A Tow or Not a Tow - that is the question (with much broader implications)

Yesterday the Fifth Circuit Court of Appeals analyzed whether the Hull & Machinery insurer, or the Protection and Indemnity insurer provided coverage for an assisting tug that allided with a bridge fender system and then sank. BUT THIS CASE IS NOT JUST ABOUT MARITIME INSURANCE! I promise - if you can hang in there until the end you'll see why it could have the potential for much broader applications across ALL insurance coverage analyses in Texas and Louisiana.

The primary issue was whether the alliding tug was considered a "tow" of the lead tug. The district court held that the assisting tug was the "tow" because of a tort principle known as the "dominant mind" doctrine. The Fifth Circuit reversed. In deciding this "tow" issue; however, the Court discusses the 8 corners doctrine and basic principles of policy interpretation that could have significant impacts on every insurance coverage dispute.

The Facts:

Three tugs were towing a barge, with one designated as the "lead" tug, and the other two "assisting" tugs. The M/V MISS DOROTHY - one of the assisting tugs - allided (that's maritime jargon for hit) a bridge and then sank. At the time, the M/V ANGELA RAE was the lead tug. MISS DOROTHY's insurers sued the lead tug's owners claiming that the ANGELA RAE was the lead tug, responsible for coordinating the tow operation, and was negligent in failing to 1) keep a proper look out, 2) properly navigate the bridge, and 3) chart and plan a proper and safe route.

The Insurance Policies

The Court reviewed two separate insurance policies to determine which provided coverage for this assisting tug. Both Atlantic Specialty (the Hull & Machinery insurer), as well as P&I Underwriters (the Protection and Indemnity insurer), insured the ANGELA RAE. The dispute centered on which policy covered the MISS DOROTHY's loss.

The Hull & Machinery policy insured the ANGELA RAE as follows:

[I]f the Vessel hereby insured shall come into collision with any other vessel, craft, or structure, floating or otherwise (including her tow); or shall strand her tow or shall cause her tow to come into collision with any other vessel, craft, or structure, floating or otherwise, or shall cause any other loss or damage to her tow or to the freight thereof or to the property on board, and the Assured, or the Surety, in consequence of the insured Vessel being at fault, shall become liable to pay and shall pay by way of damages to any other person or persons any sum or sums we, the Underwriters, will pay. (emphasis added)

The Fifth Circuit found that the Hull & Machinery policy covers the following situations:

(1) the ANGELA RAE collides with something else, (2) the ANGELA RAE stranders her tow, (3) the ANGELA RAE causes her tow to come into collision with anything else, or (4) the ANGELA RAE causes any damage to her tow or to her tow's freight.

The P&I policy, on the other hand, indemnified ANGELA RAE's owners for:

Liability for loss of or damage to any other vessel or craft, or to property on such other vessel or craft . . . provided such liability does not arise by reason of a contract made by the assured.

The P&I policy further stated that its policy only covered situations that were not covered by the Hull & Machinery policy. "Notwithstanding anything to the contrary contained in this policy, no liability attaches to the Assurer for any loss, damage, or expense which would be payable under the terms of the . . . policy on hull and machinery."

The Arguments

The P&I insurer argued that the MISS DOROTHY loss fell under the third situation covered by the Hull & Machinery policy - that the ANGELA RAE caused her "tow" to come into collision with the bridge's fender system. In other words, "that the MISS DOROTHY was the 'tow' of the ANGELA RAE - despite being itself a tugboat - because the ANGELA RAE was allegedly the lead tug. The district court agreed finding that a vessel constitutes a "tow" if it is responsible for the safe navigation of another vessel - a maritime tort law concept called the "dominant mind" doctrine.

The Fifth Circuit, applying Louisiana law, analyzed the meaning of the word "tow" - reviewing both traditional and legal dictionary definitions, case law, and treatises. In the end, the Fifth Circuit found that in order to be a "tow" the tug must be actively "towing" or exerting some force on the "tow." "Therefore, dictionaries, cases, and treatises, all point to a common understanding of 'tow': some ship or boat that is being provided extra motive power from another ship or boat by being pushed or pulled." Applying that definition, the Court found that the MISS DOROTHY was not the "tow" of the ANGELA RAE because there was no indication that the ANGELA RAE was providing the MISS DOROTHY with any motive power. Both boats were there to assist in moving the barge - not each other.

The Fifth Circuit went on to distinguish between a "tow" and the "dominant mind" doctrine relied on by the district court. The Fifth Circuit stated that the dominant mind doctrine usually applies if the group of tugs and barges together (this unit of vessels is known as a flotilla) causes damage to a third party - not damage to one of the vessels within the flotilla. The Court recognized that the dominant mind doctrine may also apply where a tow itself is damaged - a tug that was the dominant mind may be liable if it fails to safely navigate the tow. But it refused to find that the "dominant mind" tug of a flotilla must necessarily view the rest of the flotilla as its "tow."

Other Insurance Implications:

If you've made it this far in the article - I know what you're thinking: gee whiz Sarah, this is pretty technical maritime stuff - why should I care? Because the Fifth Circuit also made two separate, yet very broad, analyses that could be applied to any insurance coverage dispute: the 8 corners rule and general principles of insurance interpretation.

• The Court applied the 8 corners rule to not only the duty to defend but also the duty to indemnify. The district court stated that the "parties do not dispute [that] the allegations in the complaint control which policy is liable for defense costs and coverage." The Hull and Machinery insurer, for the first time in its reply brief, disputed application of the rule. Both Texas and Louisiana law clearly state that the 8 corner rule only applies to determine an insurer's duty to defend. In other words, when deciding if an insurer must defend its policyholder, a court is generally limited to the 4 corners of the lawsuit naming the policyholder as a defendant, and the 4 corners of the insurance policy to determine if any of the allegations in the underlying suit might trigger coverage under the policy. However, when determining a duty to indemnify (determining if the insurer will be responsible for paying any judgment/settlement of the underlying case) the court analyzes each of the underlying allegations and delves into the facts of the underlying case to determine what actually happened. The Fifth Circuit, in a footnote stated that "[e]ven looking past waiver, it is not clear why this disagreement makes an ounce of difference here . . . whether the Eight Corners analysis appertains is irrelevant - we need only ask how to read the word 'tow' in Atlantic Specialty's policy."

I hear you Fifth Circuit, but have to respectfully disagree. Maybe the allegations about what happened during the accident were wrong. What if the MISS DOROTHY was actually exerting force on the barge? At that point - the indemnity analysis changes because the ACTUAL facts now fit within the Court's "tow" definition. Maybe the parties didn't dispute what actually happened, but the Court's discussion will likely be cited in other cases where the underlying facts ARE in dispute. And that would be a substantial change in how

• The Court found that there was no reason to use tort duties to govern the meaning of "tow" in the policy. "Tort duties are precisely that: responsibilities that the parties owe each other. But there is no reason to think that these duties then define the meaning of 'tow.' At least in other contexts there is good reason to think that using tort duties to define contractual terms would be wholly inappropriate." Again, in a footnote, the Court makes an example of a parent with a $100,000 life insurance policy with his "children" as beneficiaries. Assume that the parent was chaperoning a field trip when he is killed and the relevant state law imposes the same duty of care on field-trip chaperones that any parent has over a child. Otherwise, the term "children" in the life insurance policy would result in the insurance policy distributing the $100,000 equally among all the children on the field trip. The Court then states that "[o]f course, some terms of insurance contracts might turn on tort law concepts" - such as an insurance contract excluding coverage for one employee who assaults another employee - "then the tort law concept of 'assault' is probably at play." The Court concludes that looking to tort law concepts is only appropriate when "such terms usually derive their primary meaning from the relevant tort principles . . . [c]onversely, 'tow' has a plain and unambiguous meaning outside tort law or the dominant mind doctrine . . . [t]herefore there is little reason to think that the meaning of 'tow' in an insurance contract should be derived from tort law as opposed to its ordinary definition."

Ok - Fifth Circuit - you lost me on this one. First - why don't you at least chastise the insurer for failing to DEFINE THE WORDS. The insurer drafted the policy - this entire case could have been avoided if the Hull & Machinery insurer had defined the word "tow" in the policy. I realize this policy did not have a definition; therefore the Court is required to provide one. But I can hear my favorite law school professor saying "that dog won't hunt" for the Court's analysis of when it is appropriate to use tort principles to determine the scope of insurance coverage. A life insurance policy is not a liability policy. The purpose of a liability policy is to protect business organizations against claims brought by a third party who sustains some sort of damage as a result of the business's conduct. The employee assault issue would likely arise when interpreting a general liability policy. It makes sense for courts to interpret liability policies in accordance with the tort principles that will be applied to determine if there is actually liability. In other words, it makes sense to determine coverage under the same rationales used to determine liability since that's the whole purpose of buying liability insurance!

In this particular case, there was going to be insurance coverage - it was just a matter of deciding which insurer was on the hook. However, I'm afraid the Court's reasoning will be improperly extended by clever lawyers seeking to avoid coverage in other situations - which will leave policyholders and third parties with uninsured losses. Just one more reason to fully understand what insurance is available and to contractually allocate loss before an incident occurs.

#ladylawyer #insuranceisfun #towtowtowyourboat

The Continental Insurance v. L&L Marine decision, No. 17-30424 is available at https://www.ca5.uscourts.gov/opinions/pub/17/17-30424-CV0.pdf.