- A warranty breach only precludes insurance coverage if the breach increased the hazard posed to the vessel.
The Eleventh Circuit Court of Appeals recently had occasion to reaffirm that, in Florida, the breach of a captain warranty in a marine insurance policy only precludes insurance coverage if the breach increased the hazard posed to the vessel, a determination which may sometimes present a fact issue for a jury.
By way of background, case law had provided for a considerable period of time that “admiralty law requires the strict construction of express warranties in marine insurance contracts” and that “breach of the express warranty by the insured releases the insurance company from liability even if compliance with the warranty would not have avoided the loss.” E.g., Lexington Ins. Co. v. Cooke’s Seafood, 835 F. 2d 1364, 1366 (11th Cir. 1988) (so holding in the context of a navigation warranty); Hilton Oil Transport v. Jonas, 75 F. 3d 627, 630 (11th Cir. 1996) (so holding in the context of a trading limits warranty); Travelers Prop. Cas. Co. of Am. v. Ocean Reef Charters LLC, 396 F. Supp. 3d 1170, 1175-76 (S.D. Fla. 2019) (so holding in the context of a captain and crew warranty). In 2021, however, the Eleventh Circuit Court of Appeals reversed Ocean Reef Charters and ruled that its earlier decisions in Cooke’s and Hilton Oil must be narrowly construed as concerning the navigation-type warranties at issue in those cases. See Travelers Prop. Cas. Co. of Am. v. Ocean Reef Charters LLC, 996 F. 3d 1161 (11th Cir. 2021).
The court explained that the Supreme Court’s decision in Wilburn Boat Co. v. Firearm’s Fund Ins. Co., 348 U.S. 310 (1955) had “declined to fashion a uniform federal rule governing breaches of warranties in marine insurance policies, and opted instead for the application of state law.” Ocean Reef, 996 F. 3d at 1165. As a result, strict construction of a maritime warranty is appropriate only “if the specific warranty at issue is (or should be) the subject of a uniform or entrenched federal admiralty rule.” Id. at 1167. If it is, as is the case with warranties regarding navigation limits or seaworthiness, the warranty is strictly construed. But if it is not, as is the case with the captain and crew warranty before the Court in Ocean Reef, then the warranty must be considered pursuant to Florida law and, specifically, Florida Statute section 627.409(2). That statute is “designed to prevent the insurer from avoiding coverage on a technical omission playing no part in the loss,” and it provides that breach of a warranty will negate coverage obligations only if the breach “increased the hazard by any means within the control of the insured.”
These principles were recently reapplied and put to the test in Serendipity at Sea, LLC v. Underwriters at Lloyd’s of London, No. 21-11733, 2023 U.S. App. LEXIS 138 (11th Cir. Jan. 4, 2023), an appeal arising out of an insurance dispute involving a yacht that was destroyed by Hurricane Dorian. On or about July 27, 2019, a retired captain and family friend of the vessel owner drove the insured vessel from Cape Canaveral, Florida to Great Abaco Island in the Bahamas where he and a licensed captain docked the yacht behind a home. In early August, the friend returned home to Florida and, once it was announced that a storm was brewing in the Atlantic Ocean and projected to hit Central Florida, consulted with two licensed captains to determine that the safest place for the vessel to weather the storm was in the Bahamas, where it was docked and secured. As time went by, the storm strengthened into a Category 5 hurricane, but it was “a particularly erratic storm” and “the forecast changed quickly and frequently.” Serendipity, 2023 U.S. App. 138 at *6-7. It eventually made landfall on Great Abaco, where the yacht was docked, and destroyed the vessel.
The yacht’s insurer denied coverage for the property damage claim on the basis that the named insured yacht owner failed to employ a full-time licensed captain for the vessel in violation of the policy’s captain warranty, a warranty that “warranted a full time licensed captain is employed for the maintenance and care of the vessel and is aboard while underway.” The District Court for the Southern District of Florida agreed that the warranty was breached and entered summary judgment in favor of the insurer, noting that the insured had not produced evidence to rebut testimony from the insurer’s expert that the breach increased the hazard since “any licensed captain would have driven the [vessel] back to Cape Canaveral before Hurricane Dorian struck the Bahamas.” Id. at *16. The insured appealed, arguing that any perceived breach of the ambiguous captain warranty did not increase the hazard of loss. The Eleventh Circuit agreed with the insured that the warranty was susceptible to more than one reasonable interpretation given that the phrase “full time licensed captain” could be read to require the insured to either (a) “hire a person whose full-time profession is that of a captain but who only works for the [insured] part time” or (b) “hire a person to work on the [insured vessel] exclusively as a full-time captain’s job.” Id. at *14. Since the insured did neither, however, the ambiguity argument was rendered a non-issue.
As to whether the breach increased the hazard posed by Hurricane Dorian, the court found there was “ample” overlooked evidence in the record (e.g., news articles and weather reports) proffering that “Hurricane Dorian was consistently predicted to hit Central Florida, and that it would have been ‘an unnecessary hazard to attempt to move the vessel’ on account of Hurricane Dorian’s strength and unpredictability.” Id. at *19, 25. The Eleventh Circuit thus concluded: “A jury may well credit [the insurer’s expert’s] testimony over weather reports offered by [the insured]. But that is a credibility determination for the jury to make.” It reversed and remanded for further proceedings to resolve the disputed issue of fact, the determination of which will necessarily dictate whether or not the insured’s breach negated coverage under the policy.