Insurance on ships and goods is one of the oldest forms of property insurance. One of the first questions when dealing with any type of policy involving boats, marinas, cargo and even ports is whether government insurance or admiralty laws apply to a given situation. It is not a well-settled area of the law, as evidenced by the language of a recent decision.1
In deciding the question of whether admiralty laws applied, Judge Robert Hinkle observed:
Whatever one might say about the life of the law more generally, the correct strategy for classifying matters as maritime or non-maritime focuses on experience—on distinctions rooted in precedent—rather than on logic… The distinctions are full of inconsistencies. Consider two identical contracts to add identical properties to identical ships. The first vessel has been completed and delivered to the owner, taken to sea for perhaps an hour, and then, in a refit, taken back to install additional features. The second vessel has been completed with the exception of the same features – the owner will not take delivery until these features are added – but the vessel has been put to sea for an hour, perhaps much longer, for trials. The contract to install the features on the first vessel is maritime. The contract to install the features on the other vessel is non-maritime. This is because of the settled rule that contracts to repair existing ships are maritime while contracts to build new ships are non-maritime – even if the contracts cover exactly the same work in exactly the same way in exactly the same place. The rule is the rule, even if it can only be explained as a matter of precedent, not logic.
How is a builder̵
7;s risk policy treated for a vessel? The court ruled as follows, noting that logic played little role in the decision:Equally clear are contracts to insure maritime vessels. This has been said time and time again. See e.g. Kossick v. United Fruit Co.365 US 731, 735 (1961) (stating “the limits of admiralty jurisdiction over contracts … have always been difficult to draw” but contracts to insure a vessel are maritime) New England Mut. Marine Ins. Co. v. Dunham78 U.S. 1 (1870)); see also Schoenbaumsupra, §§ 3:10 & 19:2 (stating marine insurance contracts invoke admiralty jurisdiction and specifically actions ‘to recover under a (ship) builder’s risk policy are within admiralty jurisdiction’).
There is little logic in the rule that a contract to build a new vessel is non-maritime, while a builder’s risk policy insuring the vessel under construction is maritime. But the rule is the rule, even if it can only be explained as a matter of precedent, not logic.
If we wrote a clean slate, perhaps a contract to build a ship would be treated the same as a contract to insure the ship. But if we were writing on a clean slate, the inconsistency could well be resolved by treating both the construction contract and the insurance contract as maritime, at least when, as here, the vessel is large and will sail on the high seas. Make no mistake: the entire company is focused on building and launching a vessel for use in navigable waters. And one should not forget the main risk covered by marine insurance, even construction risk insurance on a vessel under construction: loss of or damage to a vessel in the water…
What about insurance at ports? The court noted:
That policies covering a non-marine pier are non-maritime is hardly surprising – policies covering a house or car or factory are also non-marine. And while Bender suggests that perhaps this would change when the dock dropped—a position that would support the underwriters here, since this vessel also broke loose—it seems more likely that the policy was maritime or non-maritime all along. What is important here is that Bender recognized the settled rule that marine insurance—insurance on vessels—is maritime. Indeed, Bender seemed to assume that if the case involved a traditional vessel under construction rather than a jetty, the builder’s risk policy would have been maritime. Why else would it matter if a floating dock is a ship, or if this dock became a ship when it broke loose?
State insurance laws and admiralty laws can differ significantly. Which law to apply is an important consideration for any insurance policy.
Under admiralty jurisdiction and law, there is no right to a jury trial. Instead, the case is tried only to the court. In this matter, Judge Hinkle ruled that the case should be tried by him rather than by a jury because the builder’s risk policy on a vessel was governed by admiralty law.
Today’s thought
Remember, there is no such thing as a small act of kindness. Each action creates a ripple with no logical end.
– Scott Adams
1 Norwegian Hull Club v. North Star Fishing Co.No. 5:21-cv-181 (ND Fla. Mar. 10, 2023).
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