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Certain Underwriters at Lloyd's v. Advanfort Co.

United States District Court, E.D. Virginia, Alexandria Division

October 21, 2019

CERTAIN UNDERWRITERS AT LLOYD'S, LONDON SUBSCRIBING TO POLICY No. BO 823PP1308460, et al., Plaintiffs,
v.
ADVANFORT COMPANY, Defendant

          MEMORANDUM OPINION

          T. S. ELLIS, III UNITED STATES DISTRICT JUDGE

         This declaratory judgment case arises from a dispute between the parties regarding whether a maritime insurance policy issued by plaintiffs ("the Policy") covers defendant's alleged damages and liabilities stemming from an incident in October 2013, in which the Indian government seized the SEAMAN GUARD OHIO ("the OHIO"), a vessel operated by defendant, detained the guards and crew aboard the OHIO ("Guards" and "Crew"), and charged the Guards and Crew with illegally importing weapons into the country ("the Incident"). Before the Court in this matter are (i) plaintiffs' motion for summary judgment and (ii) defendant's cross-motion for summary judgment.[1]ECF Nos. 94, 100.

         A summary judgment decision in one party's favor will necessarily decide the issue against the other party because the counterclaims in AdvanFort's Third Amended Counterclaims ("TAC") are essentially the reverse of the claims in plaintiffs' First Amended Complaint ("FAC"). The dispositive issue for both plaintiffs' FAC and AdvanFort's TAC is whether or not the Policy provides coverage for any claims arising out of the Incident. The summary judgment motions have been fully briefed and argued and are thus ripe for disposition.

         I.

         The procedural history of this case pertinent to the resolution of the pending summary judgment motions may be succinctly stated. On December 4, 2018, plaintiffs filed their FAC, seeking a declaratory judgment against defendant AdvanFort that plaintiffs had no obligation to provide insurance coverage to AdvanFort with respect to any damage, loss, and/or expense incurred as a result of the Incident. Specifically, the FAC sought declaratory relief that:

• There is no coverage under the Policy for AdvanFort's vessel damage claim,
• There is no coverage for AdvanFort under Section 1 (General Marine Liabilities) of the Policy for any losses arising out of the Incident,
• There is no coverage for AdvanFort under Section 2 (Marine Employers Liability) of the Policy for any losses or expenses arising out of the Incident,
• Plaintiffs have no duty to provide AdvanFort with a defense against non-existent professional indemnity claims under Section 3 (Professional Indemnity) of the Policy,
• There is no coverage for AdvanFort under Section 4 (Maritime Personal Accident) of the Policy for any losses arising out of the Incident,
• There is no coverage under the Policy for failure of a condition precedent to coverage -namely, at the time of the Incident, the OHIO, its Crew, and the Guards were not engaged in fulfilling any contract with a client of AdvanFort for the provision of Insured Services,
• AdvanFort is not entitled to reimbursement of any mitigation or claim expenses under the Policy,
• There is no coverage under the Policy due to a general exclusion to coverage - namely, at the time of the Incident, the OHIO was operated by AdvanFort and had not been declared to plaintiffs, or accepted by plaintiffs, under the Policy,
• There is no duty to defend the Crew or the Guards under the Policy.[2]

         On April 18, 2019, AdvanFort filed their Third Amended Counterclaims ("TAC"), seeking (i) declaratory relief that the Incident was covered under the Policy, (ii) damages for plaintiffs' breach of their obligations under the Policy, and (iii) additional damages based on plaintiffs' bad faith breach of the Policy.[3] Plaintiffs filed a motion to dismiss defendants' TAC on May 2, 2019, which remains pending.

         Plaintiffs efforts to conduct discovery met with resistance from defendant from the outset, as defendant repeatedly provided inadequate answers to plaintiffs' interrogatories.[4] Accordingly, on July 25, 2019, the Magistrate Judge granted, in part, plaintiffs' motion for discovery sanctions pursuant to Rule 37(b)(2)(A)(ii), Fed.R.Civ.P. ECF No. 89. Specifically, the July 25th Order concluded that the appropriate remedy, to which plaintiffs were entitled for defendant's discovery defalcations, was as follows:

Defendant is limited to the answers provided in its Second Amended Response at summary judgment and trial. Defendant may not deviate from those answers in any regard, including any attempts to further "clarify" its answers. Nor may Defendant, either at summary judgment or trial, use, introduce into evidence, or even reference any documents, testimony, or information not already provided to Plaintiffs through discovery. Should Defendant fail to follow this Order, Plaintiffs may seek supplemental sanctions. ECF No. 89 at 17.

         In granting plaintiffs' motion for discovery sanctions, the Magistrate Judge concluded that (i) defendant had acted in bad faith by failing to comply with the Magistrate Judge's earlier discovery orders, (ii) defendant's non-compliance with the Magistrate Judge's earlier discovery orders severely prejudiced plaintiffs, and (iii) the need for deterrence in this case weighed in favor of a significant sanction. ECF No. 89, 14-16.

         On August 20, 2019, plaintiffs filed a motion for summary judgment. ECF No. 94, 95. On September 3, 2019, defendant filed a motion in opposition to plaintiffs' motion for summary judgment and a cross-motion for summary judgment ("Defendant's SJ Motion"). ECF No. 100, 101.

         In response to Defendant's SJ Motion, plaintiffs filed a motion for supplemental sanctions, alleging defendant violated the July 25th Order in Defendant's SJ Motion. ECF No. 105. On October 2, 2019, the Magistrate Judge granted, in part, plaintiffs' motion for supplemental sanctions (the "October 2nd Order"). ECF No. 113. On October 7, 2019, defendant filed an objection to the sanctions imposed by the Magistrate Judge's October 2nd Order. ECF No. 115. On October 9, 2019, the Magistrate Judge awarded plaintiffs $28, 468.90 in attorney fees and costs in relation to the July 25th Order and the October 2nd Order. Most recently, by order dated October 16, 2019, defendant's objection to the Magistrate Judge's October 2nd Order was overruled. Specifically, the October 16th Order concluded that the Magistrate Judge's October 2nd Order was not clearly erroneous, but instead clearly correct.

         Accordingly, at this time, the following matters are at issue and ripe for disposition: (i) plaintiffs' motion for summary judgment and (ii) defendant's cross-motion for summary judgment. For the reasons that follow, there is no genuine dispute as to any material fact, and summary judgment must be entered in favor of plaintiffs and against defendant.

         II.

         The first step in resolving the summary judgment motions is to be clear as to the content of the summary judgment factual record. The July 25th and October 2nd Orders, which granted, in part, plaintiffs' motions for sanctions, have established much of the summary judgment factual record in this case. See ECF No. 89, 113. Specifically, the October 2nd Order did three things: (i) it struck the August 30, 2019 declarations from Ahmed Farajallah and Samir Farajallah (collectively, the "Farajallah Declarations") (ECF Nos. 101-2, 101-3); (ii) it struck paragraphs 1, 3-6, and 8-16 of defendant's statement of undisputed facts in Defendant's SJ Motion (ECF No. 101); and (iii) it deemed undisputed paragraphs 2, 7, 10-13, 16, and 25 of plaintiffs' brief in support of their motion for summary judgment (ECF No. 95).[5]

         As a result, the statement of undisputed material facts listed below is based substantially on plaintiffs' statement of undisputed facts. Defendant's remaining undisputed facts and remaining disputes with plaintiffs' facts, after taking into account the effect of the October 2nd Order and the October 16th Order, have been incorporated where relevant and discarded where immaterial.

         1. The Policy attached to plaintiffs' First Amended Complaint ("FAC"), policy no. B0823PP1308460, is the insurance policy at issue in this case.[6]

         2. The Policy named defendant, AdvanFort Company Inc., as the Insured and covered the period from July 19, 2013 to August 1, 2014.[7]

         3. At the time of the Incident, October 2013, AdvanFort operated the OHIO[8]

         4. At the time of the Incident, AdvanFort leased the OHIO through a charter contract (the "Charter Party") with Seaman Guard, Inc. ("SGI"), the owner of the OHIO, that expired on March 15, 2015.[9]

         5. AdvanFort never declared the OHIO to plaintiffs for coverage under the Policy, as required by General Exclusion 5 of the Policy.[10] Accordingly, plaintiffs did not accept the OHIO as part of the risk to be insured under the Policy.11 6. Normally, the OHIO operated between the southern tip of India and Sri Lanka, where it would deliver guards to client vessels heading west into the Indian Ocean and retrieve guards from client vessels heading east out of the Indian Ocean.[12]

         7. The Guards were not AdvanFort employees.[13]

         8. Members of the OHIO'S Crew were not AdvanFort employees.[14]

         9. At the time of the Incident, the Guards were aboard the OHIO as passengers - the Guards were not assigned to, nor were they actively engaged in, off-shore security services.[15]

         10. At the time of the Incident, the OHIO was anchored and taking on fuel and supplies; it was not heading to meet a client vessel.[16]

         11. During the Incident, the Crew and Guards did not suffer any injuries, sickness, or disease. More specifically, any alleged injuries, sickness, or disease occurred during, and solely as a result of, their subsequent detention by Indian authorities.[17]

         12. AdvanFort claims it paid $120, 000 to the Guards and Crew in November 2013 (hereinafter, the "November 2013 Payment") to settle, or partially settle, their purported claims against AdvanFort. If any such payment occurred, it was a payment of back wages or "comfort money, "[18] not a payment for any bodily injury claim associated with the Incident.[19]

         13. AdvanFort claims that it promised the Guards and Crew that, "if more money comes in, we will pay more."[20]

         14. AdvanFort does not know what, if any, physical injuries any of the Crew or Guards suffered or allegedly suffered during their detention, where any of the injuries, if any, occurred, when any of the injuries, if any, occurred, or what any of the allegedly injured individuals, if any, were doing at the time of their injuries.[21]

         15. AdvanFort did not receive any property damage claims from any of the Guards or Crew.[22]

         16. AdvanFort did not reach any settlement with the Guards or Crew regarding any claims associated with the Incident.[23]

         17. The OHIO'S Charter Party provided that AdvanFort was responsible to pay $8, 000 per day in charter hire, even if it lost access to the OHIO during the term of the charter.[24]

         18. AdvanFort ceased paying the OHIO'S charter hire as soon as the Incident occurred.[25]

         19. AdvanFort claims it paid $1, 125, 000 to SGI in partial settlement of SGI's claims with respect to the OHIO around November 2013. There is no documentary evidence that supports the existence of this payment.[26]

         20. AdvanFort also claims that it promised SGI that it would pay more if AdvanFort received insurance proceeds in the future.[27]

         21. AdvanFort did not seek plaintiffs' approval before entering into any of the purported settlements with the Crew, the Guards, or SGI.[28]

         22. AdvanFort has never received any claim, demand, or suit seeking damages or indemnity from any person who has asserted or alleged that AdvanFort was liable to the claimant for damages for physical injury, sickness, or disease related to the Incident. Specifically, Paul Towers, a Tactical Deployment Officer aboard the OHIO, has declared, under penalty of perjury, that neither he nor any other Guard aboard the OHIO ever made any claim against AdvanFort for physical injuries or illness stemming from the Incident.[29]

         23. AdvanFort has never received any claim, demand, or suit seeking damages or indemnity from any person who has asserted or alleged that AdvanFort was liable to the claimant for damages for physical damage to any property related to the Incident. Specifically, all correspondence between SGI and AdvanFort that references the OHIO solely demands payment of charter hire and overdue fees, not any payment for physical damage to the OHIO.[30]

         24. AdvanFort has never received any claim, demand, or suit seeking damages or indemnity from any customer or client of AdvanFort who has asserted or alleged that AdvanFort was liable to the claimant for damages related to the Incident, arising out of any alleged defect in AdvanFort's provision of offshore security services to that client or customer. Specifically, Ahmed Farajallah, the acting President of AdvanFort, stated in his deposition testimony that the only claims AdvanFort received after the Incident from customers, i.e. clients to whom AdvanFort provided security services, stemmed from the OHIO'S unavailability for further service and use by AdvanFort, not from any alleged defect in AdvanFort's provision of offshore security services.[31]

         25. AdvanFort has not been the subject of any judgment or arbitrator's decision finding AdvanFort liable to anyone, for any amount of damages, in any claim related to the Incident.[32]

         III.

         The standard for summary judgment is too well-settled to require extensive discussion here. Simply put, summary judgment is appropriate when there is "no genuine issue as to any material fact" and based on those undisputed facts the moving party "is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). To serve as a bar to summary judgment, facts must be "material," which means that the disputed fact "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Importantly, at the summary judgment stage, courts must "view the evidence in the light most favorable to...the non-movant." Dennis v. Columbia Collection Med. Ctr., Inc., 290 F.3d 639, 645 (4th Cir. 2002).

         IV.

         Plaintiffs' FAC seeks a declaratory judgment, pursuant to 28 U.S.C. § 2201, which states that plaintiffs have no obligation to provide AdvanFort coverage, indemnity, or defense under the Policy for any loss or expense associated with the Incident whatsoever. Plaintiffs' brief in support of their motion for summary judgment argues plaintiffs are entitled to declaratory relief because:

(i) there is no coverage for any claim arising out of the Incident because all potential claims relate to AdvanFort's use of the OHIO, which AdvanFort leased and operated at the time of the Incident, and the Policy explicitly excludes coverage for incidents involving vessels operated by or rented to AdvanFort,
(ii) there is no coverage under the Policy for the claims allegedly asserted against AdvanFort by the Crew or Guards because the Crew and Guards were not engaged in Insured Services, as required by the Policy, at the time of the Incident,
(iii) there is no coverage under the Policy for the claims allegedly asserted against AdvanFort by the Crew or Guards because the claims were not for Bodily ...

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