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Marine insurance contracts often include a “navigational limit,” which restricts coverage to losses occurring within particular waters. But where navigable waterways define the boundaries between jurisdictions (e.g. the Columbia River, the Mississippi River and Alaska’s Portland Canal), ambiguities can arise in defining those limits, which can result in unexpected obligations to defend and indemnify. Such a case recently arose in Oregon in Sullivan v. Certain Underwriters at Lloyd’s, 2016 WL 7422649 (D. Oregon Dec. 22, 2016), and is now before the Ninth Circuit Court of Appeals.
In December 2011, while a guest aboard the yacht Trilogy during the annual Portland, Oregon Christmas Ships parade, John Sullivan slipped from the weather deck and drowned in the Columbia River. At the time of the drowning, the Trilogy was moored at public docks in St. Helens, Oregon. At that point in the river, the legal Washington-Oregon border runs along the river’s center.
The Trilogy and its owners were insured by a recreational yacht policy (Policy) subscribed by Underwriters at Lloyd’s, London (Yacht Insurer) insuring both the vessel and her owners for bodily injury or death claims arising out of the use or ownership of the yacht. The Policy was subject to a navigational limit warranty, which provided:
Warranted confined to the use and navigation of Washington and British Columbia including the inland lakes and rivers and including the west coast of Vancouver Island and the west coast of Queen Charlotte Islands, Puget Sound and adjacent waters, and the Straits of Juan de Fuca, southeastern Alaska not west of Cape Spencer, but warranted not to navigate to: a) on the Fraser River east of the Sumas River; b) on the Pacific coast of Washington south of the 48 degree north latitude.
The Policy further included the following provision:
[T]he Insurer has agreed to accept the risk of insuring the watercraft on the condition precedent that the Insured will comply strictly and literally with the Navigational Limit. If the Insured breaches any of these warranties or conditions, the Insurer at its option will not pay any claim arising thereafter, regardless of whether or not such breach is a causative or in any way connected to such claim.
Trilogy’s owners accordingly warranted that Trilogy would be “confined to the use and navigation” of Washington and British Columbia waters with precise descriptions of the boundaries of the applicable region around Puget Sound and along coastal British Columbia and southeastern Alaska. Trilogy was restricted from navigating “on the Pacific coast of Washington south of the 48 degree north latitude.” Notably, the Policy did not attach a territorial map defining the navigational limit and did not specifically exclude coverage for operation on the Columbia River.
Sullivan’s estate filed a wrongful death claim against Trilogy’s owners, who sought coverage under the Policy. The Yacht Insurer refused to defend against the lawsuit, asserting that (1) coverage was excluded because the Columbia River was not an “inland river” within Washington’s landmass or, alternatively, (2) that because Trilogy was moored on the Oregon side of the river, it was not within Washington’s territorial limits.
Trilogy’s owners assigned their coverage and bad faith claim to Sullivan’s estate, which filed suit in the United States District Court for the District of Oregon, seeking a declaration that the Yacht Insurer owed duties of defenses and indemnity. The parties each filed cross-summary motions judgment on undisputed facts. Magistrate Judge You issued findings and recommendations, the conclusions of which were adopted with new analysis by District Judge Simon. In short, the Oregon Federal Court found that the navigational limits warranty was ambiguous and held that the Yacht Insurer had a duty to defend.
In her findings and recommendations, Magistrate Judge You applied Washington law to determine whether the navigational limit warranty was ambiguous, concluding that it was and holding that the insurer owed coverage on Sullivan’s claim. See Sullivan v. Certain Underwriters at Lloyds, No. 3:15-cv-00926-YY, Docket 25 (D. Or. Sept. 6, 2016). The parties’ dispute focused on the meaning and application of the “inland lakes and rivers” clause of the navigational limit. Judge You concluded that the Yacht Insurer’s own alternative interpretations of the clause demonstrated that the clause was ambiguous when applied to the Columbia River. Judge You took judicial notice that large stretches of the Columbia River are an “inland river” of Washington, raising an ambiguity as to the parties’ intent regarding that waterway. As Judge You put it:
Does the fact that a large portion of the Columbia River lies within Washington’s land mass mean the entire river should be classified as an “inland river” under the terms of the policy? Or did the parties intend for only that portion of the Columbia River that is landlocked to be covered by the policy and rest of it not?
Judge You also rejected the Yacht Insurer’s alternate argument that the Policy unambiguously provided coverage on only the Washington side of the river. To support its position, the Yacht Insurer cited to the Washington Constitution, which provides that Washington’s southern border with Oregon starts at the Pacific Ocean and runs “up the middle channel” of the Columbia River, along with the Act of Congress Admitting Oregon into the Union in 1859, which likewise defines Oregon’s border as “the middle channel of [the Columbia].” Wash Const, Art XXIV, § 1; 11 Stat 383 (1859). For its part, Sullivan’s estate noted the Supreme Court’s decision in Nielsen v. Oregon, in which the Supreme Court held that Washington and Oregon have concurrent jurisdiction over the entire Columbia River in civil and criminal matters under the 1859 Act of Congress. 212 U.S. 315, 320 (1909). The parties also dueled over a series of Supreme Court cases interpreting the term “inland” in the Submerged Lands Act of 1953. 43 USC §§ 1301–1356b.
Considering all of this, Judge You commented that:
[D]efendant’s second theory—that the policy covers only the Washington side of the middle of the Columbia River—raises a question of practical application: Given weather conditions and other factors that affect boating, is it practical that a five ton yacht would navigate through the Columbia without ever crossing over the middle of it? Otherwise stated, was it the intention of the parties that the yacht would have to hug the Washington shoreline while traveling through the Columbia River?
Judge You considered such an interpretation to be a strained construction that “challenges common sense.” Holding the navigational limit ambiguous, Judge You construed it against the insurer and concluded that the Yacht Insurer owed Trilogy’s owners a duty to defend against the lawsuit filed by Sullivan’s estate.
On review of Judge You’s findings and recommendations, District Judge Simon adopted Judge You’s conclusions with his own analysis. 2016 WL 7422649 (D. Oregon Dec. 22, 2016). First, Judge Simon identified an ambiguity in the phrase “inland lakes and rivers,” questioning whether the term “inland” modified both lakes and rivers, or just lakes. Judge Simon also held that the insurer’s interpretation of the policy led to absurd results, holding:
For example, assume vessel A is the insured vessel and it is traveling on the Washington side of the Columbia River when vessel B comes directly at it from the opposite direction. Vessel A veers to the Oregon side of the river in an effort to avoid a collision, but the two boats nevertheless collide. Under Defendant’s interpretation of the navigational limits clause, Vessel A has veered out of the navigational limits and there is no coverage. Assume, however, that instead of Vessel A veering to the Oregon side in an attempt to avoid a collision, vessel B veers to the Oregon side and so Vessel A remains on the Washington side, but a collision still occurs. Then, there is coverage because Defendant considers Vessel A to be in Washington. It is not reasonable to interpret an insurance contract as only covering a vessel on one side of the river but not on the other. The river is moving, there are hazards and other vessels on the river, and coverage cannot reasonably be determined by the luck (or lack thereof) of encountering an obstacle that can be avoided by travelling on the Washington side of the river versus the Oregon side.
Judge Simon stated that “[i]f Defendant intended a vessel to have full use of the vast majority of the Columbia River (which begins in British Columbia and travels south through Washington, turning west at the Oregon–Washington border and traveling to the Pacific Ocean), but then only half of the river when it serves as the border between Washington and Oregon, Defendant could have clearly stated that in the policy.” Concluding that an “average person” would not understand the navigational limit warranty to have that meaning, Judge Simon granted summary judgment in favor of the Sullivan estate.
The Yacht Insurer has appealed the District Court’s ruling to the Ninth Circuit Court of Appeals, with briefing to close in September 2017 pending the results of a settlement conference. (9th Cir. Case No. 16-36089.) Lane Powell will provide an update on the outcome of that appeal.
In summary, the Sullivan case demonstrates that insurance coverage exclusions are strictly construed. In the marine insurance context, where a legal and a natural boundary coincide, courts may find ambiguities in the real world that are harder to spot in text or on a map. In this case, the Court found that the navigational limits did not correlate with real-world geography underlying navigational limitations, as well as the insured’s intended use.
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