Dismissal of Maritime Contract Claims Reversed
On November 15, 2024, the United States Fifth Circuit Court of Appeals, in the case Barrios v. Centaur, reversed a judgment dismissing two maritime breach of contract claims. This ruling is significant because it clarifies how two repugnant insurance policy escape clauses should be treated under Louisiana law. It also underscores the importance of securing the exact insurance coverage required by contract.
A. Background
In 2015, Centaur entered into a master service contract ("MSC") with United Bulk Terminals Davant, LLC ("UBT”). Centaur employs construction workers and UBT owns a dock facility on the lower Mississippi River. UBT hired Centaur to build a concrete retaining wall around their dock. River Ventures is an owner/operator of crew boats that provided vessel transportation for Centaur employees working on the dock project. Centaur employee Devin Barrios was injured while transferring a generator from a River Ventures vessel to a barge leased by Centaur. Barrios sued River Ventures for personal injury. The court found River Ventures 100% at fault for the accident and awarded Barrios $3.3 million. River Ventures satisfied the judgment.
B. River Ventures' Suit Against Centaur
The MSC between UBT and Centaur imposed insurance procurement obligations on Centaur in connection with the dock project. The insurance requirements were designed to mirror Centaur's obligation to indemnify River Ventures for all claims brought for personal injury of a Centaur employee regardless of fault. River Ventures sued Centaur for breach of contract as a third-party beneficiary. River Ventures' first contractual claim was for failure to obtain a protection and indemnity ("P&I") policy with coverage "not less than the P&I SP-23 (revised 1/56) form of policy." It argued that Centaur had to obtain a P&I policy that included crew/employee coverage for personal injury. The second contractual claim was for failure to obtain an excess/bumbershoot insurance policy without a sole fault exclusion. The district court held a bench trial and dismissed River Ventures' claims because there was no breach regarding the duty to procure the underlying P&I policy. The court found that the insurance obligations in the MSC were ambiguous and duplicative. Further, the P&I policy and the Worker's Compensation policy each had escape clauses that would be triggered, resulting in no coverage under either policy. River Ventures appealed.
C. Discussion
The U.S. Fifth Circuit reversed noting that when there are two mutually repugnant escape clauses and Louisiana law is applied the insurers share liability in proportion to the limit of its respective policy. The Court also found the MSC clearly and explicitly obligated Centaur to secure P&I coverage for crew/employee personal injuries and an excess liability policy following form with underlying coverages and "any endorsement naming [River Ventures and its vessels] as additional insureds shall not exclude from coverage the sole negligence of the Additional Insured." The Centaur P&I policy excluded coverage for crew/employee personal injuries and its excess/bumbershoot policy excluded "any claims for liability arising out of the sole fault or sole negligence of the Additional Insured." The district court's contrary conclusion was reversed.
D. Why is this important?
1. From the start it is important to understand exactly what insurance coverages, if any, your company is contractually obligated to obtain pursuant to a master service contract.
2. Understanding how your company's marine insurance policies are endorsed is important.
3. Periodically reviewing your MSCs and corresponding insurance policies for coverage compliance and/or shortfalls could help you identify and correct problems in advance of a casualty.