Guam Industrial Services, Inc. v. Zurich American Insurance

BACKGROUND

Guam Industrial owned and operated a dry dock called the Machinist, located in Apra Harbor, Guam. The dry dock sank on January 2, 2011. Guam Industrial had insured the dry dock under two policies: a Hull and Machinery Policy, which was underwritten collectively by Zurich American Insurance Company (“Zurich”) and Starr Indemnity and

GUAM INDUS. SERVS. V. ZURICH AM. INS. CO.

Liability Company (“Starr”), and an Ocean Marine Policy, which was underwritten by Zurich alone.

The Hull and Machinery Policy covered damage to the dry dock resulting from certain specified “perils” that included lightning, earthquake, pirates, assailing thieves, and various types of accidents and malfunctions. As a condition of coverage, the policy required Guam Industrial to obtain and maintain Navy Certification for the dry dock (“the Navy Certification warranty”). Such certification ensures that the dock has satisfied a certain level of structural integrity. It is the highest standard in the industry.

It appears, however, that Guam Industrial never obtained Navy Certification. Instead, Guam Industrial obtained “commercial” certification from a company called Heger Dry Dock,…

Dissent by Judge KOZINSKI.

OPINION

This insurance coverage case arises out of the sinking of a dry dock, loaded with barrels of oil, during a typhoon bn Guam. The issues pertain to whether either of two insurance policies covered costs of damage to the dock and the clean up which was accomplished before any of the oil leaked out of the containers into the Pacific Ocean.

Guam Industrial Services, Inc. (“Guam Industrial”) owned the dry dock. At the time of the sinking, one of its insurance policies covered damage to the dock, and one covered liability for property damage caused by pollutants. After the dock sank, Guam Industrial filed a claim under each policy. The insurers denied the claims, and Guam Industrial brought suit. The district court granted summary judgment for the insurers, finding that the first policy was voidable because Guam Industrial had failed to maintain the warranty on the dock, and that the coverage under the second policy was never triggered because no pollutants were released. Guam Industrial and its CEO, Mathews Pothen, appeal. We affirm.

BACKGROUND

Guam Industrial owned and operated a dry dock called the Machinist, located in Apra Harbor, Guam. The…

dissenting in part:

If you slap a silk suit on a monkey, you still won’t want to take it to the prom. And if you pour crude oil into a barrel, you still won’t want it in your hot tub.

Zurich’s Ocean Marine Policy covers claims “arising out of the discharge, dispersal, release, or escape of ... oil ... or pollutants into ... any watercourse or body of water.” Guam Industrial paid for this coverage and Zurich happily accepted the premiums. (Insurance companies seldom have trouble with this part of the bargain.) What risk was Zurich paid to assume? The risk that something nasty would get into the water and Guam Industrial would be under a legal obligation to clean it up. That’s just what happened here: Some very nasty stuff — barrels containing over 100,000 gallons of industrial oil — plunged into the harbor when the dry dock sank. To no one’s surprise, the Coast Guard immediately issued Guam Industrial a clean-up notice. This wasn’t an invitation to the prom; it was a clean-up- or-else-we’ll-do-it-ourselves-and-make-you-pay-through-the-nose notice. Guam Industrial did what the law required of it and, thanks to its careful efforts, none of the oil mixed with the water. Why should…