The Mixed Up Exercise of Admiralty Jurisdiction Over Mixed Contracts, Namely Umbrella Insurance Policies Covering Shore-side and Sea-side Risks

Given the broad-ranging implications associated with having a dispute decided by a federal court pursuant to the court’s admiralty jurisdiction, potential parties to a dispute have strong motivations to either avoid a court sitting in admiralty or ensure the court hears the controversy under the exercise of its admiralty jurisdiction. Prior to 2004, the legal test used by courts to determine whether or not they could hear a contractual dispute involving a contract with both maritime and non-maritime elements (“mixed contract”) pursuant to their admiralty jurisdiction was relatively straight forward. Under that test, a court could exercise admiralty jurisdiction to hear a mixed contractual dispute where the non-maritime portion of the contract was (1) merely incidental to the overall contract or (2) the non-maritime portion of the contract could be separated from the maritime portion of the contract. According to the above test, where the maritime and non-maritime claims were bound together and could not be separated, the court would dismiss the entire case, even the maritime portion of the contract, for a lack of admiralty jurisdiction. This test was relatively straight forward and fairly easy to apply to contractual disputes. However, in 2004, the U.S. Supreme Court handed down its decision in Norfolk Southern Railway Co. v. Kirby, whereby the jurisdictional test was fundamentally changed. The rule asserted by the Court in Kirby focused on the maritime portions of the mixed contract and, according to this new test, a court could decide a contractual dispute involving a mixed contract under the exercise of its admiralty jurisdiction where the maritime portions of the contract were substantial, even when the dispute centered on non-maritime elements of the contract. Whereas the Court’s jurisdictional approach to mixed contracts as asserted in Kirby may have made sense with regard to contracts for multi-modal transportation, the application of the test by Circuit Courts has provided anything but uniformity or predictability with regard to other types of mixed contracts. This lack of uniformity or predictability in the application of the general maritime law through the exercise of courts’ admiralty jurisdiction is not a desirable outcome, especially as a predominant goal of admiralty practice in American courts has always been uniformity. This judicial emphasis on uniformity is best explained in the Supreme Court’s decision in The Lottawanna where the Court specifically stated: One thing, however, is unquestionable; the Constitution must have referred to a system of law coextensive with, and operating uniformly in, the whole country. It certainly could not have been the intention to place the rules and limits of maritime law under the disposal and regulation of the several States, as that would have defeated the uniformity and consistency at which the Constitution aimed on all subjects of a commercial character affecting the intercourse of the States with each other or with foreign states. Given this disparity in the several Circuit Courts’ application of the Kirby test for mixed contracts, and the broad goal of admiralty jurisdiction to provide uniformity in its application of the general maritime law, the application of the Kirby test should be limited to multi-modal transportation contracts. With regard to other types of mixed contracts, the courts should take a different approach, specifically tailored to determine the substantiality of the maritime elements of that particular type of contract. The above approach would better facilitate the uniformity and predictability of maritime practice that courts have aspired to maintain since the beginning of the federal system of government in the United States. As such, this Article examines the three main types of contracts confronted by the courts in their application of the rule asserted in Kirby. These three main types of contracts include: (1) multi-modal transportation contracts exemplified by “through-bills of lading” (and other contracts with objective geographic elements); (2) master service agreements or blanket contracts common in the offshore oil rig context; and (3) umbrella or bumbershoot insurance policies that provide coverage for both shore-side and maritime risks. While master service agreements and multi-modal transportation contracts will be discussed herein, much of the jurisdictional confusion has been centered on mixed coverage insurance policies; therefore, this Article will focus on that issue area. In examining the application of the modern jurisdictional test for the aforementioned mixed contract types, this Article will begin by investigating the basis for the courts’ admiralty jurisdiction, looking at the historical, constitutional, statutory, and precedential origin of modern jurisprudence over admiralty jurisdiction. Through this prism, this Article will discuss the impact the Supreme Court’s decision in Kirby had on the exercise of admiralty jurisdiction over mixed contracts. By looking at the various Circuit Courts’ applications of the Kirby test, this Article seeks to illustrate the confusion the Supreme Court’s decision in Kirby has caused. Based on this examination, this Article asserts that courts have done an altogether inadequate job of formulating a uniform, cohesive, and predictable rule or set of rules with which to determine which marine insurance contracts—that provide both sea-side and shore-side risk coverage—are sufficiently “salty” to justify the exercise of admiralty jurisdiction for resolving controversies arising from such policies. Additionally, this Article argues that given the magnitude of the implications associated with the exercise of admiralty jurisdiction in resolution of contractual disputes, such as the use of general maritime law or the availability of admiralty-specific procedural devices, the Supreme Court has done the maritime industry a great disservice in its failure to formulate an understandable and applicable set of jurisdictional rules. As such, commercial interests would be better served by a coherent, uniform, and predictable rule or set of rules so as to more effectively negotiate and draft contracts and resolve disputes derived therefrom. Given this reality, the Kirby rule should be limited in its application to multi-modal transportation contracts and other contracts involving an element of geographic movement or insurance coverage thereof and master service agreements, as applied inGrand Isle Shipyard, Inc. v. Seacor Marine, LLC. But with regard to mixed insurance policies, the Supreme Court should follow the Second Circuit’s approach as discussed herein