Magnum Marine Corp., N v. V. Great American Insurance Company, 835 F.2d 265, 11th Cir. (1988)

835 F.
2d 265
MAGNUM MARINE CORP., N.V., Plaintiff-Appellee,

v.
GREAT AMERICAN INSURANCE COMPANY, DefendantAppellant.
No. 86-5933.
United States Court of Appeals,

Eleventh Circuit.
Jan. 7, 1988.
Rodney Earl Walton, Miami, Fla., for defendant-appellant.

Scott M. Sarason, Mitchell, Harris, Canning & Murray, Debra A. Jenks,
Richard McAlpin, Miami, Fla., for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of
Florida.
Before JOHNSON and ANDERSON, Circuit Judges, and ATKINS * ,
Senior District Judge.
JOHNSON, Circuit Judge:
In this diversity case alleging breach of a marine insurance contract, Great

American Insurance Company appeals from the award by the United States
District Court for the Southern District of Florida of $122,768.671 to Magnum
Marine Corporation after a nonjury trial. We reverse and remand.
I.
2
By a renewal of a Builder's Risk Insurance Policy, Great American agreed to

cover all Magnum Marine vessels under construction or in stock against all
risks of physical loss or damage. Only one insured boat is at issue in the present
case.
Magnum Marine built a 40-foot powerboat in April 1982, and used the boat as
a demonstrator for the next three years. On February 1, 1985, the boat hit a
seawall during a sea trial. After the collision, the boat, under its own power and
without taking on water, returned to Magnum Marine's premises. Magnum
Marine immediately notified Great American of the damage to the boat's hull.
Surveyors representing Magnum Marine and Great American examined the

boat's damage. Both sides agreed on the amount of visible damage, but
Magnum Marine's surveyor contended additional unseen damage existed. Great
American offered to conduct further surveys to see if hidden damages existed.
In addition, Great American offered to pay to repair any hidden damages. At
some point, rather than repair the boat, Magnum Marine stripped the boat,
returning reusable machinery (valued at $50,324.19) to inventory and selling
the damaged hull as is for $40,000.
Unable to reach an out-of-court solution, Magnum Marine sued Great

American. The parties initially focused on the policy's limitation on
recoverable damages contained in the "valuation clause":
Valuation:
6 the event of loss or damage hereunder it is mutually agreed that the valuation
In
shall be determined in accordance with the following:
7 Net cost to the Assured of all materials covered by this policy plus labor expenses
a)
incurred.
8b) There shall be NO allowance for:
1) Cost of Operations
2) Profit
9
After closing argument, Magnum Marine, responding to the district court's

questions, suggested that the policy's total loss provision provided a basis for
recovery. That provision states in relevant part:
10
There shall be no recovery for a constructive Total Loss under this Policy
unless the expense of recovering and restoring the Vessel (as insured
hereunder) to the stage of her construction at time of loss would exceed her
value at such stage of construction (which value shall be taken to be the cost of
labor actually expended by the Builder in the construction of the Vessel and
material actually incorporated therein at the time of loss, including accrued
overhead and profit on such labor, not exceeding the Agreed Value).
11
The district court concluded that Magnum Marine could not have sold the boat
as a new Magnum Marine boat even if repairs were economically feasible: "
[T]he vessel could not be restored to the stage of her construction at the time of
loss. Thus, the boat was a total loss." Magnum Marine Corp. v. Great American
Ins. Co., 640 F.Supp. 1142, 1144 (S.D.Fla.1986). The district court awarded
Magnum Marine damages of $125,268.67.2 The district court started with the
value of the boat ($215,593.16) and subtracted the salvage of the hull
($40,000) and parts ($50,324.19). Because of its holding, the district court had
no need to reference the valuation clause and determine actual damages.
II.
A. Failure to Tender Abandonment
12
Magnum Marine first suggested the constructive total loss provision as a basis
of liability after closing arguments had concluded (R5:249-250). A brief sketch
of admiralty law3 highlights why this late suggestion produced a record that
does not address the points usually contested in cases of constructive total loss.
Damage to a vessel4 results in one of three conditions: (1) actual total loss,5 (2)
constructive total loss, or (3) partial loss. Under the policy here, constructive
total loss occurs when restoration costs exceed the boat's value at the time of
loss. By default, partial loss occurs when constructive total loss does not.
13
Admiralty law has developed two critical distinctions between constructive

total loss and partial loss claims. First, if a constructive total loss occurs, the
insured receives the boat's value without proof of particular damages. In
contrast, recovery for partial loss requires proof of particular damages. Second,
the insurer is alerted that the insured seeks recovery for constructive total loss
because the insured abandons the boat. In contrast, recovery for partial loss
does not require abandonment. American law fixes the right to abandon on the
basis of facts at the time abandonment is tendered. Thus, the insurer would
have to pay for a constructive total loss if a reasonable probability existed at the
time of tender that restoration costs exceeded the boat's value at the time of
loss.
14
Problems arise when, as in the present case, the insured does not tender
abandonment. Great American argues that Magnum Marine's failure to tender
abandonment precludes recovery for constructive total loss. Magnum Marine
first responds that Great American cannot raise this affirmative defense for the
first time on appeal.

15
In Fishing Fleet, Inc. v. Trident Ins. Co., 598 F.2d 925, 926 n. 1 (5th Cir.1979),
this Court's predecessor held that the tender of abandonment issue is waived as
an affirmative defense if not properly raised in the trial court. See Fed.R.Civ.P.
8(c). The Court noted that tender of abandonment is not an absolute prerequisite
to recovery. A tender of abandonment is not required "if it would be a futile act
or idle ceremony." Rock Transport Properties Corp. v. Hartford Fire Ins. Co.,
312 F.Supp. 341, 347 (S.D.N.Y.), aff'd, 433 F.2d 152 (2d Cir.1970). The
Fishing Fleet Court concluded that whether a tender of abandonment would
have been a futile act presented a question of fact and therefore the Court
declined to consider the issue first raised on appeal.
16
Although Fishing Fleet seems to preclude our review, Magnum Marine's

actions in the present case cause us to hold otherwise. Magnum Marine's
complaint stated that "[a]s a result [of hitting a sea wall during a sea trial],
MAGNUM sustained damage in excess of One Hundred Thirty-one Thousand
One Hundred Seventy-five ($131,175.00) Dollars. The loss was covered by the
terms of the policy." Magnum Marine thus sought recovery for actual damages.
This allegation is consistent with a partial loss claim, which does not require
abandonment as a precondition for recovery. Consequently, if Great American
had responded to Magnum Marine's complaint by asserting failure to tender
abandonment as an affirmative defense, that defense most likely would have
been struck as frivolous. See Fed.R.Civ.P. 12(f).
17
None of Magnum Marine's subsequent actions in connection with the litigation

suggested that recovery was sought for constructive total loss. The parties'
pretrial stipulation expressly provided that "[t]his is an action for breach of an
insurance contract in the amount of $131,175.00 together with interest, costs
and attorneys' fees." In addition, the stipulation references and quotes the
valuation clause without setting forth the total loss provision. Magnum Marine
also agreed to a pretrial stipulation that "[t]he policy has a deductible of
$2,500.00." The insurance policy states that "there shall be deducted from the
aggregate of all claims ..., the sum of $2,500.00, unless the accident results in a
Total Loss of the Vessel in which case this clause shall not apply." Magnum
Marine, by agreeing to this stipulation, indicated that it sought damages for
partial loss, not recovery for constructive total loss. Because Magnum Marine
did not suggest constructive total loss as a basis of liability until after closing
arguments, we address Great American's contention that failure to tender
abandonment precludes Magnum Marine's recovery for constructive total loss.
18
Magnum Marine argues, pursuant to Rock Transport, that tender would have
been futile. Rock Transport is not applicable to the present case because the
insurance company there denied any liability. Here, Great American does not
dispute liability; it only questions the amount of Magnum Marine's recovery.
Here, however, tender still would be futile. Great American believed Magnum
Marine should recover between $13,000 and $20,000. Because this figure
would not exceed the boat's value at the time of loss, Great American would
have refused the tender.6 Consequently, Magnum Marine's failure to tender
does not block recovery for constructive total loss.7
B. Constructive Total Loss
19
As defined by the insurance policy, the district court could conclude that a
constructive total loss occurred only after quantifying two monetary amounts.
1. Boat's Value at Time of Loss
20
The district court initially determined the boat's "value at [the] stage of
construction [at the time of loss]." The policy defined that value as "the cost of
labor actually expended by the Builder in the construction of the Vessel and
material actually incorporated therein at the time of loss, including accrued
overhead and profit of such labor and material, not exceeding the Agreed
Value." The district court determined this value as $215,593.16.
21
Great American argues that this factual finding, in light of the evidence before
the district court, is clearly erroneous. Great American argues that, although the
insurance policy required adding together labor costs, materials costs, overhead
costs, and profit to arrive at the boat's value, the $215,593.16 figure did not
include profit or overhead, according to Magnum Marine's own witnesses.
Great American's argument is without merit. Great American's reference to trial
testimony by one of Magnum Marine's witnesses, see R5:204, overlooks that
the witness testified that a construction cost of $204,000 did not include
overhead costs and profit.8
2. Repair Expense
22
The district court then had to determine "the expense of recovering and
restoring the Vessel (as insured hereunder) to the stage of her construction at
time of loss." Because the boat made it back to Magnum Marine's premises
under its own power, only restoration expenses are relevant here.
23
Neither party disputes that the boat could have been repaired. Magnum
23
Neither party disputes that the boat could have been repaired. Magnum
Marine's expert witness testified that repairs would cost $150,000 (R:3-39).
Great American's expert witnesses testified that repairs would cost between
$13,000 and $20,000 (R:3-106, R:3-124, R:4-147-148). Because the boat's
value of $215,592.80 exceeds repair costs, the constructive total loss provision
does not appear implicated.
24
Magnum Marine, however, argues that the repairs would not "restor[e] the
Vessel ... to the stage of her construction at time of loss." Magnum Marine
contends that it is entitled to a new boat, and not just a repaired boat. The
district court agreed:
25
Although
[the vessel] could have been repaired, this Court finds that the vessel could
not be restored to the stage of her construction at the time of loss. Thus, the boat was
a total loss. MAGNUM MARINE, being a builder and seller of high quality new
boats, could not have sold [the vessel] as a new boat even if repairs were
economically feasible. Since the damage to [the vessel] was so extensive, the vessel
was unsaleable as a new boat.
26
640 F.Supp. at 1143. In contrast, Great American argues that "stage of her
construction at time of loss" means Magnum Marine was entitled only to a boat
in seaworthy condition.
27
We do not agree with the interpretation offered by either party or accepted by

the district court. Rather, we hold that the term "stage of her construction at
time of loss" as applied to a completed vessel that will be sold means that the
vessel, once repaired, must be capable of being sold for a price at least equal to
the boat's value (calculated pursuant to the insurance policy provision) at the
time of the accident. We reject Great American's argument that under maritime
law Magnum Marine was entitled only to a seaworthy vessel. The relevant
cases cited by Great American involve vessels whose primary purpose was
shipping. In contrast to those cases where seaworthiness is the prime concern,
the present case involves a company selling pleasure boats where the
saleability of its boats is the prime concern. The repaired vessel thus must be
seaworthy and capable of being sold.
28
Determining that Magnum Marine was entitled to a boat capable of being sold
does not mean that a constructive total loss occurred. Magnum Marine argues,
and the district court agreed, that the repaired boat must be capable of being
sold as a new boat. We do not so read the insurance policy. The policy,
especially because its valuation clause specifically excludes consequential
damages from recovery, provides only that the insured shall recover the cost of
construction or the Agreed Value, whichever figure is lower. Magnum Marine's
reading, however, would permit recovery for consequential damages, and

would frustrate the purpose of the constructive total loss provision because
recovery for constructive total loss would be permitted even though an insured
could sell the repaired boat and receive an amount at least equal to the boat's
value at the time of the accident. Consequently, we interpret the term "stage of
her construction at time of loss" to require that the repaired vessel be capable of
being sold for at least the boat's value at the time of the accident.
29
In the present case, Magnum Marine failed to present any evidence that the
boat, once repaired,9 could not be sold for at least the boat's value at the time of
the accident (i.e., $215,592.80). Indeed, Great American's expert witness
testified that the repaired boat could be sold for more than that amount. See
R:4-144-147. Because Magnum Marine failed to show that the repaired boat
could not be sold for at least the boat's value at the time of the accident, the
constructive total loss provision was not implicated. The district court should
have determined actual damages pursuant to the policy's valuation clause.
Accordingly, we REVERSE and REMAND for such a determination.
Honorable C. Clyde Atkins, Senior U.S. District Judge for the Southern District
of Florida, sitting by designation
This figure does not include the district court's award of costs, reasonable
attorney fees, and prejudgment interest
This amount should be $125,268.97. The district court subtracted $2,500 from
its award because the parties had stipulated before trial that a $2,500 deductible
applied
See generally G. Gilmore & C. Black, The Law of Admiralty, Sec. 2-14 (2d ed.
1975)
Neither party disputes that the cause of the damage (i.e., hitting the seawall
during a sea trial) triggered policy coverage
Actual total loss, which occurs when the boat no longer exists in specie, is not
implicated in the present case
Great American would have refused because its acceptance would have
indicated agreement with Magnum Marine's claim that constructive total loss
had occurred
Such a conclusion comports with the policy for requiring abandonment.
Abandonment prevents the insured from getting the boat's insured value and
then gaining a windfall from the boat's salvage value. See Rock Transport, 312
F.Supp. at 347. Here, the district court subtracted the boat's salvage value
($90,324.19) from its award, and Great American presented no evidence that
the salvage value was too low
8
We note, however, that pursuant to the insurance policy the boat's value "shall
be taken to be the cost of labor actually expended by the Builder in the
construction of the Vessel and material actually incorporated therein at the time
of loss, including accrued overhead and profit on such labor, not exceeding the
Agreed Value." The Agreed Value in the present case is $215,592.80 (R3:53).
The district court thus should have found $215,592.80 as the boat's value. The
small difference between the boat's value and the figure referenced by the
district court does not influence our holding
Magnum Marine's expert witness testified that the boat, once repaired, would
be a safe vessel. See R3:41

Magnum Marine Corp., N v. V. Great American Insurance Company, 835 F.2d 265, 11th Cir. (1988)

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835 F.

MAGNUM MARINE CORP., N.V., Plaintiff-Appellee,

United States Court of Appeals,

Rodney Earl Walton, Miami, Fla., for defendant-appellant.

In this diversity case alleging breach of a marine insurance contract, Great

By a renewal of a Builder's Risk Insurance Policy, Great American agreed to

Surveyors representing Magnum Marine and Great American examined the

Unable to reach an out-of-court solution, Magnum Marine sued Great

After closing argument, Magnum Marine, responding to the district court's

Admiralty law has developed two critical distinctions between constructive

first time on appeal.

Although Fishing Fleet seems to preclude our review, Magnum Marine's

None of Magnum Marine's subsequent actions in connection with the litigation

We do not agree with the interpretation offered by either party or accepted by

reading, however, would permit recovery for consequential damages, and

Such a conclusion comports with the policy for requiring abandonment.

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