PRISCILLA R. OWEN, Circuit Judge:
This case arises out of the sinking of a vessel owned by Hornbeck Offshore Service (Hornbeck) while at R & R Marine's (R & R) shipyard for repairs. R & R's liability insurer, National Liability & Fire Insurance Company (National), initiated this suit to disclaim liability under its policy. Hornbeck counterclaimed that the policy obligated National to cover all sums for which R & R became obligated to pay and cross-claimed against R & R to assert that R & R's negligence caused the sinking of its vessel. The district court found that R & R was negligent and that National was liable for the ensuing damage. National and R & R appeal. We affirm in part, reverse in part, and remand for entry of judgment consistent with this opinion.
Hornbeck engaged R & R to repair and refit two vessels: the Erie Service, and the Superior Service. Only the repair of the Erie Service is at issue here. R & R was to perform the work at its shipyards on Lake Sabine in Port Arthur, Texas, subject to the terms of the Shipyard Repair and Drydock Agreement (Agreement). Under this Agreement, "[t]he Vessel(s) [were] deemed accepted into the `Custody'
Prior to arrival, much of the vessel's deck plating and bulwarks had been removed in order for R & R to replace deteriorated steel. From June through September, only R & R performed the overhaul work on the Erie Service. Under the Agreement, however, Hornbeck retained access to its vessel so that it could inspect the work and ensure compliance with specifications. To that end, Hornbeck maintained two on-site project managers at R & R's facilities. If these managers observed an issue with or objected to an aspect of R & R's performance, they had the authority to give, and R & R was obligated to follow, orders. Hornbeck's on-site managers also monitored the subcontractors on the Erie Service who were performing work unrelated to R & R's responsibilities.
On September 12, it began to rain and R & R sent its workers home at approximately 9:00 a.m. R & R notified Hornbeck by email of this decision, requesting an extension due to weather delay. At 10:00 a.m., the National Hurricane Center (Center) advised the public that Tropical Depression No. 9 had formed and issued a tropical storm warning for an area that included Port Arthur. This meant that sustained winds within the range of 39 to 73 miles per hour could be expected within 24 hours or less. R & R promptly forwarded this warning to Hornbeck to substantiate its request for an extension. In response, one of Hornbeck's project managers asked what actions R & R would be taking for "water entry issues." R & R responded at 10:49 a.m. that the dock was "monitored around the clock everyday" and that it kept "pumps on hand to pump out rain water when required."
By 1:00 p.m., Tropical Depression No. 9 had intensified into Tropical Storm Humberto. Though the Center changed the warning area's boundaries throughout the day, Port Arthur always remained, and in fact became more centered within, the region of concern. Nevertheless, all R & R personnel left the shipyard at 5:00 p.m. without taking any precautions. A hurricane warning did not issue until 12:15 a.m. on September 13. When R & R employees arrived that morning, the Erie Service was listing severely and sinking. Sometime before 7:00 a.m., the Erie Service sank. The parties have stipulated that the Erie Service sank because rainfall and waves from Lake Sabine caused water to enter through the vessel's openings.
Hornbeck received several salvage bids for its vessel, including a "no cure, no pay" option, pursuant to which Hornbeck would have paid $298,000 for a successful salvage. Hornbeck, however, accepted a time-and-materials bid, which cost $245,000 but was subject to unlimited increase if the job proved more difficult than anticipated. The salvage company initially dispatched two derrick barges, but it was necessary to use a third. The salvage work ultimately cost $627,324.64. Hornbeck and R & R demanded that National, R & R's insurer, pay these salvage costs directly.
Shortly thereafter, National commenced this litigation against both R & R and Hornbeck to seek a declaratory judgment that it was not required to pay for the salvage costs under a commercial marine liability policy that National had issued to R & R. Hornbeck filed a counterclaim against National asserting, among other things, that "the Policy provide[d] coverage for all sums, including salvage, for which R & R bec[ame] obligated to pay for
After eight hearings and two trials, the district court issued a final judgment, which held, in relevant part, that R & R was negligent in failing to secure the Erie Service and protect her from damage by the storm, and that National was required to pay Hornbeck $1,076,843.09 for losses to the Erie Service and additionally to pay to Hornbeck 18 percent interest on this amount, plus $213,683.95 in attorney's fees.
Appeals by National and R & R followed.
We first address National and R & R's assertion that the district court erred in finding that R & R's negligence caused the sinking of the Erie Service. Negligence and proximate cause are factual findings that we review for clear error.
R & R argues that it never had full custody of the Erie Service and alternatively, Hornbeck failed to meet its burden of proof. We conclude that the district court did not clearly err in finding that R & R was negligent.
Bailment law governs where, as here, a vessel is left in the shipyard's custody for repairs.
Here, the district court determined that Hornbeck had established a prima facie case of negligence because it found that the Erie Service was delivered to R & R afloat, R & R had full custody of the vessel, and the vessel sank while under R & R's care. Therefore, the court imposed a presumption of negligence that R & R was required to rebut. R & R, however, contends that such a presumption was erroneous because only a limited bailment was created. It argues that Hornbeck's agents' unconditional access to the Erie Service to oversee R & R's performance, authority to give orders to R & R, and the presence of other subcontractors on the Erie Service undermine the finding that R & R had full custody.
This finding of full custody is not clearly erroneous in light of the record as a whole. The initial exchange of emails shows that both Hornbeck and R & R understood R & R to be responsible for protecting the vessel. Furthermore, R & R alone had control over when, where, and how to moor the vessel. R & R stated during trial that if it had had more time, it would have moved the Erie Service to another shipyard. R & R even had a plan in place for Hurricane Dean — which occurred one month before Hurricane Humberto — to move the Erie Service to another shipyard. There was also testimony establishing a shipyard's general responsibility to handle all mooring of vessels. The record shows that R & R shouldered responsibility for and was in control of protecting the Erie Service from inclement weather. It was not clearly erroneous for the district court to conclude that R & R had full custody of the Erie Service.
R & R argues that even if it had full custody of the vessel, it overcame the presumption of negligence and Hornbeck subsequently failed to affirmatively prove R & R's negligence. We do not reach this argument, however, because the district court's finding that R & R had not overcome the presumption of negligence was not clearly erroneous.
To rebut the presumption of negligence, R & R argued that the unexpected severity of Hurricane Humberto rendered its inaction reasonable. The district court found, however, that R & R could not "verify that the storm ever reached hurricane-strength at the yard." The district court found, therefore, that R & R had failed to demonstrate the unexpected severity of the weather was an act of God.
R & R contends that even if it was negligent, it is not liable for the full-invoiced salvage amount because Hornbeck's choice between salvage bids was unreasonable and the salvage company's negligence caused the increased cost of salvage. We are unpersuaded.
"The burden of showing that the victim of tortious conduct failed to minimize his damages rests with the wrongdoer."
Again, we review for clear error. In doing so, we emphasize that "reasonableness" here does not require "infallibility or exactness of mathematical formula."
Alternatively, R & R argues that it is not liable for the additional salvage cost because it was caused by the salvage company's negligence. Although there was testimony at the damages hearing that the salvage company should have known better than to first attempt the operation with the two barges, testimony as to the salvage company's reasonableness was also presented. As discussed above, when reviewing for clear error, this court cannot reverse even if, sitting as a trier of fact, we would have weighed the evidence differently.
The district court held that National was required by the terms of its policy to pay the amount of damages that R & R owed to Hornbeck as a consequence of R & R's negligence in causing the sinking of the Erie Service. National concedes that if R & R was negligent, it must pay up to its policy limits to Hornbeck for R & R's negligence once a final judgment is entered against R & R. However, National contends no final judgment was entered against R & R as a necessary predicate to National's liability. National contends that Hornbeck lacked standing as a third-party claimant to bring its counterclaim.
As an initial argument, National asserts that Hornbeck did not adequately raise a third-party claim in the district court. We disagree. The record reflects that National had fair notice under the liberal pleading standard,
National is correct, however, that as a general proposition, Texas law requires that when an insured damages the property of a third party, the insurer is not obligated to pay the damages on behalf of its insured until there is a final judgment rendered against the insured or a settlement agreement. Because "Texas is not a direct action state," "a tort claimant has no direct cause of action against the tortfeasor's liability insurer until the insured-tortfeasor is adjudged liable to the claimant."
Under the Erie doctrine,
Hornbeck's counterclaim was compulsory within the scope of Rule 13(a). First, the counterclaim arises out of the same occurrence — damage to the Erie Service — that is the subject matter of National's declaratory action. The counterclaim does not require adding another party since National brought its initial action against both R & R and Hornbeck. There is a logical relationship between National's disclaimer of liability and Hornbeck's counterclaim that National is liable since the same facts underlie both causes. A "direct collision" between state and federal law exists because Hornbeck could not have complied with both state and federal law as to when to assert its counterclaim.
We must, therefore, apply Rule 13(a) so long as it does not violate either the Constitution or the Rules Enabling Act. No constitutional rights are implicated here. Neither does the application of 13(a) violate the Rules Enabling Act because the timing of Hornbeck's counterclaim does not "abridge, enlarge or modify any substantive right" under Texas law.
In sum, Rule 13(a) is valid and controls in this case. Consequently, Hornbeck had standing to bring its counterclaim. and the district court properly ruled on that claim after deciding R & R's liability.
National challenges the damages award, the award of attorney's fees to Hornbeck, and the assessment of 18% interest on the damage award under the Texas Insurance Code. We conclude that the district court erred in the amount of damages that it awarded and in applying an 18% interest rate.
The district court found that the loss to Hornbeck resulting from R & R's negligence in the sinking of the Erie Service was $1,076,843.09. The judgment against National in favor of Hornbeck included this entire amount. However, it is undisputed that National's policy limit was $1,000,000. The district court erred in awarding Hornbeck in excess of National's policy limits. The award of $1,076,843.09 in damages is accordingly reduced to $1,000,000.
National argues that this amount should be further reduced because it expended in excess of $150,000 in defending R & R against Hornbeck's claim of negligence. The policy provides that defense costs are included within the $1,000,000 policy limit, and therefore, defense costs would "erode" this coverage. However, National did not plead for or prove its defense costs in the district court. It argues in its briefing in our court that it never had the opportunity to do so. This argument is without merit. There was ample opportunity for National to raise and to have the trial court resolve this issue during the lengthy course of the litigation that National itself initiated. National could not rely on its argument that Hornbeck had no standing to seek to be paid from the proceeds of R & R's policy until there was a final judgment against R & R as an excuse for failing to raise the issue of defense costs and to prove those costs in the district court.
The district court awarded attorney's fees from National to Hornbeck in the amount of $213,683.95. Whether National was entitled to recover attorney's fees is determined under state law,
The attorney's fees cannot be upheld under section 542.060 of the Texas Insurance Code. Section 542.053 of that Code expressly provides that chapter 542 "does not apply to ... marine insurance," which is defined as covering "a marine builder or repairer risk."
It appears, however, that attorney's fees are recoverable under section 38.001 of the Texas Civil Practice and Remedies Code, even though section 38.006(2) of that Code provides that "[t]his chapter does not apply to a contract issued by an insurer that is subject to the provisions of ... Chapter 541, Insurance Code."
A Texas court of appeals said in dicta that "[a] party who is injured by an insured is considered a third-party beneficiary of a liability insurance policy,"
However, a court of appeals permitted Ischy, the widow of a worker killed on the job in an airplane crash, to recover attorney's fees from her deceased husband's employer's workers' compensation carrier.
Although Texas law is not clear, we make an Erie guess
* * *
For the foregoing reasons, we AFFIRM the district court's judgment in part, REVERSE that judgment in part, and remand for the entry of judgment and the appropriate assessment of interest on that judgment in accordance with this opinion.