THORNBERRY, Circuit Judge:
In this multiparty admiralty case we must determine whether the district court properly awarded a shipowner indemnity under the Ryan doctrine for amounts it paid in settlement of a claim against it and whether the district court correctly interpreted two insurance policies.
On October 1, 1967, Wilson Parfait, an employee of Yo-Ro Diesel Service, Inc., was injured while he was aboard a diesel dredge owned and operated by Jahncke Service, Inc. to repair a broken cylinder block of one of the vessel's engines. Parfait sued Jahncke to recover for his injuries, alleging negligence and unseaworthiness. Jahncke filed a third-party complaint against Yo-Ro for indemnity under the Ryan
The district court summarized the facts relating to Parfait's injuries as follows:
Parfait v. Jahncke Service, Inc., E.D. La.1972, 347 F.Supp. 485, 488-489. The fall caused serious injury to Parfait's neck and back.
As outlined above, Parfait sued Jahncke on theories of negligence and unseaworthiness, Jahncke impleaded Yo-Ro as the third-party defendant, and both Yo-Ro and Jahncke impleaded Yo-Ro's insurers as fourth-party defendants. In early January of 1972, counsel for Parfait offered to settle the $160,000 suit for $90,000. Upon receiving notice of the offer, counsel for Yo-Ro wrote Jahncke, Travelers, and Home indicating that he would regard as favorable a settlement in any amount within the $100,000 limit of Yo-Ro's general liability insurance policy with Travelers and called upon Travelers and Home to effect such a settlement immediately.
The district court found that the oil which had dripped on to the catwalk created an unseaworthy condition which was a proximate cause of the accident, and that, even assuming substantial contributory negligence on the part of Parfait, the settlement was reasonable in amount. The court held further that Yo-Ro had breached its duty to Jancke to perform its work in a workmanlike manner and that Jahncke was therefore entitled to indemnification from Yo-Ro for the sum it paid to satisfy its potential liability to Parfait. Finally, the district court construed the Travelers policy, but not the Home policy, as covering the indemnity expense incurred by Yo-Ro, so that the cost of the settlement ultimately fell on Travelers.
We treat first the question whether the district court properly awarded Jahncke indemnity from Yo-Ro. To establish its entitlement to indemnity for the amount paid in settlement of Parfait's claim, Jahncke was required to show first that an indemnitor-indemnitee relationship existed between Yo-Ro and itself. If there was such a relationship, Jahncke had the additional burden of satisfying the district court that it, Jahncke, had acted in accordance with equitable indemnity principles in making the settlement and had not spent its indemnitor's money too freely.
Below Jahncke relied on the breach of warranty theory set forth in Ryan Stevedoring Company v. Pan-Atlantic Steamship Corporation, 1956, 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133 to establish an indemnitor-indemnitee relationship. Under the Ryan doctrine stevedores and other shore-based contractors who go aboard a vessel by the owner's arrangement or by his consent to perform service for the ship's benefit impliedly warrant to the shipowner that they will accomplish their task in a workmanlike manner.
This Court has previously recognized the "equitable spirit behind the Ryan doctrine." Whisenant v. Brewster-Bartle Offshore Company, supra, at 400 of 446 F.2d. Its purpose is generally to place "the burden ultimately on the company whose default caused the injury." Italia Societa v. Oregon Stevedoring Company, supra, 376 U.S. at 324, 84 S.Ct. at 754. The Ryan doctrine is not, however, a precision instrument for allocating the burden according to the relative amounts of fault, but a rough all-or-nothing device. Even where the shipowner and the contractor are both at fault, under the Ryan warranty doctrine indemnity will be allowed wholly or not at all, as the trier of fact may determine by weighing the conduct of the two parties as described above. See Garner v. Cities Service Tankers Corp., supra, at 480 n. 6 of 456 F.2d; G. Gilmore & C. Black, The Law of Admiralty, § 6-57 at 373 (1957).
In attacking the district court's conclusion that an indemnitor-indemnitee relationship existed between Yo-Ro and Jahncke under the Ryan doctrine, appellants make three arguments. First, with regard to the breach of warranty issue, eschewing any contention that fuel oil may not be an unseaworthy condition or that a maritime contractor's failure to stop work or eliminate the hazard may be a breach of the contractor's warranty of workmanlike performance,
Thirdly, appellants advance a fundamentally misconceived argument that Jahncke can have no right of indemnity against Yo-Ro because Jahncke was actively negligent and Yo-Ro was at most passively or secondarily negligent. "Indemnity may arise either in contract or in tort." General Electric Company v. Cuban American Nickel Company, 5th Cir. 1968, 396 F.2d 89, 90. The two types of indemnity rights rest on separate and distinct theoretical bases and require proof and evaluation of different elements. See, e. g., Halliburton Company v. Norton Drilling Company, 5th Cir. 1962, 302 F.2d 431, reh. denied 1963, 313 F.2d 380, cert. denied 374 U.S. 829, 83 S.Ct. 1870, 10 L.Ed.2d 1052; American President Lines, Ltd. v. Marine Terminals Corporation, 9th Cir. 1956, 234 F.2d 753, cert. denied 352 U.S. 926, 77 S.Ct. 222, 1 L.Ed.2d 161. As between two joint tort-feasors, the passively negligent party may recover indemnity from the actively negligent party. This type of indemnity was explored in depth in Tri-State Oil Tool Industries, Inc. v. Delta Marine Drilling Company, 5th Cir. 1969, 410 F.2d 178. See also Magnum Marine v. Kenosha Auto Transport Corporation, 5th Cir. 1973, 481 F.2d 933. Although principles of equity underlie both this tort indemnity doctrine and the Ryan doctrine, indemnity under the latter does not rest on the tort concepts implicit in the former, but on a contractual warranty theory. Ryan Stevedoring Company v. Pan-Atlantic Steamship Corporation, supra, 350 U.S. at 133, 76 S.Ct. at 237. If the Ryan case itself left any doubt as to the distinctly contractual nature of the warranty doctrine it established, that doubt was removed in the final paragraph of Weyerhaeuser Steamship Company v. Nacirema Operating Company, supra, 355 U.S. at 569, 78 S.Ct. at 442, where the Court pointed out "that in the area of contractual indemnity an application of the theories of `active' or `passive' as well as `primary' or `secondary' negligence is inappropriate." Thus, appellants' active-or-passive negligence argument is made in the wrong case; it does not touch on the pivotal issues of the Ryan doctrine, upon which the district court relied in determining that an indemnitor-indemnitee relationship existed in this case.
Construing appellants' active-negligence argument as a challenge to the district court's determination that the shipowner's conduct was not sufficient to preclude indemnity, we find it without merit. We agree with the district court that "any fault by Jahncke and unseaworthiness created thereby, would not have prevented Yo-Ro from performing its operations in a workmanlike manner." 347 F. Supp. at 490.
Being unpersuaded by appellants' assaults on the district court's determination that an indemnitor-indemnitee relationship existed between Yo-Ro and Jahncke, we proceed to the second major part of appellants' attack on the district court's order of indemnity. The district court held that in order to exercise its right of indemnity against Yo-Ro for the amount of the settlement, Jahncke was required to show only potential
The actual-versus-potential liability problem is unique to cases in which the original defendant (indemnitee) has settled with the original plaintiff without giving the third-party defendant (indemnitor) an opportunity to approve the amount of the settlement or to conduct the defense, and in which traditional indemnity principles are not modified by express contract between the parties. To be distinguished are "cases in which (1) the original defendant's claim for indemnification was founded on a judgment, or (2) the indemnitor was tendered the defense and refused it, or (3) the indemnitee's claim against the indemnitor was founded upon a written contract." Whisenant v. Brewster-Bartle Offshore Company, 5th Cir. 1971, 446 F.2d 394, 401-402; see Tankrederiet Gefion A/S v. Hyman-Michaels Company, 6th Cir. 1969, 406 F.2d 1039, 1042. In settlement cases such as the instant one, the indemnitee has the special problem of showing that his disposition of the indemnitor's funds has not contravened equitable indemnity principles.
Such principles require at a minimum that the indemnitee demonstrate his potential liability to the original plaintiff. Smith v. Brown & Root Marine Operators, Inc., W.D.La.1965, 243 F.Supp. 130, aff'd per curiam sub nom. Underwater Services, Inc. v. Brown & Root Marine Operators, Inc., 5th Cir. 1967, 376 F.2d 852.
See Whisenant v. Brewster-Bartle Offshore Company, supra at 403 of 446 F. 2d. This Circuit has not, however, unreservedly adopted the "general rule" of the Sixth Circuit "that an indemnitee must show actual liability to recover against an indemnitor." Tankrederiet Gefion A/S v. Hyman-Michaels Company, 6th Cir. 1969, 406 F.2d 1039, 1042.
In this case we do not find any circumstances present which, in fairness to the indemnitor, call for proof of actual liability.
The Whisenant case, in which a showing of actual liability was required, is distinguishable. There the original negligence theory on which the original plaintiff had proceeded appeared questionable as a basis for liability, and the indemnitee had attempted to justify the settlement by amending its pleadings to introduce a new unseaworthiness theory. Further, the indemnitor in that case had no real opportunity to contest the original claim, and the record indicated that, given the chance, he would have chosen to do so. None of these circumstances, nor any others suggesting unfairness to the indemnitor, are present in the instant case.
In addition to potential liability, Jahncke had the burden of showing that the settlement was reasonable in amount. Appellants urge that the amount of the settlement was excessive because if the claim had been tried, contributory negligence of the plaintiff would have diminished the amount of his recovery by a fraction approaching one hundred percent. We cannot say, however, that the contrary finding of the district court was clearly erroneous.
II. Coverage Under the Policy of Travelers Indemnity Company
It was stipulated at trial that Yo-Ro offered its insurers an opportunity to defend in accordance with its contractual obligations and that each insurer denied coverage. Whether the insurance companies must pay Yo-Ro's damages depends wholly on whether the loss is covered under their respective policies.
The pertinent insuring language in the Travelers $100,000 "Commercial Automobile—General Liability Policy" reads:
As defined in the policy, "bodily injury" means "bodily injury, sickness or disease sustained by any person," and "property damage" means "injury to or destruction of tangible property." Travelers contends that two exclusionary paragraphs preclude coverage for Yo-Ro's loss. The first is exclusion (d), also called the "watercraft exclusion." We do not deal with this exclusion, since we agree with Travelers that the second one, exclusion (h), makes plain that the policy does not cover the type of loss involved in this case.
The exclusionary provision reads:
This insurance does not apply to:
The parties agree that Parfait was Yo-Ro's employee, that he was injured in the course of his employment, and that no "incidental contract," as that term is defined in the policy, existed between Yo-Ro and Jahncke. Thus, the exclusion would appear to defeat coverage in this case. Yo-Ro's argument in favor of coverage is that the exclusion applies only to liability resulting from an action by the injured employee directly against the employer, and not to an obligation to indemnify a third party which has been found primarily liable to compensate an injured employee of the insured.
We agree with Yo-Ro that the insuring language in the policy, which speaks broadly of "all sums" which the insured shall become obligated to pay as damages "because of" bodily injury, is broad enough to cover both (1) liability directly to an injury victim and (2) liability to indemnify a third party which is based ultimately on bodily injury, but we cannot agree that exclusion (h) applies only to the former type of liability. The insuring language covers only liability—whether direct or indirect via indemnity under the Ryan doctrine—for bodily injury "to which this insurance applies." Exclusion (h) provides expressly that the insurance does not apply to injury to the insured's employees in the course of their employment. The employee status of the injury victim is made the key to the exclusion, not the procedural route by which the liability comes to rest on the insured. Bodily injury coverage of the policy extends only to non-employees. We do not find such an exclusion anomalous in Travelers' "Commercial Automobile—General Liability Policy," for employee injuries have long been treated as a special kind of risk and covered under special policies.
Exclusion (a) is not inconsistent with exclusion (h) and does not change our
In exempting from its sweep warranty liability under the Ryan doctrine, exclusion (a) is consistent with our broad reading of the insuring language. Exclusion (a) is limited by exclusion (h), but the two are not inconsistent, since liability arising from injury to a non-employee might be imposed under the Ryan doctrine.
Indemnity Insurance Company v. California Stevedore & Ballast Company, 9th Cir. 1962, 307 F.2d 513, upon which Yo-Ro relies, is not apposite, since the policy language in that case was significantly different from the language in question in this case. The applicability of Larson Construction Company v. Oregon Automobile Insurance Company, 9th Cir. 1971, 450 F.2d 1193, is doubtful because only brief fragments of the insuring and exclusionary language are quoted in that opinion.
We are, of course, aware of the rule that ambiguities in an insurance policy must be construed against the insurer, but we can discover no ambiguities or inconsistencies in the Travelers policy as applied to the facts of this case. The plain language of the policy shows that it does not cover liability originating in injuries to the insured's employees. Accordingly, we must reverse that portion of the district court's judgment holding that the Travelers policy covered Yo-Ro's obligation to indemnify Jahncke.
III. Coverage Under the Policy of Home Indemnity Company
In its "Standard Workmen's Compensation and Employers' Liability Policy" Home agreed:
The policy limit of liability is $25,000. As was true of the Travelers policy, the insuring language in the Home policy is broad enough to cover both direct liability to the injury victim and indirect liability under the Ryan doctrine on account of bodily injury. This breadth of coverage is made explicit in condition 9 of the policy:
Consistently, exclusion (c), relating to liability assumed by the insured under a contract, expressly exempts from its scope liability to indemnify under the Ryan doctrine. Unlike the Travelers policy, the Home policy is aimed specifically at liability resulting from employees' injuries.
In denying coverage, Home relies on the "Exclusion of Maritime Liability Endorsement," which reads:
Home argues that this exclusion excludes both direct liability to employees covered by the Longshoremen's and Harbor Workers' Act and Ryan warranty liability originating in injuries to such employees.
As we read the maritime exclusion, however, it is somewhat narrower than the insuring language and may be read as excluding only direct liability to an employee covered by the Longshoremen's and Harbor Workers' Act. The words "the policy does not apply to injury" are ambiguous as applied to liability under the Ryan doctrine, which arises not directly from the injury, but from breach of a warrantly obligation. The exclusion may reasonably be read as only a counterpart of Coverage A, providing Workmen's Compensation coverage—as an exclusion of coverage for liability directly to the employees for maritime injuries, either under the Act or apart from it— and not as an exclusion of Ryan indemnity liability. We conclude that, in view of the clear thrust of those portions of the policy providing coverage both for direct liability to employees and for indemnity liability originating from employees' injuries and in view of the uncertain application of the maritime exclusion to indemnity liability, the policy must be construed as providing coverage for indemnity liability originating from an employee's maritime injuries. If an exclusion is to take away what the insuring language provides, it must do so in unmistakably clear terms. Accordingly, we hold the Home policy does cover Yo-Ro's liability to Jahncke within its liability limits.
The judgment of the district court is affirmed in part and reversed in part. Costs are taxed equally against Yo-Ro and Home.
ON PETITION FOR REHEARING
It is ordered that the petition for rehearing filed on behalf of Home Indemnity Company, Appellee in the above entitled and numbered cause be and the same is hereby denied.
ON PETITION FOR REHEARING
In its petition for rehearing, Yo-Ro Diesel Service, Inc. raises four points. The first three concern the reasonableness of its opportunity to defend, the fact finding that there was oil on the catwalk, and the construction of the exclusionary clause in the Travelers insurance policy. We think our original opinion adequately disposes of these issues.
Point four of the petition, however, raises the issue of costs of the defense, including attorney's fees. The district court had awarded these costs against Travelers and allowed the parties sixty days from the date of the judgment to agree on their amount. In the absence of an agreement, any party was invited to apply to that court for a hearing to determine the amount. We have reversed as to the liability of Travelers and as to the nonliability of Home, but we have not dealt with the issue of the costs as a matter of contractual liability under the policies.
The petition for rehearing is DENIED and the case is REMANDED for a hearing on these issues.
This letter could reasonably be read as a request to Jahncke to settle for any amount under $100,000. In a letter to Yo-Ro dated January 20, 1972, counsel for Yo-Ro "explained" that the request for settlement in the January 14 letter was directed only to the insurers, and not to Jahncke. Since we cannot ascertain with confidence from the record a clear intent on Yo-Ro's part to approve the Jahncke-Parfait settlement and since the district court made no finding on this issue, we accord Yo-Ro the benefit of the doubt and treat the January 14 letter as a request for settlement directed to the insurers only. See note 8, infra.
See note 8, infra.
But for the January 20, 1972 letter from Yo-Ro to Jahncke (whose arrival time in relation to the time of the settlement is also unknown to us) which "explained" the earlier January 14 letter from Yo-Ro to Jahncke, see note 2, supra, we would construe the January 14 letter as an effective approval of any settlement under $100,000 that Jahncke might make with Parfait, estopping Yo-Ro from questioning the Jahncke-Parfait liability and rendering a formal Tankrederiet Gefion offer unnecessary.
Ryan Stevedoring Company v. Pan-Atlantic Steamship Corporation, 1956, 350 U.S. 124, 130-131, 76 S.Ct. 232, 236, 100 L.Ed. 133.