Shipyard Counter-claim Not Nullified by Insurance

Monday, April 19, 2004
The U.S. Court of Appeals for the Fifth Circuit ruled that the counter-claim of a shipyard defending an allegation of poor workmanship is not nullified by a provision in the ship repair contract requiring each party to have insurance. In the instant case, plaintiff ship owner contracted for defendant shipyard to make modifications to its ship. Six weeks after the ship was redelivered, it caught fire and sank. Plaintiff owner sued defendant shipyard, alleging the fire was the result of poor workmanship, but eventually lost. Defendant counter-claimed for the cost of defending the lawsuit. With regard to the counter-claim, plaintiff asserted that, since the contract required both parties to have insurance and to indemnify the other from claims and liabilities, it was not liable for defendant’s litigation expenses. On appeal, the court held that since the contract did not require each party to name the other as an ‘additional insured’ under the mandated insurance policies and did not provide that the mandated insurance was to provide primary coverage for damages, the indemnity provision allowed the non-negligent shipyard to recover its defense costs from the ship owner. Marquette Transportation Co. v. Louisiana Machinery Company, Inc., No. 02-30949 (5th Cir., April 16, 2004).

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