State National Insurance v. Anzhela Explorer, L.L.C. (812 F. Supp. 2d 1326, 2011)

FINDINGS OF FACT AND CONCLUSIONS OF LAW

EDWIN G. TORRES, United States Magistrate Judge.

This matter is before the Court following a bench trial conducted by the undersigned, upon consent of the parties [D.E. 159] and referral by the Honorable Federico A. Moreno [D.E. 160]. A bench trial was held over many days involving seventeen fact and expert witnesses. Thereafter, extensive proposed findings and conclusions of law were submitted for the Court’s consideration, [D.E. 188, 189], together with supplemental authorities subsequently submitted at the Court’s request. The case was ably presented by counsel for both sides, who prepared equally compelling presentations and arguments. Numerous issues of fact and law were in dispute, many of which presented very close questions for the Court’s resolution, which took some time to sort through and consider. The Court reviewed all the exhibits admitted in evidence, the trial testimony, depositions of witnesses who did not testify at trial, as well as the many legal authorities submitted by the parties on multiple issues in the case.

After careful review of the record and the arguments presented, and based upon critical credibility findings necessary to resolve many disputed issues of fact in the case, the Court finds as follows.

Table of Contents

I. FINDINGS OF FACT.....................................................1333

A. Procedural Background................................................1333

B. The Purchase of the Anzhela Explorer...................................1333

C. The Insurance Application and Policy....................................1334

D. The Loss of the Anzhela Explorer.......................................1338

E. The Causes of the Loss of the Vessel ....................................1342

F. Post-Loss Claims.....................................................1348

II. CONCLUSIONS OF LAW.................................................1350

A. Uberrimae Fidei-Good Faith...........................................1351

1. Status of COI.....................................................1354

2. Groundings & Navigational Warranty................................1355

3. Deficiencies in Watertight Bulkheads.................................1356

B. Breach of the Navigational Warranty....................................1360

1. Oral Modification of the Navigational Warranty........................1360

2. Held Covered Clause Applies........................................1362

C. Unseaworthiness......................................................1363

1. Seaworthiness Defined.............................................1363

2. Absolute Warranties of Seaworthiness................................1365

(a) Competency of the Crew........................................1366

(b) Inadequate Bilge Pumping Capacity..............................1369

(c) Lack of Watertight Integrity....................................1372

3. Warranties of Continuing Seaworthiness..............................1377

D. Counts V and VI Are Mooted...........................................1378

E. Count VII-Reimbursement of Costs.....................................1379

F. Counterclaims........................................................1379

III. CONCLUSION...........................................................1379

I.FINDINGS OF FACT

A. Procedural Background

1. Plaintiff, State National Insurance Company (“Plaintiff’ or “State National”), filed an eleven-count Complaint against Defendants Anzhela Explorer LLC (“Anzhela”), Jeff Dorsey, Mark Rosandieh, on August 15, 2007, seeking declaration by the Court with respect to a marine insurance policy issued by State National to Anzhela Explorer LLC.

2. The causes of action as to Dorsey and Rosandieh individually were dismissed without prejudice for failure to effect service of process on Jan. 25, 2008. [D.E. 11]. The remaining counts against Anzhela were for Breach of Duty of Good Faith, Breach of Absolute Warranty of Seaworthiness, Breach of Warranty of Continuing Seaworthiness, Breach of Navigational Warranty, Declaration by the Court of No Coverage for Pollution, Declaration by the Court of No Coverage for Fines and Penalties and Reimbursement for $613,421.50 for the Costs to Mark and Removal of the Wreck.

3. Anzhela filed a Counterclaim alleging six counts: Breach of Contract, Breach of Statutory Obligations, Tortious Breach of Contract, Breach of Fiduciary Duty, Fraudulent Misrepresentation and Spoliation and Conversion of Evidence and Property. On May 29, 2008, the Court dismissed [D.E. 48] Counts II (Breach of Statutory Obligations i.e. Bad Faith), III (Tortious Breach of Contract), IV (Breach of Fiduciary Duty), and V (Fraudulent Misrepresentation) and Anzhela was granted leave to amend its Counterclaim.

4. The Amended Counterclaim consisted of two counts-Count I Breach of Contract and Count II Conversion of Property. Those counts remain at issue.

5. State National seeks for the Court to determine and declare the duties, rights, and obligations under the policy for a loss sustained to the Anzhela Explorer (“the Anzhela” or “the vessel”) on March 26, 2007. It seeks a declaration of non-coverage premised upon breach of navigational warranty, breach of absolute warranty of seaworthiness, breach of continuing warranty of seaworthiness, breach of duty of good faith, and the pollution and fines and penalties exclusions.

6. State National also seeks an award of $612,421.50 plus interest from April 16,-2007 for the salvage costs to mark and remove the wreck.

7. Anzehla, through its counterclaim, seeks an award of at least $1,000,000.00 for breach of contract on the subject insurance policy, together with attorneys’ fees, costs, and interest. Anzehla also seeks damages for conversion of the salvaged parts of the vessel by State National and/or its agents following the loss of the vessel.

B. The Purchase of the Anzhela Explorer

8. On July 7, 2006, Rosandieh entered into a purchase agreement for the Bottom Time II on behalf of Jeff Dorsey. (PX 201). The vessel was a 70’ twin hull catamaran for use as a commercial dive/passenger vessel. It was intended for commercial use in that it was to be chartered as a dive boat for operations for the oil and gas industry off the shore of Louisiana. Rosandieh, a vessel captain and marine consultant, was involved in the transaction because he was contracted by Dorsey to look for a vessel such as this one and assist in preparing the vessel for the intended commercial use. He had particular experience in doing such work, for vessel owners who needed assistance in obtaining approved Certificates of Inspection (“COI”) from the United States Coast Guard.

9. This vessel was a Coast Guard documented vessel and had previously been a certified vessel for commercial use as a small passenger vessel. Its COI, however, had expired in 2003. The COI is a required certification from the Coast Guard before a vessel can be placed in service as a commercial vessel for the transportation of passengers or cargo. 46 U.S.C. § 3306(a); 46 C.F.R. § 176.100. Vessels without a Coast Guard COI are not banned from operating on navigable waters, but cannot do so for the purposes specified in the regulations.

10. The purchase price of the vessel was $200,000.00. The vessel was purchased on an “as is where is” basis. The sale of the vessel was consummated on October 27, 2006. The vessel was renamed the Anzhela Explorer. Dorsey and Rosandich then began work and incurred considerable expense, up to $200,000, to bring the vessel to the point of a COI inspection.

11. On August 22, 2006, the Coast Guard conducted an initial inspection of the vessel. Subsequent to that first inspection the Coast Guard issued a Critical Deficiency Report that itemized 34 different deficiencies that would need to be rectified before the Coast Guard would issue a new COI for the vessel. (PX 176).

12. The Coast Guard inspected the vessel again and issued a hull credit for the vessel on December 15, 2006 (PX 176), which is an important, but not complete, part of the overall COI inspection process. See 46 C.F.R. § 176.610. The hull credit confirms compliance with Coast Guard regulations as to the hull’s underwater body, the hull fittings, plating and planking, appendages, propellers, shafts, bearings, rudders, sea chests, sea valves, and sea strainers. It also confirms compliance as to the internal structure of the hull including the major internal framing, the hull plating and planking, voids, and ballast, cargo, and fuel oil tanks.

13. The hull credit itself is not enough to comply with all regulations for a COI, which include a compliance bilge piping system, 46 C.F.R. § 182.510, and watertight bulkheads, 46 C.F.R. § 179.320.

14. At the time of the last Coast Guard iiispection in December 2006, six of the deficiencies originally identified by the Coast Guard had not been fully resolved or corrected. Three of these remaining deficiencies related to administrative paperwork like an updated stability letter. The other deficiencies were more substantive, including existing penetrations in the transverse watertight bulkheads that were not fully sealed that compromised the integrity of the watertight compartments, plus deficiencies in the bilge pump system. (PX 176).

15. The work necessary for COI inspection on the vessel was to be completed upon its arrival at Golden Meadow, Louisiana, which is also from where the vessel would operate in the waters of the Gulf of Mexico.

16. Consequently, before the vessel sailed for Louisiana on March 24, 2007, those deficiencies had not yet been addressed as the bilge piping system had not been updated and, specifically, the starboard fixed bilge pump had been removed for maintenance. The penetrations in the watertight bulkheads had also not been cured.

C. The Insurance Application and Policy

, 17. A month earlier, in February 2007, Rosandich, on behalf of Dorsey as vessel owner, contacted Shawn LeBeouf of USI, an insurance brokerage, to procure insurance for the vessel. USI acted as agent for the vessel and its owners in the acquisition of the insurance. Rosandich forwarded to Lebeouf a description of the intended use and operation of the vessel. Rosandich indicated the vessel would be used in commercial service out of Golden Meadow, Louisiana, and operated by Fish OffShore. (PX 109).

18. During the initial contact with USI it was represented to the insurance broker that the vessel was to be placed in service as a commercial dive boat. In response to that initial contact by Rosandich, USI representatives prepared and submitted materials to WFT for the purchase of the policy. (PX 68). WFT was the managing agent for State National with authority to bind marine insurance. Karyn B. Price was the underwriter at WFT who processed the application.

19. Specifically, on February 15, 2007, at 9:39 a.m., Ms. Price received an email from Jamie Robichaux at USI that attached an email from Rosandich, together with an attached written survey of the vessel prepared in August 2006. (PX 63, DX 2). In both the email and the survey, the vessel is identified as not having a current Coast Guard COI. (PX 63 at 36 (“The vessel will be USCG certified to carry 100 passengers in a crew transport role ... or 30 passengers as a live board housing platform.”)). That was consistent with what Rosandich told USI’s agents— that the vessel did not have a current COI.

20. The written survey, prepared by marine surveyor Malcolm Elliott, indicated that a COI had expired but that work to obtain the COI was in process to allow for commercial passenger operations. (PX 63 at 52). As Mr. Elliott testified at trial, the report was not based on a complete prepurchase survey, which involves a full engine, seatrial and in water survey over a 4-5 day period. The report was more limited and prepared for insurance purposes. (PX 63 at 49). Mr. Elliott concluded that the vessel was seaworthy and in overall good condition.

21. With respect to bilge pump capacity, which the surveyor never tested, the report indicated that the vessel had two fixed electrical pumps in “good” condition. Similarly, with respect to watertight compartments, the report stated that there were three compartments in each hull in “good” condition. No deficiencies were identified with respect to the bilge pump system or the watertight compartments. The only “must recommendations” identified in the report related to the fuel tanks, anchors, fire extinguishers, and life rafts onboard. (PX 63 at 52).

22. On the same day, at 1:04 pm, Jamie Robichaux of USI sent another email to Ms. Price that stated that the vessel did have a current COI. (PX 67). Attached to the email are three additional documents: an unsigned handwritten application, the Schedule of Vessel, and the Description of Operation. (PX 68, 188D). In the unsigned application, prepared by USI’s agent and never signed or reviewed by Rosandich, it states that the vessel does have a current COL Yet in the Description of Operation it states that it does not have a current COL It is thus undisputed that on the very same day WFT, through Ms. Price, received three written documents stating that the vessel did not have a current COI, and two that stated that it did.

23. Ms. Price acknowledged at trial that she received conflicting information regarding whether the vessel had a current COI, but she did not reconcile the discrepancies or ask additional questions of the agent or the vessel owner’s representative directly. Nor did she confirm through Coast Guard vessel records available online whether or not the COI was indeed current. Nor did she ask for a copy of the current COI prior to approving the application, a practice that she acknowledged has since changed.

24. The initial application submitted to WFT by USI also contained a representation as to the requested navigation limits for the vessel. (PX 68). The application stated “Specify Navigation Limits Required: Gulf of Mexico not to exceed 100 miles offshore.”

25. The decision to underwrite the policy and the premiums charged for the policy were for Gulf of Mexico navigational limits. The application did not request navigational limits for the Atlantic coast and the policy premium was not based on Atlantic navigation. The premium charged for Atlantic navigation is different that that charged for Gulf of Mexico navigation.

26. In addition to the initial application, the schedule of vessels submitted by USI contains the following language: “LIMITS Warranted confined to the use and navigation of the Gulf of Mexico, not to exceed 100 miles offshore.” (PX 67).

27. On February 16, 2007, a Quotation was issued by WFT to USI. The quote contained the following language: “Warranted confined to the use and navigation of the Gulf of Mexico, not to exceed 100 miles offshore.”

28. A revised schedule of vessels was submitted by USI correcting the name of the vessel to Anzhela Explorer and again contained the language: “LIMITS Warranted confined to the use and navigation of the Gulf of Mexico, not to exceed 100 miles offshore.”

29. The final written application signed by Jeff Dorsey after the loss confirmed to State National the navigation limits requested as “Gulf of Mexico not to exceed 100 miles offshore.” (PX 69).

30. On March 22, 2007 USI requested that coverage be bound and WFT agreed to bind coverage. (PX 20 and 31).

31. A binder consistent with the application and written request for coverage was issued by WFT and received by USI. The coverage bound was commercial insurance for a vessel engaged in dive support services. Upon binding coverage USI issued a confirmation of coverage to Anzhela Explorer LLC confirming coverage bound with the stated Navigation Limits. (PX 64).

32. It is undisputed that the loss of the vessel did not occur within the confines of the as-written navigation limits contained in the policy; the sinking took place in the Atlantic waters, not 100 miles offshore in the Gulf of Mexico.

33. As multiple witnesses testified at trial, including the Chief Underwriter for WFT, oral agreements between the underwriter and broker as to insurance can be entered into prior to the issuance of coverage.

34. USI’s agent, Shawn LeBeouf, credibly testified that he explained to Ms. Price at WFT that the vessel needed specific coverage for the trip from the vessel’s location in Ft. Lauderdale, Florida to Golden Meadow, Louisiana, and that these parties reached an oral agreement as to trip coverage and rates at that time.

35. At the time of this agreement, Ms. Price was aware through the written materials she received through the application process that the vessel was located in Ft. Lauderdale at the time the policy would be issued. She was also aware that the intended navigational area for the vessel’s operations were within 100 navigational miles of Golden Meadow, Louisiana. She was also made aware that that is where the vessel would be outfitted and completed for commercial service.

36. Ms. Price was specifically aware that the intended route to get the vessel from Ft. Lauderdale to the Gulf of Mexico and into Louisiana was through the inter-coastal waterway.

37. Ms. Price, and thus WFT, was on notice of the intended trip from Ft. Lauderdale to Golden Meadow, Louisiana prior to the coverage being bound on March 19, 2007.

38. Contemporaneous written evidence of this oral agreement is found in a written email to Rosandich from LeBeouf at USI dated March 19, 2007, that confirmed to Rosandich that “trip coverage” had been negotiated and obtained from the underwriter. (DX 10). That is also confirmed by communications from USI representatives to various underwriter representatives, including Ms. Price, that confirmed that the coverage was being issued while the vessel was in Florida. (DX 11).

39. The underwriters at WFT, and thus State National, bound, coverage for a policy effective March 23, 2007, for a commercial vessel that would regularly operate in the Gulf of Mexico, but including the transport of the vessel from Florida to the Gulf of Mexico.

40. To the extent that Ms. Price questions ever receiving the survey attached to the Rosandich email, or other documents shown to her at trial that evidence the vessel was in Ft. Lauderdale, Florida prior to issuance of coverage, or to the extent that she testified that she denied reaching an oral agreement with USDs agents, the Court finds that Ms. Price was not credible, at least on this important point.

41. That is also true with respect to her testimony regarding the importance of obtaining the COI prior to the vessel being transported to Louisiana. That testimony is also unpersuasive and not credible. Though a COI may indeed be relied upon by WFT or any other commercial underwriter for the issuance of a policy, the COI was not relied upon in this case in connection with the oral agreement between WFT and USI for the coverage of the vessel’s voyage to Louisiana to be outfitted for service. That possibly explains why WFT did not verify the conflicting information Ms. Price had received regarding the existence of a COL WFT certainly anticipated that the vessel would have a COI prior to its commercial operations, but did not rely upon a valid and current COI prior to issuing the coverage for the vessel to reach Louisiana.

42. And even if that was not the case, WFT had the ability to confirm in multiple ways the current status of the COI at the time it bound coverage, but chose not to. WFT did not rely upon any misrepresentation of fact of Anzhela or its agents, including USI.

43. Further, even if WFT would have relied on the alleged misrepresentation before issuance of the policy as a whole, WFT as a matter of fact did not rely on that misrepresentation prior to issuing the policy to allow the vehicle to travel to Louisiana to complete its preparation for commercial service. In other words, WFT’s reliance on the COI would have only matured upon its use for the primary intended purpose under the policy — commercial chartering operations on the Gulf of Mexico.

44. The Court finds Anzhela’s witnesses on this issue more credible and trustworthy, rather than the testimony of Ms. Price or State National’s expert witness on underwriting processes. Having credited their testimony, the Court relies upon the resulting facts that show that no misrepresentation or omission of material fact occurred prior to the issuance of coverage with regard to the status of the COI process itself.

45. There was also no misrepresentation or omission of material fact committed by Anzhela or its agents regarding the intended navigational limits of the policy. Given that the parties agreed on coverage to the Gulf Coast from Ft. Lauderdale, the Court finds Anzhela’s witnesses to be credible when they testified that they intended the navigational limit provision to apply only once the vessel reached the Gulf Coast and became operational. Dorsey, specifically, testified credibly when he said that he signed the last page of the application, recognizing that it contained the navigational limit, only because he relied upon his agents’ agreement with WFT for specific coverage from Ft. Lauderdale to the Gulf Coast.

46. As it turns out, the vessel was lost on March 24, 2007, after departing from Ft. Lauderdale on route to the Gulf Coast. The vessel sank on the Atlantic Coast, which would fall outside of the navigational limits stated on the policy, except for the parties’ specific agreement on binding coverage from the point the vessel departed the Ft. Lauderdale area for the Gulf Coast. The specific agreement supersedes the navigational limits on the policy for this specific voyage. There was thus no misrepresentation with respect to any intent to deviate from the navigational limits of the policy.

47. There was, however, a material non-disclosure prior to inception of the policy with respect to the state of the watertight compartments on the vessel. The owners submitted the Elliott survey report to the underwriter that concluded in August 2006 that there were watertight compartments on the vessel that were in “good” condition. (PX 68 at 52). That same month, however, the Coast Guard inspected the vessel and determined that both the bilge pump system and the watertight bulkheads were deficient. The bulkheads were deficient in particular based upon penetrations through the bulkheads that were not properly sealed and compromised the watertight integrity of the hull’s compartments.

48. In February 2007 the survey report was submitted to the underwriter as part of the insurance application process with no mention of the deficiencies in the watertight bulkheads. Nor was the Coast Guard’s inspection report itself submitted to the underwriter together with the survey report. By February 2007, the penetrations in the watertight bulkheads had not been fully sealed and the deficiencies stated in the Coast Guard remained. Those deficiencies were also not cured by March 2007 at the inception of the policy period, at least with regard to the sealing or capping of any penetrations through the watertight bulkheads.

49. The failure to disclose the Coast Guard’s conclusions or submit the Coast Guard’s inspection report, especially given the submission of the inconsistent survey report’s conclusion of seaworthiness, was a material non-disclosure because it should have been reasonably anticipated that the status of the watertight compartments could affect the underwriter’s decision to bind coverage or set the premium.

50. The failure to disclose the inspection report was not material with regard to the bilge piping system and bilge pumps onboard, because the vessel was fitted with adequate supplemental pumping capacity prior to the inception of the policy and the launch of the Anzhela on her first and last voyage.

D. The Loss of the Anzhela Explorer

51. Upon completion of much of the work on the vessel, the vessel was returned to the water in Ft. Lauderdale and moved to a location on the New River where Rosandich started up all major mechanical systems on the vessel. After having conducted a complete examination and running of all systems dockside, Rosandich took the vessel, staying in the intracoastal waterways, from Ft. Lauderdale to Miami and back to operate all major systems.

52. Rosandich believed that the vessel performed well and that the vessel was in a seaworthy condition. Rosandich acknowledged that, while bringing the vessel back to Ft. Lauderdale on a waterway he had a grounding incident the day before the boat left on its final voyage. He put on a mask and fins, and dove under the vessel. He confirmed that the vessel had suffered damage to its starboard propellor, but no damage to the hull.

53. Dorsey had contracted with a company called Fish Offshore, an experienced vessel operator based in Louisiana, to provide the crew to transport the vessel to Louisiana. The contract provided that, after the vessel arrived in Louisiana for final work to obtain the COI, it was going to be chartered by Fish Offshore for use in the Gulf of Mexico. This was known to WFT and thus State National, as Ms. Price knew Fish Offshore and its owner, Greg Blanchard, and she had underwritten several of the Fish Offshore vessels. Ms. Price conceded that part of the reason that she agreed to underwrite the vessel was because it was a Fish Offshore project and that a Fish Offshore crew was going to be on the vessel, which gave her comfort.

54. Within a few weeks of the vessel’s final departure, part of the three-man Fish Offshore transportation crew, Steve Scibetta, deckhand, and David Killingsworth, engineer, came and worked on the vessel. On March 23, 2007, the day before the vessel departed, Fish Offshore Captain Ross Eymard, who was hired to bring the vessel from Florida to Louisiana, arrived at the vessel. Eymard had some knowledge of Florida waters, having worked as a dredge boat captain in Florida waters for close to six years. The deck hand, Scibetta, had worked on boats, sometimes working as an unlicensed engineer. He was known to Eymard but not to Dorsey or Rosandich. Killingsworth was an unlicensed engineer. He assisted with preparing the vessel for departure. Killings-worth and Scibetta were on board during the vessel’s test cruise prior to the inception of the State National policy. Rosandich acted as captain during the “shakedown” voyage.

55. Both Eymard and Scibetta testified that they considered the vessel seaworthy at the time it left the dock on its final voyage. Eymard conducted a complete examination of the vessel prior to departure and found the vessel, to be sound. His examination included a complete inspection of the vessel’s hull and found it to be in good condition. Eymard acknowledged that, during the hand over procedure Rosandich told him about the slight tip deflection on the starboard propellor, and that they intended to repair the prop in Ft. Meyers, Florida. Prior to departure, Eymard also encountered a problem navigating the vessel, which related to a problem while docking the vessel. This did not result in any damage to the vessel. The throttle problem was solved and the vessel was deemed ready for departure.

56. The vessel left on its trip from Ft. Lauderdale to Golden Meadows, Louisiana at 12:30 p.m., Saturday, March 24, 2007. Rosandich and Dorsey agreed on a planned trip for the vessel that included traveling up the intracoastal to the Lake Okeechobee Intercoastal Water Way, crossing. the state of Florida, and then crossing the Gulf of Mexico to Louisiana. (Prior to departure, Dorsey authored and sent a letter to the Coast Guard-Sector Miami to notify them that the Defendants would be taking the vessel to Louisiana to complete its COI. The Coast Guard officials forwarded the entire file for the vessel to the Louisiana sector).

57. The vessel traveled all the way up the intracoastal waterways to Stuart, Florida, and then west to the St. Lucie locks, from' which the vessel was supposed to cross the Okeechobee waterway west-southwest all the way to Ft. Myers. The vessel did not have any of the high bilge alarms go off and the vessel functioned normally. The vessel had no problems while operating for over 24 hours on its voyage up to the St. Lucie Lock of the Okeechobee Waterway.

58. Once the vessel reached the St. Lucie lock, the lockmaster informed Eymard that there was not enough water depth in the waterway to allow the vessel, given its draft, to proceed on the waterway to the other side of the staté. A decision was then made between Rosandich and Eymard to bring the vessel back south, past Ft. Laudérdale to Miami, where Mr. Rosandich planned on meeting the vessel and had arranged dockage for the vessel on the Miami River. Rosandich credibly testified that he instructed Eymard to bring the vessel back the same way it had travelled, through the intracoastal waterways.

59. Eymard, however, made the fateful decision to take the vessel outside the waterways and into the Atlantic Ocean to save time. Eymard and Scibetta testified that the vessel exited the intercoastal waterway by using the Jupiter Inlet. The problem with that decision is that Jupiter Inlet should only be used by a captain that frequently uses the Inlet. He based that opinion on his own use of the Inlet with another Captain, his reliance on the Coast Pilot book for the area, and on the NOAA navigational chart for the area. He credibly testified that use of the inlet could result in a grounding, even a light grounding, that could result in much more sand entering through the vessel’s sea strainers, which could contribute to an overheated condition on the type of engine used on the vessel.

60.Rosandich did not know that the crew decided to take the vessel south on Atlantic waters until after he received a call from Scibetta. He did not direct them to turn around and proceed immediately down-the intracoastal.

61. The crew denied any instances of grounding as the vessel navigated through the Jupiter Inlet. According to Eymard and Scibetta, the vessel operated properly, with no problems, as it departed the inlet and traveled south offshore in the Atlantic Ocean. They both testified that the vessel operated at speed and above 10 knots. The winds were between 15 to 20 knots and seas at about 6 feet. After operating at. speed, between 10-15 knots, for several hours the vessel reached the area off the coast near Golden Beach.

62. At that point, at approximately 9:00 p.m., the vessel developed what the crew believed was a starboard steering problem. The vessel began turning to the right and the starboard paddle locked in the down position. The vessel is steered through aft paddles on each hull that operate hydraulically and control the forward thrust of the boat to make a turn. Eymard claimed that the problem related to a hydraulic leak that he could see in the hull, which was lit enough for him to see. But the crew purportedly decided not to try and fix the problem at that point given the time and darkness. They anchored the boat offshore.

63. The crew communicated with Rosandich at that point to inform him of the problem and their intention to anchor the vessel overnight. Rosandich was reassured by Eymard that the problem was not serious enough to warrant assistance and that they could assess the issue in the morning.

64. The crew never communicated to Rosandich about any problem with the starboard engine at that time or any high heat alarms. Yet, we know from a post-loss inspection that the engine showed signs of significant overheating. And no evidence was identified at trial that confirmed the crew’s claims regarding a steering problem related to a hydraulic leak or other problem with the paddle.

65. Rosandich credibly testified, however, that after the loss Scibetta told him that the vessel had encountered a high heat situation on one of its engines. Scibetta denied it at trial and claimed that he never saw any evidence of abnormal engine vibration, engine overheat, high heat alarms, or smoke coming from the engine room.

66. In any event, it is undisputed that Eymard anchored the vessel in approximately 28 feet of water about one quarter of mile off of Golden Beach, Florida. He testified that the weather remained relatively rough with 15 to 20 knot winds and 6 foot seas. Over the course of the night, the seas would reach up to 8 feet.

67. Eymard and Scibetta turned in for the night, leaving engineer Killingsworth on watch. At approximately 1:00 a.m. on the morning of March 25, 2007, Killings-worth woke up Eymard and Scibetta to ask for help because the starboard exhaust line had broken open, and outside seawater was coming into the starboard engine space. This is the first report of any seawater coming into the vessel.

68. Scibetta laid down three of the four available submersible bilge pumps in the hull to remove the incoming water through hoses extending out the starboard engine hatch. The water reached the second rung of the ladder of the hull in the aft and engine compartments. After approximately an hour to an hour and a half, the crew successfully de-watered the hull to the point that only six to eight inches of water remained. But the crew did not try to repair the exhaust hose to stop all water from entering into the vessel. That was difficult under the circumstances, given the lateness of the hour, the tired crew, the darkness of the aft section of the hull, and the condition of the seas.

69. A gasoline powered pump was also available to the crew, in addition to the main engine bilge pump. The main engine bilge pump was not used. The crew never credibly explained at trial why these additional pumps were not used, other than the fact that the three submersible pumps had been working and successfully de-watering the vessel. The fact that the main engine pump was not used is circumstantial evidence that the engine, in fact, was not properly functioning at that point in time. If it had been working, that pump could have been used to prevent the engine compartment from flooding.

70. In fact the port engine hatch had been opened to power the submersible pumps used in the starboard hull.

71. Once the situation was under control, or so they believed, Eymard and Scibetta went back to their respective bunks and left the engineer Kilhngworth on watch. That too proved to be a fateful decision. Without proper monitoring, given the size of the hole in the starboard exhaust hose, the vessel’s engine compartment could have flooded within forty-five minutes.

72. At approximately 4:30 a.m. on March 26, 2007, David Killingsworth woke Scibetta in his berth to alert him of another problem. Scibetta woke up Eymard. At that point Scibetta and Eymard both sensed the vessel listing hard to starboard. When they examined the starboard hull water had already reached above the engines. Scibetta could see that the port hull was now filling with water, as the engine room doors were being filled out by the waves.

78.The wind and seas had materially increased with seas running up to 8 feet and winds in excess of twenty knots. The vessel was now in heavy weather conditions. Scibetta credibly testified that the situation worsened when another large wave came over the rear of the boat and filled each pontoon with more water. There was no time and it was too dangerous to try and pump water out given the surrounding conditions. The crew were fearful that the entire vessel would roll over hard starboard. They decided it was time to abandon the vessel.

74. At that point Eymard called Rosandich on the cell phone and asked for him to contact the Coast Guard for assistance because the vessel was sinking. Rosandich was shocked by the call, given that Eymard had not indicated in the earlier call that the vessel was in such a dire condition. Rosandich called Brian Hawthorne with Sea Tow to assist the vessel and get more pumps in the water. He also called the Coast Guard.

75. The Coast Guard arrived at the scene shortly thereafter. They assisted the three-member crew to abandon the vessel just before it sank. The vessel sank with the bow of the vessel pointing west toward the beach and the stern faced toward the sea.

76. Later that morning, after Rosandich arrived at the scene and met with the crew at a local hotel, he entered into a salvage contract with SeaTow to salvage the vessel. SeaTow was available to immediately raise and save the vessel.

77. By then the vessel was pushed toward the beach by the wind and waves and then ended up only a few hundred yards off the beach in the surf. This complicated the salvage mission because of the vessel’s unique design with isolator mounts separating the superstructure of the vessel from the hulls of the vessel. When the vessel reached the beach it broke into two pieces with the superstructure of the vessel being sheared off from the hull.

E. The Causes of the Loss of the Vessel

78. As previously discussed, at the time of the last Coast Guard inspection on August 22, 2006, the inspection report detailed certain deficiencies with the vessel that precluded a COI. Specifically, on the date of the vessel’s voyage there were outstanding unresolved deficiencies regarding her bilge pump system and penetrations in the watertight bulkheads that compromised the watertight integrity of the hull’s compartments.

79. The Coast Guard Activity Summary Report identified the need to “make all penetrations through water tight bulkheads watertight,” plus the need for drawings for a bilge piping system that had to provide for two 50 gallon-per-minute fixed bilge pumps in each hull as per Coast Guard Regulations, § 182.510(b) and 182.520(j).

80. Loss surveyor Ian Cairns inspected the vessel shortly after it was raised off the ocean floor. Mr. Cairns credibly testified that he identified open pipes that penetrated the watertight bulkheads that permitted water to travel from one compartment to another. These openings were found in the forward and aft engine room bulkheads. These penetrations permitted water entering the engine room to invade the watertight compartments forward and aft of the engine room. Similarly, water entering the hull aft of the engine room may invade the engine room and forward compartments.

81. Naval Architect Drew Hains confirmed the fact that “penetrations” identified by the Coast Guard more probably than not referred to open pipes and unsealed wire and cable chases that pierced the bulkheads, thus- compromising the water keeping ability of the bulkheads. Hains also credibly testified that watertight compartments would have prevented the total loss of the vessel. Though the Coast Guard issued a hull credit for the vessel in December 2006, there was no credible evidence presented the penetrations in the watertight bulkheads were sealed or capped or otherwise addressed prior to the inception of coverage.

82. After the sinking, it was reported that she came to rest flat on the bottom of the Atlantic Ocean with no residual flotation keeping the bows or any other part of the hull off the bottom. From this we find it more probable than not that water communicated through the watertight bulkhead causing all of the five watertight compartments to flood. The presence of watertight bulkheads could certainly have helped prevent the loss of the vessel, though the deficiencies in the bulkheads were not necessarily the proximate cause of the sinking.

83. Moreover, the Coast Guard required that each hull have two, 50 gallon per minute, fixed bilge pumps, with each powered by an independent source. The vessel was equipped with a bilge manifold that would permit the de-watering of the individual watertight compartments through the use of a single pump. The manifold permits the suction of the main bilge pump to be diverted to the various water tight compartments.

84. It is undisputed, and indeed Mr. Cairns’s inspection showed, that the starboard bilge pump was not installed. Anzhela’s agent, Rosandich, was aware of this condition. He confirmed for Mr. Cairns that there was no fixed pump on board.

85. The record shows, however, that the vessel had bilge water pumping capacity through other means, principally an engine-drive pump attached to the starboard engine plus portable pumps of varying sizes that had been placed in the hull prior to the voyage. Plaintiffs experts’ contrary testimony in this regard was not credible when compared to other record evidence in the case that showed that multiple bilge pumps were onboard the vessel and were, in fact, utilized successfully to stabilize the ingress of water into the vessel when she first encountered that problem.

86. In any event, the vessel ultimately sank a few miles off the coast of Golden Beach, Florida, after taking' on water through the exhaust hose, as well as wave action on the open hatches on the port and starboard hulls. It is undisputed that in order for a boat to sink, there must be some means for water to enter the boat in sufficient quantities to cause it to lose floatation. The record at trial documents minor groundings that occurred prior to and likely during the March 23rd voyage. Rosandich testified he ran the boat aground four or five times before commencement of coverage on the insurance policy. Any one of these groundings could have caused the hull plates to weaken. We can not know for sure, however, if this type of damage contributed to the sinking because a break in the aluminum hull could also have been caused by the vessel being pushed by wave action ydiile sitting on the bottom of the ocean. The vessel lost her superstructure and was propelled across a reef destroyed the bottom of the boat, rendering definitive analysis impossible.

87. The presence of a hole in the starboard engine’s exhaust system is more probably than not related to the intrusion of water into the starboard hull of the vessel that night. There was no eyewitness testimony at trial observing the inflow of water from the breach in the exhaust system. However, a hole was discovered during shore — side inspections. The hole was located above the waterline. It was described by various witnesses as slightly above the waterline, up to 6 inches above. The size of the hole varied from one half inch by four inches to one half inch by eight inches.

88. All witnesses agreed that water entering the vessel through this opening would be intermittent until after the boat accumulated sufficient water inside the hull to cause the boat to settle into the water far enough to cause the hole to descend beneath the waterline.

89. Two theories of causation were advanced by the parties regarding the creation of the hole. The Anzhela contends the hole was caused by the starboard engine overheating, which overheating condition ultimately resulted in the sinking. However, the vessel was equipped with temperature gauges and overheat alarms that would have alerted the crew of an impending problem. The two crew members who testified at trial testified that they did not hear any high engine temperature alarm or observe any abnormal condition with the starboard engine either prior to the steering problems they encountered that night or thereafter. State National concludes as a result that engine overheating did not necessarily directly contribute to the vessel’s loss that night. Or, alternatively, if the engine did suffer from such a condition, the problem occurred prior to the voyage of the vessel and prior to the inception of coverage.

90. Nevertheless, given the level of malfeasance displayed by the crew on that night, it is hard to reconcile the crew members’ testimony with the known fact that a significant source of heat likely burned through the engine exhaust hose. The most immediate source for such a condition is the engine. And as no water intrusion into the hull was detected prior to the evening of the sinking, despite the vessel being operated for some time during its voyage preparation and being worked on by various personnel, it is more likely than not that the heating damage— sufficient to burn through the exhaust hose — occurred some time after the voyage began.

91. The greater weight of the evidence shows in fact that the engine overheat condition was manifesting itself during the voyage. The vessel had not been operated under stressful conditions prior to the voyage. At the time of the loss, the vessel was on ocean waters, in six to eight feet seas, after having been operating for many hours. Only that level of stress on the engines would have provided sufficient time and presented the conditions necessary for an overheat condition that could cause the type of collateral damage — a burnt hole through the exhaust hose — that likely contributed to the loss of the vessel. And given the captain’s decision to navigate the vessel through the Jupiter Inlet and into the Atlantic waters, contrary to the owner’s prior instructions, it is more likely than not that groundings that may have occurred in this leg of the voyage materially contributed to the problem.

92. The Court finds the crew members’ testimony lacked credibility on this point. Instead, Rosandich’s testimony as to the crew members’ initial reactions to him right after the sinking more credibly shows that the crew was at some point aware of an engine overheat problem on the vessel. He was told the morning after the loss that they had suffered a high engine heat condition and that the temperature alarms had gone off, so much so that the crew disconnected it. Rosandich was not made aware of this prior to the sinking of the vessel.

93. Based upon the evidence presented at trial, it is more likely than not that an overheated engine did in fact contribute in some material way to the loss of the vessel, because the hole in the exhaust hose was caused by a burning, high temperature condition.

94. The internal condition of the starboard engine was not inspected or documented for trial. Nor were the water pumps that fed the engine cooling system analyzed. But Anzhela’s expert, Brad Schoenwald, conducted an investigation into the cause of the loss and he concluded that the engine had at some point suffered an overheat condition. Significantly, State National’s own expert could not discount the possibility of engine overheat damage. Anzhela’s expert added that he learned that the starboard engine had suffered an overheat condition two weeks before her sinking. There were no records introduced, however, documenting repairs of the engine overheat. To the extent that it occurred, of course, it could have pre-dated the date of coverage on the policy. But given the work that was being conducted on the vessel prior to her voyage, it is difficult to explain how such an overheat condition could have caused the damage to the exhaust system, but not been identified by the vessel representatives, engineers, or crew members prior to the voyage. Given the overwhelming credible evidence that the engines were in very good condition before the voyage, we find that it was more probable than not that an engine overheat condition contributed to the loss of the vessel.

95. State National argued that the primary cause of the exhaust problem was vibration caused by propeller damage. As neither party to the litigation had the hose tested by a forensic materials laboratory, there is no specific scientific analysis in this record regarding the mechanism of the exhaust failure. State National’s expert Mr. Cairns explained, however, that damaged propellers could cause vibration. The propeller damage observed by Mr. Cairns evidenced rotational damage, which means that the propellers were under power at the time. The damage further indicated bi-directional force resulting from putting the gears in forward and reverse that is typical when a piloting captain is attempting to extract a boat from a strand.

96. It is indeed more probable than not that the vessel’s propellers were damaged to some extent prior to the final trip. This damage was acknowledged by Rosandich. Captain Eymard credibly testified that Rosandich told him about the damage that resulted from the pre-voyage groundings. Rosandich was aware of the fact the damage resulted in vibration while the boat was operating. Eymard was told that Rosandich was taking a new propeller to Fort Myers where it could be installed before the vessel crossed the Gulf of Mexico on its way to Louisiana. Eymard also discussed that subject, replacement of the propeller, with Dorsey.

97. Eymard experienced some vibration during the voyage. In a recorded statement taken days after the sinking, he reported a serious vibration while underway. Significantly, in his post-loss statement the Captain attributed the hole in the exhaust hose to the vibration.

98. The evidence at trial showed that propeller damage was possible when the vessel was operated by the crew members retained for the voyage, as Rosandich* attested based upon his interview with the crew right after the sinking. Moreover, while Rosandich was commanding the boat prior to the voyage the vessel ran aground on the intracoastal waterway. That occurred, according to Rosandich, four or five times. On one occasion, he personally went into the water to inspect any grounding damage and observed the starboard propeller tips deflected. He even discussed with Eymard that it may be necessary to change the propeller blades when the vessel reached the Gulf Coast at Ft. Myers. Rosandich credibly claimed, however, that Eymard did not tell him that there was significant vibration during the voyage.

99. It is indeed possible that the propeller damage itself is linked to the overheated exhaust condition, if in fact that condition occurred after the vessel was on her way to the Gulf Coast. As Rosandich and Anzhela’s mechanical engineering expert explained, the intake of sand into the exhaust system could contribute to an engine overheat because sand getting into the water pump system that cools the engine, and specifically clogging the sea strainers at the intake to the pump, could reduce the amount of cool water taken into the system to cool the exhaust. This engine utilizes a standard wet exhaust system, which uses cold water to spray the exhaust stack from the engines to reduce the temperature of exhaust gases emanating from the engine. A normally operating system would cool the exhaust gases, and expel those cooled gases through the exhaust hose and out of the vessel at the waterline. But if the system gets clogged — such as through sand on the sea strainer — and not enough cool water enters the system, the exhaust gases cannot be adequately cooled prior to expulsion through the exhaust hose and out of the rear of vessel.

100. The absence of the main starboard bilge pump undoubtedly did not help matters. Had the fixed starboard bilge pump been installed, its 50 gallon-per-minute capacity would have helped deal with the water intrusion given the size and location of the exhaust hose hole.

101. On the other hand, the vessel was equipped with four portable submersible electric pumps, three of which may have been used to de-water the vessel. These pumps required 110 volt alternating current for power. Water was discharged through a garden hose attached to the pump. The record was not crystal clear as to how many portable submersible pumps were in use that night. One may have failed. Another complication is that in order to use the pumps, it was necessary to run extension cords into the starboard engine room from outside the compartment. The extension cords entered through the engine room hatch. The discharge hoses exited the engine room through the hatch. The electrical power cords and the hoses to discharge water required the watertight hatch to remain, open.

102. The crew confirmed that fact at trial. The crew testified that water entered into the starboard engine room through the hatch. The port engine room hatch was also left open as the extension cords that powered the portable pumps were plugged into the port engine room. This also required the watertight hatch on the port engine room to remain open. Crew member Scibetta credibly testified that he observed waves breaking on the rear deck that entered the port engine room causing it to flood.

103. Nevertheless, we know that the crew stabilized the situation when the water intrusion was first discovered using the portable pumps. Without the main engine or main bilge pump, the crew successfully de-watered the vessel, to the extent that the crew felt comfortable not calling in for Coast Guard assistance and the Captain retired to his berth with Killingsworth on watch. Given the Court’s assessment of Eymard’s credibility and seamanship experience, we find it more probable than not that this decision would not have been taken had the vessel remained in peril. The portable pumping capacity on the vessel proved to be capable to address the immediate peril even with the absence of the fixed pump and with deficient watertight integrity in the hull compartments.

104. Hence, the deficiencies highlighted in State National’s case that were known to the owners — the absent main bilge pump and failure in the watertight compartments — did not proximately cause the loss of the vessel by the greater weight of the evidence. These deficiencies clearly did not help matters, and indeed may have exacerbated the problem, but they did not prove to be dispositive. (We recognize, of course, that the failure to correct the deficiencies in the watertight bulkheads is nevertheless fatal to Anzhela’s position).

105. In any event, the most proximate cause of the vessel was the negligence of the crew. As discussed earlier, the crew for the voyage between Miami and Golden Meadows, La. was provided by Fish Offshore, an entity known to and approved by WFT. Fish Offshore was retained to operate the vessel once repairs had been completed and a COI issued. Dorsey interviewed and approved of the Captain. Rosandich, however, was not satisfied with Killingsworth’s performance. He contacted Val Galijour of Fish Offshore requesting removal and replacement of the engineer, but Dorsey overruled Rosandich’s request to remove Killingsworth as the engineer, labeling their conflict as a personality conflict.

106. In hindsight Dorsey recognized the incompetence of the engineer and would now not allow the engineer near a row boat. Malcolm Elliott, the Defendants’ surveying expert, conceded the crew incompetently reacted to the situation on board the vessel. He credits the crew with the ability to navigate the boat, but the crew was not competent to address the ingress of water into the hulls. The crew was incompetent in selecting the anchoring location, reaction for water ingress and lack of action for reporting. He also faulted the crew or failing to discover or realize of an overheated condition if the overheat occurred at that time. The crew identified a problem with the steering system requiring the vessel to anchor in the ocean rather than proceed to port. But no expert witness for either party could find anything wrong with the vessel’s steering system. It is more likely than not that the problems the crew encountered on the vessel were unrelated to any steering issue, and again could have been related to a loss of thrust generated by - an overheated engine.

107. Having said all that, however, the crew did initially manage to control the initial ingress of water. The crew was able to utilize the portable bilge pumps available to them from both hulls and stabilize the situation .at the initial phase of the emergency. At that point, again unwisely in hindsight, Eymard and Seibettá returned to their quarters and left Killingsworth on watch. Killingsworth did not testify at trial; however, the evidence in the record shows that, more likely than not, he fell asleep while the portable pumps were still operating. Given his past experience and his own self-preservation, it is unlikely that Killingsworth while awake would have again allowed the situation to de-stabilize without calling for assistance from the other crew members, and the Coast Guard if necessary, if he was physically observing the ingress of water reach a critical level. Similarly, if the weather conditions worsened to the point that the bilge pumping capacity on the vessel was being overwhelmed by topside wave action, a competent and awake engineer would have immediately reacted to get assistance.

108. In other words, under the circumstances, close observation of the status of the pumping capacity and the level of water intrusion were essential to safe operation of that vessel. Had Killingsworth, who undoubtedly was tired from a very long day, remained on watch he would not have waited until ten minutes prior to the sinking of the vessel to seek assistance from the other crew members and abandon the vessel. The circumstantial evidence in the record shows instead that he likely fell asleep well before 4:00 a.m. that next morning, during which time the portable bilge pumps were overwhelmed by the level of water intrusion in the starboard hull coupled with additional water intrusion into the port hull caused by the open hatches and the wave action on the vessel.

109. So, by the time he woke up and realized the even greater peril the vessel was in, it was too late. Each instance of crew neglect or incompetence compounded itself, reaching a point at which a vessel anchored just offshore had to be abandoned before timely Coast Guard or Sea-Tow assistance was called in to aid the vessel prior to its loss.

110. Despite the many issues imperiling the vessel that night, the most proximate and immediate cause of the loss of the vessel was the crew’s negligence in properly appreciating the risk facing the vessel, in reacting to that risk in a competent fashion and in a manner in which a reasonable seaman would have under the circumstances, and then in compounding that simple negligence with gross negligence by allowing the vessel to sink while the crew slept.

111. This finding is critical to understand the reason why the vessel was lost. Even with the remaining issues with the watertight compartments in the hull and the limited bilge pumping capacity on-board, we know for a fact that the vessel did not sink when the water ingress problem was first observed. We know from direct and circumstantial evidence in the record that the vessel, while taking on water, was seaworthy enough to face that problem with the portable bilge pumping capacity that was onboard. The vessel’s owner representative was made aware of the problem and believed, reasonably, that the situation had stabilized well before the sinking.

112. The facts show as well that crew members Eymard and Scibetta, who testified credibly on this issue, concluded that any imminent threat to the vessel had dissipated before they returned to their quarters. The record shows that these crew members would have called in for additional assistance had they recognized that the bilge pumping capacity on the vessel was insufficient and incapable of preserving the vessel’s stability. Eymard had extensive seaman experience, including a fourth-issued Coast Guard captain’s license. Scibetta had spent his entire life at sea and had extensive experience as a deckhand and vessel engineer.

113. In short, the vessel did not sink because of those deficiencies. To the contrary, the peril to the vessel was stabilized. But then the crew literally fell asleep. It was this latter act of malfeasance that most directly and in natural and continuous sequence substantially produced the loss of the vessel.

F. Post-Loss Claims

114. After the vessel was lost, Rosandich signed a Salvage Contract with Sea Tow on the morning of the sinking. (PX 87) At the time of formation of the contract, no representative of State National was present. Services were performed on a Per Diem/Hourly basis according to a Ra