserving its rights.

o   Shortly thereafter, Dorsey was advised to proceed as a reasonably prudent uninsured until coverage could be determined.

·         On March 27^th, Surveyor Ian Cairns became involved.

o   Recognizing the vessel to be a CTL, he advised both State National and Anzhela to abandon the salvage contract with Sea Tow

·         “Days” later, State National decided to pay for the wreck removal under a full reservation of rights. This was done in part to limit potential environmental costs and under the threat of the Coast Guard nationalizing the process.

·         Cairns then sought competitive bids to raise the wreck on a fixed price, “no cure-no pay” basis

o   After one unsuccessful round of bidding, Sea Tow came in as the lowest bidder, aided in part by a contingency whereby Sea Tow would be permitted to retain and dispose of the superstructure and/or scrap aluminum not attached to the vessel’s hull with no offset to bid price or for monies received for the scrap value of the aluminum. Rosandich did not object to the contingency, but complained of the high price of the removal operations.

Factual/Legal Conclusions Concerning the Loss of the Vessel

·         Despite the many competing and concurrent causes which ultimately led the vessel to sink, the court came to the conclusion that the negligence of the crew in responding to the emergency situations on board was the proximate cause of the vessel’s sinking. This was based in part on the crew’s ability to initially de-water the starboard hull with the equipment on board in the first instance of trouble. This demonstrated to the court that the existence of penetrations in the watertight bulkhead system did not serve as the proximate cause of the vessel’s sinking. Had the crew remained vigilant and awake (the court suggested that the engineer likely fell asleep), the evidence indicated they could have continued to de-water the vessel.

The following issues were presented to the trial court:

1.      Do sufficient grounds exist stemming from material misrepresentations and omissions in the formation of the contract for insurance to void coverage under the policy ab initio?

2.      Did any conduct by the Defendants or their agents subsequent to the formation of the contract for insurance provide grounds for voiding the contract and absolving plaintiff of liability or obligations under the policy?

3.      Did the policy exclusions in place properly limit the plaintiff’s exposure to certain environmental, regulatory, and chemical/fuel spill-related costs?

4.      Do any of defendant’s counterclaims have merit such that it affects plaintiff’s recovery and/or plaintiff being absolved of liability or obligation under the policy?

The trial court found as follows:

1.      Based on the material non-disclosure concerning the Coast Guard’s assessed deficiencies in the water tight bulkhead systems, there was a breach of duty of good faith or Uberrimae Fidei such that the policy was void ab initio. The court also held that the unsatisfactory condition of the water tight bulkhead system rendered the vessel unseaworthy at the time coverage was bound, therefore violating the absolute warranty of seaworthiness at the time of policy inception. The court reasoned that alleged misrepresentations concerning the vessel’s COI status, its intent to breach its navigational warranty, and grounding occurring prior to coverage being bound did not meet the requirements for a breach of the duty of good faith

2.      Several alleged incidents by plaintiffs occurring after policy formation did not rise to the standard required to void an insurance policy: (a)  Due to the fact that an oral agreement was reached binding coverage for the journey from Fort Lauderdale, FL to Golden Meadow, LA, in addition to a “held covered” clause providing for coverage in the event of a violation of one of several listed express warranties (navigational warranty included), the fact that the vessel sank outside of the identified navigational limits did not breach that warranty; (b) The Plaintiff could not meet the required showing for a violation of the warranty of continuing seaworthiness, which required a showing that an unseaworthy condition existed at the time the vessel departed of the voyage, that the owner knew of the condition, and that it proximately caused the loss. Though the crew’s negligence was deemed to be the proximate cause of the loss, the crew as a whole was not deemed to constitute an unseaworthy condition, therefore defeating a continuing seaworthiness claim premised on any other alleged unseaworthy condition.

3.      Based on the court’s finding that the policy was void ab initio, the policy exclusion claims were mooted.

4.      The Defendant’s surviving counterclaims both failed as: (a)  A finding of the policy being void ab initio provides a complete affirmative defense to the Defendant’s breach of contract counterclaim; and (b)     The Defendant’s counterclaim for conversion under state law, for the scrap parts obtained by the salver during recovery operations, was not substantiated and therefore judgment was entered in Plaintiff’s favor on this count.

The trial court ultimately held that State National was entitled to reimbursement of costs in the amount of $613,421.50 advanced on behalf of Anzhela, less all premiums paid to date by Anzhela on the policy.

If you are interested in receiving a full copy of this lengthy decision, please feel free to reach me at miamipandi@comcast.net or motero@houckanderson.com.

 

Royal Caribbean's 3Q Net Income Rises 14%

On October 28, 2011, the Daily Business Review reports that Royal Caribbean Cruises' third-quarter net income climbed 14 percent, buoyed by stronger demand for Caribbean and Alaskan itineraries and people spending more onboard its ships. The cruise operator lowered its full-year earnings guidance to a level below analysts' expectations, citing the strengthening dollar and a fuel-related charge. But the Miami company says 2012 demand is solid so far, with pricing higher than it was this time a year ago.

Royal Caribbean reportedly earned $399 million, or $1.82 per share, for the period ending September 30th. This is better than its earnings of $350.2 million, or $1.61 million per share a year ago. Thus, third-quarter net yields, which measures the amount a cruise company makes from its passengers after removing expenses, climbed 5.3 percent.

If you are interested in receiving a copy of the Daily Business Review article or wish to reach me, you may contact me at miamipandi@comcast.net or motero@houckanderson.com.