Fifth Circuit rejects reimbursement claim due to P and I Exclusion under Maritime Employer's Liability Policy

Posted on November 30th, 2010

A Maritime Employer's Liability insurance (MEL) policy typically covers seamen and other maritime workers on vessels owned by other parties. MEL policies commonly exclude injuries covered by the insured's separate Protection and Indemnity (P&I) insurance policy. Therefore, if the insured has P&I coverage for the same injury, the injury is excluded from the MEL policy.

Here, Horizon, insured by State National Insurance Company, and Coastal, insured by SeaBright Insurance Company, were both named in a lawsuit brought by David Brown. Brown was an employee of Coastal Catering sent to Horizon's vessel to provide catering services. Brown's suit alleging he was employed by Horizon and Coastal was settled. State National and SeaBright each paid 50% of the settlement. State National then sought reimbursement from SeaBright for the costs State National incurred for defending Brown's suit.

The trial court granted State National's motion for summary judgment and held that SeaBright must reimburse State National. In an opinion issued November 22, 2010, the U.S. Court of Appeals for the Fifth Circuit reversed, holding that Horizon's liability for Brown's injuries were not covered under SeaBright's policy. Horizon, State National's insured, argued it was an alternate employer under SeaBright's policy and was entitled to be reimbursed its defense costs. The Fifth Circuit disagreed, holding that if Brown's allegations entitled Horizon to be an alternate employer as it contended, Brown's injury was excluded from SeaBright's MEL policy because it was undisputed that Horizon had P&I coverage. Cal-Dive Int'l, Inc. v. Seabright Ins. Co., --- F.3d ---, 2010 U.S. App. LEXIS 24017 (5th Cir. Nov. 22, 2010). The court assumed without deciding that Brown's allegations invoked SeaBright's duty to defend Horizon, which was moot because the risk was excluded from the policy.

This is a logical interpretation of SeaBright's MEL insurance policy as it avoids overlapping coverage. A MEL policy is intended to cover those risks not covered by a vessel owner's P&I policy. Most MEL insureds do not own the vessel on which their employees work. By operation of the alternate employer endorsement, Horizon was considered an insured under the MEL policy. Horizon had P&I coverage; therefore, Horizon was excluded from SeaBright's MEL policy.

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