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Entries in contracts (1)

Saturday
Aug132011

The One Case That Makes My Point

For the last two years, in seminars, on LinkedIn.com, and now on this blog I have been discussing the unique legal position of companies who deal with boats and operate at the water's edge.  These businesses straddle two different jurisdictions and sometimes operate under two completely different sets of laws.  The boundary where one set of laws stops and another set of laws takes over can be difficult to define, even for seasoned layers.

No case illustrates that problem better than Northern Ins. Co. of New York v. Point Judith Marina, 579 F.3d 61 (1st Cir. 2009).  You can get a copy of the case here: http://www.ca1.uscourts.gov/cgi-bin/opinions.pl  If there was one case that I wish every marina owner and every marine insurance underwriter would read, it is this case. 

The facts are simple: A marina launched a customer's boat.  Due to some unseen chaffing on an exhaust line, the boat sank at the dock overnight.  The owner's insurance company sued the marina claiming negligence in not detecting the chafing in the exhaust line and for switching the bilge pumps off before leaving the boat at the end of the day. 

The court ruled for the marina but not before considering some very strong arguments made by the attorneys for the insurance company.  Those arguments highlight the unique nature of our industry.  Here is a sample:

Bailment:  This is an ancient legal doctrine that is still with us today.  When a bailment is created, the bailee (in this case the marina) has a special responsibility to secure the goods (in this case the boat) and is usually liable to the bailor (the owner) for the loss of that boat.  The issue of bailment turns on the level of access and control the bailee allows the bailor.  If the court were to find that a bailement relationship existed, the risk of loss would shift to the marina. 

Contracts: Contracts for service to a vessel are admiralty contracts and are interpreted under federal maritime law including an "implied warranty of workmanlike performance."  However, a slip rental contract is not an admiralty contract and will be interpreted under state law. The difference seems minor, but the effect can be huge.  For example, under state law, the statute of limitations might be three years versus six years under federal law.  If the claim arose on year four, then the difference between admiralty and state law would be the difference between having a claim and not.  

Indemnity: The law around indemnity provisions is developing quickly.  Courts read these provisions very narrowly, especially when they deal with attorney's fees.

This case is a perfect example of why people in the marine industry should choose their lawyers carefully.  A lawyer with an understanding of admiralty law can often see opportunities and arguments that other lawyers may miss.