|March 30, 2011|
Previously published on March 2011
Nat’l Cas. Co. v. Lockheed Martin Corp., No. AW-05-1992 (D.Md. Feb. 14, 2011)
One of the central legal questions in this case was the proper standard for assessing “want of due diligence” within the meaning of the Liner Negligence Clause (“LNC”) of the pertinent insurance policy. Lockheed Martin took exception to the court’s jury instruction defining want of due diligence. Specifically, the following instruction was given:
The insurance policy in this case contains what is called a Liner Negligence Clause. The Clause provides insurance coverage for damage resulting from a number of causes, including the “[n]egligence, error of judgment or incompetence of any person” or “any latent defect in the machinery or hull.” Lockheed Martin has the burden of proving that the damage to the SEA SLICE is covered by the Liner Negligence Clause.
If Lockheed Martin satisfies this burden, you must then consider National Casualty’s due diligence defense. National Casualty bears the burden of showing that the damage to the SEA SLICE “resulted from want of due diligence” by “the Owner(s) or Manager(s) of the Vessel.” The phrase “want of due diligence” refers to negligence on the part of the Owner or Manager(s). You must ask yourselves whether Lockheed or its Managers exercised the care expected of a reasonably prudent Owner or Manager.
The United States District Court for the District of Maryland (Southern Division) found that the jury instruction on the meaning of due diligence was proper.
The plain meaning of the phrase “want of due diligence” implies the absence of reasonable care and ordinary prudence, which are essential to the concept of negligence. Courts routinely use the terms negligence and lack of due diligence interchangeably in a wide range of different legal contexts. Numerous jurisdictions have treated the concepts of negligence and lack of due diligence as identical in the course of interpreting marine insurance provisions similar to the LNC. Specifically, the Eighth Circuit has explicitly held that it is proper to instruct the jury that lack of due diligence means negligence in the context of marine insurance clauses similar to the LNC.
Even in light of the authority finding that “want of due diligence” and negligence mean the same thing, Lockheed still objected to the court’s jury instruction on several grounds. First, Lockheed contended that “want of due diligence” is properly limited to situations where “the vessel has been flagrantly mismanaged to such an extent as to render the vessel grossly unseaworthy.” However, Lockheed presented no case law in support of this position.
Second, Lockheed contended, that the due diligence proviso is only triggered when the insured, from bad faith or neglect, knowingly permit(s) the vessel to break ground in an unseaworthy condition,” or, differently, when the owner has “privity and knowledge” of the vessel’s unseaworthiness. Therefore, Lockheed argued that want of due diligence requires actual knowledge. The Court did not find Lockheed’s interpretation of the Fifth Circuit decision convincing, and found that the best reading of the decision was consistent with the jury instruction issued.
Third, Lockheed relied on a Fourth Circuit decision in support of its argument that simple negligence is inadequate to establish lack of due diligence. The Court disagreed with Lockheed’s reading of the Fourth Circuit decision, because “due diligence” was never mentioned in the Fourth Circuit’s analysis. The court was unwilling to read between the lines of the Fourth Circuit Court’s “poorly reasoned and ambiguous opinion to discern the meaning of due diligence, when many other cases have provided ample grounds for equating lack of due diligence with negligence.”
Finally, Lockheed argued that other language within the LNC suggested that negligence is not the appropriate standard for the due diligence proviso. The court did not find Lockheed’s reasoning persuasive on this argument as well. Therefore, the court held that the jury was properly instructed, and that the case should remain closed.