Lessons from a denied insurance claim

Chip Merlin

Chip Merlin, President of Merlin Law Group, shares how a recent ruling in the United States courts is a worthy warning to every boat and yacht owner or captain about their insurance:

I grew up on the water as the son of a United States Coast Guard officer. Racing sailboats was something I grew to love. When I was 19 years old, I read a Sports Illustrated article about an iconic 70-foot racing sailboat named Merlin.

Merlin was a first of its kind ultra-lightweight ocean racing yacht that set a record in its race from Los Angeles to Honolulu. I promised myself that if I ever had the means, I would purchase her. In 2017, I did just that and have written about some of my adventures in Mavericks & Merlins: Sailors And Renegades Leave Shore, What About You?

However, this post is a warning that your answers in the application for insurance about how you maintain your boat and your plans for its safety may be deemed warranties, that, if not followed precisely, may void your insurance coverage and dearly cost you in the event of a catastrophe.

A federal case decided recently should be a warning about the seriousness of representations made in marine applications. The federal judge noted the basic facts about the yacht’s demise:

“Ralph Young owned and lived on a seventy-four-foot motor operated vessel named the SUMMER STAR (‘the vessel’). Mr. Young insured the vessel through Plaintiff Transpac with Defendant Yachtinsure Services, Inc. from 2013 through 2019. On August 28, 2019, the vessel ran aground and was destroyed when Hurricane Dorian hit St. Thomas in the United States Virgin Islands, where the vessel was moored. Mr. Young tendered abandonment of the vessel, submitted a claim for his damages to Yachtinsure, and demanded payment in accordance with his insurance policy. Yachtinsure rejected the abandonment and denied Mr. Young’s claim, based on what it considered his material misrepresentations in his April 2019 policy renewal application.”

The last thing anybody wants to hear after their insured boat is damaged is that the insurance company will not pay the loss. In this case, the insurance company successfully argued that the boat owner failed to have the boat moored with certain types of lines at the time of the hurricane, as indicated in the application.

Applying federal maritime law and law from New York, the federal judge agreed with the insurance company:

“Mr. Young testified that he traditionally used only four lines to secure the vessel to a single mooring. He further testified that he used only six nylon lines to secure the vessel in Crown Bay during Hurricane Dorian. It is undisputed on the summary judgment record, therefore, that Mr. Young was not in compliance with the promissory warranties he made in negotiating the insurance policy with Yachtinsure because he did not secure the SUMMER STAR with the ten 3/4 inch Nylon mooring lines he agreed to use in his response to the Hurricane Plan’s Question 15.

“Mr. Young contends that his assurance to use ten 3/4 inch lines is only applicable when docked at a marina, and therefore is not pertinent when moored to a single-point mooring such as he was during Hurricane Dorian. I reject this reading of his response in the Hurricane Plan. I am unpersuaded by this interpretation because there is nothing in the Hurricane Plan that indicates that Mr. Young’s intention to use ten 3/4 inch lines is confined only to when he was docked at a marina. If Mr. Young planned to secure the vessel with ten lines only when moored at Crown Bay, rather than docked in a marina. With Mr. Young’s acknowledgement that he would be moored at Crown Bay and, four questions later, his agreement to use ten 3/4 inch lines, the plain reading of Mr. Young’s Hurricane Plan responses is that he was confirming to Yachtinsure that he would use at least ten 3/4 inch nylon braid lines whether or not he was moored to a single-point mooring or docked in a marina.

“Mr. Young’s additional assurances that he would double the mooring lines in the event of a named or numbered storm are separately sufficient to support summary judgment as to breach of contract. It is undisputed that Mr. Young did not double the number of mooring lines to secure the SUMMER STAR when a hurricane watch for Hurricane Dorian was issued on August 27th nor when Hurricane Dorian was approaching the US Virgin Islands on the morning of August 28th. Instead, Mr. Young makes an argument about the tensile strength of the lines he used, asserting that his six lines of indeterminate diameter had a holding strength equivalent to or higher than the 3/4 inch lines he had agreed to use. I reject Mr. Young’s assertions that 1) the thicker mooring lines he says he used to secure SUMMER STAR actually increased the holding strength of the lines; and 2) that he met his contractual obligations under the Hurricane Plan by using larger lines to secure the vessel.

…

“Yachtinsure does not need to explain why it required the mooring configuration that it did although its reasoning is understandable, particularly in light of circumstances surrounding the actual loss of the SUMMER STAR after Mr. Young’s six lines became unmoored from the mooring ball resulting in the vessel floating out to open sea during Hurricane Dorian. It does not matter whether the mooring line configuration was causally related to the loss of the SUMMER STAR or whether Mr. Radulewicz’s actions acted as a third-party’s intervening cause in the vessel’s loss. Mr. Young’s admission that he did not use twenty 3/4 inch nylon braid lines to secure his boat during Hurricane Dorian — and thereby satisfy a prophylactic condition the policy called for — is sufficient to prevent him from recovering under the policy. For this reason, I find Yachtinsure is entitled to summary judgment….”

Policyholders who have been denied claims for all kinds of reasons come to us for help. Most people may think this ruling is an overly technical reason to prevent recovery under the policy. However, the judge cited maritime cases where even a fire extinguisher was not properly maintained and up to date regarding its testing, which led to a valid denial of a claim—and the damage to the boat had nothing to do with the fire extinguisher.

The lesson is that maritime insurance policies and applications for those policies may have clauses that have to be complied with to exacting standards. Most owners of boats and yachts are a lot more concerned with the pleasure of using them and may forget about these clauses and representations made in applications long ago.

If you own or are responsible for a boat or yacht, I suggest that you consider pulling out that never-read policy and check it for what you promised to do to maintain it. You may even have to get your application from your insurance agent to learn what you promised before purchasing the insurance policy.