U.S. Court of Appeals for the Eleventh Circuit, Travelers Property Casualty Company of America v. Ocean Reef Charters LLC, Docket No. 21-14509

Insurance Law

 

Marine Insurance Warranty

 

Declaratory Action

 

Anti-Technical Statute (to Prevent the Insurer from Avoiding Coverage on a Technical Omission Playing No Part in the Loss)

 

Admiralty Law

 

New York State Law

 

Florida Law

 

 

 

 

Appeal from the United States District Court for the Southern District of Florida D.C. Docket No. 9:18-cv-81270-RAR

 

 

Insurance coverage dispute between Travelers Property Casualty Company of America (“Travelers”) and Ocean Reef Charters LLC, (“Ocean Reef”), a Florida Limited Liability Company. Ocean Reef owned a 92-foot yacht, the M/Y My Lady, which was destroyed during Hurricane Irma in September 2017. Ocean Reef had a $2 million insurance policy with Travelers covering property damage to the yacht. One of the My Lady’s representatives for Ocean Reef with respect to the boat, Richard Gollel, moored the yacht to a dock behind his Pompano Beach, Florida residence as the hurricane approached. But the yacht was destroyed by what registered as a Category 4 storm.

 

 

Travelers tried to avoid paying for the loss by preemptively seeking a declaratory judgment that the policy did not cover the loss because Ocean Reef did not have a full-time, licensed captain and crew for the yacht during the hurricane, as required under warranties in the insurance policy. It brought the declaratory action in the Western District of New York, alleging that Ocean Reef had an office and its principal place of business in Rochester, New York. Under New York state law, an insured forfeits coverage by violating a marine insurance warranty, regardless of whether the violation had any effect on the accident. The same is true under federal admiralty law as applied to at least some marine insurance warranties. Travelers Prop. Cas. Co. of Am. v. Ocean Reef Charters LLC, 996 F.3d 1161, 1167–68 (11th Cir. 2021).

 

 

2 See Com. Union Ins. Co. v. Flagship Marine Servs., Inc., 190 F.3d 26, 31–32 (2d Cir. 1999) (discussing how, “under . . . the law of most states,” including New York, “warranties in maritime insurance contracts must be strictly complied with, even if they are collateral to the primary risk that is the subject of the contract, if the insured is to recover” (citing N.Y. Ins. L. § 3106(c))). “However, unlike New York and the majority of states, Florida does not require strict compliance with all warranties, but it does preclude recovery where the ‘breach or violation increased the hazard by any means within the control of the insured.’” Id. at 32 (quoting Fla. Stat. § 627.409(2)). (Fn. 2).

 

 

3 Florida Statute § 627.409(2) is a “so-called ‘anti-technical statute.’” Travelers, 996 F.3d at 1164. The statute “was ‘designed to prevent the insurer from avoiding coverage on a technical omission playing no part in the loss.’” Id. at 1170 (quoting parenthetically Pickett v. Woods, 404 So. 2d 1152, 1153 (Fla. 5th Dist. Ct. App. 1981)). (Fn. 3).

 

 

On remand, because Travelers offered no expert witness—such as a licensed captain competent to speak to the issue—to prove that the lack of a full-time captain and crew played a role in the destruction of the yacht during Irma, the District Court granted summary judgment to Ocean Reef. We affirm.

 

 

Ocean Reef’s insurance policy had contained two express warranties since Ocean Reef first insured the My Lady with Travelers in 2014. One was called the “Captain Warranty.” The Captain Warranty provides: It is warranted you employ a professional captain for the yacht shown on the Declarations Page of this policy. Such captain shall be employed full time and approved by us. We will pay up to $1,500 for the cost of hiring a replacement captain, approved by us, if your captain is unable to perform his regular duties due to a medically certified cause. The other warranty was called the “Crew Warranty.” The Crew Warranty provides: You employ 1 full time or part time professional crew for your yacht shown on the Declarations Page of this policy. We also provide coverage for any additional, temporary crew you employ.

 

 

(…) As indicated supra, Travelers likely engaged in a strategy to avoid the application of Florida’s anti-technical statute, Fla. Stat. § 627.409(2). Under that statute, it would need to prove that the lack of a full-time captain and crew played a material role in the My Lady’s sinking to avoid paying Ocean Reef. On the other hand, under the federal rule that applies to some marine insurance warranties, Travelers, 996 F.3d at 1167–68, “and the law of most states,” including New York, “warranties in maritime insurance contracts must be strictly complied with, even if they are collateral to the primary risk that is the subject of the contract, if the insured is to recover.” Com. Union Ins. Co. v. Flagship Marine Servs., Inc., 190 F.3d 26, 31–32 (2d Cir. 1999) (citing N.Y. Ins. L. § 3106(c)).

 

 

(…) On February 25, 2019, Ocean Reef disclosed Captain Thomas Danti and Allister Dredge, a marine surveyor, as expert witnesses. They attached both experts’ reports to the disclosure. The disclosure included both experts’ qualifications, their opinions, and the bases for their opinions. See Fed. R. Civ. P. 26(a)(2). Captain Danti opined, after interviewing Gollel and inspecting the site, that the “storm preparations by Mr. Gollel met the standard of care of a professional Mariner.” He also opined that “the main cause of the vessel’s damage was unforeseeable failure of a mooring pile.” So, “the lack of a full time captain would not have prevented the yacht from becoming a total loss.” Danti’s bottom-line conclusion was: “There was no increased hazard in risk to the vessel by not having a full time captain at the time of the incident.” Dredge, the surveyor, also opined that the damage to the yacht was a “constructive total loss,” as repairs would cost $2.5 million.

 

 

(…) For the reasons discussed in Travelers Property Casualty Co. of America v. Ocean Reef Charters LLC, 996 F.3d 1161 (11th Cir. 2021), Florida law applies.

 

 

The Florida anti-technical statute we must apply provides: A breach or violation by the insured of a warranty, condition, or provision of a wet marine or transportation insurance policy, contract of insurance, endorsement, or application does not void the policy or contract, or constitute a defense to a loss thereon, unless such breach or violation increased the hazard by any means within the control of the insured. Fla. Stat. § 627.409(2). “The statute is designed to prevent the insurer from avoiding coverage on a technical omission playing no part in the loss.” Pickett, 404 So. 2d at 1153. Whether an insured increased the hazard by noncompliance with a warranty “is typically a question of fact for the jury.” Serendipity at Sea, LLC v. Underwriters at Lloyd’s of London Subscribing to Pol’y No. 187581, 56 F.4th 1280, 1290 (11th Cir. 2023) (citing Pearl Assurance Co. v. S. Wood Prods. Co., 216 F.2d 135, 136 (5th Cir. 1954)).

 

 

The effect of Ocean Reef’s failure to retain a full-time captain and crew leading up to and during Hurricane Irma is exactly the kind of issue that requires expert testimony. The question is hypothetical. Discussing what would have happened if a captain were in charge of the My Lady during Hurricane Irma necessarily requires hypothesizing. “And the ability to answer hypothetical questions is ‘[t]he essential difference’ between expert and lay witnesses.” United States v. Henderson, 409 F.3d 1293, 1300 (11th Cir. 2005).

 

 

 

 

 

Secondary Sources: Weinstein’s Federal Evidence § 701.03[1] (2023); Stephen A. Saltzburg et al., 3 Federal Rules of Evidence Manual § 701.02[7] (Matthew Bender 12th ed.)

 

 

 

 

(U.S. Court of Appeals for the Eleventh Circuit, June 23, 2023, Travelers Property Casualty Company of America v. Ocean Reef Charters LLC, Docket No. 21-14509, Publish)

FTC staff sends warranty warnings

Warranty: Competition: Unfair competition: Deceptive competition: Consumer protection: Advertising: FTC: FTC Act §5:

FTC staff sends warranty warnings

By: Lesley Fair | Apr 10, 2018

FTC Blog

Republication

https://www.ftc.gov/news-events/blogs/business-blog/2018/04/ftc-staff-sends-warranty-warnings

(…) When consumers buy a product with a warranty, it’s with the expectation that businesses will stand by what they sell. But standing by your warranty won’t do customers much good if you disregard the Magnuson-Moss Warranty Act. The FTC staff just sent warning letters to six companies, raising questions about statements the companies are making that appear to tie warranty coverage to consumers’ use of authorized parts or service, a practice that may violate both the Warranty Act and the FTC Act.

According to the Mag-Moss Warranty Act:

No warrantor of a consumer product may condition his written or implied warranty of such product on the consumer’s using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name.

In other words, companies can’t void a consumer’s warranty or deny warranty coverage solely because the consumer uses a part made by someone else or gets someone not authorized by the company to perform service on the product.

There are only two exceptions: 1) if the company provides the article or service to consumers for free; or 2) if the company gets a waiver from the FTC. Under 15 U.S.C. § 2302(c), the FTC may grant a waiver only if the company proves that “the warranted product will function properly only if the article or service so identified is used in connection with the warranted product, and the waiver is in the public interest.” Companies may, however, disclaim warranty coverage for defects or damage caused by the use of unauthorized parts or service.

FTC staff recently took a closer look at companies’ warranties and promotional materials and saw language that raised concerns that some businesses were telling consumers that their warranty would be void if they used unauthorized parts or service. The companies used different language, but here are examples of questionable provisions.

·       The use of [the company’s parts] is required to keep your . . . manufacturer’s warranties and any extended warranties intact.

·       This warranty shall not apply if this product . . . is used with products not sold or licensed by [company name].

·       This warranty does not apply if this product . . . had had the warranty seal on the [product] altered, defaced, or removed.

FTC staff suggested that the companies review the Mag-Moss Warranty Act and, if necessary, revise their practices accordingly. The letters also put the companies on notice that we’ll be taking another look at their written warranties and promotional materials after 30 days.

What can other business glean from the warning letters?

Untie the NOT. Take a fresh look at your own warranties. Unless you meet one of Mag-Moss’ narrow exceptions, do not condition warranty coverage on consumers’ use of parts or service from you or someone you authorize.

Read your warranty through consumers’ eyes. Consider the literal wording of your warranties, of course. But like any other advertising representation, companies can communicate claims to consumers expressly and by implication. Subject to those two Mag-Moss exceptions, if the language you choose conveys to reasonable consumers that their warranty coverage requires them to use an article or service identified by brand, trade, or corporate name, revise your practices to avoid a warranty whoops.

Section 5’s prohibition on deception applies to misleading warranty claims. A violation of the Magnuson-Moss Warranty Act is a violation of Section 5 of the FTC Act. But separate and apart from Mag-Moss, a claim that creates a false impression that a warranty would be void due to the use of unauthorized parts or service may be a stand-alone deceptive practice under the FTC Act. When evaluating what they say and do with regard to warranties, savvy companies approach the task by posing the same questions they ask themselves when looking at their ad claims: 1) What will consumers understand us to mean? and 2) Are we telling the truth?

The law’s reach can be global. If you represent foreign companies, counsel them about compliance with the Mag-Moss Warranty Act and the FTC Act. Those laws apply when business practices of non-U.S. companies constitute unfair or deceptive acts or practices that either involve material conduct in the United States or are likely to cause reasonably foreseeable injury within the U.S.