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Egan Marine Corp. v. Great American Insurance Company of New York

June 13, 2007

EGAN MARINE CORPORATION AND SERVICE WELDING AND SHIPBUILDING, LLC, PLAINTIFFS,
v.
GREAT AMERICAN INSURANCE COMPANY OF NEW YORK, DEFENDANT.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

Egan Marine Corporation and Service Welding and Shipbuilders, LLC allege that Great American Insurance Company of New York breached its ocean marine pollution liability policy (the policy) by refusing to provide coverage for one of two vessels involved in an explosion and fire on the Chicago Sanitary and Ship Canal. Egan and Service Welding also claim that Great American breached its duty of good faith and fair dealing by wrongly denying coverage and failing to communicate with its insureds with respect to their claim for coverage. The parties have cross-moved for summary judgment. On May 23, 2007, the Court ordered the parties to file supplemental briefs on several issues that had not been well developed in the prior briefs. For the following reasons, the Court grants Great American's motion for summary judgment and denies Egan and Service Welding's motion for summary judgment.

Facts

On January 19, 2005, two vessels owned by Egan Marine were traveling the Chicago Sanitary and Ship Canal. Lisa E, a tugboat, was towing a tanker barge designated EMC 423. The EMC 423 was a "dumb barge," meaning that it had no crew, self-propulsion, or navigation systems of its own. It was entirely dependent on the tugboat. The vessels docked at the ExxonMobil refinery in Joliet to load what the Lisa E's crew believed to be clarified slurry oil for transport to Ameropan Oil Co. in Cook County. Unbeknownst to the Lisa E's crew, however, the refinery loaded petroleum from a "hot" tank that contained volatile petroleum products. While the Lisa E and the barge were passing near the Cicero Avenue Bridge, the petroleum on the barge exploded and started a fire. Though not certain (and not important for this coverage action), it appears that the explosion was caused when the barge passed underneath high voltage wires that may have ignited the petroleum vapors. One of the Lisa E's crew members was thrown overboard as a result of the explosion.

After the explosion, the crew of the Lisa E jumped on the barge, refastened it to the tugboat, and proceeded to move the barge out of the channel to a dock nearby where it sank. The crew of the Lisa E then disconnected from the barge, which was afire, and began searching for their missing crewmate. As a resultof the explosion and fire, some of the petroleum cargo carried by the barge discharged into the canal. The Coast Guard arrived in the evening. It ordered the Lisa E to end its search for its missing crewmate and move within the oil containment boom that had been placed around the sunken EMC 423.

Egan contacted Great American to report the accident. Great American dispatched Meredith Management Company to the scene to assume control of containing and cleaning up the oil that has spilled from the EMC 423. Meredith and Great American appointed Dennis Egan as salvage master and entered into a contract with Service Welding to provide salvage and pollution remediation support. In the months that followed, Egan Marine and Service Welding assisted in the remediation of the pollution that resulted from the explosion. The crews were able to eventually raise the EMC 423 and tow it to the Service Welding facility in Lemont, Illinois.

The policy Great American issued to Service Welding named Egan Marine as an additional insured and contains a schedule of vessels identifying the Lisa E and EMC 423. Service Welding paid $2,592 for $5,000,000 of insurance coverage relating to the Lisa E, and $6,552 for $5,000,000 of coverage relating to the EMC 423. The policy defines an "incident" as "an event that exposes [the named insureds] to liability under OPA90 or CERCLA or FWPCA for which Section B provides coverage."*fn1 Pl. LR 56.1 Stat. ¶ 61. Section B states that

[c]overage applies to all Vessels listed on the Declarations Page or on the Schedule of Vessels page, for incidents that occur during the effective period of this policy . . . Subject to all EXCLUSIONS and LIMITATIONS in Sections C and D, and subject to all the terms and conditions in the Policy, We will indemnify You for the following ten coverages. ...

5. Miscellaneous Spill Liability -- Costs and expenses paid by You to mitigate liabilities for incidents where such occurrences are insured by this policy, but subject to our WRITTEN EXPRESSED PRE-APPROVAL.

6. Defense costs -- Costs and expenses paid by You to investigate and pursue a legal defense against claims or liabilities insured by this Policy. This coverage will terminate upon payment of judgments or settlements which exhaust the amount of insurance as stated in the Declarations Page of this policy.

7. Firefighting and Salvage -- Firefighting, salvage, offloading, and disposal of cargo, but ONLY to the extent that such actions contribute to stopping a discharge or release, OR prevent a substantial threat of a discharge or release under OPA90, CERCLA, or the FWPCA.

8. Limited Administrative Penalties -- Your liability under the section of the . . . [FWPCA] . . . that was amended by OPA90 to allow for administrative penalties against You under Section (b)(6)(A)(i) of the FWPCA. The maximum amount of insurance payable by this Policy for this coverage is two hundred and fifty thousand dollars ($250,000) per incident, per Vessel, and shall be a separate limit from the amount of insurance shown elsewhere in the Policy. Penalties imposed under any other section of FWPCA, any other Federal Statute, or the laws of any State or subdivision thereof are specifically EXCLUDED.

9. Public Relations -- Sixty percent of the costs and Expenses paid by You with our prior written consent for public relations during the removal phase of an incident arising out of a claim covered elsewhere in this policy. The maximum amount of insurance payable by this policy for this coverage is one hundred thousand dollars ($100,000) per incident, per ...


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