StarNet Insurance Company v. LA Marine Service LLC et al

Filing 62

ORDER AND REASONS granting 30 Motion for Partial Summary Judgment. Defendants' claims for statutory penalties and lay up damages are DISMISSED. Denying 57 Motion for Extension of Deadlines. Signed by Judge Sarah S. Vance on 8/14/2017. (cg)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
STARNET INSURANCE COMPANY
VERSUS

CIVIL ACTION
NO. 16-13511

LA MARINE SERVICE LLC AND
LEONARD JOURDAN, JR

SECTION “R” (3)

ORDER AND REASONS
Before the Court are plaintiff’s motion for partial summary judgment 1
and plaintiff’s motion for an extension of the dispositive motion deadline.2
For the following reasons, the Court grants the motion for partial summary
judgment and denies the motion for an extension of deadlines.

I.

BACKGROUND
This case arises out of the sinking of Defendant LA Marine Service

LLC’s vessel, the M/V CAPT. LJ.3 Defendant Leonard Jourdan, Jr. is the
owner of LA Marine Service. 4 Plaintiff StarNet Insurance Company supplied

1
2
3
4

R. Doc. 30.
R. Doc. 57.
R. Doc. 1 at 2-3.
Id. at 3.

Hull and Machinery coverage to the defendants to cover losses or damages
to the M/V CAPT. LJ for the policy period of September 24, 2015 to
September 24, 2016. 5
The M/V CAPT. LJ was afloat near Empire, Louisiana on April 7, 2016,
when it capsized and sank during the night.6 After being notified of the
sinking, plaintiff approved a salvage plan on April 8, 2016.7 The M/V CAPT.
LJ was refloated, and Austin Glass of Rivers and Gulf Marine Surveyors
conducted a survey of the vessel. 8 Glass’s preliminary report found that the
vessel was left unmanned overnight with the generator running, and
concluded that the vessel sank after the generator failed. 9 The report further
noted that the vessel’s stuffing boxes were believed to be leaking, and a bilge
pump was being used to keep water out of the vessel.10 After the generator
stopped running, the bilge pump lost power and water filled the engine
room. 11
On April 15, 2016, plaintiff issued a Reservation of Rights letter to LA
Marine asserting that the insurance policy would not cover losses caused by

5
6
7
8
9
10
11

Id. at 3; R. Doc. 30-2 at 1-30.
R. Doc. 30-2 at 32-33.
Id. at 45.
Id. at 32-43.
Id. at 32-33.
Id. at 32.
Id. at 33.
2

a vessel owner, through bad faith or neglect, knowingly permitting the vessel
to go to sea in an unseaworthy condition. 12 Plaintiff’s letter further stated
that, based on Glass’s preliminary survey report, the sinking of the M/V
CAPT. LJ may have resulted from a known leak that rendered the vessel
unseaworthy. 13
Plaintiff also requested information from LA Marine to assist in its
investigation of the claim, including maintenance records, accident reports,
and information about the leak and the operation of the generator and bilge
pump. 14 In response, LA Marine stated that no major maintenance was
performed on the M/V CAPT. LJ within the past year but that vessel parts,
pumps, and other items were replaced as needed.15 In June 2016, plaintiff
took a sworn statement from Leonard Jourdan and written statements from
two deckhands about the vessel’s sinking. 16
On July 28, 2016, a marine surveyor, Nicholas Paternostro, provided a
survey report on the M/V CAPT. LJ.17 Paternostro concluded that “the most
probable cause of the vessel’s sinking was the result of uncontrolled seawater

12
13
14
15
16
17

R. Doc. 30-2 at 49-50.
Id. at 51.
Id. at 53.
Id. at 55-57.
Id. at 63-67 and 71-72.
Id. at 75-98.
3

ingress into the vessel’s engine room through the packing gland assemblies;
however, it is not the result of a failure, but as a result of a lack of
maintenance and normal wear and tear.”18 On July 29, 2016, plaintiff
informed LA Marine Services that it would deny coverage related to the
sinking of the M/V CAPT. LJ because the incident was caused by the
unseaworthy condition of the vessel and a lack of proper maintenance. 19
On August 2, 2016, plaintiff filed a complaint for a declaratory
judgment that it does not owe insurance coverage for losses arising out of the
sinking of the M/V CAPT. LJ.20 Defendants filed an answer, affirmative
defenses, and a counterclaim requesting declaratory judgment and damages
arising out of plaintiff’s failure to provide coverage.21

Defendants further

assert that they are entitled to compensation under the insurance contract’s
“Lay-Up Return Clause,” which provides for payments for the time period
that a vessel is out of commission. 22

18
19
20
21
22

R. Doc. 30-2 at 97.
Id. at 99-103.
R. Doc. 1.
R. Doc. 13.
Id. at 13-15. See also R. Doc. 30-2 at 13.
4

Plaintiff now moves for partial summary judgment to dismiss
defendants’ counterclaims for statutory penalties and “lay up” payments.23
Plaintiff also moves for an extension of the dispositive motion deadline.24

II.

LEGAL STANDARD
Summary judgment is warranted when “the movant shows that there

is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986); Little v. Liquid Air Corp., 37 F.3d 1069,
1075 (5th Cir. 1994). When assessing whether a dispute as to any material
fact exists, the Court considers “all of the evidence in the record but refrain[s]
from making credibility determinations or weighing the evidence.” Delta &
Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398-99
(5th Cir. 2008).

All reasonable inferences are drawn in favor of the

nonmoving party, but “unsupported allegations or affidavits setting forth
‘ultimate or conclusory facts and conclusions of law’ are insufficient to either
support or defeat a motion for summary judgment.” Galindo v. Precision
Am. Corp., 754 F.2d 1212, 1216 (5th Cir. 1985); see also Little, 37 F.3d at

23
24

R. Doc. 30.
R. Doc. 57.
5

1075. “No genuine dispute of fact exists if the record taken as a whole could
not lead a rational trier of fact to find for the non-moving party.” EEOC v.
Simbaki, Ltd., 767 F.3d 475, 481 (5th Cir. 2014).
If the dispositive issue is one on which the moving party will bear the
burden of proof at trial, the moving party “must come forward with evidence
which would entitle it to a directed verdict if the evidence went
uncontroverted at trial.” Int’l Shortstop, Inc. v. Rally’s, Inc., 939 F.2d 1257,
1264-65 (5th Cir. 1991) (internal citation omitted). The nonmoving party can
then defeat the motion by either countering with evidence sufficient to
demonstrate the existence of a genuine dispute of material fact, or “showing
that the moving party’s evidence is so sheer that it may not persuade the
reasonable fact-finder to return a verdict in favor of the moving party.” Id.
at 1265.
If the dispositive issue is one on which the nonmoving party will bear
the burden of proof at trial, the moving party may satisfy its burden by
pointing out that the evidence in the record is insufficient with respect to an
essential element of the nonmoving party’s claim. See Celotex, 477 U.S. at
325.

The burden then shifts to the nonmoving party, who must, by

submitting or referring to evidence, set out specific facts showing that a
genuine issue exists. See id. at 324. The nonmovant may not rest upon the
6

pleadings, but must identify specific facts that establish a genuine issue for
trial. See, e.g., id.; Little, 37 F.3d at 1075 (“Rule 56 mandates the entry of
summary judgment, after adequate time for discovery and upon motion,
against a party who fails to make a showing sufficient to establish the
existence of an element essential to that party’s case, and on which that party
will bear the burden of proof at trial.”) (quoting Celotex, 477 U.S. at 322).

III. DISCUSSION
A. Partial Summary Judgment on Counterclaim
1. Statutory Penalties
Under Louisiana Revised Statutes § 22:1892 and § 22:1973, an insurer
may be liable for statutory penalties for failure to timely pay the amount of a
claim when the failure to pay is “arbitrary, capricious, or without probable
cause.” La. R.S. 22:1892; La. R.S. 22:1973. 25 To recover statutory penalties,
the insured “has the burden of proving that his insurer (1) received
satisfactory proof of loss, (2) failed to pay within the required time, and (3)
acted in an arbitrary and capricious manner.” Dickerson v. Lexington Ins.
Co., 556 F.3d 290, 297 (5th Cir. 2009). The Louisiana Supreme Court has

These provisions were previously numbered La. R.S 22:658 and La.
R.S. 22:1220, respectively. See Oubre v. Louisiana Citizens Fair Plan, 79
So. 3d 987, 990 n.1 (La. 2011).
7
25

explained that the “arbitrary or capricious” standard in both statutes
requires “vexatious refusal to pay,” and that these “statutory penalties are
inappropriate when the insurer has a reasonable basis to defend the claim
and acts in good-faith reliance on that defense.” Reed v. State Farm Mut.
Auto Ins. Co., 857 So. 2d 1012, 1021 (La. 2003).
As the insured party, defendants bear the burden of proof on a claim
for statutory penalties. Dickerson, 556 F.3d at 297. Defendants have not met
their burden in this case.

Plaintiff provided evidence that it promptly

initiated an investigation into the sinking of the M/V CAPT. LJ. and denied
the insurance claim only after receiving two survey reports that indicated the
vessel may not have been seaworthy at the time of the sinking. 26 Defendants
have not set forward any specific facts to challenge plaintiff’s timeline or the
content of the two survey reports.27
Defendants instead make several legal arguments that plaintiff acted
arbitrarily and capriciously. Defendants first contend that plaintiff lacked a
reasonable basis to deny coverage when it issued its April 15, 2016,
Reservation of Rights letter.28 But this letter was not a final denial of

R. Doc. 30-2 at 32-103.
Defendants attach both the Glass and Paternostro reports to their
memorandum in opposition. See R. Doc. 36-1 at 50-61; 90-113.
28
R. Doc. 36 at 1.
8
26
27

coverage.29 See Mosadegh v. State Farm Fire and Cas. Co., 330 F. App’x 65
(5th Cir. 2009) (finding that a reservation of rights letter is not a denial of
coverage). The letter instead informed LA Marine that the loss of the M/V
CAPT. LJ may not be covered and that plaintiff would be requesting
additional information to investigate the claim. 30 This represented the
beginning of plaintiff’s investigation, and is therefore not evidence of an
arbitrary or capricious failure to pay.
Defendants further argue that plaintiff lacked a reasonable basis to
deny coverage because seaworthiness was admitted in the insurance contract
and plaintiff failed to diligently inspect the vessel before issuing insurance.31
This argument is meritless.

The insurance contract includes a

“Seaworthiness Admitted Clause,” which states that “[t]he seaworthiness of
the vessels insured hereunder as between the Assured and the Assurer is
hereby admitted.”32 Defendants cite no authority for the proposition that
admitting the seaworthiness of a vessel at the time of issuance of insurance
precludes a defense that the vessel later became unseaworthy.

29
30
31
32

R. Doc. 30-2 at 49-52.
Id.
R. Doc. 36 at 2, 6.
R. Doc. 30-2 at 14.
9

Further, defendants’ interpretation of the insurance contract is
contrary to established law. The Fifth Circuit has explained that “federal
maritime law implies two warranties of seaworthiness in a time hull
insurance policy,” an absolute warranty of seaworthiness at the inception of
the policy and “a modified, negative warranty, under which the insured
promises not to knowingly send a vessel to sea in an unseaworthy condition.”
Employers Ins. of Wausau v. Occidental Petroleum Corp., 978 F.2d 1422,
1431-32 (5th Cir. 1992). The “American Rule” provides that, if a vessel owner
permits the “vessel to break ground in an unseaworthy condition,” the
insurer may deny coverage for “loss or damage caused proximately by such
unseaworthiness.” Saskatchewan Government Insurance Office v. Spot
Pack, Inc., 242 F.2d 385, 388 (5th Cir. 1957).
The “Seaworthiness Admitted Clause” of the contract is relevant to the
absolute warranty of seaworthiness at the inception of the insurance policy,
but there is no basis to believe that this provision waived the defendants’
continuing obligation not to send the vessel to sea in an unseaworthy
condition. The insurance contract includes a separate “Liner Negligence
Clause,” which explicitly excludes from coverage loss or damage that has
“resulted from want of due diligence by the Assured(s), the Owner(s) or

10

Manager(s) of the Vessel, or any of them.” 33 This provision indicates that
the contract preserved the plaintiff’s right under the “American Rule” to deny
coverage for losses that resulted from defendants’ negligence.

At a

minimum, plaintiff had reasonable grounds to believe that it could defend
against a claim on this basis. See Reed, 857 So. 2d at 1021.
There is also no merit to defendants’ argument that plaintiff should
have inspected the vessel before issuing coverage.

Under the implied

absolute warranty of seaworthiness, the insured bears the risk of loss if the
vessel is not seaworthy at the time of the contract. See Employers Ins. of
Wausau, 978 F.2d at 1433 (explaining that the insured is “best able to have
the vessel adequately prepared for th[e] voyage” and the warranty “place[s]
the risk of loss on the cheapest cost avoider”). Plaintiff therefore did not have
a general duty to ensure the seaworthiness of the vessel before issuing
coverage, and defendants do not point to any contractual provision that
would create such a duty.
Finally, defendants contend that plaintiff has not presented evidence
that defendants failed to exercise due diligence.34 But the subject of this
summary judgment motion is whether plaintiff had a reasonable basis to

33
34

R. Doc. 30-2 at 18-19.
R. Doc. 36 at 4.
11

deny coverage, not whether plaintiff will ultimately prevail on the merits of
its declaratory judgment claim. Defendants bear the burden of showing that
plaintiff is liable for statutory penalties, and they have failed to present any
evidence indicating that plaintiff’s failure to pay was arbitrary, capricious, or
without probable cause.
2. Lay Up Damages
Defendants also request compensation under the “Lay Up Return
Clause” of the insurance contract. 35 This provision provides for insurance
payments when a vessel “is laid up and out of commission and not under
repairs for which the Underwriters may be liable” (emphasis added). 36
Defendants represent that the M/V CAPT. LJ is being stored at Shipyard
Services in Venice, Louisiana.37 Plaintiff argues that defendants are not
entitled to lay up damages because the vessel is in line for repairs.38
Although defendants contend that the M/V CAPT. LJ is not under
repair,39 they do not provide an alternative explanation for why the vessel is
out of commission. Defendants instead acknowledge that “the only reason
the repairs have not been initiated is that StarNet has not paid for covered

35
36
37
38
39

R. Doc. 13 at 13-15.
R. Doc. 30-2 at 13.
R. Doc. 36 at 7; R. Doc. 36-1 at 114.
R. Doc. 30-1 at 13.
R. Doc. 36 at 2.
12

damages.”40 Plaintiff is seeking a declaratory judgment that it is not liable
for damage to the vessel, but it is undisputed that plaintiff may be liable for
repairs if it does not prevail in this action.
If defendants had paid for the repairs themselves, placed the vessel
back into commission, and later sought reimbursement from plaintiff for the
cost of the repairs, plaintiff would not be liable for lay up damages under the
contract. Defendants have the burden of proof on their counterclaim, and
have failed to present any facts or legal authority to support an entitlement
to lay up damages where a vessel is laid up for an extended period of time
only because of a failure to pay for repairs. Plaintiff is entitled summary
judgment on defendants’ claim for lay up damages.

B. Extension of Dispositive Motion Deadline
The deadline for the submission of dispositive motions in this matter
was May 10, 2017, requiring a filing date of April 25, 2017. 41 On June 2, 2017,
the Court continued the trial date but did not reset the motions deadline. 42
Trial is scheduled to begin November 13, 2017.43 Plaintiff now moves to

40
41
42
43

Id.
R. Doc. 16. See also Local Rule 7.2.
R. Doc. 47.
R. Doc. 58.
13

extend the dispositive motion deadline because it wishes to file a motion for
summary judgment. 44 Defendants oppose an extension of the deadline.45
Federal Rule of Civil Procedure 16(b) provides that “[a] schedule may
be modified only for good cause and with the judge’s consent.” Fed. R. Civ.
P. 16(b)(4). The “good cause standard requires the party seeking relief to
show that the deadlines cannot reasonably be met despite the diligence of the
party needing the extension.” S & W Enterprises, L.L.C. v. SouthTrust Bank
of Ala., NA, 315 F.3d 533, 535 (5th Cir. 2003) (internal citation omitted). In
making scheduling decisions, the Court’s “judgment range is exceedingly
wide,” for it “must consider not only the facts of the particular case but also
all of the demands on counsel’s time and the court’s.” HC Gun & Knife
Shows, Inc. v. City of Houston, 201 F.3d 544, 549-50 (5th Cir. 2000); see
also Versai Management Corp. v. Clarendon America Ins. Co., 597 F.3d 729,
740 (5th Cir. 2010).
Plaintiff asserts that it has good cause for an extension because it chose
not to file a motion for summary judgment in reliance on defendants’
representation that their expert’s report and testimony would create a
potential issue of fact. 46 In response, defendants argue that plaintiff had

44
45
46

R. Doc. 57.
R. Doc. 59.
R. Doc. 57-1 at 6.
14

ample time to depose the expert, Andrew Minster, before the Court’s
deadline.47

Defendants further contend that they will be prejudiced if

plaintiff is given another opportunity to move for summary judgment. 48
The Court finds that plaintiff has failed to show that the original
dispositive motion deadline could not reasonably be met despite due
diligence. Defendants’ counsel produced their Rule 26 expert disclosures by
email on March 21, 2017, identifying Andrew Minster and Austin Glass as
defense experts. 49

The following day, defendants’ counsel informed

plaintiffs’ counsel that Minster and Glass were available for deposition April
13, April 14, April 21, and April 24.50 Based on the email records before the
Court, plaintiff’s counsel did not respond until April 10, 2017, and asked to
schedule Glass’s deposition for April 24. 51 Plaintiff states that it did not
depose Minster at this time because only Glass had issued an expert report.52
Plaintiff represents that, after Glass’s deposition, defendants’ counsel
informed plaintiff’s counsel that defendants intended to rely on the expert
opinion of Minster and that Minster would issue a supplemental report. 53

47
48
49
50
51
52
53

R. Doc. 59 at 2-3.
Id. at 1.
R. Doc. 59-1 at 1.
Id. at 3.
Id. at 4-6.
Id.
R. Doc. 57-1 at 3-4.
15

This conversation purportedly occurred on April 24, 2017, the day before the
deadline to file dispositive motions.54 Minster did not submit an expert
report, and he testified in his May 30, 2017, deposition that he was not asked
to issue any additional reports.55
The Court is not persuaded that defendants’ purported representations
regarding Minster’s expert testimony prevented plaintiff from meeting the
dispositive motion deadline. Plaintiff was on notice as of March 21, 2017,
that defendants planned to use Minster as an expert but did not attempt to
depose him before the dispositive motion filing deadline. 56

Although

plaintiff submits email correspondence demonstrating its efforts to schedule
Minster’s deposition and ascertain whether he would submit an expert
report, all this correspondence took place after the filing deadline.57
Moreover, the deadline for the defendants to submit expert reports in this
matter was April 10, 2017.58 Plaintiff was free to submit a dispositive motion
by the Court’s deadline and then challenge any possible new report by
Minster as untimely.

Id. at 3.
R. Doc. 57-2 at 24.
56
Plaintiff also had the option to depose Austin Glass earlier in April,
but chose to schedule his deposition for the day before the dispositive
motion filing deadline.
57
Id. at 7-14.
58
R. Doc. 16
16
54
55

Given the absence of good cause for an extension, the Court will not
reset the dispositive motion deadline.

IV.

CONCLUSION
For the foregoing reasons, plaintiff’s motion for partial summary

judgment is GRANTED. Defendants’ claims for statutory penalties and lay
up damages are DISMISSED. Plaintiff’s motion for an extension of deadlines
is DENIED.

New Orleans, Louisiana, this _____ day of August, 2017
14th

_____________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE

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