Eleventh Circuit Court of Appeals Finds No Coverage in Yacht Policy for Errors of Insured in Operation or Maintenance of Vessel

New Hampshire Insurance Company ("NHIC") issued a maritime insurance policy on a 110-foot yacht owned by Rainbow Air Corp. ("RAC"). RAC's sole shareholder, Krilich, was also listed as an insured on the policy. The yacht partially sank at her berth in "clear weather and calm seas."  New Hampshire Insurance Company v. Krilich and Rainbow Air Corp., No. 06 Civ. 60309 (11th Cir. July 20, 2010).

The policy excluded from coverage "any loss or damage arising out of…lack of reasonable care or due diligence…in the operation or maintenance of the vessel." Id. The evidence at trial showed that the vessel had developed a fracture in its fiberglass keel, which allowed water to pass into the holding tank. The watertight cover for the blackwater tank was unsecured, and so the vessel's static water line rose to the height of the sea chests, and water flooded the engine room. Id. The bilge alarms did not work because the engine room bilge pumps were either turned off or inoperable. Id.

In their pre-trial stipulation, the parties agreed that the insurance contract was governed by federal maritime law and/or Florida law, but failed to identify the applicable proximate cause standard. Id. The United States District Court for the Southern District of Florida applied the federal maritime proximate cause doctrine and issued a declaratory judgment in favor of NHIC and dismissed Krilich's claim that "the vessel was well maintained and that a rupture in her keel had caused her to sink." Id. The Court found that "the conditions that led to the vessel's submersion were all detectable through the exercise of due diligence and implementation of a regularly scheduled inspection and maintenance program," and that the "unsecured blackwater tank cover and sea chest covers presented an open and obvious condition."  Id. Krilich appealed the decision on the grounds that the Court abused its discretion in failing to consider whether the Florida concurrent cause doctrine could apply to determine causation under the policy.

Under federal maritime law "the proximate cause is the efficient cause and not a merely incidental cause which may be nearer in time to the result.  Id. citing Lanasa Fruit S.S. & Imp. Co. v. Universal Is. Co., 302 U.S. 556, 562, 58 S.Ct. 371, 374 (1938). Under Florida's concurrent cause doctrine, coverage is still permitted when "the injury is caused by multiple causes and one of the causes is an insured risk." Id. citing Hrynkiw v. Allstate Floridian Ins. Co., 844 So. 2d 739, 745 (Fla. 4th DCA 2003). The Florida doctrine, however, applies only when "the causes are not related and dependent, but rather involve separate and distinct risks." Id.

On appeal, the Court of Appeals for the Eleventh Circuit applied both standards to the events that led to the sinking of the yacht and found that, since the parties' experts both agreed that the vessel "would not have sunk as quickly or in the manner that it did if the sea chests had been secured watertight," it makes no difference which standard was used because the result is the same. Id.

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