One Beacon v. Crowley Marine: Towing Maritime Contracts into the Internet Age
January 2012
The Fifth Circuit Court of Appeals
recently upheld a Southern District of Texas decision allowing the
incorporation of contractual risk-shifting indemnity and insurance terms and
conditions located on a company's website into a repair service order (RSO)
for shipyard work on a barge in One Beacon Ins. Co.
v. Crowley Marine Servs., Inc., 648 F.3d 258 (5th Cir. 2011).
by Michael
A. Orlando *
Meyer Orlando
LLC
As long as the reference to the website containing the risk-shifting
terms was clear to the party to be bound, and the party to be bound had
adequate notice of the location of the terms and an opportunity to review
them, the incorporation of a website by reference may stand in the place of
printed terms.
The Repair Service Order
Crowley Marine hired Tubal-Cain Marine Services to perform repair work on
one of its vessels. After meeting and verbally discussing what work needed
to be done, Tubal-Cain began work. Thereafter, Crowley issued Tubal-Cain an
RSO outlining the scope of work to be done and providing a project number
for billing purposes.
There had been 8 such jobs in the prior year, and there were 15
additional jobs following this particular job. RSOs were issued for each
job; none were signed by either party. The top of the first page of the RSO
stated, in all caps, "This is a confirmation. Do not duplicate. This RSO is
issued in accordance with the purchase order terms & conditions on
www.crowley.com/documents & forms, unless otherwise agreed to in writing…."
None of Crowley's actual terms and conditions were written on any part of
the RSO.
One of the terms and conditions on Crowley's website required Crowley's
vendors, such as Tubal-Cain, to defend and indemnify Crowley against any
claim that may be brought against Crowley arising out of any injury to a
person, even if Crowley caused that injury. Crowley's terms also required
its vendors to obtain certain insurance policies and to name Crowley as an
additional insured under such policies.
A conflict between Tubal-Cain and Crowley arose when an employee of one
of Tubal-Cain's subcontractors was injured while performing repairs on
Crowley's barge and subsequently filed suit against Tubal-Cain and Crowley.
Crowley requested, and was denied, defense and indemnity of this claim from
Tubal-Cain and Tubal-Cain's insurer, OneBeacon. OneBeacon also denied
Crowley additional insured status.
Tubal-Cain insisted it had no written contract with Crowley; thus, it had
no notice of and did not assent to the Internet indemnity and insurance
terms and consequently had no duty to defend or indemnify Crowley in the
personal injury suit. OneBeacon contended that the additional insured
endorsement did not cover Crowley. Lawsuits and countersuits between
Tubal-Cain, Crowley, and OneBeacon ensued.
The Holding
The District Court for the Southern District of Texas held that a written
contract between Crowley and Tubal-Cain did exist and was formed by the
combination of an oral agreement to do the specified work on the barge, the
RSO Crowley issued to Tubal-Cain, and an invoice Tubal-Cain sent to Crowley.
Crowley's terms and conditions were incorporated into this contract due to
the language at the top of Crowley's RSO referring to Crowley's website,
coupled with the fact that Tubal-Cain never objected to Crowley's terms.
Importantly, the district court adopted, and the Fifth Circuit affirmed,
the general use of incorporating risk-shifting terms and conditions found
only on a website into maritime contracts. The Fifth Circuit reached this
decision by determining that traditional common law allows the practice of
incorporation by reference, and federal maritime law is derived from common
law principles. Terms from a website may be incorporated into maritime
contracts in the same manner in which terms are incorporated by reference
into paper documents. The Fifth Circuit stated that:
The chief consideration when determining the validity of
contractual terms—in contracts with or without a nexus to the Internet—is
whether the party to be bound had reasonable notice of the terms at issue
and whether the party manifested assent to those terms.
The court held that Tubal-Cain had notice of the incorporation of
Crowley's terms due to "the explicit incorporating language prominently
placed on the face of the RSO in all capital letters." The RSO also clearly
referred to a particular document or place (Crowley's website) that
contained Crowley's terms and conditions. Tubal-Cain's representatives had
access to the Internet and knew how to use the Internet, Crowley's website
was easily accessible, and Tubal-Cain's representatives knew the terms were
online and chose not to look at them. Id.
The court also held that "notice" of terms and conditions is judged
on a "reasonableness" standard. Though the Web address listed on the top of
Crowley's RSO did not lead a user directly to Crowley's terms and
conditions, a reasonable search of www.crowley.com (which was listed on the
RSO) would eventually lead a user to the terms.
The "notice" element further includes a party's notice of the terms and
conditions once on the referenced website. In this case, Crowley was seeking
to enforce its indemnity terms and conditions located on its website. The
court reiterated that indemnity terms that purport to indemnify a party for
its own negligence must be specific and conspicuous in order to be
enforceable under maritime law, citing Orduna S.A.
v. Zen-Noh Grain Corp., 913 F.2d 1149 (5th Cir. 1990). The Fifth
Circuit held that Crowley's indemnity terms were specific in their
limitation of Crowley's liability and were conspicuous to a reader of the
website. Regarding the 4-point font of the terms, the court stated that the
text size could be enlarged on a computer. Tubal-Cain was held to have
sufficient notice of Crowley's online terms and conditions and was judged to
have shown assent through its receipt of Crowley's RSO and its failure to
object to any of the wording or references contained therein.
Clearly, the parties' course of dealings played a major role in the
court's decision. Even though the business relationship might have only been
in existence for a period of as little as 6 months, there had been 8 prior
jobs using the identical RSO. However, with its reference to a case allowing
a course of dealing based on receipt of only three or four bills of lading,
the Fifth Circuit now appears to have adopted a very low threshold for proof
of a "course of dealings."
Both the district court and the Fifth Circuit concluded that Tubal-Cain
had the requisite notice of, and assent to, the terms and conditions
referenced on Crowley's RSO and contained in full on Crowley's website. As
such, Tubal-Cain was bound to those terms, including the indemnification of
Crowley in the personal injury suit brought by a Tubal-Cain subcontractor.
No Additional Insured Status
The court also affirmed the district court's holding that Crowley was not
entitled to additional insured status under Tubal-Cain's marine liability
policy. The policy contained an additional insured endorsement that required
two things: (1) There had to be an obligation contained in an "insured
contract," and (2) the additional insured had to be specifically named in
the endorsement.
While the district court held that there was an insured contract
requiring Crowley to be named as an additional insured, the insurance
policy's endorsement did not specifically list Crowley. The Fifth Circuit
affirmed on the basis that Crowley's reading of the endorsement that it was
sufficient to only require an insured contract would render meaningless the
words "… the person(s) or organizations(s) shown below…."
The Effect
For certain types of maritime contracts, incorporation of terms and
conditions contained in very fine print or that do not immediately accompany
the initial agreement may be standard practice. Bills of lading and cruise
line passenger tickets are ready examples. Sheer volume and the lack of
personal negotiation related to terms and conditions in those types of
contracts might account for the way courts have dealt with incorporation by
reference, notice, and assent issues. However, maritime contracts are still
dealt with at an individual negotiation level in many settings. In such
settings, notice and assent issues should occur at something greater than an
institutional Internet-only level, allowing for mere reference to a website.
Arguably, for risk-shifting terms buried several layers deep within a
website, there should not be sufficient notice and assent to allow a party
to be indemnified for that party's own negligence. In the history of U.S.
jurisprudence, courts have done their best to require more when it comes to
allowing a party to shift the risk related to the party's own negligence or
fault. This case represents a very large leap in the opposite direction,
particularly in a setting where the court recognizes that work is often done
based on oral agreements.
No doubt this is a classic warning of contractor beware: Without any
overt assent—no mention, no negotiation, nothing "in writing," and no notice
other than an innocuous reference to "see terms and conditions on xyz
website"—you can be held to owe indemnity and insurance protection for a
personal injury or death of anyone, regardless of the fault of the party
with whom you are contracting. While that might be acceptable in some
limited circumstances, it should not be the standard in maritime contracts
as a broad-based general rule. With this ruling, admiralty and maritime
commerce is being dragged into the Internet age of the 21st century, whether
it suits all elements of such commerce or not.
The only saving grace is that not all references to online terms will
provide adequate notice. Faulty Web pages, Web addresses not given or poorly
given, multiple changes to a website over the life of the contract, etc.,
will likely be held as the types of references that do not provide notice of
the terms contained therein. Undoubtedly, defenses to risk-shifting contract
terms, such as lack of notice or inconspicuousness, will become harder to
prove as Internet usage becomes ever more sophisticated.
Until website incorporation of terms and conditions becomes a standard in
maritime commerce, one can expect many surprises in the coming years on
indemnity, defense, and insurance issues.
*The author gratefully acknowledges the assistance of his
son (and firm associate) Mike A. Orlando Jr.
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