Watercraft Exclusion Bars Products Liability Coverage

November 4, 2013

 

Global Seafood Supplier, Trident Seafood Corporation, discovered a cracked fuel tank aboard its vessel, the Kodiak Alaska, after it had delivered a supply of fish oil to its buyer, Matsuura, in Japan. It was later revealed that petroleum originated through the crack in the fuel tank to contaminate a product storage tank stored on the Kodiak, whereafter the contamination continued to flow from tank to tank during unloading. Faced with products liability claims for the sale of petroleum contaminated fish oil, Trident settled with Matsuura for five million dollars. This case is Trident Seafoods Corp. v. ACE American Ins. Co., 2013 WL 4008831, No. C12-2265JLR (W.D. Washington at Seattle).

 

Trident's CGL policy with ACE contained a watercraft exclusion, which precluded coverage for liability “arising out of the ownership, maintenance, use or entrustment to others” of any watercraft “owned or operated by or rented or loaned to any insured.” Further, the policy excluded coverage for any damage arising out the “transportation of property.” Relying on the policy's products/completed operations hazard coverage, however, Trident alleged that ACE had a duty to indemnify it for damage caused by one of Trident's products. ACE refused and Trident brought a flood of allegations seeking a declaratory judgment and contribution of the two million dollar settlement award not covered by Trident's other insurers^[1].

 

The question before the court was whether or not the contamination (the underlying incident for which Trident sought coverage in response to the products liability charges) originated from the use or maintenance of the Kodiak. Trident argued that the CGL's watercraft exclusion applied only to collision-type occurrences and was not intended to reach product liability claims. Alternatively, it argued the damage was not precluded under its policy with ACE because the insurance contract expressly covered injury or damage arising out of a condition in, on or created out of the loading or unloading of vehicles.

 

The Court quashed both arguments from Trident and granted summary judgment in favor of ACE, holding that the watercraft exclusion applied as a matter of law. In its rationale, the court treated” the contamination which originated from a cracked fuel tank as textbook “maintenance and use”. Rejecting Trident's position, it stated that an incident arising out of a collision or a products liability claim was a “distinction without a difference”. Deflecting Trident's final argument, the court made no consequence of the fact that damage flowed from one tank to the next during the unloading process, stating that its coverage is analyzed the same even where an excepted risk (the cracked fuel tank) set into motion a chain of events which resulted in a covered risk.

 

 

Editor's Note: This case is noteworthy because it examines a non-traditional occurrence within the application of the watercraft exclusion. The court found the facts of the occurrence definitely showed that the damage arose out of the use and maintenance of a watercraft owned by the insured, and the exclusion was clearly applicable to the claim.