The process of completing an insurance application for maritime insurance to cover a pleasure craft, speed boat, yacht, fishing boat, or other vessel can be tedious and confusing. The questions can be unclear, but the accuracy of a policyholder’s answers cannot be overstated. Many boat owners pay premiums for months or years only to receive a denial letter when they submit a claim for damage to their watercraft. While not every innocent misrepresentation or non-disclosure justifies a denial of coverage, inaccurate information provided in a policy application constitutes one of the most common defenses to coverage used by insurance companies.
In the recent case Gomez v. Ace American Ins. Co., 2016 WL 97490 (11th Cir. 2016), a federal court applying Florida law denied coverage because of inaccurate information in the policy. The insured obtained a “Yachtsman” wet maritime insurance policy covering his 32 foot Glasstream boat and trailer. A week after the insured took delivery he transferred possession to his cousin. The cousin also was granted full permission to use the boat, which was kept stored at the cousin’s home. Approximately a month after issuance of the policy, the cousin loaned the boat to a person with an unknown address, who the cousin had only known for a few weeks. The cousin also was unaware whether the borrower had any boating experience let alone proficiency operating a 32 foot vessel. Predictably, the boat and borrower disappeared without a trace.
The insured filed a claim (along with a sworn proof of loss), which was denied. The insurer indicated the policy was being rescinded based on intentional concealment and misrepresentation of material facts in the policy application. The insurer relied on the following evidence in support of its defense: (1) the insured indicated he was the owner rather than a “mere surrogate” for his cousin; (2) the boat was to be stored at the insured’s residence rather than the home of the cousin; (3) the insured claimed he would be the primary operator rather than the cousin; and (4) the insured represented he had four years of boating experience but did not own any of the vessels listed in the application. The trial judge ruled in favor of the insurance company, and the policyholder appealed.
On appeal, the court considered the alleged misrepresentation, omission, or concealment of facts under Florida Statute Section 627.409(1)(a)-(b) and (2). The court observed that under this provision: “[A] misrepresentation, omission, concealment of fact, or incorrect statement may prevent recovery under the contract or policy only if any of the following apply:
- The misrepresentation, omission, concealment, or statement is fraudulent or is material to the acceptance of the risk or the hazard assumed by the insurer.
- If the true facts had been known to the insurer pursuant to a policy requirement or other requirement, the insurer in good faith would not have issued the policy or contract, would not have issued it at the same premium rate, would not have issued a policy or contract in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss.
(2) A breach or violation by the insured of a warranty, condition, or provision of a wet marine or transportation insurance policy, contract of insurance, endorsement, or application does not void the policy or contract, or constitute a defense to a loss thereon, unless such breach or violation increased the hazard by any means within the control of the insured.” [Emphasis added].
The court observed that subsection (1)(a) and (1)(b) apply to inaccurate statements or non-disclosure in the application process whereas Section (2) applies to a “breach or violation” that increases the risk assumed by the insurance company after the policy has become effective. The court also noted that subdivision (1)(a) and (1)(b) apply to all policies whereas subdivision (2) is limited to maritime policies. The court reasoned that the hazard constituting the immediate cause of the loss in this instance was essentially unknown, so it was impossible to determine whether the cause of the loss was within the control of the policyholder. The court further clarified that section (1)(a) and (1)(b) only apply when the misrepresentation is fraudulent or material to the insurer’s risk when the false information or omission is innocent.
The court rejected the contention that the requirement that the hazard be within the control of the insured applied also to provision (1)(a) and (1)(b), which could not be established in this case since the circumstances of the loss involving the boat were not precisely known. The court upheld the trial court’s finding that the inaccurate information did affect the scope of the risk assumed by the insurer such that the information constituted material non-disclosures.
The takeaway is that policyholders should exercise caution when completing an application for maritime insurance coverage. If an insurance carrier denies your claim based on an alleged misrepresentation or omission in the application, you should seek legal advice from an experienced insurance claims lawyer because this can be a complicated issue.
You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].