By Tim Akpinar
When we think of marine insurance, we tend to think largely in terms of coverage. This means reviewing a boat policy on a regular basis to make sure it provides adequate coverage for things that can go wrong on the water. Prudent vessel owners want to know the dollar limits they’re covered for in the event of an accident. They want to know if they’re covered for full replacement value if a boat is destroyed by fire. Are salvage claims covered? Will a policy provide coverage for environmental damage to a delicate ecosystem or wreck removal from a busy channel?
While these are all important aspects of coverage, the relationship with an insurance company doesn’t end there. Staying in the good graces of a carrier also means using a vessel in accordance with policy guidelines. This means honoring provisions about whether a boat will be used recreationally or commercially. It means confining usage to geographic areas or seasonal time periods set forth in a policy. It also means cooperating with an insurance carrier’s demands for information or statements in the course of investigating a claim.
Cooperation in the aftermath of a claim can mean many things. It can mean making a vessel available for inspection or submitting to a physical examination if injuries were sustained. It can mean filling out questionnaires or answering questions at an examination under oath, or an EUO. A recent federal court decision demonstrated that failure to cooperate with a demand for an EUO could result in denial of a claim.
The matter arose when a boat owner insured with State Farm Fire & Casualty Co. reported that his boat and fishing equipment had been stolen from his home. The policy required that a boat owner provide records and documents requested by State Farm in the event of a loss. It also required a boat owner to submit to EUOs. In this case, the boat owner refused and hired an attorney to file a lawsuit against State Farm. The court held that refusal to submit to an EUO and provide relevant documents amounted to a breach of the policy. It ruled in favor of State Farm. The boat owner appealed, resulting in a federal circuit court reviewing the lower court’s decision. (Kerr v. State Farm Fire & Casualty Company, No. 12-30332, U.S. Court of Appeals, Fifth Circuit)
The general lesson is that failure to cooperate with an insurance carrier can result in denial of a claim.
Since the matter arose in Louisiana, the court applied Louisiana state law. Referring to prior decisions, the higher court upheld the precedent, “When the words of an insurance contract are clear and explicit and lead to no absurd consequences, courts must enforce the contract as written.” (Succession of Fannaly v. Lafayette Ins. Co., 01-1144 (La. 1/15/02); 805 So. 2d 1134, 1137). The court also held that “failure of an insured to cooperate with the insurer has been held to be a material breach of the contract and a defense to suit on the policy…” (Hamilton v. State Farm Fire & Casualty Ins. Co., 477 F. App’x 162, 165 5th Circuit 2012 unpublished).
Although this case involved the application of a given state’s laws, it is a generally accepted premise that insurance carriers have the right to reasonable cooperation from boat owners in the event of a claim. When that cooperation isn’t provided, it can serve as grounds for denial of a claim. This is particularly true in situations where time is of the essence and evidence is of a fleeting nature. An insurance carrier would want to speak with witnesses while recollections are fresh, not 10 months after the fact. They would also want to see a storm-damaged boat before it undergoes repairs or is further damaged during transport.
This court decision, like any other matter involving boats and the law, is something that materialized from a given set of facts and circumstances. No two cases are identical. The general lesson is that failure to cooperate with an insurance carrier can result in denial of a claim. It doesn’t mean boat owners should not contemplate legal action if the circumstances warrant it. There are cases where a boat owner does cooperate, but ultimately, the cooperation doesn’t do anything to bring about an equitable resolution of a dispute.
For instance, say a boat owner files a claim after his boat sinks because a cooling system hose clamp fails. The carrier argues the failure was the result of normal “wear and tear,” which is not covered. Another example is an owner who argues that damage to an engine from water incursion is the result of a latent defect, while the carrier argues it is the result of a manufacturing defect, thus disqualifying payment. In such cases, a boat owner could see the courthouse as the only viable option, rather than obediently abiding by the findings of the insurance carrier. It all depends on the nature of the particular situation. While a duty of cooperation is a general cornerstone of the contract of insurance, prudent boat owners are also vigilant to look out for their own interests in the course of resolving claims.
Tim Akpinar is a maritime attorney who represents recreational and commercial mariners throughout the U.S. in collision, salvage, injury and property loss cases. A former merchant marine officer, Tim has taught law at SUNY Maritime College. Visit www.mycounsel.us or email firstname.lastname@example.org.