The United States Fifth Circuit Court of Appeals recently issued an opinion in which it reversed a district court which had dismissed claims brought by an insurer for payments made under a builder’s risk policy. The appeals court ruled that Robin’s Dry Dock did not prohibit recovery by the insurer from the tortfeasor.
Background
An energy company hired a well-known marine contractor to construct a dock in the Mississippi River. The project included the installation of mooring dolphins and it was undisputed that the company owned the dolphins.
As part of its contractual obligations, the contractor procured a builder’s risk insurance policy which named the contractor as a named insured and the energy company as an additional insured. In February of 2019, a vessel allided with one of the dolphins, causing approximately $1.739 million in damages. That included the cost of repairs and additional economic losses. The insurer, as subrogee of the contractor, sued the vessel owner in order to recover the monies that it paid out.
Ruling by District Court
Robin’s Dry Dock & Repair Co. v. Flint was rendered by the U.S. Supreme Court in 1927. It is long standing precedent which generally requires that a party sustain physical injuries to a proprietary interest, in order to have a legally-enforceable claim. Courts have faithfully applied this “pragmatic limitation” on the doctrine of foreseeability, in order to limit the consequences of negligence and exclude indirect economic repercussions, which can be widespread and open-ended.
The vessel owner filed for summary judgment, claiming that the insurer was simply a subrogee and had not suffered injury to a proprietary interest. In addition, the vessel owner argued that the contractor’s responsibility for repairing the dolphin did not equate to a proprietary interest in it and that the risk of the loss to the dolphin was not shifted from the customer to the contractor by virtue of their contract. The district court granted that motion.
Fifth Circuit Reverses
One of the tenets of Robin’s Dry Dock was that the court did not want to allow the spectre of runaway recovery and limitless liability. With respect to the repair costs paid by the insurer, the court disagreed and ruled that a claim for the cost of repairing damage caused by an allision presented no such risk. As such, the claim for repair costs was not barred.
The court also recognized that it was unmistakably the law of the circuit in a maritime negligence suit to not allow recovery of purely economic claims absent physical injury to a proprietary interest. Nonetheless, the court also recognized that it has emphatically rejected calls to abandon the physical injury requirement but has carefully explained that the requirement applies to claims for pure economic losses. The Fifth Circuit has also made it clear that Robin’s Dry Dock is inapplicable when the risk of double recovery from the tortfeasor is not present.
Despite the fact that the customer owned the dolphin, the appeals court ruled that the fact that the insurer paid approximately $1.2 million towards repairing physical damages was dispositive. Furthermore, that payment did not run the risk of a “runaway recovery.”
There was also a claim for economic losses of $485,000.00. Although that payment was not for direct physical damage to the dock or a dolphin, the court assumed that the payment covered some sort of economic damage. The evidence in the case established that the contractor passed those funds on to the customer, only after subtracting an agreed upon portion of the deductible. It was undisputed that the customer owned the dolphin and that it had suffered extensive damage. As such, the court also ruled that Robin’s Dry Dock did not bar recover for those damages. It found that the fact that the money actually passed through the hands of an intermediary (from the insurer to the contractor to the customer) was irrelevant. As such, it reversed the lower court and remanded the case for further proceedings.
Conclusion
Given the fact that a significant marine casualty on a waterway can affect multiple individuals or companies, regardless of whether they sustained damages to their property, Robin’s Dry Dock has served an important purpose in avoiding limitless claims and liability. However, when there is in fact property damage, the Fifth Circuit has made it clear that Robin’s will not prevent recovery against a tortfeasor, simply because there is an intermediary when there is no possibility of a double recovery.