Insurance companies will often argue that a wear and tear exclusion applies to exclude coverage for an insured’s claim. We often hear such arguments in the context of hail damage, vandalism and wind claims. These exclusions are also present in policies that insure boats. A few months ago, the Eleventh Circuit Court of Appeals ruled that an insurance policy excluded coverage for a boat that sank after an air conditioning hose fractured due to normal wear and tear.
In Miele v. Certain Underwriters at Lloyd’s of London,1 an insured’s 32 foot boat sank and the insured filed a claim under their insurance policy with Lloyds of London. The marine surveyor hired by the insurer to inspect the boat stated that the boat sank because of a "deteriorated thru hull fitting and an inoperable bilge pump.” The insurer denied coverage, relying on the following policy exclusion:
This insurance does not cover losses and or damages arising (whether incurred directly or indirectly) from …:
C. The cost of repairs or replacing any part of Your Boat by reason of wear and tear, gradual deterioration, osmosis, wet or dry rot, corrosion, weathering, marring, scratching, denting, vermin, pets or marine life, or electrolytic or galvanic action.
On appeal, the insured argued that the wear and tear exclusion only applied to the cost of repairing or placing a part (i.e. the air conditioning hose.) The Eleventh Circuit disagreed and affirmed the circuit court’s decision, stating that the exclusion applied to all losses and damage arising directly or indirectly from the need to replace the air conditioning hose. In Miele, it was undisputed the wear and tear to the air conditioning hose caused the fracture and the fracture caused the boat to sink.
This recent case is an important lesson to boat owners that a wear and tear exclusion may not only exclude coverage for the cost to repair or replace a part, but it may exclude coverage for all losses or damage as a result of the defective part. It is also a good reminder to review your policy with a qualified insurance professional and be mindful of such exclusions.