Egan Marine Corp. v. Great American Insurance
665 F.3d 800
| 7th Cir. | 2011Background
- EMC and SWS insured by GAIC, dispute over policy scope and cost calculations after a vessel explosion and oil spill in the Chicago Sanitary and Ship Canal.
- Policy covers removal costs and related liabilities under OPA90, CERCLA, and related state law equivalents, with a $5,000,000 per-incident limit per vessel and a provision that costs must be 'at cost' for spill management services.
- GAIC paid $727,000 to EMC/SWS to exhaust the $5,000,000 limit, but refused payment for the Lisa E’s involvement, citing the EMC 423 as the spill source and limiting coverage.
- Global Risk Solutions audit raised concerns about whether EMC/SWS billed at cost; EMC/SWS declined to provide detailed cost data to verify their invoiced amounts.
- IEPA and Coast Guard actions pursued against EMC/SWS, with EMC incurring defense and consulting costs; GAIC withdrew post-June 7, 2005 funding, prompting litigation over continued coverage and defense costs.
- District court granted partial summary judgment in GAIC’s favor and awarded EMC/SWS repair of certain costs; bench trial determined damages for defense costs and post-June 7 costs, and rejected independent bad-faith claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did EMC/SWS recover full at-cost costs for post-June 7 invoices? | EMC/SWS claim GAIC agreed to pay at-cost with 80% upfront, thus entitlement to full billed costs. | GAIC argues post-June 7 costs required substantiation and may reflect non-cost items; evidence insufficient for full payment. | No; district court did not clearly err in limiting to 80% of post-June 7 costs. |
| Whether GAIC remained obligated to indemnify post-August 31, 2005 for salvage/cleanup costs? | Costs after June 7, 2005 continued to reflect ongoing liability and were covered. | Recovery terminated when Coast Guard deemed recovery complete; IEPA action later suggested no ongoing exposure. | GAIC owed coverage for post-June 7 costs through August 31, 2005; district court not clearly erroneous. |
| Whether GAIC breached its duty of good faith and fair dealing separate from contract breach? | Bad-faith conduct (misrepresentations about exhaustion, lack of rights reservation) supports separate damages. | New York law treats covenant breaches as duplicative of contract; no independent bad-faith claim here. | No independent bad-faith/good-faith damages; duplicative of contract under New York law. |
| Lisa E coverage under OPA90 for the spill? | Lisa E’s propulsion made it a vessel that posed threat; liability extends to Lisa E under OPA90. | Lisa E may be separate from EMC 423; responsibility should be limited to the vessel that discharged oil. | Lisa E’s coverage applied; Lisa E funds were available to EMC/SWS. |
| Are defense costs for IEPA-related defense taxable within the policy? | Consulting and defense costs are covered costs under Section A/Defense Costs. | Costs may not be fully covered if not tied to insured removal actions under policy terms. | Yes; defense costs related to IEPA defense were covered and indemnified. |
Key Cases Cited
- Cary Oil Co. v. MG Ref. & Marketing, Inc., 90 F. Supp. 2d 401 (S.D.N.Y. 2000) (unavailability of independent bad-faith claim where breach overlaps contract)
- Panasia Estates, Inc. v. Hudson Ins. Co., 10 N.Y.3d 200 (N.Y. 2008) (consequential damages for bad faith within insurance context allowed under certain circumstances)
- Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187 (N.Y. 2008) (breach of implied covenant sometimes duplicative of contract claim)
- Goldmark, Inc. v. Catlin Syndicate Ltd., No official reporter citation provided in text (E.D.N.Y. 2011) (addressed duplicative insurance bad-faith claims post-Panasia/Bi-Economy)
- Am. Nat’l Fire Ins. Co. v. Kenealy, 72 F.3d 264 (2d Cir. 1995) (district court’s bad-faith findings reviewed for reasonableness; insurer need not accept unclear coverage)