Violation of lay-up warranty does not per se void coverage
January, 2007
By
Marilyn Raia
Insurance Company of North America v. San Juan Excursions
2006 AMC 2758 (W.D. Wa 2006)
INA insured San Juan Excursions and its whale-watching vessel M/V ODYSSEY. The policy contained a lay-up warranty requiring that the M/V ODYSSEY be "laid up in a safe berth ashore or afloat and not navigated or used for living aboard "for the period January 1 to April 1. The policy also provided that "a breach of warranty voids the insurance coverage during the term of such a breach". Lastly the policy provided that the M/V ODYSSEY will be "principally moored and/or berthed at Friday Harbor".
On March 10, the M/V ODYSSEY sailed from Friday Harbor to Port Angeles, WA for repairs. On March 28 one of San Juan's employees was working on the M/V ODYSSEY and suffered severe injuries in a fall. He filed a Longshoreman and Harbor Workers Compensation Act [LHWCA] claim against San Juan and INA which provided coverage for LHWCA benefits.
INA brought a declaratory relief against San Juan and the injured employee seeking a determination that it did not have a duty to defend or indemnify San Juan in connection with the employee's injuries because of the breach of the policy's lay-up warranty. San Juan denied violating the lay-up warranty and filed a counterclaim against INA for breach of the duty of good faith and violation of Washington's Consumer Protection Act. The injured employee sought judgment consistent with the judgment sought by San Juan.
The injured employee and INA filed cross motions for summary judgment. The injured employee argued that Washington law applied and that under Washington law, a breach of an express warranty in a marine insurance policy does not void coverage when the breach has no causal relationship with the loss. INA argued that the breach of an express warranty in a marine insurance policy voided coverage under federal admiralty law.
The District Court began its analysis by acknowledging the choice of law rule established by the U.S. Supreme Court in Wilburn Boat Company v. Fireman's Fund Insurance Company 348 US 310 (1955). In Wilburn Boat, the U.S. Supreme Court had considered whether state law or federal law governs the effect of the breach of an express warranty in a marine insurance policy. It fashioned a two part test: 1) is there a judicially established federal admiralty rule governing the warranty; and 2) if not, should there be one.
The District Court held that the voiding of coverage in the absence of strict compliance with a lay-up warranty is not an established federal admiralty rule and that cases in which a policy has been held void because of a breach of a lay-up warranty were decided under state law or under circumstances in which the breach of the lay-up warranty was related to the casualty.
The District Court also held that INA had not demonstrated that there was a compelling need for the court to establish a new federal admiralty rule about the effect of a breach of a marine insurance policy's lay-up warranty.
The District Court finally held that Washington state law applied and that under Washington law, the breach of the policy's lay-up warranty does not void coverage unless the breach contributed to or increased the risk of loss. There were disputed issues of fact precluding the District Court from ruling on the effect of the breach.