The Insurance Implications of the COSTA CONCORDIA

On May 2, 2012, during MLA week, I was asked by the joint committees of Marine Torts  and Casualties and Cruise Lines and Passenger Ships to speak as part of a panel on the COSTA CONCORDIA casualty. The thrust of my discussion was on the insurance ramifications of the event. In a nutshell, I discussed the breakdown of the insurance coverages for first party and third party insurances. Carnival, the parent company of the owner of the ship, Costa Crociere, reported to have insurance coverage for damage to the ship above a $30 million retention and third-party personal liability coverage above a $10 million retention. Claims are the casualty will cost $1 billion.

My ultimate conclusion in my presentation is that the casualty would not result in a hardening of the hull market and that the liability insurers were well placed to adequately deal with the matter.

Because I have received numerous requests to obtain a copy of my Power Point presentation, please let me know if you are interested in receiving a copy as well by emailing me at miamipandi@comcast.net or mov@chaloslaw.com.

Man Convicted for Obstruction of Justice & False Statements for Certifying Ships Safe for Sea

The Maritime Executive reports that a federal jury in Miami convicted a Miami-based ship surveyor for lying to the Coast Guard and for falsely certifying the safety of ships at sea. Alejandro Gonzalez, 60, of Miami-Dade County was convicted by a federal jury in Miami of three counts of making false statements to the U.S. Coast Guard and one count of obstruction of an agency proceeding. The defendant faces a maximum statutory penalty of five years in prison on each count.

The jury found Gonzalez guilty of lying to U.S. Coast Guard inspectors and a criminal investigator during an interview in April 2009 about the dry-docking of the M/V CALA GALDANA, a 68 mt cargo vessel, in San Juan, Puerto Rico.  Gonzalez repeatedly claimed the vessel was dry-docked in Cartagena, Colombia, in March 2006, while evidence at the trial proved conclusively that the vessel was never in Colombia during 2006.

Gonzalez was also convicted of falsifying documents in December 2009 for the M/V COSETTE, a 92 mt cargo vessel.  As the surveyor on behalf of Bolivia, Gonzalez certified the ship as safe for sea while the vessel was docked in Fort Pierce in November 2009.  When the vessel shortly thereafter arrived in New York City harbor, U.S. Coast Guard inspectors discovered exhaust and fuel pouring into the ship’s engine room, endangering the crew and the ship.  For his action, Gonzalez was convicted of making a false statement and obstructing a U.S. Coast Guard Port State Control examination.

The prosecution was handled by Assistant U.S. Attorney Jaime Raich (a former colleague for a short time) and Trial Attorney Kenneth Nelson, of the Environmental Crimes Section of the Justice Department’s Environment and Natural Resources Division. Sentencing is currently scheduled for August 2, 2012, in Miami.

The full article from the Maritime Executive can be seen here => http://www.maritime-executive.com/article/man-convicted-for-obstruction-of-justice-false-statements-for-certifying-ships-safe-for-sea.

If you are interested in contacting me, you may do so at miamipandi@comcast.net.

Fraudulent Joinder in Southern District of Florida Explained

In DE VARONA v. DISCOUNT AUTO PARTS, LLC,  23 Fla. L. Weekly Fed. D253a (S.D. Fla. May 6, 2012), the plaintiff moved to remand a federal court case to state court on the grounds that the defendant's store manager was properly joined as resident defendant and that amount in controversy was less than $75,000. Judge Ungaro hearing the motion denied the motion for remand finding that there was no reasonable basis for the claim against the store manager, and where the removing defendant has proven that jurisdictional amount has been satisfied. This case is a win for defendants that remove cases to federal court based on diversity jurisdiction and are faced with plaintiffs that join improper, non-diverse parties for the sole purpose of defeating diversity. 

The facts are as follows--the Plaintiff, a Florida citizen, initiated her action in state court, naming a Virginia corporation as the sole defendant. Later, the Plaintiff amended her complaint, adding the company's store manager and a Florida resident as a defendant. In the operative complaint, the Plaintiff brought separate negligence counts against the two defendants for the injuries that she allegedly sustained from falling in the parking lot at the company's store. The company removed the action to federal court, alleging that complete diversity of citizenship existed and that the amount in controversy exceeded the requisite amount by law. To overcome the fact that both the Plaintiff and the store manager were Florida citizens, which would normally defeat diversity, the company argued that the store manager's citizenship should be disregarded because he was fraudulently joined solely to avoid federal jurisdiction. The Plaintiff then moved to remand the case to state court, insisting that the store manager was properly joined and that amount in controversy is less than seventy-five thousand dollars.  

In finding fraudulent joinder, the court first pointed out that Florida courts have held that a corporate officer may be held individually liable for personal injuries caused to third parties provided several factors are present. The necessary elements are: (1) the corporation owes a duty of care to the third party, the breach of which has caused the damage for which recovery is sought; (2) the duty is delegated by the principal or employer to the defendant officer; (3) the defendant officer has breached this duty through personal -- as opposed to technical or vicarious -- fault; and (4) with regard to the personal fault, personal liability cannot be imposed upon the officer simply because of his or her general administrative responsibility for performance of some function of his or her employment. The corporate officer must have a personal duty towards the injured third party, breach of which specifically has caused the party's damages. However, the court found that the Plaintiff had not rebutted the store manager's denial that he personally breached any duty owed to the Plaintiff -- the third element required.

The court also evaluated the amount in controversy requirement in federal court and noted that where the jurisdictional amount is not apparent from the complaint, the court should look to the notice of removal and may require evidence relevant to the amount in controversy at the time the case was removed. The court evaluated the evidence and found that the defendant had established that the jurisdictional minimum has been met. Therefore, the court found, the proponent's estimate of the claim's value must be accepted unless there is a “legal certainty” that the claim is actually for less than the jurisdictional amount. Because the Plaintiff presented no evidence or argument that such a certainty exists, her assertion that she may not recover the full jurisdictional amount was found "unavailing".

If you are interested in receiving a full copy of this decision, please feel free to write me at miamipandi@comcast.net. 

Insurance Company Required to Divulge Bad Faith Discovery in a Breach of Contract Action

In SUMMIT TOWERS CONDOMINIUM ASSOCIATION, INC. v. QBE INSURANCE CORPORATION, 23 Fla. L. Weekly Fed. D191a (S.D. Fla. April 5, 2012), U.S. District Court Judge Patricia A. Seitz held that Magistrate Judge Andrea A. Simonton, who was assigned to handle discovery matters in an insurance breach of contract action, did not act contrary to law or clearly err when she ordered insurer's Rule 30(b)(6) witness to answer questions regarding financial incentives, general business practices, and bad faith.  The case also has interesting footnotes on how insurance attorneys need to be more civil in the litigation process.

The insurer supported its arguments that such discovery is not discoverable with numerous citations to state court cases that stand for the general proposition that discovery related to bad faith claims is improper in a first-party insurance breach of contract action. Nevertheless, consistent with Buckley Towers Condominium, Inc., v. QBE Insurance Corp., 2008 WL 2645680 (S.D. Fla. June 26, 2008), the Court found that the questions were relevant to whether an insurer's initial determination that damages did not exceed deductible was reasonable and also to rebut claims of fraud alleged by insurer. The Court explained "[t]hat there is some overlap with this evidence and evidence that is relevant to a bad faith claim is of no consequence where, as here, the probative value of that evidence to the breach of contract claim outweighs any prejudice to [the insurer]."

In addition, the Court found that insurance company's counsel's instructions to deponent not to answer based on relevancy and objections to form did not comply with federal rules of procedure or applicable authorities and cited Federal Rule of Civil Procedure 30, which provides, in relevant part:

"A person may instruct a deponent not to answer only when necessary to preserve a privilege, to enforce a limitation ordered by the court, or to present a motion under Rule 30(d)(3)."

Fed. R. Civ. P. 30(c)(2) (emphasis added). Because defense counsel instructed the insurer's witness not to answer deposition questions on legal bases other than those specified in Rule 30(c)(2), the Court found defense counsel's actions improper.

In addition, the Court found that an order compelling the deponent to produce information that he relied on, other than his experts, that would support insurer's affirmative defense that the Plaintiff fraudulently inflated its claims was consistent with governing rules and authorities, as discovery was relevant, calculated to lead to admissible evidence, and tailored to the issues of case. This was so held, despite the fact that Magistrate Judge Simonton indicated that “[n]ormally, the claims handling procedures are not discoverable at the breach of insurance contract stage.” The judge allowed some discovery on this issue because the insurance company had asserted as an affirmative defense that the Plaintiff fraudulently inflated its claim.

While the case delved into other discovery issues beyond the scope of this blog, what is also interesting is the Court's open admonition of the actions of defense counsel in the case . The Court openly invited the Plaintiff to file a motion for sanctions against defense counsel stating "[defense counsel's] conduct was not justified and sanctions are appropriate should Plaintiff file such a motion."

What this case reminds us is that just because Florida state court cases tell us generally that claims handling procedures and other such issues are not normally discoverable at the breach of insurance contract stage, the federal courts will look to its procedural rules to decipher what is and what is not discoverable. Rule 30 is very limited on what is not discoverable. Therefore insurers will need to be extra vigilant in the affirmative defenses it chooses to employ in defending a breach of contract action in Florida, as more than just the original contractual dispute itself may be at issue in discovery.

If you are interested in receiving a complete copy of this decision, please feel free to contact me at miamipandi@comcast.net.

Eleventh Circuit Speaks on Arbitration Provisions in Crew Contracts

Jane Doe v. Princess Cruse Lines, Ltd., Jane Doe v. Princess Cruse Lines, Ltd., No. 10-10809 (11th Cir. 2011), addresses the important necessity of careful corporate drafting of international arbitration provisions, a topic I have blogged about in the past.

Plaintiff Doe alleged a harrowing story of a woman working for Princess Cruise Lines on one of its ships, who alleged she was drugged by other employees, raped, and physically injured while she was unconscious, and, as the Court of Appeals summarized, “when she reported to officials of the cruise line what had happened to her they treated her with indifference and even hostility, failed to provide her with proper medical treatment on board, and interfered with her attempts to obtain medical treatment and counseling ashore”.  The issue before the Eleventh Circuit was whether and to what extent her claims were arbitrable under a broad arbitration provision.  In addition to making specific reference to the required arbitrability of claims for personal injury, the arbitration provision specified:

"[T]he Company and crew member agree that any and all disputes, claims, or controversies whatsoever (whether in contract, regulatory, tort or otherwise and whether pre-existing, present or future and including constitutional, statutory, common law, admiralty, intentional tort and equitable claims) relating to or in any way arising out of or connected with the Crew Agreement, these terms, or services performed for the Company."

Despite its breadth, the Court of Appeals determined that many of the plaintiff’s claims did not have to be arbitrated.  The Court held that the “relating to”, “arising out of”, and “connected to” language “marks a boundary by indicating some direct relationship” or “direct connection”; hence, claims that were not even indirectly tethered to the work environment or relationship fell outside the arbitration provision.  The Court of Appeals so held notwithstanding the following holding of the Supreme Court in Aguilar v. Standard Oil Co. of N.J., 318 U.S. 724 (1943):

"Unlike men employed in service on land, the seaman, when he finishes his day’s work, is neither relieved of obligations to his employer nor wholly free to dispose of his leisure as he sees fit. Of necessity, during the voyage he must eat, drink, lodge and divert himself within the confines of the ship. In short, during the period of his tenure the vessel is not merely his place of employment; it is the frame-work of his existence. For that reason among others his employer’s responsibility for maintenance and cure extends beyond injuries sustained because of, or while engaged in, activities required by his employment. In this respect it is a broader liability than that imposed by modern workmen’s compensation statutes."

The Eleventh Circuit also held that Princess had waived its right to claim on appeal that the arbitrator, not the Court, should have decided the issue of arbitrability in the first instance. The Court found that Princess waived any right to appeal since it was Princess that went to the District Court in the first place.

If you are interested in receiving a copy of this important decision, please feel free to contact me at miamipandi@comcast.net.

Seaman's Contract Doesn't Always Require Arbitration

In THOMAS HINES v. CARNIVAL CORPORATION, 23 Fla. L. Weekly Fed. D225a (S.D. Fla. Mar. 29, 2012), a United States crew member who was injured on board cruise ship sued his employer cruise line, alleging claims of Jones Act negligence, unseaworthiness, failure to provide maintenance and cure, failure to treat, and seeking wages and penalties. The seaman sued in Florida state court and Carnival removed the case to federal court.

Judge Martinez of the U.S. District Court for the Southern District of Florida found that the federal court lacked jurisdiction over the case because the fourth jurisdictional requirement under 9 U.S.C. section 202 of a commercial relationship that has some reasonable relationship with one or more foreign states is not met where employee's Seafarer's Agreement contains no reference to performance abroad or in any foreign country, choice of law clause was also neutral, the plaintiff has alleged that he has not performed any employment duties on foreign soil, terms of agreement and work performed is largely associated with United States, employment agreements in effect at time of crew member's personal injuries were executed within United States, and subject agreements require payment to plaintiff in United States dollars. The Court further found that the country corresponding with flagged vessel is not persuasive in determining a relationship to a foreign state. The Court reasoned that Section 202 instructs courts to disregard foreign corporate status of a U.S. based company in deciding whether the relationship is international. In addition, the Court found that activity in international waters does not satisfy a relationship with one or more foreign states and because the fourth jurisdictional requirement of Convention on the Recognition and Enforcement of Foreign Arbitral Awards was not met, case was not removable and had to be remanded to state court.

This case, along with Matabang v. Carnival Corp., 630 F. Supp. 2d 1361 (S.D. Fla. 2009), stands for the proposition that seaman's employment agreements do not create a “relationship involv[ing] property located abroad, or [having] some other reasonable relation with one or more foreign states”, Matabang, 630 F. Supp. 2d at 1367, when the performance contract between the parties contains no reference to performance abroad or in any foreign state apart from the arbitration clause. 

If you are interested in receiving a full copy of this decision, please feel free to contact me at miamipandi@comcast.net or mov@chaloslaw.com.