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FREEHILL PREVAILS AT TRIAL ON $1.2M CLAIM FOR INSURANCE COVERAGE

October 3, 2018
On September 30, 2018 Judge Azrack of the U.S. District Court form the Eastern District of New York issued a decision finding insurance coverage under a policy of hull and P&I insurance and awarding our client recovery of its full claims, totaling. $1,197,195.64. In Atlantic Specialty Insurance Company vs. Coastal Environmental Group and Sterling Equipment Inc. Atlantic Specialty Insurance (“Atlantic”) denied coverage under a policy of insurance and commenced an action seeking a declaratory judgment that the policy it issued was void ab initio or, alternatively, that there was no coverage. On behalf of our client, Coastal Environmental Group (“Coastal”), we counterclaimed seeking coverage under the hull policy.

In 2013 Coastal was engaged to repair the Steeplechase Pier at Coney Island, which had been damaged by Hurricane Sandy in 2012. Coastal chartered the Barge MIKE B, a spud barge, from Sterling Equipment (“Sterling”) for use in the repair work. After mounting a crane on the MIKE B, Coastal towed the barge to the job site and it was spudded down next to the Steeplechase Pier. As the weather deteriorated on April 11, 2013, Coastal called for a tug to move the barge to pre-arranged calmer waters. However, before the tug arrived the aft spud of the barge had failed and water entered the barge. While the MIKE B was kept afloat for several days, and the crane removed, it remained a danger to the pier, resulting in a decision to allow the barge to rest on the seafloor. Eventually, the MIKE B was removed and scrapped.

Atlantic arranged for a survey of the barge, initially reserved its rights and soon thereafter, on May 24, 2013, declined coverage under the policy on the basis that the barge was unseaworthy, even though no claim had as yet been submitted. Coastal then submitted claims totaling $1,202,470.51 for the loss of the barge, damage to the pier, and the costs incurred attempting to save the MIKE B.

The case was tried in October/November 2017. In its decision, the court found that a survey of the MIKE B conducted at the request of Coastal before the barge entered its service provided significant evidence of the barge’s seaworthiness. The court also noted that the surveyor retained by Atlantic to inspect the MIKE B after the incident never used the term “unseaworthy.” In addition, while Atlantic retained the services of a metallurgist, the metallurgist never offered any opinion at trial. Sterling also engaged a marine surveyor to examine the barge and he offered the opinion that the barge was in suitable condition for its use at the Steeplechase Pier and that the barge “suffered catastrophic failure due to heavy weather.”

At trial Atlantic claimed the policy should be declared void ab initio because Coastal breached its duty of utmost good faith by failing to provide a complete and accurate picture of the risk presented by the Mike B and its use at the Steeplechase Pier and by overstating the value of the barge. The court rejected both contentions. The court also ruled that Atlantic had the burden of proving that the Mike B was unseaworthy and that it failed to carry that burden. Coastal maintained there was coverage under the policy because the barge was lost due to “a peril of the sea” and the court accepted that position. Freehill attorneys: Lead trial attorney Eric Matheson and Mike Unger. To read the court’s decision, click here.