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In U.S. v. Citgo Petroleum Corporation, The United States Court of Appeals for the Fifth Circuit reversed convictions out of the United States District Court for the Southern District of Texas, holding that the District Court erroneously instructed the jury about the scope of a regulation concerning “oil-water separators” and misinterpreted the Migratory Bird Treaty Act (MBTA) of 1918.

In March of 2002, CITGO’s Corpus Christi refinery was subject to a ‘surprise’ inspection which revealed 130,000 barrels of oil floating atop two uncovered equalization tanks. These two equalization tanks were downstream from two “Corrugated Plate Interceptor oil-water separators” at CITGO’s refinery.  Since the tanks contained such a high content of oil, Texas authorities concluded that CITGO was improperly using the equalization tanks as oil-water separators.  Additionally, because the tanks were uncovered, the Texas authorities alleged CITGO was in direct violation of Subpart QQQ which regulates the standards of performance for “Volatile Organic Compounds” emissions from petroleum refinery wastewater systems under 40 CFR Part 60.  The government went one step further also indicted CITGO on ‘taking’ migratory birds in violation of the MBTA, 16 U.S.C. § 703 on a suspected theory that birds had died in these uncovered equalization tanks.  Environmental inspectors cited CITGO for violating the Clean Air Act (CAA) and CITGO was indicted on ten (10) different counts in total.

The trial occurred in two parts.  During the first trial, a jury exonerated the defendants on three CAA counts, but found CITGO guilty of two counts of knowingly operating the equalization tanks as oil-water separators without emissions control devices in violation of 42 U.S.C. § 7413(c)(1) and 40 C.F.R. § 60.692.4. The jury instructions quoted Subpart QQQ’s definition of an oil-water separator, and also added: “[t]he definition of oil-water separator does not require that [it] have any or all of the ancillary equipment mentioned such as forebays, weirs, grit chambers, and sludge hoppers….An oil-water separator is defined by how it is used.”  Clean Air Act Opinion, 2011 WL 1155684 at 3.  Post-trial, and on appeal CITGO challenged the jury instruction on the basis that Subpart QQQ defines an oil-water separator by how it is used and by its constituent parts, and therefore the jury instruction was improper.  CITGO contended that the equalization tanks were not required to be covered, since Subpart QQQ only applies to oil-water separators and not equalization tanks.  In the non-jury trial phase, the District Court found CITGO guilty on three (out of five) counts for the ‘taking’ of migratory birds in violation of MBTA, 16 U.S.C. § 703.  CITGO also appealed this conviction, contending that the Court erred in interpreting the MBTA statute.  Specifically, that illegally “taking” migratory birds only applies to conduct intentionally directed at birds such as hunting and trapping, and not to unintentional and indirect acts.

The Fifth Circuit Court of Appeals reversed the trial convictions, holding that Subpart QQQ “only regulates equipment conventionally, not merely functionally, known as oil-water separators, along with specifically described ancillary equipment.”  The Fifth Circuit stated that the equalization tanks at CITGO’s Corpus Christi refinery had skimmers, but did not have weirs, grit chambers, or sludge hoppers, therefore the tanks were not oil-water separators, and as such Subpart QQQ did not apply.  Additionally, the Appellate Court held that Congress’ intent for the MBTA’s ban on “takings” only prohibits intentional acts (and omissions) that directly (not indirectly or accidentally) kill migratory birds.  The Court noted that millions of birds are killed each year by communication towers, cars, and even domestic cats.  If the government’s preferred strict interpretation of the MBTA, i.e. that it prohibits all acts or omissions that “directly” kill birds and where bird deaths are foreseeable, then the scope of the government power to prosecute for every activity that proximately caused bird deaths would be virtually limitless and lead to absurd results.

To read a copy of the Fifth Circuit’s decision click here.

For more information about the Court’s decision and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

Harris County, Texas – George M. Chalos and Briton P. Sparkman successfully defended a hotel owner and operator in a recent jury trial matter before the Hon. Larry Weiman of the 80^thDistrict Court in Harris County, Texas.  In the case, the plaintiff (a 55 year-old woman) alleged that the defendant hotel failed to maintain a safe premises, which caused the her to slip and fall and sustain serious injuries including but not limited to permanent partial disabilities and disfigurement.  While the plaintiff was attempting to enter the shower, she allegedly slipped and fell, sustaining comminuted fractures to the distal third of the right tibia and fibula requiring four (4) surgeries.  The plaintiff alleged that the defendants were negligent in failing to provide the required safety elements in the bathroom as required by Texas law.  The injured plaintiff’s husband also claimed for loss of consortium.  Defendants denied all allegations of negligence.  Plaintiffs sought approximately $925,000 in damages.  Following a four day trial, the jury returned a complete take nothing verdict in favor of the defense in under twenty-five (25) minutes.

The case can be found at Vicky and Daniel Wright vs. D&B Patel LP, et al., Case No. 2013-44365; 2015 TX Jury Verdicts Review Lexis 112, Vol. 6, Issue 10.

For more information about this matter, or how Chalos & Co, P.C. may be of assistance to you, please do not hesitate to contact us at info@chaloslaw.com.

In Lord & Taylor LLC v. Zim Integrated Shipping Servs., Ltd., the United States District Court for the Southern District of New York ruled in favor of Zim Integrated Shipping Services, Ltd. (“Zim”) as carrier, in a COGSA recovery for damaged goods suit. The damages occurred when Hurricane Sandy made landfall on October 29, 2012 and flooded a container terminal (Zim’s subcontractor) on Staten Island. The plaintiff, Lord & Taylor, had several containers full of their women’s clothing at the terminal and the flooding that resulted ruined most of the contents. Lord & Taylor brought suit to recover under COGSA for the lost goods.  Zim defended based on the Act of God exception in COGSA.  The Court agreed with Zim that the Act of God defense was applicable. For an Act of God defense, the carrier must prove that the damage was caused by an unexpected natural event and that the damage could not have been prevented with the exercise of reasonable care. The Court noted that while not all hurricanes are legally Acts of God, because they can be common in the waters at a given time of year, ones that cause “unexpected and unforeseeable devastation” are classic Acts of God. The key, then, is determining the foreseeability of the hurricane and the reasonableness of the actions the defendant took in response to that information.

The Court found that pre-storm predictions lacked sufficient reliability to have required additional actions by Zim and the terminal to save the cargo. There were wildly varying reports of where and when Sandy would make landfall, how strong it would be, and what sort of storm surge could be expected. Lord & Taylor argued that there were a number of actions the terminal should have taken to protect the cargo, asserting that the damage was foreseeable because some of the reports were using terms like “historic.” The Court disagreed, saying such descriptions were far too vague and did not provide the sort of specific information actually needed to protect the cargo from the damage sustained. Ultimately, there simply was insufficient time between when the weather services could provide high-confidence predictions and when Sandy hit  the terminal to actually move the cargo to safety.  Zim successfully demonstrated that Sandy ended up being much worse than even worst-case-scenario predictions.  Based on the weather predictions, most of the pre-storm preparations by the terminal had focused on securing the cargo from wind damage  The storm surge, which ended up causing most of the damage, was not predicted to pass the bulkhead at the terminal. As such, it was not considered a danger requiring the type of measures and precautions that Lord & Taylor asserted after the fact. Based on the unprecedented severity of Hurricane Sandy and the reasonableness of the precautions the terminal did take based on the best information available, the District Court found Zim and the terminal were entitled to the Act of God defense, not negligent and not liable for the cargo damage.

To read a copy of the District Court’s decision, click here.

For more information about the Court’s decision and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

In Guam Industrial Services, Inc. v. Zurich American Insurance Company, The United States Court of Appeals for the Ninth Circuit affirmed the District Court for the District of Guam’s grant of summary judgment in favor of Zurich American Insurance Company (“Zurich”)  and its denial of coverage for Guam Industrial Services’ (“Guam Shipyard”) insurance claims for the sinking of its dry dock.  Guam Shipyard filed claims on two insurance policies when its dry dock sank while being repaired so that it could be recertified. Guam Shipyard was seeking certification to fulfill a warranty in their hull and machinery insurance policy. Sinking with the dry dock were a number of sealed barrels and other containers of oil which the Coast Guard demanded be removed before recovery and salvage could begin, despite the fact that the containers never opened and no pollutants escaped. Zurich denied both claims; the first because Guam Shipyard did not have a certificate of any sort at the time of the sinking, and the second because there was no pollution as defined in the policy because none of the pollutants went in to the water.

The Ninth Circuit agreed with the District Court that the insurer Zurich was within their rights to deny the claims. Regarding the first claim, Guam Shipyard argued that, because Zurich had accepted commercial, rather than naval, certification in the past, they had waived their right to ask for naval certification. The Court, however, held that, while Zurich may or may not have waived their right to require Navy certification, they did not waive their right to ask for any sort of certificate.

As to the second claim, the Ninth Circuit also accepted Zurich’s argument that since the language of the policy was that it would cover costs of any damage caused by accidental “discharge, dispersal, release, or escape” of pollutants, Zurich was within their rights to deny coverage. The Court reasoned that, since it was only the containers that touched the environment, it could not be said that the oil had been discharged, dispersed, released, or escaped under those words’ “common meanings.” Because the words all had plain meanings and a dispute about applying them would create an ambiguity, the Court held that there was no imperative to construe the meaning of the terms in favor of the insured.

In a scathing dissent on the pollution coverage claim, Judge Kozinski excoriated Zurich for its “slimy conduct” in denying the claim from Guam Shipyard. He deemed it “absurd” to think that a rational dry dock owner would want an insurance policy that would pay based on the whether or not the container lets pollutants out right away or not. Whether it does or not, the company has to pay cleanup costs mandated by the Coast Guard, which was precisely what Guam Shipyard was seeking to have covered by their maritime pollution policy. He explained that “[i]f you slap a silk suit on a monkey, you still won’t want to take it to the prom. And if you pour crude oil into a barrel, you still won’t want it in your hot tub,” advocating for the need to look at the reality of the situation and giving contracts the intent of the parties.

To read a copy of the Ninth Circuit’s decision, click here.

For more information about the Court’s decision and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

The WISTA USA 2015 AGM and Conference was held Friday, May 15, 2015 and hosted by the New York/New Jersey Chapter of WISTA USA. The topics discussed included Emerging Challenges Facing Shipping.  For those not familiar with WISTA, the Women’s International Shipping and Trading Association,  is a networking organization for women at the management level in the maritime industry.

WISTA mission statement holds that WISTA shall:

• Facilitate the exchange of contacts, information and experiences among its members;
• Promote and facilitate the education of its members; and
• Provide liaison with other related institutions and organizations worldwide.

WISTA’s vision is that shall be acknowledged as a professional and highly reputable shipping organization with focus on improving levels of competency in the shipping industry and shall:

• Attract highly qualified people to the industry;
• Attract highly qualified people to the organization; and
• Improve level of competency through focus on education and knowledge.

A WISTA USA AGM, begins with leadership meetings the day before the official conference. On the day of the AGM, there is a business meeting for WISTA members only, which lasted approximately three (3) hours. The business of WISTA USA is discussed, items are voted on and chapters provide their chapter reports.  Michelle Otero Valdes, the head of the Chalos & Co, P.C. Miami office delivered the WISTA Florida chapter report, along with Lesley Karentz, co-president for WISTA Florida.

The morning AGM was followed by a lunch and afternoon conference presentations.  The Conference concluded with an AGM dinner at the India House. The India House came into being as an organization in 1914 when a group of businessmen headed by James A. Farrell, then president of United States Steel Company, in collaboration with Willard Straight, decided to create a meeting place for the interests of foreign trade.  Presidents of the Lackawanna Steel Company, Dollar Steamship Company, W.R. Grace Shipping, Chase National Bank, and United States Rubber all became Governors of India House and remained active during its first two decades. The dinner was held in the properly named “Marine Room”.

For more information on WISTA please visit their website here.  If you have questions regarding the conference, please contact Michelle Otero Valdes at mov@chaloslaw.com.

Chalos & Co, P.C. – International Law Firm is proud to announce that Kerri M. D’Ambrosio has been recognized as Super Lawyers Rising Star for maritime and transportation law and litigation in the New York Metro area.  Once a year, attorneys are invited to nominate their top colleagues, who they personally observed in action, to be recognized in Super Lawyers Magazine.  Each candidate is evaluated on twelve (12) indicators of professional achievement. The Rising Star distinction is based on this peer review process and is awarded to only the top 2.5% of attorneys under the age of 40.  Ms. D’Ambrosio is one (1) of only three (3) female maritime and transportation law practitioners to receive such a prestigious honor.

Ms. D’Ambrosio is a graduate of New York University and Hofstra University School of Law, cum laude, in May 2008.   Ms. D’Ambrosio was selected as the recipient of the Hofstra Law Review’s 2008 Kenneth S. Horton Award of Excellence for her service and dedication; is a member of the Maritime Law Association of the U.S. and serves on the Board of the Propeller Club for the Port of NY/NJ as Secretary.   She also serves on the Board of Directors for Arts for All; a non-profit organization dedicated to bringing the arts to underprivileged children throughout the New York City area.  Ms. D’Ambrosio is admitted to practice in the states of New York and Connecticut, as well as the Southern and Eastern Districts of New York, the District of Connecticut, the Southern District of Texas, and the Second Circuit Court of Appeals.

In Chirag v. MT Marida Marguerite, The United States Court of Appeals for The Second Circuit affirmed the United States District Court for the District of Connecticut, holding that the District Court correctly dismissed the case on forum non conveniens grounds and for lack of personal jurisdiction over the primary defendants.

Bahri Chirag (“Chirag”) and Dangwal Sandeep (“Sandeep”) sued the MT Marida Marguerite Schiffahrts (“MT Marida”), Marida Tankers, Inc. (“MTI”), and Heidmar, Inc. (“Heidmar”) under a variety of tort and regulatory compliance theories, all of which “arise under the Jones Act, and the General Maritime Law of the United States.”  In the fall of 2010, Somali pirates commandeered the MT Marida, in the Gulf of Aden, off the coast of Yemen. The MT Marida was a German owned and operated, Marshall Island flagged vessel, staffed by Indian crew members.  The vessel was sailing from India to Belgium at the time of its capture and remained under the control of Somali pirates for eight (8) months. The pirates tortured the crew in hopes of receiving ransom monies.  The plaintiffs, Chirag and Sandeep, were two of the Indian crew members that were held hostage aboard the MT Marida.

The District Court dismissed the complaint with respect to the MT Marida due to lack of personal jurisdiction.  First, the Second Circuit held that the District Court had not abused its discretion in denying jurisdictional discovery, as Plaintiffs had failed to even make a prima faciecase for jurisdiction over the MT Marida and held that there was no American interest in the case.   The Second Circuit found that the District Court correctly applied the law of the forum state, Connecticut to determine whether the Court had personal jurisdiction over the vessel.  The Due Process Clause requires that for personal jurisdiction to exist over a nonresident defendant, certain minimum contacts must exist between the nonresident and the forum state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.  The Second Circuit held there was “no plausible allegation that the MT Marida had sufficient continuous and systematic contacts with Connecticut that invoked the protections and benefits of Connecticut’s laws” and therefore the District Court did not err in dismissing the complaint against MT Marida.

The Second Circuit affirmed the District Court’s decision to dismiss the complaint with respect to MTI and Heidmar on forum non conveniens grounds.  Under Second Circuit law there are three (3) factors to consider when determining whether to dismiss a case for forum non conveniens. First, the Court must determine the degree of deference properly granted to the plaintiff’s choice of forum.  Second, the Court must consider whether the alternative forum proposed by the defendants is sufficient to adjudicate the issue. Third, the Court must balance the private and public interests implicated in the choice of forum. The Second Circuit held that the District Court properly found that the Plaintiff’s choice of forum should receive less deference because Plaintiffs are nationals and residents of India.  Furthermore, that an adequate and alternative forum exists in Germany as Defendants are amenable to process in Germany and the German courts are able to adequately adjudicate negligence claims.  Finally, the private and public interests weigh in favor of litigating the case in an alternative forum, given the fact that the documents, exhibits, witnesses, etc. are all located in foreign countries and that there  are no public factors in favor of maintaining a case which would require the application of foreign choice of law analysis and none of the parties, laws, or claims have a nexus to the United States.

To read a copy of the Second Circuit’s decision, click here.

For more information about the Court’s decision and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com

The U.S. Supreme Court has issued its decision in the closely watched case of Yates v. United States.  In a colorful opinion, rife with aquatic and fishing references, the Court ruled that grouper were not a “tangible object” under 18 U.S.C. 1519 (Sarbanes-Oxley).  Justice Ginsburg wrote for the plurality in a four-one-four decision, in which Justice Alito concurred in the holding only, but argued for a more narrow application of the Court’s opinion.

In August 2007, a federal agent conducted an inspection of Captain John Yates’ commercial fishing vessel in the Gulf of Mexico.  During the inspection it was determined that the catch contained undersized red grouper, purportedly in violation of applicable U.S. law and  regulation.  Captain Yates was instructed to keep the measured, undersized fish segregated from the catch, so that the fish could be processed in port.  When the vessel returned to port, the segregated fish did not match the previously recorded sizes and three (3) fish were missing completely.  Crew members admitted that Captain Yates had instructed them to throw the fish overboard, and they had replaced the segregated fish with other grouper that were closer in size to the permissible length requirements.

Prosecutors sought to convict Captain Yates of not only a violation of 18 U.S.C. § 2232(a), which makes it a crime to destroy or remove property to prevent seizure; but also obstruction of justice pursuant to 18 U.S.C. § 1519, for destroying, concealing, and covering up the undersized fish to impede a federal investigation.  Section 1519 was crafted by Congress in response to a perceived gap in the obstruction of justice statutes, which came to the forefront as a result of the Enron case.  The statute applies when an individual, “knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence” a federal investigation.  Federal prosecutors alleged that in this case, the grouper were a “tangible object” and therefore prosecution under § 1519 was warranted.  Captain Yates argued that the statute was a “documents offense”, and therefore should apply only to objects (like hard drives or logbooks), which are similar in nature to a document or record.  The District Court had misgivings about applying such an expansive reading to 1519, but ultimately followed Eleventh Circuit precedent and affirmed his conviction and sentenced Captain Yates to thirty (30) days in prison.  On appeal, the Eleventh Circuit affirmed, finding the language of the statute to be “plain.”

In reversing the Eleventh Circuit, Justice Ginsburg wrote that while a fish is no doubt an object that is tangible, for the Court to hold that § 1519 applies to “any and all objects”, would cut loose the statute “from its financial-fraud mooring.”  The Court applied various statutory construction canons including: “ordinary and plain meaning” of the words in the text; Congressional intent (as reflected by legislative history, statute caption, and other identifying factors); noscitur a sociis (the meaning of an unclear word or phrase to be governed by the words surrounding it); and ejusdem generis (in statutory construction, when a general word follows specific words, the general words are construed to embrace objects which are similar in nature to the preceding specific words). The U.S. Supreme Court’s ultimate conclusion was: “A tangible object captured by § 1519 . . . must be one used to record or preserve information.”

While the decision will serve to limit the federal government’s use of § 1519 in future prosecutions, the real key to the holding will be whether any of the Court’s statutory analysis can be applied in other contexts to not only challenge the overreach of criminal prosecutions, but also federal agencies and their broad interpretation of U.S. law and regulations.

For more information on the background of the case and additional legal issues of interest, check out  the prior blog posts by Michelle Otero Valdés (of the Chalos & Co Miami office) on the case here and here.

To read a copy of the U.S. Supreme Court’s decision, click here.

For more information about the decision and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

In a recent decision, the Ninth Circuit Court of Appeals affirmed the District Court’s award of summary judgment in favor of a shipowner, holding that the shipowner could not be held civily vicariously liable for damages caused by an employee’s assault of the Plaintiff/Appellant because the assault was not within the course and scope of the crew member’s employment.  Ferguson v. Horizon Lines, LLC, Docket No. 12-17748 (9th Cir. 2015)

In Ferguson, the Plaintiff, a security guard at an entry gate facility at the Port of Oakland, brought claims against Horizon Lines LLC (“Horizon”) arising from an 2010 assault and sexual harassment by Andrei Tretyak; a seaman working for and employed by Horizon.  Ferguson alleged claims against Horizon for, inter alia, vicarious civil liability, negligent hiring, and negligent supervision.  The District Court for the Northern District of California granted summary judgment in favor of Horizon on all of Ferguson’s claims and Ferguson appealed.  In affirming the District Court’s grant of summary judgment in favor of Defendant Horizon, the Ninth Circuit first determined that California law governed because the assault took place entirely on land- i.e. – at an entry gate facility at the Port. The Court next determined that to prevail on her vicarious claims against Horizon, Ferguson was required to present evidence proving that her assailant, Tretyak, was acting “within the scope of [his] employment” with Horizon when he assaulted her.  The Court noted that under California law, an intentional tort is considered “within the scope of employment” if it has a “casual nexus to the employees work” or was “an immediate outgrowth thereof.”  Because Tretyak’s actions were “the result of only propinquity and lust” and were not “fairly attributable to work-related events or conditions”, the Ninth Circuit concluded that the assault was not within the scope of his employment and, as such, Horizon could not be vicariously liable for same.

Although the Ninth Circuit relied on California state law in reaching its decision, the same standard (i.e. – whether the employee was acting within the course and scope of his/her employment) applies in imposing both criminal and civil vicarious liability in federal cases including, inter alia, cases involving alleged violations of the Act to Prevent Pollution from Ships (“APPS”) and related statutes.  The Ferguson decision confirms that the acts of crew members who violate company policies and/or otherwise act outside of the scope of their employment cannot give rise to civil or criminal vicarious liability on the ship owner and/or operator employing the crew member.  This is particularly significant in criminal maritime cases, where the burden of proof is higher and the prosecution must prove all elements of the offense beyond a reasonable doubt.

To read a copy of the Ninth Circuit’s decision, click here.

For more information about the Court’s decision and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

In a recent decision, the First Circuit Court of Appeals formally recognized the doctrine of uberrimae fidei (i.e. – “utmost good faith”) as an established principle of federal admiralty law and, finding that the appellant had violated this doctrine, affirmed the District Court of Puerto Rico’s findings that the appellant’s insurance policy had properly been voided by its marine insurer.  Catlin (Syndicate 2003) at Lloyd’s v. San Juan Towing and Marine Services, Inc., No. 13-2491 (1st Cir. 2015).

Catlin arose from 2011 sinking of the PERSEVERANCE; a floating drydock purchased by San Juan Towing and Marine Services, Inc. (“SJT”) in 2006.  At the time of SJT’s purchase of the PERSEVERANCE for USD 1,050,000 in 2006, the drydock was valued at USD 1,500,000.  SJT subsequently made improvements to the floating drydock which increased its value to USD 1,750,000.  The PERSEVERANCE was insured for this value with RLI Insurance Company (“RLI”) until RLI canceled the policy in February 2011; despite the drydock’s depreciation and SJT’s efforts to sell the PERSEVERANCE for more than USD 1 million less than its insured value.  Following RLI’s cancellation of the floating drydock’s insurance policy, SJT, through its broker, procured a marine insurance policy with Catlin.  SJT’s broker represented that the PERSEVERANCE’s prior insurance coverage was for USD 1,750,000, but did not provide any further information on the floating drydock’s value or condition.  The Catlin policy, which became effective in April 2011, insured the PERSEVERANCE for USD 1,750,000.  The floating drydock subsequently sank.  Refloating took nearly one (1) month to complete due to substantial rust and decay to the underside of the PERSEVERANCE, which SJT was aware of but had failed to disclose to Catlin at the time it sought coverage.  The drydock was ultimately sold for scrap, and SJT filed a claim with Catlin in the sum of USD 1,750,000; alleging the total loss of the vessel.

Catlin subsequently filed a declaratory judgment action against SJT, seeking to void the Policy under the doctrine of uberrimae fidei.  Under this doctrine, an insured must act with “utmost good faith” in applying for an insurance policy and disclose all known circumstances that would materially affect the insurer’s risk.  The District Court ultimately conducted a bench trial and concluded that SJT had failed to comply with the doctrine of uberrimae fidei in its application for the Policy and was therefore barred from recovery under the Policy.  SJT appealed.

On appeal, the First Circuit first considered whether federal admiralty law or local Puerto Rican law applied.  The Court recognized that the Jones Act grants Puerto Rico more power to legislate in the admiralty and maritime field than if it were a state and allows for Puerto Rican legislation that is inconsistent with federal admiralty law.  However, the Court rejected SJT’s argument that the Puerto Rican Code controlled as to whether representations made during negotiations to obtain coverage affected SJT’s ability to collect on the Policy, noting that the provision of the Puerto Rican Code relied upon by SJT expressly excluded ocean marine insurance.  Concluding that the Catlin Policy was an “ocean marine insurance policy” based on the Policy’s inclusion of “hull” coverage and the description of the PERSEVERENCE falling within this definition, the Court determined that the Policy was excluded from the Puerto Rican Code’s more lenient provisions regarding representations made during Policy negotiations.  Having concluded that federal admiralty law was to apply, the Court next considered whether the doctrine of uberrimae fidei was an established rule of admiralty law.  Citing policy reason and its own prior decisions in which it has applied uberrimae fidei, as well as the longstanding history and consistent application of the doctrine by the majority of the Circuit Courts, the Court held that uberrimae fidei is an established admiralty rule within the First Circuit.

Finally, the Court considered whether SJT had violated the doctrine of uberrimae fidei under the facts and circumstances of the case.  The Court determined that despite advertising that sale of the PERSEVERANCE at USD 800,000 in April 2011 – the same month the Catlin Policy took effect – SJT failed to disclose this fact; the true value of the floating drydock; what SJT paid for the floating drydock; or the level of deterioration of the drydock at the time that the Policy was sought.  The Court determined that these were material facts required to be disclosed to Catlin in applying for the policy, and that nondisclosure violated uberrimae fidei.  As such, the First Circuit affirmed the District Court’s ruling (but modified the decision to reflect that the insurance contract was deemed valid until voided at Catlin’s election, as opposed to voided ab initio as the District Court had held).

To read a copy of the First Circuit’s decision, click here.

For more information about the Court’s decision and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.