The Rogak Report: 01 Mar 2005 ** Maritime Claims - Intervention **
- 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
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
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 §3420(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.