Danos Marine Inc, et al v. Lloyd's London, et al

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Danos Marine Inc, et al v. Lloyd's London, et al

Doc. 0

Case: 09-30378

Document: 00511187329

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Date Filed: 07/28/2010

IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
July 28, 2010 N o . 09-30378 Lyle W. Cayce Clerk

D A N O S MARINE INC; DANOS & CUROLE MARINE CONTRACTORS, LLC, P la in t iffs ­ Appellants Cross-Appellees v. C E R T A I N PRIMARY PROTECTION AND INDEMNITY UNDERWRITERS, S u b s c r ib in g Severally to Policy Number C0I-3400773; CERTAIN EXCESS P R O T E C T I O N AND INDEMNITY UNDERWRITERS, Subscribing Severally t o Policy Number BO702/LF0-21040T, D e fe n d a n t s ­ Appellees Cross-Appellants

A p p e a l from the United States District Court for the Eastern District of Louisiana

B e fo r e HIGGINBOTHAM, DAVIS and BENAVIDES, Circuit Judges. W . EUGENE DAVIS, Circuit Judge: A p p e l l a n ts filed this suit to recover costs of wreck removal from P&I u n d e r w r it e r s of the liftboat ANDRE DANOS resulting from the capsizing and s in k in g of that vessel in the Gulf of Mexico during Hurricane Katrina. The d is t r ic t court found that the wreck removal costs were covered by the policy but t h a t the value of the salvage of the sunken vessel exceeded the removal costs and d e n ie d recovery.

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No. 09-30378 W e agree that the costs of removing the wreck are covered but disagree t h a t the value of the salvage exceeded those costs. For reasons that follow, we r e v e r s e and remand for further proceedings. I P la in t iff-A p p e lla n t Danos Marine, Inc. ("Danos Marine") is a Louisiana c o r p o r a t io n owned by Allen Danos. Danos Marine owned two liftboats, ANDRE D A N O S and SARAH DAVID. Plaintiff-Appellant Danos & Curole Marine

C o n t r a c t o r s , LLC ("Danos & Curole") is a Louisiana limited liability company o w n e d by Allen Danos and his brother, Hank Danos.1 Danos & Curole was the b a r e b o a t charterer and operator of the liftboat ANDRE DANOS. The bareboat c h a r te r agreement required Danos & Curole to obtain insurance on ANDRE D A N O S . The charter also required Danos & Curole to return ANDRE DANOS t o Danos Marine in the same condition as when the charter commenced. Danos & Curole purchased Protection & Indemnity ("P & I") insurance from the U n d e r w r ite r s , the Defendants-Appellees. The P & I policy, which included both D a n o s companies as named insureds, included coverage for wreck removal e x p e n s e s . The hull of ANDRE DANOS was insured by a different insurer for $ 3 , 2 8 5 , 0 0 0 , with a deductible of $1,000,000. Danos & Curole owned six

lift b o a ts , which it operated in addition to the ANDRE DANOS and the SARAH D A V ID . In 2004, Allen and Hank Danos decided to sell all eight liftboats and r e la t e d assets owned by the two Danos companies. They hired an investment b a n k e r to present a bid proposal package to prospective purchasers. ANDRE D A N O S was appraised for $4,000,000, and SARAH DAVID was appraised for $ 4 ,7 0 0 ,0 0 0 . On August 24, 2005, Hercules, a liftboat operator, submitted the h ig h e s t bid, $42,000,000 for all vessels and related assets. The Danos companies

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The plaintiffs' companies are collectively referred to as the "Danos' companies."

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No. 09-30378 c o u n t e r e d at $45,000,000, and Hercules conditionally accepted the counter -offer. In that counter-offer Hercules conditionally agreed to pay the appraised value o f $4,000,000 for the ANDRE DANOS and $4,700,000 for the SARAH DAVID to t h e boats' owner, Danos Marine. The remainder of the purchase price was to be p a id to Danos & Curole. The next day Hurricane Katrina hit the Louisiana coastline and capsized t h e ANDRE DANOS. Shortly after the storm, Hercules and the Danos' c o m p a n ie s resumed negotiations. At that point, although the parties knew that A N D R E DANOS suffered damage, the value of the boat could not be ascertained b e c a u s e it was still submerged. Relatedly, the appellants offered evidence that t h e widespread damage to oilfield equipment in the area drove up the prices of o p e r a t in g liftboats, including the appellants' seven other liftboats. According to t h e appellants, although ANDRE DANOS obviously lost value, the other seven lift b o a ts appreciated in value due to the destruction of liftboats and other oilfield e q u ip m e n t along the coastline as well as increased demand for this equipment. In other words, the resumed negotiations not only entailed subtracting value fr o m the bid due to the sinking of ANDRE DANOS, the negotiations also i n c l u d e d adding value to the other seven liftboats because their market value h a d increased due to the change in supply and demand for liftboats after the h u r r ic a n e . The parties' negotiations post-Katrina ultimately resulted in an agreed purchase price of $44,000,000 for all eight vessels. In the Amended Purchase A g r e e m e n t (APA), Hercules agreed: (1) to pay $500,000 toward the cost of r a is in g the capsized boat; and (2) to reimburse Danos $1,000,000 for the d e d u c tib le with respect to the hull policy on ANDRE DANOS. Although ANDRE D A N O S was still submerged at the time of the agreement, the APA contained a schedule that allocated the purchase price among the eight vessels, listing the p u r c h a s e price of "L/B Andre Danos" as $500,000. Additionally, the parties 3

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No. 09-30378 a d d e d Article 6.8 to the agreement to treat the transfer of ownership of ANDRE D A N O S in a different manner than the other seven liftboats, which were to be t r a n s fe r r e d to Hercules at the closing of the transaction. They agreed to transfer t h e ownership of ANDRE DANOS on the date repairs were completed or at the c lo s in g , whichever occurred later.2 O n October 17, 2005, Danos & Curole obtained a survey report indicating t h a t the wrecked ANDRE DANOS "has no value as it lies, capsized and partially s u n k in the Gulf of Mexico and is most likely a liability;" however, "[a]ssuming t h a t the vessel is salvaged under the current `No Cure, No Pay' contract, it is the o p in io n of the undersigned that the hull and salvaged appurtenances would have a n estimated value in the range of $450,000 depending upon the extent of s a lv a g e related damage." Prior to closing, Hercules inquired of Hank Danos as

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Specifically, Article 6.8 provided as follows: Andre Danos. The Sellers agree that they will, as soon as is reasonably practical following the date of this Agreement, salvage and repair (to the extent it is not a Total Loss) the Andre Danos. The Sellers shall use their commercially reasonable best efforts to pursue their insurance claims. If the vessel is not a Total Loss, the Sellers shall cause the Andre Danos to be repaired in a reputable shipyard, to be mutually agreed to by the Buyer and the Sellers, and shall apply all available insurance proceeds toward the repair of the Andre Danos. Once insurance proceeds are completely expended, should additional repairs to the Andre Danos be required, Buyer will be responsible for finding such repairs. If it is determined that the damage to the Andre Danos suffered during Hurricane Katrina and/or during the salvage operation has resulted in the vessel being a Total Loss, then the Purchase Price shall be adjusted downward by an amount equal to the total insurance proceeds paid by the Sellers with respect to the Andre Danos. If the full Purchase Price has already been paid, then the Sellers will reimburse the Buyer for any amounts that would have been deducted from the Purchase Price under the previous sentence. Nothing in this Section 6.8 will affect the Buyer's obligation to pay the salvage costs of the Andre Danos and to pay the deductible under the Sellers' applicable insurance policies, as provided in Section 1.3 hereof. Notwithstanding anything to the contrary set forth herein, delivery of the Andre Danos shall occur on the later to occur of (1) the Closing, and (2) upon completion of such repairs. The Sellers shall deliver, and the Buyer shall accept, the Andre Danos in federal or international waters in the Gulf of Mexico.

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No. 09-30378 t o how the Danos companies wanted the purchase price divided between Danos M a r in e , Inc. and Danos & Curole Marine Contractors, LLC. Hank Danos in s t r u c t e d Hercules to divide the funds as per the pre-Katrina agreement. The s a le closed on November 8, 2005. At that time, ANDRE DANOS had not been r e m o v e d from the Gulf of Mexico. O n September 5, 2005, in an attempt to recover ANDRE DANOS, Danos & Curole entered into a salvage contract with Coral Marine. Coral Marine a t t e m p t e d to salvage the vessel but Hurricane Rita slammed into the Gulf, s h u tt in g down salvage operations. Rita caused the vessel to shift in such a p o s it io n that Coral Marine's equipment was inadequate to remove it. After Rita s t r u c k , none of the vessel was showing above the surface of the Gulf; it was s u b m e r g e d approximately six feet below the surface. Coral Marine hired Don J o n Marine to remove the wreck. On October 19, Don Jon brought the boat to t h e surface, but the slings broke and the boat sank to the ocean floor. Eventually, on May 16, 2006, Danos & Curole contracted with Bisso Marine Inc. t o remove the vessel. On May 28, Bisso brought the wrecked vessel to shore. Danos & Curole attempted to sell it for scrap, but the cleaning costs were p r o h ib itiv e . Instead, Danos & Curole had to pay Larose Salvage & Scrap

$ 1 5 0 ,0 0 0 to dispose of the wreck. The total cost of removal, including the m a r k in g , raising and disposing of the wreck, was $2,049,911.22. Pursuant to the APA, because ANDRE DANOS was a total loss, Danos & C u r o le refunded $785,000 to Hercules. This amount represented the insurance p r o c e e d s ($2,285,000) minus the deductible ($1,000,000) and Hercules' share of s a lv a g e costs ($500,000), all as agreed to in the APA. The Danos' companies filed a claim with the Defendant-Appellee U n d e r w r ite r s for the costs of removing the wreck, and the Underwriters denied covera g e . The Danos' companies then filed suit against the Underwriters,

s e e k in g $2,040,911.22 for the costs of removal. The Danos' companies filed a 5

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No. 09-30378 m o t io n for partial summary judgment, seeking a ruling that removal costs of the w r e c k were covered under the policy. The Underwriters filed a cross motion for s u m m a r y judgment, seeking a ruling that coverage was not afforded for these e x p e n s e s because the removal was not compulsory and alternatively that the a m o u n t Danos received for the vessel from Hercules exceeded the removal costs. The court granted Danos' motion in part, ruling that the plaintiffs had a nond e le g a b le duty to remove the vessel because it was an obstruction and therefore t h e policy covered costs of wreck removal. The court also granted the

U n d e r w r ite r 's motion in part, holding that Danos sold the wrecked vessel for $ 4 ,0 0 0 ,0 0 0 and because this exceeded the cost of removing the wreck, Danos was n o t entitled to any recovery. The court then entered a take nothing judgment in fa v o r of the defendants. The Danos' companies filed a timely notice of appeal a n d the Underwriters cross-appealed. II T h is appeal requires us to interpret and apply to the facts of this case the fo llo w in g provision in defendant's P&I policy which states that it will indemnify t h e insureds for: L ia b ilit y for cost or expense of, or incident to, the removal of the w r e c k of the vessel named herein when such removal is compulsory b y law, provided, however, that: (a) There shall be deducted from such claim for cost or expenses, the v a lu e of any salvage from or which might have been recovered from t h e wreck, inuring, or which might have inured, to the benefit of the A ssu red. M o r e specifically, the questions are: (1) whether the removal of the

w r e c k e d vessel from the Gulf of Mexico was "compulsory by law"; and (2) what, if any, of the funds involved in the Appellants' sale of the liftboats to Hercules

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No. 09-30378 c o n s t it u t e "value of any salvage" recovered from the wreck to be deducted from t h e removal costs. A T h e district court granted a partial summary judgment, holding that the r e m o v a l of the ANDRE DANOS was "compulsory by law." This Court, sitting en b a n c , has previously interpreted this particular phrase contained in an in s u r a n c e policy in a suit to recover the costs of removal of a wrecked vessel. See C o n tin e n ta l Oil Co. v. Bonanza Corp., 706 F.2d 1365 (5th Cir. 1983) (en banc). Like the instant case, in Bonanza, the policy extended coverage for the expenses i n v o lv e d in removal of a wrecked vessel "only when removal is compulsory by la w ." Id. at 1369. This Court rejected the Second Circuit's position that the p h r a s e "compulsory by law" was a term of art that meant that removal was c o v e r e d only when a governmental body orders such removal. Id. (citing

S e a b o a r d Shipping Corp. v. Jocharanne Tugboat Corp., 461 F.2d 500, 504 (2d C ir . 1972)). Instead, this court concluded that the words should be "construed in their plain, ordinary, and popular sense." Id. (internal quotation marks and c it a t io n s omitted). Ultimately, to determine whether a removal was legally c o m p e lle d , this court adopted a test that asked whether a reasonable insured w o u ld have effected a removal. This Court determined that removal is

c o m p u ls o r y "when a reasonable owner, fully informed, would conclude that fa ilu r e to remove would likely expose him to liability imposed by law sufficiently g r e a t in amount and probability of occurrence to justify the expense of removal." Id. at 1372. T h e district court concluded that the Appellants had a compulsory o b lig a t io n under the Wreck Act to remove the capsized vessel. The district court r e lie d on 33 U.S.C. § 409, which provides that "whenever a vessel . . . is wrecked a n d sunk in a navigable channel, . . . it shall be the duty of the owner, lessee, or o p e r a t o r of such sunken craft to commence the immediate removal of the same." 7

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No. 09-30378 T h e Wreck Act "addresses the problem of obstructions caused by sunken v e s s e ls ." Univ. of Tx. Med. Branch at Galveston v. United States, 557 F.2d 438, 4 4 4 (5th Cir. 1977); see 33 U.S.C. §§ 409, 411, 412, 414, and 415. Congress's p u r p o s e in enacting the Wreck Act was "`the protection of other vessels plying t h e same waters' as the sunken vessels." In re Southern Scrap Material Co., 541 F .3 d 584, 588 (5th Cir. 2008) (quoting United States v. Raven, 500 F.2d 728, 732 (5 t h Cir. 1974)). As Cross-Appellants, the Underwriters argue that the Wreck Act does not im p o s e a compulsory obligation to remove a wrecked vessel in every instance and t h a t whether a reasonable owner would have removed the wreck is a question o f fact. As set forth above, in this circuit, an order by a governmental authority is not necessary to demonstrate that a removal is compulsory by law. Although t h e Underwriters argue that a fact issue is presented as to whether it was r e a s o n a b le for the Appellants to effect the removal, the Underwriters do not p o in t to any disputed fact. For instance, with respect to the requirements of § 4 0 9 of the Wreck Act, the Underwriters do not dispute either that ANDRE D A N O S had sunk or that it sunk in a navigable channel. The Underwriters also contend that the Wreck Act does not impose a duty o f removal on former owners or former operators of vessels. Thus, the

U n d e r w r it e r s assert that the plain language of the statute demonstrates that fo r m e r owners or operators have no obligation to remove a vessel under the W r e c k Act. W e need not address this legal argument because viewing the facts in the lig h t most favorable to Appellants, the amended purchase agreement makes c le a r that the ownership of ANDRE DANOS did not transfer to Hercules until t h e later of the Closing of the sale or repair of the ANDRE DANOS. Since the v e s s e l was never repaired, ownership was never transferred from Appellants to

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No. 09-30378 H e r c u le s . r a ise d . I n sum, the district court correctly determined that a reasonable, fully in fo r m e d owner (Danos Marine) would conclude that failure to remove ANDRE D A N O S would likely expose him to liability pursuant to the Wreck Act and ju s tify the expense of removal. See Bonanza, 706 F.2d at 1372. The Thus, Danos Marine was the owner of the vessel when she was

U n d e r w r ite r s have therefore failed to demonstrate that the district court erred in determining that the Wreck Act imposed a compulsory obligation on Danos M a r in e to remove the sunken vessel. B A fte r determining that the removal was compulsory by law, the district c o u r t next had to determine whether any salvage value was recovered from the w r e c k pursuant to the P & I policy. As previously set forth, the P&I policy p r o v id e d that: "There shall be deducted from such claim for cost or expenses, t h e value of any salvage from or which might have been recovered from the w r e c k , inuring, or which might have inured, to the benefit of the Assured." It is u n d is p u t e d that ANDRE DANOS was a total loss when it was recovered from t h e sea and Danos Marine was unable to sell the wreck for scrap. In fact, Danos & Curole had to pay $150,000 to have the wreck taken to the scrap yard. T h e district court concluded that the wrecked ANDRE DANOS had a value o f $4,000,000­its pre-hurricane appraisal and the amount allocated to the p u r c h a s e of that vessel­ and because this sum exceeded the cost of removing the v e s s e l, plaintiffs were entitled to no recovery. Since it is uncontested that when t h e ANDRE DANOS was finally raised it had a negative value, the question n a r r o w s to what relevance, if any, should we attach to the sums allocated to the p u r c h a s e price of the ANDRE DANOS in determining the "value of any salvage" r e c o v e r e d from the wreck of the ANDRE DANOS. In other words, in

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No. 09-30378 fr o m costs of wreck removal, do we look to the actual amount recovered for the r e c o v e r e d wreck or do we look to the amount of the purchase price allocated by t h e Danos' companies for the purchase price of the ANDRE DANOS? U n d e rw riters point to the evidence that the appellants received $4,000,000 o f the total purchase price for the ANDRE DANOS which was the same value a llo c a t e d to this vessel before the hurricane and before she sank.3 The district c o u r t relied on this fact to establish the value of the "salvage recovered from the w r e c k ." The district court stated "[t]here is nothing in the APA to reflect

o t h e r w is e ." This statement is incorrect. The APA contained a schedule that a llo c a t e d the purchase price of the eight vessels and listed the purchase price of " L /B Andre Danos" as $500,000. On the other hand, appellants contend that the district court erred in its e v a lu a tio n because none of the money paid by Hercules to Danos Marine c o n s t it u t e d "value of any salvage recovered from the wreck." The plain language o f the policy supports this argument as the provision allows a credit from the c o s t s of removal, "the value of any salvage . . . recovered from the wreck," "Salvage" has been defined as: "The property saved or remaining after a fire or o t h e r loss, sometimes retained by an insurance company that has compensated t h e owner for the loss." BLACK'S LAW DICTIONARY 1457 (9th ed. 2009). Applying t h is definition, the value of the property remaining after the loss of ANDRE D A N O S was zero. See also L. Buglass, Marine Insurance and General Average in the United States, 386 (2d ed. 1981) (explaining that "[c]redit is to be given for t h e value of any salvage recovered as a result of the removal").

The Danos' companies explain that this allocation was used because the charter agreement provided that Danos & Curole must insure or return the ANDRE DANOS to Danos & Marine. Although the Underwriters attempt to discredit this explanation, ultimately their brief acknowledges that the allocation was "to resolve a potential breach of charter claim." Red brief at 55.

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No. 09-30378 I n determining the value of the salvage, the terms of the policy control. The policy plainly allows the insurer a credit only for the value of the salvage r e c o v e r e d from the wreck, i.e., the value of the recovered property. The economic reality in this transaction is clear: Hercules wanted seven flo a t in g , fully operational liftboats and agreed on a price of $44,000,000 for those b o a t s . Two brothers owned the entities which owned the vessels and they d e c id e d for their own reasons, how to allocate the price for the eight vessels. This decision was an internal one between these two family businessmen and is ir r e le v a n t to the determination of the "value of the salvage" of the wreck ANDRE DAN OS. III W e agree with the district court that the plaintiffs had an obligation under t h e Wreck Act to remove the wreck of the ANDRE DANOS and that plaintiffs in c u r r e d removal expenses in the amount of $2,049,911.22. We conclude,

h o w e v e r , that the district court erred in allowing any credit against the cost of r e m o v in g the wreck because plaintiffs recovered nothing from the recovered p r o p e r t y . We therefore vacate the take nothing judgment and remand this case t o the district court for further proceedings consistent with this opinion. V A C A T E D and REMANDED.

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