Summary
applying New York law and finding that breach of a "named operator" warranty voided coverage for marine vessel accident
Summary of this case from Openwater Safety IV, LLC v. Great Lakes Ins. SEOpinion
03-CV-0866E(Sr).
December 22, 2004
MEMORANDUM and ORDER
This decision may be cited in whole or any part.
Plaintiff Mark Gfroerer commenced this action on November 19, 2003 against defendants ACE American Insurance Company and ACE American Insurance Company d/b/a Inamar (collectively "defendants") seeking (1) a declaratory judgment that defendants are obligated to pay plaintiff insurance proceeds and otherwise perform pursuant to the terms of plaintiff's marine insurance policy issued by defendants (the "Policy"), (2) punitive damages under a bad faith cause of action and (3) an award of plaintiff's attorney's fees and costs. Defendants moved for summary judgment on April 22, 2004 claiming that their denial of coverage was proper because plaintiff had breached an express warranty of the Policy by allowing plaintiff's powerboat to be "operated by" someone other than himself at the time of the accident. On May 3, 2004 plaintiff cross-moved for summary judgment and attorney's fees. Both motions are currently before the Court and, for the reasons set forth below, defendants' Motion will be granted and plaintiff's Cross-Motion will be denied.
The facts are not in dispute and are found as follows. Plaintiff owns a 1999, 38-foot Donzi model ZX powerboat ("the Donzi"), which he insured through defendants. The insurance Policy issued by defendants for the period July 1, 2003 through July 1, 2004 provided, inter alia, liability coverage and agreed value hull coverage in the amount of $100,000, subject to the Policy's terms and conditions. The Donzi has nearly 1,000 horsepower, is capable of speeding near 80 miles per hour and is considered a dangerous boat that requires a skilled driver. Accordingly, the Policy contains a "High Performance Vessel Endorsement" provision (the "Endorsement"), which provides, in pertinent part:
The Donzi 38 ZX is described on its website as follows:
"This is not a boat for the timid. Like its drivers, it stands ready to push the limits of conventional speed and performance. Capable of holding up to 1100 horses, and reaching speeds in excess of 80 mph, the Donzi 38 ZX caters to those unafraid to demand the very best."
"In consideration of the premium charged, the policy is amended as follows:
Named Operator
Warranted by the insured that the coverage provided by this policy applies only if the insured vessel is operated by:
MARK F. GFROERER"
The dispute in this case arises from what is meant by "operated by" and to what extent, if at all, the Endorsement is valid.
Shortly after purchasing the Policy, plaintiff wanted to sell the Donzi and began advertising for such. Bonnie Wescott and Bo Verbick agreed to purchase the Donzi for $125,000 and provided plaintiff with a $1,000 retainer. On September 6, 2003 plaintiff, Verbick, Lauren Smith and Timothy Markling were aboard the Donzi while it was underway. At some point, plaintiff permitted Markling to drive the Donzi. While doing so, Markling increased the Donzi's speed and performed a turn such that when he over-corrected the steering, the Donzi overturned and ejected its passengers. Plaintiff asserts that, prior to the Donzi's overturning, it had been performing properly and there had been no mechanical failure or design fault contributing to the overturn. The overturn caused severe hull and mechanical damage to the Donzi such that a subsequent damage survey found that it was rendered a constructive total loss.
Verbick described Markling to plaintiff as a marine mechanic, powerboat enthusiast and a high performance vessel "expert" with extensive experience driving high performance water craft.
Plaintiff claims that the damage and loss of the Donzi was covered by the Policy, which was in effect and properly paid at the time. Plaintiff asserts and defendants do not deny that plaintiff made a timely claim to defendants of the loss and for payment of the agreed hull value. Defendants, however, claim that they are not obligated to cover plaintiff's loss because the Donzi was not being "operated by" plaintiff at the time of the accident as the Policy requires. Plaintiff, to the contrary, claims that the Donzi was being "operated by" him as he understood the term's meaning. Plaintiff seeks recovery of the Policy's agreed value hull coverage for the Donzi in the amount of $100,000. Plaintiff further claims that defendants purposefully and wilfully refused to pay him for his loss and that such bad faith declination of coverage warrants an award of punitive damages. Finally, plaintiff seeks full reimbursement of his attorney's fees and costs.
As part of plaintiff's costs, plaintiff is seeking reimbursement of his costs incurred as a result of procuring a vessel survey and instituting a separate limitation of liability proceeding.
Summary judgment may be granted if the evidence offered shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. FRCvP 56(c). There is no genuine issue for trial unless the evidence offered favoring the non-moving party is sufficient to sustain a jury's verdict for that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Thus, when reasonable minds could not differ as to the outcome of an issue, summary judgment is appropriate on that issue. Id. at 251-252. The moving party initially bears the burden of showing that no genuine issue of material fact is present but the opposing party must then "set forth specific facts showing that there is a genuine issue for trial." Id. at 250. If the non-moving party fails to establish, after a reasonable opportunity for discovery, the existence of an element essential to that party's claim and on which it will bear the burden of proof at trial, summary judgment is appropriate because such failure to establish an essential element of the case renders all other facts immaterial. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-323 (1986).
When considering cross-motions for summary judgment in which each party asserts an absence of a genuine issue of material fact, a court need not enter a judgment for either party, but must examine each motion separately and, as to each, draw all reasonable inferences against the moving party. Morales v. Quintel Entm't, Inc., 249 F.3d 115, 121 (2d Cir. 2001). However, the non-moving party "cannot defeat the motion by relying on the allegations in his pleading, or on conclusory statements, or on mere assertions that affidavits supporting the motion are not credible." FRCvP 56(e); Gottlieb v. County of Orange, 84 F.3d 511, 518 (2d Cir. 1996).
In moving for summary judgment, defendants argue that plaintiff breached the Policy by allowing the Donzi to be "operated by" Markling at the time of the accident instead of by himself. Defendants argue that the Endorsement was an express warranty, the breach of which releases defendants from any liability under the policy. Plaintiff, in response, claims that "operated by" is ambiguous and that, in a maritime setting, "operated by" refers "to one who has legal responsibility and ultimate control for the vessel." (Pl.'s Mem. Opp'n Defs.' Mot. Summ. J. at 6.) Plaintiff asserts that the Policy, therefore, should be construed against defendants — the insurers and the drafters of the Policy. Defendants argue, however, that plaintiff's claim that "operated by" is ambiguous is negated by the fact that plaintiff has a marine insurance policy with a similar restriction on his other powerboat and, in his limitation of liability proceeding, plaintiff renounced his liability by claiming that he was not the operator of the Donzi at the time of the accident. Plaintiff, in his Cross-Motion for Summary Judgment, seeks a determination that he did not violate the Endorsement and that defendants improperly declined coverage in violation of New York Insurance Law ("N.Y. Ins."). Therefore, plaintiff moves for recovery of that which he alleges defendants owe to him for the loss of the Donzi under the Policy and for his attorney's fees, costs and damages as a result of defendants' allegedly bad faith rejection of plaintiff's insurance claim.
Absent a federal rule, federal courts look to state law for principles governing maritime insurance policies. Commercial Union Ins. Co. v. Flagship Marine Servs., Inc., 190 F.3d 26, 30 (2d Cir. 1999). Thus, this Court will apply New York law in interpreting the Policy. Plaintiff contends that N.Y. Ins. mandates that defendants provide coverage in the instant circumstances. Section 3420(e) of N.Y. Ins. provides:
"(e) No policy or contract of personal injury liability insurance or of property damage liability insurance, covering liability arising from the ownership, maintenance or operation of any * * * vessel as defined in section forty-eight of the navigation law, shall be issued or delivered in this state to the owner thereof, or shall be issued or delivered by any authorized insurer upon any such * * * vessel then principally garaged or principally used in this state, unless it contains a provision insuring the named insured against liability for death or injury sustained, or loss or damage occasioned within the coverage of the policy or contract, as a result of negligence in the operation or use of such * * * vessel, as the case may be, by any person operating or using the same with the permission, express or implied, of the named insured." (Emphasis added).
Section 48(3) of the New York Navigation Law ("N.Y. Navig.") refers to the definition utilized in Section 2(6) of the N.Y. Navig.: "`Vessel' shall mean any floating craft * * *." There is no dispute that the Donzi is a vessel as defined by N.Y. Navig.
The Donzi is a "pleasure vessel." N.Y. Navig. § 2(6)(c).
N.Y. Ins. § 3420(e), however, does not apply to all vessels; in particular, it does not apply to "the kinds of insurances set forth in [N.Y. Ins. § 2117(b)(3)]." N.Y. Ins. § 3420(i). One such type of insurance is "insurance in connection with ocean going vessels against any of the risks specified in [N.Y. Ins. § 1113(a)(21)]." N.Y. Ins. § 2117(b)(3)(B); Progressive Northeastern Ins. Co. v. Am. Ins. Co., 2001 U.S. Dist. LEXIS 12701, at *9 (S.D.N.Y. Aug. 21, 2001). Because the "specified risks" embrace the coverage at issue in the instant case, the Court must ascertain whether the Donzi constitutes an "ocean going vessel," thereby triggering the exclusion enunciated in N.Y. Ins. § 3420(i).
N.Y. Ins. § 1113(a)(21) states in relevant part:
"(a) The kinds of insurance which may be authorized in this state, subject to other provisions of this chapter, and their scope, are set forth in the following paragraphs. The power to do any kind of insurance against loss of or damage to property shall include the power to insure all lawful interests in such property and to insure against loss of use and occupancy, rents and profits resulting therefrom.
* * * * *
(21) `Marine protection and indemnity insurance,' means insurance against, or against legal liability of the insured for, loss, damage or expense arising out of, or incident to, the ownership, operation, chartering, maintenance, use, repair or construction of any vessel, craft or instrumentality in use in ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person."
N.Y. Ins. does not define the term "ocean going vessel" and neither does the Policy. Courts have considered the proper meaning of this terminology and look to the marine insurance policy between the parties to determine whether the policy is intended to cover "ocean going vessels" or whether such vessels are excluded from the policy. See, e.g., Jefferson Ins. Co. of New York v. Cassella, 261 F. Supp. 2d 160, 164-165 (E.D.N.Y. 2003); Progressive Northeastern, at *11 ("The policy itself determines whether it is of the kind intended to cover `ocean going vessels.'"); Hartford Fire Ins. Co. v. Mitlof, 123 F. Supp. 2d 762, 766-767 (S.D.N.Y. 2000); Becker v. Allcity Ins. Co., 2000 U.S. Dist. LEXIS 22422, at *4-5 (E.D.N.Y. June 2, 2000). In this case, the Policy states that the Donzi is "confined to non-tidal waters of the continental United States and Canada, excluding the Great Lakes." According to Black's Law Dictionary, "tidal" describes waters that are "[a]ffected by or having tides." Black's Law Dictionary 1490 (7th ed. 1999). "Tides" are defined as "[t]he rising and falling of seawater that is produced by the attraction of the sun and moon, uninfluenced by special winds, seasons, or other circumstances that create meteorological and atmospheric meteorological tides; the ebb and flow of the sea." Id. at 1490-1491. As such, ocean waters are tidal waters. The Policy's confinement of the Donzi to non-tidal waters, therefore, specifically makes it not an "ocean going vessel" and therefore N.Y. Ins. § 3420 applies to the Donzi and to this case. See Hartford Fire Ins., at 767 ("[N.Y. Ins.] § 3420(i)-2117(b)(3)-1113(a)(21) exception from direct suits by injured third parties is limited to * * * policies covering `ocean going vessels.' Because [the vessel] was clearly not an ocean going vessel, the * * * Policy falls outside of the § 3420(i) exception which bars direct actions against marine insurers.").
N.Y. Ins. § 3420(e) was not intended to disallow all insurers and insureds to negotiate the limitations on coverage. Rather, it is aimed at the wrong or injustice of the defense of non-liability on the grounds that someone other than the insured was operating the vessel. Brustein v. New Amsterdam Cas. Co., 174 N.E. 304, 306 (N.Y. 1931). "The primary purpose of [N.Y. Ins. § 3420(e)] is to meet the defense in an action on the policy that the owner was not at the time of the accident operating the [vessel] personally or by his agent, although it was being operated by a member of his family or another with his consent express or implied." Ibid. In short, N.Y. Ins. § 3420(e) is intended to prevent insurers from claiming non-liability on third-party claims — claims from third parties for damages or injuries — but still allow parties to contract for coverage on first-party claims — claims made by the insured for property damage to the vessel. See Jefferson Ins. Co. of New York v. Cassella, 2003 U.S. Dist. LEXIS 25820 (E.D.N.Y. Oct. 21, 2003) (finding the insurance company was liable for third party coverage issues but not for first party coverage issues where the marine insurance policy expressly excluded coverage when anyone other than the named insured operated the boat).
Therefore, the Endorsement is valid as to first party coverage issues because N.Y. Ins. § 3420(e) is not intended to limit parties from negotiating first party coverage issues. See Brustein, at 306. Plaintiff does not assert that he was not aware of the Endorsement. Rather, plaintiff argues that "operated by" is ambiguous and he thought it meant that he must have "ultimate control for the vessel." (Pl.'s Mem. Opp'n Defs.' Mot. Summ. J. at 6.) "[A] provision in an insurance policy is ambiguous when it is reasonably susceptible to more than one reading" — when reasonable minds could differ as to its meaning. Haber v. St. Paul Guardian Ins. Co., 137 F.3d 691, 695 (2d Cir. 1998) (citations and quotations omitted). An insurance policy must be construed to "effectuate the intent of the parties as derived from the plain meaning of the policy's terms." Andy Warhol Found. for Visual Arts, Inc. v. Fed. Ins. Co., 189 F.3d 208, 215 (2d Cir. 1999). Unambiguous terms are applied to the contract while extrinsic evidence is used to "ascertain the intent of the parties" as to ambiguous terms. Ibid. "[I]f an ambiguity arises that cannot be resolved by examining the parties' intentions, then the ambiguous language should be construed in accordance with the reasonable expectations of the insured when he entered into the contract." Haber, at 697. The Court does not find the term "operated by" ambiguous because it is not reasonably susceptible to any meaning but "actually driving" the Donzi. This meaning is clear upon reading the Endorsement and under the ordinary meaning of the term, as operating is often used synonymously with "driving." Moreover, provisions such as the Endorsement are widespread and no confusion about the meaning of the term "operated" or a derivative thereof has, prior to this case, arisen in a litigation setting — although there have been many instances where, if such confusion was legitimate, it could have been brought up. See, e.g., Jefferson Ins., supra; In re Guglielmo, 897 F.2d 58 (2d Cir. 1990) (boat owner's son was operating the motorboat); In re Liebler, 19 F. Supp. 829 (W.D.N.Y. 1937) (vessel was operated by owner's husband); Brustein, supra. The alleged confusion here is unique to plaintiff and, had he truly been confused as to the meaning, he could have raised it when negotiating the Policy and when the Endorsement was introduced to him.
Black's Law Dictionary defines "driving under the influence" as "[t]he offense of operating a motor vehicle in a physically or mentally impaired condition * * *." Black's Law Dictionary 510 (7th ed. 1999) (emphasis added). Furthermore, the term "driving under the influence" "in a few jurisdictions [is] synonymous" with "operating under the influence". Ibid.
Assuming arguendo that "operated by" is ambiguous, examining the intent of the parties and the reasonable expectations of plaintiff when he entered into the contract would also result in the term "operated by" to mean actually driving the vessel. Plaintiff was aware of the Endorsement and of the specific skill required to operate the Donzi. The Donzi is designed to operate at extremely high speeds — reaching almost 80 miles per hour — and a sudden sharp turn can cause the Donzi to spin out and rotate over. When insuring such boats, therefore, insurance companies require the operator to be skilled; otherwise, such insurance becomes a high risk venture that, presumably, few would take. In such cases, wherein the skill and competence of the operator is imperative, marine insurance policies contain provisions that limit those who are allowed to operate the vessel. Plaintiff was aware of the Endorsement and, after he had completed and signed the application for marine insurance, he was made aware that his motor vehicle driving record and those of "all operators and all operators to be named on the policy" were to be checked. Plaintiff identified himself as the only operator and defendants conducted a review of only plaintiff's driving record. Clearly, if to operate the Donzi, one's driving record must be reviewed, it follows that the personal operation of the Donzi requires the personal driving of the Donzi.
Therefore, in light of the facts that (1) the Donzi is a particularly dangerous powerboat, (2) the Endorsement is very similar to a provision in another marine insurance policy that plaintiff has for his other powerboat, (3) all operators of the Donzi had to undergo a review of their motor vehicle driving records and plaintiff specifically identified himself as the only operator, (4) in Jefferson Insurance, the insured was faced with an almost identical provision that he never actually saw but was not confused as to the meaning of "operate" and (5) plaintiff, in a separate limited liability proceeding, asserted that Markling was the operator of the Donzi at the time of the accident, the reasonable expectations of plaintiff — the insured — and the intent of the parties was for "operated by" to mean "actually driven by" plaintiff. Therefore, the Endorsement is valid as to first party coverage issues — viz., plaintiff's claims that defendants owe him $100,000 for agreed value hull coverage will be denied.
Plaintiff, in his Cross-Motion, claims that defendants exhibited bad faith in declining coverage and therefore should be liable to plaintiff for his attorney's fees and costs associated with this case. Furthermore, plaintiff asserts that defendants should have to pay punitive damages for their bad faith denial of coverage. As evident from this Court's discussion, defendant's denial of coverage in this instance was reasonable. Therefore, plaintiff's claim for punitive damages will be denied. For the same reasons, defendants are not obligated to pay plaintiff's attorney's fees or costs. See Employers Mut. Cas. Co. v. Key Pharms., 75 F.3d 815, 824 (2d Cir. 1996) ("Under New York law, it is well settled than an insured cannot recover his legal expenses in a controversy with a carrier over [claimed] coverage, even though the carrier loses the controversy and is held responsible for the risk.")
Accordingly, it is hereby ORDERED that defendant's Motion for Summary Judgment is granted, that plaintiff's Cross-Motion for Summary Judgment is denied, that plaintiff's claims for damages, attorney's fees and costs are denied and that the Clerk of this Court shall close this case.