Certain Underwriters at Lloyd's v. Advanfort Co., Case No. 1:18-cv-1421

422 F.Supp.3d 1078

CERTAIN UNDERWRITERS AT LLOYD'S, LONDON SUBSCRIBING TO POLICY NUMBER BO 823PP1308460, et al., Plaintiffs,

v.ADVANFORT COMPANY, Defendant.

Case No. 1:18-cv-1421

United States District Court, E.D. Virginia, Alexandria Division.

Signed October 21, 2019

William Andrew McNinch Burke, Christopher Alan Abel, Willcox & Savage PC, Norfolk, VA, for Plaintiffs.

William Michael Chick, Jr, Law Offices of W. Michael Chick Jr., Fairfax, VA, for Defendant.

MEMORANDUM OPINION

T.S. Ellis, III, United States District Judge

This declaratory judgment case arises from a dispute between the parties regarding whether a maritime insurance policy issued by plaintiffs ("the Policy") covers defendant's alleged damages and liabilities stemming from an incident in October 2013, in which the Indian government seized the SEAMAN GUARD OHIO ("the OHIO "), a vessel operated by defendant, detained the guards and crew aboard the OHIO ("Guards" and "Crew"), and charged the Guards and Crew with illegally importing weapons into the country ("the Incident"). Before the Court in this matter are (i) plaintiffs' motion for summary judgment and (ii) defendant's cross-motion for summary judgment.¹ ECF Nos. 94, 100.

A summary judgment decision in one party's favor will necessarily decide the issue against the other party because the counterclaims in AdvanFort's Third Amended Counterclaims ("TAC") are essentially the reverse of the claims in plaintiffs' First Amended Complaint ("FAC"). The dispositive issue for both plaintiffs' FAC and AdvanFort's TAC is whether or not the Policy provides coverage for any claims arising out of the Incident. The summary judgment motions have been fully briefed and argued and are thus ripe for disposition.

I.

The procedural history of this case pertinent to the resolution of the pending summary judgment motions may be succinctly stated. On December 4, 2018, plaintiffs filed their FAC, seeking a declaratory judgment against defendant AdvanFort that plaintiffs had no obligation to provide insurance coverage to AdvanFort with respect to any damage, loss, and/or expense incurred as a result of the Incident. Specifically, the FAC sought declaratory relief that:

• There is no coverage under the Policy for AdvanFort's vessel damage claim,

• There is no coverage for AdvanFort under Section 1 (General Marine Liabilities) of the Policy for any losses arising out of the Incident,

• There is no coverage for AdvanFort under Section 2 (Marine Employers Liability) of the Policy for any losses or expenses arising out of the Incident,

• Plaintiffs have no duty to provide AdvanFort with a defense against non-existent professional indemnity claims under Section 3 (Professional Indemnity) of the Policy,

• There is no coverage for AdvanFort under Section 4 (Maritime Personal Accident) of the Policy for any losses arising out of the Incident,

• There is no coverage under the Policy for failure of a condition precedent to coverage - namely, at the time of the Incident, the OHIO , its Crew, and the Guards were not engaged in fulfilling any contract with a client of AdvanFort for the provision of Insured Services,

• AdvanFort is not entitled to reimbursement of any mitigation or claim expenses under the Policy,

• There is no coverage under the Policy due to a general exclusion to coverage - namely, at the time of the Incident, the OHIO was operated by AdvanFort and had not been declared to plaintiffs, or accepted by plaintiffs, under the Policy,

• There is no duty to defend the Crew or the Guards under the Policy.²

On April 18, 2019, AdvanFort filed their Third Amended Counterclaims ("TAC"), seeking (i) declaratory relief that the Incident was covered under the Policy, (ii) damages for plaintiffs' breach of their obligations under the Policy, and (iii) additional damages based on plaintiffs' bad faith breach of the Policy.³ Plaintiffs filed a motion to dismiss defendants' TAC on May 2, 2019, which remains pending.

Plaintiffs efforts to conduct discovery met with resistance from defendant from the outset, as defendant repeatedly provided inadequate answers to plaintiffs' interrogatories.⁴ Accordingly, on July 25, 2019, the Magistrate Judge granted, in part, plaintiffs' motion for discovery sanctions pursuant to Rule 37(b)(2)(A)(ii), Fed. R. Civ. P. ECF No. 89. Specifically, the July 25th Order concluded that the appropriate remedy, to which plaintiffs were entitled for defendant's discovery defalcations, was as follows:

Defendant is limited to the answers provided in its Second Amended Response at summary judgment and trial. Defendant may not deviate from those answers in any regard, including any attempts to further "clarify" its answers. Nor may Defendant, either at summary judgment or trial, use, introduce into evidence, or even reference any documents, testimony, or information not already provided to Plaintiffs through discovery. Should Defendant fail to follow this Order, Plaintiffs may seek supplemental sanctions. ECF No. 89 at 17.

In granting plaintiffs' motion for discovery sanctions, the Magistrate Judge concluded that (i) defendant had acted in bad faith by failing to comply with the Magistrate Judge's earlier discovery orders, (ii) defendant's non-compliance with the Magistrate Judge's earlier discovery orders severely prejudiced plaintiffs, and (iii) the need for deterrence in this case weighed in favor of a significant sanction. ECF No. 89, 14-16.

On August 20, 2019, plaintiffs filed a motion for summary judgment. ECF No. 94, 95. On September 3, 2019, defendant filed a motion in opposition to plaintiffs' motion for summary judgment and a cross-motion for summary judgment ("Defendant's SJ Motion"). ECF No. 100, 101.

In response to Defendant's SJ Motion, plaintiffs filed a motion for supplemental sanctions, alleging defendant violated the July 25th Order in Defendant's SJ Motion. ECF No. 105. On October 2, 2019, the Magistrate Judge granted, in part, plaintiffs' motion for supplemental sanctions (the "October 2nd Order"). ECF No. 113. On October 7, 2019, defendant filed an objection to the sanctions imposed by the Magistrate Judge's October 2nd Order. ECF No. 115. On October 9, 2019, the Magistrate Judge awarded plaintiffs $28,468.90 in attorney fees and costs in relation to the July 25th Order and the October 2nd Order. Most recently, by order dated October 16, 2019, defendant's objection to the Magistrate Judge's October 2nd Order was overruled. Specifically, the October 16th Order concluded that the Magistrate Judge's October 2nd Order was not clearly erroneous, but instead clearly correct.

Accordingly, at this time, the following matters are at issue and ripe for disposition: (i) plaintiffs' motion for summary judgment and (ii) defendant's cross-motion for summary judgment. For the reasons that follow, there is no genuine dispute as to any material fact, and summary judgment must be entered in favor of plaintiffs and against defendant.

II.

The first step in resolving the summary judgment motions is to be clear as to the content of the summary judgment factual record. The July 25th and October 2nd Orders, which granted, in part, plaintiffs' motions for sanctions, have established much of the summary judgment factual record in this case. See ECF No. 89, 113. Specifically, the October 2nd Order did three things: (i) it struck the August 30, 2019 declarations from Ahmed Farajallah and Samir Farajallah (collectively, the "Farajallah Declarations") (ECF Nos. 101-2,101-3); (ii) it struck paragraphs 1, 3-6, and 8-16 of defendant's statement of undisputed facts in Defendant's SJ Motion (ECF No. 101); and (iii) it deemed undisputed paragraphs 2, 7, 10-13,16, and 25 of plaintiffs' brief in support of their motion for summary judgment (ECF No. 95).⁵

As a result, the statement of undisputed material facts listed below is based substantially on plaintiffs' statement of undisputed facts. Defendant's remaining undisputed facts and remaining disputes with plaintiffs' facts, after taking into account the effect of the October 2nd Order and the October 16th Order, have been incorporated where relevant and discarded where immaterial.

1. The Policy attached to plaintiffs' First Amended Complaint ("FAC"), policy no. B0823PP1308460, is the insurance policy at issue in this case.⁶

2. The Policy named defendant, AdvanFort Company Inc., as the Insured and covered the period from July 19, 2013 to August 1, 2014.⁷

3. At the time of the Incident, October 2013, AdvanFort operated the OHIO.⁸

4. At the time of the Incident, AdvanFort leased the OHIO through a charter contract (the "Charter Party") with Seaman Guard, Inc. ("SGI"), the owner of the OHIO , that expired on March 15, 2015.⁹

5. AdvanFort never declared the OHIO to plaintiffs for coverage under the Policy, as required by General Exclusion 5 of the Policy.¹⁰ Accordingly, plaintiffs did not accept the OHIO as part of the risk to be insured under the Policy.¹¹

6. Normally, the OHIO operated between the southern tip of India and Sri Lanka, where it would deliver guards to client vessels heading west into the Indian Ocean and retrieve guards from client vessels heading east out of the Indian Ocean.¹²

7. The Guards were not AdvanFort employees.¹³

8. Members of the OHIO's Crew were not AdvanFort employees.¹⁴

9. At the time of the Incident, the Guards were aboard the OHIO as passengers - the Guards were not assigned to, nor were they actively engaged in, off-shore security services.¹⁵

10. At the time of the Incident, the OHIO was anchored and taking on fuel and supplies; it was not heading to meet a client vessel.¹⁶

11. During the Incident, the Crew and Guards did not suffer any injuries, sickness, or disease. More specifically, any alleged injuries, sickness, or disease occurred during, and solely as a result of, their subsequent detention by Indian authorities.¹⁷

12. AdvanFort claims it paid $120,000 to the Guards and Crew in November 2013 (hereinafter, the "November 2013 Payment") to settle, or partially

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