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.
The 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.