Folksamerica Reins. Co. v. Clean Water of New York, Inc., 413 F.3d 307 (2d Cir. 2005), rev'g 281 F.Supp.2d 530 (E.D.N.Y. 2003)(coverage dispute concerning injuries to worker cleaning the tank of an ocean-going oil barge).
The Second Circuit, in light of Norfolk Southern Ry. Co. v. James N. Kirby. Pty., Ltd., 543 U.S. -- , 125 S.Ct. 385 (2004), recently reconsidered its prior decisions concerning when an insurance policy should be deemed to be a maritime contract and thus within the federal admiralty jurisdiction and governed by the general maritime law. Folksamerica Reins. Co. v. Clean Water of New York, Inc., 413 F.3d 307 (2d Cir. 2005). This decision expands the scope of admiralty jurisdiction over insurance contracts.
Prior to Norfolk Southern Railway, admiralty jurisdiction only extended to purely maritime contracts, see, e.g., Transatlantic Marine Claims Agency, Inc., v. Ace Shipping Corp., 109 F.3d 105, 109 (2d Cir. 1997), with an exception for mixed contracts such as insurance policies which covered marine and non-marine risks, provided that the non-marine elements of the policy were merely incidental to the marine elements. Accordingly, most CGL policies were not deemed to be marine insurance even if they covered some marine risks.
Folksamerica prompted the Second Circuit to reconsider the "incidental" exception in light of Norfolk Southern Railway, and focus instead on whether the principal objective of a contract is maritime commerce. 413 F.3d at 315, quoting Norfolk Southern Railway, 125 S.Ct. at 394. The court said it would look at the coverage provided by the policy, without regard to the form on which it is written. 413 F.3d at 315-317.
In Folksamerica, the insured, Clean Water, a tank cleaning company that was part of a petroleum transportation group, contended that because the CGL section of its policy excluded all the risks covered by hull and P&I insurance, the only risks covered by the CGL section were shore side risks such as personal injury and property damage to third parties. The court disagreed, and held that the policy did have a maritime purpose, noting that tailored endorsements had extended the completed operations, products hazards, and pollution coverages to exposures particular to marine operations, such as cleaning the tanks on an oil barge.
This decision will enable the insurer to go forward with its contention that the maritime rule of uberrimae fidei voids the policy because Clean Water failed to disclose that it performed tank cleaning on vessels owned by third parties. Neither decision in the case indicates whether the result would be different under New York law; the insured was apparently simply trying to have the insurer's federal action dismissed for lack of subject matter jurisdiction.
Folksamerica may prove helpful to insurers, but will undoubtedly complicate the choice-of-law inquiry in coverage disputes. Marine insurance contracts are governed by the general maritime law, unless there is no established federal rule, in which case the federal court should look to state law for the rule of decision. See Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 75 S.Ct. 368 (1955).
