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Hosea Project Movers, LLC v. Waterfront Associates, Inc.

United States District Court, S.D. Ohio, Western Division

October 18, 2017

HOSEA PROJECT MOVERS, LLC, et al., Plaintiffs,
v.
WATERFRONT ASSOCIATES, INC., et al., Defendants.

          Barrett, J.

          MEMORANDUM OPINION AND ORDER

          Stephanie K. Bowman, United States Magistrate Judge.

         This consolidated case involves multiple disputes but the same core event: the August 5, 2014 sinking of the Waterfront Barge (hereinafter “Barge”). A primary dispute concerns the insurance coverage for that event. Currently pending is a motion to compel filed by the insured, Waterfront Associates (“Waterfront”), against its insurer, United States Fire Insurance Company (“U.S. Fire”). For the reasons that follow, Waterfront's motion will be DENIED.

         I. Background

         More than three years prior to its sinking, the sunken Barge operated as a floating restaurant. However, on March 11, 2011, the Barge broke away from its moorings in Covington, Kentucky, and the restaurant closed, never to reopen. Six months later in September 2011, Waterfront sought and obtained insurance on the Barge from U.S. Fire. The insurance policy (“Policy”) was renewed in 2013, with an effective date through October 1, 2014. (Case No. 1:15-cv-46, Doc. 1 at ¶12; Doc. 9 at ¶12).

         On or about February 6, 2014, ice caused the Barge to again break away from its moorings. After that, Waterfront hired C&B Marine, LLC (“C&B”) to move the Barge from Covington, Kentucky to Hebron, Kentucky to C&B's facility. (Id., Doc. 35 at ¶10-12). Waterfront made a claim against U.S. Fire for damages that arose from the February incident. Douglas Ottey was the claims handler assigned to this first claim; Ottey also managed Waterfront's claim six months later for the sinking of the Barge.

         U.S. Fire retained a marine surveyor, Bruce Bacon, to investigate the February claim. On June 13, 2014, U.S. Fire advised Waterfront that the Policy did not cover the portion of its claim that sought recovery for damage to the Barge's access ramps. Waterfront disputed U.S. Fire's position. On June 19, 2014, U.S. Fire retained outside counsel from New York, James Forde, to offer legal advice in connection with the February 2014 claim. U.S. Fire issued a formal declination of coverage for the “access ramps” portion of Waterfront's February claim on July 23, 2014.

         Waterfront alleges in its third-party complaint that on June 26, 2014, while still under the care, custody and control of C&B, the Barge was struck by another barge, identified as Barge AEP 2015 (“Allision”). (Id., Doc. 1 at ¶27; Doc. 9 at ¶17; Doc. 35 at ¶17). Waterfront asserts that Ottey was notified of the June 2014 incident, but U.S. Fire, pointing to Ottey's deposition testimony and other documentary evidence, denies receiving notice of the June collision until August, after the Barge sank. (See Doc. 59 at 35-37).

         On August 6, 2014, Waterfront reported the previous day's discovery that the Barge had sunk at its mooring, under what U.S. Fire asserts were normal conditions.

         An August 6 email from Waterfront's insurance agent reporting the loss to U.S. Fire states in part:

[O]n 6/26/14 the [Barge] was hit by a crane barge being operated by McGinnis Towing. Supposedly they had the restaurant/barge inspected and repairs made to the damage that they caused. On 8/4/14, C&B Marina who insured is paying to moor/care for the restaurant/barge, moved it from original mooring location to new location mooring. It was discovered “sinking” morning of 8/5/04.
Agent believes either McGinnis Towing or C&B Marine are either partially [or] fully responsible for the loss.

         (Case No. 1:15-cv-799, Doc. 61-1 at 2).

         Almost immediately, U.S. Fire raised questions about the cause of the sinking. U.S. Fire expressed concerns about Waterfront's alleged failure to notify U.S. Fire of the earlier June collision, whether Waterfront had maintained the Barge in a seaworthy condition, and/or planned to reopen the vessel as a restaurant. Claims handler Ottey testified that the report of the sinking raised “deep concerns” relating to the Barge's condition, the prior unreported collision, and the sinking in calm conditions, which Ottey believed presumptively to be the result of an unseaworthy condition. (Doc. 59, Ottey Dep. at 106:23-107:3, 110:23-111:16). Several emails referenced a contemporaneous news story that apparently added to the insurer's concerns. An email from Ottey, dated August 6, reads in relevant part:

We have appointed a surveyor to look into the reasons why the barge sank….The insured [Waterfront] never informed us of that [June 26] second incident, because it is alleged that he was pursuing a claim against the vessel that caused the collision. We are unsure of the seaworthiness of the vessel after the collision, but our surveyor from the 2/14 incident, reported that the vessel may have sank because the water pump may have been turned off. Our surveyor from the first [February 2014] incident also confirmed the rumor that the insured intended to scrap the vessel.

         (Doc. 61-2 at 1). The record reflects that two marine surveyors were engaged by U.S. Fire to investigate: Bruce Bacon, who had previously been engaged for the February claim, and a second surveyor identified as Armand Cuevas.

         On August 15, 2014, U.S. Fire expanded Attorney Forde's retention from the February incident to include legal advice with respect to the August sinking.[1] Forde has filed an affidavit attesting that he was not asked to, and did not investigate, the facts and circumstances of the sinking. (Doc. 62-1).

         After the Barge sank, U.S. Fire advanced $500, 000.00 of the policy proceeds to C&B Marine, LLC (“C&B”), to remove and dispose of the sunken vessel. However, U.S. Fire advanced that payment under a formal reservation of rights as to coverage issues. (Doc. 61-5). The August 20, 2014 reservation of rights letter referred to the allegedly undisclosed June 26, 2014 collision, as well as the fact that the policy does not cover loss “from want of due diligence.” (Id. at 2).

         Also on August 20, 2014, Waterfront's insurance agent sent an email alerting the wholesale insurance broker who placed Waterfront's policy with U.S. Fire that Waterfront “is talking about filing a bad faith claim in regards to the 2/6/14 loss and the current [August 5] loss.” (Doc. 62-5 at 3, emphasis added). The broker transmitted the same email to U.S. Fire two days later, on August 22. Waterfront's insurance agent testified that by August 20, Waterfront's attorneys were involved with its claim. (Doc. 50, Berger Dep., 96:4-97:24).

         As stated, U.S. Fire hired marine surveyors Cuevas and Bacon to inspect the Barge as part of its investigation of the August claim. On August 27, 2014, U.S. Fire had, through Attorney Forde, additionally engaged a naval architect, William Leschaeve. At 4:41 pm that day, Claims Handler Ottey forwarded the CV of Leschaeve to Cuevas and Bacon, indicating that U.S. Fire's head of claims “would like you [to] consider retaining [Leschaeve].” (Doc. 61-6 at 2). However, Leschaeve's CV had been sent to Attorney Forde earlier on the same day, and both Ottey and Forde unequivocally testified and/or averred that it was Forde and not Cuevas who ultimately retained Leschaeve. Forde's affidavit further attests that Leschaeve reported directly to him, and not to Ottey or any other U.S. Fire claim investigator, and that Cuevas and Bacon likewise did not report to either Attorney Forde or Consultant Leschaeve. (Doc. 62-1, at ¶¶ 12-17).

         During the investigation, and while accompanied by both Laschaeve and by Waterfront's corporate maintenance manager, Danny Thomas, Cuevas and Bacon inspected and removed a coupon (steel section) from the hull of the vessel. The section removed was part of U.S. Fire's investigation into a section of the hull that had been previously repaired. On September 10, 2014, an email from Forde to Leschaeve directs Laschaeve to “make sure you and [Cuevas] maintain a chain of custody for any hull material cropped out and have the divers if possible take pictures as they are cropping…. We want to avoid spoliation issues as we progress.” (Doc. 61-9 at 40). Despite the removal and examination of the coupon section of the hull, Waterfront's corporate manager testified that, to his knowledge, the divers did not find a cause for the sinking. (Doc. 48, Thomas Dep., at 109:8-18).

         Subsequently on September 17, Cuevas communicated to U.S. Fire Claims Handler Ottey that C&B Marine may be responsible for the sinking, and U.S. Fire wrote to Waterfront demanding that it put C&B on notice that it may be potentially responsible for the loss. (Docs. 61-10, 61-11). The communications did not ascribe a definite cause for the sinking, and Ottey and others testified that no definite cause was ever determined.

         On November 10, 2014, U.S. Fire notified Waterfront of its “Named Peril” defense, stating that it “is the burden of the Assured to show what named peril triggered coverage….and that such loss or damage was not as a result of want of due diligence by the Assured.” (Doc. 61-14). In November and December 2014, Claims Handler Ottey exchanged emails with Waterfront that referred to the ongoing investigation and Ottey's need to review a report by U.S. Fire's “forensic engineer.” The meaning of the reference to a “forensic engineer” is unclear. Ottey testified that U.S. Fire did not determine the cause of the ...


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