Newsletter for the Alaska
Maritime Community
Number 2

It has long been clear that federal admiralty law governs seamen’s personal injury claims to the exclusion of state workers’ compensation schemes. In a muddled 1962 decision, however, the Alaska Supreme Court affirmed a decision allowing an injured crab fisherman, who undoubtedly was a seaman, to avail himself of Alaska Workers’ Compensation remedies.

In a 1981 decision concerning another injured fisherman’s claim to compensation benefits, the Court did not expressly overrule its earlier decision. But the earlier decision’s rationale was gutted. Unfortunately, the Alaska Workers’ Compensation Board persists in relying upon the discredited rationale to award compensation benefits to fish processor workers who undoubtedly have seaman status. This approach generates insurance confusion for vessel owners, and has undoubtedly resulted in the wrong remedy being afforded to injured seamen.

Last summer, an Alaska Superior Court judge issued a well-written opinion reversing the AWCB’s award of compensation benefits to an injured crab processor who had seaman status. The thorough opinion showed clearly why the award of compensation benefits to processor-seamen is contrary to governing federal law. Nonetheless, in at least two subsequent decisions, the AWCB has adhered to the discredited rationale. The AWCB will evidently persist in awarding compensation benefits to processor-seamen, and the resulting problems will continue until an AWCB award is taken up to the Alaska Supreme Court.

Sieracki Seamen Still Exist in Alaska

Seamen enjoy the most liberal personal injury remedy in American jurisprudence, the right to compensation for injury caused by "unseaworthiness." In the seaman’s personal injury context, a vessel is considered unseaworthy if some aspect of the vessel or its equipment or crew renders the vessel not reasonably fit for its intended service. A vessel may be rendered unseaworthy by gurry on a walkway, use of an inadequate dock ladder for ingress and egress, an inadequately trained crew member, or any number of other inadequacies. No matter how diligent a vessel owner may have been in endeavoring to avoid unseaworthiness, a seaman injured by unseaworthiness may recover a broad range of compensation.

A 1946 U.S. Supreme Court decision involving an injured longshoreman created a class of pseudo-seamen called "Sieracki seamen." A Sieracki seaman is not a true seaman, usually because he doesn’t spend enough time working aboard ship. But he is aboard a vessel performing seaman’s work that exposes him to the same hazards to which true seamen are exposed. Congress subsequently stripped longshoremen and certain other maritime employees of this remedy. Courts and commentators thereafter disagreed whether other workers could still qualify for this status.

The Alaska Supreme Court has decided Sieracki seamen still exist. It held that an injured state trooper, who worked a portion of his time on an enforcement vessel, could pursue an unseaworthiness claim as a Sieracki seaman even if he did not qualify as a true seaman.

As a rule of thumb, a worker must work at least thirty percent of the time on a vessel to enjoy true seaman status. Less than that might relegate an injured worker to a more difficult negligence claim or a still more restrictive Alaska Workers’ Compensation claim. Now an employee injured performing seamen’s work while briefly aboard a vessel may be entitled to pursue an "unseaworthiness" claim in Alaska state courts. The exclusive remedy provision of the Alaska Workers’ Compensation Act would almost certainly not bar such a claim.

Injury of a vessel crew member produced a claim to the vessel owner’s insurer. There was "overwhelming" evidence that, at the time of the injury, the vessel was outside the insurance policy’s geographical limits. Denial of coverage would ordinarily have been justified.

The insurer recognized more or less immediately, based on the initial report, that the vessel’s reported location put coverage in question. The insurer retained a lawyer to analyze coverage. The lawyer then dispatched an investigator to interview the insured and his captain. No one informed the insured of the purpose of the interviews.

The Alaska Supreme Court held that failure to give prompt notice of the coverage question was a breach of the insurer’s duty of loyalty to its insured. The remedy for this breach was to preclude the insurer from denying coverage, even though it was more or less certain that there was nothing timely notice would have enabled the insured to do to contest a denial of coverage.

The Court could have adopted a rule requiring some measure of proof the insurer’s omission actually harmed the insured’s coverage position. But the Court apparently elected to take a rather extreme position to encourage prompt, appropriate notice to insureds, and to discourage insurer gamesmanship during coverage investigations.

The duty to give notice arises when an insurer has good reason to believe that a coverage dispute may exist. Apparently, the notice must provide a reasonable explanation of the basis of the coverage question in relation to the facts and applicable law in the matter. The objective of the notice is to make the insured fully aware of the problem.

Vessel Manufacturer’s Bad Faith Nullifies Warranty Limitation

Catalina Yacht sold a fiberglass sailboat that subsequently developed gel-coat blisters. The sale was subject to a limited warranty, whereby the manufacturer promised, in part, to repair or pay for repair of such blisters, and which expressly disclaimed responsibility for consequential damages, such as compensation for harm caused by blisters or other structural failure.

Catalina failed to honor its repair warranty, so the purchasers sued it to recover repair costs and consequential damages. At trial, the jury decided Catalina had acted in bad faith in failing to honor its warranty obligations and awarded repair costs. But the trial judge ruled that the sale contract’s exclusion of consequential damages prevented recovery of consequential damages for breach of the repair warranty.

The Alaska Supreme Court held that the warranty’s promise of repair and its exclusion of consequential damages were independent provisions and that the company’s breach of the repair portion would not necessarily destroy its contractual protection from consequential damages liability. But the Court went on to hold that the consequential damages bar would fail if there were anything in the formation of the contract or in the company’s performance under the contract that made it unconscionable to enforce it.

In this case, the jury found that Catalina had acted in bad faith in failing to honor its repair warranty, in that it had consciously deprived its customers of their rights under the warranty. The Court decided, therefore, that it would be unconscionable to enforce the consequential damages exclusion. The case was remanded for a trial of the consequential damages claim.

Insurance Application Inaccuracies May Leave Insured High and Dry

Admiralty law governs the interpretation of marine insurance policies. One of the peculiarities of admiralty law, however, is that state insurance law may often be applied to resolve marine insurance disputes. Accordingly, state supreme court decisions concerning non-marine insurance policies often have implications for marine insurers and insureds.

In a recent Alaska case, a cabin owner falsely stated in an application for insurance that the cabin was his primary residence. The cabin was subsequently destroyed by fire. The Alaska Supreme Court affirmed the trial court’s decision that the residency mis-statement was material to the insurer’s acceptance of the risk, permitting the insurer to rescind the insurance policy and deny coverage.

The insured argued that certain Alaskan insurance statutes limited an insurer’s remedy for application mis-statements to cancellation of the policy. Cancellation terminates a policy only from and after the cancellation date. Cancellation would not enable an insurer to avoid coverage for a loss if a mis-statement were discovered only after a loss occurred.

The Court held that the statutory cancellation remedy did not eliminate the historical common law remedy of recission of the contract from its inception. Accordingly, recission of the contract and denial of the cabin owner’s claim was warranted.

This decision underscores the importance of insurance application accuracy. Material inaccuracies, however innocent they may be, may enable an insurer to deny coverage for a loss that otherwise would have been covered.

Exxon Valdez Decisions

The Alaska Supreme Court unsurprisingly pursued a generous policy in recent decisions concerning claims for oil spill-related damages.

Lost revenue-type damages awarded for injury to wilderness lands producing no revenue. In a suit by Alaska Native village corporations, the Court held that owners of EXXON VALDEZ oil-contaminated, undeveloped coastal land could recover lost rental damages, even though the land had no existing or contemplated rental use.

The corporations were holding the oiled lands in their natural state for the benefit of the corporations’ shareholders. Arguably, this preservation promoted traditional subsistence living and cultural survival. No revenue-producing use of any of the lands was being made or planned, nor was there any recreational or other substantial actual use. Exxon contended that only lost uses that were revenue-producing were compensable. But the Court held that preserving wilderness was a valid, compensable use. While the Court adverted to wilderness preservation’s promotion of subsistence living and cultural survival, the Court did not seem to say that compensable "preservation use" required that such uses actually have been occurring.

The oil contaminated the intertidal zone below the mean high tide line, which was owned by the State of Alaska, and uplands above the mean high tide line, owned by the corporations. In addition, the upland environment was disrupted, as evidenced by the corpses of thousands of birds and animals, and enjoyment of the lands was disrupted by the presence of spill clean-up workers, helicopters, beach cleaning barges, and other vessels. Though some types of injury would last several years, it was agreed that all injuries were temporary.

The Court also held that the proper measure of damages was the reduction in the lands’ fair rental value for the period the lands were impaired. None of the land was actually being or had ever been rented, so a rental value could not be derived from actual experience. The Court endorsed the alternative approach of first placing a fair market value on the lands, and then calculating a hypothetical fair rental rate based on a reasonable rate of return on that value.

At trial, the jury awarded the corporations several million dollars. In the meantime, however, the corporations had received even more compensation from the Trans-Alaskan Pipeline Liability Fund, an alternative remedy. The Court affirmed the trial court’s decision that, to avoid double compensation, the corporations could only recover the verdict net of Fund compensation already received. Since the latter exceeded the former in amount, the verdict was wiped out.

Local government may recover the cost of diverted municipal services. In response to the EXXON VALDEZ oil spill, officials and employees of several Alaskan municipalities devoted time to tracking oil flow, monitoring shorelines, acquiring oil containment equipment, meeting with Exxon and governmental representatives and experts, and booming off and cleaning key spawning areas on municipal-owned tidelands. Employees diverted to these activities were unable to provide ordinary services to municipal residents. The "diverted services" damages the municipalities sought to recover from Exxon included the value of ordinary municipal services the spill prevented the municipalities from providing their residents and the cost of extraordinary services necessitated by the spill.

Exxon contended that the public should bear the cost of providing emergency public services, sparing individual wrongdoers that cost. The Court held that, even if Alaska law might otherwise support such a rule, Alaska’s broad statutory spill remedies would implicitly abrogate that rule for spill-related costs.

Exxon also asserted that any state law allowing recovery of reimbursement of damages not flowing from actual damage to municipal property was preempted by the federal Robins Dry Dock rule. This admiralty rule generally prohibits recovery for economic losses unaccompanied by physical injury to property owned by the claimant.

The Court held that neither of the independent bases that would compel application of this federal rule existed. The Robins rule was not a "characteristic feature of the [federal] general maritime law." Further, state law allowing compensation for economic loss not accompanied by physical damage would not "unduly interfere with harmony and uniformity of the federal admiralty system."