There have been many developments in the lineup of Coast Guard cutters over the years. Although new classes come and go, few boats may be as iconic and recognizable as the 44-foot self-righting motor lifeboats. Often associated with the severe conditions of the Pacific Northwest, these capable vessels served nationwide. Enthusiasts of maritime history may lament their retirement, as these highly respected and much-loved workhorses were marvels of engineering.
While their twin Cummins plants gave them a top speed of only around 14 knots, easily surpassed by today’s sleek jet-drive patrol boats, the 44-footers carried themselves like compact ships. With their strong watertight hulls, they could be expected to faithfully return to an upright stance some 30 seconds after being flipped over by seas that would send lesser boats packing.
But Coast Guard cutters come and go, and the 44-footers that entered service in the 1960s gave way to the capable 47-foot class. Some cutters disappear after retiring, sometimes making occasional appearances on workboat classified sites. You see them relegated to new leases on life as oil field support boats, utility boats for marine construction companies, or security vessels overseas.
While some classes of boats are replaced as needs change, some remain current and vital through retrofit programs for extending their service life. Such programs are often implemented with the best of intentions but sometimes run into problems that result in legal disputes. Such was the case with a shipyard that took on a multimillion-dollar contract to upgrade eight 110-foot cutters to a length of 123 feet. The 110-footers, also known as the Island-class, are made up of close to 50 vessels. Capable of around 30 knots, these cutters carry a 25 mm cannon forward and several machine guns.
The hull elongation was in part due to accommodating a launching ramp at the stern for smaller craft. The project came under the Deepwater modernization program. Unfortunately, the vessels experienced structural problems and the government sued the shipyard. The shipyard turned to its insurance carrier, but they refused to defend the shipyard. This resulted in a lawsuit by the shipyard against the insurance carrier.
A central issue in the matter involved the Coast Guard’s concerns about the 110-foot hulls being able to handle the elongation. The shipyard provided a longitudinal strength analysis. It compared the required section modulus for the redesign to the actual section modulus in the redesign. The long and short of it was that the new boats should have had over twice the required strength.
But subsequently, the shipyard revised its numbers for hull strength. Their calculations produced three different results, with two of them not being adequate for the hull lengthening. It didn’t disclose this and proceeded with the work.
After delivery, one of the new cutters suffered buckling in its hull. Looking more closely, the Coast Guard realized that all eight vessels in the program were irreparably deficient. The Coast Guard canceled its acceptance of the vessels.
Shortly before the government’s lawsuit was filed, the shipyard told its insurance carrier and excess insurer about the imminent legal action. The carrier replied with a reservation of rights letter, basically expressing the position that they were not certain if the policy covered the government’s claims.
A key point in the litigation involved exclusion clauses in the insurance contract. As with many insurance cases, the courts here looked at the terms of the policy and examined whether any exclusions applied. One of the exclusions provided that the insurance contract would not apply to the failure of products to meet a predetermined level of fitness or performance, and guarantee of such fitness or level of performance and/or consequential loss that arose from it.
The shipyard argued that the exclusion did not preclude coverage because the government was seeking damages for the entire value of the vessels, not only the “work product” component, for which the shipyard was responsible. The shipyard also argued that the government’s lawsuit did not allege failure to meet a predetermined level of fitness. However, the appeals court felt that the exclusion did apply to the government’s claims for unjust enrichment and negligent misrepresentation.
The lower court ruled in favor of the insurance carrier and the excess insurance carrier. The appeals court upheld the lower court’s decision. The matter shows that in such large contracts, the legal analysis applied can be as intricate as the complex naval architectural calculations involved.
Tim is a NY-based maritime attorney and has taught law at SUNY Maritime College. Erol is a graduate of CUNY School of Law and Farmingdale State College.