Legal Case Summary

Great pleasure to move the admission of Cretopus as a member of this bar. As a member in good standing of the bars of the highest courts of New Jersey, Pennsylvania, and the District of Columbia. I have personal knowledge of his credentials because he served as my walk clerk over this past year. So I am quite satisfied in possesses the necessary qualifications. So I am very pleased to move your admission to the bar of this court. And I invite Judge Raider to decide whether to grant that motion. I think we need a vote. Well, I'm prepared to vote. I too have known Chris, and we share a common background, and I'm very happy to support his motion. We're looking forward to seeing you for many years, Mr. Cretopus. Indeed, welcome to the bar. If you will proceed to the clerk's area, he will administer the oath. I'm sorry to have asked you to look yourself at the training in countless of Israel, operating in 42 law, and you will look at that conclusion you want to face in the air. Thank you. Again, welcome to the bar. This case this morning is number 061578, the Navy Against Bath Iron Works

. Mr. Mannhart. Please, the court. My name is Kirkman Hart. I represent the Department of Navy in this case. This court's worst decision of the war because it was based on incorrect interpretation of the contracts and assurance clause. Or it should have adhered to the plain meaning of the effective workmanship exclusion as it previously done in the Jacksonville Shivriarch's case more than 13 years ago. As the text of the clause explicitly provides that coverage will not be provided for the inspection repair replacement of the new law, but defects themselves in the vessel due to the effective workmanship or the work which is not conformed to requirements to combat. Each of the elements of the provision were satisfied by unspotted facts in this case. What was the defect? The defect in this case, the defects were the corrosion holes that appeared in the fuel fill. And so the government's view is the board went astray by, it seemed to me reading the board that the board concluded that the brackish water flush was the defect here. Yes, it found that the brackish water, the use of that water was both defect as well as the defect of work. And as we explained, the two cannot be the same or in certain instances, the defect to the vessel were corrosion holes in fuel pipelines which simply came from the Shivriarch's. The defect of conduct was the deviation from the contract specification which required flushing of the fuel made fuel as well as the exhaustive inconsistent with an operating procedure. It's not disputed as to what caused the loss or that this was a casualty loss or that it flowed from the error that was made in putting the salt water in the pipes. The question is who's the insurer and if in fact the government chose to be self-insurer for a casualty loss

. Either your point has to be that this is not a casualty loss or that it's not something that could have been covered by insurance but for the fact that the government says never mind, we'll self-insure. Isn't that the issue? No, we've been back to different. The question whether it's a casualty loss is essentially irrelevant to the interpretation here. It may well have been a casualty loss because under an all-risk coverage provision it has to be a casualty to be predicate for coverage. But as even Beth has conceded the existence of a casualty has to be read along with the entirety of the clause and where there is an express exclusion, this specific exclusion also be acquired to be given its force as a matter of contract. And here there was an express exclusion in the contract for defective work and defective work which was damaged to the vessel. And here again we're not just, it's not a spew that there were defects in the vessel, the holes. There was not a spew that was caused by defective work, the influx of brackish water, well at a time when the chlorides in the water were exceedingly high and that that had to have been left in those pipes for a period of time caused the corrosion. So the elements of the straight flow of application of the industry of facts to the terms of the contract we have the form of the terms of the exclusion having been met. But we still have at least the impression that I have that but for the government saying we'll ensure against whatever it is that might require insurance. So either you have to say there's no way anybody could ever have insured against this kind of loss and therefore the government could not have self insured against it. But there's some gap here, I think the Amicus brief stresses that either the government is the insurer and the clients to absorb insurance costs as part of the overhead and there's a site in example. Or the contractor takes out whatever insurance would be appropriate to all risk, I don't know what it might be and be reimbursed or raise the contract price. And that this is the choice that everybody knew what they were doing when they made. Again, I would beg to differ your honor and when I ask the court to contrast this with this contrast this with an indemnity provision. This is not a whole protection for any events in the future

. It's an insurance provision. Yes. An insurance provision requires the existence of a casualty but insurance the insurance provision also the parties can agree and have within exclusions. There are many exclusions in commercial insurance so all the time. And here one expressed exclusion was for defective work. We said we will not pay for cost incurred when you damage the vessel through your defective work. And they say there's a draw the line between the cost to repair the pipes and the cost to repair the damage because of the faulty pipes. Which is a concession that there is force to this exclusion provision. And which is what the board found that the exclusion has forced and they excluded the cost of the flushing repair of redoing the work. But what the board neglected to consider was the vessel itself was damaged and it was damaged by the defective work. Which is expressly excluded from the coverage that we would bear. Well the board found otherwise. Yes it did. And that's why we're here. It misstaked and failing to get forced to the plane terms in the contract. The court clearly misunderstood and went down the path of saying if I find it a fortuity and a casualty and accident there must be coverage

. And that's simply at odds with the four corners of the agreement. They say an accident they said a casualty. Yes. And they didn't say it has to be accidental. They didn't draw the line between, let's say a casualty caused by negligence and a casualty that's an act of God. But they say that they're arguing that if the only aspects which the government is self-insured would cover would be acts of God then they would in the ordinary cost of business take out insurance for other casualty caused by whatever other risks there are besides acts of God. And that their understanding and the custom and tradition has been that this is how it works and that's certainly what the board held. This is how it works. Yes it did and as we explain in our briefs that's a misunderstanding of the conduct that's happened. Do you contest the board's finding of fortuity? We do not dispute. Well yes we do although we find that it's not necessary for the court to reach that question to resolve the appeal. As the insurance law case is that we're citing our brief demonstrate if there's no fortuity you can't even come within the four corners of being considered for coverage. But once you are within those four corners then must also be given to the terms of the expressed exclusion. And here parties expressly have an exclusion to this that covers this defective work. Assuming we agree with the government's view it's reading of the contract and the contract provision and then it covered the corrosion pipes here. Don't we still have to remand on a determination of causation of whether it was due to whether the corrosion to what extent the corrosion the pipes was due to the brackish water flush

. It seemed to me that was conflicting testimony and it may be in part but you know isn't a remand required. The court certainly could remand but we don't think it's required because in the record that in submitting it's request for a record of adjustment here. Expressively represented to the Navy that the cause of this was the influx that the brackish water was a cause here. The board made a finding that there were a convergence of current elements of which one was this brackish water. Based on the finding that it was a cause the court could could reach determine that the express terms of the exclusion are satisfied. Because what this court terms of this cause is the defects to the vessel due to the defective work. And we find the record that there was a variety of conflicting testimony about how some of the factors the use of this shipping built on a land level facility, the configuration of the pipes, some of these other elements, how they may have a fact played into the end of ending result. But there was no dispute that the water was the cause and absent the water you couldn't have corrosion. The corrosion is a process and it's caused by the injection of water. And here the specification called for flushing this fuel with these lines which we fuel. And just to make one point there is a lot of testimony and discussion concerning how these pipes may be exposed to seawater in the internal operation. I just want to point out that there's a description of how water is actually used in the system and in several parts of the record one reference I asked the court to look at is in the appendix page A21315, see what it doesn't flow through these pipes. They are not ordinarily used for the compensation system. The examples used in the record a variety of unusual circumstances by which some accident could occur or when the system is being used in its proper fill line that there could be problems of water mixed with the fuel as it flows through. But that's when things are flowing and it's fully in operation. It's not the case that these pipes are sometimes running full of fuel and sometimes taking and being the source by which seawater is routinely used to fill these tanks

. That's simply not the case here. Yes, we will save the rest of your time for you, buddy. Before Mr. Johnson begins, can you check and make sure the microphones are working particularly in the balcony? Thank you. I may please report. I would like to wait or do one. I would like to wait. Please proceed. My name is Richard Johnson and I represent your Pelley and the Cross of Pellent, Bathine Works. Your honours, I agree with everything Mr. Mannhart has said in his argument with three exceptions. First of all, the water flush with the river water which was admittedly contrary to an instruction, a shipyard instruction, was found by the board not to be the cause of the corrosion. It was found by the board to be one of the causes of the corrosion. And the board listed precisely what those causes were. But it was a significant contributor. I don't think that that was indisputed

. The board did not use the word or on a significant. It used the word that it was a contributing cause along with many other causes. The board, for example, specifically found that the real culprit here was the fact that the water was left in this low line. Piping system for eight months. The board found that that flush bin performed with fresh water. The same result could well have occurred. The erosion from fresh water? Yes, yes, man. And that was based on expert testimony that the board accepted from the bath expert. It was concurred in about two years ago. Well, I mean, I guess I don't want to belabor this, but I read the board's opinion differently. I mean, you're right. There was an expert that said this was the least important factor. But the board says there were multiple factors that contributed to it. Yes, man. That's true. Exactly

. But I was responding to Judge Newman's question about the fresh water versus the brackish water. But I'm trying to understand where the line is to be drawn in terms of self-insurance, the obligations of bath, to repair, and admitted fluff. I think everyone agreed that but for putting the saltwater in the pipes, this more likely than not wouldn't have happened. I would disagree with that. Finding the board found otherwise. And I believe that the central point, the central difference in what happened here compared with what happened on earlier shifts. But to the great debate in the briefs about who was ensuring what turn on deciding what was the cause of the corrosion? In one sense, it does, Your Honor, because if the flush was by river water was not the cause of the corrosion, and the words of the Navy Clause are due to, which in my reading of it means the cause. It was a multiplicity of causes than under universally accepted commercial insurance law, all risks insurance law, then the exclusion does not apply. What about if it was the but-for? I mean, the government suggested that there might have been multiple contributing factors, but but-for the brackish waterfluts it would not have happened. That would fall within the due to language of the insurance cost. Well, Your Honor, but it is not factually correct because bath had previously, and we're not terribly proud of this, but now it's just a scientific fact. Bath had flushed two prior DDGs, one with river water, and one with actual 100% ocean water, and nothing happened. And there was one difference. The difference is that the water was not left in the piping system and closed system over a period of several months. And the scientific evidence that was produced after hearing it, that the board accepted, said that it was that brackish water lying in that system over a period of eight months, and it was a mixture by a way of brackish water and fresh water because the hydrostatic test water was down in there as well. That was the only difference between what had happened and the prior shifts, what happened on this ship? Well, let me go back to the insurance clause itself, leaving aside the- Yes, please

. Do you agree that the reference to the government doesn't assume the risk for any defects in themselves and the vessels, that the defect is the corrosion of the pipes? No. What are the defects? Our reading of the clause is different. We believe the clause has at least two meanings, maybe more than two meanings, and I focus specifically on where a defect is. It says defects in the vessel. Now the corroded piping was a defect in the vessel. That is true. If the corroded piping had- it's fuel piping. If fuel had been in that system, if fuel had escaped and ignited and the ship had been destroyed, that would also be a defect in the vessel because a vessel that has been destroyed is defective. By reading the clause the way the Navy does, it means that there is no coverage whatsoever under this all risk insurance policy for anything that can be linked even remotely to work with the company. That raises all kinds of other questions. That hypothetical or another similar hypothetical might then bring in what you all think is the fortuitous exception. If the pipes leak oil in the ship, it may be or not, that is not the case before us. There would be a fortuitous exception. That may be what fortuitous means. For a moment let's just stick to the clause then and say, so you can see that the defect here is the corrosion in the pipe. The corrosion in the pipe here is the defect in the vessel

. There is no question about that. The issue is what does the clause mean when it says that the Navy will not pay the cost for repair replacement or renewal of any defects in the vessel. It is our reading of the clause and it is the universal reading of similar clauses in all similar build-us-risk cases. What that does is excludes for recovery the cost of performing the work again that did not lead to the workmanship standard. If it is a bad weld, you cut out the weld and you re-weld it. That is what is excluded by a clause. If the bad weld leads to something like the ship leaking or something happening, that is covered by a clause. That has been the reading, I think as the micr-screen points out here, the reading of every naval shipyard in the United States for the last 25 years since this exclude was put in place. It seems to me that discussion goes to the earlier phrase which says whether they will what costs the government will pay for. If we stick to the phrase any defects themselves in the vessels, which you have agreed of the corrosion of the pipes, due to defective workmanship, we agreed that the brackish, the flushing with the brackish water was defective workmanship. Why aren't the defects in the pipe due to the brackish water covered by this clause? It seems to me that is exactly what the clause refers to. It is because to do that we are led down the path necessarily and I don't think there is any stopping place along the road of saying anything that happens to that vessel, even if the entire $500 million vessel is destroyed in the process, is not covered by this clause and that would be an absurd reading of the clause. It would mean that at all risks and insurance clause in fact covers no risks except acts of God and I am quite sure that we could link some kind of workmanship even to acts of God that impact the ship such as lightning or storms or hurricanes and things like that. Would you remind me what was measured by the damages that was awarded? The measure of damages, Judge Newman, was the cost of tearing out and replacing the low-lying piping system that had these leaks and some of them could be welded, re-welded and made sound, but there was a great deal of work that had to be done in the very bottom of the ship. So the ship basically take out hundreds and hundreds of feet of this piping and replace it with new piping. That is the cost of the issue. That was the casualty. Can you give us an example then of what would be covered by this clause? Yes. My reading of the Navy clause, if we perform any act of workmanship on the vessel or near the vessel that is improper or non-compliant, we have to do it and at our cost. You have to cure any defect. That is exactly correct. If you do something that is not consistent with the specifications of the contract and it causes the defect in the vessel like a corrosion of the pipes, then you agree that the contract says the government is not liable. Exactly correct. It would be bad painting or we put a ventilation system in the wrong place or as I said we do a bad weld. These things happen in shipyard as they happen all the time. They are indemnictive shipyard. And what distinguishes putting in a bad weld from running water there that was not allowed by the contract? It is an act of workmanship that did not comply. The use of the river water was an act of workmanship that did not comply. There is no issue about that. And we would describe as defective workmanship. It was defective workmanship. But it led to a casualty

. That was the casualty. Can you give us an example then of what would be covered by this clause? Yes. My reading of the Navy clause, if we perform any act of workmanship on the vessel or near the vessel that is improper or non-compliant, we have to do it and at our cost. You have to cure any defect. That is exactly correct. If you do something that is not consistent with the specifications of the contract and it causes the defect in the vessel like a corrosion of the pipes, then you agree that the contract says the government is not liable. Exactly correct. It would be bad painting or we put a ventilation system in the wrong place or as I said we do a bad weld. These things happen in shipyard as they happen all the time. They are indemnictive shipyard. And what distinguishes putting in a bad weld from running water there that was not allowed by the contract? It is an act of workmanship that did not comply. The use of the river water was an act of workmanship that did not comply. There is no issue about that. And we would describe as defective workmanship. It was defective workmanship. But it led to a casualty. Something that no one could foresee, no one had a clue this could happen. We would flush to prior D.D. Jesus way without any adverse result. There were other factors that played. The principal one being this is the first ship that we had constructed in an entirely new way. By doing that and saving the Navy, great deal of money in the process, we created a situation in which we performed certain work earlier in the construction sequence. One of those items of work was this flush with water and that water stayed in the piping. You cannot get it out. You can get some of it out. We got some of it out. But you can't get all of it out. And it was that over time. So you are saying that we ought to apply this clause and draw a distinction between the defective workmanship that the contractor knew about and defective workmanship that he didn't know about? No, man. I think that if it is defective workmanship, you have to correct the workmanship. Well, there may not know that he is doing a bad well

. Something that no one could foresee, no one had a clue this could happen. We would flush to prior D.D. Jesus way without any adverse result. There were other factors that played. The principal one being this is the first ship that we had constructed in an entirely new way. By doing that and saving the Navy, great deal of money in the process, we created a situation in which we performed certain work earlier in the construction sequence. One of those items of work was this flush with water and that water stayed in the piping. You cannot get it out. You can get some of it out. We got some of it out. But you can't get all of it out. And it was that over time. So you are saying that we ought to apply this clause and draw a distinction between the defective workmanship that the contractor knew about and defective workmanship that he didn't know about? No, man. I think that if it is defective workmanship, you have to correct the workmanship. Well, there may not know that he is doing a bad well. He may do his well in perfect good faith. So the corrosion here, the flushing with brackish water was defective workmanship under this contract. Yes, it was. Yes, it was. There was no question about it. And it was one of the contributing clauses to the casualty that occurred. And there's been no finding this to whether or not it was the, as an ear view that there's been no finding this to whether or not it was a but for cause or a necessary cause. There was no finding and under. Builders risk insurance law. If there is a multitude of causes, a more than one cause. And one of those causes is a prohibitive event such as the workmanship. The clause, the exception does not apply and the insurance does apply. And the government, which is sitting here as an insurance company and not as a sovereign of the United States, is subject to that law. Your Honor, I have two minutes and 30 seconds left and I reserved one for rebuttal. Well, and assuming you get into your cross appeal, otherwise you can use your time as you see fit. I want it briefly to mention the cross appeal because it deals with the interest provision of the contract dispute sac

. He may do his well in perfect good faith. So the corrosion here, the flushing with brackish water was defective workmanship under this contract. Yes, it was. Yes, it was. There was no question about it. And it was one of the contributing clauses to the casualty that occurred. And there's been no finding this to whether or not it was the, as an ear view that there's been no finding this to whether or not it was a but for cause or a necessary cause. There was no finding and under. Builders risk insurance law. If there is a multitude of causes, a more than one cause. And one of those causes is a prohibitive event such as the workmanship. The clause, the exception does not apply and the insurance does apply. And the government, which is sitting here as an insurance company and not as a sovereign of the United States, is subject to that law. Your Honor, I have two minutes and 30 seconds left and I reserved one for rebuttal. Well, and assuming you get into your cross appeal, otherwise you can use your time as you see fit. I want it briefly to mention the cross appeal because it deals with the interest provision of the contract dispute sac. And it's our position that the issue before the court is purely a legal issue. It's purely a legal issue and it could be resolved by the court here now and will avoid another round at the board and then another appeal up here. And the issue is this. Does contract disputes interest apply in whole? That's very demanded. We don't even have a decision to review, do we? Well, I think we do. Either that of the board refused to decline to decide an issue of law. And when the board declines to decide an issue of law, you honor it properly before this court. But it's a very, your position that you should receive interest on money which according to the record had been paid in the progress payments is very strange to me. Well, we received progress payments for a period of time and they were partial progress payments and they're no longer in existence that they're been repaid. And the progress payments were not dollar for dollar, the cost of the casualty. The cost of the casualty were included in the line item for ship instruction by agreement with the Navy to written agreement and simplify it. So what was it for board what if you and the Navy to work out dollar by dollar the accounting? Exactly. And what happened to that? Well, because the government took its appeal here, we brought the prosecutor's appeal. And it's our position that by the board's remand, it did one of two things and either decided that we're only entitled to interest in part under the CDA. Or it didn't decide the issue. If you look at the actual remand that the board made the parties, they didn't remand quantum

. And it's our position that the issue before the court is purely a legal issue. It's purely a legal issue and it could be resolved by the court here now and will avoid another round at the board and then another appeal up here. And the issue is this. Does contract disputes interest apply in whole? That's very demanded. We don't even have a decision to review, do we? Well, I think we do. Either that of the board refused to decline to decide an issue of law. And when the board declines to decide an issue of law, you honor it properly before this court. But it's a very, your position that you should receive interest on money which according to the record had been paid in the progress payments is very strange to me. Well, we received progress payments for a period of time and they were partial progress payments and they're no longer in existence that they're been repaid. And the progress payments were not dollar for dollar, the cost of the casualty. The cost of the casualty were included in the line item for ship instruction by agreement with the Navy to written agreement and simplify it. So what was it for board what if you and the Navy to work out dollar by dollar the accounting? Exactly. And what happened to that? Well, because the government took its appeal here, we brought the prosecutor's appeal. And it's our position that by the board's remand, it did one of two things and either decided that we're only entitled to interest in part under the CDA. Or it didn't decide the issue. If you look at the actual remand that the board made the parties, they didn't remand quantum. They appeared to remand the whole issue and that's something where it's a legal issue or it can't do that. Well, you're honor it eaten up all my time including the review. You have, I think we're all right. If it looks as if you need a last word, we'll squeeze it in. Thank you. Thank you, Mr. Johnson. Mr. May I have it? Thank you, Herman. First on the issue of our appeal to address the court's self-insurance point, I wanted to make clear that what the clause says is we won't pay premiums for bath to provide insurance for its effective work. And we won't pay as a claim things in effective work costs. Bath is free to go buy insurance. There's no law against that. They have to absorb that cost. We're not going to include that. Any coverage whether through premium or through affirmative coverage of a claim for their effective work

. They appeared to remand the whole issue and that's something where it's a legal issue or it can't do that. Well, you're honor it eaten up all my time including the review. You have, I think we're all right. If it looks as if you need a last word, we'll squeeze it in. Thank you. Thank you, Mr. Johnson. Mr. May I have it? Thank you, Herman. First on the issue of our appeal to address the court's self-insurance point, I wanted to make clear that what the clause says is we won't pay premiums for bath to provide insurance for its effective work. And we won't pay as a claim things in effective work costs. Bath is free to go buy insurance. There's no law against that. They have to absorb that cost. We're not going to include that. Any coverage whether through premium or through affirmative coverage of a claim for their effective work. Because we pay for inspection, we pay for quality assurance matters. There's a full panel of the contract issues. Can I ask you about another question? The contract, so the clause says due to. Do you agree that there needs to be a butt for finding in terms of getting the damages? I agree that there needs to be a determinant. Yes, there's a finding that it was a cause. It was due to. About four causes. But four or even as a matter of approximate cause as a predominant cause. And there's been no finding of that yet by the board correct. The board found it was a cause and we think the record supports finding was the determinant predominant cause under this court's case law. But yes, I mean we would not, we wouldn't dispute that. And that was an alternative. We asserted a brief, I mean I think from the discussion today it's good that had used this. Defective method for the flushing on previous occasions. And here we have a situation where due to other aspects of the construction that defective work caused greater damage. So I mean that's what distinguishes this circumstance

. Because we pay for inspection, we pay for quality assurance matters. There's a full panel of the contract issues. Can I ask you about another question? The contract, so the clause says due to. Do you agree that there needs to be a butt for finding in terms of getting the damages? I agree that there needs to be a determinant. Yes, there's a finding that it was a cause. It was due to. About four causes. But four or even as a matter of approximate cause as a predominant cause. And there's been no finding of that yet by the board correct. The board found it was a cause and we think the record supports finding was the determinant predominant cause under this court's case law. But yes, I mean we would not, we wouldn't dispute that. And that was an alternative. We asserted a brief, I mean I think from the discussion today it's good that had used this. Defective method for the flushing on previous occasions. And here we have a situation where due to other aspects of the construction that defective work caused greater damage. So I mean that's what distinguishes this circumstance. Not those other elements, but simply defective work caused damage to the vessel that had previously occurred because of other circumstances. But those other circumstances weren't the cause of the corrosion. The corrosion was the introduction of the law. Now if because of the corrosion there was oil that leaked and the ship blew up. Would you agree that that would be a fortuitous loss? Not current. Yes, the Navy expert testified that there is a fort that is the due to the problem like approximate cause. It has a foreseeability element. So there is in many cases that natural consequence condition to by which we this would be controlled. One of the examples in terms of prior experience, I asked the court to look at it as in the appendix. There's an app page A2733 to 35. There was an incident on a different ship with bath involving a fuel leak. And they're about the first time in the claim. And they would do that claim. And that claim was for costs not simply to repair the fuel leak, but to clean the affected area, replace the insulation. It was effective to replace the defective portions of the ship, not simply catch the fuel line. And we think this is as was the case in the Jacksonville Shipyard case, which were the terms of some of the risk of the clause were a little bit different

. Not those other elements, but simply defective work caused damage to the vessel that had previously occurred because of other circumstances. But those other circumstances weren't the cause of the corrosion. The corrosion was the introduction of the law. Now if because of the corrosion there was oil that leaked and the ship blew up. Would you agree that that would be a fortuitous loss? Not current. Yes, the Navy expert testified that there is a fort that is the due to the problem like approximate cause. It has a foreseeability element. So there is in many cases that natural consequence condition to by which we this would be controlled. One of the examples in terms of prior experience, I asked the court to look at it as in the appendix. There's an app page A2733 to 35. There was an incident on a different ship with bath involving a fuel leak. And they're about the first time in the claim. And they would do that claim. And that claim was for costs not simply to repair the fuel leak, but to clean the affected area, replace the insulation. It was effective to replace the defective portions of the ship, not simply catch the fuel line. And we think this is as was the case in the Jacksonville Shipyard case, which were the terms of some of the risk of the clause were a little bit different. But the defective work in the ship exclusion was precisely verbatim the same as the one in this case. The board found that cleaning, esteemed cleaning of a certain on a material on the ship involved their damaged, damaged piece of equipment. And it was the equipment that had to be repaired, not simply reimbursed the costs of the additional cleaning. And I know just in terms of the time. And this is really what's been covering me all along. It's not really a question of who did what or who's it fault. The question is who's who's carrying me insurance for what happened. Whatever happened, whatever caused to the matter. Yes. And the question is yes. So the immediate part of what it's scope of risk is as defined by what is excluded from its coverage. Exclude these costs. So the Amichi say and of course we have the board's findings which are very clear that if in fact the contractors, the shipbuilders have to now carry insurance that they had till now thought the government was providing someone's going to pay for it. If those costs one way or another, I would think it would make no sense otherwise that that aspect they complained about overhead. One of the cases where the government paid for a lot of insurance and nothing went wrong. But nonetheless the government paid for it

. But the defective work in the ship exclusion was precisely verbatim the same as the one in this case. The board found that cleaning, esteemed cleaning of a certain on a material on the ship involved their damaged, damaged piece of equipment. And it was the equipment that had to be repaired, not simply reimbursed the costs of the additional cleaning. And I know just in terms of the time. And this is really what's been covering me all along. It's not really a question of who did what or who's it fault. The question is who's who's carrying me insurance for what happened. Whatever happened, whatever caused to the matter. Yes. And the question is yes. So the immediate part of what it's scope of risk is as defined by what is excluded from its coverage. Exclude these costs. So the Amichi say and of course we have the board's findings which are very clear that if in fact the contractors, the shipbuilders have to now carry insurance that they had till now thought the government was providing someone's going to pay for it. If those costs one way or another, I would think it would make no sense otherwise that that aspect they complained about overhead. One of the cases where the government paid for a lot of insurance and nothing went wrong. But nonetheless the government paid for it. A heavy premium and this is being saved. And so the lines that we're drawing in terms of who is it fault is really requiring drawing a finer line than is immediately apparent, although then the word themselves in the contract as to who's to pay the insurance in the future, whoever ends up paying it now I suppose will control who pays it in the future. Yes and we believe that exclusion has been clear, it's been used for 20 years and that 13 years ago in Jacksonville shipyards this clause, this exclusion was interpreted to establish for contractors or any doubt by its playing terms that turns our on in ambiguous and that that is a cost that rests with the contractor. I see what it is. We take the cross appeal and the advisement I think it's okay. Thank you. Thank you Mr. Mannhart and Mr. Johnson. The case is taken under submission. No he didn't and that's why I didn't invite you to rebut on the cross appeal. Thank you, Your Honor. I want to make only one point about the Jacksonville case. No, your time is run. Thank you.

Great pleasure to move the admission of Cretopus as a member of this bar. As a member in good standing of the bars of the highest courts of New Jersey, Pennsylvania, and the District of Columbia. I have personal knowledge of his credentials because he served as my walk clerk over this past year. So I am quite satisfied in possesses the necessary qualifications. So I am very pleased to move your admission to the bar of this court. And I invite Judge Raider to decide whether to grant that motion. I think we need a vote. Well, I'm prepared to vote. I too have known Chris, and we share a common background, and I'm very happy to support his motion. We're looking forward to seeing you for many years, Mr. Cretopus. Indeed, welcome to the bar. If you will proceed to the clerk's area, he will administer the oath. I'm sorry to have asked you to look yourself at the training in countless of Israel, operating in 42 law, and you will look at that conclusion you want to face in the air. Thank you. Again, welcome to the bar. This case this morning is number 061578, the Navy Against Bath Iron Works. Mr. Mannhart. Please, the court. My name is Kirkman Hart. I represent the Department of Navy in this case. This court's worst decision of the war because it was based on incorrect interpretation of the contracts and assurance clause. Or it should have adhered to the plain meaning of the effective workmanship exclusion as it previously done in the Jacksonville Shivriarch's case more than 13 years ago. As the text of the clause explicitly provides that coverage will not be provided for the inspection repair replacement of the new law, but defects themselves in the vessel due to the effective workmanship or the work which is not conformed to requirements to combat. Each of the elements of the provision were satisfied by unspotted facts in this case. What was the defect? The defect in this case, the defects were the corrosion holes that appeared in the fuel fill. And so the government's view is the board went astray by, it seemed to me reading the board that the board concluded that the brackish water flush was the defect here. Yes, it found that the brackish water, the use of that water was both defect as well as the defect of work. And as we explained, the two cannot be the same or in certain instances, the defect to the vessel were corrosion holes in fuel pipelines which simply came from the Shivriarch's. The defect of conduct was the deviation from the contract specification which required flushing of the fuel made fuel as well as the exhaustive inconsistent with an operating procedure. It's not disputed as to what caused the loss or that this was a casualty loss or that it flowed from the error that was made in putting the salt water in the pipes. The question is who's the insurer and if in fact the government chose to be self-insurer for a casualty loss. Either your point has to be that this is not a casualty loss or that it's not something that could have been covered by insurance but for the fact that the government says never mind, we'll self-insure. Isn't that the issue? No, we've been back to different. The question whether it's a casualty loss is essentially irrelevant to the interpretation here. It may well have been a casualty loss because under an all-risk coverage provision it has to be a casualty to be predicate for coverage. But as even Beth has conceded the existence of a casualty has to be read along with the entirety of the clause and where there is an express exclusion, this specific exclusion also be acquired to be given its force as a matter of contract. And here there was an express exclusion in the contract for defective work and defective work which was damaged to the vessel. And here again we're not just, it's not a spew that there were defects in the vessel, the holes. There was not a spew that was caused by defective work, the influx of brackish water, well at a time when the chlorides in the water were exceedingly high and that that had to have been left in those pipes for a period of time caused the corrosion. So the elements of the straight flow of application of the industry of facts to the terms of the contract we have the form of the terms of the exclusion having been met. But we still have at least the impression that I have that but for the government saying we'll ensure against whatever it is that might require insurance. So either you have to say there's no way anybody could ever have insured against this kind of loss and therefore the government could not have self insured against it. But there's some gap here, I think the Amicus brief stresses that either the government is the insurer and the clients to absorb insurance costs as part of the overhead and there's a site in example. Or the contractor takes out whatever insurance would be appropriate to all risk, I don't know what it might be and be reimbursed or raise the contract price. And that this is the choice that everybody knew what they were doing when they made. Again, I would beg to differ your honor and when I ask the court to contrast this with this contrast this with an indemnity provision. This is not a whole protection for any events in the future. It's an insurance provision. Yes. An insurance provision requires the existence of a casualty but insurance the insurance provision also the parties can agree and have within exclusions. There are many exclusions in commercial insurance so all the time. And here one expressed exclusion was for defective work. We said we will not pay for cost incurred when you damage the vessel through your defective work. And they say there's a draw the line between the cost to repair the pipes and the cost to repair the damage because of the faulty pipes. Which is a concession that there is force to this exclusion provision. And which is what the board found that the exclusion has forced and they excluded the cost of the flushing repair of redoing the work. But what the board neglected to consider was the vessel itself was damaged and it was damaged by the defective work. Which is expressly excluded from the coverage that we would bear. Well the board found otherwise. Yes it did. And that's why we're here. It misstaked and failing to get forced to the plane terms in the contract. The court clearly misunderstood and went down the path of saying if I find it a fortuity and a casualty and accident there must be coverage. And that's simply at odds with the four corners of the agreement. They say an accident they said a casualty. Yes. And they didn't say it has to be accidental. They didn't draw the line between, let's say a casualty caused by negligence and a casualty that's an act of God. But they say that they're arguing that if the only aspects which the government is self-insured would cover would be acts of God then they would in the ordinary cost of business take out insurance for other casualty caused by whatever other risks there are besides acts of God. And that their understanding and the custom and tradition has been that this is how it works and that's certainly what the board held. This is how it works. Yes it did and as we explain in our briefs that's a misunderstanding of the conduct that's happened. Do you contest the board's finding of fortuity? We do not dispute. Well yes we do although we find that it's not necessary for the court to reach that question to resolve the appeal. As the insurance law case is that we're citing our brief demonstrate if there's no fortuity you can't even come within the four corners of being considered for coverage. But once you are within those four corners then must also be given to the terms of the expressed exclusion. And here parties expressly have an exclusion to this that covers this defective work. Assuming we agree with the government's view it's reading of the contract and the contract provision and then it covered the corrosion pipes here. Don't we still have to remand on a determination of causation of whether it was due to whether the corrosion to what extent the corrosion the pipes was due to the brackish water flush. It seemed to me that was conflicting testimony and it may be in part but you know isn't a remand required. The court certainly could remand but we don't think it's required because in the record that in submitting it's request for a record of adjustment here. Expressively represented to the Navy that the cause of this was the influx that the brackish water was a cause here. The board made a finding that there were a convergence of current elements of which one was this brackish water. Based on the finding that it was a cause the court could could reach determine that the express terms of the exclusion are satisfied. Because what this court terms of this cause is the defects to the vessel due to the defective work. And we find the record that there was a variety of conflicting testimony about how some of the factors the use of this shipping built on a land level facility, the configuration of the pipes, some of these other elements, how they may have a fact played into the end of ending result. But there was no dispute that the water was the cause and absent the water you couldn't have corrosion. The corrosion is a process and it's caused by the injection of water. And here the specification called for flushing this fuel with these lines which we fuel. And just to make one point there is a lot of testimony and discussion concerning how these pipes may be exposed to seawater in the internal operation. I just want to point out that there's a description of how water is actually used in the system and in several parts of the record one reference I asked the court to look at is in the appendix page A21315, see what it doesn't flow through these pipes. They are not ordinarily used for the compensation system. The examples used in the record a variety of unusual circumstances by which some accident could occur or when the system is being used in its proper fill line that there could be problems of water mixed with the fuel as it flows through. But that's when things are flowing and it's fully in operation. It's not the case that these pipes are sometimes running full of fuel and sometimes taking and being the source by which seawater is routinely used to fill these tanks. That's simply not the case here. Yes, we will save the rest of your time for you, buddy. Before Mr. Johnson begins, can you check and make sure the microphones are working particularly in the balcony? Thank you. I may please report. I would like to wait or do one. I would like to wait. Please proceed. My name is Richard Johnson and I represent your Pelley and the Cross of Pellent, Bathine Works. Your honours, I agree with everything Mr. Mannhart has said in his argument with three exceptions. First of all, the water flush with the river water which was admittedly contrary to an instruction, a shipyard instruction, was found by the board not to be the cause of the corrosion. It was found by the board to be one of the causes of the corrosion. And the board listed precisely what those causes were. But it was a significant contributor. I don't think that that was indisputed. The board did not use the word or on a significant. It used the word that it was a contributing cause along with many other causes. The board, for example, specifically found that the real culprit here was the fact that the water was left in this low line. Piping system for eight months. The board found that that flush bin performed with fresh water. The same result could well have occurred. The erosion from fresh water? Yes, yes, man. And that was based on expert testimony that the board accepted from the bath expert. It was concurred in about two years ago. Well, I mean, I guess I don't want to belabor this, but I read the board's opinion differently. I mean, you're right. There was an expert that said this was the least important factor. But the board says there were multiple factors that contributed to it. Yes, man. That's true. Exactly. But I was responding to Judge Newman's question about the fresh water versus the brackish water. But I'm trying to understand where the line is to be drawn in terms of self-insurance, the obligations of bath, to repair, and admitted fluff. I think everyone agreed that but for putting the saltwater in the pipes, this more likely than not wouldn't have happened. I would disagree with that. Finding the board found otherwise. And I believe that the central point, the central difference in what happened here compared with what happened on earlier shifts. But to the great debate in the briefs about who was ensuring what turn on deciding what was the cause of the corrosion? In one sense, it does, Your Honor, because if the flush was by river water was not the cause of the corrosion, and the words of the Navy Clause are due to, which in my reading of it means the cause. It was a multiplicity of causes than under universally accepted commercial insurance law, all risks insurance law, then the exclusion does not apply. What about if it was the but-for? I mean, the government suggested that there might have been multiple contributing factors, but but-for the brackish waterfluts it would not have happened. That would fall within the due to language of the insurance cost. Well, Your Honor, but it is not factually correct because bath had previously, and we're not terribly proud of this, but now it's just a scientific fact. Bath had flushed two prior DDGs, one with river water, and one with actual 100% ocean water, and nothing happened. And there was one difference. The difference is that the water was not left in the piping system and closed system over a period of several months. And the scientific evidence that was produced after hearing it, that the board accepted, said that it was that brackish water lying in that system over a period of eight months, and it was a mixture by a way of brackish water and fresh water because the hydrostatic test water was down in there as well. That was the only difference between what had happened and the prior shifts, what happened on this ship? Well, let me go back to the insurance clause itself, leaving aside the- Yes, please. Do you agree that the reference to the government doesn't assume the risk for any defects in themselves and the vessels, that the defect is the corrosion of the pipes? No. What are the defects? Our reading of the clause is different. We believe the clause has at least two meanings, maybe more than two meanings, and I focus specifically on where a defect is. It says defects in the vessel. Now the corroded piping was a defect in the vessel. That is true. If the corroded piping had- it's fuel piping. If fuel had been in that system, if fuel had escaped and ignited and the ship had been destroyed, that would also be a defect in the vessel because a vessel that has been destroyed is defective. By reading the clause the way the Navy does, it means that there is no coverage whatsoever under this all risk insurance policy for anything that can be linked even remotely to work with the company. That raises all kinds of other questions. That hypothetical or another similar hypothetical might then bring in what you all think is the fortuitous exception. If the pipes leak oil in the ship, it may be or not, that is not the case before us. There would be a fortuitous exception. That may be what fortuitous means. For a moment let's just stick to the clause then and say, so you can see that the defect here is the corrosion in the pipe. The corrosion in the pipe here is the defect in the vessel. There is no question about that. The issue is what does the clause mean when it says that the Navy will not pay the cost for repair replacement or renewal of any defects in the vessel. It is our reading of the clause and it is the universal reading of similar clauses in all similar build-us-risk cases. What that does is excludes for recovery the cost of performing the work again that did not lead to the workmanship standard. If it is a bad weld, you cut out the weld and you re-weld it. That is what is excluded by a clause. If the bad weld leads to something like the ship leaking or something happening, that is covered by a clause. That has been the reading, I think as the micr-screen points out here, the reading of every naval shipyard in the United States for the last 25 years since this exclude was put in place. It seems to me that discussion goes to the earlier phrase which says whether they will what costs the government will pay for. If we stick to the phrase any defects themselves in the vessels, which you have agreed of the corrosion of the pipes, due to defective workmanship, we agreed that the brackish, the flushing with the brackish water was defective workmanship. Why aren't the defects in the pipe due to the brackish water covered by this clause? It seems to me that is exactly what the clause refers to. It is because to do that we are led down the path necessarily and I don't think there is any stopping place along the road of saying anything that happens to that vessel, even if the entire $500 million vessel is destroyed in the process, is not covered by this clause and that would be an absurd reading of the clause. It would mean that at all risks and insurance clause in fact covers no risks except acts of God and I am quite sure that we could link some kind of workmanship even to acts of God that impact the ship such as lightning or storms or hurricanes and things like that. Would you remind me what was measured by the damages that was awarded? The measure of damages, Judge Newman, was the cost of tearing out and replacing the low-lying piping system that had these leaks and some of them could be welded, re-welded and made sound, but there was a great deal of work that had to be done in the very bottom of the ship. So the ship basically take out hundreds and hundreds of feet of this piping and replace it with new piping. That is the cost of the issue. That was the casualty. Can you give us an example then of what would be covered by this clause? Yes. My reading of the Navy clause, if we perform any act of workmanship on the vessel or near the vessel that is improper or non-compliant, we have to do it and at our cost. You have to cure any defect. That is exactly correct. If you do something that is not consistent with the specifications of the contract and it causes the defect in the vessel like a corrosion of the pipes, then you agree that the contract says the government is not liable. Exactly correct. It would be bad painting or we put a ventilation system in the wrong place or as I said we do a bad weld. These things happen in shipyard as they happen all the time. They are indemnictive shipyard. And what distinguishes putting in a bad weld from running water there that was not allowed by the contract? It is an act of workmanship that did not comply. The use of the river water was an act of workmanship that did not comply. There is no issue about that. And we would describe as defective workmanship. It was defective workmanship. But it led to a casualty. Something that no one could foresee, no one had a clue this could happen. We would flush to prior D.D. Jesus way without any adverse result. There were other factors that played. The principal one being this is the first ship that we had constructed in an entirely new way. By doing that and saving the Navy, great deal of money in the process, we created a situation in which we performed certain work earlier in the construction sequence. One of those items of work was this flush with water and that water stayed in the piping. You cannot get it out. You can get some of it out. We got some of it out. But you can't get all of it out. And it was that over time. So you are saying that we ought to apply this clause and draw a distinction between the defective workmanship that the contractor knew about and defective workmanship that he didn't know about? No, man. I think that if it is defective workmanship, you have to correct the workmanship. Well, there may not know that he is doing a bad well. He may do his well in perfect good faith. So the corrosion here, the flushing with brackish water was defective workmanship under this contract. Yes, it was. Yes, it was. There was no question about it. And it was one of the contributing clauses to the casualty that occurred. And there's been no finding this to whether or not it was the, as an ear view that there's been no finding this to whether or not it was a but for cause or a necessary cause. There was no finding and under. Builders risk insurance law. If there is a multitude of causes, a more than one cause. And one of those causes is a prohibitive event such as the workmanship. The clause, the exception does not apply and the insurance does apply. And the government, which is sitting here as an insurance company and not as a sovereign of the United States, is subject to that law. Your Honor, I have two minutes and 30 seconds left and I reserved one for rebuttal. Well, and assuming you get into your cross appeal, otherwise you can use your time as you see fit. I want it briefly to mention the cross appeal because it deals with the interest provision of the contract dispute sac. And it's our position that the issue before the court is purely a legal issue. It's purely a legal issue and it could be resolved by the court here now and will avoid another round at the board and then another appeal up here. And the issue is this. Does contract disputes interest apply in whole? That's very demanded. We don't even have a decision to review, do we? Well, I think we do. Either that of the board refused to decline to decide an issue of law. And when the board declines to decide an issue of law, you honor it properly before this court. But it's a very, your position that you should receive interest on money which according to the record had been paid in the progress payments is very strange to me. Well, we received progress payments for a period of time and they were partial progress payments and they're no longer in existence that they're been repaid. And the progress payments were not dollar for dollar, the cost of the casualty. The cost of the casualty were included in the line item for ship instruction by agreement with the Navy to written agreement and simplify it. So what was it for board what if you and the Navy to work out dollar by dollar the accounting? Exactly. And what happened to that? Well, because the government took its appeal here, we brought the prosecutor's appeal. And it's our position that by the board's remand, it did one of two things and either decided that we're only entitled to interest in part under the CDA. Or it didn't decide the issue. If you look at the actual remand that the board made the parties, they didn't remand quantum. They appeared to remand the whole issue and that's something where it's a legal issue or it can't do that. Well, you're honor it eaten up all my time including the review. You have, I think we're all right. If it looks as if you need a last word, we'll squeeze it in. Thank you. Thank you, Mr. Johnson. Mr. May I have it? Thank you, Herman. First on the issue of our appeal to address the court's self-insurance point, I wanted to make clear that what the clause says is we won't pay premiums for bath to provide insurance for its effective work. And we won't pay as a claim things in effective work costs. Bath is free to go buy insurance. There's no law against that. They have to absorb that cost. We're not going to include that. Any coverage whether through premium or through affirmative coverage of a claim for their effective work. Because we pay for inspection, we pay for quality assurance matters. There's a full panel of the contract issues. Can I ask you about another question? The contract, so the clause says due to. Do you agree that there needs to be a butt for finding in terms of getting the damages? I agree that there needs to be a determinant. Yes, there's a finding that it was a cause. It was due to. About four causes. But four or even as a matter of approximate cause as a predominant cause. And there's been no finding of that yet by the board correct. The board found it was a cause and we think the record supports finding was the determinant predominant cause under this court's case law. But yes, I mean we would not, we wouldn't dispute that. And that was an alternative. We asserted a brief, I mean I think from the discussion today it's good that had used this. Defective method for the flushing on previous occasions. And here we have a situation where due to other aspects of the construction that defective work caused greater damage. So I mean that's what distinguishes this circumstance. Not those other elements, but simply defective work caused damage to the vessel that had previously occurred because of other circumstances. But those other circumstances weren't the cause of the corrosion. The corrosion was the introduction of the law. Now if because of the corrosion there was oil that leaked and the ship blew up. Would you agree that that would be a fortuitous loss? Not current. Yes, the Navy expert testified that there is a fort that is the due to the problem like approximate cause. It has a foreseeability element. So there is in many cases that natural consequence condition to by which we this would be controlled. One of the examples in terms of prior experience, I asked the court to look at it as in the appendix. There's an app page A2733 to 35. There was an incident on a different ship with bath involving a fuel leak. And they're about the first time in the claim. And they would do that claim. And that claim was for costs not simply to repair the fuel leak, but to clean the affected area, replace the insulation. It was effective to replace the defective portions of the ship, not simply catch the fuel line. And we think this is as was the case in the Jacksonville Shipyard case, which were the terms of some of the risk of the clause were a little bit different. But the defective work in the ship exclusion was precisely verbatim the same as the one in this case. The board found that cleaning, esteemed cleaning of a certain on a material on the ship involved their damaged, damaged piece of equipment. And it was the equipment that had to be repaired, not simply reimbursed the costs of the additional cleaning. And I know just in terms of the time. And this is really what's been covering me all along. It's not really a question of who did what or who's it fault. The question is who's who's carrying me insurance for what happened. Whatever happened, whatever caused to the matter. Yes. And the question is yes. So the immediate part of what it's scope of risk is as defined by what is excluded from its coverage. Exclude these costs. So the Amichi say and of course we have the board's findings which are very clear that if in fact the contractors, the shipbuilders have to now carry insurance that they had till now thought the government was providing someone's going to pay for it. If those costs one way or another, I would think it would make no sense otherwise that that aspect they complained about overhead. One of the cases where the government paid for a lot of insurance and nothing went wrong. But nonetheless the government paid for it. A heavy premium and this is being saved. And so the lines that we're drawing in terms of who is it fault is really requiring drawing a finer line than is immediately apparent, although then the word themselves in the contract as to who's to pay the insurance in the future, whoever ends up paying it now I suppose will control who pays it in the future. Yes and we believe that exclusion has been clear, it's been used for 20 years and that 13 years ago in Jacksonville shipyards this clause, this exclusion was interpreted to establish for contractors or any doubt by its playing terms that turns our on in ambiguous and that that is a cost that rests with the contractor. I see what it is. We take the cross appeal and the advisement I think it's okay. Thank you. Thank you Mr. Mannhart and Mr. Johnson. The case is taken under submission. No he didn't and that's why I didn't invite you to rebut on the cross appeal. Thank you, Your Honor. I want to make only one point about the Jacksonville case. No, your time is run. Thank you