Marine Insurance Warranties: Who Needs a Captain?
A panel of the United States Court of Appeals for the Eleventh Circuit just took aim at an old U.S. Supreme Court precedent in a recent decision involving the loss of a pleasure vessel during a recent hurricane. In Travelers Property Casualty Company of America v. Ocean Reef Charters LLC, three Eleventh Circuit judges agreed that the effect of two warranties in the insured’s hull policy were governed by Florida law rather than maritime law.
The case involves a 92-foot Hatteras yacht known as the My Lady. The yacht was insured, but the hull policy contained two key warranties: one, that the insured would employ a “professional captain,” and the other that a one full-time or part-time crewmember would be employed as well. The problem: no such captain or crew was on board when Hurricane Irma approached Key Largo, Florida in September of 2017. The boat owner actually called his former captain to see if he could move the yacht to a more protected location, but the former captain eventually declined—leaving the owner to secure the yacht as best he could as the storm approached. The yacht broke free of its moorings, hit a seawall and eventually sank.
The insurer, Travelers, filed suit against the owner, alleging that the captain and crew warranties were both broken, thereby voiding the policy. The issue was what law to apply to the warranty breach: Florida law, under which a “technical” warranty violation does not void coverage unless it actually increased the relevant hazard, or maritime law, which has been held to require strict compliance with at least some insurance warranties—for example, the warranty of seaworthiness.
Looming in the background was Wilburn Boat v. Fireman’s Fund, a 1955 Supreme Court opinion that has come under a fair bit of criticism. The holding of Wilburn (briefly summarized) is that state law governs marine insurance policies unless an “entrenched” rule of maritime law applies. The case has spilled no end of legal ink over what maritime law rules are “entrenched” enough to knock out state laws that tend to be more favorable to vessel owners.
This time the Eleventh Circuit panel sided with the insured. Expressing disdain for the confusion left behind by Wilburn Boat, the panel refused to hold that all warranties in marine insurance policies, regardless of their nature, were subject to an entrenched rule of strict enforcement; rather, the panel limited the strict enforcement rule to certain recognized marine insurance warranties, such as the warranty of seaworthiness and the navigational warranty. Wilburn Boat had, after all, involved a warranty against commercial use, which the Supreme Court had held was governed by Texas law rather than any entrenched maritime law rule. Clearly, only certain warranties were governed by maritime law—and since the panel could not find any persuasive maritime law cases involving the warranty of a captain or crew, it chose Florida law instead. The case was remanded for application of the more forgiving Florida rule.
One especially interesting feature of the case is its take on the United Kingdom’s Insurance Act of 2015. That Act liberalized English marine insurance law to permit the insured to show that a warranty breach “could not have increased the risk of the loss which actually occurred in the circumstances which it occurred.” That is, Parliament had adopted something like Florida’s more relaxed warranty rule. The Eleventh Circuit panel noted that English law had “turned full circle” on this point, and expressed interest in the effect the new Act might have on American maritime law.
That same Act of Parliament had in fact been the subject of a similar argument in another very recent case, QBE Seguros v. Morales-Vázquez. In that case, an insured urged a panel of the U.S. Court of Appeals for the First Circuit to throw out the hoary maritime law doctrine of uberrimae fidei, or utmost good faith, because Parliament had done so in its 2015 Act. Many an insured vessel has run afoul of uberrimae fidei’s requirements. Although the First Circuit panel agreed that federal courts could “take heed of developments in English law,” they were “not obliged to change course merely because Parliament acts to alter a previously entrenched principle.” These two appellate decisions seem to be the only ones commenting on the effect, if any, of the 2015 Insurance Act on the marine insurance law of the United States.
Ocean Reef Charters does thrown into relief some of the confusion that has prevailed since Wilburn Boat. To echo the panel, "[m]aybe, just maybe, this case will prove tempting enough for the Supreme Court to wade in and let us know what it thinks of Wilburn Boat today."