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Guam Industrial Services, Inc. v. Zurich American Insurance Co.

United States Court of Appeals, Ninth Circuit

June 1, 2015

GUAM INDUSTRIAL SERVICES, INC., DBA Guam Shipyard; MATHEWS POTHEN, Plaintiffs-Appellants,
v.
ZURICH AMERICAN INSURANCE COMPANY, a corporation; STARR INDEMNITY AND LIABILITY COMPANY, a corporation, Defendants-Appellees,
v.
UNITED STATES OF AMERICA, Defendant

Argued and Submitted, Hagatna, Guam August 27, 2014.

Page 1002

Appeal from the United States District Court for the District of Guam. D.C. Nos. 1:11-cv-00014, 1:11-cv-00031. Frances Tydingco-Gatewood, Chief District Judge, Presiding.

SUMMARY[*]

Insurance Law

The panel affirmed the district court's summary judgment in favor of defendant insurance companies concerning coverage under two policies issued to Guam Industrial Services, Inc., arising out of the sinking of a dry dock, loaded with barrels of oil, during a typhoon on Guam.

The Hull and Machinery Policy covered damage to the dry dock, and required as a condition of coverage that Guam Industrial obtain and maintain Navy Certification for the dry dock. The panel held that strict compliance with marine insurance policy warranties was required, even when the breach of warranty did not cause the loss. The panel applied that law to the facts, and concluded that Guam Industrial failed to comply with the Navy Certification warranty.

The Ocean Marine Policy covered liability for property damage caused by pollutants. It was undisputed that no oil leaked out of the containers and into the water in the harbor. The panel held that because there was no actual discharge of pollutants, even though the containers of oil were submerged after the sinking of the dry dock, Guam Industrial's costs of retrieving the containers from the sea were not covered by the policy's allowance of coverage for cleanup after the " discharge, dispersal, release, or escape" of pollutants.

Judge Kozinski dissented in part, and would find that pollutants were " discharged, dispersed, and released" from the dry dock under the Ocean Marine Policy.

Helkei S. Hemminger (argued) and David P. Ledger, Cabot Mantanona LLP, Tamuning, Guam, for Plaintiffs-Appellants.

Marilyn Raia and Andrew B. Downs (argued), Bullivant Houser Bailey PC, San Francisco, California, for Defendants-Appellees.

Before: Mary M. Schroeder, Alex Kozinski, and N. Randy Smith, Circuit Judges.

OPINION

Page 1003

PER CURIAM:

This insurance coverage case arises out of the sinking of a dry dock, loaded with barrels of oil, during a typhoon on Guam. The issues pertain to whether either of two insurance policies covered costs of damage to the dock and the clean up which was accomplished before any of the oil leaked out of the containers into the Pacific Ocean.

Guam Industrial Services, Inc. (" Guam Industrial" ) owned the dry dock. At the time of the sinking, one of its insurance policies covered damage to the dock, and one covered liability for property damage caused by pollutants. After the dock sank, Guam Industrial filed a claim under each policy. The insurers denied the claims, and Guam Industrial brought suit. The district court granted summary judgment for the insurers, finding that the first policy was voidable because Guam Industrial had failed to maintain the warranty on the dock, and that the coverage under the second policy was never triggered because no pollutants were released. Guam Industrial and its CEO, Mathews Pothen, appeal. We affirm.

BACKGROUND

Guam Industrial owned and operated a dry dock called the Machinist, located in Apra Harbor, Guam. The dry dock sank on January 2, 2011. Guam Industrial had insured the dry dock under two policies: a Hull and Machinery Policy, which was underwritten collectively by Zurich American Insurance Company (" Zurich" ) and Starr Indemnity and Liability Company (" Starr" ), and an Ocean Marine Policy, which was underwritten by Zurich alone.

The Hull and Machinery Policy covered damage to the dry dock resulting from certain specified " perils" that included lightning, earthquake, pirates, assailing thieves, and various types of accidents and malfunctions. As a condition of coverage, the policy required Guam Industrial to obtain and maintain Navy Certification for the dry dock (" the Navy Certification warranty" ). Such certification ensures that the dock has satisfied a certain level of structural integrity. It is the highest standard in the industry.

It appears, however, that Guam Industrial never obtained Navy Certification. Instead, Guam Industrial obtained " commercial" certification from a company called Heger Dry Dock, Inc. In October 2010, that commercial certification expired. Heger Dry Dock informed Guam Industrial that it would not renew the certification unless Guam Industrial undertook significant repairs. Guam Industrial then took the dry dock out of commission to conduct these repairs. The dock sank while it was undergoing the repairs.

When the dry dock sank, it took with it various containers in which were stored approximately 113,000 gallons of oil. None of the containers were breached, however. Following the incident, the Coast Guard issued a letter informing Guam Industrial that it had to remove the sunken containers holding the oil or face the possibility of fines and strict liability for any contamination to the surrounding waters. Guam Industrial ...


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