Washington: “Watercraft” Exclusion Precluded Coverage of Claim That Fish Oil Had Been Contaminated While Being Pumped Off a Vessel, Ninth Circuit Finds

October 19, 2016 | Insurance Coverage

The U.S. Court of Appeals for the Ninth Circuit, applying Washington law, has ruled that a “watercraft” exclusion precluded coverage for a claim that fish oil had been contaminated with petroleum residue when it had been pumped off one of the insured’s vessels.

The Case

Trident Seafoods Corporation sought partial indemnification from ACE American Insurance Company, one of its insurers, after settling product complaints from a customer, Matsuura Suisan Company, which claimed that Trident’s fish oil product had made Matsuura’s farmed fish unusable. According to Trident, the fish oil had been harvested at sea onboard one of Trident’s vessels and had been contaminated with petroleum when a crack between adjacent tanks allowed petroleum to seep into one fish oil tank. As the fish oil was pumped off the vessel, the petroleum residue spread to other pipes and tanks, leading to contamination of fish oil subsequently stored in those other tanks.

Matsuura purchased the fish oil and used it to make fish pellets that it fed to its farmed tuna stock. When Matsuura’s customers found the “oily” smell and taste of its tuna unsuitable, Matsuura recalled the tuna and alerted Trident.

Trident settled with Matsuura for approximately $5 million. ACE denied coverage based on a watercraft exclusion term in its policy.

Trident sued, and the U.S. District Court for the Western District of Washington granted summary judgment in favor of ACE.

Trident appealed.

The Ninth Circuit’s Decision

The Ninth Circuit, applying Washington law, affirmed.

In its decision, the circuit court explained that the “watercraft” exclusion in ACE’s policy excluded coverage for “bodily injury” or “property damage” “arising out of the ownership, maintenance, use, or entrustment to others of any . . . watercraft owned or operated by . . . any insured.” It then ruled that the exclusion was not ambiguous and that it encompassed the contamination at issue in this case.

The circuit court reasoned that the damage in this case had originated with a crack in tanks aboard Trident’s vessel, which was “fairly characterized” as the “use or maintenance of a Trident watercraft.” That the loading and unloading of the fish oil may have causally contributed to the contamination did not negate the effect of the watercraft exclusion’s “arising out of” clause, the Ninth Circuit concluded.

The case is Trident Seafoods Corp. v. ACE American Ins. Co., No. 13-36035 (9th Cir. Sept. 9, 2016).

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  • Robert Tugander

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