Maritime lawyers abound in a federal court case that discusses very complex concepts in admiralty versus state law regarding the sinking of a yacht during Hurricane Irma. In a post last month, Insurance requirements for aircraft and shipping – Is the pilot or captain qualified according to the insurance terms?I noted and warned that policyholders and agents should double check to ensure that these criteria are met:
The qualifications of pilots and captains in aviation and naval policy are important. Aircraft policies and more significant marine policies have criteria that pilots and captains must meet in order for the policy to be fully effective at the time of an incident. For those of us who are not owner-operators, it is important to make sure that your paid crew is up to date with their licenses and that their references meet the policy requirements.
The latest federal case1 noted the current policy requirement and the actual problem:
This case concerns the death of M / Y My Lady, a 92-foot Hatteras yacht. Ocean Reef, the owner of M / Y My Lady, insured it with travelers for a one-year period from October 2016 to October 2017. The 2016-17 policy, a renewal of annual insurances issued during the previous two years, contained two express warranties that are applicable in this case. First, the captain’s guarantee required that Ocean Reef hire a full-time professional captain approved by Travelers: ‘It is guaranteed that you will hire a professional captain for the yacht. . . Such a captain must be full-time and approved by us. ‘ Second, the crew guarantee required that Ocean Reef had a full-time or part-time professional crew member on board: “You [shall] employ 1 full-time or part-time professional crew for your yacht[.]
Ocean Reef did not hire a professional captain for M / Y My Lady in early September 2017, when Hurricane Irma was on its way to Florida. It also had no crew on board.
…Mr. Gollel did his best to secure the yacht by, among other things, adding extra fenders and mooring lines. The extra mooring lines proved to be ineffective when a one-year-old bridge pile – to which the port liner was attached – gave way when Hurricane Irma struck ashore on 10-11 September 2017. The yacht hit other piles and hit the sea wall, before eventually becoming hollow. and sinks at the quay. The damage resulted in a total constructive loss according to travelers’ policy.
Travelers brought an action and declined coverage, and the court noted the legal disagreement between the parties:
Travelers argued that federal maritime law requires strict compliance with explicit guarantees in marine insurance contracts, and that a breach hinders coverage even if it is not related to the loss. Ocean Reef objected that Florida’s so-called “anti-technical charter” should apply instead, and that according to that charter, the violations did not exclude coverage because they were not related to the loss.
Florida’s anti-tech charter provides in part:
A crime. . . does not invalidate the insurance or the contract, or constitute a defense against a loss thereof, unless such a crime or violation increased the danger in any way within the control of the insured.2
The legal academic part of this case is traditional guarantee rules found in lengthy admissions laws and whether the precedent set by the US Supreme Court allows Florida’s anti-technical charter to govern the situation. A commentator, Thomas Belknap, i What is the insured’s obligation under a marine insurance? It depends on…noted:
At the heart of much of this controversy seems to be the same concern that worried the Wilburn Boat Supreme Court: Is it really fair to allow an insurer to evade its obligations under insurance where the insured has paid his premiums and suffers an otherwise covered loss, but has made mistakes to the insurer that do not actually bear the risk? …
Of course, historically there were good reasons for such a rule: the insurer was asked to take a risk by insuring a ship that could be halfway around the world, without any practical means of inspecting or inspecting the ship before agreeing to take the risk. Strict maintenance of guarantees, together with the overriding principle of uberrimae fidei (extreme good faith), which claims that an insurance policy can be annulled if the insured has failed to disclose all facts that may be relevant to the insured risk, was the way to persuade the insurer to act quickly in issuing the insurance and at the same time ensure that it took only the risk it intended to take, and nothing more.
However, most states have avoided these strict rules and have adopted various “anti-technical” provisions designed to protect “innocent” insured from the shocking surprise of having an insurer deny coverage for policy violations that appear insignificant to the risk or the loss. And so the courts, when faced with the question of whether the strict guarantee rules of the Maritime Act should override these state legal protections, are often in conflict, with the result that many such cases end up with distorted or seemingly inconsistent decisions.
The bottom line is that the Federal Court of Appeals ruled that Florida’s anti-technical law would apply:
All of this means that Florida law, especially Florida State. § 627.409 (2), regulates the effect of Ocean Reef’s breach of the captain’s and crew’s guarantees. Upon arrest, the district court will need to apply § 627.409 (2) and consider all other related arguments raised by the parties. See generally Pickett vs. Woods404 So.2d 1152, 1153 (Fla. App. 1981) (which states that § 627.409 (2) was “designed to prevent the insurer from avoiding coverage for a technical omission which does not play a role in the loss”); Eastern Ins. Co. v. Austin, 396 So. 2d 823, 824-25 (Fla. App. 1981) (with the conclusion that the term “danger” in § 627.409 (2) “refers to[s] to the danger of the insured vessel itself ‘). It seems that Florida law places the burden of proof on an infringement and “a consequent increase in risk” on the insurer. Looks Fla. Power and Light Co. v. Foremost Ins. Co., 433 So. 2d 536, 536-37 (Fla. App. 1983).
My point of emphasis is that many of these disputes in maritime and aviation policy can be avoided through careful insurance and then maintain the requirements of captains, pilots and crew. Insurance agents should be careful to highlight these coverage obligations for affluent owners who are often preoccupied with running a business rather than keeping track of the exact coverage provisions in their aircraft and yacht policies. Yacht and aircraft managers should double check these coverage requirements.
I do not have the yacht anymore. The cost of running it was insane. But it was so much fun when I had it. I do not regret it.
1 Travelers Prop. Cas. Co. of Am. v. Ocean Reef Charters LLC996 F. 3d 1161 (11th area 2021).
2 Fla. Stat. § 627.409 (2).