With insurance prices in the millions of dollars, having insurance for your yacht is critical to ensure that you are protecting the investment that you have made in your ship. Although it may not be something you think of often, your insurance could potentially be facing a significant change soon, and you should be aware of how this may impact you.
When you purchase an insurance policy, that contract will normally contain a choice of law provision that identifies what state’s law will apply if you need to submit a claim on the policy. A new case on the United States Supreme Court’s docket is set to consider whether these choices are set in stone or whether they can be overridden.
Yacht run aground denied insurance over fire safety system
The case that the Supreme Court will be considering is Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC. This involved a yacht that ran aground near Fort Lauderdale, Florida in 2019, and for which the owner submitted an insurance claim.
The owner of the vessel had submitted a letter to their insurer certifying that their ship had complied with all of the insurers safety requirements when renewing their insurance in 2016 prior to the accident. That policy required that the vessel maintain appropriate fire safety equipment.
After the accident in 2019, which did not involve a fire, it was discovered that the fire extinguishers had not been re-inspected and recertified as required. The insurer used this failure to comply to safety requirements to void the insurance policy and denied the claim by the yacht owner.
The legal battle over which law to apply
The insurer filed for a declaratory judgment in federal district court in Pennsylvania seeking a ruling that the insurance policy was voided under New York law, the choice of law in the contract. The owner of the vessel filed defenses based on Pennsylvania law, which the lower court did not apply.
This decision was appealed by the owner to the Third Circuit Court of Appeals, which overruled the trial court. Finally, the insurer appealed the case to the United States Supreme Court.
The main question of this case at issue is whether a strong public interest of the state where the claim is filed should overrule the choice of law clause in the contract. This insurance contract was made under New York law, however the claim was filed in Pennsylvania which allows for additional legal remedies for the owner.
The impact this case may have
Currently, the ruling by the Third Circuit Court of Appeals is that the choice of law provision of the insurance contract can be overridden by the laws of the forum state, and the owner can bring these additional remedies under Pennsylvania law. This may have some far-reaching consequences going forward for other owners.
In the likely event that the Supreme Court upholds this ruling, there may be a noticeable rise in insurance premiums for yacht owners to shoulder now that insurers are facing additional legal hurdles that may result in more frequent insurance claim payouts.
Another possible outcome is that yacht owners may have higher compliance mandates in order to obtain their insurance policy, such as additional inspections to ensure that all appropriate safety systems are functioning and maintained.
