## Facts

- Healy Tibbitts Construction Company (Healy), a construction company that operated floating equipment, bought marine “protection and indemnity” (P&I) insurance from Foremost Insurance Company (Foremost) for several vessels.
- The parties negotiated and executed the insurance contract in California, where Healy had its principal place of business.
- The P&I policy contained notice and cooperation provisions requiring Healy to give adequate notice of incidents that could lead to a claim and to cooperate if third-party claims were asserted.
- One insured vessel, a crane barge (HT‑4), began taking on water at the U.S. Naval Supply Center in Oakland, California, partially sank, and released oil into the surrounding water.
- The United States undertook cleanup operations and later asserted claims against Healy to recover its cleanup costs (about $55,000).
- Healy demanded that Foremost defend and indemnify it under the P&I policy.
- Foremost denied coverage, relying primarily on a pollution exclusion and also raising defenses based on notice and cooperation.
- Healy filed a declaratory-judgment action in the U.S. District Court for the Northern District of California seeking a declaration that Foremost owed both a defense and indemnity in the government’s cleanup-cost action.

## Issues

1. Whether federal maritime law or state law governed interpretation of the marine insurance contract’s coverage and related defenses.
2. Whether the government’s oil-spill cleanup-cost claims fell within the P&I policy’s coverage grants (such as property-damage or wreck-removal liabilities) or were excluded by the policy’s pollution exclusion.
3. Whether Foremost owed a duty to defend where the policy provided defense-cost coverage only for “liabilities insured against,” and the asserted claims were alleged to be excluded.

## Decision

- The court treated the insurance contract as a marine insurance policy and analyzed which law controlled its interpretation, applying ordinary contract-interpretation rules as the operative guide for the coverage question presented.
- The court held the pollution exclusion applied to the government’s claims for cleanup costs arising from oil discharged from the insured barge.
- Because the cleanup-cost liability fell within the pollution exclusion, Foremost had no duty to indemnify Healy for any resulting liability to the United States.
- For the same reason, Foremost had no duty to defend: the policy’s defense-cost clause applied only to “liabilities insured against,” and the underlying claims were not insured once the exclusion was applied.
- The court denied Healy’s request for declaratory relief and entered judgment for Foremost.

## Legal Principles

- Marine insurance contracts may implicate federal maritime law; absent a controlling federal rule on the specific issue, courts use standard contract principles (often informed by state law) to interpret the policy terms.
- Coverage is determined by the policy’s insuring clauses as limited by exclusions; a clearly written exclusion is enforced according to its terms.
- A pollution exclusion that applies to liabilities arising out of the discharge or escape of oil can bar coverage for governmental cleanup costs tied to that discharge.
- Where a policy’s defense-cost obligation is limited to claims for “liabilities insured against,” there is no duty to defend a claim that is wholly excluded from coverage.
- When an exclusion is dispositive, the court need not base its judgment on separate defenses (such as alleged notice or cooperation failures) to deny defense and indemnity.

## Conclusion

After Healy’s insured crane barge partially sank and released oil at a Navy facility, the United States sought reimbursement of cleanup costs; Healy demanded defense and indemnity from Foremost under a P&I policy, but the district court ruled that the policy’s pollution exclusion barred coverage for the cleanup-cost claims and therefore Foremost owed neither indemnity nor a defense, resulting in judgment for the insurer.


Healy Tibbitts Construction Co. v. Foremost Insurance Co., 482 F. Supp. 830 (1979)