Channel Constr., Inc. v. Northland Servs., Inc.

CHANNEL CONSTRUCTION, INC., Plaintiff, v. NORTHLAND SERVICES, INC., et al., Defendants.

CASE NO. C14-1231-JCC

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

December 18, 2015

THE HONORABLE JOHN C. COUGHENOUR

IN ADMIRALTY AND AT LAW

ORDER ON DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT

This matter comes before the Court on Defendants' motions for summary judgment (Dkt. Nos. 94, 96, 98). Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby DENIES Northland's motion and GRANTS the Underwriters' motions for the reasons explained herein.

I. BACKGROUND

The factual background of this conflict has been thoroughly summarized by the Court in a prior order. (See Dkt. No. 66.) Briefly, this case arises from damage to the hull of Barge ITB 312 ("the Barge"), a vessel chartered by Plaintiff Channel Construction ("Channel") to Defendant Northland Services, Inc. ("Northland") in 2010, 2011, and 2012. (See Dkt. No. 1 at 3-4.) Plaintiff sued Northland, alleging liability for the damage, and Northland's underwriters ("the Underwriters"), alleging bad faith in handling Channel's claim for damage. (Dkt. No. 1 at 5-8.) Before the Court are Defendants' three motions for summary judgment. (Dkt. Nos. 94, 96, 98.)

II. DISCUSSION

A. Summary Judgment Standard

The Court shall grant summary judgment if the moving party shows that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). In making such a determination, the Court must view the facts and justifiable inferences to be drawn therefrom in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Once a motion for summary judgment is properly made and supported, the opposing party must present specific facts showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(e); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Material facts are those that may affect the outcome of the case, and a dispute about a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the non-moving party. Anderson, 477 U.S. at 248-49. Ultimately, summary judgment is appropriate against a party who "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).

B. Northland's Motion (Dkt. No. 96)

Channel alleges that Northland breached its obligation under the parties' charter to maintain and redeliver the Barge in the same condition as upon delivery. (Dkt. No. 77 at 5-6.) Northland moves for summary judgment dismissal of this claim, arguing that Channel is to blame for the hull damage. (Dkt. No. 96 at 1.)

Under the parties' charters, Northland "shall be obligated to redeliver the [Barge] to [Channel] in the same good condition, repair and working order as upon delivery, [excluding] ordinary wear and tear occurring to the [Barge] during the charter term." (Dkt. No. 122-1 at 3-4, 11-12, 20-21.) At the beginning and end of each charter term, the Barge "shall be surveyed to comprehensively document its condition." (Dkt. No. 122-1 at 3.) The on-hire survey "shall be conclusive between the parties with respect to the condition of the [Barge] at delivery." (Dkt. No.112-1 at 3.) The off-hire survey "shall be conclusive between the parties with respect to [Northland's] obligation to redeliver to the [Barge] to [Channel] in the same good condition, repair and working order as upon delivery." (Dkt. No. 122-1 at 3.) Channel and Northland "may agree in writing upon any appropriate method by which to establish the condition of the [Barge], but any method agreed must include written and/or photographic documentation of the [Barge's] condition." (Dkt. No. 122-1 at 3.) The parties agreed that "current survey walk around" was "mutually acceptable as the surveyor to conduct the [on-hire and off-hire] surveys." (Dkt. No. 122-1 at 3.)

Northland first asserts that the off-hire surveys for the 2012 charter revealed no corrosion damage occurring during the charter term. (Dkt. No. 96 at 15.) Northland employee Kent Connelly surveyed the Barge at the beginning and end of the 2012 charter term. (Dkt. No. 97-4 at 1; Dkt. No. 97-5 at 8.) Connelly's off-hire survey revealed no relevant damage.¹ (Dkt. No. 97-5 at 8.) Thus, Northland argues, it fully met its contractual obligation to redeliver the Barge in the same good condition. (Dkt. No. 96 at 15.) Channel contests this assertion, noting that the only survey was conducted by a Northland employee, without a Channel representative present, and without an inspection of the Barge's hull. (Dkt. No. 121 at 11.)

Thus, there is a dispute whether the survey conducted was "conclusive" as to Northland's fulfillment of its obligations. The key term, "current survey walk around," has not been defined or elaborated upon. It is possible that Connelly's survey sufficed. However, Northland has not established as a matter of law that its employee's survey—without Channel present and without inspecting the part of the Barge at issue here—was sufficient to satisfy Northland's obligation under the charter.

Northland further argues that there is no evidence that it was at fault for the damage. (Dkt. No. 96 at 14.) As a preliminary matter, the parties dispute whether Northland can be liableonly for damage caused by its negligence, or whether it is strictly liable. (Dkt. No. 96 at 14-15; Dkt. No. 121 at 8.) "Typically, under a bareboat charter, the owner must prove that damage caused during the course of the charter was the result of the charterer's negligence." KAI Enterps., L.L.C. v. Boh Bros. Constr. Co., L.L.C., 731 F.Supp.2d 568, 576 (E.D. La. 2010). However, the parties may contract around this rule. Id. For example, in KAI, the court found that the parties had done so by including language that the charterer "assumes all risk of loss of and damage to the vessel from any cause." Id. (emphasis in original). Likewise, the U.S. Supreme Court found absolute liability under a provision that the chartered "shall be liable and responsible for any and all loss and damage" to the vessel. Sun Printing & Publ'g Ass'n v. Moore, 183 U.S. 642, 656 (1902). Here, the charters state that Northland "shall be solely responsible for all loss, damage, liability . . . of any type or nature whatsoever and howsoever caused arising out of or related to the [Barge] and/or its use or operation during the charter term or otherwise as a result of this agreement." (Dkt. No. 122-1 at 5.) This provision, like those in KAI and Sun Printing, indicates that Northland shall be liable for any damage occurring during the charter term, excluding ordinary wear and tear, regardless of whether it was negligent.

Turning to the merits of Northland's argument, it asserts that Channel has set forth no evidence that the damage was caused during the charter. (Dkt. No. 96 at 16.) Rather, Northland asserts, the evidence shows that the corrosion damage was the result of "ordinary wear and tear," for which Channel is responsible. (Dkt. No. 96 at 16.) As support, Northland presents evidence suggesting that the Barge was in poor condition and that Channel failed to keep the Barge's hull properly coated. (See Dkt. No. 96 at 17; Dkt. No. 97-1 at 23, 32; Dkt. No. 97-2 at 1.) In response, Channel offers evidence to suggest that the damage was caused by stray current corrosion. (See Dkt. No. 121 at 11-12; Dkt. No. 118.) Northland protests that Channel's evidence consists solely of inadmissible expert testimony. (See Dkt. No. 131 at 8.) But, this Court has since deniedNorthland's motion to exclude such testimony.² (Dkt. No. 136.) To the extent Northland still challenges that evidence, it raises a question of credibility not properly resolved on summary judgment. See S.E.C. v. Koracorp Indus., Inc., 575 F.2d 692, 699 (9th Cir. 1978).

In light of the conflicting evidence presented by the parties, there remains a genuine issue of material fact as to the cause of the Barge's damage. Northland's motion for summary judgment is DENIED.

C. Underwriters' Motions (Dkt. Nos. 94, 98)

Channel alleges that the Underwriters failed to perform their obligations under the 2010, 2011, and 2012 insurance policies and that the 2012 Underwriters have handled Channel's claim in bad faith. (Dkt. No. 77 at 7-9.) The Underwriters move for summary judgment, arguing that the damage claimed is not covered under the contracts and that Channel cannot demonstrate that they acted in bad faith. (Dkt. No. 94 at 2-3; Dkt. No. 98 at 1-2.)

The Court construes an insurance policy as a contract. Weyerhaeuser Co. v. Commercial Union Ins. Co., 15 P.3d 115, 122 (Wash. 2000). The Court construes the policy as a whole, giving it a fair, reasonable, and sensible construction as would be given by the average person. Bordeaux, Inc. v. American Safety Ins. Co., 186 P.3d 1188, 1191 (Wash. Ct. App. 2008).

As a preliminary matter, the Underwriters assert—and Channel does not dispute—that Channel has not tendered to the 2010 and 2011 Underwriters. (Dkt. No. 94 at 19.) Breach of the duty to indemnify cannot occur before tender. Mut. of Enumclaw Ins. Co. v. USF Ins. Co., 191 P.3d 866, 873 (Wash. 2008). Channel's claims against the 2010 and 2011 Underwriters are therefore DISMISSED. Going forward, any reference to the Underwriters refers only to those who subscribed to the 2012 policy ("the Policy").

The Underwriters assert that the Policy does not cover the damage to the Barge's hull. (Dkt. No.94 at 2; Dkt. No. 98 at 1.) The Policy contains two clauses establishing the Underwriters' liability. The first, the Perils clause, provides:

Touching the Adventures and Perils which the Underwriters are contented to bear and take upon themselves, they

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