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Ask A Maritime Attorney: Can you explain why I’m encountering an insurance denial?

Question:

I am having a dispute with my insurance company.  They denied coverage after my boat was partially submerged at the dock.  The incident occurred after a mechanic completed some work in my engine room.  It appears that he unknowingly kicked or bumped into a thru-hull fixture, which caused a crack in the fixture that ultimately flooded the boat.  They claim that the fixture failed due to galvanic corrosion, but it seems unlikely that it would have broken without some kind of impact, which I attribute the mechanic’s carelessness.  The claims adjuster informed me that the claim would have been denied even with the mechanic’s negligence because of the corrosion issue.  I reviewed the policy and it includes a definition of the phrase “caused by” to mean any loss that is “contributed to, made worse by, or in any way results from” the peril in question.  In this case, I am arguing that the loss was actually caused by the mechanic, and I understand that a loss caused by his negligence would be covered. What’s your take on this?

 

Answer

Marine insurance policies tend to exclude more casualties than they actually cover. I would need to see our reader’s entire policy and review the casualty in question to render a solid opinion, but I’m happy to offer some general observations.

First, recreational marine insurance policies are generally “all risk” policies, which means they cover everything unless it’s expressly excluded. The exclusions tend to be lengthy, but they invariably include losses caused by corrosion, wear and tear or unseaworthiness.

The “caused by” language cited by our reader is pretty broad but it is an essential part of every marine insurance policy.  A marine insurance claim investigation starts by asking “what happened?”  Marine insurance policies are not designed to protect a boat owner from every calamity imaginable.  An insurance claim may be denied if the casualty was “caused by” a condition which is expressly excluded from coverage under the terms of the policy, or if the boat owner failed to comply with certain obligations set forth in the policy.

The claim investigation exercise is complicated when the loss was “caused by” multiple failures, some of which may lead to a covered claim while others would lead to a denial. The California Supreme Court considered cases such as this, and they developed an “Efficient Proximate Cause” test, which calls for coverage decisions on property claims to look at the “predominating cause” of the loss.  Under that test, if the loss could not have occurred without the action in the chain of events that would have been covered by insurance, that action is the predominating cause of the loss and the claim must be covered.

One of the most significant obligations of a boat owner under a marine insurance policy is the requirement that the boat be maintained in a seaworthy condition.  In this context, maintenance refers to those items which could lead to a significant loss, and a boat is not considered to be “maintained” simply because it has ten coats of varnish on the exterior teak.  Referring again to our reader’s question, coverage will almost always be challenged for a boat that sinks at the dock,  because seaworthy boats generally don’t sink at a dock.

If certain maintenance items are overlooked, such as the condition of the boat’s thru-hull fixtures, or proper adjustment of a stuffing box or battery maintenance, a serious problem may develop, particularly if the boat is unattended for a long time.  These are among the most common causes of a dockside submersion, and insurance investigators will likely look at these issues first, and consider them to be the “predominating cause” of the loss, when they investigate a partial or complete submersion.

When a boat owner submits a significant claim to his or her insurance company, the insurance adjuster will usually appoint a marine surveyor to investigate the claim and determine the cause of loss.  Boat owners should understand that the insurance company’s surveyor does not represent the interests of the boat owner.  Insurance surveyors are hired by insurance companies, and while they are expected to conduct the investigation without bias, they owe no direct duty to the boat owner.  In fact, the boat owner may never see a copy of the surveyor’s report.  Therefore, if there is any uncertainty about the cause of the loss, the boat owner should seriously consider hiring his or her own surveyor to conduct an independent investigation.

When boat owners hire their own marine surveyor in connection with an insurance claim, they should pay particular attention to whether the casualty may have had more than one cause.  Looking at our reader’s case, a loss caused by corrosion will always be excluded from coverage, but a loss caused by the boat owner’s negligence or the negligence of his hired vendors will generally be covered.  Like the insurance surveyor, a surveyor hired by the boat owner will investigate without bias, but the boat owner may ask him to pay particular attention to the possibility that the “predominating cause” of the loss was something that would be covered under the policy.

In the end, insurance coverage questions can be complicated regardless of the cause of the loss.  In our reader’s case, he will be facing an uphill battle since this was a dockside submersion and since a thru-hull fixture that is not suffering from a serious corrosion issue is not likely to be broken by a clumsy mechanic.  But as noted above an independent surveyor should always be hired to bring a fresh set of eyes to the loss analysis, and an experienced maritime attorney should be contacted to evaluate the coverage provided under the insurance policy.

 

David Weil is licensed to practice law in the state of California and as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.

 

David Weil is the managing attorney at Weil & Associates (www.weilmaritime.com) in Seal Beach. He is certified as a Specialist in Admiralty and Maritime Law by the State Bar of California Board of Legal Specialization and a “Proctor in Admiralty” Member of the Maritime Law Association of the United States, an adjunct professor of Admiralty Law, and former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at 562-799-5508, through his website at www.weilmaritime.com,  or via email at dweil@weilmaritime.com.

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