Court Rejects “Pay to be Paid”Posted on Wednesday, September 18th, 2019 | Posted in Site Blog
Decision of concern to P&I clubs and insurers
In Bodden v. Travelers Property Casualty Company of America, U.S. District Court for the Southern District of Florida held that despite the “pay to be paid” language in the P&I policy at issue, the policy was a liability policy. Accordingly, the court held that the plaintiffs had a direct cause of action under §627.4136 of the Florida statutes, which allows a party who obtains a settlement or verdict to bring a direct action against a “liability insurer.”
In Bodden, crew members of a tug were abandoned by the vessel owner off the coast of Cuba. The Cuban Coast Guard towed the vessel to Cuba, where the crew members remained stranded for nearly a year. They obtained a default judgment against the
Main takeaways from the court’s opinion
The decision in Bodden is concerning on several levels.
- First, as noted above, the policy provided that the underwriters will pay “all loss and/or damage and or expense as [the assured] shall . . . have become liable to pay and shall pay on account of liabilities,” and then lists the “liabilities” that are covered. This unambiguous language only provides coverage for amounts that the assured has paid on account of liabilities, and it is difficult to see how listing the liabilities that would trigger coverage once the assured has made payment could abrogate the words “shall . . . have become liable and shall pay.”
- Second, the question of whether the “pay to be paid” clause in a P&I policy means what it says has been answered affirmatively any number of times by the federal courts. See, e.g., Conoco, Inc. v. Republic Ins. Co., 819 F.2d 120 (5th Cir. 1987); Continental Oil Company v. Bonanza Corp.,677 F.2d 455 (5th Cir. 1982). The decision in Bodden would appear to be in direct conflict with these decisions.
Chaffe McCall’s Role
The lead counsel in the Fifth Circuit cases upholding the “pay to be paid” principle is a partner at Chaffe McCall LLP.
Please contact us if you would like more information about these cases, or if we can be of service in matters raising similar issues.