May 13, 2015

When we think of marine insurance, we tend to think largely in
terms of coverage. This means reviewing a boat policy on a
regular basis to make sure it provides adequate coverage for
things that can go wrong on the water. Prudent vessel owners
want to know the dollar limits they’re covered for in the event of
an accident. They want to know if they’re covered for full
replacement value if a boat is destroyed by fire. Are salvage
claims covered? Will a policy provide coverage for environmental
damage to a delicate ecosystem or wreck removal from a busy

See this article and other boating related articles in
the Ensign,
the Magazine of the U.S. Power Squadron.

While these are all important aspects of coverage, the
relationship with an insurance company doesn’t end there.
Staying in the good graces of a carrier also means using a vessel
in accordance with policy guidelines. This means honoring
provisions about whether a boat will be used recreationally or
commercially. It means confining usage to geographic areas or
seasonal time periods set forth in a policy. It also means
cooperating with an insurance carrier’s demands for information
or statements in the course of investigating a claim.

Cooperation in the aftermath of a claim can mean many things. It
can mean making a vessel available for inspection, or submitting
to a physical examination if injuries were sustained. It can mean
filling out questionnaires, or additionally answering questions at
an examination under oath, also known as an EUO. A recent
federal court decision demonstrated that failure to cooperate
with a demand for an EUO could result in denial of a claim.

The matter arose when a boat owner insured with State Farm
Fire & Casualty Company reported that his boat and fishing
equipment had been stolen from his home. The policy required
that a boat owner provide records and documents requested by
State Farm in the event of a loss. It also required a boat owner to
submit to EUOs. In this case, the boat owner refused and hired an
attorney to file a lawsuit against State Farm. The court held that
refusal to submit to an EUO and provide relevant documents
amounted to a breach of the policy. It ruled in favor of State Farm.
The boat owner appealed, resulting in a federal circuit court
reviewing the lower court’s decision. (Kerr v. State Farm Fire &
Casualty Company, No. 12-30332, U.S. Court of Appeals, Fifth

Since the matter arose in Louisiana, the court applied Louisiana
state law. Referring to prior decisions, the higher court upheld
the precedent, “When the words of an insurance contract are
clear and explicit and lead to no absurd consequences, courts
must enforce the contract as written.” (Succession of Fannaly v.
Lafayette Ins. Co., 01-1144 (La. 1/15/02); 805 So. 2d 1134, 1137).
The court also held that “failure of an insured to cooperate with
the insurer has been held to be a material breach of the contract
and a defense to suit on the policy… ” (Hamilton v. State Farm
Fire & Casualty Ins. Co., 477 F. App’x 162, 165 5th Circuit 2012

Although this case involved the application of a given state’s
laws, it is a generally accepted premise that insurance carriers
have the right to reasonable cooperation from boat owners in the
event of a claim. When that cooperation is not provided, it can
serve as grounds for denial of a claim. This is particularly true in
situations where time is of the essence and evidence is of a
fleeting nature. An insurance carrier would want to speak with
witnesses of an event while recollections are fresh, not ten
months after the fact. Or they would want to see a storm
damaged boat before it undergoes repairs or is further damaged
during transport.

This court decision, like any other matter involving boats and the
law, is something that materialized from a given set of facts and
circumstances. No two cases are identical. The general lesson is
that failure to cooperate with an insurance carrier can result in
denial of a claim. It doesn’t mean boat owners should not
contemplate legal action if the circumstances warrant it. There
are cases where a boat owner does cooperate. But ultimately,
the cooperation doesn’t do anything to bring about an equitable
resolution of a dispute.

For instance, a boat owner files a claim after his boat sinks due
to failure of a cooling system hose clamp. The carrier argues the
failure was the result of normal “wear and tear,” which is not
covered. Or an owner argues that damage to an engine from
water incursion is the result of a latent defect, while the carrier
argues it is the result of a manufacturing defect, thus
disqualifying payment. In such cases, a boat owner could see the
courthouse as the only viable option, rather than obediently
abiding by the findings of the insurance carrier. It all depends on
the nature of the particular situation. While a duty of cooperation
is a general cornerstone of the contract of insurance, prudent
boat owners are also vigilant to look out for their own interests in
the course of resolving claims.

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