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Articles Posted in Wrongful Denial of Marine Insurance Claim

Oceania Insignia Fire.jpgAn engine room fire aboard the Insignia–a cruise ship belonging to Norwegian Cruise Lines’ subsidiary, Oceania Cruises–claimed three lives yesterday morning. A total of five individuals were caught in the blaze, specifically, three contractors and two crew members. According to reports, all five were taken to a medical facility in St. Lucia, where the vessel was docked at the time of the accident. One eye-witness to the tragedy stated that one individual passed away before even making it to the dock. Two of the contractors and one crew member died as a result of their injuries while another crew member remains hospitalized. No passengers were harmed. To date, the cause of the fire remains unknown.

General maritime law and perhaps select Federal Statutes intended to protect maritime workers will govern the liability and damage aspects of any lawsuits filed by injured workers or the estates of loved ones lost in this tragedy.
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Carnival Conquest New Orleans Death.jpgSad new coming from New Orleans. Carnival Cruise Lines acknowledges a Carnival Conquest crew member died Sunday morning at the Port of New Orleans while working on the cruise ship’s exterior. The accident occurred when the crew member was performing maintenance work on the side of the vessel while the cruise ship was in port between voyages. Reports state he was working in a cherry picker and became wedged between the machine and a platform holding one of the cruise ship’s lifeboats. The ship’s medical team responded along with local paramedics. Unfortunately, the crew member died. The Coast Guard is currently investigating the incident.

Denied Marine Insurance Claim Lawyer.jpgMany boat owners do not know Great Lakes insurance company buries a provision in its marine insurance policy requiring all disputes arising from the policy be governed under New York law in the absence of “well established, entrenched principles and precedents of substantive United States Federal Admiralty law”. Even if the boat owner never traveled to New York, any dispute concerning the denial of a claim, in many instances, will be decided by New York law. The reason for this provision is because New York law favors insurance companies especially in the area of denying a claim in bad faith. Many states have statutes which provide for attorney’s fees and even punitive damages against an insurance company if a claim is denied when the insurance company knew or should have known the policy covered the claim. For example the Texas Insurance Code provides for attorney’s fees to be assessed against the insurance company for its failure to promptly, fairly, and equitably settle of a claim where coverage has become reasonable clear. By invoking New York law, Great Lakes is attempting to side-step any penalties for wrongfully denying marine insurance claims.

Courts throughout the country have found Great Lakes’ New York choice of law clause is enforceable. However, a Federal Court in Houston, Texas determined the New York choice of law clauses only governs disputes as to whether a claim is covered or not. The court more importantly found the New York choice of law clause does not govern “extracontractual” claims for deceptive trade practices and attorney’s fees for wrongful denial of the insurance claim which is allowed under Texas law. As such, this opinion unravels Great Lakes’ strategy of being able to willfully and wrongfully deny marine insurance claims without fear of penalty.

Sometimes marine insurance companies outright deny claims, but more often, they file what is known as declaratory judgment actions. A declaratory judgment action asks a federal court if an interpretation of the insurance policy — usually an exclusion clause — can be used to deny the claim. Depending upon the court’s answer, the marine insurance company will either accept or deny the claim.

Marine Insurance Attorney Fees.jpgThe reason why marine insurance companies bring declaratory judgment actions is to avoid the punitive damages statute for the wrongful denial of a claim. Declaratory judgment actions, however, are costly for the boat owner as he or she will have to hire an attorney to fight the insurance company. To combat the expense insurance companies place on their customers in pursuing declaratory judgment actions, Florida enacted a statute which holds the insurance company liable for attorney fees should the boat owner win the lawsuit. The purpose of this law is to discourage litigation over insurance policies. Most beneficial to boat owners is that the statute is one-sided and does not allow insurance companies to seek attorney fees if they are successful.

It is interesting to note the law states it does not apply to, “insurance of vessels or crafts, their cargoes, marine builders’ risks, marine protection and indemnity, or other such risks commonly insured under marine insurance policies.” At first blush, it looks like it does not apply to marine insurance litigation. However, the Florida Supreme Court has found the exclusion only applies to rates and rating organizations and not to boat owners seeking attorney fees if successful in litigation.

Damaged Blue Yacht.jpgUpon receiving a claim notice, it is often times a marine insurance company’s knee jerk reaction to tell the yacht owner to take all reasonable precautions to mitigate and lessen the damages or the claim will be denied. The yacht owner, wanting the marine insurance company to pay the claim, will hire various contractors to care for the damaged vessel and to undertake work designed to prevent additional damage from occurring. After the insurance company “investigates” the claim, the owner receives a letter stating coverage is denied because the owner breached one of the several warranties buried in the policy. If this happened to you, maritime law may provide recourse.

Can the Marine Insurance Company Deny My Claim After Requiring Me to Mitigate the Damage?

The answer depends upon whether the marine insurance company required you to mitigate the damage after it knew of the warranty breach. Nearly every yacht insurance policy requires the owner to minimize or prevent further damages after an accident. This is to protect the marine insurance company from having to pay more money associated with additional post-loss damage which could have been prevented. However, if the underlying claim is not covered by the policy because the owner breached a warranty, there is no obligation on the part of the yacht owner to mitigate the damage.

We often times represent clients whose marine insurance companies wrongfully deny claims based upon exclusions even though the loss was really caused by a covered risk. This is a common tactic of marine insurance companies as they often play the odds that you will simply go away and not fight. Fortunately, maritime law is on your side should you decide to fight.

sailing_accident.jpgTo illustrate this point, we recently represented a yacht owner whose engine sustained serious damage as a result of an improperly installed coolant plug which fell out while cruising. Boat/U.S. (Continental Insurance Company) denied the claim because the policy excluded damage resulting from overheating engines. It is true the engine overheated; and, at first blush, an owner may think he has no insurance. However, under maritime law, insurance companies are to look at the cause which is most essentially connected with the loss and not merely an incidental cause which may be nearer in time to the loss.

Brais & Brais filed suit for breach of contract alleging the policy covered damages resulting from the improper plug installation, and such improper installation was the cause essentially connected with the engine damage. We argued if the plug was properly installed, the engine would not have overheated and the loss would not have occurred. We also filed a claim for punitive damages and the assessment of attorney fees under the Rhode Island Bad Faith Insurance Statute for the claim’s wrongful denial. Shortly thereafter, Boat/U.S., instead of defending the case, changed course from denying coverage to paying the claim.
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