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Is There Insurance Coverage for a Damaged Boat?

boatingPleasure boating is a popular pastime in South Florida.  But with boating comes problems.  One problem associated with boating is the unpredictable nature of damage to the boat.  As such, we are often asked whether or not there is insurance coverage for a damaged boat. 

When your boat is damaged, and you are unable to determine the cause, an insurance company may deny the claim.  A recent case decided by the United States Court of Appeals for the Eleventh Circuit helps us understand why insurance companies deny such claims, and also illustrates why that denial is wrong.

That claim came about when the insureds determined that the boat’s engine was beyond repair.  The insured’s 85 foot Broward Motor Yacht, the “Alica,” was powered by two turbo charged Detroit Diesel 12v71 engines.  While traveling back to Miami, from the Bahamas, black smoke was seen coming from the engines.

Upon safely arriving at Miami, the insured conducted an investigation of the engines.  The insured was unable to determine what was wrong with the engines, nor was he able to determine the exact nature of the loss.  He was also unable to repair the engine.  As a result, the insured reported the claim to its insurance company.

The insured had an all-risk policy which means that coverage is provided against all risks except fraudulent acts of the insured.  Under that policy, it was the insured’s burden to show that the loss arose from a covered peril.

The insurance company investigated the claim and determined that that the loss was due to wear and tear, which was not covered under the policy. They therefore denied the claim.

After the claim was denied, the insureds then had their expert inspect the vessel to determine the cause of the loss after they received the denial by the insurance company. The insureds were able to determine that the damage was caused by a relief valve in the oil system that was fixed in the open position that eventually caused the starboard engine’s failure.

A lawsuit was then filed in the United States District Court for the Southern District of Florida.  The trial court initially ruled in favor of the insurance company, and the insured appealed that adverse ruling to the 11th Circuit Court of Appeal.  On Appeal, the appellate court reversed and sided with the insured.

On appeal, the Appellate Court had to determine whether the Trial Court correctly interpreted the insurance policy to exclude coverage. They also had to determine whether the insureds met their burden of establishing an accidental and fortuitous loss under the all-risk marine insurance policy.

The Appellate Court noted that all the insured had to do was demonstrate that the loss was fortuitous.  On the other hand, they did not have to explain the precise cause of the loss.

The Appellate Court here reasoned that the insureds had satisfied their burden.  As a result, the insured should not have been made to prove the cause of the actual engine failure.  However, the court noted that the fact that the insured was able to prove the cause of the actual engine failure – something they did not have to do – further supported the conclusion that was an accidental and fortuitous loss.

The Court determined that the insureds had a light burden in this case and that making the insureds prove more than what was required seemed contrary to having an all-risk insurance policy.

Given the facts of this case, the Appellate Court concluded that the case should proceed at the trial level and that at the trial level the burden shifted to the insurance company to prove the applicability of one or more of the insurance policy’s exclusions.

Why Won’t Your Insurance Company Pay You If Your Boat Sank?

Sunken BoatYour boat sank.  You timely paid all of your insurance premiums.  Yet the insurance company does not want to pay you for your loss.  The question becomes, why won’t your insurance pay you if your boat sank?

It should come as no surprise, but insurance companies will argue that that the claim is either not covered or excluded based on the wording of the subject insurance policy.  Therefore, if your boat has sunk, and you are in doubt regarding the scope of your insurance coverage, then you should contact our office today to discuss your claim.

It is not uncommon for an insurance company to argue that the loss was not covered because an “accidental physical loss” had not occurred.  The basic requirement that there be some evidence of an “accident” in order for coverage to exist under a policy of marine insurance, termed the “fortuity rule,” is a basic and well established principle of federal maritime law.

In Great Lakes Reinsurance v. Soveral, 2007 A.M.C. 672 (S.D. Fla. 2007) the boat sank at its mooring located at the insured’s weekend home in the Bahamas.  The boat had been left uncovered by the insured so that rainwater accumulated and eventually sank the vessel when the batteries that powered the bilge pumps gave out.  Given those facts, the court concluded that the water entering an uncovered vessel during rainy season was not fortuitous that would call for the existence of insurance coverage.  The court reasoned that since nothing of an accidental nature had occurred that there could be no insurance coverage.

Moreover, a warranty of seaworthiness by the owner of the boat is implied in every policy of insurance insuring a boat.  A breach of this duty will result in the denial of liability for loss or damage caused by the proximity of such unseaworthiness.  So when a boat sinks, for instance, at its mooring in calm waters, a presumption often arises that the vessel was unseaworthy.  That unseaworthiness will often lead to a denial of the claim.

Then there are other provisions in the insurance policy that an insurance company will look to in order to attempt to deny the claim.  Some of the most common exclusions include exclusions for wear and tear or gradual deterioration and lack of maintenance.  In short, if you fail to take good care of your boat then the insurance company may use that lack of care to deny your claim.

Boat Theft Insurance Claims

boat theft insurance claim.gifMiami is home to one of the highest boat theft rates in the nation. The illegal acquisition of vessels can be used for a variety of reasons. In most instances, boats are stolen, stripped down, and left abandoned on the side of the road. Put simply, boat theft is big business because the engines, navigational systems, motors, and trailers are sold off to both local and international consumers.

Boat theft is also linked to drug- and human-trafficking rings, especially with South Florida’s easy access to open waters. In these instances, professional criminals target powerful, high-end boats that give them the best chance of accomplishing their criminal goals.

Sometimes it’s as simple as insurance fraud, especially with the state of our economy. Here, the criminal is the owner, not a thief or an organized-criminal ring.

In Miami, Nicolas Estrella, the insurance mogul of Estrella Insurance, has been facing allegations by his insurance carrier of conspiring to commit insurance fraud in connection with his 80-foot yach that was stolen back in 2009.

The yacht, according to authorities, was stolen by the vessel’s former boat captain, Roberto Figueredo. The boat was then, allegedly, sunk off the coast of the Bahamas. After which, Estrella filed a $3 million dollar claim against his insurance carrier, Federal Insurance Co., which has refused to pay out because of its belief that Estrella and Figueredo worked in conjunction to cash in on the insurance payout.

Having insurance coverage is a necessity in South Florida for a personal-recreation vehicle such as a boat. Your boat is an important investment. Even more so when you add accessories, equipment, and a trailer. It is therefore critical to ensure that you have properly insured your boat.

Most boaters enjoy their boat without a problem. However, some do have an accident, whether it was at-fault or not.

Submerged objects are the most common boat insurance claim, mainly due to the high frequency of submerged logs or debris in water, and the fact they usually cannot be seen until they’ve already hit the engine. The following is a list of the most common boat insurance claims:

1. Hitting a submerged object while cruising
2. Theft while anchored
3. Collision with other boats while boating
4. Storm damage while moored
5. Theft while in storage
6. Accidental damage while cruising
7. Flooding while moored
8. Sinking while moored
9. Owner negligence while cruising
10. Accidental damage while moored

Boat theft is more likely to occur during the warmer summer boating months, so it is important to remember a few practical tips to prevent the theft of your boating equipment and supplies while the boat is anchored:

• Remove any expensive electronics from sight.
• Don’t leave anything of value on the deck.
• Properly secure the motors, tenders and life rafts to the boat.
• Secure all boating equipment, such as oars and anchors to the boat.

However, when its time to file a claim against your insurance company, call an attorney who has experience handling these matters. At Alvarez & Barbara, LLP, our attorneys handle a wide array of insurance claims, including home, auto, and boat loss. Please don’t hesitate to give us a call today.

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