
USCA1 Opinion

	




          June 22, 1995     UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 94-1764                     WINDSOR MOUNT JOY MUTUAL INSURANCE COMPANY,                                Plaintiff - Appellant,                                          v.                       JOHN GIRAGOSIAN AND DEBORAH GIRAGOSIAN,                               Defendants - Appellees.                                 ____________________                                     ERRATA SHEET               The opinion of this court issued on June 16, 1995 is amended          as follows:               Bottom of  page 8, the  last two lines  should be  placed in          quotation marks and read:   "in deference to state  hegemony over          insurance, to discourage the fashioning of new federal law and to          favor the application of state law."                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 94-1764                     WINDSOR MOUNT JOY MUTUAL INSURANCE COMPANY,                                Plaintiff - Appellant,                                          v.                       JOHN GIRAGOSIAN AND DEBORAH GIRAGOSIAN,                               Defendants - Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. William G. Young, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                               Torruella, Chief Judge,                                          ___________                            Coffin, Senior Circuit Judge,                                    ____________________                               and Cyr, Circuit Judge.                                        _____________                                _____________________               Michael J.  Calabro, with whom Flanagan &  Hunter, P.C., was               ___________________            ________________________          on brief for appellant.               Thomas  M. Neville,  with whom  Segalini &  Neville, was  on               __________________              ___________________          brief for appellees.                                 ____________________                                    June 16, 1995                                 ____________________                    TORRUELLA,  Chief  Judge.   Windsor  Mount  Joy  Mutual                    TORRUELLA,  Chief  Judge.                                ____________          Insurance  Company  ("Windsor")  sought a  declaration  from  the          district court of its  rights and obligations with respect  to an          insurance policy held  by John and  Deborah Giragosian for  their          34-foot  sailboat Escape, which had  sunk in Boston  Harbor.  The                            ______          Giragosians  counterclaimed for contract damages due to Windsor's          allegedly improper failure to  honor the policy.1  After  a bench          trial,  the   district  court  determined  that   Windsor  had  a          contractual duty  to indemnify the Giragosians  in the stipulated          loss amount of  $58,000.  Windsor now  appeals this ruling.   For          the following reasons, we affirm.                                      BACKGROUND                                      BACKGROUND                    In 1989,  the Giragosians purchased the  Escape, a 1987                                                             ______          model  34-foot Catalina  sailboat  with  a  12-horsepower  diesel          auxiliary.  The Giragosians insured the Escape with Windsor under                                                  ______          a  fairly standard  marine insurance  policy which  contained the          following warranty of seaworthiness:                      Seaworthiness  Warranty.   Warranted that                      at  the  inception  of  this  Policy  the                      vessel  shall be in a seaworthy condition                      and, thereafter, during  the term of this                      Policy,  the  Assured shall  exercise due                      diligence  to  maintain  the  boat  in  a                      seaworthy condition.                    In   the   months   before   the   Escape   was   lost,                                                       ______          Mr. Giragosian's adverse experiences relating  to the vessel were                                        ____________________          1   The Giragosians also  counterclaimed for violations  of Mass.          Gen. L. chapters 93A  and 176D, prohibiting unfair  and deceptive          practices in the business of insurance.  The district court ruled          that Windsor  did  not  commit  any  unfair  or  deceptive  trade          practices, and the Giragosians do not appeal this decision.                                         -2-          limited to  the following:  During one  excursion, Giragosian ran          the  vessel  aground,  and  called  for  help  using  his  radio.          Occasionally,  the diesel engine stalled.  In August of 1991, the          engine stalled as Giragosian was entering Scituate Harbor after a          pleasure cruise.   He was unable to restart the  engine, and thus          obtained  permission to moor the vessel in Scituate Harbor.  Most          significantly,  on October  19,  1991, someone  noticed that  the          Escape was  lying very low in  the water and the  Coast Guard was          ______          called to  pump the  boat out.   The Coast  Guard pumped  out the          vessel and promptly informed the Giragosians of the situation.                    Giragosian went to Scituate Harbor on October 24, 1991,          accompanied by his friend Daniel Likely.  The two planned to sail          the Escape  to the Bay Point  Marina in Quincy to  have it hauled              ______          for the season.  Giragosian and Likely rowed  to where the Escape                                                                     ______          was moored.  Once on board, however, they realized that the locks          to her cockpit had been changed  by the Coast Guard personnel who          had  pumped  the boat  out five  days  earlier.   Giragosian came          ashore and  retrieved the key from  the Coast Guard  station.  At          the  station,  Giragosian had  a  conversation  with Coast  Guard          officials, who suggested  that perhaps the water  had gotten into          the vessel's bilges by running down  the mast, i.e., that it  was                                                         ____          rainwater.                    After  retrieving   the  key  from  the   Coast  Guard,          Giragosian and Likely returned  to the Escape, boarded the  boat,                                                 ______          and  prepared to  cast  off.   Before  the Escape  left  Scituate                                                     ______          Harbor, Giragosian looked into  the bilge and noticed one  to two                                         -3-          inches  of water.   He  considered this  to be  normal.   He also          noticed water  stains indicating  that there  had been  about six          inches of water in the bilges at one time.                    Giragosian  unsuccessfully  attempted   to  start   the          vessel's  diesel  engine.     Because  the  batteries  were  low,          Giragosian turned  off the  radio, but  kept  the depthfinder  on          throughout most of the voyage.  Because he intended to operate by          "dead  reckoning" from Scituate  Harbor to the  Bay Point Marina,          Giragosian did not think that he needed the electronic equipment.          He also decided to make the trip solely under sail,  as the winds          were light, the day clear, and the sea calm.                    At about 3:00 p.m., Giragosian headed the Escape out of                                                              ______          Scituate  Harbor  under sail,  towing  a  small inflatable  dingy          behind.  He sailed northeast  out of Scituate Harbor,  navigating          by  compass and dead reckoning.  He estimated that he was sailing          at about six knots.  At around 4:30 p.m., his depthfinder failed.          Later, between 5:00 and 6:00 p.m. and well out  in greater Boston          Harbor, Giragosian noticed that  his floorboards were now covered          with sloshing water and that they had begun to float.  He checked          the  bilges  and found  that they  contained  about four  feet of          water, so he and Likely attempted to pump the water out manually.          At this point, the  Escape still had sufficient power  to operate                              ______          the  navigation lights, but only  dimly.  Giragosian  tried to go          below to  get a flashlight, but  could not find one  as the water          was now flooding the  cockpit and the flashlight  was underwater.          He tried to use his radio tocall for help, but could raise noone.                                         -4-                    It  was getting close to sunset, and the sea had become          slightly choppy.   Giragosian and Likely  donned life preservers,          retrieved the flare  gun, dropped  the sails, and  hooked up  the          outboard  motor to  the inflatable  dinghy.   They  abandoned the          Escape and started toward a drilling rig light some distance away          ______          in the  harbor.  Their dinghy  engine ran out of gas,  so it took          them  two hours  to paddle by  hand to  the rig,  where they were          rescued after some time  by the Coast Guard.   Neither Giragosian          nor Likely saw the Escape go  down.  The Coast Guard searched for                             ______          the vessel but was unable to find any sign of it.                    The Giragosians gave proper notice to Windsor.  Windsor          conducted its own search for the vessel with underwater detection          devices.  This search, however, proved futile, and the Escape was                                                                 ______          never seen again.  Windsor eventually denied Giragosian's claim.                    The district  court found, based on the totality of the          facts and  circumstances presented  during trial, that  the water          pumped out of the hold  of the vessel by the Coast  Guard had not          actually come down the mast, but  rather was the result of a leak          in  the hull,  a  defect  which  was aggravated  by  Giragosian's          attempts to sail the boat.   The court went on to  find, however,          that Giragosian  was  not  actually  aware that  the  vessel  was          leaking  at  or below  the  waterline,  and he  did  not  know or          appreciate that sailing the vessel was aggravating the leak.                    The  district court  found  that the  Escape  was in  a                                                          ______          seaworthy condition at the commencement of the policy's coverage,          and  that the Giragosians exercised due diligence to maintain the                                         -5-          boat  in this  condition.   The court  went on  to find  that the          Escape  was,  however,  unseaworthy  on  October  24,  1991  when          ______          Giragosian and Likely sailed her out into open waters.  The court          specifically found, however,  that Giragosian did not know of the          boat's  unseaworthy condition,  and  that the  condition was  not          caused by any lack of due diligence on Giragosian's part.                    The court nevertheless  ruled as a  matter of law  that          Giragosian  was  negligent in  taking the  Escape  out to  sea on                                                     ______          October 24,  1991.    According  to  the  court,  the  "objective          combination of the facts" -- that he knew that his  boat had been          low in the water and had been pumped out by the Coast Guard,  and          that he  was aware that  he had no  auxiliary power and  that his          batteries were low  -- rendered Giragosian's decision to sail the          Escape negligent.  Yet this negligence, the  court explained, did          ______          not  necessarily preclude  coverage under  the insurance  policy.          Despite his  negligence, the court concluded,  Giragosian had not          failed  to  exercise  due  diligence in  maintaining  the  boat's          seaworthiness,  and therefore he  is entitled  to indemnification          from Windsor under the policy.  Windsor now appeals.                                  STANDARD OF REVIEW                                  STANDARD OF REVIEW                    Our standard  for reviewing a district court's findings          of fact and conclusions  of law made in conjunction with  a bench          trial is  well settled.  We review claimed errors of law de novo.                                                                   __ ____          Williams v. Poulos, 11  F.3d 271, 278 (1st Cir.  1993); Blanchard          ________    ______                                      _________          v. Peerless Ins.  Co., 958 F.2d  483, 487 (1st  Cir. 1992).   The             __________________          district court's findings of fact, however, will not be set aside                                         -6-          unless they are demonstrated to be clearly erroneous.   Williams,                                                                  ________          11 F.3d at 278;  Fed. R. Civ. P. 52(a).  In  other words, we will          give  such findings  effect unless,  after carefully  reading the          record and according due deference to the trial court, we form "a          strong,  unyielding  belief  that   a  mistake  has  been  made."          Cumpiano v. Banco Santander  Puerto Rico, 902 F.2d 148,  152 (1st          ________    ____________________________          Cir.  1992).    Where there  are  two  permissible  views of  the          evidence,  the interpretation  assigned by  the trial  court will          therefore be adopted.  Williams, 11 F.3d at 278.                                 ________                    "The clearly erroneous standard also ordinarily applies          to our review of a district court's resolution of mixed questions          of law and  fact.  In such situations,  however, we are obligated          to  determine whether the court's  decision was infected by legal          error.  And if a  trial court bases its findings upon  a mistaken          impression of applicable legal principles, the reviewing court is          not  bound  by the  clearly erroneous  standard."   Id. (internal                                                              __          quotations omitted).                                       ANALYSIS                                       ANALYSIS                    Windsor   appeals  the  district  court's  decision  on          several grounds.  First, Windsor  contends that the court applied          an incorrect  legal standard both  to the  interpretation of  the          warranty of seaworthiness  in the marine insurance policy, and to          the warranty's "due diligence"  requirement.  Windsor also argues          that  certain   factual  findings  of  the   district  court  are          inconsistent, and  that  as a  matter of  law, the  terms of  the                                         -7-          insurance policy  preclude coverage  for  loss due  to a  "latent          defect."  We address these arguments in turn.                    A.   Did the district court apply the appropriate legal                    A.   Did the district court apply the appropriate legal                         __________________________________________________                         standard   for   interpreting   the  warranty   of                         standard   for   interpreting   the  warranty   of                         __________________________________________________                         seaworthiness?                         seaworthiness?                         _____________                    In   interpreting   the   marine    insurance   policy,          particularly  the warranty  of seaworthiness, the  district court          applied principles of Massachusetts insurance law rather than the          maritime  doctrine,  applicable  in marine  insurance  cases,  of          uberrimae  fidei.2   Citing Wilburn  Boat Co.  v. Fireman's  Fund          ________________            _________________     _______________          Ins. Co., 348 U.S.  310, 320-21 (1955), the court  explained that          ________          "regarding  matters of insurance, . . . the doctrine of uberrimae                                                                  _________          fidei gives way to the state's  . . . interests in regulating the          _____          relationship between insurer and insured."  Appellant Windsor now          argues that this choice of law ruling was erroneous.                     The  propriety of  maritime  jurisdiction  over a  suit          involving a  marine insurance  policy is unquestionable.   Albany                                                                     ______          Ins.   Co.  v.  Wisniewski,  579  F.  Supp.  1004,  1013  (D.R.I.          __________      __________          1984)(citing  Kossick v.  United  Fruit Co.,  365  U.S. 731,  735                        _______     _________________          (1961);  Wilburn Boat,  348  U.S. at  313).   When,  however,  no                   ____________          established  maritime  rule  governs   the  issues  of  a  marine          insurance dispute, the Wilburn  Boat inquiry becomes  applicable.                                 _____________          In the absence of  a settled federal maritime rule,  Wilburn Boat                                                               ____________          has generally been interpreted,  "in deference  to state hegemony          over insurance, to discourage  the fashioning of new federal  law                                        ____________________          2   "The most perfect  good faith."   Black's Law Dictionary 1363          (5th ed. 1979).                                         -8-          and to favor the application of state law."  Albany Ins. Co., 579                                                       _______________          F. Supp. at 1013-14 (listing cases).  Where, on the other hand, a          settled maritime rule directly  governs the litigation, that rule          controls.  See  Ingersoll Milling  Mach. Co. v.  M/V Bodena,  829                     ___  ____________________________     __________          F.2d  293,  305-06 (2d  Cir. 1987),  cert.  denied sub  nom. J.E.                                               _______________________ ____          Bernard  &  Co. v.  Ingersoll Milling  Mach.  Co., 484  U.S. 1042          _______________     _____________________________          (1988).   State law may supplement maritime law when maritime law          is silent or a local matter is at issue, but state law may not be          applied where  it is materially  different from maritime  law, or          where  it would  defeat  the reasonably  settled expectations  of          maritime actors.  See Albany  Ins. Co. v. Anh Thi Kieu,  927 F.2d                            ___ ________________    ____________          882, 887 (5th Cir.  1991); Floyd v.  Lykes Bros. S.S. Co.,  Inc.,                                     _____     ___________________________          844  F.2d 1044 (3d Cir. 1988); Coastal  Iron Works, Inc. v. Petty                                         _________________________    _____          Ray  Geophysical, Div. of Geosource, Inc., 783 F.2d 577 (5th Cir.          _________________________________________          1986); Steelmet, Inc. v.  Caribe Towing Corp., 747 F.2d  689, 695                 ______________     ___________________          (11th  Cir. 1984); Fireman's Fund  Am. Ins. Co.  v. Boston Harbor                             ____________________________     _____________          Marina, Inc.,  406 F.2d 917,  919 (1st  Cir. 1969);  cf. Pace  v.          ____________                                         __  ____          Insurance  Co. of No. Am.,  838 F.2d 572  (1st Cir. 1988)(holding          ________________________          that  the admiralty  clause  of  the  U.S. Constitution  did  not          necessarily  bar a state law claim against a maritime insurer for          its bad faith refusal to honor a claim).                    Given  these  choice-of-law  principles,  the  narrower          issue  is  whether  an  established  rule  of   maritime  law  is          applicable to the dispute  at bar.  If  a maritime rule  controls          the disputed issue,  and that rule  is materially different  from                               ___          state law, then the district court's decision to abandon maritime                                         -9-          law  was  legal  error.   Windsor  argues  that  the doctrine  of          uberrimae  fidei3  is  directly  applicable here,  and  that  the          ________________          district  court should  have employed  this doctrine  rather than          Massachusetts insurance law in formulating its conclusions.                    We need  not undertake this  analysis, however, because          we find  that the  stringent uberrimae  fidei  doctrine does  not                                       ________________          relieve Windsor of  its liability  to the  Giragosians under  the          policy.   True,  the doctrine  requires the  parties to  a marine          insurance policy to accord one another the highest degree of good          faith.   Knight v. U.S.  Fire Ins. Co.,  804 F.2d 9,  13 (2d Cir.                   ______    ___________________          1986).  In particular, the doctrine imposes  a strict duty on the          insured  to disclose to the insurer  all known circumstances that          materially  affect the insurer's risk,  the default of which duty          renders the  insurance  contract voidable  by the  insurer.   Id.                                                                        __          Once  policy  coverage has  commenced,  the  doctrine imposes  an          equally  strict, continuing  obligation  on the  vessel owner  to          ensure  that the  vessel will  not, through  either bad  faith or          neglect, knowingly be permitted to break ground in an unseaworthy                   _________                                        ____________________          3   The  doctrine  traditionally  applied  to  insurance  law  in          general.  See Stipchich  v. Metropolitan Life Ins. Co.,  277 U.S.                    ___ _________     __________________________          311, 316 (1928)("Insurance  policies are traditionally  contracts          uberrimae  fidei  and  a  failure  by  the  insured  to  disclose          ________________          conditions  affecting the risk, of  which he is  aware, makes the          contract  voidable at the insurer's  option.").  Insurance law is          primarily  a matter of state concern, however, and over the years          most states,  including Massachusetts, have abandoned  the strict          uberrimae fidei  doctrine for insurance policies  generally.  See          _______________                                               ___          Anh  Thi Kieu,  927 F.2d  at 888  (tracing history  of doctrine).          _____________          Today, virtually the sole remaining vestige of the doctrine is in          maritime insurance law.  Id.  Even then, however, it is debatable                                   __          whether  the doctrine can still be deemed an "entrenched" rule of          law.  Id. at  889-90 (discussing marine insurance cases  in which                __          courts refused to apply doctrine in its strictest form).                                          -10-          condition.  Austin  v. Servac  Shipping Line, 794  F.2d 941  (5th                      ______     _____________________          Cir. 1986)(citations  omitted)(emphasis  added).4   The  doctrine          has  long been  considered  to be  one of  limited applicability,          however,  in light of the  Supreme Court's Wilburn Boat decision,                                                     ____________          see  348 U.S. at  316-317 (explaining limitations  of doctrine in          ___          marine insurance contract context).  Whatever the exact extent of          the  applicability of  the  strict uberrimae  fidei standard,  we                                             ________________          cannot  believe that in these  times it requires  a pleasure boat          owner to notify the insurer every time the craft takes on a small          amount  of  water,  or has  engine  trouble,  at  pain of  losing          coverage.                    As the  district court specifically  found, the  Escape                                                                     ______          was indeed unseaworthy when  Giragosian set sail, but he  did not          know  of its unseaworthy condition, and the condition was not the          result of his neglect or lack of due diligence.  Windsor does not          challenge  these  factual  findings,   but  instead  argues  that          Giragosian failed  to exercise due diligence  in ascertaining the          vessel's  condition before setting sail  on August 24,  1991.  We          disagree.   Although the Coast Guard had recently pumped her out,          the officials  told Giragosian  that the  water had  probably run          down  the  mast,  and  Giragosian  was  certainly  reasonable  in          accepting their  opinion.  Windsor claims  that Giragosian should          have  consulted a marine  mechanic in Scituate.   As a  matter of          law,  however, we  do not  think that  the doctrine  of uberrimae                                                                  _________                                        ____________________          4  Although strict, this continuing obligation is not "absolute,"          contrary to Windsor's assertions.                                         -11-          fidei  requires boat  owners to  hire mechanics,  at the  risk of          _____          losing their insurance coverage, every time a boat takes on small          amounts of  water.  As any  boat owner knows, most  boats leak at          some time.  Moreover, a full five days after the  Coast Guard had          pumped water out of the vessel,  Giragosian found only one to two          inches of water in the bilges -- a normal amount for the Escape -                                                                   ______          -  and the  water was  easily pumped  out.5   These circumstances          simply  do  not support  a  conclusion  that  the district  court          committed  clear error  in  finding Giragosian  duly diligent  in          maintaining  and  ascertaining the  seaworthiness  of  the Escape                                                                     ______          before setting sail on August 24, 1991.   We therefore affirm the          district court's determination that Giragosian did not breach the          warranty of seaworthiness of the insurance policy.6                    B.   Were   the   district  court's   factual  findings                    B.   Were   the   district  court's   factual  findings                         __________________________________________________                         inconsistent?                         inconsistent?                         ____________                    Windsor also  claims that the  district court's factual          finding  that  the sinking  of the  Escape was  due to  a "latent                                              ______          defect"  is  inconsistent  with  its  alleged  finding  that  the                                        ____________________          5   We agree with the Giragosians that the case of Prado, Inc. v.                                                             ___________          Lexington  Ins. Co., 1990 WL  255535, *8 (D.  Mass. 1990), aff'd,          ___________________                                        _____          930  F.2d 906 (1st Cir.  1991), is entirely  distinguishable.  In          that case,  although their  vessel had been  leaking considerably          for an extended period  of time, the insureds made  absolutely no          attempt to ascertain the  source of the highly unusual  amount of          water in the vessel, and did not  consult with either Coast Guard          personnel or mechanics.  These facts are not present here.          6    Our  conclusion  is  unaffected  by  the  district   court's          determination that  Giragosian was negligent for  setting sail in          the Escape that day because  he had no auxiliary power and  a low              ______          radio  battery.  For as  the district court  also correctly held,          his  decision to set sail, negligent or not, is simply irrelevant          to whether he was in breach of the insurance policy's warranty of          seaworthiness.                                         -12-          Giragosians were "on notice" of the boat's condition.  In support          of this argument, Windsor  claims that "latent defect" is  a term          of  art  meaning  a  flaw  which  is  not   discoverable  through          inspection by  a reasonably  skilled person.   Because Giragosian          was  "on notice" of  the vessel's condition,  Windsor argues, the          Escape's defect could not have been latent, and Giragosian lacked          ______          due diligence in finding it.                    As  the  Giragosians  correctly  point   out,  however,          nothing  in  the  district  court's findings  even  suggest  that          Giragosian was "on notice" of the boat's defect; to the contrary,          the  court specifically found that Giragosian did not know of it.                                                            ___          Based on the evidence,  we see no inconsistency, much  less clear          error,  in the court's factual  findings.  Furthermore, when read          in  context, it is  clear that the district  court did not employ          the term  "latent defect"  as a  term of art,  but merely  in the          ordinary, common-sense meaning of the phrase  -- i.e., an unknown                                                           ____          or  unsuspected flaw.   Essentially, Windsor's argument here is a          reiteration  of their previous  contention that Giragosian should          have located the source of the water in the bilges,  and that his          failure  to  do so  constitutes  lack of  due  diligence.   As we          explained above, however, the district court's determination that          Giragosian  was duly diligent was  not clear error.  Accordingly,          we  affirm the  district  court's findings  and reject  Windsor's          contention on this point.7                                        ____________________          7   Windsor  also  argues  that accepting  the  district  court's          finding that the leak in the Escape's hull was a "latent defect,"                                       ______          the policy  does not  provide coverage for  the boat's loss.   In                                         -13-                                      CONCLUSION                                      CONCLUSION                    For the  foregoing reasons,  we affirm the  judgment of                                                    ______          the district court.                                        ____________________          support of this  contention, Windsor points to  two paragraphs in          the  policy.  The first paragraph states that the policy provides          coverage  for  any physical  loss  or damage  from  "any external          cause."  The second paragraph specifically excludes from coverage          "loss, damage  or expense arising from or in consequence of . . .          the repair or replacement of a part in which a  latent defect has          been found,  mechanical breakdown or  faulty manufacture. .  . ."          Under the  language of these clauses,  Windsor contends, coverage          should have been denied.             Windsor raises these arguments now  for the first time,  never          having  presented any evidence nor,  as far as  the record shows,          even discussed  these clauses before the district court.  Because          Windsor most  certainly could  have raised these  arguments below          and gives  no explanation for its  failure to do so,  we deem the          arguments waived.   Havinga v.  Crowley Towing &  Trans. Co.,  24                              _______     ____________________________          F.3d 1480,  1483 (1st Cir. 1994); FDIC v. Caporale, 931 F.2d 1, 2                                            ____    ________          (1st Cir. 1991).                                          -14-
