Unambiguous Repair Clause Bars Coverage for Yacht Fire

Happy New Year to all readers of the Insurance and Reinsurance Disputes Blog. In this first post of the new decade, we find the Ninth Circuit affirming a grant of summary judgment in favor of a marine insurer after a fire destroyed a yacht. Unambiguous policy provisions prevailed.

In Certain Interested Underwriters at Lloyd’s, London v. Bear, LLC., No. 18-55668 (9th Cir. Dec. 31, 2019) (Not for Publication), the corporate owner of a yacht purchased an all-risks marine insurance policy.  The policy had what the parties called a Repair Clause.  The clause required that before the owner had the yacht undergo major repairs or “not work” or when the yacht was in a shipyard that requested a waiver of subrogation, the owner had to obtain the insurer’s prior agreement.  According to the court, the fire was caused by hot work performed on the yacht as part of a major repair at a shipyard that asked the owner for a waiver of subrogation.  The owner never obtained or attempted to obtain any agreement from the insurer concerning the repair prior to the fire.

In affirming the district court’s grant of summary judgment, the court declined to decide whether the Repair Clause was a warranty or exclusion. The court held that regardless of how the provision was classified, the Repair Clause, when read in the context of the entire policy and applied to the facts of the case, unambiguously expressed an intent that absent an additional agreement, the insurer had no obligation to cover damage to the yacht arising from the repair. As the court said, “. . . the Repair Clause’s plain meaning entitled Underwriters to deny coverage for the fire.”

The court rejected claims by the owner that the Repair Clause was unenforceable because it rendered coverage illusory and violated the reasonable expectations of the average yacht owner.  The court found that the owner had not established that the Repair Clause vitiated the coverage afforded by the policy.  The court also found that because the owner received several clear and conspicuous warnings from its broker before entering the policy about the Repair Clause and, therefore, enforcement of the clause could not have violated the owner’s reasonable expectations.

On the broker liability issue, the court held that the an individually named broker owed no duty to the owner as she had nothing to do with the yacht policy and only worked on the individual owner’s personal lines policies.  The court also rejected claims that she was a subagent or agent for the corporate owner, holding that there was no evidence that anyone ever appointed her to act on the corporate owner’s behalf.  Finally, the court rejected application of the “undertaker’s doctrine,” based on an allegation that she provided some advice to the individual owner the day before the fire.  The court found that this theory was never raised at the district court and could not be considered on appeal.  Moreover, the court stated that the theory appeared to lack merit given that there was no evidence that the broker every made any promise or commitment to render advice concerning the yacht policy.

There were other arguments concerning broker liability and the court, while agreeing with some of the owner’s legal arguments, ultimately found that the broker did not breach any duty to the corporate owner.

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