874 F.

2d 1551
1991 A.M.C. 220

BENDER SHIPBUILDING & REPAIR COMPANY, INC.,

Plaintiff-Appellee,
v.
C.N. Lloyd BRASILEIRO, Defendant,
The Hartford Insurance Company of Alabama, in personam,
Defendant-Appellant.
No. 88-7131.

United States Court of Appeals,

Eleventh Circuit.
June 13, 1989.
1

M. Kathleen Miller and A. Danner Frazer, Jr., Armbrecht, Jackson, DeMouy,

Crowe, Holmes & Reeves, Mobile, Ala., for defendant-appellant.

A. Clay Rankin, III, and Brian P. McCarthy, Hand, Arendall, Bedsole, Greaves
& Johnston, Mobile, Ala., for Bender Shipbuilding & Repair Co., Inc.

Appeal from the United States District Court for the Southern District of
Alabama.

Before KRAVITCH and EDMONDSON, Circuit Judges, and HOFFMAN * ,

Senior District Judge.
WALTER E. HOFFMAN, Senior District Judge:

This appeal concerns whether the United States District Court for the Southern
District of Alabama properly granted a cross-motion for summary judgment
filed by plaintiff-appellee Bender Shipbuilding and Repair Company, Inc.
(Bender). The district court held that Bender's liability for liquidated damages
to Todd Shipyards Corporation (Todd) resulting from delay in delivery of a
floating drydock was covered under the Collision Liability clause of a Builder's
Risk policy of marine insurance issued by defendant-appellant, the Hartford
Insurance Company of Alabama (the Hartford). The Hartford appeals this

decision.
I.
6

Bender had entered into a separate contract with Todd for the construction of a
floating drydock. The contract called for Bender to deliver the drydock on or
before May 27, 1982, and provided for payment of liquidated damages at
$5,300.00 per day for a 90-day maximum period if the drydock was delivered
after the contract date.

Bender purchased a Builder's Risk insurance policy from the Hartford to cover
the drydock during construction and delivery. Bender and Todd were listed as
co-insureds and co-loss payees under the policy.

On July 6, 1982, three sections of the drydock moored at the Bender yard on
the east bank of the Mobile River broke their moorings during a sudden and
severe thunderstorm. The drydocks were blown west across the river and
collided with a vessel, the M/V ITAPURA, which was moored at Pier 4 of the
Alabama State Docks on the western bank. Both the drydocks and the
ITAPURA were damaged. The repairs required on the drydock as a result of
the collision delayed the delivery of the drydock to Todd.1

As delivery of the drydock was delayed, Todd made a claim against Bender for
liquidated damages as provided in the contract. Todd's position was that the
damage to the drydock was not the result of circumstances which excused
Bender from liability. Bender informed the Hartford of Todd's claim for
liquidated damages and sought coverage for the claim under the insurance
policy. Bender also sought defense from the Hartford against Todd's claims.

10

The Hartford denied coverage for delay damages on February 17, 1983. Bender
then settled its disputes with Todd for $350,000.00 plus interest of $3,797.26.
Todd and Bender signed a joint agreement and complete mutual release in
February 1983.

11

Bender brought an action against the Hartford in the United States District
Court for the Southern District of Alabama on November 22, 1985.2

12

As the parties agreed that no issues of material fact existed, the dispute between
the Hartford and Bender was brought before the district court on the Hartford's
motion and Bender's cross-motion for summary judgment.

13

The district court entered findings of fact and conclusions of law on January 22,
1988. The district court also issued an order granting Bender's cross-motion for
summary judgment and denying the Hartford's motion for summary judgment.
The Hartford appeals the district court's interlocutory order and judgment under
28 U.S.C. section 1292(a)(3).

II.
14

The Builder's Risk insurance policy purchased by Bender followed the form of
the American Institute Builder's Risk Clauses (February 8, 1979, Form 13-L)
and included three sections: hull, liability (both collision and protection and
indemnity), and general provisions. Bender and Todd were listed as co-insureds
and co-loss payees under the policy.

15

The general conditions of the policy, which apply to the entire policy, excluded
from coverage "[d]elay or disruption of any type whatsoever, including, but not
limited to, loss of earnings or use of the Vessel, howsoever caused, except to
the extent, if any, covered by the Collision Liability or the Protection and
Indemnity clauses of this Policy." District Court Opinion at 6.

16

The Collision Liability, or "Running Down," clause followed the standard

American Institute Hulls form. The clause provided:

17 If the Vessel shall come into collision with any other ship or vessel, and the
(a)
Assured or the Surety in consequence of the 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 in respect to such collision, the Underwriters will pay the Assured or
the Surety, whichever shall have paid, such proportion of such sum or sums so paid
as their respective subscriptions hereto bear to the Agreed Value, provided always
that their liability in respect to any one such collision shall not exceed their
proportionate part of the Agreed Value.
18

District Court Opinion at 5-6.

19

The Collision Liability section excluded from coverage "... any sum which the
Assured or Surety may become liable to pay or shall pay in consequence of, or
with respect to: (d) cargo or other property on or the engagement of the
Vessel." District Court Opinion at 6-7.

20

The district court stated that a straightforward reading of this language supports
a finding that the policy covers a claim for liquidated damages. District Court

Opinion at 7. The district court found that for the Hartford to prevail, it must
demonstrate clearly and unambiguously that no coverage was intended. Id. The
court concluded that no clear language in the policy demonstrated an intent to
limit coverage to tort damages or to exclude from coverage liquidated damages
resulting from a collision, and therefore granted Bender's cross-motion for
summary judgment. District Court Opinion at 9-10.
21

The Hartford argues on appeal that the district court incorrectly interpreted the
language of the Builder's Risk insurance policy as including the liquidated
damages and incorrectly identified Todd as "any other person" within the
meaning of the policy.

22

For the reasons stated below, this Court finds that the policy between the
parties was not ambiguous as to its terms and that coverage of Bender's liability
to Todd was not intended by the parties. We therefore reverse the holding of
the district court as to the liability of the Hartford to Bender.

III.
23

Bender filed its complaint in this case in admiralty under Rule 9(h) of the
Federal Rules of Civil Procedure. Although marine insurance policies are
generally recognized as being marine contracts and, therefore, within the
federal admiralty jurisdiction, see Wilburn Boat Co. v. Fireman's Fund Ins. Co.,
348 U.S. 310, 313, 75 S.Ct. 368, 370, 99 L.Ed. 337 (1955); Steelmet, Inc. v.
Caribe Towing Corp., 779 F.2d 1485, 1487 (11th Cir.1986); Ingersoll-Rand
Fin. Corp. v. Employers Ins., 771 F.2d 910, 911-12 (5th Cir.1985), cert. denied,
475 U.S. 1046, 106 S.Ct. 1263, 89 L.Ed.2d 573 (1986), certain marine
insurance policies which only protect against marine risks may not vest a court
with admiralty jurisdiction. See Royal Ins. Co. v. Pier 39 Ltd., 738 F.2d 1035,
1036-37 (9th Cir.1984) (finding that marine-type insurance coverage for
floating breakwater and floating dock did not cover a maritime interest as
required for admiralty jurisdiction as neither insured structure was a "vessel").
See also 7A J. Moore & A. Palaez, Moore's Federal Practice paragraph .255 at
3024 (2d ed. 1982). The interest insured, and not just the risk insured against,
must be maritime. Royal Ins. Co., 738 F.2d at 1036.

24

Courts have consistently found that a floating drydock is not a "vessel" within
the meaning of admiralty jurisdiction when the drydock is moored and in use as
a drydock. See, e.g., Keller v. Dravo Corp., 441 F.2d 1239, 1244 (5th
Cir.1971), cert. denied, 404 U.S. 1017, 92 S.Ct. 679, 30 L.Ed.2d 665 (1972)
(although court did not preclude finding that floating drydock could be vessel
under different facts, court here found as a matter of law that floating drydock

was not a "vessel"); Bernardo v. Bethlehem Steel Co., 314 F.2d 604, 608 (2d
Cir.1963) (jury properly decided that floating drydock was not "vessel" within
the meaning of Jones Act). Floating drydocks have been classified as "vessels"
for admiralty purposes when they become active some way in navigation. See,
e.g., United States v. Moran Towing & Trans. Co., 374 F.2d 656, 663 (4th
Cir.1967), vacated 389 U.S. 575, 88 S.Ct. 689, 19 L.Ed.2d 775 (1968) (floating
drydocks in transit across navigable waters were vessels within admiralty
jurisdiction under the Wreck Act); J.M.L. Trading Corp. v. Marine Salvage
Corp., 501 F.Supp. 323, 325-26 (E.D.N.Y.1980) ("when floating drydock is
treated like a ship or vessel and is used like one, thereby losing its attributes as
an extension of land, it may very well be found to be within the admiralty
jurisdiction of the Federal courts."). The floating drydock in this case was under
construction at the Bender yards on the Mobile River.3 As a result of a severe
and sudden thunderstorm, the drydock broke free of its moorings and entered
the navigable waters of the Mobile River. Under the rationale of J.M.L.
Trading Corp. and Morgan Towing, the drydock arguably became a "vessel"
when it entered the navigable waters of the Mobile River. 4 Although such a
decision is plausible from the facts of this case, we find jurisdiction more
properly vested through the tort branch of admiralty.
25

Admiralty jurisdiction may exist where some nexus exists between the alleged
wrongful conduct and some maritime activity. Foremost Ins. Co. v.
Richardson, 457 U.S. 668, 673, 102 S.Ct. 2654, 2657, 73 L.Ed.2d 300 (1982);
Executive Jet Aviation, Inc. v. Cleveland, 409 U.S. 249, 268, 93 S.Ct. 493, 504,
34 L.Ed.2d 454 (1972). A nexus is established when the wrong occurs in
navigable waters and bears a "substantial relationship to traditional maritime
activity." Executive Jet Aviation, 409 U.S. at 268, 93 S.Ct. at 504. In making
this determination, courts should consider: (1) the functions and roles of the
parties; (2) the types of vehicles and instrumentalities involved; (3) the
causation and type of injury; and (4) traditional concepts of the role of
admiralty law. Harville v. Johns-Manville Prods. Corp., 731 F.2d 775, 783
(11th Cir.1984); Kelly v. Smith, 485 F.2d 520, 525 (5th Cir.1973), cert. denied,
416 U.S. 969, 94 S.Ct. 1991, 40 L.Ed.2d 558 (1974).

26

In the present case, the Bender-Todd drydock collided with the M/V
ITAPURA, a vessel for admiralty purposes, on the navigable waters of the
Mobile River. As the collision occurred in navigable waters to a vessel, the
typical object of admiralty jurisdiction, the collision was properly within the
admiralty jurisdiction of the district court.

27

As the district court had maritime jurisdiction over the collision, it also had
discretion to take pendent jurisdiction over non-admiralty state law claims

arising out of the same transaction or occurrence if judicial economy and

convenience would be served. See Hagans v. Lavine, 415 U.S. 528, 545-46, 94
S.Ct. 1372, 1383-84, 39 L.Ed.2d 577 (1974); Tallentire v. Offshore Logistics,
Inc., 754 F.2d 1274, 1278 n. 6 (5th Cir.1985), rev'd on other grounds, 477 U.S.
207, 106 S.Ct. 2485, 91 L.Ed.2d 174 (1986); Norfolk & Western Co. v. United
States, 641 F.2d 1201, 1208 n. 4 (6th Cir.1980). Even if the admiralty issues no
longer remain in the case, the district court could still retain pendent
jurisdiction over the related state claims. United Mine Workers v. Gibbs, 383
U.S. 715, 725, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966); Camejo v. Ocean
Drilling & Exploration, 838 F.2d 1374, 1377-78 (5th Cir.1988); Exxon Corp. v.
Chick Kam Choo, 817 F.2d 307, 310 (5th Cir.1987), rev'd on other grounds, --U.S. ----, 108 S.Ct. 1684, 100 L.Ed.2d 127 (1988). The district court could
therefore properly retain jurisdiction of the state law claims concerning the
insurance coverage even after the admiralty issues were no longer present in the
case. Although admiralty questions are generally controlled by federal law, the
resolution of the remaining insurance issues is controlled by the state law of
Alabama. See Wilburn Boat Co., 348 U.S. at 313-14, 75 S.Ct. at 370-71;
Steelmet, Inc., 779 F.2d at 1487-88; Ingersoll-Rand Fin. Corp., 771 F.2d at 912.
28

The summary judgment granted by the district court is properly before this
court as an interlocutory appeal of an admiralty decision. 28 U.S.C. section
1292(a)(3) (allowing appeals from interlocutory decrees of district courts
determining rights and liabilities of parties in admiralty in cases where appeals
from final decrees are allowed). See also Hunter v. Department of Air Force
Agency, 846 F.2d 1314, 1316 n. 4 (11th Cir.1988). As this case was before the
district court on a motion for summary judgment and cross-motion for
summary judgment, we shall independently review the district court's
judgment. See Webb v. State of Alabama, 850 F.2d 1518, 1519 (11th
Cir.1988); Tackitt v. Prudential Ins. Co., 758 F.2d 1572, 1574 (11th Cir.1985).

IV.
29

The Hartford makes two attacks on the district court's holding: (a) that the hull
risks policy was not ambiguous and did not cover the damages sustained by
Todd and (b) that Todd, as a co-insured and co-loss payee, was not "any other
person" within the meaning of the Running Down clause. Both of these
contentions will be addressed below.
A. Scope of the Hull Risks Policy

30

The district court placed upon the Hartford the duty of clearly and
unambiguously demonstrating that no coverage for the liquidated damages was

intended. The district court further stated that any doubt or ambiguity in the
policy must be resolved in Bender's favor. District Court Opinion at 7-8.
31

The district court, however, also found that "[a] marine policy and endorsement
must be construed as a whole, and interpreted in the light of practical, sound
common sense, the terms being construed according to the manifest intention
of the insures and the insurer." District Court Opinion at 8 (quoting 13 J.
Appleman, supra, at section 7468). Construed as a whole, we find that the
policy between the Hartford and Bender is unambiguous and does not indicate
an intention to cover the liquidated damages owed by Bender to Todd.

32

An insurance policy, regardless of its subject matter, is a contract between the

insured and the insurer for coverage of risks. The insurer makes an assessment
of the risks facing the insured, sets premiums consistent with the risks covered
and supplies a written statement of coverage. As the district court correctly
noted, the written policy should be construed against the insurer, as the insurer
is in the better position to limit its liability exposure in the written policy.

33

That the written policy should be construed against the insurer, however, does
not mean that every risk not specifically excluded in the policy is therefore
included. A court should never lose sight of the risks which the insurer and
insured reasonably contemplated to be covered under the policy nor should a
court automatically extend a policy's coverage to all risks, either in contract or
tort, for which the insured may face liability.

34

In this case, the district court extended the coverage of the Collision Liability
clause to include liquidated damages from a separate contract between Bender
and Todd.5 This extension is inconsistent with a reasonable interpretation of the
contractual coverage of the insurance policy and of the historic coverage of the
Collision Liability clause.

1. The Marine Insurance Policy Did Not Integrate The

35
Bender-Todd Construction Contract.
36
37

The record reveals no indication of any knowledge of the Hartford concerning

the provisions of the Bender-Todd contract other than the completion schedule
and delivery price--information vital for purposes of setting coverage periods
and premiums. No reference is made in the Hull Risks policy regarding any
provision of the Bender-Todd contract nor is any effort evident to incorporate
the provisions of the Bender-Todd contract into the Hull Risks policy.
Significantly, the policy does incorporate other external writings, such as the

Protection and Indemnity clause's incorporation of Lazard No. SP-23 (Joseph

Lazard, New York. Form No. SP-23, reprinted in 7A M. Cohen, Benedict on
Admiralty section F2.01 7th ed. 1988)).6 No similar inclusion provision is
made for the Bender-Todd agreement.
38

For two writings to be integrated, their relationship or connection must appear

on their face. Keith A. Nelson Co. v. R.L. Jones Co., Inc., 604 S.W.2d 351, 353
(Tex.Civ.App.1965); Delaney Co. v. Murchison, 393 S.W.2d 705, 708-09
(Tex.Civ.App.1965). This requirement is satisfied either by express reference
from one writing to the other or internal evidence of unity. Delaney Co., 393
S.W.2d at 709. English courts, interpreting maritime insurance coverage, have
similarly found that integration does not occur in marine insurance contracts
absent necessity or an expressed intention to integrate. In Macleod, Ross & Co.,
Ltd. v. Compagnie d'Assurances Generales L'Helvetia, [1952] 1 All E.R. 331,
334-35, the court determined that insurance certificates titled "Addendum to
insurance policy" issued to cover shipping of goods under an open policy of
insurance were separate from the open policy. Jurisdictional conditions in the
open policy not mentioned in the certificates therefore were not incorporated
into the certificates. Id. at 335. See also Phoenix Ins. Co. v. De Monchy, [1929]
141 L.T. 439, 442 (HL) (conditions contained in marine insurance policy but
not included in a certificate issued under the policy were not incorporated into
the certificate).7

39

The Hartford, by issuing the Hull Risks policy, did not undertake to protect
Todd from all risks involving construction of the drydock, especially
contractual risks of which the Hartford apparently had no knowledge. The
terms of the separate Bender-Todd contract were not incorporated into the Hull
Risks policy, nor was any such incorporation necessary to accomplish the goals
of the policy. To extend the coverage of the Hull Risks policy or the Collision
Liability clause to the type of risks which Bender created by entering the
contract with Todd would greatly expand the intended coverage of the policy
and clause and likely result in higher premiums to account for the additional
risks covered. Such a result is unintended by the underwriters and undesirable
to the maritime industry in general. Should a party desire coverage for risks
contained in connection with a construction contract, an underwriter fully aware
of the risks involved would likely write such a policy. To expect such coverage
from existing Hull Risks coverage, however, overextends the reasonable
expectations of both insurer and insured.

2. The Collision Liability Clause Does Not Cover Liquidated Damages.

40
41

Bender's argument also must fail as it extends the coverage of the Collision

Liability clause beyond its historic scope. Bender argues that the purpose of the
Collision Liability clause is to indemnify the assured for the assured's liability
to a third person as a result of the collision. None of the cases cited by Bender
in its briefs, however, extend the clause's indemnity protection to damages
resulting between parties in a relationship such as between Bender and Todd in
the current case.
42

Bender relies in part on language from a Fifth Circuit opinion, Nardelli v.

Stuyvesant Ins. Co., 258 F.2d 718 (5th Cir.1958), modified on other grounds,
269 F.2d 592 (1959), in support of its position. In Nardelli, however, the court
reviewed indemnification rights of a bareboat charterer under a Collision
Liability clause and held that the insurer was liable to indemnify the loss paid
by the charterer to a vessel owner as a result of damage to the other vessel after
a collision.8 The court found that the charterer had taken on the status of
"owner" through payment of insurance premiums and through the charter
agreement with the vessel owner. The opinion did not expand the coverages of
the Collision Liability clause but rather simply clarified the definition of
"owner" under the clause.

43

Bender supports its reading of the clause with a quote in Nardelli which is taken
from an earlier Fourth Circuit case, Harbor Towing Corp. v. Atlantic Mut. Inc.
Co., 189 F.2d 409 (4th Cir.1951). The court's opinion in Harbor Towing,
however, does not support Bender's expansive reading of the clause. The issue
in Harbor Towing was whether the insurer was liable to indemnify the assured
for damages caused to a vessel and its cargo when the assured's barge, which
was being negligently towed, struck the other vessel. The court, holding that
the insurer was not liable to indemnify the barge owner for the losses paid,
found that the barge owner was not "at fault" within the meaning of the
Collision Liability clause because the negligence of the tug, not the barge,
caused the loss. The court found that the Collision Liability clause only
indemnified losses when the insured was at fault. This interpretation is
consistent with prior interpretations of the Collision Liability clause. See, e.g.,
St. Paul Fire & Marine Ins. Co. v. Vest Trans. Co., Inc., 666 F.2d 932, 942-44
(5th Cir.1982); Bohemia, Inc. v. The Home Ins. Co., 1983 A.M.C. 1183, 1185
(D.Or.1982); Norman Kelly, 1923 A.M.C. 959, 963-64 (Ohio Ct.App.1923).
But see The Fanny D, 112 F.2d 347, 350 (5th Cir.), cert. denied 311 U.S. 680,
61 S.Ct. 49, 85 L.Ed. 438 (1940). This interpretation, however, does not
support Bender's more expansive reading of the clause.

44

Bender attempts to extend the Collision Liability clause's protections through

its interpretations of Nardelli and Harbor Towing. The protection of the
Collision Liability clause, however, must be determined by looking at the

reasonable understanding of the parties. See Harbor Towing, 189 F.2d at 411.
This rule of interpretation modifies the common law rule of negligence and
proximate causation when interpreting marine insurance policies. As the
Second Circuit stated in Blaine Richards & Co. v. Marine Indem. Ins. Co., 635
F.2d 1051 (2d Cir.1980), marine insurance interpretation strictly applies the
doctrine of causa proxima non remota spectatur ("the immediate not the remote
cause is considered") and a court should not attempt to trace the origin of losses
back to remote causes. Id. at 1054 (citing Pan American World Airways, Inc. v.
Aetna Casualty & Sur. Co., 505 F.2d 989, 1006-07 (2d Cir.1974)). See also
Nautilus Virgin Charters, Inc. v. Edinburgh Ins. Co., Ltd., 510 F.Supp. 1092,
1096 (D.Md.1981), aff'd in part, rev'd in part, 673 F.2d 1314 (4th Cir.), cert.
denied, 456 U.S. 945, 102 S.Ct. 2012, 72 L.Ed.2d 468 (1982); Republic of
China v. National Union Fire Ins. Co., 151 F.Supp. 211, 231 (D.Md.1957),
aff'd in part, rev'd in part, 254 F.2d 177 (4th Cir.), cert. denied, 358 U.S. 823,
79 S.Ct. 38, 3 L.Ed.2d 64 (1958).
45

The Collision Liability clause's primary purpose is to protect a vessel owner

from liability to owners of other vessels and property which the owner's vessel
might damage. See, e.g., Nardelli v. Stuyvesant Ins. Co., 258 F.2d 718, 724
(5th Cir.1958), modified on other grounds 269 F.2d 592 (1959); Marine Transit
Corp. v. Northwestern Fire & Marine Ins. Co., 67 F.2d 544, 547 (2d Cir.1933).
This purpose is apparent from the history of the Running Down clause and the
type of litigation which has evolved over the years over Running Down clause
liability. The clause is not designed as a completion bond for vessel
construction nor does such coverage arise from the plain meaning of the
policy's term.

46

The history of the Collision Liability clause demonstrates that the clause is
intended to indemnify a shipowner for damage done to vessels which the
insured's vessel has damaged. Following the English decision in DeVaux v.
Salvador (LA VALEUR), [1836] 5 L.J.K.B. 134, 111 E.R. 845, which limited
underwriter liability for collisions between vessels, English underwriters began
inserting Running Down clauses into maritime insurance policies. Under the
new clause, the underwriters agreed to insure owners of vessels for damages
done by the vessel as a result of collision with another vessel. A. Parks, The
Law and Practice of Marine Insurance and Average 689 (1987). A later
American decision, General Mut. Ins. Co. v. Sherwood (The EMILY), 55 U.S.
(14 How.) 351, 14 L.Ed. 452 (1853), which also limited underwriter collision
liability, led to the same result in the American marine insurance business. The
English clauses originally only covered three-fourths of resulting damage to the
other vessel, but the American version and current English forms now provide
full coverage. A. Parks, supra, at 689-90.

47

The Running Down clause's supplemental nature is highlighted by the clause's

protection to vessel owners for liability which the owner owes to others for
damage done as a result of collisions rather than damage to the owner's vessel
itself. See, e.g., Goucher v. Providence Washington Ins. Co. (The R. & T.
HARGRAVES), 3 Pa.Super. 230, 236-37 (1896) (Collision Liability clause
does not provide protection for loss of the insured vessel). Protection of the
insured vessel is provided by other provisions of the hull policy. A. Parks,
supra, at 692. See also Cook, The Hull Policy: "The Running Down Clause-The First and Last Sentences", 41 Tul.L.Rev. 409, 409-410 (1967) ("The
Running Down Clause is not designed to and does not cover damages to the
insured vessel, it only indemnifies against the insured's liability to a third
person.").

48

The Collision Liability clause has been held to cover contractual liabilities
which arise out of a collision. See, e.g., Bee Line Transp. Co. v. Connecticut
Fire Ins. Co., 76 F.2d 759, 761 (2d Cir.1935); Marine Transit Corp. v.
Northwestern Fire & Marine Ins. Co., 67 F.2d 544 (2d Cir.1933).9 In Marine
Transit, the court determined that the Collision Liability clause of a tower's
policy covered the tower's liability for loss of cargo on a barge towed by the
assured's tug. The assured agreed to carry wheat loaded on a barge from
Buffalo to New York City. The tug negligently brought the barge into collision
with a lock wall which resulted in a loss to the cargo.

49

The insurer argued that it was not liable for the cargo loss as the insured
liability was that of tower but the judgment was for a carrier of wheat. Id. at
547. The court dismissed this argument and held that the insurer agreed to
cover "legal liability arising from an occurrence of the conditions named
regardless of the particular legal relationship of the assured to the person
entitled to assert such liability." Id. The court concluded that the insurer was
liable to reimburse the legal liabilities faced by the assured as a result of the
collision. Id.

50

Bender's argument that the liquidated damages were caused by and resulted
from the collision rather than from delay and disruption is distinguishable from
the situation in Marine Transit.10 The contractual liability which Bender owed
to Todd arose from a contract which covered the drydock (the insured vessel
itself). The cargo damaged in Marine Transit was on a different vessel than the
insured vessel. Damage to other vessels as a result of collision is historically the
purpose of the Collision Liability clause; damage to the insured vessel itself is
not.

51

Bender supports its argument for liquidated damages with Stanley v. Onetta

Boat Works, Inc., 303 F.Supp. 99 (D.Or.1969), aff'd, 431 F.2d 241 (9th
Cir.1970), which allowed recovery from the insurer of the amount paid by a
vessel construction firm for lost use of a vessel. In Stanley, Onetta Boat Works,
Inc. (Onetta) and Stanley entered into a contract for construction of a fishing
vessel. Id. at 101. The vessel was covered by a Builder's Risk policy issued to
Onetta by Union Insurance Society of Canton, Ltd. (Union Insurance). Id. at
102.
52

Before delivery of the vessel, a steel rail of the ways broke and, as a result, the
vessel fell on the ways. Id. The vessel was damaged and repair work was
necessitated. Id. After delivery, Stanley and his crew noticed cracks and faults
in the hull, machinery and fittings of the vessel. Id. at 102-03.

53

Stanley sought damages from Onetta and several insurers for loss use of the
vessel and for damages resulting from Onetta's negligence in construction. The
court allowed recovery of damages for lost use caused by the construction
flaws. Id. at 105-06.11 The court further found that Onetta's liability to Stanley
was covered under the Union Insurance policy, even though the policy
excluded coverage for "[a]ny consequential damages or loss through delay,
however caused,...." Id. at 106. The court found that when the damage "is
caused by the stresses and strains built into and enhanced by the launching
mishap, such is not 'consequential damage,' but flows from the original defect
at a later period of time." Id.

54

The recovery against Union Insurance for the lost use of the vessel does not
support Bender's position that the liquidated damage liability to Todd should be
similarly covered. The loss suffered in Stanley was a direct result of Onetta's
negligent construction. This damage was quite different from the more remote
damage suffered by Bender. Further, the analysis in Stanley was under the hull
section of the All-Risk marine policy rather than under the Collision Liability
clause. The difference in coverage between these two provisions in the All-Risk
policy distinguishes Stanley from the present fact pattern.12

55

The interpretation suggested by Bender for the Collision Liability clause is not
supported by the history of the clause or the case law which has been decided
under the clause. As we have found neither an integration of the Bender-Todd
construction contract into the Hull Risks policy nor coverage for liquidated
damages under prior interpretations of the Collision Liability clause, we
conclude that the Collision Liability clause in the Hull Risks policy did not
extend coverage to the liquidated damages paid by Bender to Todd.

56

B. Todd's Status Under the Running Down Clause

56

B. Todd's Status Under the Running Down Clause

57

The Hartford has argued that Todd, as a co-insured and co-loss payee under the
contract, was therefore not "any other person" within the meaning of the
Running Down clause. Brief of Appellant at 15-17. Bender responds that
Todd's recovery from Bender "as any other person" is predicated upon Bender's
liability to Todd as a consequence of the collision and the Collision Liability
clause specifically affords indemnity to the assured in such instances. Brief of
Appellee at 31.

58

Bender supports its argument with a series of cases interpreting co-insured

liability in other settings. Several of the cases cited involved fraud or
misrepresentation in the fire insurance context.13 These cases are inapplicable
to the present matter.

59

Bender further argues that co-insureds are typically treated as different persons
under admiralty insurance law and that such parties are often adversaries in
litigation. Bender depends on Wisconsin Barge Line, Inc. v. Coastal Marine
Transport Co., 285 F.Supp. 264 (E.D.La.1968), aff'd, 414 F.2d 872 (5th
Cir.1969) and Aetna Ins. Co. v. S.S. ORTIGUERA, 583 F.Supp. 671
(S.D.N.Y.1984), in support of this claim. The court in S.S. ORTIGUERA
determined whether the insurer, who had paid an insurance claim for damage to
cargo carried by the S.S. ORTIGUERA, made payment to a party with an
insurance interest in the cargo so as to be a subrogee. S.S. ORTIGUERA, 583
F.Supp. at 673. The court's finding that the insurance company was a subrogee
is of little consequence to this case.

60

In Wisconsin Barge, the court addressed the issue of whether the owner of a
tugboat which had been under the control of a bareboat charterer and sank
during a hurricane could recover under a marine hull policy for loss of the
vessel. The insurer had given notice to the bareboat charterer that the policy
was cancelled, but the court determined that this was insufficient to cut off the
insurance interest of the vessel owner, which originally was a loss-payee on the
policy but subsequently became a named insured. Wisconsin Barge, 285
F.Supp. at 270-73. The court held that, under Louisiana law, the failure to
notify the vessel owner nullified the attempted cancellation of the policy. Id. at
273. Wisconsin Barge did not address whether a co-insured can be "any other
person" in the meaning of the Collision Liability clause and the case is
therefore inapplicable to the present matter.

61

Todd and Bender were listed on the policy as co-insureds and co-loss payees.
District Court Opinion at 3. The liquidated damages which the district court

found covered by the policy were payable to Todd for damages sustained from
lost use of the floating drydock. The district court relied upon the Collision
Liability clause to support this liability, but as this opinion has already held, the
Collision Liability clause does not cover damage done to the insured vessel
itself.14 To allow Bender to collect for payments made to its co-insured Todd
for damage done to the insured vessel would go against the accepted
interpretations of the Collision Liability clause by allowing an assured to
collect for damage to its own vessel.15 For this reason, we hold that under this
particular fact situation Todd could not qualify as "any other person" within the
meaning of the Collision Liability clause.
V.
62

We reverse the district court's summary judgment for Bender as we find that
the marine insurance policy was not ambiguous, that the Bender-Todd
construction contract was not incorporated into the Builder's Risk policy, that
the liquidated damages paid by Bender to Todd were not intended to be covered
by the Collision Liability clause, and that Todd was not "any other person"
within the meaning of the Collision Liability clause under the present situation.
We remand this case to the district court with direction to enter judgment
granting the Hartford's motion for summary judgment and denying Bender's
cross-motion for summary judgment.

63

REVERSED and REMANDED.

The Honorable Walter E. Hoffman, Senior U.S. District Judge for the Eastern
District of Virginia, sitting by designation

This Court notes that at the time of the collision, the drydock construction was
already delayed beyond the contracted delivery date. The Hartford stipulated
for the purposes of its Motion for Summary Judgment that the repairs made
after the collision delayed delivery of the drydock, but the Hartford has
reserved determination of the extent to which these delay damages were
proximately caused by the collision. See Brief of Appellant at 5 n. 2

Bender also filed actions against the ITAPURA and her owner, C.N. Lloyd
Brasilero. All of the claims were settled except for Bender's claim against the
Hartford for coverage on the liquidated damages which Bender owed to Todd

Some debate has existed over whether a vessel under construction may be
subject to admiralty jurisdiction. The United States Supreme Court stated in

dictum in Tucker v. Alexandroff, 183 U.S. 424, 438-39, 22 S.Ct. 195, 201, 46
L.Ed. 264 (1901), that a vessel in its stocks could never be made liable in
admiralty, either in rem or in personam. The Supreme Court clarified this
statement in Thames Towboat Co. v. Schooner FRANCIS McDONALD, 254
U.S. 242, 244, 41 S.Ct. 65, 66, 65 L.Ed. 245 (1920), where the Court held that
contracts to construct entirely new vessels are non-maritime. Id. at 244, 41
S.Ct. at 66. See also North Pacific Steamship Co. v. Hall Bros. Marine Ry. &
Shipbuilding Co., 249 U.S. 119, 126-27, 39 S.Ct. 221, 223, 63 L.Ed. 510
(1919). Other courts have since reached the same conclusion. See, e.g.,
Certificate No. 14880 v. Avondale Shipyards Inc., 866 F.2d 752, 759 n. 3 (5th
Cir.1989) (construction contracts for new vessels are not within admiralty, but
"tort claims for negligent construction or design of a vessel will be in admiralty
if the negligence constitutes a maritime tort."); Hatteras of Lauderdale, Inc. v.
GEMINI LADY, 853 F.2d 848, 849-50 (11th Cir.1988) ("Until a vessel is
completed and launched it does not become a ship in the legal sense, and
therefore admiralty jurisdiction does not exist."); Richendollar v. Diamond M
Drilling Co., Inc., 819 F.2d 124, 127-28 (5th Cir.), cert. denied, --- U.S. ----,
108 S.Ct. 331, 98 L.Ed.2d 358 (1987) ("The DAN E. McMAHON was under
construction on land at the time of Richendollar's accident. It was not a vessel
within the admiralty jurisdiction of the federal courts under the long-standing
jurisdictional rubric ..."); Dubuque Boat & Boiler Co. v. Oil Screw
COMMANDER, 251 F.Supp. 923, 926-27 (W.D.Mich.1966)
These cases have little effect on the present matter because no dispute exists
over the Bender-Todd construction contract and because this case has a
separate basis, admiralty tort jurisdiction, upon which to depend. See infra at
1556.
4

We also note that the Hartford and Bender refer to the floating drydock in the
Builders Risk policy as a "vessel." Bender and Todd also refer to the floating
drydock as a "vessel" in the construction contract

Coverage under the other sections of the policy was unavailable to Bender. The
Hull section of the policy was subject to the exclusions clause of the general
provisions section. One of the exclusions was for delay or disruption including
loss of earnings or use of the vessel. See supra at 1554. The liquidated damages
would therefore be excluded by this clause
Coverage also would not be allowed under the Protection and Indemnity clause.
This clause provided that "Underwriter's liability under these Protection and
Indemnity clauses shall in no event exceed that which would be imposed on the
Assured by law in the absence of contract." See District Court's Opinion at 6.
The liquidated damages are a contractual substitute for actual damages which

are paid even in the absence of proof of actual damages. The liquidated
damages, therefore, would be excluded under the Protection and Indemnity
clause to the extent they exceeded actual proof of covered loss.
6

Our review of Lazard Form No. SP-23 indicates no provision which would
cover the contractual liability between Bender and Todd. The Lazard form is
basically a detailed Protection and Indemnity clause

The court in Phoenix Ins. Co. v. De Monchy stated:

It follows, I think, that all clauses of the policy which are essential to the
contract of marine insurance must be read into the certificate, but beyond that
there is no necessity to go. The condition in question is a collateral stipulation
imposing a condition precedent. It has nothing to do with insurance particularly,
but might be applied to any contract. Common sense and fairness revolt against
the idea of this being enforced against the holder or indorsee of the certificate.
Neither the holder, as here, nor a possible indorsee could ever have seen the
policy.
Id. at 442.

Bender, relying on a quote from Nardelli, advances an expansive reading of the

Collision Liability clause and states "[t]hose authors and courts which have
interpreted the Collision Liability clause, however, have unanimously found
that the purpose of the clause is to indemnify the assured for the assured's
liability to a third person as a result of a collision." Brief of Appellee at 11
(emphasis in original)

Some debate has taken place over whether the Collision Liability clause covers
contract as opposed to tort liability. Several English cases interpreting the
meaning of the Running Down clause have limited the liabilities under the
clause to damage arising from tort rather than contract. See Furness Withy &
Co., Ltd. v. Duder, [1936] 2 All E.R. 119, 55 L1. L.Rep. 52; Hall Bros.
Steamship Co., Ltd. v. Young (The TRIDENT), [1939] 1 All E.R. 809, 63 L1.
L.Rep. 13. The court in Furness stated:
I think the clause means that where in consequence of a collision there arises a
legal liability upon shipowners to pay a sum which can properly be described as
damages for a tort, then the underwriters will indemnify them. The expression
"become liable to pay ... by way of damages" indicates to my mind, a liability
which arises as a matter of tort, and not as a matter of contract.
Furness, [1936] 2 All E.R. at 123.

Whether this distinction is currently viable in the United States appears

unsettled. Compare Harbor Towing Corp. v. Atlantic Mut. Inc. Co., 189 F.2d
409, 413 & n. 3 (4th Cir.1951) (citing with approval Furness but noting in a
footnote that "the restriction of coverage to liabilities from tort as distinguished
from contract would hardly find favor in this country.") with A. Parks, supra,
701-03 ("Since all three [American] cases involved an earlier version of the
clause, and the current clause has been amended to include the phrase 'in
consequence of the Vessel being at fault,' the question in the United States has
now been layed to rest.") However, the current position in the United States
appears to allow recovery for both contract and tort liability arising from
collision damage to another vessel. See Harbor Towing, 189 F.2d 409, 413 & n.
3.
10

Bender's argument that the liquidated damages resulted from the collision
rather than from delay and disruption is advanced by Bender to avoid the policy
exclusion for delay and disruption damages. See ante at 1554. This distinction
is also important in determining whether the liquidated damages paid by
Bender were remotely or directly related to the collision. See Blaine Richards &
Co., 635 F.2d at 1054

11

The court did not allow recovery for delay in delivery of the vessel. The
contract provided no specific completion date and the delays were in part due to
factors beyond the control of Onetta. Stanley, 303 F.Supp. at 105

12

Bender relies in its Brief upon two other authorities, Goodyear Rubber and
Supply, Inc. v. Great Am. Ins. Co., 545 F.2d 95 (9th Cir.1976) (liability
policy's coverage against fire and explosion damages extended to salvage
claims resulting from fire and explosion) and Kilroy Indus. v. United Pac. Ins.
Co., 608 F.Supp. 847 (C.D.Cal.1985) (claim for income reduction was not
excluded under business protection policy which excluded certain losses from
coverage), in support of its distinction between consequential damages and
delay and disruption damages. Neither of these cases involves interpretation of
a marine insurance policy nor do they address a situation similar to the
liquidated damage provision in the present case. These cases are therefore of
little assistance to Bender's case

13

Bender cites Haynes v. Hanover Ins. Co., 783 F.2d 136 (8th Cir.1986)
(innocent spouse recovery under fire insurance policy should not be barred by
misconduct of spouse); Spezialetti v. Pacific Employers Ins. Co., 759 F.2d 1139
(3d Cir.1985) (innocent co-assured was precluded from recovering fire policy
proceeds by coinsured's arson under policy which denied coverage for loss
resulting from dishonest act of any insured) and Frank Briscoe Co., Inc. v.
Georgia Sprinkler Co., Inc., 713 F.2d 1500 (11th Cir.1983) (insurer who paid

for a general contractor's loss caused by a leaky fire protection system under a
Builder's Risk policy could not maintain a subrogation action against a
subcontractor because the subcontractor was a co-insured with the contractor),
to support its position on co-assured coverage. These cases are inapposite as
they deal with different factual and legal situations than the present case
14

The Hartford's argument that Todd could not collect under the Collision
Liability clause because of its status as a co-assured and co-loss payee
overstates the strength of this argument. Had Todd, rather than C.N. Lloyd
Brasilero, been the owner of the M/V ITAPURA, there appears to be no
principle of maritime insurance law which would have prohibited Todd from
collecting for damages done to the ITAPURA under the Collision Liability
clause. The more persuasive reason for denying coverage is that the Collision
Liability clause does not cover damage to the insured vessel itself and that
Todd's damages, in effect, are damages to the insured vessel

15

The Hartford also argues that allowing Todd to recover under the Collision
Liability clause creates inconsistent results. If Todd had attempted to make a
claim directly against the Hartford under the policy for delay damages, the
policy would not have afforded coverage to this loss. Allowing Todd to
circumvent this outcome through an action against Bender defeats the purpose
of the limitations of liability in the Collision Liability clause