The 11th Circuit applies the universal legal principle of "it depends" to marine insurance disputes

In Travelers Property Casualty Company of America v. Ocean Reef Charters LLC (11th Cir. Case No. 19-13690, May 6, 2021), the 11th Cir. held that whether marine insurance warranties are subject to federal maritime law or state law depends on the nature of the warranty alleged to have been breached.  More specifically, the court held that there is no established federal maritime rule requiring strict fulfillment of all warranties in marine insurance policies.  Rather, the breach of a navigation limit warranty bars coverage as a matter of maritime law, even when the breach is unrelated to the loss.  However, the court held, where the specific warranty alleged to have been breached is not subject to a specific entrenched rule of admiralty law, then state law will govern.

The case concerned the total loss of a 92-foot yacht, and the alleged breach of professional captain and crew warranties.  Although the policy of insurance required the vessel owners to employ a professional captain and crew, the owners did not at the time of the loss.  During the approach of Hurricane Irma in 2017, the owners attempted to engage a captain to move the vessel, but they were unable to do so.  The operator requested permission to move the vessel himself, but the insurance agent advised that the vessel should not be moved.  So instead, the operator of the yacht did his best to secure the yacht to the dock with extra mooring lines and fenders.  However, a dock piling to which the vessel was tied gave way when the hurricane hit.  The yacht drifted loose, was damaged and sunk, becoming a total loss.  Soon after, the insurance company brought suit for a declaration that the owner had breached warranties, voiding the policy.

The district court granted summary judgment to the insurance company, based on Eleventh Circuit Court of Appeals precedents finding an entrenched admiralty rule that marine insurance warranties are strictly construed and enforced.  However, the Court of Appeals disagreed, and reversed the grant of summary judgment.  The court held that the dispute was governed by the oft-criticized 1955 decision by the U.S. Supreme Court in Wilburn Boat Co. v. Fireman's Fund Ins. Co.  While noting that the case concerned a houseboat on an artificial lake between Texas and Oklahoma, and suggesting that the decision may have been tainted by an animus against what the Wilburn court called the “harsh” English rule at the time of strict construction of insurance warranties, the Traveler’s court nevertheless concluded that it was not free to write on a “blank slate,” but rather was compelled to “make sense of the layers” imposed by the Wilburn decision.  Under that decision, a court is to apply the federal maritime rule, but if there is not an entrenched federal rule, then the court is to apply the applicable state law.  Parsing those layers, the court concluded that maritime law had formed an entrenched rule with regard to certain insurance warranties – such as navigational limits warranties – but not others, such as professional captain and crew warranties.  Therefore, the court applied Florida law to the dispute.

Regardless of the commendations or criticisms of the decision, provided that the insurance company does not seek reconsideration by an en banc panel of the Eleventh Circuit or challenge the decision in the U.S. Supreme Court, the decision could have a significant impact on marine insurance.  Prior to this decision, the trend in maritime courts had been to find the doctrine of “utmost good faith” in marine insurance contracts to be well-entrenched outside of the Fifth Circuit Court of Appeals.