The United States Supreme Court has agreed to hear a case involving an insurance company that denied a claim under a maritime all-risk insurance policy because the policyholder failed to maintain fire extinguishers that were properly certified and tagged.1 Here is the quote about the facts from the insurance company in its petition to the Supreme Court:
Following a loss in which insured vessel ran aground, GLI investigated the loss and discovered that the vessel’s fire extinguishers had not been properly certified and tagged. With respect to the insured vessel’s firefighting equipment, the Policy contained an express warranty that all such equipment would be properly certified and tagged and that any breach of this warranty would void the Policy from its inception. Based on this clear breach of warranty, GLI filed a declaratory judgment action in the United States District Court for the Eastern District of Pennsylvania, seeking a decision from that court confirming GLI’s decision that the Policy was void from its inception and afforded no coverage for the loss.
Everybody in the insurance business knows that policyholders do not get to read the insurance policy until after it is purchased. You know more about the quality of a piece of fruit at the grocery store than you know about the terms and quality of an insurance policy you are about to purchase, often involving millions of dollars. So, some states will find nitpicking and innocuous clauses against public policy unless the insurer meets certain criteria at the point of sale.
The legal case before the United States Supreme Court involves whether the insurance companies can contract around these public policy and consumer protection laws by placing a clause that designates applying the laws from a friendly state that does not recognize these consumer safeguards into the insurance policy.
My mother taught me that with some things under my control, I should try to be “safe rather than sorry.” So, to all of my friends who own boats, I made a warning to you recently in A Warning to Every Boat and Yacht Owner or Captain About Your Insurance, and say it one more time because this is under your control before a loss happens:
Please make certain that what you promised in your application for insurance is accurate and still being maintained. Take out that policy and its application and double check to make certain the requirements to maintain insurance on your boat are being met.
Insurance companies are increasingly writing longer questions and more demands into insurance applications. I suspect that is because they will investigate and look for legal excuses not to pay your claim in the event of a large loss. It does not take a rocket scientist to figure out it is a lot more profitable for an insurer to conduct its business with this post-loss underwriting than to do otherwise. That is why many states outlaw this type of activity.
When I am racing in Merlin against my friends, surfing down a 20-foot wave doing 25 knots, I am not thinking, “hey, did we get the fire extinguishers re-certified and tagged?” Whether you have a grouper, bass, or perch on the line, you are not wondering about your boat’s fire extinguishers. When you are diving on a boat in the Florida Keys or toasting a glass of champagne to a romantic sunset on a cruising boat, you are not thinking about your insurance policy and application terms.
So, be safe and check your policy now. Spring is here, and now is a good time to prevent a second disaster from happening caused by your marine carrier’s post-loss underwriting.
The above photo is me following the finish of the 2019 Transpacific Yacht Race to Honolulu. If you want to learn more about adventures and lessons from Merlin, read Mavericks & Merlins: Sailors And Renegades Leave Shore, What About You?
Thought For The Day
“If you haven’t hit a rock, you haven’t left the dock.” How true! If we don’t set sail into the unknown, if we haven’t hit that proverbial rock, we haven’t exposed ourselves to the risks and rewards that come from putting ourselves out there in the world to see what will happen next.
— Mavericks & Merlins: Sailors And Renegades Leave Shore, What About You? by Chip Merlin