Ninth Circuit Affirms No Coverage in Dispute Over Salvage of Sunken Ship

    The Ninth Circuit affirmed the district court's decision that the insured was not covered for a dispute over the salvage of a sunken ship. Great American Ins. Co. v. May, 2024 US App. LEXIS 10137 (9th Cir. April 26, 2024). 

    MK Salvage Ventures LLC (MK) attempted to recover lost treasure from the SS Islander, a ship that sank in 1901 off the coast of Juneau, Alaska, while carrying a sizeable cargo of gold bullion,. MK was now dissolved. 

    The salvage efforts were largely unsuccessful. May and his business partner, Peter Rutte, agreed in 2016 to dissolve MK, divide its assets, and convey to May the right to conduct future salvage operations. May subsequently sued MK, Kettle, and one of Kuttel's businesses (Insureds) in state court for refusing to give to May certain intellectual property generated by prior expeditions. The Insureds tendered the suit to Great American, which denied coverage. The state court action settled with a $75 million covenant judgment, which assigned the Insured's policy rights against Great American to May.

    While the state court action was pending, Great American sought a declaration in federal court that it owed no duty to defend or indemnify May. The district court granted summary judgment to Great American on both issues. It concluded May's intellectual property (IP)-related claims did not conceivably arise from an "occurrence" or alleged damage to "tangible" property as required by the policy. The court then dismissed May's bad faith counterclaims. May appealed. 

    To establish an "occurrence," or accident, under the policy, May alleged that the Insureds' "failure to relinquish" the IP rendered him unable to "move forward with the salvage operations, jeopardising the recovery of what could be millions of dollars worth of gold bullion." May also alleged that he had "demanded that [the Insureds] relinquish possession" of IP that he believed was "important, if not critical" to any future salvage operations. 

    May argued that the Insureds' "wrongful deprivation" of his IP rights constituted an "accident" under Washington law. The district court rejected the argument and the Ninth Circuit agreed. There was no actual or alleged possibility of any "occurrence" because the loss of access to the IP was not the result of an "accident." 

    Under Washington law, an event was an "accident" only if both "the means as well as the result were unforeseen, involuntary, unexpected and unusual." Here, there was no geinuine dispute that the Insureds acted deliberately by withholding the IP. It was foreseeable that refusing to deliver IP to May would result in a claim for damages, Even if liberally construed, the complaint indicated that the Insureds understood and foresaw the consequences of withholding the intellectual property from May, and yet they wilfully withheld it. These allegations did not rise to any conceivable possibility of an "accident." 

    Because Great American's interpretation of the policy was reasonable, the bad faith claims also failed.