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Fourth Circuit Affirms District Court Decision Finding that Traditional Doctrine of Laches Did Not Apply When a Valid Choice-of-Law Provision was Included in a Maritime Insurance Contract

In American Steamship Owners Mutual Protection and Indemnity Association, Inc. v. Dann Ocean Towing, Inc. (Case Number 13-1495), the Fourth Circuit Court of Appeals affirmed the decision of the District Court, holding that the choice-of-law provision in the parties' maritime insurance contract required the application of New York's six-year statute of limitations, rather than the equitable doctrine of laches ordinarily applied under maritime law, to determine the timeliness of certain claims brought under the contract.

Dann Ocean Towing, Inc. ("Dann Ocean"), obtained insurance through the American Steamship Owners Mutual Protection and Indemnity Association, Inc. ("the Club") for a tugboat. In 1998, Dann Ocean's tugboat damaged a barge when the tugboat ran aground on a coral reef. The barge's owner asserted a claim against Dann Ocean for property damage and the United States asserted a claim against Dann Ocean for environmental damage to the reef. Dann settled both parties' claims in November 2001 for a total amount of $2,170,000.

The Club originally agreed to contribute $1,170,000 to the settlement. One of Dann Ocean's underwriters became insolvent and was unable to pay their portion of the settlement, which amounted to $278,552.55. In an effort to preserve the settlement, the Club paid this shortfall, however Dann Ocean refused to reimburse the Club. To offset the shortfall, the Club declined to reimburse Dann Ocean for certain insurance claims that would have been payable to them totaling $131,085.43. In response, Dann Ocean refused to pay its insurance premiums for the policy years 1999, 2000 and 2001, amounting to unpaid premiums totaling $452,610.23.

In August 2008 the Club filed suit against Dann Ocean and the tugboat alleging breach of the maritime insurance contract by failing to reimburse the Club for the shortfall and by failing to pay the overdue insurance premiums. Dann Ocean filed a counterclaim alleging that the Club breached the insurance contract by failing to indemnify Dann Ocean for covered losses. Both parties alleged that the claims against the other were time-barred and filed cross motions for summary judgment. The District Court held that the claims arising from the insurance contract were subject to New York's six (6) year statute of limitations, which barred all of the Club's claims except for one concerning a premium of $76,925.56.

On Appeal, the Club contended that the District Court should have applied the doctrine of laches as the procedural law of the maritime forum, rather than New York's statute of limitations. Laches is an equitable doctrine that can be raised by a defendant as an affirmative defense to a claim, and requires that the defendant show lack of diligence by the party against whom the defense is asserted and prejudice to the party asserting the defense. Typically, in assessing the timeliness of a maritime claim, the doctrine of laches applies rather than any fixed statute of limitations. However, the District Court found that parties to a maritime insurance contract may elect to avoid the doctrine of laches by including in their contract an enforceable choice-of-law provision that requires application of another jurisdiction's law and, implicitly, that jurisdiction's statute of limitations.

The Fourth Circuit stated that the maritime insurance contract unambiguously provided that the contract would be governed by New York law. Furthermore, the plain language of the contract failed to contain any indication that the parties intended to preserve application of the doctrine of laches for any claims brought under the contract. Therefore, the Fourth Circuit found that the District Court correctly applied New York's six-year statute of limitations to the Club's claims and affirmed the decision.

To read a copy of the Fourth Circuit's Decision click here.

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