Great Lakes Insurance SE v. Chartered Yachts Miami LLC, 676 F.Supp.3d 1251 (2023)
Issue Discussed: Impact of an insured’s misrepresentation of material facts on a marine insurance policy application and breach of policy warranties on coverage
Submitted by Michele Jacobson, Haley Schlinger
Date Promulgated: June 7, 2023
Plaintiff Great Lakes Insurance SE (“Great Lakes”) brought a declaratory judgment action against its insured, Chartered Yachts Miami LLC (“CYM”), seeking a declaration that the marine hull and machinery insurance policy Great Lakes issued to CYM (the “Policy”) provided no coverage for CYM regarding losses it incurred when water entered the CYM-owned boat’s stern (the “Incident”). Great Lakes moved for summary judgment on four counts for CYM’s alleged breaches of: the warranty of seaworthiness, the Policy by misrepresenting material facts, the survey compliance warranty, and the legal and regulatory compliance warranty. The salient facts considered by the court are as follows:
In March 2019, CYM submitted an application for insurance signed by Greg Pack (“Pack”), a beneficial owner of the boat involved in the Incident. The application inquired about the vessel owner’s boating qualifications, to which Pack responded “USCG 100 ton – Had a USCG 200 ton.” Great Lakes ultimately agreed to issue CYM a hull and machinery policy covering the boat. Approximately one year later, CYM submitted a renewal questionnaire, again signed by Pack, that stated “USCG 100 Ton license” in response to the same question concerning Pack’s boating qualifications.
In support of the application on the renewal policy, CYM submitted two Letters of Survey Recommendations Compliance (“LOCs”) and a survey performed by Global International Marine Surveyors (“Global Survey”). The LOCs referred directly to the Global Survey, which cited the boat’s “safety deficiencies” and “deficiencies requiring immediate attention.” The LOCs provided that all recommended safety and maintenance issues raised in the Global Survey were to be rectified in April 2020. Ultimately, Great Lakes issued the Policy, which provided $725,000 of coverage for the boat for a one-year period beginning on March 8, 2020. In November 2020, the Incident occurred.
Great Lakes conducted a post-Incident investigation concluding the LOCs had falsely represented that the repairs would be completed in April 2020. The investigation found only one lifeboat, with expired tags, and found neither handheld flares nor an EPIRB aboard the boat. CYM disputed these findings stating that the investigator did not ask for the flares and that the EPIRB and second life raft had been aboard but were washed out during the Incident. It was undisputed that Pack did not hold a valid United States Coast Guard (“USCG”) boating license at the time of the initial application, renewal questionnaire, or the Incident.
First, the Court considered whether Pack’s answers in the application and renewal questionnaire concerning his boating qualifications constituted material misrepresentations in violation of federal admiralty law and the Policy. The Court found that the marine insurance doctrine of uberrimae fidei, or utmost good faith, requires insurance applicants to “voluntarily and accurately disclose . . . all facts which might have a bearing on the insurer’s decision to accept or reject the risk.” A fact is material when it could “possibly influence the mind of a prudent and intelligent insurer” in deciding whether to accept the risk. The court noted that pursuant to the doctrine of uberrimae fidei, a material misrepresentation by the insured in an application constitutes grounds for voiding the policy, even if the application is completed by an agent of the insured.
On the first issue, whether the answers concerning Pack’s boating qualifications constituted a misrepresentation, the court, citing Pack’s deposition testimony, found that the application and renewal questionnaire provided clear evidence of CYM’s misrepresentation that Pack held a USCG 100-ton license.
Discussion of the second element, materiality, was more in depth. Great Lakes made two independent arguments in support of the materiality of CYM’s misrepresentation. The insurer first asserted that its inclusion of the question concerning the vessel owner’s boating qualifications in the application and renewal questionnaire presumes the materiality of the fact. Alternatively, Great Lakes argued that the undisputed affidavit of its underwriter, Beric Usher, established materiality in stating that the Policy’s terms would have differed had CYM accurately disclosed Pack’s lack of a boating license. In his affidavit, Usher explained that the Policy was a “Named Operator polic[y]” that warranted the boat would be operated only by individuals disclosed to and approved by Great Lakes; an underwriter “could never” provide coverage for illegal chartering in violation of USCG regulations, which could expose the underwriter to financial or criminal penalties. Finally, Usher explained that had CYM disclosed that Pack lacked a valid USCG boating license, the Policy would have either included an additional warranty requiring a licensed captain be onboard during any charter or charged a higher premium for chartering without a licensed captain, so-called “bareboat chartering.”
The court, after considering CYM’s arguments against materiality, found that Usher’s unrebutted affidavit established the materiality of a misrepresented fact, which constituted grounds for Great Lakes to void the Policy ab initio.
The court then turned to the allegation of breach of the Policy’s survey compliance warranty for failure to have the boat’s life raft inspected and tagged. Under New York governing law, the breach of an express warranty works a forfeiture of rights under a policy regardless of materiality or causality of the loss. Accordingly, New York law required CYM to strictly comply with the Policy provision that “[i]f the survey makes any recommendations with respect to the Scheduled Vessel, then it is warranted that all such recommendations are completed prior to any loss giving rise to a claim hereunder[.]” Furthermore, the Policy specified that any breach of a warranty would void the Policy from its inception. Acknowledging CYM’s dispute of the investigation’s findings, the Court held that, nonetheless, CYM had offered no evidence to refute that the tag on the one life raft aboard the vessel during the investigation was expired. CYM’s failure to inspect and tag the life raft annually as expressly required by the Global Survey and the Policy constituted breach of the survey compliance warranty under New York law. Accordingly, the court held in favor of Great Lakes finding the breach voided the Policy ab initio.
Finally, the Court considered whether CYM breached the Policy’s legal and regulatory compliance warranty. The Policy “warranted that covered persons must at all times comply with all laws and regulations, governing the use and or operation of the Scheduled Vessel.” USCG regulations require life rafts to be inspected, maintained, and tested by an approved facility annually. Finding no dispute that the life raft’s tag had expired in January 2018, the Court held that CYM breached the legal and regulatory compliance warranty and voided the Policy ab initio.
Finding no genuine issue of material fact existed as to the above three counts, the court granted summary judgment in favor of Great Lakes.
