A pivotal case is playing out in the U.S. Supreme Court and boaters should be paying attention.
In a recent story by Marine Industry News UK, the ongoing saga of Raiders Realty vs. Great Lakes Insurance (GLI) has raised several major questions about marine insurance, safety requirements, and how to avoid becoming embroiled in a legal battle as a boater.
The details are as follows:
In 2019, a yacht owned by Raiders Retreat Realty Co., LLC, based in Pennsylvania, ran aground while traveling the Intracoastal Waterway in Fort Lauderdale, Florida. The resulting damage amounted to over $300,000 USD. The yacht was insured through Great Lakes Insurance (GLI).
Raiders is owned by Pennsylvania businessman Phil Pulley, who told Peter Swanson from Loose Cannon that the 70-foot motoryacht impacted with something in the water. The vessel began taking on water, so Pulley ran the boat aground. By the time the boat was stopped, the water was up to the engine oil pans.
When Raiders submitted a claim under its "all risks" policy, it was denied on the grounds that the vessel had not kept its fire suppression equipment up-to-date. The equipment had not been recently inspected or re-certified, so GLI denied the claim by stating that because the equipment wasn't currently certified, it voided the entirety of their coverage. It should be noted that a fire did not occur before, during, or after the incident.
After performing their investigation, GLI's stance was that the policy was “void from its inception for non-compliance with the contract." As a result, Pulley’s premiums were refunded and he was forced to finance the repairs for the damage through other means.
Now the case is headed for the Supreme Court, and the matter of 'enforceability of choice' is the focal point. In a breakdown by Jurist.org, the case will ask the Supreme Court to determine whether a "choice of law" clause in maritime insurance contracts can be deemed unenforceable due to “strong public policy.” In other words, the 'choice of law' concerns whether Pennsylvania law or New York law should be applied to settle the dispute. Raiders is based in PA, while GLI is based in New York.
According to Jurist, Pennsylvania has a strong public policy that would generally be more supportive to claimants over insurers in cases of this nature. Pennsylvania’s laws also don’t support denying damage claims due to unrelated contract violations. To avoid this potential caveat, insurance companies have been getting around pro-policyholder state laws by including a “choice of law” clause in their contracts, according to Swanson and Loose Cannon.
In this instance, the contract between Raiders and GLI specified that the laws of New York, where GLI is based, would apply in deciding the outcome of claims disputes. The key detail to this component is that New York law precludes bad-faith claims against insurers, which means the basis of Pulley's counterclaims would likely not be supported. Because Raiders is based in Pennsylvania (as is the boat itself), and PA state laws would be favorable for the claimant, it is obviously the preferred legal domain for Pulley's claims. The incident itself occurred in Florida, which has its own state laws regarding insurance claims and disputes.
According to Sarah Ferguson and Jurist, typically when a contract includes a "choice of law" clause and both parties consent, the court upholds this choice. However, a previous ruling in the case went against this precedent. The US Court of Appeals for the Third Circuit ruled that a choice of law contract “might not be enforceable if its election for New York law were contrary to the ‘strong public policy’ of the displaced state, Pennsylvania."
As the has turmoil revved up, GLI sued first by seeking a federal judgment stating that Raiders’ alleged failure to re-certify its fire suppression equipment rendered the policy void from its inception. Raiders responded with five counterclaims, including three extra-contractual counterclaims under Pennsylvania state law for breach of fiduciary duty, insurance bad faith, and breach of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.
Swanson and Loose Cannon summed it up thusly: “On one hand, we have a boater whose lawyers are arguing that choice-of-law clauses are unreasonable and unjust when applied against a claim. What does an out-of-date fire extinguisher have to do with a bent shaft? On the other, we have an insurance industry that relies on strict adherence to contract provisions to shape the behavior of its policyholders and which allows insurers to set rates that are competitive, yet sufficient to cover risk and stay in business.”
The Supreme Court has yet to hear the case, but for boaters one big question remains: would my insurance policy be nullified if I have an accident and an investigation determines that an unrelated piece of equipment is faulty, out-of-date, or uncertified? For example, if a storm or an act of nature damages my boat, would the fact that my PFD's are outdated affect my claim? As it stands, the answer is murky. It depends on your policy.
Another emerging factor worth mentioning is the increasing use of lithium-ion batteries. Lithium batteries have significantly different properties than more commonly found lead acid types, which could affect policy coverage in the advent of a battery fire or similar mishap. For boaters who run an electric boat instead of a gas-powered engine, or for those who run secondary systems like solar panels and a battery bank, they should follow up with their insurance provider.
A similar consideration would be if any equipment or components on your boat include an expiration date. Some products with a manufacturer-recognized 'expiry date' or 'shelf life' include some marine batteries (including both lead-acid and lithium-ion), emergency flares, and auto-inflate PFD's.
The simple answer to this potential dilemma is to ensure all your equipment is up-to-date. A daunting task, to be sure, but for any modest boater lacking in resources, the possibility of pursuing extensive legal action with an insurance company isn't realistic.
To make sure you're up to speed, consider the following resources: