EDWARD F. LeBRETON, III

NEW ORLEANS

MARC THOMAS SUMMERS

NEW ORLEANS ⁽¹⁾

Chapter 21

EXPRESS WARRANTIES

The special topic addressed in this chapter is "express" warranties in Protection and Indemnity ("P&I") policies, and the coverage issues which commonly arise when insurers seek to enforce them. By definition, an express or promissory warranty is a promise by an insured that a stated event will or will not occur, or that some other condition precedent will be fulfilled, or that a particular factual statement is true. British Marine Insurance Act of 1906, §33(1).

Express warranties should be distinguished from exclusions which limit the extent of coverage and are not based on the actions of the insured. Sometimes, the word "warranty" is used in an exclusion, e.g. "Warranted free of claims for ..." These are not true warranties. Parks, Law and Practice of Marine Insurance and Average, 1st Ed., Vol. 1 at p. 233. Also, this chapter does not address the question of implied warranties, which is treated in Chapter 19.

We briefly discuss the effect of breach of express warranties and whether it is necessary that the breach cause the loss. We then digest cases involving particular warranties. We include cases dealing with other forms of marine policies when the principles are applicable to P&I policies. Within specific topics, both federal and state cases are organized by geographic areas based on the federal circuits.

The Supreme Court's decision in Wilburn Boat Co. v. Fireman's Fund Insurance, 348 U.S. 310 (1955), controls when marine insurance is governed by federal maritime law and when it is governed by state law, and it pervades all marine insurance issues. Wilburn is outside the scope of this paper; however, we note whether particular cases were decided according to state or federal law. Readers wishing to learn more about Wilburn should consult other sections of this annotation or the following articles. Cattell, Edward V. and others, Marine Insurance Survey: A Comparison of United States Law to the Marine Insurance Act of 1906, 20 Tul. Mar. L. J. 1 (1995); Goldstein, Joel K., The Life and Times of Wilburn Boat: A Critical Guide (Part I), 28 J. Mar. L. & Com., 395 (1997); Goldstein, Joel K., The Life and Times of Wilburn Boat: A Critical Guide (Part II), 28 J. Mar. L. & Com., 555 (1997); Sturley, Michael F., Restating the Law of Marine Insurance A Workable Solution to the Wilburn Boat Problem, 29 J. Mar. L. & Com., 41 (1998).

I. EFFECT OF BREACH

Most courts hold that coverage is suspended during the time the insured is in breach of an express warranty and that coverage resumes immediately when the breach is cured. Graham v. Milky Way Barge, Inc., 824 F.2d 376 (5th Cir. 1987); Cotton Blossom Corp., Inc. v. Lexington Ins. Co., 615 F. Supp. 87 (D.C. Mo. 1985) (applying both federal maritime and Missouri law); Reliance Ins. Co. v. The ESCAPADE, 280 F.2d 482 (5th Cir. 1961). However, some courts have held that, when the policy contains a specific provision that a breach of warranty voids the policy, coverage is terminated. Certain Underwriters at Lloyd's v. Montford, 52 F.3d 219 (9th Cir. 1995).

II. STRICT ENFORCEMENT vs. REQUIRING CAUSATION

Traditionally, courts have held that the breach of an express warranty suspended policy coverage. However, more recently, some courts have required that a particular breach increase the risk that the insured would incur a covered loss or cause the loss. The following cases illustrate this development.

A. The Traditional Rule

The traditional rule has its roots in British law and was applied as federal maritime law before Wilburn. Under British Law, an express warranty requires exact and literal compliance by the insured. "Although the loss may not have been in the remotest degree connected with the breach of warranty, the Underwriter is nonetheless discharged in that account from all liability for the loss . . ." Arnould, Law of Marine Insurance and Average, 16th Ed., Vol. 2 at pp. 682-683; See also, Marine Insurance Act, § 33(3); Forsikringsak-tieselskapet Vesta v. Butcher, [1989] 1 Lloyd's Reg. 331. As a matter of American judicial policy, the British rule was carried forward into U.S. cases in order to keep American marine insurance law in harmony with that of England. Queen Ins. Co. v. Globe & Rutgers Fire Ins. Co., 263 U.S. 487 (1924).

The British rule continues to be reflected in U.S. cases decided under British law. In Hartford v. Lloyd's, 1989 A.M.C. 2576 (E.D. Pa. 1989), the defendant issued a policy to Cunard which contained the following: "Warranted: No hold harmless agreements given." The evidence was clear that Cunard had given hold harmless agreements prior to the existence of the policy and that the warranty had been breached. Pennsylvania choice of law provisions mandated that English law be followed. The court ruled that, under the British rule of strict compliance, the insurer was entitled to recision of the policy.

Similarly, in Campbell v. Hartford, 533 F.2d 496, 1976 A.M.C. 799, 801 (9th Cir. 1976), the Ninth Circuit applied the English rule that "[n]o cause, however sufficient; no motive, however good; no necessity, however irresistible, will excuse the non-compliance with an express warranty" by an insured who violated a lay up warranty. This is the rule even where there is no connection between the breach and the loss.

B. Post - Wilburn Strict Enforcement Cases

Before the advent of the Wilburn choice of law analysis, strict enforcement was the rule in American courts. Wilburn Boat Co. v. Fireman's Fund Ins. Co., 201 F.2d 833 (5th Cir. 1953); Fidelity Phoenix Ins. Co. v. Chicago Title and Trust Co., 12 F.2d 573 (7th Cir. 1926). However, even after the Wilburn decision some American courts have held that strict compliance was the rule.

In Capital Costal Corp. v. Hartford Fire Ins. Co., 1974 A.M.C. 2039 (E.D. Va. 1974), the court ruled that the insurer of a vessel was released from liability due to the breach of a crew warranty. Further, the court ruled that this was so even where compliance with the warranty would not have avoided the loss. Interestingly, the court cited a pre-Wilburn case as the basis for mandating strict enforcement of the warranty without addressing the choice of law issue.

In Graham v. Milky Way Barge, Inc., 824 F.2d 376 (5th Cir. 1987), the court, relying upon Louisiana law, vitiated policy coverage under the insured's P&I and hull policies due to the insured's violation of a trading warranty. The court found that no Louisiana anti-technical statute applied and then stated that whether or not the breach increased the likelihood of the of the accident was "irrelevant."

The court in Certain Underwriters at Lloyd's v. Montford, 52 F.3d 219 (9th Cir. 1995) (yacht policy), held that, under California law, breach of an even immaterial warranty will void coverage when the policy expressly declares that such a breach would void coverage. There, the policy contained a "cruising warranty" which provided that a breach of the warranty would "immediately terminate (coverage) and the policy or certificate will be null and void." Id. at 221. Recognizing that California law strictly enforces even immaterial warranties in marine policies when the policy calls for it, the court held that the insured's action of taking the vessel outside of the warranty area a month prior to the accident vitiated coverage from that point forward. Id. at 223.

In Port Lynch v. New England International Assurety of America, 754 F. Supp. 816 (W.D. Wash. 1991), the insured breached a trading warranty. Applying the "established" admiralty rule of strict enforcement of warranties, the court denied coverage. In dicta, the court examined the issue under Washington law and found that the "warranty" would be considered an essential term under the contract, thus relieving the insurer of proving that the breach contributed to the loss.

The U.S. Southern District of Florida's decision in Home Ins. Co. v. Vernon Holdings, 1995 A.M.C. 369 (S.D. Fla. 1994) arose out of a claim under a hull policy which had been denied by the insurer on the basis of the breach of a navigation warranty. After finding that federal law applied to the claim, the court held that the warranty had been breached and, as a result, this precluded recovery under the policy. The court noted, however, that had the issue been one of Florida law, the insurer would have to show that the breach of warranty increased the hazard before the breach could be enforced.

C. "Enhanced" Risk of Loss Required to Enforce Warranty

Courts interpreting Florida and Massachusetts law have held that, as a pre-requisite to enforcing a warranty, the insurer must show that the breach "increased the hazard."

In dicta, the First Circuit recognized that Massachusetts law requires that an insurer show that the breach of warranty increased the insurer's risk of loss. Mutual Fire, Marine & Inland Ins. Co. v. Costa, 789 F.2d 83 (1st Cir. 1986) (citing, M.G.L.A. chapter 175, § 186).

In Prado v. Lexington Ins., 1990 A.M.C. 2782 (D. Mass. 1990) (hull policy), the U.S. District Court for the District of Massachusetts found that Massachusetts law applied to a policy containing a crew warranty. In Massachusetts, the relevant law requires that, as a pre-requisite to enforcing a warranty, the insurer has the burden of proving that the breach increased the insurer's risk of loss. M.G.L.A. chapter 175, § 186.

In Windward Traders v. Fred S. James & Co. of N.Y., 855 F.2d 814 (11th Cir. 1988), the court applied section 627.409(2) of the Florida Insurance code to an insurer's claim that the insured breached its policy's trading warranty. The code provision provides:

(2) A breach or a violation by the insured or any warranty, condition, or provision of any wet marine or transportation insurance policy, contract of insurance, endorsement, or application therefore shall not render the policy or contract void, 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. In finding for the insured on the issue, the court specifically stated that, while the warranty had been breached, the insurer could not show the required increase in hazard.

The U.S. District Court for the Middle District of Florida relied upon the same provision of Florida law in another case involving a crew warranty. Fireman's Fund Ins. v. Cox, 742 F. Supp. 609, 1990 A.M.C. 908 (M.D. Fla. 1989).

D. Causation Required

When state law applies pursuant to Wilburn, courts sometimes have required that, for a breach of warranty to vitiate coverage, the insurer must prove that the breach caused of the loss.

In releasing an insurer from liability under a lay-up warranty in a hull policy, the U.S. Fourth Circuit cited the "familiar rule" that "breach of an express warranty . . . releases the insurer from any liability due to the breach." Goodman v. Fireman's Fund Ins., 1979 A.M.C. 2534 (4th Cir. 1979) (emphasis added).

In Wilburn Boat Co. v. Fireman's Fund Ins., 348 U.S. 310 (1955), itself, the Supreme Court applied a Texas statute to hold that breach of a pleasure use warranty would avoid a loss only if it was shown to have caused the loss.

Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882 (5th Cir. 1991) (hull policy). In denying the insurer's defense of breach of warranty, the court applied Texas' anti-technicality statute which states that a breach of warranty would not constitute a defense to an action on an insurance policy unless the insurer could show that the breach caused or contributed to the loss. Tex. Ins. Code Ann. Art. 6.14 (Vernon 1981 & Supp. 1990).

In denying an insurer's defense of breach of warranty, the U.S. District Court for the District of Oregon applied Washington law which required a causal connection between the breach of notification warranty and a personal injury. Rondy's Inc. v. Ins. Co. of North America, 1986 WL 22352 (D. Or. 1986). On the other hand, in Highlands Insurance Co. v. Koetze, 651 F. Supp. 346 (W.D. Wash. 1987), the court applied Washington law to hold that, for a breach of warranty to void a policy, the insurer must show that the breach both increased the risk of the type of loss sustained and also was related to the loss. The court found that having the vessel outside of the trading limits increased the loss, but nevertheless denied the motion on the grounds that there was a question of fact as to whether the breach was related to the injury.

III. TREATMENT OF PARTICULAR WARRANTIES

A. Trading Warranties

(i) Breach

In Ciaramitaro v. The Saskatchewan Government Ins. Office, 1956 A.M.C. 928 (U.S.D.C. Mass. Dis. 1956), affirmed in 1956 A.M.C. 1400 (1st Cir. 1956), the warranty stated that vessel was to be "engaged in day fishing only, out of Gloucester, Mass." The insured on occasion would not return to Gloucester and would drop anchor within the shelter of another harbor. At the time of the loss, the vessel was engaged in day fishing. The court reasoned that, at the time of the loss, any breach of warranty was cured.

In La Reunion Francaise, S.V. v. Halbart, 1999 AMC 14 (E.D. NY 1998), a shipowner participating in a rally from Virginia to the British Virgin Islands lost his sailboat in heavy seas 560 miles off the East Coast. The navigation warranty in the policy limited coverage to the East Coast, Bahamas and Caribbean, and the insurer denied coverage for sailing too far offshore. The court upheld coverage because the navigational limits did not contain a mileage limitation. It determined that "specificity, rather than generality, is the standard practice in marine insurance navigational limits warranties." Similarly, the court refused to uphold the policy's "racing exclusion" because "race" was insufficiently defined in the policy.

In Whorton v. The Home Ins. Co., 1983 A.M.C. 2342 (E.D. Va. 1983), aff'd, 724 F.2d 427 (4^th Cir. 1994), the insured's broker extended the vessel's navigation limits to include a fishing voyage to Key West, although the insurer later said that the broker was not authorized to do so and denied the extension. The vessel then was lost due to the barratry of the master on an ill-fated drug run beyond even the extended limits. The court held that "[u]nder Virginia law the marine insurer's solicitation agent had authority to extend policy's geographical limits to include Key West and insurer could not claim, after the vessel had set out on her voyage, that the extension was not binding on it." Further, the court held that acts in preparation for the drug run had been committed in Key West. Accordingly, there were acts of barratry committed within the extended navigation limits, and the loss was covered.

In Graham v. Milky Way Barge, Inc., 824 F.2d 376 (5th Cir. 1987), the court denied coverage under a P&I and hull policies on a jack-up oil rig when the policies specifically limited the rig to the "inland waters of the Gulf states" and to 40 feet of water for "elevating purposes." After the district court found that there was coverage, the Fifth Circuit reversed, finding that it was undisputed that the rig was working beyond the navigational and operational limits imposed by the policy.

Employers Ins. of Wausau v. Trotter Towing Corp., 834 F.2d 1206 (5th Cir. 1988), involved a hull policy which limited the insured vessel to the Mississippi River, its tributaries and the Gulf Intercoastal Waterway within 100 miles of Greenville, Mississippi. When the vessel was lost out side of the trading limits established in the policies, the court denied coverage, relying upon language within the policy that any deviation beyond navigational limits voids the policy, under both Mississippi and federal maritime law.

In Steptore v. Masco Const. Co., Inc., 619 So.2d 1183 (La. App. 1st Cir. 1993), reversed on other grounds, 643 So.2d 1213 (La. 1994), the policy limited the subject vessel to navigation along three different facilities along the Mississippi River . Upon learning that the insured barges were lost in an accident at a different facility then those scheduled in the policy, the court denied coverage relying upon cases supporting strict enforcement of navigation warranties.

R&W Boat Rentals, Inc. v. Pennsylvania Ins. Co., 257 So.2d 448, 1972 A.M.C. 1783 (La. App. 1st Cir. 1972), involved a policy containing a navigation warranty which confined the insured vessel to "the inland waters of Louisiana including the Lakes, Bays, and sounds of this State but excluding any open waters of the Gulf of Mexico." The policy also provided: "Any deviation beyond the navigation limits provided herein shall void this policy . . ." When the vessel was lost ten miles out in the open Gulf, the insurer sought to avoid coverage. The court found that the insured was in clear violation of the warranty and found in favor of the insurer.

In The Home Ins. Co. v. Thunderbird, Inc., 1977 A.M.C. 797 (Miss. 1976), the policy limited coverage to not more than "100 miles off shore." The loss occurred off the shore of Bahamas. The court reasoned that "[b]ecause the limitations on the warranted area are words of limitation, they are strictly construed against the insurer." The court found "off shore" is not restricted to the shore of the continental U.S. in the absence of a provision in the policy to that effect. Accordingly, the court upheld coverage.

In Snyder v. Motorists Mutual Ins. Co., 1965 A.M.C. 1791 (Ohio App. 1965), the accident occurred approximately four miles from the Florida Keys. The navigation limits were the "continental United States." After review of several references, the court held that the policy language was ambiguous and resolved the ambiguity in favor of insured.

In Certain Underwriters at Lloyd's v. Montford, 52 F.3d 219 (9th Cir. 1995), the court reviewed a case in which the policy contained a "cruising warranty," and specifically stated that breach of the warranty would "immediately terminate (coverage) and the certificate of insurance will be null and void." Following receipt of the insured's notice of loss, the insurer found that the vessel had traveled outside the range of the warranty the previous month and denied coverage. Notwithstanding the fact that the vessel was stolen while it was within the limits set out in the policy, the court, following California law, agreed that the policy was voided by the earlier breach.

In Highlands Insurance Co. v. Koetje, 651 F. Supp. 346 (W.D. Wash. 1987), the policy contained a trading warranty which limited the vessel to certain waters including and surrounding the Puget Sound. (The policy also contained a crew warranty, discussed infra) The insurer moved for summary judgement on the basis that the vessel was working outside the warranty area. Applying Washington law, the court denied summary judgement on the basis that it was unclear whether the breach was related to the injury.

Four years later, the Western District of Washington revisited the trading warranty issue in Port Lynch v. New England International Assurety of America. 754 F. Supp. 816 (W.D. Wash. 1991). Port Lynch involved an excess hull policy which contained a trading warranty that limited the vessel to use in shrimp processing in southeast Alaska. After the vessel was lost while crabbing over 1,000 miles away in the Bearing Sea, the insurers denied coverage, and the court agreed.

In U.S. Fire Ins. Co. v. Liberti, 1989 A.M.C. 1436 (N.D. Cal. 1989), an insurer denied coverage under a warranty in a P&I policy which provided that the insured vessel would be confined to the waters and tributaries of San Francisco Bay. After finding that California law applied, the court focused upon the California rule that there is no right to rescind or avoid policy obligations unless the insurer can either show (1) that the provision is material to the policy, or (2) the policy specifically sets forth that a breach will void the policy. On a motion for summary judgement, the court held that the question of whether the breach of the trading warranty materially affects the risk was a question of fact and that the policy did not contain the requisite language to fulfill the second condition.

In Harris v. Glenn Falls Ins. Co., 1972 A.M.C. 138 (Cal. App. 1971), the court held that a type written warranty that the vessel would be laid up and out of commission in Sausalito, California superseded the privileges provision in the printed policy form. The court rejected the argument that the policy was ambiguous citing Civil Code section 1651, which provides that precedence is given to specific provisions added to a printed form.

In First Interstate Bank of Or. v. Allstate Ins. Co., 701 P.2d 791, 1987 A.M.C. 662 (Or. App. 1985), the policy limited coverage to 50 miles of the United States, and the loss occurred in the territorial waters of Mexico, outside the navigation limits. The policy did not contain a standard mortgagee's interest clause, but did contain a loss payable endorsement which stated that coverage of the mortgagee would not be invalidated by any change in "the location of the vessel." The court concluded that the lender had an endorsement that provided coverage even in the event of a loss for which the named insured is not covered.

In Albany Insurance Co. v. Jones, 1997 AMC 1407 (D. Alaska 1996), the insurance policy required that the vessel owner or his son (named in the policy as an "alternate skipper") to be aboard the vessel at all times. The court determined that this crew warranty is similar to navigating warranties, and, accordingly, held that breach of the warranty is governed by the federal maritime rule requiring strict compliance. Therefore, the policy was void when an injury occurred on the insured vessel while the son was aboard an adjacent vessel. The court left open, however, the question of whether the son's absence from the primary vessel constituted barratry, which would trigger coverage.

In Lexington Ins. Co. v. Cooke's Seafood. 835 F.2d 1364 (11th Cir. 1988), the policy provided that the insured vessel was limited to a certain area within 100 miles of shore. When the vessel began to experience mechanical problems, rather than head in to port, it sought parts from an oil rig located over 100 miles from shore. Thereafter, while moored next to the rig, the vessel was lost in a hurricane. The court applied the strict enforcement rule to void coverage. Notably, however, the court cited an exception to the rule for circumstances where necessity requires that a vessel to exceed navigation limits. Under the circumstances, the court found that there was not a sufficient need for the vessel to breach the warranty and voided coverage.

In United States Fire Ins. Co. v. Cavanaugh, 732 F.2d 832, 1985 A.M.C. 1001 (11th Cir. 1984), the court held that the loss of the vessel by grounding and fire beyond the geographical limit of the policy was not a breach of warranty because the ultimate cause of the loss was barratry. The vessel was found aground and burning 150 miles southwest of Jamaica, well beyond the navigation limits. The court reasoned that "[the vessel] was taken some 400 miles beyond the warranted limits by the unauthorized act of a third party in violation of both written and verbal agreements, an act in which the [owners] were insured. What would have been a breach of warranty is not a breach in this case where the 150 mile limit was exceeded due to the barratrous acts of [the captain]."

Applying federal law, the court in Home Insurance Co. v. Vernon Holdings, 1995 A.M.C. 369 (S.D. Fla. 1994), denied coverage for breach of trading limits by the insured. The insured vessel was limited to "trading between the Turks and Caicos Islands, Dominican Republic and Bahama Islands" but was lost after leaving the Turks and Caicos islands en route to Haiti.

In La Reunion Francaise, S.A. v. Christy, 1999 AMC 2499 (M.D. Fla. 1999), the court denied coverage to a vessel owner and her estranged husband. The husband sailed the boat to Jamaica, where it sank. The original policy allowed for coverage only between the East Coast of the United States and the Mediterranean and temporarily had been reduced to only the East Coast. The court construed the navigational limits narrowly, and released the insurance company from liability. The wife argued that, under Florida law, coverage was several, and that she should not be bound by the husband's breach of warranty. The court held that there is established federal admiralty law on navigation warranties, and, accordingly, federal law should govern. Under federal law, the breach of the navigation warranty resulted on loss of coverage for both the husband and wife.

In Aetna Insurance Company v. Dudney, 595 So.2d 238 (Fla. App. 4th Dist. 1992), a Florida state appeals court applied federal admiralty law to void insurance coverage due to breach of a warranty in a yacht policy that confined the subject vessel to particular waters during the winter months. Even though the case was heard in Florida, which requires that the insured show an increased hazard as a result of a breach, the court applied "entrenched" federal maritime law mandating strict enforcement.

In B & S Associates, Inc. v. Indemnity Casualty and Property Ltd., 1994 A.M.C. 2960 (Fla. App. 4th Dist. 1994), an all risk policy warranted that the insured sailboat would remain within fifty (50) miles of the United States and the Bahamas. The owner chartered the sailboat, and the sailboat was found on the shores of Jamaica, with the charterer dead from hypoglycemic shock resulting from uncontrolled diabetes. On the basis that the body had been dead for 5 or 6 days, the court reasoned that the accident could have happened in the area of coverage. The court stated "Once the insured establishes a loss apparently within the terms of an all-risk policy, the burden shifts to the insurer to prove that the loss arose from a cause which is excepted." The court found that the insurer did not provide sufficient evidence that the accident occurred outside the warranty to exclude coverage. The court reversed the order entering summary judgment for the insurer and held there were at least material issues of fact.

In Rosenberg v. Maritime Ins. Co., Ltd., 1968 A.M.C. 1609 (Fla. App. 3rd Dist. 1968), the insured vessel was covered by a policy containing an express navigation limit confining it to the inland waters of Kentucky. When the vessel was found sunk in Miami, Florida, the insurer sought to avoid coverage. The court found in the insurer's favor holding that the vessel was in violation of the warranty which resulted in a bar to recovery by the vessel's owner. See also, USF&G v. Thompson, 1990 A.M.C. 444 (Fla. App. 4th Cir. 1989).

Florida Marine Towing, Inc. v. United National Insurance Co., 686 So.2d 711 (Fla. App. 3d Dist. 1997). Relying on U.S. Supreme Court precedent, the court held that "inland waters" means waters on the land side of the coast line. Waters between the coast line and the state boundary three miles offshore are referred to as the "marginal sea." Accordingly, the vessel breached the navigation limits of "inland waters" when it sank in the Atlantic ocean offshore of the beach. However, the mortgage holder, named as an additional insured on the policy, is not adversely affected by the breach of warranty by the mortgagor.

In Winter v. Employers Fire Ins. Co., 1962 A.M.C. 1972 (Fla. Civ. Ct. Duval 1962), the court held that the phrase "continental United States" was ambiguous and that ambiguity would be resolved in favor of insured. The insured took a trip to the Bahamas and on the way back there was an accident 14 miles off the Florida coast. After reviewing numerous references, the court held that the limits extended to the seaward edge of the continental shelf or to the half way point between the U.S. coast and a foreign island possession. The court reasoned "although coverage may have ceased while the boat was in the Bahamas beyond the prescribed area, the policy again attached upon again returning to the insured area."

(ii). Held Covered Clauses

Held covered clauses are used by insurers to provide a means of extending warranties when the insureds operations require a change. They usually provide for the particular voyage beyond the limits of the warranty to be reported to the insurer and for the payment of an additional premium. They may affect how the warranty is enforced.

2^nd Circuit

In Bristol Steamship v. London Assurance, 404 F. Supp. 749 (S.D. N.Y. 1975), the insured obtained port risk insurance which limited the subject vessel to a specific port. The policy also contained a held covered clause which provided: "In the event of deviation to be held covered at an additional premium to be hereafter arranged, provided previous notice be given." During the policy period, the owner moved the vessel to a new port where it suffered a casualty. The insurer denied the insured's subsequent claim on the grounds that the insured did not provide adequate notice of the changing of ports. The court did not give the "held covered" clause effect on the grounds that there had been no previous notice or agreement concerning the movement of the vessel. Therefore, the court held that there was no coverage.

9^th Circuit

In Northwestern National Ins. Co. v. Federal Intermediate Credit Bank of Spokane, 839 F.2d 1366 (9th Cir. 1988), the insured obtained a hull policy that contained both a held covered clause and a trading warranty. Prior to sending the vessel on a voyage outside of the warranty area, the insured notified his broker and sought an extension of the trading limits. The extension was never granted. Unaware that the insurer had not agreed, the insured went ahead with the voyage and the vessel was lost outside the trading limits. The policy's held covered clause provided that the insured would be covered in the event of a breach of warranty if the insured gave notice when they found out about the breach and when the insurer and insured agreed to the payment of an additional premium. This gave rise to the question of whether the insured's act of notifying the broker was sufficient to comply with the requirements of the clause. The court found that the broker was not the insurer's agent and, thus, denied coverage.

In Campbell v. Hartford Fire Ins. Co., 533 F.2d 496 (9th Cir. 1976), the court applied English law in a case involving the breach of a lay up warranty and a claim of coverage under a held covered clause. The policy provided that the held covered clause would have effect when there was a breach of "cargo, trade, locality or date of sailing" warranties in the policy. When the vessel was lost during the lay up period the owner sought coverage, arguing that the held covered clause applied as the breach of the lay up warranty related to "locality." The court disagreed and found that the clause did not apply on the grounds that a lay up warranty is not concerned with the location of a vessel at a particular time, but rather to the condition of the vessel during the winter months.

Kalmbach v. Ins. Co. of State of Pa., 529 F.2d 552 (9th Cir. 1976), involved a hull policy requiring that the subject vessel be laid up for particular period of time. An endorsement was subsequently added to shorten the lay up period but warranted that prior to navigation during this period a captain's approval and a favorable long range weather forecast were required. When the vessel was lost during the extension period, the insurer denied coverage due to breach of the warranty. The insured relied on a held covered clause within the policy to maintain coverage despite the breach. In analyzing the held covered clause, the court looked to English jurisprudence which found coverage under a held covered clause despite the breach of warranty. The court found that, while there was an issue of fact regarding the alleged breach of warranty, the held covered clause would prevail in any event, and the court remanded the case for further proceedings to determine whether the warranty had been breached and, if so, what additional premiums the insured needed to pay.

In Hilton Oil Transport v. T.E. Jonas, 75 F.3d 627 (11th Cir. 1996), the plaintiff breached a hull policy's trading limits warranty but sought coverage under the policy's held covered clause. In denying the insurer's motion for summary judgement, the court stated that there was an issue of fact as to whether the policy holder intentionally breached the warranty. If so, the held covered clause would not operate and the insurer would prevail.

Windward Traders v. Fred S. James & Co. of N.Y., 855 F.2d 814 (11th Cir. 1988), involved a claim under a hull policy for the loss of a vessel. The policy contained a navigation warranty limiting the vessel to trade in the Caribbean and also a held covered clause requiring notification to underwriters of a change of location. When the vessel was lost in the Atlantic Ocean, the insurer denied coverage based upon the insured's failure to notify it that the vessel was outside of the trading limits. In rendering a decision in favor of the insured, the court relied on the Florida Anti-technical Statute which provided that unless the breach of a provision increased the hazard under the policy coverage would stand. It reasoned that the failure to give notice could not have increased the hazard under the policy. Notably, since the insurer did not deny coverage on the grounds of the breach of navigation warranty, the court did not consider the issue of what effect this may have had.

B. Crew Warranties

Under this heading, we include warranties with respect the number of seamen working aboard a vessel, the specific captain in command, and the number of passengers which a particular vessel may carry.

In Mutual Fire, Marine & Inland Ins. Co. v. Coasta, 789 F.2d 83 (1st Cir. 1986), the policy stated that the insured vessel could carry a maximum of 100 passengers. After two passengers were injured while the vessel was carrying 118, the insurer brought an action for a declaration of no coverage. The trial court and the First Circuit viewed the policy provision as a coverage provision, not a warranty. Nevertheless, the First Circuit noted that had the provision amounted to a warranty, Massachusetts law would apply to require the insurer to show that the larger number of passengers aboard the vessel would have increased the risk of loss to the insurer. In reviewing this question, the court found that the risk of loss would be greater with 118 passengers than 100. Accordingly, coverage was denied.

Prado, Inc. v. Lexington Ins. Co., 1990 A.M.C. 2782 (D. Mass. 1990), involved a warranty that a particular captain be in command of the insured vessel. The court applied Massachusetts law which requires a causal relationship between the breach of warranty and the loss incurred. The issue was whether the insurer carried its burden in proving that having a captain aboard the vessel different than the one named in the warranty actually increased the risk of loss to the insurance company. After examining both captains' qualifications, the court found that having a different captain aboard did not increase the risk of loss and upheld coverage.

In Capital Coastal Corp. v. Hartford Fire Ins. Co., 1974 A.M.C. 2039 (E.D. Va. 1974), the policy required that a particular captain be the master of the insured vessel and that the policy did not provide coverage when the vessel was operated by any other master. After the vessel was lost under the command of a captain different than the one named in the warranty, the vessel's insurer sought to avoid coverage. Applying the strict enforcement standard, the court found that the insured was in breach of the crew warranty and found in favor of the insurer.

In Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882 (5th Cir. 1991), the insured breached an "owner aboard warranty." The court applied the Texas Insurance Code which contains an "anti-technical" provision stating that an insured's breach of warranty will not constitute a defense unless the breach caused or contributed to the destruction of the insured property. In ruling against the insurer, the court found that the fact that the owner was not aboard did not make the accident any more likely than had the owner been aboard; however, the court noted that it is possible that, under a different set of circumstances, the breach of an owner aboard warranty might contribute to a loss.

In Albany Ins. Co. v. Ngo Van Nguyen, 1996 WL 680252 (E.D. La. 1996), a P&I policy contained an express warranty that the total number of crew members on the vessel at any one time should not exceed three. At the time of the accident, the vessel contained five crew members. Upon a motion for summary judgment by the insurer, the court applied federal admiralty law and found that due to the fact that there were five crew members on the vessel, the warranty had been breached and, therefore, the policy was void.

8^th Circuit

In St. Paul Fire & Marine Ins. v. BELLE OF HOT SPRINGS, 844 F. Supp. 550 (8th Cir. 1988), a P&I policy contained an express warranty requiring that the vessel be "in charge of a qualified master at all times." During a passenger voyage, the vessel's licensed master left the helm to a new deck hand while he went to another deck to tend bar. The deck hand subsequently attempted to dock the vessel and allided with a dock. The vessel's insurer sought to avoid coverage on the basis of breach of warranty. In considering the issue, the court held that the warranty required more than "mere" presence of a qualified master aboard the vessel and that the master must actually be in charge of the vessel to satisfy the warranty. Accordingly, the court ruled for the insurer.

9^th Circuit

In Highlands Ins. Co. v. Koetje, 651 F. Supp. 346 (W.D. Wash. 1987), the policy limited the insured vessel to one crew member. There was an injury when more than one crew member may have been aboard. The court stated that Washington law required that the insurer prove both that the breach contributed to the loss sustained or increased the risk of the type of loss sustained, and that the breach is also related to the injury sustained. The court found that having additional crew members aboard the vessel would increase the risk of loss and would also be related to the kind of injury sustained. However, it refused to grant the motion for summary judgment on the basis that a disputed issue of material fact remained regarding whether the additional crew member was actually aboard the insured vessel.

In Fireman's Fund Ins. Co. v. Cox, 1990 A.M.C. 908 (M.D. Fla. 1989), the policy limited the crew to three. There was a mutiny on board the vessel in which two of the five crew members killed the captain and injured a mate. In attempting to avoid the consequences of the breach, the vessel owner argued that neither the captain, the mate, nor the cook were "crew" members within the meaning of the insurance policy. The court, looking to the natural and most commonly understood meaning of crew member, found that they were included within the scope of the warranty. In addition, the vessel owners contended that regardless of the number of crew members on board the vessel at the time of the mutiny, the insurer could not escape liability because Florida law requires that the insurer prove that additional crew members increased the hazard to the vessel. See Fla. Stat. §627.409(2). The court stated: "The presence of one or two additional crew members, particularly when the policy expressly set a limit of only three to begin with, is not a mere technical violation of the policy but significantly alters the risk of loss plaintiff would be called on to bear." On this basis, the court affirmed an earlier summary judgment in the insurer's favor.

C. Lay-up and Watchmen Warranties

In Sea Fever Corp. v. Hartford Fire Ins. Co., 1983 A.M.C. 1276 (U.S.D.C. Mass. 1982), the court held that fishing vessel owner was not covered under a marine insurance policy due to breach of lay-up warranty, even though he was unaware of it. The insured's broker had obtained a policy containing an unusual provision for a fishing vessel policy: that the vessel would be laid-up for two months during the winter. The vessel was lost going to a repair yard during this period. Based on the "marine insurance law of Massachusetts," the court found that the insured is bound to the terms of the insurance contract whether he knows them or not, or whether, if asked, the insurer would have agreed to the voyage. Accordingly, there was no coverage. However, the insured did recover against the insurance broker for breach of fiduciary duty for not advising of the unusual term.

In Sirius Ins. Co. (U.K.) Ltd. v. Collins, 16 F.3d 34 (2d Cir. 1994), the insured vessel was kept on a trailer and the policy required that it be kept in a locked, fenced enclosure, in a garage or building, and that the trailer be secured with a ball lock while attached to a vehicle. The vessel was stolen after the insured placed it on his property without having put it in a locked enclosure and without securing the trailer with a ball lock attached to a vehicle. The defendant argued that, since the theft occurred ashore, litigation under the policy was not within maritime jurisdiction. The court disagreed stating that "all contracts which related to navigation, business, or commerce of the sea" fall within maritime jurisdiction. The court of appeals then affirmed the district court's holding that the plaintiff's omissions voided the policy.

In Gehrlein's Production Tooling Corp. v. The Travelers Fire Ins. Co., 1957 A.M.C. 1029 (S.D. N.Y. 1957), the warranty stated that the yacht was to be laid up from November until May. During the lay-up period, the yacht was moved to a painting berth, where water entered the stern scuppers in an unusual low tide. The court held that lay-up warranty was not breached when the vessel was moved to painting berth in same yard.

In Emil Eamotte v. Employers Commercial Union Ins. Co. of Am., 1976 A.M.C. 204 (N.Y. App. 2nd Dept. 1975), the policy warranted that a yacht would be laid up and out of commission from November 15 to March 15, but did not indicate whether the yacht would be laid-up in wet or dry storage. The court reasoned that "the criteria to be applied in determining whether the plaintiff complied with the warranty is whether the action taken by [the insured] conforms with the well established local customs and practice as to laying up similar vessels in the particular area where the yacht was kept." The appellate court found that dry as well as wet storage was a common practice in the area and held that the trial court erred in granting judgment for defendant insurer.

In Poulos v. Fireman's Fund Ins. Co., 231 N.Y.S. 2d 206, 1962 A.M.C. 1979 (N.Y. Supreme Ct., Suffolk 1962) the court held that insured had violated a lay-up warranty. The warranty stated that the vessel would be laid up from November until May. The court stated: "Leaving a small open boat, uncovered and completely exposed to the elements, tied up at a public marina during the winter months scarcely can be considered safe practice within the meaning of the policy."

In Goodman v. Fireman's Fund Ins. Co., 1979 A.M.C. 2534 (4th Cir. 1979), a hull insurance policy stated that the vessel would be "laid up and out of commission" for a particular period of time. The court determined that whether a vessel is laid up depends upon local custom. The court found that the custom in the region was to close the sea valves as a part of winterizing the vessel. Because the insured failed to close the valves, he breached the express lay-up warranty, thus releasing the insurer from all liability.

In Walker & Sons, Inc. v. Valentine, 431 F.2d 1235, 1970 A.M.C. 2261 (5th Cir. 1970), the insured tug sank at its berth due to leaking through the stuffing box. The court held that the insured had violated the watchman warranty, therefore, underwriters were not liable. The warranty required that an employee of the insured examine the vessel at reasonable intervals, including the bilges. Whether applying federal maritime law or Mississippi law, a yard superintendent who occasionally walked around the yard but was not expected to board any of the vessels was insufficient.

In Wigle v. The Aetna Casualty and Surety Co., 1959 A.M.C. 2270 (E.D. Mich. 1959), in an effort to winterize the vessel, the insured asked one of his friends to run the motor to remove any water contained in it. The friend forgot to close the seacock valve, and, as a result, the vessel took on water and sank. The court held that there was no peril of the sea and that the negligence of the friend was not insured. The court then stated, "the sinking was directly caused by the omissions of plaintiff and his friends aboard plaintiff's boat while it was not properly laid up, as warranted in the policy."

In Cotton Blossom Corp., Inc. v. Lexington Ins. Co., 615 F.Supp. 87 (D.C. Mo. 1985) the court the insured breached a "watchman" warranty contained in a hull policy. In conducting a Wilburn analysis, the court found that Missouri and federal law were the same in that both provided that the breach of an express warranty in a policy of marine insurance suspends coverage of the underlying policy during the existence of the breach. Accordingly, the court denied coverage.

11^th Circuit

Marine Charter & Storage v. All Underwriters at Lloyd's of London, 628 F. Supp. 740 (S.D. Fla. 1986), involved a vessel covered under an all risks yacht policy which contained a lay up warranty obligating the insured to keep the vessel within a certain marina for four months. When the vessel sustained damage outside of the marina during the lay up period the insurer sought to avoid liability. The court agreed, reasoning that the "movement of the vessel imposes an increased risk of casualty upon the underwriters for which they had not been paid." While the court did not specifically refer to the Florida Anti-Technicality Statute (F.S.A. § 627.409(2)), the foregoing statement makes it apparent the court thought that the breach of warranty increased the risk of loss.

D. Change in Management or Use Warranty

In Commercial Union Ins. Co. v. Horne, 787 F.Supp. 337 (S.D.N.Y. 1992), the policy warranted that the insured yacht could be chartered for a maximum of five day charters per year. The owner chartered the yacht for five months to a sailing school, and there was a loss during this period. The insured argued that an endorsement extending the navigation limits for the same five month period indicated an intent to cover the charter. Applying Connecticut law, the court reasoned that "[b]y chartering the yacht for a period of five months without receiving an acceptance in writing as required by the policy, the Defendants breached an express promissory warranty and violated the terms of the contract." Accordingly, there was no coverage.

In Newark Ins. Co. v. Blair, 1994 A.M.C. 1061 (S.D. N.Y. 1993), the policy stated that "[i]f you sell, transfer, mortgage or pledge your boat or this policy, policy coverage will cease without further notice to you unless such change is accepted by us in writing." The insured entered into an agreement to sell the boat. Although the agreement required four installment payments, it said that, upon execution, title transferred to buyer. The buyer sought to be made an additional insured, but the insurer was not informed of any change in ownership interest. The court reasoned under New York state law that "where a warranty in a marine insurance policy pertains to any risk of marine navigation, transit or transportation on seas or inland waters, the breach of such warranty precludes recovery under such policy." Accordingly, the court granted the insurer's motion for summary judgment declaring that the policy was void.

In Parfait v. Central Towing, Inc., 660 F.2d 608 (5th Cir. 1981), the policy provided:

This insurance shall be void in case the vessel named herein, or any part thereof, shall be sold, transferred or mortgaged, or if there be any change of management or charter of the vessel, or if this policy be assigned or pledged, without previous consent in writing of this company.

A third party purchased all the stock in the corporation which owned the vessel, and there was an immediate and complete change in directors and executive officers. There was an injury to a crew member, and the issue was whether these corporate changes constituted a change in management of the insured vessel. The Fifth Circuit ruled that it did and denied coverage.

In Travelers Indemnity Co. v. Gulf Weighing Corp., 352 F.Supp. 335, 1974 A.M.C. 2478 (E.D. La. 1972), the court found no breach of the private pleasure warranty in a marine insurance policy. The policy stated "warranted to be used solely for private pleasure purposes and not to be hired or chartered unless approved and permission endorsed hereon." In this case, the court found that there was no charter agreement. The parties only agreed to share expenses. The court quoted the 5th Circuit when it said "The essence of a charter agreement is that the charterer employs the entire ship or a substantial portion of it for a particular voyage or a particular period of time from one holding himself out as a public carrier." The court reasoned that the warranty was not breached because the Captain did not receive money for his services and there was no mutuality of assent for a valid charter.

Rondys, Inc. v. Insurance Co. of N. Am., 1986 WL 22352 (D. Or. 1986), involved two P&I policies which provided that the policies would be void if the subject vessel was sold, transferred, mortgaged or chartered without consent of the insurer. After the vessel was chartered and some crew members suffered personal injury, both insurers denied coverage based upon breach of warranty. The court noted that Washington law mandates that there must be a causal connection between the breach of warranty and the loss sustained. The court ruled in the insured's favor insofar as neither insurer could prove a causal connection between the change in management and the personal injury sustained.

E. Class Maintenance and Survey Warranties

In Berns & Koppstein, Inc. v. Orion Ins. Co., 170 F.Supp. 707, 1959 A.M.C. 2455 (S.D. N.Y. 1959), aff'd per curiam, 273 F.2d 415(2), 11960 A.M.C. 1379 (2d Cir. 1960) the court held that the survey requirements in policy had not been breached. In this case, the underwriter required each cargo be surveyed by a specific surveyor and that survey was to occur "immediately prior to shipping." The specific surveyor subcontracted the surveys for a particular voyage and the surveys took place from several days to 2 weeks prior to shipment. The court reasoned that there was no breach because it was past practice to subcontract surveys and "immediately" must be given a reasonable interpretation in light of the practicalities of the situation.

In New York Marine v. Gulf Marine, 1994 A.M.C. 976 (E.D. La. 1993), a hull policy provided:

If the classification society of the Vessel or her class therein be changed, canceled, or withdrawn, then unless the underwriters agree thereto in writing, this policy shall automatically terminate at the time of such change of ownership, flag, charter, requisition, or classification.

Sometime after the insurer issued the policy, the classification society conducted a renewal survey and noted several outstanding matters which needed to be fixed. When the repairs were not done after the passage of some time, the classification society suspended the vessel's classification. Following a loss, the vessel's insurer denied coverage. Considering a provision in the policy that a breach of warranty would void the policy, the court denied coverage.

The Eastern District of Louisiana revisited the class warranty issue four years later in P.S. International v. Caribbean Sealift, Ltd., 1997 WL 256652 (E.D. La. 1997). The policy contained two "class" warranties. First, the insured was obligated to keep its vessel fully classed throughout the term of the insurance and, second, it had to advise its classification society of any defects arising on board the vessel during the term of the insurance. After a claim was made for cargo damage, the insurer denied liability on the basis that the vessel owner breached both warranties by failing to notify its classification society of certain hull leakage problems and repairs undertaken aboard the vessel prior to the vessel sailing. The court denied the insurer's motion for summary judgement because it was unsure whether the captain had to be privy to the failure to advise the classification society, which also meant there was an issue of fact whether the failure of the insured to notify the classification society would result in the vessel not being "fully classed."

In Oceanic Contractors, Inc. v. Underwriters at Lloyd's, 1981 A.M.C. 1264 (La. C.D.C. 1980), the policy stated that "Warranted approval of tug, towage and stowage arrangements by United States Salvage Association and all their recommendations complied with." The association approved subject to the propriety of insured's calculations. Underwriters determined that the insured left significant factors out of their calculations. The court held that there was no lack of propriety in the calculations performed by insured. The court stated that the factors assumed by the Underwriters were to some degree arbitrary.

F. Miscellaneous Warranties

In Than H. Long Partnership v. Highlands Ins. Co., 32 F.3d 189 (5th Cir. 1994), a hull policy required the owner to maintain an operable high water bilge alarm . While out fishing, the vessel sank, and the insurer denied coverage on the basis that the vessel violated the bilge warranty. The Fifth Circuit noted that Louisiana law and federal maritime law both mandated that coverage be denied. Interestingly, the Fifth Circuit stated that it is necessary for a breach of warranty to be a cause of the loss to deny recovery. This directly contradicts the strict enforcement standards announced previously by the Fifth Circuit and other courts concerning federal maritime and Louisiana law. See Graham, supra. Nevertheless, the court found that the insured's failure to maintain a proper bilge alarm was a cause of the loss and, therefore, a basis for denying coverage.

In Certain Underwriters at Lloyds v. Johnson, 1999 AMC 1452 (D.P.R. 1999), the policy contained a clause which required the vessel to be in seaworthy condition at the inception of the policy. It also contained additional language which provided that it will not afford coverage when the insured fails to exercise due diligence to maintain the vessel in seaworthy condition. The court interpreted these provisions as an express statement of the implied warranty applicable under the "American Rule" which provides that the "insured promises not to knowingly send a vessel to sea in unseaworthy condition." Under this rule, coverage will be denied only if the unseaworthy condition proximately caused the damage. In this case, the vessel was damaged when seawater entered the vessel through one or more of the port lights. The court determined, based on a surveyor's report, that the owners had prior knowledge of the condition and failed to correct it. Therefore, the loss was not covered.

In addition to the crew warranty discussed supra, Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882 (5th Cir. 1991), also reviewed the application of an express seaworthiness warranty. The warranty, contained in the insured's hull policy, obligated the insured to exercise due diligence to maintain the subject vessel in a seaworthy condition. Upon receiving a claim for damage to the vessel in an allision, the insurer denied coverage partially upon the grounds of breach of the seaworthiness warranty due to the vessel's hull being infested with toredo worms. Applying the Texas anti-technicality statute, the court found that the breach, if any, did not provide a basis for avoiding coverage as the infestation did not contribute to the damage to the vessel.

In St. Paul Fire & Marine Ins. v. Belle of Hot Springs, 844 F.2d 550 (8th Cir. 1988), the master of an excursion vessel left an inexperienced deck hand at the wheel while he went to the second deck to tend bar. When the deck hand attempted to dock the vessel, there was an allision resulting in personal injuries. The court held that the owner breached an express warranty that the vessel be in charge of a qualified master. The court also held that leaving an unqualified person in charge of the vessel made it unseaworthy and breached the express warranty that the owner exercise due diligence to keep the vessel seaworthy. Stating that the policy required strict adherence to warranties, the court held that the insurer was not liable under its policy.

Private Pleasure Warranty

Reliance Insurance Company v. The ESCAPADE, 280 F.2d 482 (5th Cir. 1950), involved a yacht hull policy which contained a "private pleasure warranty" limiting the vessel to private pleasure use. When the vessel was lost during a charter, the insurer sought to avoid coverage. However, while the court found that the warranty had been breached and that this would have suspended coverage, it also found that the insurer was estopped from asserting the defense because of its actions in connection with the salvage of the vessel. See also, Travelers Indem. Co. v. Gulf Weighing Corp., 1974 A.M.C. 2478 (E.D. La. 1972).

Warranty Against Gasoline or Explosives

Kron v. Hanover Fire Ins. Co., 1964 A.M.C. 1467 (N.Y. Sup. Ct. 1964) involved a vessel which was destroyed by fire while moored at a pier. After the loss, the vessel's insurer disclaimed coverage on the grounds that the vessel owners had breached a warranty against keeping gasoline or explosives aboard the vessel. Apparently, the vessel's owner had been using a gasoline powered blow torch aboard the vessel as well as having some gasoline in a can. The court found for the insurer, requiring strict compliance with the warranty whether or not the breach contributed to the accident.

In Commercial Union Insurance Co. v. Flagship Marine Services, Inc., 190 F.3d 26 (2d Cir. 1999), the court construed a "towage endorsement" covering towage of vessels not exceeding 50 feet in length as a warranty that the insured vessel would not tow other vessels in excess of 50 feet. The court determined a warranty existed because the endorsement appeared in the policy under the warranty heading and language in the policy supported the finding. The court denied coverage under either New York or Florida law because the breach of warranty materially increased the risk assumed by the insurer.

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