When Is A Mixed Insurance Contract A Maritime Contract?

February 22, 2017
Eric Chang

Types : Alerts

Whether a mixed insurance contract (i.e., an insurance contract with maritime and non-maritime elements) permits the exercise of admiralty jurisdiction is a complicated question for parties and for the courts. Admiralty jurisdiction can be the basis for subject matter jurisdiction for the federal courts.  court sitting in admiralty applies federal maritime law and provides for a non-jury bench trial, which may be advantageous or not depending on the party’s positioning.

Historically, admiralty jurisdiction was limited to contracts that were purely maritime – involving rights and duties pertaining to ships, vessels, and the navigation thereof on the ocean or elsewhere. Rea v. The Eclipse, 135 U.S. 599, 608, 10 S.Ct. 873, 34 L.Ed. 269 (1890); People’s Ferry Co. of Boston v. Beers., 61 U.S. 393, 402 (1858).

However, in 2004, the U.S. Supreme Court changed the landscape by exercising admiralty jurisdiction in a “maritime case about a train wreck.” Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 23, 125 S. Ct. 385, 160 L.Ed.2d 283 (2004). In Kirby, the Supreme Court considered a “mixed contract” relating to transportation of goods by both land and sea. Id. at 23-24. Even though the sea leg of the transportation was successful, and the derailment occurred during the subsequent train transportation, the Supreme Court concluded that the primary objective of the mixed contract was to transport the goods by sea from Australia to the United States’ Eastern coast. Ibid. The resulting Kirby “primary objective” test focused on whether the principal objective of the contract was maritime commerce.  Unfortunately, Kirby’s “primary objective” test is not so easily applied to umbrella insurance contracts covering both shore and sea-side risks.  This has led to inconsistent results among the various U.S. federal appellate circuits.

In The Hartford Fire Ins. Co. v. Harborview Marina & Yacht Club, a collapsed pier owned by the Defendant, Harborview was insured by Plaintiff The Hartford under a “Marina Operators Legal Liability and Boat Dealer Policy” (the “Policy”), which covered “all docks and piers that are owned by Insured”; “all risks of physical loss or damage as may be excluded”; and “salvage charges.” Id. at p. 2. The Hartford sought a declaratory judgment that, inter alia, the pier was not covered by the relevant policy and alleged admiralty and diversity jurisdiction. Harborview disagreed and moved to dismiss the case from the court’s admiralty jurisdiction and to proceed solely pursuant to diversity. This distinction matters because, aside from the right to a jury trial, admiralty jurisdiction would allow for the application of U.S. general maritime law, including the concept of Uberrimae Fidei – utmost good faith, an extra burden on the insurer.

Because the Courts of the Fourth Circuit had not previously addressed the question of whether a mixed insurance contract is a maritime contract, the District of Maryland court looked to how other circuits have applied Kirby. The Second Circuit, for example, engages in a two-step process. First, the court looks at the subject matter of the dispute to determine the threshold question of whether the dispute is so attenuated from maritime commerce that it no longer implicates maritime concerns. Folksamerica Reinsurance Co. v. Clean Water of New York, 413 F.3d 307, 312 (2d Cir. 2005). If maritime concerns are implicated, the Second Circuit then looks at the subject matter of the contract as a whole, focusing on the actual coverage and whether “maritime risks” are assumed by the insurer. Id. at 315.

On the other hand, the Sixth Circuit does not engage in the same threshold inquiry and instead considers whether the insured interest relates to maritime commerce. Under Sixth Circuit analysis, an insurance contract covering marina operations is not “necessarily” a maritime contract because the insured interest (i.e., the marina) is only a structure that “happens to involve boats,” and not the boats themselves. See New Hampshire Ins. Co. v. Home Sav. & Loan Co. of Youngstown, Ohio, 581 F.3d 420, 429-30 (6th Cir. 2009).

The Fifth Circuit focuses on the primary objective of the policy in terms of both coverage and the insured interest to determine if the contract relates to maritime commerce. Under Fifth Circuit analysis, unlike in the Sixth Circuit, a mixed insurance policy that covers some land-based operations at a partially land-based port is, nevertheless, inextricably related to maritime commerce because the port owns and operates vessels that are also covered by the umbrella policy.  St. Paul Fire & Marine Ins. Co. v. Bd. Of Comm’rs of Port of New Orleans, 418 F.Appx 305, 308 (5th Cir. 2011). The Fifth Circuit also takes into account whether the type of policy in question was of the type “widely recognized as common marine insurance policies.” Ibid.

The Ninth Circuit’s interpretation of Kirby’s “primary objective” test examines whether the contract as a whole has a primary purpose of protecting or affecting maritime commerce. In the Ninth Circuit, the focus is on whether a mixed insurance contract providing umbrella coverage has substantial “sea components” and possesses the “genuinely salty flavor” of a marine insurance contract. Sentry Select Ins. Co. v. Royal Ins. Co. of Am., 481 F.3d 1208, 1219 (9th Cir. 2007).  A policy is not maritime in the Ninth Circuit, if it primarily covers shore-side risks, and excludes traditional maritime risks. Id. at 1220.

Of the various tests applied by these circuits, the Harborview court was persuaded by the Second Circuit’s comprehensive analysis, and looked at the coverage terms of the insurance and whether maritime risks were assumed. Ibid. Turning to the Policy at issue, the scope of the Policy included insurance against all physical loss or damage to the docks, piers, and other land-based Harborview property such as fencing, furniture, planters, benches, and trash receptacles, but did not include traditional maritime risks such as property damage to boats, vessel collision, or pollution. The Harborview court further determined that the Policy insured the “docks or piers” but not any vessel, seamen, cargo, or freight.  The Hartford’s argument that the salvage charges justified finding admiralty jurisdiction were rejected as, at best, tangentially related to maritime commerce and in any event, secondary to the Policy’s primary objective to insure the land-based property against property damage. Accordingly, the Harborview court held that the Policy was not fundamentally maritime in nature, and declined to exercise admiralty jurisdiction.



Maritime and Transportation

Montgomery McCracken’s Maritime and Transportation Industry Group attorneys are globally recognized leaders in major casualty litigation, marine pollution, and cargo defense. We represents our clients in a broad range of […]

Learn more about our Maritime and Transportation Industry

1 of 1