Egan Marine Corporation, et al v. Great American Insurance Company of New York, 665 F.3d 800 (7th Cir. 2011).
On January 19, 2005, tank barge EMC 423 exploded and discharged slurry oil into the Chicago Sanitary and Ship Canal. The barge lacked any means of self-propulsion, navigation, or crew. It was being pushed by tugboat Lisa E. Both tug and barge belonged to Egan Marine Corporation (EMC) and Service Welding and Shipbuilding, LLC (SWS). Great American Insurance Company (GAIC) insured EMC and SWS’s vessels for liability under OPA90, removal and response costs, mitigation expenses and defense costs, with a policy limit of $5 million on each vessel for a $10 million total policy limit.
The U.S. Coast Guard designated only the barge as the source of the discharge and notified EMC that it could be held financially responsible for the spill. GAIC agreed to indemnify EMC and issued no reservation-of-rights letter specifying indemnity was limited to the barge. Yet on June 13, 2005, GAIC sent a letter to SWS stating it had exhausted the $5 million policy limit.
EMC and SWS sued GAIC in U.S. District Court for Northern District of Illinois claiming breach of contract and breach of good faith and fair dealing and demanding $10 million in coverage for both vessels. The district court granted EMC and SWS’s motion for summary judgment finding that GAIC owed $10 million in coverage for both the barge and the tugboat Lisa E. On review, the U.S. Court of Appeals for the Seventh Circuit agreed that by virtue of being the barge’s sole means of propulsion through Illinois waterways, the tugboat Lisa E posed a “substantial threat of a discharge of oil” subject to liability under OPA90. The claim for breach of good faith and fair dealing was construed as duplicative of the claim for breach of contract when both are being raised against the same conduct.
Author: Matthew Rappold