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The Rogak Report: 01 Mar 2005 ** Maritime Claims - Intervention **

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  • Lawrence Rogak
    American Steamship Owners Mutual Protection and Indemnity Assoc. Inc. v. Alcoa Steamship Co., NYLJ 3/01/05 (USDC - SDNY) (MAAS, j) In this declaratory judgment
    Message 1 of 1 , Mar 1, 2005
      American Steamship Owners Mutual Protection and Indemnity Assoc. Inc.
      v. Alcoa Steamship Co., NYLJ 3/01/05 (USDC - SDNY) (MAAS, j)

      In this declaratory judgment action, plaintiff American Steamship
      Owners Mutual Protection and Indemnity Association, Inc. ("Club")
      sought a ruling that it need not indemnify certain of its members for
      occupational disease claims which were not reported to the Club prior
      to February 20, 1989.

      William F. Higgins and approximately 10,000 other seamen and
      employees of two vessel lines (or their estates) ("Movants"
      or "Maritime Claimants") moved to intervene in the suit in an effort
      to ensure that they receive compensation for their asbestosis claims.
      The motion was supported by the trustee of the two vessel owners,
      which are in reorganization, and opposed by both the Club and certain
      other vessel-owner defendants ("Keystone Defendants"). Intervention
      was denied, but Movants' counsel was given permission to participate
      in this action as amici curiae.

      The Club is a non-profit mutual indemnity insurance association
      organized under the laws of the State of New York. The defendants
      were members of the Club for some or all of the period between about
      1940 and February 20, 1989. During that period, the Club issued to
      each member who participated in each Insurance Year a one-year fully
      assessable marine protection and indemnity insurance policy. Prior to
      the inception of each Insurance Year, the Club assessed each member
      an amount that was primarily determined by its historical loss
      experience. The policies at issue also required the payment of
      certain deductibles by the members. Through these payments, the Club
      members mutually indemnified each other for claims in each Insurance
      Year, except for catastrophic claims, which were covered through

      Until about 1989, each Insurance Year typically would be "closed"
      some ten years after its actual termination. In closing an Insurance
      Year, the Club's Board of Directors would determine whether any of
      the members owed final assessments or were owed dividends. The Board
      of Directors also could establish reserves to pay additional claims
      arising out of that Insurance Year. Once the Insurance Year was
      closed, however, the Club could not seek further assessments from its
      members for that Insurance Year; nor were members eligible for
      additional dividends for that Insurance Year.

      When the Board of Directors closed the Insurance Years between 1946
      and 1976, the Club set aside reserves for reported claims ("case
      reserves"), but not for incurred but not reported ("IBNR") claims.
      The reserves became the property of the members of the Club for years
      that remained open, but those members had an obligation to use case
      reserves to indemnify members of closed years for "their payments of
      reported claims."

      In the early 1980s, seamen began to assert claims for diseases
      relating to asbestos exposure which often arose out of their
      employment on vessels during the 1940s, 1950s, and 1960s. While no
      IBNR reserves had been established for such claims when the Insurance
      Years closed, around 1980 the Club adopted an informal practice of
      indemnifying members for asbestos-related IBNR claims from the Club's
      general reserves. The Club alleged that this practice was
      discretionary, because it was not set forth in the Club's charter, by-
      laws, or policies, and was not required by New York law. Although the
      Board of Directors ordered that a reserve be set aside to cover
      disease-related IBNR claims at the time that it closed Insurance Year
      1977, and Insurance Years 1979-1999, it did not make any assessments
      to establish IBNR reserves for previously-closed Insurance Years. The
      Board also took other steps to reduce the exposure of members and
      former members for IBNR claims arising out of closed years, including
      a decision to apply only the deductible for the most recent policy
      held by a member even if the exposure was alleged to have spanned
      multiple Insurance Years.

      On May 25, 2004, the Board of Directors voted to discontinue its
      discretionary practice, deciding that the Club would no longer
      indemnify the defendants for IBNR claims for occupational diseases
      that arose in closed Insurance Years prior to February 29, 1989.
      Because some of the defendants have objected to this change, the Club
      sought a declaratory judgment that it is entitled to end its
      discretionary practice of using general reserves for IBNR claims
      arising from closed Insurance Years prior to February 20, 1989. In
      the event such relief was not awarded, the Club sought leave to
      reopen closed Insurance Years and levy the assessments appropriate
      to "restore the requisite mutuality among all of its members in all
      Insurance Years."

      The Club also sought a declaration that it may, in such
      circumstances, assess asbestos claims against each of the Insurance
      Years implicated by the claims and apply the members' deductibles
      anew for each such year.

      The Movants sought compensation for a number of asbestos-related
      diseases, and, in some instances, for wrongful death. They were
      formerly employed as seamen or in other capacities by Prudential
      Lines, Inc. or Grace Lines, Inc.

      The Court began its ruling by stating that a third-party's right to
      intervene in an action, either as of right or permissively, is
      controlled by Rule 24 of the Federal Rules of Civil Procedure.
      Under Rule 24(a) of the Federal Rules of Procedure, a party may
      intervene as of right, upon timely application, when

      (1) . . . a statute of the United States confers an unconditional
      right to intervene; or (2) when the applicant claims an interest
      relating to the property or transaction which is the subject of the
      action and the applicant is so situated that the disposition of the
      action may as a practical matter impair or impede the applicant's
      ability to protect that interest, unless the applicant's interest is
      adequately represented by existing parties.

      The first requirement was met here. The Movants argued that they
      meet the second requirement because they are the ultimate
      beneficiaries of the Club's insurance policies and the reserves that
      the Club has established. Regarding the third requirement, the
      Movants argue that the fund established through the Trust has only
      approximately $100,000 available to pay disease-related claims, which
      means that the Trustee lacks the resources to litigate this case. The
      Movants attempt to satisfy the fourth requirement by postulating that
      the defendants in this litigation may not assert precisely the same
      interests or defenses.

      For their part, the Club and Keystone Defendants argued that the
      Movants have no interest to vindicate here because they have neither
      standing to pursue a direct action against the Club nor the right to
      intervene under New York law. They further contended that the
      Movants' interest in this action is contingent in at least two ways.
      First, they argue that the Movants' ability to secure indemnity from
      the Club for any claims is by no means secure, because the Club's
      insurance policies contain a "pay first" provision, and the Trust
      allegedly owes the Club $1,270,980 in unpaid premiums and assessments
      on behalf of Prudential, but has far less money at its disposal to
      honor claims and preserve its coverage. Second, they maintained that
      the Movants have never established that the Trust is, in fact, liable
      to the Club, noting that all of the Movants' cases against the Trust
      have been dismissed by Judge Charles R. Weiner, before whom they were
      pending in the Eastern District of Pennsylvania, on the basis of the
      Movant's "repeated failure to comply with the court's orders or
      provide adequate documentation to support their claims."

      This action concerns maritime insurance contracts, over which this
      Court has jurisdiction pursuant to its admiralty jurisdiction.
      General federal maritime law thus applies. The Complaint alleges that
      the defendants did and continue to do business in New York, the
      contracts were negotiated and delivered here, and some of those
      contracts specifically require the application of New York law.
      Accordingly, New York law determines whether the Movants have a claim
      against the Club.

      The relevant provision of New York law is Section 3420 of the New
      York Insurance Law. That section permits a party to commence a direct
      action for damages against an insurer if a damages award against the
      insured "shall remain unsatisfied at the expiration of thirty days
      from the serving of notice of entry of judgment upon the attorney for
      the insured, or upon the insured, and upon the insurer." The amount
      recoverable, however, may not exceed the limit of the insurance
      policy's coverage. These requirements "are not waivable procedures,
      but integral predicates for stating and sustaining a cause of action
      under the statute." Thus, the Movants could not bring a direct action
      against the Club without having first obtained a judgment against the
      Trust that remains unsatisfied for thirty days. This has yet to
      occur. "For that reason, at least as of now, the Movants are unable
      to assert a direct cause of action against the Club under New York

      "More importantly, even if certain of the Movants were able to show
      that they had an unsatisfied judgment against a member-insured, the
      New York Insurance Law expressly precludes certain kinds of maritime
      insurance described in Section 2117 of the Insurance Law from direct
      action suits. See N.Y. Ins. Law ยง3420(i)." (McKinney 2002); "New York
      law provides for a direct action against insurers on both liability
      and indemnity policies, but no direct action is allowed on any marine
      insurance policy, whether it is one of liability or indemnity."
      Miller v. Am. S.S. Owners Mut. Prot. and Indem. Co., 509 F. Supp.
      1047, 1049 (S.D.N.Y. 1981). One such category relates to "insurance
      in connection with ocean going vessels against any of the risks
      specified" in Section 1113 of the Insurance Law. These risks include
      "legal liability of the insured for . . . loss, damage or expense
      arising out of, or incident to, the ownership, operation, chartering,
      maintenance, use, repair or construction of any vessel, craft or
      instrumentality in use in ocean or inland waterways, including
      liability of the insured for personal injury, illness or death or for
      loss of or damage to the property of another person."

      "The first question therefore is whether the vessels that the Movants
      worked on are ocean-going. Although the parties have not specifically
      addressed this point, the Club has furnished the Court with a
      specimen of the types of marine protection and indemnity policies
      that it issued to its members prior to February 20, 1989. That sample
      policy states, inter alia, that it provides coverage for employees
      who are engaged by the insured vessel or its Master to perform
      stevedoring work in connection with the vessel's cargo at ports in
      Alaska and ports outside the Continental United States. It is
      therefore reasonable to presume that the vessels - and consequently
      their employees - were intended to traverse the high seas. It follows
      that the vessels covered by the Club's policies fall within the
      maritime exception to New York's direct action statute. The Movants
      consequently may not initiate a direct action against the Club."

      "The New York Court of Appeals has yet to consider whether a
      plaintiff barred from bringing a direct action suit may initiate a
      declaratory judgment action against a marine insurer. Several lower
      courts have held, however, that such suits may not be brought...
      Judges in this District and the Eastern District have also held that
      the state cases that bar plaintiffs from initiating declaratory
      judgment actions against marine insurers reach the proper result.
      Here, of course, what the Movants seek to do is one step removed from
      bringing a declaratory judgment action. They seek instead merely to
      intervene in a declaratory judgment action that the insurer itself
      has commenced. Although this would appear to be an obscure issue,
      three Judges in this District have considered it at some length, with
      two of them concluding that intervention should not be allowed."

      Although a proposed intervenor generally must make only a minimal
      showing of inadequate representation, a "more rigorous showing of
      inadequacy is required in cases where the putative intervenor and a
      named party have the same ultimate objective." In such cases, the
      Movant "must rebut the presumption of adequate representation by the
      party already in the action." Among the factors that may be
      considered in overcoming this presumption are "evidence of collusion,
      adversity of interest, nonfeasance, or incompetence."

      "Here, the Movants and the defendants share the same ultimate goal in
      this litigation - namely, obtaining a declaratory judgment that the
      Club's practice of indemnifying members for asbestos-related IBNR
      claims incurred during closed Insurance Years is proper. Thus, the
      Movants must rebut the presumption that the current defendants will
      inadequately represent their interests. The only scenario that they
      were able to posit during oral argument was that the defendants may
      have different monetary thresholds for settling this litigation,
      which, of course, assumes that a settlement is a likely outcome. Even
      if that were shown, the Movants' wholly speculative assertion is not
      enough to overcome the presumption that they will be adequately
      represented by the existing defendants. Accordingly, intervention as
      of right must be denied."

      The Movants also argued that they should be granted permissive
      intervention. Under Rule 24(b) of the Federal Rules of Civil
      Procedure: "Upon timely application anyone may be permitted to
      intervene in an action: (1) when a statute of the United States
      confers a conditional right to intervene; or (2) when an applicant's
      claim or defense and the main action have a question of law or fact
      in common... In exercising its discretion the court shall consider
      whether the intervention will unduly delay or prejudice the
      adjudication of the rights of the original parties.

      "In the absence of any statutory right to intervene, the Movants must
      show that their claims against the Trust, and the Club's claims
      against its members, have questions of law or fact in common. At a
      macro level, it is obviously true that the Movants and insureds share
      an interest in maximizing the available insurance funds by defeating
      the Club's claims in this suit. Nevertheless, their claims are
      decidedly different: the Movants' claims against the Trust are tort
      claims brought pursuant to the Jones Act, while the members' focus in
      this case is the proper scope and application of insurance policies
      issued by the Club to which the Movants are not parties. Given the
      narrow focus of this suit, there is no reason to believe that the
      Movants' presence in this case would further illuminate any issues of
      fact or law."

      A court may also deny permissive intervention when it would
      cause "undue delay, complexity or confusion in a case. Here, in the
      papers and at oral argument, the parties and Movants have debated
      whether the incorporation of 10,000 Maritime Claimants into an
      already factually complicated contract action would lead to
      unnecessary complexity, particularly where the Movants' other actions
      arise in the context of a bankruptcy proceeding. Even if the case
      would be manageable despite the Movants' presence, there are at least
      two additional factors which augur against permissive intervention.
      First, while it is generally true that the Movants and defendants
      share an interest in maximizing the funds available to pay claims
      under the Club's policies, that common goal only arises after the
      Movants have proved their underlying Jones Act claims. Until then,
      the Movants and the defendants in this action are, in reality,
      adverse parties. To allow the Movants to participate in discovery
      which might not be particularly controversial as between the Club and
      its members might therefore necessitate detailed procedures to
      protect the rights of the original parties.... The Court might also
      be required to address questions of attorney-client privilege which
      could otherwise be amicably resolved. Second, the resolution of
      questions such as these would likely lead to delay. For these
      reasons, the motion for permissive intervention is denied."

      Accordingly, the moving parties were denied permission to intervene.

      Larry Rogak
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