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Decided: June 26, 2014

The Fourth Circuit affirmed the district court’s decision and held that the choice-of-law provision in the parties’ maritime insurance contract required the application of New York’s six-year statute of limitations, rather than the equitable doctrine of laches, which is ordinarily applied under maritime law, to determine the timeliness of certain claims brought under the insurance contract.

The American Steamship Owner’s Mutual Protection and Indemnity Association, Inc. (the “Club”) provided insurance for a tugboat owned by Dann Ocean Towing, Inc. (“Dann Ocean”).  After Dann Ocean’s tugboat damaged a barge, the barge owner asserted a claim for property damage against Dann Ocean.  The United States also asserted a claim against Dann Ocean for environmental damage to the reef.  Both cases settled.

Though the Club originally agreed to contribute an amount towards the settlement, one of Dann Ocean’s underwriters became insolvent, and was unable to pay its portion of the settlement.  The Club, however, paid the shortfall to preserve the “extremely favorable” settlement offer.  Dann Ocean refused to reimburse the Club for the shortfall.  In response, the Club declined to reimburse Dann Ocean for certain insurance claims.  Dann Ocean then refused to pay its insurance premiums and the Club filed suit, alleging a breach of the maritime insurance contract by failing to reimburse the Club for the shortfall and by failing to pay the premiums.  Dann Ocean filed a counterclaim alleging that the Club breached the insurance contract by failing to indemnify Dann Ocean for covered losses.  Both parties alleged that the respective claims against them were time-barred, and thus filed cross motions for summary judgment.

On appeal, the Court noted the absence of any authority that would prevent a federal court sitting in admiralty from enforcing a choice-of-law provision in a maritime contract, which incorporates a statute of limitations, in place of the traditional doctrine of laches.  The Court stated that the plain language of the maritime contract provided that New York law governed the contract.  The Court asserted that this provision evidenced the parties’ intent that, subject to stated exceptions in the contract, New York law would determine the timeliness of claims brought under the contract.  The Court also noted that the parties failed to indicate or preserve the application of the doctrine of laches for any claims brought under the contract.  Furthermore, the Court noted that under basic principles of contract interpretation, ambiguities are to be resolved against the insurer and in favor of the insured party.  Therefore, the Fourth Circuit affirmed the district court’s application of New York’s six-year statute of limitations to the Club’s claims.

Full Opinion

Abigail Forrister