SAN FRANCISCO — A commercial liability insurer (CGL) has been declared as not responsible for damages claimed in a lawsuit settlement over contaminated fish oil aboard a vessel operated by the company suing, according to a Ninth Circuit Court of Appeals ruling filed in September.

In the case Trident Seafood Corp. v. ACE American Insurance Co., the lawsuit alleges that the defendant was liable for a cracked fuel tank that leaked petroleum into fish product that was then sold to markets from the plaintiff's shipments. Trident asserts that the insurance policy wrongly denied coverage, but a district court and appellate court disagreed, noting the insurance company's watercraft exclusion was not ambiguous. The court assumed Washington law. 

Christopher French, a Penn State professor of law who specializes in studying insurance matters, said the court was right to assert that the defendant was off the hook for the settlement. 

"I don't have a copy of the policy, but having said that, it looks like standard CGL language that was cited that's sold to companies all around the country," French told the Northern California Record. "They all contain these watercraft exclusions. Yes, this is routine. They exclude coverage for aircraft, watercraft and auto because they want you to purchase a separate policy for that. They may have had other watercraft policies. They typically have a separate policy for the watercraft."

The CGL policy excluded insurance coverage for human injury or damage to property "arising out of the ownership, maintenance, use or entrustment to others of any … watercraft owned or operated by … any insured. Use includes operation and ‘loading and unloading.’" 

Also, this particular policy covered "products-completed operations hazard" third-party product liability claims. Coverage excluded damage that arose out of the transportation of goods, but also accommodated for coverage for damage that arose out of "a condition in or on a vehicle created by the ‘loading or unloading’ of it," documents show. 

French did admit he was surprised by the interpretation of "arising out of" language and that courts typically have a less broad interpretation of exclusions.

"I'm a little surprised by the way it's been interpreted," French said. "'The general rule is that the court is to interpret exclusions narrowly. It does not look to me like the court gave a narrow interpretation here. So that to me was a little surprising. This was broadly interpreted language, which you're not going to find typically in a court. The court is supposed to interpret exclusions more narrowly and I don't believe it did because they took a pretty broad interpretation of what 'arising out of' means."

The Penn State professor noted his opinion of the California courts' tendencies in cases such as this.

"West Coast courts tend to have a little more policy holder friendly interpretations of policies," French said. "This is definitely not an example of that." 

French also said the case is inconsistent with the normal rules of construction. 

"But having said that, we don't know if they recovered under another watercraft policy," he said. 

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