United States Fire Insurance Company, Plaintiff-Counter v. Gene L. Cavanaugh, Cathy Cavanaugh, and Atlas Underwriters, Defendants-Counter , 732 F.2d 832 ( 1984 )

ALLGOOD, District Judge:

United States Fire Insurance Company (U.S. Fire) brought this action for declaratory judgment against Gene and Cathy Cavanaugh, seeking a judgment that it was not liable for the damage suffered by the Cavanaughs’ shrimp trawler, the “Serious Business.” The Cavanaughs counterclaimed to recover for the loss. The district court entered judgment for the Cavanaughs and U.S. Fire appealed.

Gene and Cathy Cavanaugh were the owners of the “Serious Business” at the time it ran aground and burned on June 15, 1981. The Cavanaughs had purchased the trawler from Gene’s father, Lennis, in August, 1980. During the time Lennis Cavanaugh owned the trawler and at all times, until its final voyage, Gene Cavanaugh had been the captain. In May 1981, Gene Cavanaugh was recovering from chicken pox and entered into a charter agreement with William C. Ballard to take the “Serious Business” shrimping. Ballard was to operate the trawler between St. Augustine, Florida, and Brownsville, Texas, and was informed of a 150 mile navigational limit warranted in the insurance policy which covered the “Serious Business.” Cavanaugh apparently hired Ballard primarily on his reputation, but did take him on a “shakedown” cruise prior to the trawler’s departure on May 15, 1981. Ballard was to contact Cavanaugh if he had any problems or when he put in at port. When the trawler left Stock Island, Florida, on May 15, Ballard and two of Cavanaugh’s experienced crew members were the only people on board.

On June 14, 1981, the Coast Guard notified the Cavanaughs that the “Serious Business” was aground and burning on the Bajo Neuvo Reef about 150 miles southwest of Jamaica. The next day, eight people were rescued from the water near the remains of the trawler. Ballard has not been seen nor heard from again.

The “Serious Business” was insured by U.S. Fire at the time it was purchased from Lennis Cavanaugh and that policy was renewed by Gene and Cathy Cavanaugh. The policy provided coverage for the “barratry of the masters and mariners and all other like perils____” However, the trawler was covered only when it was being operated between Cape Hatteras, North Carolina, and Brownsville, Texas, and no further than 150 miles offshore. The Bajo Neuvo Reef is approximately 400 miles beyond the covered area.

U.S. Fire was advised of the loss, but denied coverage because the loss occurred outside the navigational limits of the policy and because of alleged misrepresentations by Cavanaugh.¹ The company cancelled the policy and attempted to return the prepaid premium.

In October, 1981, U.S. Fire instituted this action for a declaratory judgment on the insurance contract. The Cavanaughs counterclaimed, contending the loss was due to the barratry of Ballard and thus a covered loss. The district court found that the hiring of Ballard for the one fishing expedition did not constitute a change of management in violation of the insurance policy and that Cavanaugh had exercised due diligence to properly man the vessel. The court went on to find that there was no evidence that the Cavanaughs authorized, agreed to, or were in any way involved in Ballard’s decision to operate the trawler beyond the 150 mile limit and concluded that that act amounted to barratry and was the proximate cause of the loss. Final judgment was entered in favor of the defendant, including prejudgment interest at the rate of 12% per year from the date of the loss.

On appeal, U.S. Fire contends that the district court erred: in finding that the policy was in force at the time of the loss; in determining that barratry was the proximate cause of the loss of the “Serious Business”; and in awarding prejudgment interest.

There is no dispute that the “Serious Business” was beyond the 150 mile limit when she ran aground and burned. U.S. Fire points to several cases which state that insurance coverage is suspended when a vessel goes beyond the navigational limits and that a loss during that time is not covered. Robinson v. Home Insurance Co., 73 F.2d 3 (5th Cir.1931); Canton Insurance Office v. Independent Transp. Co., 217 F. 213 (9th Cir.1914); R & W Boat Rentals, Inc. v. Pennsylvania Insurance Co., 257 So.2d 448 (1st La.App.1972). These cases are distinguishable from the present case on one crucial point: in all of the cited cases the various warranties were breached by a voluntary act of the insured. Such is not the case here. Had the Cavanaughs taken the trawler beyond the 150 mile limit or if it had been taken by another with the owner’s knowledge or consent even if accidentally, then there would have been a breach of the warranty and there would have been no insurance coverage. The “Serious Business”, however, was taken some 400 miles beyond the warranted limits by the unauthorized act of a third party in violation of both written and verbal agreements, an act against which the Cavanaughs were insured. What would have been a breach of warranty is not a breach in this case where the 150 mile limit was exceeded due to the barratrous acts of Ballard.

In finding that the actions of Ballard constituted barratry, this court adopts the district court’s definition of barratry which follows the guidelines set forth by our circuit. Barratry can be defined as (1) an act committed by the master or mariners of a ship involving a deliberate and willful disobeyance of the owner’s instructions, (2) an act committed by the master or mariners of a ship for some unlawful, dishonest, or fraudulent purpose, contrary to their duty to the owners, whereby the latter sustained an injury, or (3) every violation of duty by the master or mariners arising from gross and culpable negligence contrary to their duty to the owner. See Darien Bank v. Travelers Indemnity Co., 654 F.2d 1015, 1019 (5th Cir.1981); Fishing Fleet, Inc. v. Trident Insurance Co., 598 F.2d 925, 927 (5th Cir.1979).

Because this circuit has held that barratry covers gross and culpable negligence by the master or mariners, it is clear that the definition of barratry must also include deliberate and willful disobeyance by the master or mariners of an owner’s oral or written instructions.

The proximate cause of the loss of the “Serious Business” was the grounding and burning on Bajo Neuvo Reef. In admiralty cases the “cause which is truly proximate is that which is proximate in efficiency.” Lanasa Fruit Steamship & Indemnity Co. v. Universal Insurance Co., 302 U.S. 556, 563, 58 S.Ct. 371, 374, 82 L.Ed. 422 (1937). Loss by grounding or fire was specifically covered under the insurance policy. Since barratry, grounding and fire were all covered perils and the act of barratry cannot operate to breach the warranty and void coverage, the decision of the district court that U.S. Fire is liable under the policy for the loss must be affirmed. To hold otherwise would be to find that one covered peril could operate to relieve the insurer of any loss which occurred from another covered peril.² On the issues of misrepresentation by the owners and failure to exercise due diligence to properly man the vessel, the evidence clearly supports the trial court’s findings. The award of prejudgment interest is the rule in admiralty eases rather than the exception and this court finds no error on the part of the district court in so ordering.

AFFIRMED.

1 . U.S. Fire contends that Gene Cavanaugh was in the process of negotiating the charter agreement with Ballard at the time he renewed the insurance, but represented that he was the captain and agreed to notify the insurer in the event of a change of management, which he failed to do. They also contend that the insured failed to exercise due diligence to properly man the vessel since he knew nothing about Ballard and did not verify his ability to operate the vessel in open waters.

2 . The district judge followed reasoning similar to that used by the court in Republic of China v. National Union Fire Insurance Co., 151 F.Supp. 211 (D.Md.1957), aff'd, 254 F.2d 177 (4th Cir. 1958), cert. denied, 358 U.S. 823, 79 S.Ct. 38, 3 L.Ed.2d 64 (1958):

[W]here barratry is one of the causes of the loss, if the ultimate cause (such as stranding or capture) is not excluded from coverage by a warranty or an exclusion clause, recovery may be had on the grounds of barratry, whether or not the ultimate cause of the loss was or was not a peril insured against ... but where the ultimate cause of the loss is excluded from coverage by a warranty or an exclusion clause, recovery may not be had on the grounds of barratry.

Id. at 231.

Although the fact situation in this case does not lend itself to a similar finding here, the principle of granting recovery where barratry is connected to the ultimate cause of the loss (here, fire) is the same.