Confidential Amount
Awarded
TD CITATION 25 TD 6TH 4
ARBITRATION – Owners of charter vessel sue insurance carrier for bad faith
Insurance*Bad Faith*Duty to Indemnify
Insurance*First Party Coverage* Property
Maritime*Miscellaneous
Los Angeles County Superior Court
Williams v. Insurance Company of the West, No. BC251743. Downtown. Gregory W. Alarcon.
Arbitration Date: 2/27/03.
Arbitration Result: Defense According to defendant: Plaintiffs failed to meet their burden of proof regarding the cause of their engine losses. The subject insurance policy was a specified peril policy and included coverage for latent defects. Plaintiffs failed to prove that the losses were caused by latent defects.
Counsel
Plaintiff: Charles H. Gardner, Law Offices of Michael Mirharooni, Beverly Hills.
Plaintiff: Michael Mirharooni, Law Offices of Michael Mirharooni, Beverly Hills.
Defendant: Sterling J. Stires, Law Offices of Charles S. LiMandri, Rancho Santa Fe.
Facts/Contentions
According to defendant: The owners of a charter vessel brought a bad faith claim against their insurance carrier. The plaintiffs were Stafford Williams; James Culligan; and Daniel Rohrback dba Beach Cities Enterprises (“Beach Cities”). The defendant was the Insurance Company of the West (“ICW”). This was an insurance bad faith case in which plaintiffs alleged that defendant wrongfully denied insurance coverage for plaintiffs’ claim of damage to the charter vessel, the M/V Galatea. Plaintiffs’ claim arose out of an incident that took place on or about December 17, 2000, in which the two separate diesel engines of the M/V Galatea “broke down,” which allegedly caused substantial damage to the vessel. Initially, plaintiffs alleged causes of action for breach of the insurance policy and for tortuous bad faith failure to provide insurance benefits. Plaintiffs also initially sought punitive damages. The applicable insurance policy was a “specified” or “named” standard hull policy. As this was a named peril insurance policy, plaintiffs’ bore the burden of proving that the subject engine failures were caused by a named peril within the insurance policy. The “Inchmaree Clause” within the policy provided coverage for “latent defects” in the machinery if the loss or damage was not the result of “want of due diligence” by the insured. Plaintiffs alleged that the two separate engine failures were caused by latent defects, and they argued that the “Inchmaree Clause” provided coverage for their loss in the standard “Hull and Machinery” ocean marine insurance policy.
Defendant contended that plaintiffs breached their continuing duty to operate the vessel in a “seaworthy” condition, and that plaintiffs breached their duty of “utmost good faith” implied in all ocean marine insurance policies.
Claimed Injuries
NA
Claimed Damages
According to defendant: Breach of insurance policy, breach of implied warranty of good faith and fair dealing, and punitive damages exceeding $1,000,000.
Settlement Discussions
According to defendant: Plaintiffs initially demanded $1,000,000, later made several CCP§998 demands, the lowest being $29,000. Defendant rejected the statutory demands. Plaintiff’s agreed to a binding arbitration with a cap of any award in the estimated amount of the loss (approximately $53,000), plus 40 percent of the award for attorney fees, and agreed to dismiss the insurance bad faith cause of action and punitive damages claim. Prior to the binding arbitration, plaintiffs offered to settle for $20,000. At the binding arbitration hearing before Hon. Irwin Nebron, plaintiffs raised new issues regarding crew negligence as a potential cause of loss, which if found true, would have provided coverage under the policy. The arbitrator requested that the parties fully brief all of the issues, including the new issue of crew negligence. Subsequent to the filing of the amended arbitration briefs, the arbitrator found that plaintiffs failed to meet their burden of proof as to each and every issues alleged.
Experts
Plaintiff: Paul Chappell, diesel mechanic, The Sea Wrench, (310) 374-9705.
Defendant: Phillipe Van Herle, mechanical engineer/metallurgist, Vollmer-Gray Engineering Lab., Long Beach, (562) 437-6468.
Expert Testimony
According to the defendant: Plaintiffs’ expert, Chappell, testified that the two separate engine failures were caused by latent defects.
Defense expert, Van Herle, testified that the two subject engine failures were not caused by latent defects, but rather inadequate lubrication between metallic surfaces in the engines.
Comments
According to defendant: Defendant was self-insured.