By Anjali Gillette

On August 29, 2018, the U.S. Court of Appeals for the Fifth Circuit dismissed an appeal for lack of appellate jurisdiction involving the issue of whether a vessel’s primary and excess insurers may limit their liabilities to the same extent available to the vessel. See SCF Waxler Marine, L.L.C. v. ARIS T M/V, No. 17-30805 (5th Cir. August 29, 2018). SCF Waxler addressed the interplay between the Louisiana Direct Action Statute, La. R.S. § 22:1269, that allows third party claimants to bring claims directly against a tortfeasor’s insurer and the U.S. Shipowner’s Limitation of Liability Act, 46 U.S.C. § 30501, a federal statute that permits a vessel owner (and some vessel charterers) to limit their liability to the post-casualty value of the vessel and the pending freight.

SCF Waxler involved an accident in which the M/V ARIS T collided with multiple vessels and facilities along the Mississippi River, allegedly resulting in damages expected to exceed $60 million. The M/V ARIS T blamed the accident on unsafe maneuvering by two tugs.  The owner and operator of one of the tugs, Cenac Marine Services (“Cenac”), filed a Limitation action in defense of the claims against it seeking to limit its liability to the value of the vessels involved. Claims were filed against Cenac’s primary and excess insurers directly pursuant to the Louisiana Direct Action Statute. Cenac’s insurers filed defenses arguing that their liability, if any, was derived solely from their policies’ terms and conditions and that they were entitled to limit their liability to the extent Cenac was entitled to limit its liability to the subject vessels and pending freight.

In a motion for partial summary judgment, Claimants asked Judge Zainey to resolve whether the excess insurers could limit their liability to the value of Cenac’s insured vessel. They argued that Cenac’s insurance policies did not contain the requisite language allowing them to limit their liability vis-à-vis an injured third party (the primary insurers advised that they had no interest in the outcome of motion because their primary $1 million limits of coverage were less than the $14.6 million limitation fund posted by Cenac). Judge Zainey rejected their arguments holding that the policies in question were excess follow-form policies, and accordingly the legal question turned on the language of the primary P&I cover to which they followed form. Judge Zainey noted controlling U.S. Fifth Circuit precedent, which provides that a P&I insurer “may limit its liability to that of the vessel owner’s liability when the terms of the policy allow it to do so.”

Claimants appealed, asserting that the Fifth Circuit had jurisdiction to hear an appeal of that interlocutory order under 28 U.S.C. §1292(a)(3), which provides that appellate courts may entertain appeals from district courts’ interlocutory orders that determine the rights and liabilities of the parties to admiralty cases. The Fifth Circuit stated that “the heartland of this court’s jurisdiction over an interlocutory appeal under § 1292(a)(3) is a conclusive determination of the rights and liabilities as to the claim on appeal.” Claimants argued that because the district court, in denying their motion for partial summary judgment, granted the excess insurers rights to limit their liability, then that determination was the final order on the extent of the excess insurers’ liability in this case. Because the district court’s order determined “the rights and liability of the parties” in an admiralty case, Claimants contend that section 1292(a)(3) applied and the Fifth Circuit was afforded jurisdiction over the case.

The Fifth Circuit disagreed with their contentions. Instead, the Court focused on whether Claimants were legally permitted to recover anything from the excess insurers and if so, the amount of that liability. The Circuit Court determined that the limitation of liability question was ancillary to the main question regarding the extent of the insurer’s liability. Further, the Court found no compelling reason to distinguish between a district court’s determination of a contractual entitlement rather than statutory entitlement to limit liability. The Court joined the Eleventh Circuit in holding that neither decision was reviewable on appeal under section 1292(a)(3).

Conversely, the Court stated that if the district court had decided that the excess insurers were not entitled to limitation of liability, jurisdiction would be appropriate. A denial of exoneration or limitation of liability would require a district court to conclude that a party was negligent and not entitled to limitation.

Thus, the Fifth Circuit would not exercise jurisdiction when a district court determines whether a party may, under a contractual provision, limit his liability should the liability question be determined in that party’s favor. The Fifth Circuit’s decision to not exercise jurisdiction in cases where a final adjudication of the liability has not been made is not surprising considering their history in narrowly construing section 1292(a)(3). However, it assists in guiding vessel owners and insurers on the costs involved in doing business in the maritime arena.