Marine insurance coverage disputes often turn on obscure and little-understood rules of admiralty law. A yacht owner is sometimes trapped in a dispute when coverage under a marine insurance policy is denied because the insurance company claims there has been a breach of an owner’s warranty in the policy. Even a breach unrelated to the loss may void your policy. Confusing? Frustrating? Just ask Elaine Rosin.
Rosin owned Queen of Hearts, a Doral 36 express cruiser that she kept in Boca Raton, Florida. Since she lived part of the time in Ohio, Ms. Rosin relied on a yacht maintenance company to care for Queen of Hearts.
Great Lakes Reinsurance, (U.K.) PLC, a London-based marine insurance company with its U. S. headquarters in New York, insured Queen of Hearts. One section of the Great Lakes application for marine insurance asked Rosin to identify all the operators of the vessel and list their boating qualifications and experience. The application asked her to include, for each operator, any marine or land vehicle moving violations during the past five years.
Rosin’s son, Paul, lived in Ft. Lauderdale, Florida, so she called her insurance broker’s office to ask if she should list Paul as an operator of the vessel. She explained that Paul would only operate Queen of Hearts in an urgent situation if she were not in Florida. Someone at her broker’s office told her that the insurance company only wanted the “regular” operators listed, not a relative like Paul, who would only operate the vessel in an emergency. So, as she completed the insurance application, Rosin listed only herself as an authorized operator of Queen of Hearts.
In August and again in September 2007 the yacht maintenance company that cared for her vessel reported to Ms. Rosin that the vessel needed bottom paint. She was in Ohio, so she asked her son, Paul, to take the vessel to Govan Marine, a repair yard on the New River in Ft. Lauderdale, for painting and other routine maintenance.
Paul had over 25 years of boating experience and had never had a boating accident.
In late October 2007 Paul navigated Queen of Hearts from Boca Raton to his home in Ft. Lauderdale. On November 3, 2007 at around 6 p.m., Paul moved the vessel from his home into the South New River Canal, a 45-60 minute trip to the repair yard.
The South New River Canal is a tricky, man-made, and undredged body of water with no channel markers or lights. It is lined by rocks. The rocks and other obstructions are not easily visible. At its narrowest point the canal is only 20 yards wide.
The water in the canal is between 1 and 6 feet deep. On November 3, 2007, the day of Paul’s ill-fated voyage, sunset was at 6:38 p.m., and high tide was at 5:51 p.m. The tidal range in the canal is about 1 foot. There is a tidal and river current that typically runs to a maximum of about 1 knot.
Paul had never been on the New River Canal in his mother’s boat. As he entered the canal, the tide was falling. The draft of the Queen of Hearts was between 3 and 4 feet.
Paul testified that he drove Queen of Hearts at about 3mph, that both engines were operating normally and that he did not notice anything unusual on the digital depth finder.
Sometime between 6:30 and 7 p.m., before it was fully dark, the Queen of Hearts struck something. The vessel was in the canal, between 100 and 200 yards from the repair yard dock, when she struck.
Paul realized Queen of Hearts was taking on water. He searched for a pump, but to no avail. Then, using his girlfriend’s cell phone, Paul called 911.
Capt. Govan, owner of the repair yard, learned of the incident at about 8 p.m. He arrived on scene about 10 minutes later. By then Queen of Hearts had sunk.
The next day, when the vessel was raised, the propeller blades had been sheared off and the rudder was ripped out of the bottom of the vessel.
Great Lakes Reinsurance filed suit in the Miami Division of the U. S. District Court for the Southern District of Florida, in admiralty, seeking a judicial declaration that its policy afforded no coverage for the loss of Queen of Hearts because, at the time of the accident, the vessel was being operated by the owner’s son, Paul, who was not a “named operator” or “covered person” under the policy. This, the insurance company argued, was a breach of the “authorized operator” warranty and therefore voided the policy.
WHAT THE LAW TELLS US
For hundreds of years, in admiralty law, the universal rule has been that breach by the insured of an express warranty in a marine insurance policy voids the policy and eliminates coverage, even if there was no relationship between the specific breach and the loss. Thus, a vessel that burned could be denied coverage because the vessel was outside its authorized navigation area even though the place where the loss occurred was “quite as safe as the one named in the policy.” Robinson v. Home Insurance Co., 73 F.2d 3, (5th Cir. 1934)
Then, in 1955, the U. S. Supreme Court decided Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U.S. 310, 75 S.Ct.368, 99 L.Ed 337 (1955). The world of maritime lawyers and marine insurance companies has been somewhat confused ever since.
In Wilburn Boat, the Supreme Court held that in marine insurance cases, if there is no judicially established federal admiralty rule on the issue at hand, federal courts sitting in admiralty, should look to the insurance laws of the several states for guidance.
Rosin’s lawyers argued that there was no established federal admiralty rule concerning “authorized operator” warranties in marine insurance policies. They argued that since the boat and the site of the accident were both in Florida, Florida law should apply.
Under Florida’s insurance law, the breach of an express warranty in a marine insurance policy does not necessarily bar coverage or void the policy, unless the breach increased the hazard to the vessel. In other words, unless the insurance company could show that Paul’s operation of Queen of Hearts increased the risk to the vessel, it could not deny coverage.
The trial disclosed that in 2002, Paul plead guilty to reckless operation of a watercraft during a boating festival on the Ohio River. Paul testified that “maybe” there was marijuana on his vessel when he was cited. The insurance company lawyers argued that if Rosin had listed Paul as a potential authorized operator in her application, the company would not have issued the policy.
District Judge Jordan held first, that there was no established federal admiralty rule concerning the “authorized operator” warranty; second that under New York law, specified in the policy as controlling, the breach of an express warranty does void the coverage of a marine insurance policy; and, third, “in an excess of caution” the judge found that even under Florida law, Great Lakes had met its burden of showing that Paul’s operation of the vessel increased the risk to the vessel. There was no coverage for the loss of Queen of Hearts.
To understand the “authorized operator” warranty in your marine insurance policy, you need to read the policy very carefully. Many owner warranties are divided with parts of the warranty text in the “definitions” section, other parts in “general conditions” and in “exclusions.” Assembly of these phrases may be required to complete the warranty.
Some companies cover the “named operator” or “named insured” only. Others cover “named operators” and other unnamed persons who may be operating the vessel if the operator has your express prior permission. Some allow unnamed operators but only for a limited purpose.
Many policies that allow permissive operators exclude coverage if the vessel is operated by a paid captain or paid crew, and many exclude coverage when operated by agents or employees of shipyards, repair facilities, marinas, yacht clubs, sales offices or yacht brokers, chartering agents or employees of boat service stations, towing companies or salvors.
So, before you turn the wheel over to a guest, a mechanic, a yacht broker or to one of your children, you better know who is covered by your policy and who is not. Just ask Elaine Rosin.
Greg Dahl has been an international maritime lawyer for 35 years.