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Insurance coverage for punitive damages - time for a uniform rule under general maritime law.

TABLE OF CONTENTS

I.   INTRODUCTION
II.  FIFTH CIRCUIT PRECEDENT
III. UNIFORMITY AND PREDICTABLE INSURANCE
     COVERAGE DICTATES STATE LAW CANNOT SUPPLEMENT
     THIS INCREASINGLY RELEVANT AREA OF MARINE
     INSURANCE
     A. UNIFORMITY
     B. PREDICTABILITY
     C. DIFFERENT WAYS TO AVOID THE WILBURN BOAT
        PRESUMPTION
IV.  IF A COURT DECIDES TO FASHION A NEW RULE, IT
     SHOULD FASHION A RULE THAT SATISFIES THE NEEDS
     OF MARITIME COMMERCE AND SHOULD BE CAREFUL IN
     LOOKING TO UNRELATED AREAS OF SHARPLY DIVIDED
     STATE LAW WHEN FASHIONING A NEW RULE
     A. LEADING CASE ILLUSTRATING PUBLIC POLICY
        FROM THE MINORITY OF STATES THAT PROHIBIT
        COVERAGE
     B. PUBLIC POLICY FROM MAJORITY OF STATES THAT
        ALLOW COVERAGE
V.   IN DECIDING TO FASHION A NEW RULE, IF A COURT
     ANALYZES THE ISSUE PRACTICALLY AND THROUGH THE
     LENS OF MARITIME COMMERCE IT WILL FIND THAT
     COVERAGE FURTHERS THE SOCIETAL AIMS OF PUNITIVE
     DAMAGES, PROMOTES MARITIME COMMERCE, AND
     FACILITATES A SAFER MARINE INDUSTRY
     A. PROMOTES COMMERCE
        i.   PROMOTES PARTICIPATION
        ii.  COST DISTRIBUTION CONCERNS ARE
             INAPPLICABLE
     B. COVERAGE FOSTERS THE UNDERLYING POLICY
        GOALS OF PUNITIVE DAMAGES
       i.   PUNISHMENT
       ii.  DETERRENCE
       iii. CAPACITY
VI.  CONCLUSION


I. INTRODUCTION

Consider the following hypothetical: Neely Towing is a small family owned and operated tugboat company whose fleet consists of three ocean going towing vessels. The company's small size and versatility enables it to profit in inconsistent markets like emergency towing, emergency salvage, and project cargos. Recent judgments and the increasing availability as well as expansive exposure to punitive damages under general maritime law convinced Neely Towing to procure an all risk liability policy that covered all of Neely Towing's liabilities including punitive damages. While premiums for this all-encompassing policy are expensive, the Neely family decided it was a necessary expense because one punitive judgment could easily bankrupt the small tug company.

During the term of the policy, one of Neely Towing's vessels, the MISS DEE, collided with and sank a disabled private yacht, the SERENITY, in Tampa Bay. The only person aboard the yacht brought a maritime tort action alleging both negligence and gross negligence against Neely Towing seeking both compensatory and punitive damages. The facts are undisputed. The mate of the MISS DEE, who was the only person in the wheelhouse during the collision, had turned the VHF radio down to argue with his girlfriend on his cell phone. If the volume hadn't been turned down, he would have heard the distress calls coming from the disabled SERENITY, which floated helplessly in the middle of the channel with engine problems. As a result of the mate's failure to monitor the radio, the MISS DEE ran over the SERENITY. Punitive damages are available under general maritime law. (1) The Mate's recklessness can be imputed onto Neely Towing because the evidence demonstrated that the company would communicate with its vessels by cellphone while vessels were underway, even though it was against company policy to do so. (2)

The trial court awarded $750,000 in compensatory damages and $700,000 in punitive damages. The marine insurer promptly paid plaintiffs compensatory damages, but argues it is not responsible for punitive damages under the applicable Florida law that prohibits insuring punitive damages. (3) The insurer relies on Wilburn Boat Co. v. Fireman's Fund Ins. Co., (4) which establishes the rule that if no existing federal maritime law governs a marine insurance dispute, then a court should apply the law of the state with the greatest interest in the dispute. (5) Both parties agree, under choice of law principles, Florida is the state with the greatest interest in the dispute. Therefore, if the court decides that state law governs, the insurer prevails. Neely Towing argues that it paid higher premiums for punitive damage coverage and should be indemnified. The company also contends that voiding coverage would unjustly enrich the insurer and force Neely Towing into bankruptcy.

There is no federal rule as to whether punitive damages are insurable in a marine insurance policy, (6) therefore, the court is faced with two options: (1) void coverage by applying Florida Law under the Wilburn Boat framework, (7) or (2) enforce coverage by fashioning a new general maritime rule that recognizes a vessel owner's right to procure and enforce insurance coverage for punitive damages. (8) Looking to the only precedent addressing this matter from the Fifth Circuit, Florida law governs; the insurer prevails and Neely Towing faces bankruptcy. (9)

The only cases addressing whether punitive damages are insurable in a marine insurance policy are from the Fifth Circuit. 10 In Taylor v. Lloyd's Underwriters of London (11) and Randall u. Chevron U.S.A., (12) the Fifth Circuit looked to state law instead of fashioning a new general maritime rule under its mechanical application of Wilburn Boat. (13) Under this approach, whether punitive damages are covered under a marine insurance policy hinges on the public policy of the state with the greatest interest in the dispute. (14) This is problematic because states are sharply divided on the issue of insurability of punitive damages. (15) Under the Fifth Circuit's methodology, a patchwork of conflicting state laws will determine whether the insured is covered for punitive damages by a marine insurance contract. (16) Federal courts should resolve this issue by fashioning a general maritime rule that allows coverage of punitive damages in protection and indemnity policies.

Punitive damages are no longer a theoretical risk to vessel owners. Recent Supreme Court decisions in Atlantic Sounding Co. v. Townsend (17) and Exxon Shipping Co. v. Baker, (18) have precipitated a trend in the lower courts to allow punitive damages under general maritime law. (19) In addition to this trend, vessel owners are more exposed to the risk of punitive damages under U.S. maritime law than any other shipping nation. (20) As a result, there is an increasing demand for coverage in marine insurance protection and indemnity policies for punitive damages. Because general maritime law exposes vessel owners to such expansive punitive liability, it should allow vessel owners to purchase insurance protection for these expansive liabilities. A vessel owner inherently lacks control over its fleet. As punitive liability expands under federal maritime law, maritime actors should be permitted to procure and enforce punitive damage coverage.

Federal courts should resolve the issue under its Article III, Sec. 2 power which affords federal courts the authority to fashion new rules to promote uniformity in general maritime law. While Congress certainly could resolve whether these expansive liabilities are insurable, (21) congressional intervention is unlikely. (22) Federal maritime courts have exposed vessel owners to broad punitive liability, not Congress. Logically, federal courts should address this problematic area of maritime law. (23)

The only barrier to fashioning a new rule is the infamous Wilburn Boat decision, which has lead courts to apply state law without analyzing whether a uniform federal maritime rule should be created or adopted. (24) Federal courts have generally abstained from fashioning new rules for the past 60 years because of Justice Black's Majority opinion in Wilburn Boat. (25) As a result of the Wilburn Boat decision, marine insurance disputes are treated sui generis in general maritime law, insofar as there is a presumption to apply state law instead of fashioning a new federal maritime rule. (26) While there are some public policy arguments that support abstention by federal courts from fashioning new maritime rules, these arguments do not apply to situations where a court has the power to determine a substantive right to enforce purchased risk protection under general maritime law. (27)

Notably, in the two cases from the Fifth Circuit addressing this issue, punitive damages were recovered under Texas and Louisiana law which both permit recovery of punitive damages from an insurance company. (28) In both cases, the courts were able to enforce coverage and avoid giving a windfall to the insurer who accepted premiums for such coverage. (29) Yet, what if New York or Florida law were selected where insuring punitive damages is prohibited? Would the Fifth Circuit have voided bargained for coverage? This comment will examine the situation where state law prohibits such coverage. A court would then be left with two options: (1) void coverage under the Fifth Circuit's approach, or (2) enforce coverage by simply fashioning a new rule that recognizes a maritime actors right to procure and enforce punitive damage coverage under general maritime law.

This comment proposes that a new rule should be fashioned, making it clear, that punitive damages are insurable under general maritime law. This rule would resolve the uncertainty and inconsistency that results from applying fifty conflicting state laws to this question of marine insurance. Part II discusses the limited precedent from the Fifth Circuit addressing the issue. Part III discusses why uniformity and the need for predictable marine insurance coverage dictate fashioning a new rule and why sharply divided state law is inadequate to supplement this gap in maritime law. Part III also discusses different ways courts have avoided applying state law in other areas of marine insurance. Part IV illustrates the sharply divided state law addressing whether punitive damages are insurable. Part V discusses why insurance furthers the societal goals of punitive damages, promotes safety, and promotes maritime commerce.

II. FIFTH CIRCUIT PRECEDENT

The only circuit to address whether punitive damages are insurable in a marine insurance policy is the Fifth Circuit. (30) In Taylor v. Lloyds Underwriters of London, the Fifth Circuit found no established general maritime rule governing whether punitive damages are insurable; as a result, it refused to fashion a new rule and applied state law under Wilburn Boat. (31) Almost 60 years ago, the Supreme Court concluded in Wilburn Boat, to the dismay of many, (32) that in the absence of governing federal maritime law in marine insurance disputes, state law should generally govern. (33) Some circuits have avoided mechanically applying state law under Wilburn Boat when there is a substantial need for uniformity in general maritime law. (34) The Fifth Circuit however, has been more inclined to disregard uniformity, and without any analysis, (35) apply state law under the Wilburn Boat framework. (36) The Fifth Circuit's decision to hinge insurability of punitive damages on fifty inconsistent state laws is illustrative of its rigid refusal to fashion new general maritime rules in marine insurance. (37)

On October 16, 1985, a liftboat chartered by Drynorth, capsized in the Gulf of Mexico while attempting to "jack-up" in an emergency situation. (38) As a result of the capsizing, two men lost their lives and nine were seriously injured. (39) Albert Taylor, who was one of those seriously injured, alleged gross negligence and brought suit against Drynorth in federal court under general maritime law. (40) Following trial, the jury returned a verdict, assessing $751,780 in compensatory damages and $500,000 in punitive damages against Drynorth. (41) Drynorth was insolvent at all times relevant to the dispute. (42) Accordingly, Drynorth's insurer paid the compensatory damages, but argued it was not obligated to pay punitive damages (43) under the Comprehensive General Liability Policy it had issued to Drynorth. (44) On remand with orders from the Fifth Circuit to apply the law of the state with the greatest interest in the dispute, the district court issued a judgment against the insurer for the punitive damage award under Texas law. (45) In a subsequent case, the Fifth Circuit in Randall v. Chevron U.S.A, under the rubric of Wilburn Boat, applied Louisiana law and once again held the insurer liable for the punitive damage award. (46)

Applying state law however, presents insurers, as well as plaintiffs, with a conundrum as some states prohibit the insurability of punitive damages as a matter of public policy. (47) Under the Fifth Circuit's approach, a third party's right to recover in a direct action against the insurer or the assured's right to indemnity for punitive damages from a marine insurer hinges on the public policy of the state which the court determines has the greatest interest in the dispute absent a choice of law provision in the policy. (48) If Florida law applied, would the Fifth Circuit have denied Taylor's right to recover punitive damages from Drynorth's insurer? (49)

III. UNIFORMITY AND PREDICTABLE INSURANCE COVERAGE DICTATES STATE LAW CANNOT SUPPLEMENT THIS INCREASINGLY RELEVANT AREA OF MARINE INSURANCE.

Supplementing this gap in the general maritime law with sharply divided state law is inadequate as it often depends, by chance, on the locus of the occurrence as well as competing state interests. For example, if both Florida and Alabama have an equal interest in a marine insurance dispute, the ability to recover from a marine insurer will hinge on the location of the casualty. (50) How would a court decide the issue if the casualty had occurred in Perdido Bay which is divided by the Florida and Alabama state line? Florida prohibits insuring punitive damages (51) while Alabama permits recovery of punitive damages from an insurer. (52) The difference of a few hundred feet could be the deciding factor of whether coverage is enforceable. Determining the enforceability of a maritime contract based on chance defeats the principles of uniformity in maritime law and predictable coverage in marine insurance as well as uniformity and predictability of recovery. (53)

A. Uniformity

General maritime law strives for uniformity. (54) This policy dictates that a uniform rule be fashioned and that sharply divided state law should not supplement this problematic gap in general maritime law. The Supreme Court's decision Norfolk Southern Railway Co. v. Kirby, points towards fashioning a uniform general maritime rule. (55) The Supreme Court emphasized in Norfolk the need for uniformity in how federal courts interpret maritime contracts. (56) Regarding Article III's grant of admiralty jurisdiction, the court stated:
   Must have referred to a system of law coextensive with,
   and operating uniformly in, the whole country. It
   certainly could not have been the intention to place the
   rules and limits of maritime law under the disposal and
   regulations of the several states, as that would have
   defeated the uniformity and consistency at which the
   constitution aimed on all subjects of a commercial
   character affecting the intercourse of the states with each
   other or with foreign nations. (57)


While state law may supplement general maritime law when it does not work material prejudice to uniformity, (58) the insurability of punitive damages does not fall into this exception. Subjecting punitive damage coverage to various state public policies creates inconsistent coverage as a vessel moves from port to port in interstate commerce. (59) The Framers intended that maritime commerce should be free from such "intolerable restriction" by granting federal courts admiralty jurisdiction. (60) Here, like in Kirby, the substantial need for uniformity should override any state interest.

Uniformity is required because the ability to collect punitive damages from a marine insurer is a significant substantive issue of general maritime law. In American Dredging Co. v. Miller, (61) the court made clear that states should not be allowed to substantively change general maritime law when it works to materially prejudice or interfere with harmony and uniformity of that law in its international and interstate relations. (62) In American Dredging, Justice Scalia articulated two reasons why general maritime law was not materially prejudiced by the issue at hand: (1) forum non conveniens does not bear upon a substantive right to recover; and (2) forum non conveniens is not a rule maritime actors rely upon when "making decisions about primary conduct," such as, "how to manage their business and what precautions to take." (63)

Applying these two factors to the insurability of punitive damages strongly suggests that state law can and does materially prejudice general maritime law. First, unlike forum non conveniens, the ability to recover punitive damages from a marine insurer is substantive not procedural. Second, it is a rule that vessel owners rely on when "making decisions about primary conduct" on "how to manage their business and what precautions to take." (64) Specifically, maritime actors rely on marine insurance coverage when deciding to engage in maritime commerce. There are inherent risks associated with marine transportation, and vessel owners are unable to eliminate these risks because they have substantially less control over their employees compared to other markets. Insurance affords maritime actors the financial ability to assume these inherent risks. Punitive damages are real financial risks that vessel owners must accept in order to engage in marine commerce. Foreign and domestic vessel owners expecting to insure their fleet from this real financial risk should be able to rely on a uniform federal rule to enforce coverage when allocating risk in a marine insurance policy. Under the two factors provided in American Dredging, (65) predicating recovery of punitive damages from an insurer on state law materially prejudices general maritime law.

States have no overriding interest in governing a maritime actor's ability to procure and enforce coverage in a marine insurance policy. (66) First, many states expressly exclude ocean marine insurance from their insurance code. (67) Others simply fail to address marine insurance. (68) States have had 60 years to formulate relevant public policies under the Wilburn Boat presumption. Their failure to do so is instructive. (69)

The only interest a state may be able to articulate is punishing and deterring reckless conduct in state waters. However, choice of law principles prevent states from furthering these interests. While a casualty may occur within the navigable waters of a state that prohibits insurability, another state law with a more substantial interest in the dispute may govern the policy. (70) Also, a choice of law clause in the policy could circumvent a state's ability to prohibit recovery of punitive damages from a marine insurer for casualties occurring in state waters. (71) Choice of law provisions in marine insurance policies present yet another challenge, which is beyond the scope of this article. (72) Therefore, even if states are able to articulate interests in limiting recovery, insurers may be able to circumvent these with a favorable choice of law provision.

Further, even if a strong state interest could be articulated, the uniformity principle of general maritime law still demands fashioning a uniform general maritime rule. This notion is consistent with recent Supreme Court precedent emphasizing uniformity in federal court interpretations of maritime contracts. (73) In Norfolk Southern Railway v. Kirby, the Supreme Court recognized that states had legitimate interests in the dispute. However, it opined that the issue before the court was not local and held that uniformity superseded any conceivable state interest in that case. (74) Similarly, the insurability of punitive damages is not local and the substantial need for uniformity in punitive damage coverage should supersede any possible state interest. The Fifth Circuit's approach ignores uniformity and subjects recovery of punitive damages to fifty different state laws. A marine insurance policy is not an isolated contract; coverage travels with a vessel as it navigates through commerce. Risk protection provided in this contract should not fluctuate as a vessel navigates from state to state. (75) The scope of this interstate maritime contract demands a uniform rule. (76)

B. Predictability

Currently, a vessel owner who purchases insurance covering punitive liabilities has no guarantee coverage will be enforced. The entire point of insurance is predictable coverage but the Fifth Circuit's application of state law in Taylor v. Lloyd's Underwriters of London and Randall v. Chevron U.S.A., disrupts predictability. (77) The same coverage enforced in Taylor may have been void if Florida law were applied. Marine insurance policies are vital maritime contracts (78) that allow the vessel owner to rely on a pre-determined liability scheme. The vessel owner must be able to rely on allocation of risk as provided in the policy. (79) Predictability is also important to the insurer because it must know what risks to which it is exposed. Further, if a tortfeasor is insolvent, third-party claimants and their counsel need to know whether punitive damages are recoverable from an insurer under an available direct action statue.

The fundamental interest that gives rise to maritime jurisdiction is the protection of maritime commerce. (80) Maritime commerce depends on marine insurance contracts. (81) Specifically, in the face of the inherent risks associated with marine transportation, the willingness of maritime participants to engage in commerce hinges on their ability to purchase and enforce risk protection. (82) Determining the enforceability of coverage based on divided state laws thwarts a maritime actor's ability to rely on coverage and discourages participation in maritime commerce. For example, a court must first select a state to govern the dispute, which typically involves a complicated choice of law analysis. (83) After a state is selected, coverage remains unpredictable because state law addressing the insurability of punitive damages is often unclear or nonexistent. (84) Under the Fifth Circuit's approach, federal courts are required to determine public policy from unrelated areas of insurance like automobile insurance to determine whether punitive damages may be recovered from a marine insurer. (85) This process is inherently unpredictable. (86)

Taylor u. Lloyd's Underwriters of London illustrates this point. (87) On remand, after an arduous determination that Texas Law governed, (88) the district court found there was no controlling state rule that addressed whether punitive damages may be collected from an insurer. (89) Ultimately, the district court settled the Texas circuit split to determine how the Texas Supreme Court would settle the issue. (90) While the court ultimately forced the insurer to pay, (91) this approach is inherently unpredictable.

C. Different ways to avoid the Wilburn Boat Presumption

Justice Black's highly criticized opinion in Wilburn Boat and the Fifth Circuit's application of it are the only road blocks standing in the way of fashioning a new rule. Future courts confronting whether punitive damages are covered in a marine insurance policy, working within the confines of Wilburn Boat, could rely on a few approaches to fashion a new rule. Unlike the Fifth Circuit's dogmatic application of state law under Wilburn Boat, other circuits seem more willing to fashion new rules in marine insurance. (92)

Circuits have interpreted Wilburn Boat to avoid applying state law to every marine insurance dispute. First, a court could follow Justice Frankfurter's concurrence in Wilburn Boat, (93) and the Supreme Court's later treatment of Wilburn Boat in Kossick u. United Fruit Co, (94) to limit Wilburn Boat's application to govern local disputes that do not affect maritime commerce. Second, a court could simply answer the second question of Wilburn's rubric in the affirmative (which asks: "(1) Is there a judicially established federal admiralty rule governing [the issue]? (2) "If not, should [the court] fashion one?"), like the Sixth Circuit in Aasma v. American Steamship v. Owners Mutual Protection & Indemnity Association. (95) Finally, as the Ninth Circuit opined in Bohmeia, Inc. v. Home Ins. Co. a court could read Wilburn Boat in conjunction with Kossick to say state law may govern a marine insurance dispute only when there is no need for uniformity in admiralty practice. (96)

All three of these approaches suggest fashioning a new rule to govern whether punitive damages are insurable. Insurability of punitive damages is not a local issue. (97) Like in Aasma, insurability should not be subjected to a "hodge podge" of divided state law. (98) Also, like in Bohemia, where Wilburn and Kossick were read together," (99) there is a substantial need for a uniform rule because state law cannot be applied in this instance without materially prejudicing general maritime law. (100)

Alternatively, one could distinguish this issue from Wilburn as not being a marine insurance dispute, but a dispute regarding the substantive right to procure and collect coverage from an insurer under general maritime law. (101) Under the Fifth Circuit's approach of applying state law, a vessel owner who wishes to procure coverage for punitive damages has no guarantee that coverage will be enforced. Ultimately, vessel owners are unable to procure reliable coverage for punitive damages if state law governs their insurability. The issue is a substantive right of maritime law and not a dispute concerning the mechanics of marine insurance.

IV. IF A COURT DECIDES TO FASHION A NEW RULE, IT SHOULD FASHION A RULE THAT SATISFIES THE NEEDS OF MARITIME COMMERCE AND SHOULD BE CAREFUL IN LOOKING TO UNRELATED AREAS OF SHARPLY DIVIDED STATE LAW WHEN FASHIONING A NEW RULE.

If a court decides to fashion a new rule, state law should only be instructive. A new rule should be tailored to support the needs of maritime commerce and not unrelated areas of insurance. Public policy extracted from automobile insurance, for example, does not transition well into the public policy of marine insurance. (102) Conflicting state public policy is included in this section only to illustrate that while most states agree on the primary goals of punitive damages (punishment and deterrence), "reasonable minds" differ on whether insurance defeats these goals. (103) Generally, state public policy can be separated into the following categories: (104) (1) coverage denied as a matter of public policy, (105) (2) coverage denied except for vicarious liability, (106) (3) coverage allowed except for intentional torts, (107) and (4) coverage allowed except for criminal liability. (108)

A. Leading case illustrating public policy from the minority of states that prohibit coverage

The Fifth Circuit case of Northwestern National Casualty Company v. McNulty, the leading case on this issue, prohibited insurance coverage for punitive damages. (109) A minority of courts have adopted the reasoning provided in McNulty. In McNulty, the Fifth Circuit looked to Florida and Virginia public policy and prohibited recovery of punitive damages from an automobile insurer after they were awarded for the reckless acts of an insolvent drunk driver. (110) First, the court noted that a punitive sanction is not meant to compensate the plaintiff since he has already been compensated "in whole" for his direct injuries through compensatory damages. (111) The court emphasized that the primary purposes of punitive damages are to punish heinous behavior and deter others from pursuing a similar course of conduct. (112) The court then concluded that these goals were not achievable if the wrongdoer was able to avoid punishment by shifting the penalty to an insurance carrier. (113) The court also warned that insurance affords a "freedom of misconduct inconsistent with the establishment of sanctions against such misconduct." (114) Further, the court explained that there was no reason to punish the insurer and also voiced cost distribution concerns, noting, the burden of verdicts would ultimately rest on the public through higher insurance rates. (115)

B. Public Policy from Majority of States that allow coverage

The majority of states disagree with McNulty's proposition that insurance coverage encourages recklessness. (116) Most courts rely on empirical data that reveals a contract to protect against liability for punitive damages has no tendency to make reckless conduct more probable. (117) As one Judge commented: "[t]he line of demarcation between the allowance of punitive damages and compensatory damages is too thin and exacting in my opinion to apply coverage in one case and deny coverage in another. Verdicts of juries are unpredictable." (118)

In the case of Harrell v. Travelers Indemnity Company, addressing the shift of burden argument provided in McNulty, the Oregon Supreme court found that the McNulty opinion fails to understand cost distribution. (119) It states that an insurance company, which deliberately enters into a contract to cover punitive damages, is free to charge an additional or separate premium for that risk. (120) Conversely, an insurance company may simply exclude coverage at no increase in the premium. (121)

McNulty's reasoning is also criticized for failing to demonstrate a clear rule for public policy that is sufficient to justify interfering with the freedom of private parties to contract. (122) This is based on the strong public policy interest of maintaining a valid contract and the notion that a court should not arbitrarily negate a contract based on public policy. (123) In criticizing voiding insurance based on public policy one court noted, "Those two alliterative words (public policy) are often used as if they had a magic quality and were self explanatory and for a court to undertake to invalidate private contracts upon the ground of 'public policy' is to mount 'a very unruly horse, and when you once get astride you never know where it will carry you." (124)

Under this premise courts have even been willing to enforce coverage for punitive damages arising from intentional conduct. (125) In St Paul Mercury Ins. Co. v. Duke University, the Fourth Circuit allowed Duke University to recover punitive damages from its insurer after a punitive judgment was rendered against Duke for malicious prosecution. (126) The court emphasized that the insurance policy represented a conscious calibration of risk, and that Duke bargained with its insurer and paid higher premiums based on the risk allocation set out in the policy. (127) The court also noted that to void such an agreement negates a valid bargain, unjustly enriches the insurer, and would destroy certainty of contract on which our commercial system depends by leaving parties guessing as to how future courts will decide a question on which, "reasonable minds differ." (128)

V. IN DECIDING TO FASHION A NEW RULE, IF A COURT ANALYZES THE ISSUE PRACTICALLY AND THROUGH THE LENS OF MARITIME COMMERCE IT WILL FIND THAT COVERAGE FURTHERS THE SOCIETAL AIMS OF PUNITIVE DAMAGES, PROMOTES MARITIME COMMERCE, AND FACILITATES A SAFER MARINE INDUSTRY.

A. Promotes commerce

Insurance affords vessel owners the financial ability to take on the real risk of shipping. Punitive damages are not a theoretical risk for vessel owners. (129) U.S. federal maritime law exposes vessel owners to punitive liability more than any other nation. (130) Generally, England and other civil law shipping nations only sanction punitive damages against vessel owners when they are criminally culpable or when specified by statute. (131) In the United States however, vessel owners are much more exposed to punitive liability. (132) In light of Exxon u. Baker and Atlantic Sounding Co., v. Townsend, punitive damages are now part of the general maritime law. (133) Thus, punitive damages ought to be insurable under Federal maritime law.

Townsend and Exxon have precipitated a trend in lower courts to allow punitive damages under general maritime law. (134) Judge Feldman from the Eastern District of Louisiana recently commented on this trend in Operaciones Tecnicas Marinas S.A.S. v. Diversified Marine Services:
      The trend appears to be that post-Townsend, courts
   have carefully considered the Supreme Court's holding
   that punitive damages have long been available at
   common law, that the common-law tradition of punitive
   damages extends to maritime law, and that unless
   evidence exists that the claim is to be excluded from this
   general admiralty rule, punitive damages are available. (135)


Recent punitive judgments strongly suggest that no matter how safely vessel owners operates their fleet of vessels, those vessel owners will still be exposed to punitive liability under general maritime law.

i. Promotes Participation

Both U.S. and foreign flagged ships are exposed to expansive punitive liability under general maritime law. (136) Therefore, it follows that general maritime law should allow vessel owners to procure and enforce coverage for these expansive liabilities in order to promote maritime commerce. U.S. ship owners should be allowed to purchase coverage to remain competitive with foreign flagged vessels that are not exposed to punitive liability outside the U.S. (137) Likewise, foreign vessel owners that have procured coverage to account for its exposure to punitive damages under U.S. general maritime law should be able to enforce coverage as well.

Barring punitive damage protection will discourage smaller vessel owners unable to absorb an uninsurable punitive judgment, from participating or entering the market. (138) The Supreme Court has often reiterated that the fundamental interest-giving rise to its maritime jurisdiction is the protection of maritime commerce. (139) Barring coverage discourages participation by smaller companies who cannot self-insure themselves to the same degree that larger companies can. (140) Punitive damages are a substantial barrier to smaller maritime actors because one misstep may easily bankrupt a small vessel owner who provides valuable services to maritime commerce. (141) Small vessel owners bring versatility and competition to the industry and also provide valuable services such as emergency towage, emergency salvage, and project cargo services. (142) Consequently, the ability to procure insurance affords smaller maritime actors the financial ability to accept the increasingly relevant risk of punitive damages, enabling them to continue to participate in maritime commerce. (143)

Because the majority of states already recognize that punitive damages are recoverable from an insurer, (144) it is logical that vessel owners should have the same right. The general maritime law should afford domestic vessel operators the right to purchase coverage, as general maritime law exposes domestic vessels to the real risk of punitive liability.

ii. Cost Distribution Concerns are Inapplicable

Cost distribution is not a concern in marine insurance because parties are free to exclude coverage. (145) Unlike heavily regulated areas of insurance like automobile coverage, parties to a marine insurance contract are free to negotiate coverage. If a marine insurer does not find insuring certain risks to be profitable he can simply exclude coverage. If a vessel owner finds coverage to be too expensive, he does not have to buy it. Some will argue that no reasonable insurer would agree to cover a vessel's punitive liability. (146) However, that determination should be left for the parties to an insurance contract to decide, not the courts. Insurance coverage is a privately negotiated contract between a vessel owner and a marine insurer. Marine insurers are experts at predicting risk and setting premiums accordingly and these companies profit from their expertise in managing risks accurately.

B. Coverage Fosters The Underlying Policy Goals of Punitive Damages

The typical arguments against the right to procure and enforce punitive damage coverage are: (1) insuring a vessels owner's gross negligence defeats the goals of punitive damage (punishment and deterrence), and (2) that punitive damages are not meant to compensate the plaintiff. (147) These arguments have theoretical-even emotional appeal, and may suffice for a policy debate in a law school torts class. However, these general notions are based on speculations and not practicability. (148)

First, it is relevant to note that these policy arguments are not derived from marine insurance. (149) While the Fifth Circuit has declined to fashion a new maritime rule, it did maintain that it is improper to use unrelated areas of law like automobile insurance for guidance in establishing a general maritime rule. (150)

Whether coverage for punitive damages under general maritime law is allowed should hinge solely on the policy needs of maritime commerce. Punitive damages that are awarded against a drunken driver in an automobile collision involve a host of other issues not relevant to maritime law. Punitive damages can put a company that provides valuable services out of business; but the insolvency or bankruptcy of an individual has much less of an economic effect. Further, an individual automobile driver can personally eliminate such a risk by deciding not to drink and drive. However, punitive damage liability under general maritime law is an unavoidable operating risk that vessel owners must accept when engaging in maritime commerce.

i. Punishment

Coverage does not defeat punishment. Arguably, the stigma of a punitive award is sufficient punishment. Players in the maritime industry will likely discover and avoid doing business with vessel owners held liable for punitive damages. Punitive damages preserve the goal of punishment because a vessel owner who files a claim for gross negligence will either face increased premiums or dropped coverage. (151) Also, punitive damages could easily exceed policy limits and bankrupt a vessel owner. The vessel owner is also exposed to fines and imprisonment. (152) Additionally, there is a fine line between negligence and gross negligence, (153) and few would argue that vessel owners should not procure and enforce coverage for negligence. (154)

Arguments that compensation affords tortfeasors the freedom to act irresponsibly may be applicable to contractual indemnity agreements but not to marine insurance coverage. (155) In the unlikely event a vessel owner acts recklessly based on the fact that his insurance will cover the bill, he still faces criminal indictments brought by the district attorney, leaving recovery from his insurer substantially less of a concern. (156)

Additionally, reckless employees have no incentive to act unsafely as they personally face serious punishments such as: revocation of their merchant mariners license, (157) personally held liable for punitive damages, (158) and criminal penalties, which include prison. (159) For example, in Exxon v. Baker, captain Hazelwood was personally held liable for punitive damages, faced community service, and had his license suspended. (160) Revocation of a mariner's license is substantial. Licensed mariners earn high wages; revocation of a license forces a mariner to search for jobs with substantially less pay. In a casualty on the Delaware river, a mate operating a sea going barge who recklessly ran over and sank a tour boat-killing two foreign exchange students was convicted of manslaughter and sentenced to one year in prison. (161)

ii. Deterrence

Insurance does not defeat the deterrent effect of punitive damages. The threat of increased premiums and a punitive judgment exceeding policy limits gives rise to "significant deterrent pressure." (162) This section argues that P&I coverage for punitive damages actually fosters deterrence.

In Daughdrill v. Ocean Drilling & Exploration Co. (ODECO), (163) the court discussed why P&I coverage may actually foster deterrence. (164) The court first emphasized that deterrence is provided via an increase in premiums, the court then explained how coverage promotes deterrence:
      The inherent nature of a P & I policy is to spread the
   risk of liability among those similarly situated. Thus, it
   can be said that coverage for punitive damages in a P & I
   policy may foster the underlying public policy goals
   outlined above [punishment and deterrence]. For instance,
   if a shipowner commits a particular act which incurs
   liability for punitive damages, it may deter other
   shipowners in the club from engaging in that activity if
   they themselves are forced to bear a portion of the costs of
   such an award.


As noted in Daughdrill, (165) when a vessel owner is held liable for punitive damages the goal is to deter similar conduct. (166) Deterrence is particularly effective in the marine industry because arguably, vessel operators are more aware of judgments rendered against other similarly situated vessel owners; mainly because the marine industry is more inter-connected than other areas of business. (167) Thus, punitive awards put similarly situated participants in marine transportation on notice of what type of conduct is unacceptable and also encourages them to act more safely through the threat of civil penalties. (168) Generally, when punitive damages are awarded, a company has failed to maintain a proper safety management system. (169) When punitive damages were awarded against Exxon after the Valdez disaster, the entire industry took notice. This judgment caused both a reaction and a response through out the industry and ultimately improved safety.

Licensed mariners and vessel owners are particularly concerned with punitive judgments. The practical effect of a punitive judgment on other similarly situated maritime actors shows that a punitive judgment is an effective mechanism to deter unsafe conduct and promote safety. One situation that illustrated this point occurred after a sea-going barge ran over and sank a tour boat on the Delaware River killing two foreign exchange students. (170) The facts leading up to the collision are similar to the hypothetical at the beginning of this comment. (171) While piloting a sea-going barge through a heavily traversed navigable waterway, the operator had turned his VHF radio down while talking on his cellphone. (172) Punitive damages were available because the vessel owner failed to implement an adequate safety management system, as it did not address known cell phone use by operators while navigating company vessels. (173) As a result of this casualty, other companies began to more feverishly enforce company policies prohibiting cellphone use in the wheelhouse while underway as a result of this marine casualty.

The ultimate goal of punitive damages is to promote a safer industry. A safer industry encourages maritime commerce, which is the fundamental interest that gives rise to federal court's maritime jurisdiction. (174) Recent maritime casualties demonstrate that reckless conduct can substantially affect the flow of maritime commerce and the U.S. economy. (175) The general availability of punitive damages under the general maritime law provides courts an effective mechanism to send a clear message to the entire industry that egregiously unsafe conduct cannot and will not be tolerated. Whether the sanctioning of punitive damages is based on a vessel owner who employs a known alcoholic captain, or fails to ensure its vessel operators do not use cell phones in the wheelhouse; punitive damages can successfully deter reckless conduct by sending a clear message to a receptive audience, of what type of conduct is unacceptable in maritime commerce.

iii. Capacity

Insurance provides the court the capacity to award punitive damages and the ability to send a clear message to the industry when a defendant vessel owner is insolvent. (176) It is "futile" to discuss the benefits of punitive damages if a plaintiff does not seek them or if a court cannot sanction them. (177) If an assured vessel owner is insolvent, then a plaintiff will not seek them if general maritime law prohibits their insurability. (178) The limited precedent addressing whether punitive damages are insurable in a marine insurance policy are illustrative of this point.

In Dubois v. Arkansas Valley Dredging Co., before trial, the defendant dredge owner went bankrupt prior to trial. (179) Because the court found punitive damages to be uninsurable under general maritime law, the court did not even address whether the defendant dredge owner was grossly negligent because there was no one to pay punitive damages even if gross negligence existed. (180) In Taylor v. Lloyd's of London, the defendant vessel owner was also insolvent. (181) But unlike in Dubois, the Taylor court was able to determine the insolvent vessel owner's gross negligence because the court had the capacity to award punitive damages by allowing the third party plaintiff to collect from the marine insurer. (182) If courts truncate their analysis by refusing to rule on the reckless behavior of a defendant like in Dubois, society loses the benefit of public adjudication. (183) Allowing recovery of punitive damages under a marine insurance policy like in Taylor furthers the purpose of deterring others by providing plaintiffs the "capacity to seek them" and the court the ability to sanction them. (184) The public policy of general maritime law should not inhibit this effective mechanism of deterring gross negligence.

VI. CONCLUSION

Insurability of punitive damages in marine insurance is a substantive right and falls squarely within a federal court's admiralty jurisdiction provided by Article III of the Constitution. The Fifth Circuit's refusal to fashion a new rule defeats the controlling principle of uniformity in general maritime law. While the Fifth Circuit has been able to avoid a controversial decision of voiding contractual insurance coverage by applying state law that permits the insurability of punitive damages; this approach is problematic for future courts faced with applying state law that prohibits recovery of punitive damages from an insurer. Recent Supreme Court decisions have precipitated a trend in the lower courts to allow for punitive damages in maritime cases. (185) As a result, punitive damages are no longer a theoretical risk, but a real risk to vessel owners. The increasing relevance of punitive damages in general maritime law, and the sharp division among the states as to whether they are insurable dictates that a uniform rule be fashioned. The Wilburn Boat presumption to apply state law in marine insurance disputes should be rebutted because state law is inadequate to govern the issue and the need for predicable policy coverage demands a uniform rule. In deciding to fashion a new general maritime rule, if a court analyzes the issue practically and through the lens of maritime commerce it will find that coverage fosters the underlying policy goals of punitive damages.

(1.) See Atl. Sounding v. Townsend, 557 U.S. 404 (2009); see also Exxon Shipping Co. v. Baker, 554 U.S. 471 (2008).

(2.) See Stepski v. M/V NORASIA ALYA, 2010 U.S. Dist Lexis 16602 *29 (E.D.N.Y. Jan. 14, 2010), aff'd, 427 F.App'x 45, 48 (2d. Cir. 2011).

(3.) See Highlands Ins. Co. v. McCutchen, 448 So.2d 1073 (Fla. 1984) (Insurer relieved of the responsibility to provide coverage where the insured's fault constitutes gross negligence).

(4.) Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 314 (1955) (Justice Black's rubric asks: (1) Is there a judicially established federal admiralty rule governing these warranties? (2) If not, should we fashion one?").

(5.) Id.

(6.) Taylor v. Lloyds Underwriters of London, 972 F.2d 666, 669 (5th Cir. 1992).

(7.) Id.

(8.) See Aasma v. Am. Steamship Owners Mut. Prot. & Indem. Ass'n, 95 F.3d 400, 403-05, (6th Cir. 1996) (Where the Sixth Circuit fashioned a new marine insurance rule under the Wilburn Boat Framework).

(9.) See Randall v. Chevron U.S.A., Inc., 13 F.3d 888, 909 (5th Cir. 1994); Taylor, 972 F.2d at 669, declined to follow Dubois v. Arkansas Valley Dredging Co., 651 F.Supp. 299 (E.D. La. 1987).

(10.) See Randall, 13 F.3d at 909; Taylor, 972 F.2d at 669.

(11.) 972 F.2d 666.

(12.) 13 F.3d 888.

(13.) See Taylor, 972 F. 2d at 669; see also Randall, 13 F.3d at 909.

(14.) Id.

(15.) See Thomas J. Schoenbaum, Admiralty and Maritime Law [section] 3-18, at 190 (5th Hornbook ed. 2012).

(16.) Randall, 13 F.3d at 909; Taylor, 972 F.2d at 669.

(17.) Exxon Shipping Co. v. Baker, 554 U.S. 471 (2008).

(18.) Atl. Sounding v. Townsend, 557 U.S. 404 (2009).

(19.) See Stepski v. M/V NORASIA ALYA, 2010 U.S. Lexis 16602 *29 (E.D.N.Y. Jan. 14, 2010) aff'd, 427 Fed.App'x. 45, 48 (2d. Cir. 2011) ("Assuming that ... Atlantic Sounding stands for the proposition that punitive damages are generally available under maritime law"); Wagner v. Kona Blue Water Farms, 2010 AMC 2455, 2468 (D. Haw. 2010) (Recognized punitive damages recovery for Jones Act plaintiff, for breach of unseaworthiness under general maritime law but denied under Jones Act Negligence); Lobegeiger v. Celebrity Cruises, Inc. 2012 AMC 202, 214 (S.D. Fl. 2012) ("Like in Atlantic Sounding, Congress has not enacted any legislation to limit a passengers right to recover punitive damages in a personal action under general maritime law"); Ryan Marine Servs. v. Hudson Drydocks, 2012 AMC 701, 708 (W.D. La. 2011) ("Punitive damages are recoverable in breach of contract case if the conduct constituting the breach is also a tort which punitive damages are recoverable").

(20.) Aaron T. Duff, Punitive Damages in Maritime Torts: Examining Shipowners Punitive Damage Liability in the Wake of the Exxon Valdez Decision, 39 Seton Hall L. Rev. 955, 973 (2009).

(21.) Wash. v. W.C. Dawson & Co. 264 U.S. 219, 227-28 (1924) ("Without a doubt Congress has power to alter, amend, or revise the maritime law by statutes of general application embodying its will and judgment ... the grant of admiralty and maritime jurisdiction looks to uniformity; otherwise wide discretion is left to congress").

(22.) See Joel K. Goldstein, The Life and Times of Wilburn Boat: A Critical Guide (Part I), 28 J. Mar. L. & Comm. 395, 429-33 (1997).

(23.) See Graydon S. Staring & George Waddell, Marine Insurance, 73 Tul. L. Rev. 1619, 1665 (1999).

(24.) See Taylor v. Lloyds Underwriters of London, 972 F.2d 666, 668-69 (5th Cir. 1992).

(25.) See Goldstein, supra note 23, at 399 ("Wilburn Boat has pointed an uncertain and unsuccessful course which ultimately has led everywhere and nowhere").

(26.) See Robert Force, The Aftermath of Norfolk Southern Railway v. James N. Kirby, Pty Ltd.: Jurisdiction and Choice-of-Law Issues, 83 Tul. L. Rev. 1393, 1423 (2009); see also 2 Thomas J. Schoenbaum, Admiralty and Maritime Law, Practitioner Series [section] 19-6 (5th ed. 2012) (discussing presumption).

(27.) See Goldstein, supra note 23, at 407 (discussing amicus curiae brief filed on behalf of the American Institute of Marine Underwriters, at 33); Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310 (1955) (No. 7) ("The McCarran Act allowed states to regulate and tax the business [of marine insurance] ... but did not commit substantive terms of maritime contracts to state control").

(28.) Taylor v. Lloyd's Underwriters of London, No. 90-1403, 1994 WL 118303 at *3 (E.D. La. Mar. 25, 1994) on remand from 972 F.2d 666 (5th Cir. 1992); Randall v. Chevron U.S.A., Inc., 13 F.3d 888, 909 (5th Cir. 1994).

(29.) Taylor, 1994 WL 118303 at *3 (on remand); Randall, 13 F.3d at 909.

(30.) See Randall, 13 F.3d at 888; Taylor, 972 F.2d at 669.

(31.) Taylor, 972 F.3d at 669.

(32.) Goldstein, supra note 23, at 395.

(33.) Wilburn Boat Co., 348 U.S. at 344. (Justice Black's opinion for the court was concerned with federal court's ability to create a comprehensive marine insurance code "because it could only be done piecemeal on a case-by-case basis" and "that it would prefer to await congressional enactment" of a comprehensive code).

(34.) See Kossick v. United Fruit Co., 365 U.S. 731, 742 (1961) ("Needless to say the situation presented here has a more genuinely salty flavor than [the facts of Wilburn]"); see also Bohemia, Inc. v. Home Ins. Co., 725 F.2d 506, 509 (9th Cir. 1984) (holding that state law controls a marine insurance policy but only in the absence of a federal statute, a judicially fashioned admiralty rule or in the need of uniformity in maritime law) (emphasis added); see also Aasma v. Am. S.S. Owners Mut. Prot. & Indem. Ass'n, 95 F.3d 400, 404 (6th Cir. 1996) ("The maritime protection and indemnity policies at issue here are readily distinguishable from the insurance policy at issue in Wilburn Boat").

(35.) See Joel K. Goldstein, The Life and Times of Wilburn Boat: A Critical Guide (Part II), 28 J. Mar. L. & Com. 555, 572 (1997).

(36.) See Taylor v. Lloyds Underwriters of London, 972 F.2d 666, 668-69 (5th Cir. 1992).

(37.) See Randall v. Chevron U.S.A., Inc., 13 F.3d 888, 909 (5th Cir. 1994); Taylor, 972 F.2d at 669.

(38.) Taylor, 972 F.2d at 667.

(39.) Id.

(40.) Id.

(41.) Id.

(42.) Id.

(43.) Taylor, 972 F.2d at 667. (Prior to this issue making its way to the Fifth Circuit, the Western District of Louisiana in Dubois v. Arkansas Valley Dredging Co., had actually concluded that the general maritime law prohibited coverage of punitive damages. Dubois v. Arkansas Valley Dredging Co., 651 F.Supp. 299, 303 (W.D. La. 1987). However, The Fifth Circuit in Taylor, declined to follow this conclusion, stating that the district court in Dubois had improperly relied on a Fifth Circuit decision that dealt with automobile insurance not marine insurance and the application of Virginia and Florida law not general maritime law. Taylor v. Lloyds Underwriters of London, 972 F.2d 666, 669 (5th Cir. 1992).

(44.) See Taylor, No. 90-1403, 1994 WL 118303 at *5 (E.D. La. Mar. 25, 1994) (on remand) (The policy provided: "The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay because of a) Bodily Injury, or b) Property Damages to which the insurance applies, caused by an occurrence, ... the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements." (emphasis added)).

(45.) Taylor, 1994 WL 118303 at *1-2. (on remand)

(46.) Randall v. Chevron U.S.A., Inc., 13 F.3d 888, 909 (5th Cir. 1994).

(47.) See Graydon, supra note 24, at 1665.

(48.) Randall, 13 F.3d at 909 (citing Taylor, 972 F.2d at 669).

(49.) See Highlands Ins. Co. v. McCutchen, 446 So.2d 1073 (Fla. 1984) (Florida Prohibits insurability of punitive damages awarded against a tortfeasor for gross negligence).

(50.) See generally 2 Thomas J. Schoenbaum, Admiralty and Maritime Law, Practitioner Series [section] 19-9 at 387 (5th ed. 2011) ("The choice of state law is normally made by applying the forum's choice of law rules").

(51.) See Highlands Ins. Co., 448 So.2d at 1073 (insurer relieved of the responsibility to provide coverage where the insured's fault constitutes gross negligence).

(52.) See Montgomery Health Care Facility, Inc. v. Ballard, 565 So. 2d 221, 226 (Ala. 1990); see also Capital Motor Lines v. Loring, 189 So. 897, 899 (Ala. 1939).

(53.) See Petition for a Writ of Certiorari, Stewart Arthur Holmes, for and on Behalf of Certain Underwriters at Lloyd's, London, 1992 WL 12073485 at *7 (U.S. Dec. 23, 1992) ("This horrible scenario would fragment both maritime insurance and commerce and allow the outcome of lawsuits applying general maritime law to be determined by the fortuity of the state next to which an ocean-going or river vessel is located at the time of the collision or accident").

(54.) See Kermarec v. Compagnie Generalie Transatlantique, 358 U.S. 625, 631 (1959).

(55.) Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14 (2004).

(56.) Id. at 28-29 (In Kirby, the court addressed the issue of whether a Himalaya clause inserted into a through bill of lading could limit the liability of all carriers transporting containers that were shipped from Australia en route to Alabama).

(57.) Id. at 28 (quoting Am. Dredging Co. v. Miller, 510 U.S. 443, 451, 114 S.Ct. 981, 127 L.Ed.2d 285 (1994).

(58.) Am. Dredging Co., 510 U.S. at 447.

(59.) See Wash. v. W.C. Dawson & Co., 264 U.S. 219, 228 (1924) ("The confusion and difficulty, if vessels were compelled to comply with local statutes at every port is not difficult to see. Of course, some within the states may prefer local rules; but the Union was formed with the very definite design of freeing maritime commerce from intolerable restrictions incident to such control. The subject is national. Local interest must yield to the common welfare. The Constitution is supreme").

(60.) Id.

(61.) Am. Dredging Co., 510 U.S. at 443.

(62.) Id. at 447-48. (The Supreme Court was confronted with Louisiana's rejection of applying the doctrine of forum non conveniens in Jones Act cases filed in state court. The Supreme Court held states could refuse to apply forum non conveniens emphasizing that the doctrine is procedural not substantive).

(63.) Id. at 443-44.

(64.) Id.; see also Kermerac v. Compagnie Generale Transatlantique, 358 U.S. 625, 632 (1959) (Where, the Supreme Court held state law could not supplement general maritime law regarding the duty owed to invitees in a slip and fall case aboard a ship emphasizing that liabilities of a vessel owner should not fluctuate as it's vessel moves through interstate commerce).

(65.) Am. Dredging Co. v. Miller, 510 U.S. 443, 444 (1994).

(66.) The maritime-but-local doctrine, the exception to uniformity, is not implicated here because states cannot establish any overriding public policy interest to govern the issue. The need for uniformity supersedes any state interest because supplementing this important area of general maritime law with sharply divided state law materially prejudices the flow of maritime commerce. See generally, Wash, v. W.C. Dawson & Co., 264 U.S. 219, 227-28 (1924).

(67.) See Lloyd's of London v. Pagan-Sanchez, 539 F.3d 19, 25 (1st Cir. 2008) (The Puerto Rico legislature expressly excluded maritime insurance contracts from its insurance regulation. The court noted that "the Puerto Rico Legislature has chosen rather emphatically to excluded maritime insurance contracts from the special protections it offers its insured's under its Insurance Code").

(68.) Id.; see also Michael F. Sturley, Restating the Law of Marine Insurance: A Workable Solution to The Wilburn Boat Problem, 29 J. Mar. L. & Com. 41, 44 (1998) referring to Title 27 Insurance, Ala. Code [section] 27-14-2 (West 1975); Title 38.2 Insurance, Va. Code Ann. [section] 38.2-300(1) (West 1986); Title 48 Insurance, Wash. Rev. Code Ann. [section] 48.18.010 (West 2005).

(69.) Goldstein, supra note 23, at 429.

(70.) See Graydon, supra note 24, at 1665.

(71.) See Great Lakes Reinsurance (UK) PLC v. Durham Auctions, Inc., 585 F.3d 236 (5th Cir. 2009). (There was a choice of law clause in policy, and the court held that the contractual choice of law provision is valid and enforceable unless it is against the fundamental policy principles of a state).

(72.) Schoenbaum, supra note 51, at 385. (discussing difficulties federal courts face when engaging in choice of law analysis); see also McFaull, Choice of Law Clauses In Marine Insurance Contracts: How the Fifth Circuit can Look Out for the Little Guy with a Consumer Friendly Analysis, Loy. Mar. J. 2013.

(73.) Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 27 (2004).

(74.) Id.

(75.) Wash. v. W.C. Dawson & Co., 264 U.S. 219, 227-28 (1924).

(76.) See Graydon, supra note 24, at 1665 ("Uniform policy language should receive uniform treatment in courts").

(77.) Randall v. Chevron U.S.A., Inc., 13 F.3d 888, 909 (5th Cir. 1994); Taylor v. Lloyds Underwriters of London, 972 F.2d 666, 669 (5th Cir. 1992).

(78.) See David W. Robertson, Admiralty and Federalism 264 (Foundation Press 1970) ("no contract seems much more deeply and thoroughly maritime than a policy of marine insurance").

(79.) St. Paul Mercury Ins. Co. v. Duke Univ., 849 F.2d 133, 136-137 (4th. Cir. 1988).

(80.) See Norfolk S. Ry Co. v. Kirby, 543 U.S. 14, 25 (2004).

(81.) See 111. Constructors Corp. v. Morency & Assoc., 794 F. Supp. 841, 843 (N.D. Ill. 1992) ("The importance of insurance for maritime operations is evident in view of the devastation to maritime commerce that accidents at sea engender and the protection insurance may afford shipowners").

(82.) Id.

(83.) See Taylor v. Lloyd's Underwriters of London, No. 90-1403, 1994 WL 118303 *2-3 (E.D. La. Mar. 25, 1994) (On remand) (The court had to determine whether to apply Louisiana or Texas law).

(84.) See id. (There was no clear Texas law addressing whether punitive damages were insurable and the district court was forced to settle a state circuit split).

(85.) See Randall v. Chevron U.S.A., 13 F.3d 888, 910 (The Fifth Circuit cited public policy from Louisiana law from Sharp v. Daigre, 555 So. 2d 1361 (La. 1990), a Louisiana Supreme Court uninsured motorist case, to determine whether punitive damages were insurable under a marine P&I policy).

(86.) See Matthew Eisele & J. Stevenson Weimer, 22 Coverage of Liability for Punitive Damages, The Maritime Law Assoc., (May 1, 2013, 11:00 AM), http://www.mlaus.org/article.ihtml?id=575 (states draw different lines for permissible coverage: only coverage for D who is vicariously liable are insurable; permitted coverage for direct corporate liability but not intentional conduct; coverage for intentional conduct is permissible except for criminal liability).

(87.) See Taylor, 1994 WL 118303 (on remand).

(88.) Id. at *2-3.

(89.) Id. at *3.

(90.) Id. at *4. ("Because the Texas Supreme Court has not yet addressed the issue of the insurability of punitive damages, our task is to determine to the best of our ability how that court would rule if the issue were before it").

(91.) Id.

(92.) See Bohemia Ins. v. Home Ins. Co., 725 F.2d 506 (9th Cir. 1984).

(93.) Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 323 (1955) (J.J. Frankfurter Concurring) (To caution future courts from over extending the Wilburn decision, Justice Frankfurter criticized the majority for being unnecessarily broad: "The opinion seems directed with equal force to ocean-going vessels in international maritime trade ... Is it to be assumed that were the Queen Mary, on a world pleasure cruise, a Lloyd's policy covering the voyage would be subjected to varying state laws?").

(94.) Kossick v. United Fruit Co., 365 U.S. 731, 742 (1961) ("Needless to say the situation presented here has a more genuinely salty flavor than [Wilburn Boat]").

(95.) See Aasma v. Am. S.S. Owners Mut. Prot & Indem. Ass'n. Inc., 95 F.3d 400, 404 (6th Cir. 1996) (The court simply answered the second question in the affirmative. The case dealt with the right of a plaintiff to bring a direct action against an insolvent employers insurer for work/asbestos related injuries. There the court decided to fashion a new rule noting that the issue was uniquely maritime and important, and should not be subjected to the "hodgepodge" of state law).

(96.) See Bohemia, Inc. v. Home Ins. Co., 725 F.2d 506, 510 (9th Cir. 1984) (The court read Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 313-14 and Kossick v. United Fruit Co., 365 U.S. 731, 741-42 (1961) conjunctively and held "that state law will control the interpretation of a marine insurance policy only in the absence of a federal statute, a judicially fashioned admiralty rule, or a need for uniformity in admiralty practice").

(97.) See supra p. 16 (discussion).

(98.) Aasma, 95 F.3d at 404.

(99.) Bohemia, 725 F.2d at 510 (citing Wilburn Boat Co., 348 U.S. 310, 313-14 (1955); Kossick, 365 U.S. at 741-42).

(100.) See supra pp. 12-13 (discussing Am. Dredging Co. v. Miller, 510 U.S. 443 (1994)).

(101.) See Petition for a Writ of Certiorari at 7, Holmes v. Taylor, 507 U.S. 952 (1993) (No. 92-1107), 1992 WL 12073485, for discussion on why Wilburn Boat should not apply to the insurability of punitive damages under general maritime law. Petitioner states that, in Wilburn Boat, Justice Black began his decision stating "this questions raises the questions concerning the power of states to regulate the terms and conditions of marine insurance contracts." id. at 16 (citing Wilburn Boat Co., 348 U.S. at 311 and then argues that that the issue of insurability of punitive damages does "not involve any issue of regulation or interpretation of the terms of a marine insurance contract."); Petition for a Writ of Certiorari at 17, Taylor, 507 U.S. 952 (No. 92-1107).

(102.) See Goldstein, supra note 23, at 429. ("States wrote their insurance statutes with local, not maritime, problems in mind").

(103.) See St. Paul Mercury Ins. Co. v. Duke Univ., 849 F.2d 133, 137 (4th Cir. 1988).

(104.) See Taylor v. Lloyd's Underwriters of London, No. 90-1403, 1994 WL 118303 *2-3 (E.D. La. Mar. 25, 1994) (On remand, the court had to determine whether to apply Louisiana or Texas law).

(105.) See Hartford Accident & Indem. Co. v. Vill. of Hempstead, 397 N.E.2d 737, 744 (N.Y. 1979).

(106.) See Grant v. North River Ins. Co., 453 F. Supp. 1361, 1370-71 (N.D. Ind. 1978).

(107.) See Lazenby v. Universal Underwriters Ins. Co., 383 S.W.2d 1, 5 (Tenn. 1964).

(108.) See St Paul Mercury Ins. Co., 849 F.2d at 137.

(109.) Nw. Nat. Cas. Co. v. McNulty, 307 F.2d 432, 435 (5th Cir. 1962).

(110.) Id. at 445.

(111.) Id. at 440.

(112.) Id. at 442. ("By 'punitive damages' we mean damages awarded with a view to punish the defendant for irresponsible conduct and to deter the defendant and others from similar misconduct. The misconduct we have in mind is intentional or malicious wrongdoing, or, action or inaction having such a conscious disregard of others that a jury might fairly infer from the circumstances of aggravation that the wrong partakes of a criminal character, whether or not it is punishable as an offense against the state").

(113.) Id. at 445.

(114.) Nw. Nat. Cas. Co. v. McNulty, 307 F.2d 432, 440 (5th Cir. 1962).

(115.) Id. at 440-41.

(116.) See Lazenby v. Universal Underwriters, 383 S.W.2d 1 (1964); St. Paul Mercury Ins. Co. v. Duke Univ., 849 F.2d 133 (4th Cir. 1988); Harrell v. Travelers Indem. Co., 567 P.2d 1013, 1016-17 (Or. 1977).

(117.) See Harrell, 567 P.2d at 1016.

(118.) Lazenby, 383 S.W.2d at 7 (White, J. Concurring).

(119.) See Harrell, 567 P.2d at 1019-20.

(120.) Id. at 1019.

(121.) Id.

(122.) Id. at 1020.

(123.) See Patton v. United States, 281 U.S. 276, 306 (1930) ("The theory of public policy embodies a doctrine of vague and variable quality, and, unless deducible to the given circumstances from constitutional or statutory provisions, should be accepted as the basis of a judicial determination, if at all, only with the utmost circumspection ... the public policy of one generation may not, under changed conditions, be the public policy of another").

(124.) Harrell v. Travelers Indem. Co., 567 P.2d 1013, 1016 (Or. 1977) (citing 14 Williston on Contracts 7-8, [section] 1629 (3d ed. 1972)) ("it is elementary that public policy requires that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts, when entered into freely and voluntarily, shall be held sacred and shall be enforced by courts of justice, and it is only when some other over-powering rule of public policy, such as the rule against perpetuities, intervenes, rendering such agreement illegal, that it will not be enforced").

(125.) St Paul Mercury Ins. Co. v. Duke Univ., 849 F.2d 133, 135 (4th Cir. 1988).

(126.) Id.

(127.) Id. at 136-37.

(128.) Id. at 137.

(129.) Id.

(130.) Duff, supra note 21, at 973-74.

(131.) Id. at 973.

(132.) See id.

(133.) Atl. Sounding v. Townsend, 557 U.S. 404, 421 (2009); Exxon v. Baker 554 U.S. 471, 515 (2008).

(134.) See cases cited supra note 20 and accompanying text.

(135.) Operaciones Tecnicas Marinas S.A.S. v. Diversified Marine Services, 913 F.Supp.2d 254, 261 (E.D. La. 2012).

(136.) See Duff supra note 21, at 973.

(137.) Id.

(138.) See Taylor v. Lloyd's Underwriters of London, No. 90-1403, 1994 WL 118303 *4 (E.D. La. Mar. 25, 1994) affd, in part sub nom. Taylor v. Lloyds Underwriters, No. 94-30315, 47 F.3d 427 (5th Cir. February 3, 1995) ("This is especially true 'where the [wrongdoer] corporation is less well-established or affluent, and its inability to insure against such liability may well cause a permanent financial collapse. Not only may the size of the business prevent it from shifting the burden, but the effect of the financial collapse will be permanent, since such a judgment is not dischargeable in bankruptcy'").

(139.) Norfolk S. Ry Co. v. Kirby, 543 U.S. 14, 25 (2004).

(140.) See Stephen Martin, Marine Protection and Indemnity Insurance: Conduct, Intent, And Punitive Damages 28 Tul. Mar. L.J. 45, 64 (2003).

(141.) Id.

(142.) See TradeWinds Towing, http://www.tradewindstowing.com/tradewindswp/(last visited October 8, 2013) (Small family owned and operated tug boat company that operates two tug boats).

(143.) Taylor, 1994 WL 118303 at *4 ("[W]here the [wrongdoer] corporation is less well-established or affluent, and its inability to insure against such liability may well cause a permanent financial collapse. Not only may the size of the business prevent it from shifting the burden, but the effect of the financial collapse will be permanent, since such a judgment is not dischargeable in bankruptcy").

(144.) Fairfield Ins. Co. v. Stephens Martin Paving, LP, 246 S.W.3d 653, 688 (Tex. 2008) (states generally permit coverage of punitive damages).

(145.) See Harrell v. Travelers Indem. Co., 567 P.2d 1013, 1016-17 (Or. 1977).

(146.) Difficulty in establishing coverage inherently promotes safety, as vessel owners will have to convince an insurer to take on the risk, which requires the vessel owner to prove that it is safe.

(147.) Nw. Nat. Cas. Co. v. McNulty, 307 F.2d 432 434-35 (5th Cir. 1962).

(148.) See Harrell, 567 P.2d at 1016-17.

(149.) Taylor v. Lloyds Underwriters of London, 972 F.2d 666, 669 (5th Cir. 1992) ("... McNulty, involved automobile insurance, not maritime insurance.").

(150.) Id.

(151.) See Daughdrill v. Ocean Drilling & Exploration Co., 665 F. Supp. 477, 481-82 (E.D. La. 1987).

(152.) Id.

(153.) See Lazenby v. Universal Underwriters Ins. Co., 383 S.W.2d 1, 5 (Tenn. 1964).

(154.) See generally id.

(155.) See Daughdrill, 665 F. Supp. at 481.

(156.) See generally Dom Yanchunas, Towboat Owner Headed to Prison, Two Crewmembers may Follow, PROFESSOINAL MARINER (Issue # 146 May 2011) (Discussing the criminal cases that resulted from the July 23, 2008, collision between the towing vessel Mel Oliver's barge and the tanker MT Tintomara: 282,828 gallons of fuel oil spilled into Mississippi River after collision. Randall Dantin, one of the owners of DRD Towing, was sentenced to 21 months in prison after pleading guilty to obstruction of justice Dantin also admitted to violating the Ports and Waterway Safety Act and the Clean Water Act.).

(157.) See Exxon Shipping Co. v. Baker, 554 U.S. 471, 480 (2008).

(158.) Id.

(159.) See John Snyder & William Carr, Pennsylvania: Maritime. The Duck Boat Case, RAWLE.COM, http://www.rawle.com/reports-articles/rawles-reports-volume-17number-1 (last visited October 14, 2013) (In the matter of the Complaint of Ride the Ducks International, LLC and Herschend Family Entertainment Corp et al, USDC ED PA 11-cv-079-TON (Mate Devlin aboard the Caribbean Sea, plead guilty to one count of misconduct by a ship operator causing death and sentenced to one year in federal prison).

(160.) See Baker, 554 U.S. at 480..

(161.) See NTSB Press Release, National Transportation Safety Board, Mate's Distraction Lead to Fatal 2010 "Duck Boat" Accident (June 21, 2011) (on file at http://www.ntsb.gov/news/2011/110621.html).

(162.) Taylor v. Lloyd's Underwriters of London, No. 90-1403, 1994 WL 118303, at *4 (E.D. La. Mar. 25, 1994) aff'd in part sub nom. Taylor v. Lloyds Underwriters, 47 F.3d 427 (5th Cir. 1995).

(163.) Daughdrill, 665 F. Supp. at 481-482.

(164.) Id. (The issue before the court was contractual indemnity for punitive damages. The court concluded contractual indemnity for punitive damages clearly subverts the purpose of awarding punitive damages.).

(165.) Id.

(166.) Dubois v. Arkansas Valley Dredging Co., 651 F. Supp. 299, 302 (W.D. La. 1987). (Punitive damages are awarded not only to deter defendants from acting a particular way; but also to deter others from participating in similar conduct).

(167.) See GCAPTAIN.COM, www.gcaptain.com (last visited October 16, 2013) (website links to many maritime blogs, and maritime associations who publish articles regarding maritime casualties).

(168.) Taylor v. Lloyd's Underwriters of London. (E.D. La. Mar. 25, 1994) (on remand) ("the threat of increased premiums, as well as the possibility of punitive damage awards exceeding policy limits, give rise to significant deterrent pressure")

(169.) This may be failing to establish certain policies that crewmembers must follow or the failure to continually audit vessels to ensure compliance with these policies. Further, prudent vessel owners will hire safety managers whose sole duty is to implement an adequate safety management system and to monitor changing safety standards through out the industry. See generally In re BOPCO, L.P., No. 11-3137, 2013 WL 4854121, at *2 (E.D. La. Sept. 10, 2013) (where a vessel owner was unable to limit its liability for (1) failing to provide a lookout, (2) failing to train the Captain on how to use radar, (3) failing to evaluate the ship's seaworthiness or the Captain's competence, (4) failing to inspect the vessel logs, (5) failing to employ a safety manager, and (6) failing to provide safety training or safety manuals.).

(170.) See Mate's Distraction Lead to Fatal 2010 "Duck Boat" Accident, supra note 162 (The National Safety Board determined that the mate operating tug boat failed to maintain a proper lookout while towing a barge up the Delaware river. The investigation revealed that the mate was inattentive to his duties while navigating the vessel because he was distracted by his repeated use of a cell phone and lap top computer while communicating with family who were dealing with a family emergency. Further, rather than being in upper wheelhouse as expected, the tugboat mate was navigating from its lower wheel house where visibility of the channel ahead was limited).

(171.) Id.

(172.) See Marine Accident Report Collision of Tug/Barge Caribbean

Sea/The Resource with Amphibious Passenger Vehicle Dukw 34, N.T.S.B., MAR-11/02 PB2011-916402, at 17, 42 (July 7, 2010) (Final).

(173.) Synder & Carr, supra note 160.

(174.) Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, 25 (2004).

(175.) See generally Yanchunas, supra note 157 (discussing Tanker and tank barge collision); see also Gabarick v. Laurin Mar. (Am.) Inc., No. 08-4007, 2010 WL 147216 (E.D. La. Jan. 11, 2010) rev'd and remanded sub nom. Gabarick v. Laurin Mar. (Am.), Inc., 406 F. App'x 883, 889 (5th Cir. 2010).

(176.) Duff, supra note 21, at 973.

(177.) See Martin supra note 141, at 64.

(178.) Id.

(179.) 651 F.Supp. 299, 302 (W.D. LA 1987).

(180.) Id.

(181.) Taylor v. Lloyds Underwriters of London, 972 F.2d 666, 669 (5th Cir. 1992).

(182.) Taylor v. Lloyd's Underwriters of London, 1994 WL 118303 (E.D. LA Mar. 24).

(183.) See generally Martin supra note 141, at 64.

(184.) In addition to providing a plaintiff the capacity to seek them, insurability also provides plaintiffs with more competent counsel by encouraging attorneys to take on cases with relatively small compensatory damages.

(185.) See cases supra note 20 (discussing trend).

By Adam N. Davis *

* Adam N. Davis, Juris Doctor Candidate 2014, Loyola University New Orleans College of Law. The Author would like to thank Professors Imre Szalai and Arthur Crais for their guidance and support. The Author would also like to thank his Father, Captain Jonathan Davis, for sharing his expertise in vessel safety management and practical insight.
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