Judge hits counter-piracy firm with sanctions

A judge’s discovery sanctions will hobble a seagoing security company in its bid for insurance coverage after its ship and crew were seized by Indian authorities. The sanctions include preclusion of evidence beyond the company’s limited discovery responses and an award of opposing counsel’s fees and costs.

The $15 million insurance dispute arises from India’s 2013 arrest of 35 crew members and guards on an American-owned ship tasked with helping protect merchant ships from pirate attacks in the Indian Ocean.

The 10 crew members and 25 security contractors hired by Virginia-based AdvanFort Co. were stuck in India until an appeals court acquitted the men in 2017. Advocates for the detained crew accused AdvanFort of abandoning the men.

The ongoing coverage dispute in Alexandria federal court has exposed possible weakness in the company’s effort to be reimbursed by insurers for payments to the 35 men. The insurers say they insured bodily injury and property damage while AdvanFort incurred only claims for back pay.

The ruling on discovery sanctions came in a July 25 opinion from U.S. Magistrate Judge Theresa Carroll Buchanan in Certain Underwriters at Lloyd’s v. AdvanFort Co. (VLW 019-3-376).

Crew held for 4 years

The 2013 seizure of the M.V. Seaman Guard Ohio became an international incident. India said the ship entered that country’s waters without permission and carried a cache of many “illegal” arms and ammunition.

India initially locked up the crew and the security detail. Later, the government released the men but refused to allow them to leave the country.

AdvanFort, which chartered the vessel to provide piracy protection, claimed in 2015 that some of its insurers had “turned a blind eye” to the situation after only paying for a few weeks hotel charges.

After the 35 men were sentenced to five years in prison, families of six ex-British soldiers on board drew public attention to their plight. The International Transport Workers’ Federation financed an appeal.

After four years of confinement, an appeals court ruled in 2017 that the charges had not been proven. The convictions were overturned and the crew and security detail were allowed to leave India.

In its news release heralding the men’s release, ITF said one “glaring injustice” remained: the “scandal” of AdvanFort “washing its hands of its employees.”

“They took the money, they sauntered off, pockets bulging,” said ITF seafarers section chair David Heindel in a 2017 news release.

AdvanFort offered a different perspective in its news release at the time: “AdvanFort has expended significant resources and effort to seek the release of these wrongfully detained men and is pleased that justice finally has prevailed.”

Insurance claim

After the crew’s release, AdvanFort demanded payment from a different set of insurers for losses and liabilities it claimed as a result of the incident. The company contended its exposure was covered by a marine liability insurance policy that expired in 2014.

The underwriters last year asked the federal court to declare there was no coverage. AdvanFort opposed the declaratory judgment suit with defensive pleadings and counterclaims.

As the case proceeded, the insurers complained that AdvanFort was dithering on discovery. The dispute was assigned to Buchanan. She noted in a footnote that sanctions that do not involve dismissal “fall squarely within the jurisdiction of a magistrate judge.”

Vague exposure claims

Buchanan held a hearing on July 12 and minced no words. AdvanFort’s discovery responses were “misleading at best, but more likely, obviously, just plain false based on the testimony in the depositions.”

The company was equivocating and engaging in double-speak “all over the place” without stating what the actual facts were, the judge said.

Even after another amended response, Buchanan said the company’s information was deficient.

“Despite direct admonishments and multiple chances, Defendant shows no real signs of complying with this Court’s discovery order,” Buchanan wrote.

She said AdvanFort did not explain its increase in the value of the guards’ and crews’ claims from $5.5 million to $6.7 million, nor its boost in a property damage claim from $16 million to $20.9 million. The company reportedly said it could not provide specific information on individual claims and the dates individual claims were received.

Deposition testimony from company executive Ahmed Farajallah showed the $6.7 million claim was based, not on claims submitted by the crew, but rather on his own calculations as to what the guards might have earned had they not been detained, Buchanan said. The company’s discovery answers “evidence an obfuscatory, gamesmanship approach to litigation,” the judge said.

“Rather than carefully craft interrogatory responses after conducting a reasonable investigation, Defendant instead chose to dump documents, provide inconsistent or misleading responses, refuse to answer, assert untimely objections, and fail to clearly state when it did not know the information,” Buchanan wrote.

Those tactics hampered the insurers’ ability to pursue the case efficiently, the judge said. “Plaintiffs are significantly disadvantaged due to Defendant’s non-compliance,” she wrote.

Preclusion of evidence

Default judgment was not appropriate under Rule 37(b) of the Federal Rules of Civil Procedure, Buchanan said. “Instead, in this case, preclusion and monetary sanctions shall adequately serve the Rule’s deterrent and remedial purposes,” she wrote.

The remedy could tie the hands of AdvanFort. “Defendant is limited to the answers provided in its Second Amended Response at summary judgment and trial,” Buchanan said. “Defendant may not deviate from those answers in any regard, including any attempts to further ‘clarify’ its answers,” she added.

Buchanan also ordered the insurers to file a statement of fees and costs incurred in the motion to compel and motion for sanctions.

AdvanFort is represented by Fairfax attorney W. Michael Chick Jr. He did not respond to a request for comment.

The insurers are represented by Christopher A. Abel of Norfolk. “My clients remain confident that the legal process will yield a just result in this case. In the interim, they prefer to let their pleadings and other filings in the public record do their talking for them,” Able said.