Courts Turn Boat Insurance in Florida Upside Down
Federal Judges Assert That State Consumer Law Holds Sway
Federal court rulings are upending how marine insurance works in the biggest boating state in the nation. Florida has nearly 988,000 boats, and now damage claims might have to be paid even after owners have disregarded the terms of their policies.
Earlier this month, a federal appeals court ruled that a Lloyd’s of London claim could not be automatically denied just because the policyholder had failed to employ a fulltime captain when the vessel was destroyed by Hurricane Dorian while docked in the Bahamas.
A U.S. District Court in Florida had found that the owners of the vessel—a 61-foot Viking Princess yacht named Serendipity—had breached an unambiguous “captain’s warranty” in their insurance policy. Insurers define a “warranty” as an unbreakable promise made by the insured to the insurer.
A panel of judges for the 11th Circuit Court of Appeals agreed that Serendipity’s owners had broken their promise. “Under any reasonable interpretation of the Policy, Serendipity LLC was required to hire a licensed captain either to care for the Serendipity full time, or whose full-time job was as a licensed captain. Plainly, Serendipity LLC did neither,” the judges wrote in their Jan. 4 ruling.
Instead, Serendipity’s owners consulted with a pair of captains who first advised them that the Bahamas, specifically Great Abaco, would be the safest place once Dorian had been elevated to hurricane status. Later, as Dorian actually strengthened and it’s path became clearer, the captains said that the storm’s forecasted trajectory was still too uncertain to justify moving the boat to Florida.
Moving the vessel would have been an “unnecessary hazard,” lawyers for the owners wrote. (This contention will be addressed later in the story.)
By the time it hit Great Abaco, Dorian had become a monstrous Category 5 storm. Serendipity was destroyed along with almost every other boat left in the water there.
Thomas E. Danti was hired as an expert witness for Lloyds. He testified:
Plaintiff's failure to employ a full-time licensed captain contributed to the loss of the vessel;
The agreed mooring location for the vessel (Cape Marina in Port Canaveral, Florida) offers favorable hurricane protection features;
Automatic Identification System ("AIS") tracking showed numerous vessels departing the Bahamas before Hurricane Dorian; and
The vessel was not prepared for hurricane season, and its lack of preparation contributed to its loss.
This line of argument was the second in what some lawyers would call a two-dog defense, the first defense being that “I don’t have a dog” and the second, “even if I had a dog, the dog I don’t have didn’t bite you.”
Historically, insurers would not have needed that second dog. The breach of a “captain warranty” would have been enough deny the claim. Full stop. Instead, the judges wrote:
A jury may well credit Captain Danti's testimony over the weather reports offered by Serendipity LLC. But that is a credibility determination for the jury to make. The district court erred in granting summary judgment for Lloyd's when a disputed question of material fact remains about whether Serendipity LLC's breach of the Captain Warranty increased the hazard posed to the Serendipity by Hurricane Dorian.
The judges cited a Florida law designed to protect consumers:
A breach or violation by the insured of a warranty, condition, or provision of a wet marine or transportation insurance policy, contract of insurance, endorsement, or application does not void the policy or contract, or constitute a defense to a loss thereon, unless such breach or violation increased the hazard by any means within the control of the insured.
An earlier case—Travelers Versus Ocean Reef Charters—ended what was once regarded as precedent in federal Admiralty law. In 2021, the 11th Circuit Appeals court threw out a decision favoring Travelers, which had denied a hurricane claim because of a breach in captain and crew warranties. The court ruled that Florida law held sway, not murky federal precedent.
Historically, marine insurance companies have used warranties to manage risk. They have identified factors that increase or decrease the chance of a claim, and they require the insured to comply with warranties to establish the limits of coverage and priced accordingly. Requiring a captain or crew is just one of several ways insurers achieve this. Your policy might include a warranty against racing, carrying passengers for hire or living aboard, etc.
According to attorney Cary Wiener, these court rulings are a signal that warranties no longer constitute an absolute breach in case of a claim. Wiener is not just an Admiralty lawyer, he is the senior marine advocate for the Arthur J. Gallagher insurance company and former president of Pantaenius USA.
Cary said that these court decisions are significant because they will affect the way policies are written, the cost of premiums and availability of coverage in Florida. Now, to deny a claim, insurers must show that a breach of warranty is the “proximate cause” of a boat’s damage, so process defaults to messy fact-finding and lawsuits. The question will become: Did the claimant’s breach of warranty increase the risk of damage?
Florida’s emphasis on “proximate cause” might also come into play regarding disclosures that insurance applicants are asked to make. Typically, an applicant might be asked to disclose a past conviction for drunken driving, for example.
Let’s say a client had failed to disclose a DWI and later made a claim for damage caused, say, in an accidental grounding. If the insurer happened to discover that DWI in the course of the claims process, it would not have to deny the claim. Typically, the insurer would use that breach to cancel the policy altogether and refund premiums paid to date, thus making the claim moot.
Now, according to Wiener, the insurer might have to prove that the skipper had been drinking when the boat went aground for that original sin to matter. Failing that, the insurance company would likely be forced to pay the damage claim, regardless of the breach.
“How can we write in the Florida market and protect the loss rate, if we can’t ensure the customer does the right thing.” Wiener asked? “You break the system when the insurer cannot decide the do’s and don'ts.”
LOOSE CANNON covers legal issues affecting boaters like the court reporter he used to be before he fled New England on a sailboat. Support the work with a subscription.
Goes to a Jury
Barring an out-of-court settlement, the Serendipity case will go before a jury, where the owners will argue that taking the vessel to Florida seemed like a bad idea at the time, according to advice from a couple captains not directly employed by the owners.
In fact, the insurance company’s own expert did a disservice by singing the praises of Cape Canaveral as a hurricane hide-out, because central Florida had been on NOAA’s predicted track as Dorian was bearing down on the Abacos. If Serendipity’s owner had a competent full-time captain, he or she might have consulted with a weather router such as Chris Parker of Marine Weather Center in Lakeland, Florida.
Indeed, Parker was telling clients in the Abacos to run, but not to Central Florida. Dorian hit the Abacos on Sunday, Sept. 1, 2019. By Thursday prior to impact, Dorian was all but certain to make a direct hit on the Abacos, but an escape route had also revealed itself, practically guaranteeing a vessel’s safety.
Had there been a captain, Parker would have advised him or her to throw off the docklines and steam south. “Even if you waited until Thursday evening to make your decision, you could have departed Abaco on Friday morning and arrived in the south part of Central Bahamas or South Florida late Saturday with good weather,” Parker said, considering the slower speeds of sailboats.
“Especially with a strong Category 3 hurricane, the best thing to do is to get out of the path and the potential path of the beast,” he said. “On Tuesday, Wednesday and into Thursday, the only area I would have known with 100 percent confidence would be out of the possible path…was the Southern part of Central Bahamas, with Florida Keys a possible alternative.”
With a 24-knot cruising speed, Serendipity could have departed from the dock at dawn, and arrived at George Town in the Exumas in time for dinner, or Key West the next day.
That’s what Lloyd’s lawyers will have to argue in court: Any competent skipper would have taken that advice and run with it. Instead, Serendipity was doomed as her decision-makers were immobilized like deer in the headlights.
Meanwhile, Florida boatowners may find that fewer insurance companies will offer hurricane coverage, and those that do will be raising premiums even higher than they are now.