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Atlantic Specialty Insurance Co. v. Coastal Environmental Group Inc.

United States Court of Appeals, Second Circuit

December 13, 2019

Atlantic Specialty Insurance Company, Plaintiff-Counter-Defendant-Appellant,
v.
Coastal Environmental Group Inc., Defendant-Cross-Defendant-Counter-Claimant-Cross-Claimant-Appellee, Sterling Equipment, Inc., Defendant-Third-Party-Plaintiff-Cross-Claimant-Counter-Claimant- Cross-Defendant-Appellee, Global Indemnity Insurance Agency, Inc., Third-Party-Defendant-Third-Party-Plaintiff-Cross-Defendant-Counter- Defendant-Appellee, All Risks, Ltd., Third-Party-Defendant-Cross-Claimant-Counter-Claimant-Appellee.

          Argued: October 23, 2019

          Appeal from the United States District Court for the Eastern District of New York. No. 14-cv-7403 - Joan M. Azrack, Judge.

         After the loss off Coney Island of the barge the "MIKE B," Plaintiff- Appellant Atlantic Specialty Insurance Co. ("Atlantic") sought a declaratory judgment that the insurance policy it had issued to Defendant-Appellee Coastal Environmental Group, Inc. ("Coastal") was void ab initio or, in the alternative, that there was no coverage for the loss of the barge or damage to an adjacent pier. Judge Wexler of the U.S. District Court for the Eastern District of New York conducted a bench trial but passed away prior to issuing his findings of fact and conclusions of law. The case was transferred to Judge Azrack, who, after no party requested the recall of any witness under Federal Rule of Civil Procedure 63, issued findings of fact and conclusions of law in her role as successor judge and entered judgment finding Atlantic liable to Coastal under the terms of the policy. On appeal, Atlantic argues that Judge Azrack made legal, factual, and evidentiary errors and that Judge Azrack erred by not recalling certain witnesses. Atlantic also argues that, due to Judge Azrack's role as a successor judge making findings of fact based only on the trial record, these factual findings are subject to de novo review. We conclude that, under Federal Rule of Civil Procedure 52(a)(6), factual findings of successor judges who have certified their familiarity with the record are subject to the "clearly erroneous" standard of review, and, under Federal Rule of Civil Procedure 63, a successor judge is under no independent obligation to recall witnesses unless requested by one of the parties. In addition, we find no reversible error in Judge Azrack's findings of fact and conclusions of law, and therefore the judgment below is AFFIRMED.

          James W. Carbin (Patrick R. McElduff, ICC Industries Inc., New York, NY, on the brief), Duane Morris LLP, Newark, NJ, for Plaintiff- Counter-Defendant-Appellant Atlantic Specialty Insurance Company

          Eric J. Matheson (Don P. Murnane, Jr., Michael E. Unger, on the brief), Freehill Hogan & Mahar LLP, New York, NY, for Defendant-Cross-Defendant-Counter- Claimant-Cross-Claimant-Appellee Coastal Environmental Group Inc.

          Gregory G. Barnett, Casey & Barnett, LLC, New York, NY, for Defendant-Third-Party- Plaintiff-Cross-Claimant-Counter-Claimant- Cross-Defendant-Appellee Sterling Equipment, Inc.

          Patrick M. Kennell, Kaufman Dolowich Voluck, LLP, New York, NY, for Third-Party- Defendant-Third-Party-Plaintiff-Cross- Defendant-Counter-Defendant-Appellee Global Indemnity Insurance Agency, Inc.

          Peter T. Shapiro, Lewis Brisbois Bisgaard & Smith LLP, New York, NY, for Third-Party- Defendant-Cross-Claimant-Counter-Claimant- Appellee All Risks, Ltd.

          Before: Katzmann, Chief Judge, Chin and Droney, Circuit Judges.

          DRONEY, CIRCUIT JUDGE

         Plaintiff-Appellant Atlantic Specialty Insurance Company ("Atlantic") appeals from a final judgment of the United States District Court for the Eastern District of New York (Azrack, J.). Atlantic brought that action after the April 2013 loss of the "MIKE B," a spud barge deployed to support a crane to repair Coney Island's Steeplechase Pier, which had been damaged by Hurricane Sandy in 2012. Atlantic had issued a maritime hull insurance policy to Defendant-Appellee Coastal Environmental Group Inc. ("Coastal") for coverage of the MIKE B, as well as related protection and indemnity insurance. Atlantic sought a declaratory judgment that the policy was void ab initio or, in the alternative, that the loss of the MIKE B and damage to the pier caused by the sinking vessel were not covered under the terms of the policy. Coastal counterclaimed for the amount it alleged it was owed under the policy.

         Judge Leonard D. Wexler of the United States District Court for the Eastern District of New York presided over the action and conducted a bench trial in October and November of 2017. However, Judge Wexler passed away in March 2018 prior to issuing findings of fact and conclusions of law. The case was transferred to Judge Joan M. Azrack, who, after no party requested the recall of any witness under Federal Rule of Civil Procedure 63, certified her familiarity with the record and issued her findings of fact and conclusions of law in September 2018. See Atl. Specialty Ins. Co. v. Coastal Envtl. Grp., 368 F.Supp.3d 429 (E.D.N.Y. 2018). Judge Azrack found that the policy was not void and covered the losses, and entered judgment for Coastal.

         On appeal, Atlantic asks us to vacate the district court's findings of fact and conclusions of law and enter a declaratory judgment in favor of Atlantic or, in the alternative, remand for a new trial. Atlantic argues, among other things, that this Court should review Judge Azrack's findings of fact de novo due to her role as a successor judge, and that Judge Azrack erred by not recalling witnesses during her consideration of the record.

         We hold that findings of fact made by a successor judge in the circumstances here are subject to the "clearly erroneous" standard of review contained in Federal Rule of Civil Procedure 52(a)(6), even where the successor judge rules based on a documentary record, and under that standard we find no basis to vacate the district court's judgment. We also conclude that Judge Azrack was not required to recall any witnesses because no party requested such a recall. Accordingly, we affirm the judgment of the district court.

         I. BACKGROUND

         A. Factual Background[1]

         Coney Island's Steeplechase Pier is situated on the southern side of the island, extending into Lower New York Bay toward the Rockaways and the Atlantic Ocean. In 2012, the pier was substantially damaged by Hurricane Sandy. The City of New York contracted with Triton Structural Concrete ("Triton") to repair the damage, and Triton in turn subcontracted with Coastal to actually perform the repairs.

         To conduct the work, Coastal chartered the MIKE B, a spud barge, from Sterling Equipment, Inc. ("Sterling"). The MIKE B was to serve as a base for a crane to perform work on the pier. A spud barge holds itself in place by lowering its spuds (in the case of the MIKE B, steel pipes measuring sixty-five feet in length) into the sea floor. The spuds are housed within spud wells, which serve as a sleeve around the spud and are welded to the barge's deck and the bottom of the barge. This structure prevents the barge from moving horizontally, while still allowing it to move up and down with the sea. The MIKE B had two spuds, which were located on its starboard side in aft and forward positions.

         Coastal and Sterling signed an agreement (the "Charter Agreement") for the barge on March 28, 2013, for a charter period between April 7, 2013 and June 6, 2013. The Charter Agreement included an address of "1904 Surf Avenue, Brooklyn[, ] NY 11224" under the heading of "Job Site." Joint App'x 1409. Under the terms of the Charter Agreement, Coastal was obligated to secure both hull insurance, insuring against damage to or loss of the MIKE B, and protection and indemnity insurance covering third-party claims, including property damage. Coastal had a preexisting policy with Atlantic that covered other vessels for the period of January 2013 to January 2014; as a result, Coastal sought to add coverage of the MIKE B to this policy. The policy included a condition that "the vessel shall be confined to [the]: Coastal and Inland waters of the United States in and around Brooklyn, NY." Joint App'x 1445.

         On Monday, April 1, 2013, Coastal's insurance broker, George Zerlanko of Global Indemnity Insurance Agency, Inc. ("Global"), emailed Dorothy Schmidt of All Risks, Ltd. ("All Risks") requesting that the MIKE B be added to the policy.[2] On Friday, April 5, 2013 at 2:17 p.m., Schmidt emailed Mark Fairchild of Atlantic asking for a quote to add the MIKE B. Schmidt's email included the Charter Agreement as an attachment, including the job site address at 1904 Surf Avenue. At 3:36 p.m., less than ninety minutes later, Fairchild responded with a quote; in addition to the premiums for the additional coverages, the quote included a requirement that Coastal assume a higher deductible than that provided for in the Charter Agreement, but otherwise contained no conditions for the extension of coverage and did not request further information.[3] Three minutes later, Schmidt sent along Atlantic's quote to Zerlanko at Global; forty minutes after that, Zerlanko responded, indicating that Coastal would accept the quote, including the higher deductible. Finally, ten minutes later, at 4:27 p.m., Schmidt forwarded the acceptance of the quote back to Fairchild at Atlantic, indicating that coverage should be bound.

         Three days later, on Monday, April 8, an expert marine surveyor, Jason Meyerrose, conducted an in-water survey of the barge at Sterling's yard in Staten Island at Coastal's request, after which he prepared a survey titled "Preliminary Advices for Insurance Underwriting Purposes." Joint App'x 1390. Meyerrose's survey declared the vessel's overall condition to be "fair for age and past services" and valued the vessel at $400, 000.[4] Joint App'x 1391. The survey also stated that "the hull and equipment of the subject vessel are in satisfactory condition for operation in inland waters." Id. Meyerrose forwarded the survey to an employee of Coastal, Kristine Morehouse, later that day. In his cover email, Meyerrose indicated that Sterling needed to make some minor repairs before service, while also asking: "This barge will be working in protected waters at Coney Island correct, not on the Ocean / inlet side????" Joint App'x 1388-89. Morehouse responded a few minutes later by stating: "Yes that is correct it will be in protected waters at Coney Island, not in the Ocean." Joint App'x 1388. Morehouse subsequently forwarded the preliminary survey to Zerlanko at Global, who then forwarded it to Schmidt at All Risks, who passed it finally on to Fairchild at Atlantic. Morehouse's email and the subsequent communications all included Meyerrose's question, but none included Morehouse's response.

         Coastal took possession of the MIKE B and towed it, first to a construction yard where a fifty-ton crane was installed, and then, on Thursday, April 11, to the job site at the pier. The barge was then "spudded" to the seabed to hold it in place next to the pier. That evening, Coastal's on- site supervisor, Eric Gundersen, checked the weather forecast, which called for rain and one-foot seas.[5]

         When he returned at 7:00 a.m. the next morning, Friday, April 12, Gundersen saw the waves were higher than forecasted, "2 to 4" feet and coming "from the ocean" to the south. Joint App'x 1242-43.[6] Gundersen testified that he promptly called Miller's Launch ("Miller"), a tug company with which Coastal had pre-arranged to have a tug available "within an hour at all times," to send over a tug. Joint App'x 1245.[7] The purpose of the standby tug was to tow the MIKE B away from the pier if warranted by sea conditions. Gundersen then boarded the barge, where he remained for "45 minutes to an hour" to inspect whether the waves were harming it and to ensure everything was "tied down"; Gundersen testified that the barge seemed to be in safe condition at that time but was starting to "mov[e] pretty good" as the seas continued to get rougher, and he called Miller again to check on the tug's status. Joint App'x 1244-46. Gundersen subsequently returned to the barge to further secure items on the deck, spending an hour to an hour and a half on board; at that point he observed that one of the spuds appeared to have bent. By the time the tug finally arrived in the late morning, Gundersen had learned the aft spud well had failed and water was entering the barge.

         That afternoon, Coastal deployed floating containment booms to protect against any oil spill from the then-listing barge; because the barge had already struck the pier, Miller also worked to anchor the barge to keep it from damaging the pier further. Coastal and Miller - and eventually the crane manufacturer - also prepared to remove the crane from the barge's deck, with work continuing throughout the weekend. Coastal at that time informed Global that the barge was in trouble, and Global advised that Coastal should do whatever was in the "normal range to keep the barge afloat." Joint App'x 357-58. By Monday morning, April 15, the crane was removed; however, by Tuesday morning, April 16, because of the ongoing danger the barge posed to the pier and the high cost of the thus-far unsuccessful pumping effort, Coastal chose to allow the MIKE B to sink to the sea floor. By April 17, the barge was fully submerged and then, in June 2013, was removed for scrap purposes.

         Atlantic sent a marine surveyor, Alan Colletti, to investigate the incident on Monday, April 15; he returned twice that week, on April 16 and April 17, and submitted reports to Atlantic estimating the costs of repairs and evaluating the cause of the loss. In the interim, Atlantic wrote to Coastal on April 16 reserving its rights under the insurance policy for claims related to the MIKE B and did so again on April 25.

         On May 24, 2013, Atlantic wrote to Coastal declining coverage for the MIKE B. On October 17, 2013, Coastal requested payment of the $400, 000 due under the policy for the loss of the barge, stating that the vessel's loss was "caused by perils of the seas." Joint App'x 1621-23. Atlantic again declined payment on February 3, 2014. On August 21, 2014, Coastal again wrote to Atlantic, this time also seeking payment under the policy's protection and indemnity coverage for damage to the pier and the costs of attempting to save the barge; Coastal also reiterated its claim related to the loss of the barge itself. All were denied by Atlantic. In total, Coastal claimed over $1.2 million under the policy.

         B. Procedural Background

         On December 19, 2014, Atlantic filed this action in the Eastern District of New York. An amended complaint was filed on December 30, 2014.[8] The complaint sought a declaratory judgment that the policy covering the MIKE B was void ab initio or, in the alternative, that there was no coverage under the policy's terms.[9] As relevant here, Atlantic alleged that the policy was void due to the fact that Coastal had violated its admiralty law duty of uberrimae fidei (utmost good faith) by failing to disclose a material risk, and had breached either the express or implied warranties of seaworthiness. Alternatively, Atlantic alleged that the loss of the MIKE B was not due to a peril covered under the policy.

         Judge Wexler presided over the case, including a bench trial conducted over seven days in October and November 2017. The trial was limited to the question of whether Atlantic's declination of coverage was proper and, if not, the extent of damages owed by Atlantic to Coastal and/or Sterling under the policy. Resolution of other issues, such as potential damages owed by Coastal to Atlantic or the resolution of the third-party and cross claims, was postponed. Though most witnesses presented live testimony, others did not appear in court despite attempts to subpoena them, and the court accepted their testimony from depositions in video or transcript form. Of particular relevance to this appeal, Gundersen, Coastal's on-site supervisor, apparently ignored two subpoenas for trial testimony, and Judge Wexler instead admitted Gundersen's deposition testimony into evidence. In March 2018, after conclusion of the trial but before he had issued a decision in the case, Judge Wexler passed away, and the case was reassigned to Judge Azrack in April 2018.

         Upon taking over the case, Judge Azrack held a telephone conference with the parties on July 10, 2018, and one of its topics was whether any of the parties sought to recall witnesses under Federal Rule of Civil Procedure 63.[10] Atlantic's counsel suggested that the court "may wish to hear from" Gundersen; however, when Judge Azrack asked why Gundersen would be likely to honor a third subpoena and appear on recall, Atlantic's counsel did not press his request for Gundersen to testify or seek to exclude Gundersen's deposition testimony.[11]

         On September 30, 2018, Judge Azrack issued her findings of fact and conclusions of law, stating that they were based on her "review of the record and the post-trial submissions." Atl. Specialty Ins. Co., 368 F.Supp.3d at 434. Judge Azrack found that Atlantic improperly denied coverage to Coastal under both the hull insurance policy for the loss of the MIKE B and the barge salvage costs, and the protection and indemnity policy for pier damage. Turning to damages, the court awarded Coastal the full $400, 000 claimed for the loss of the MIKE B; $394, 725.13 for salvage costs (slightly less than the $400, 000 Coastal sought for such costs); and the full $402, 470.51 claimed for the damage to the pier. Id. at 449-53.

         Atlantic timely appealed from Judge Azrack's findings of fact and conclusions of law, claiming error on a variety of ...


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