In November 2019, a 36-foot yacht traveling at “full plane speed” rammed an anchored vessel on which the owner was fishing. A Connecticut insurance agency was sued because the yacht was uninsured.
The yacht’s owner was a resident of New Jersey, so this case landed in federal court. According to the court opinion, the insurance agency sent the owner a yacht insurance application in August 2019 (it is unclear who made the first contact – the agency or the boat owner.) In September, the agency asked him for the engine serial numbers, and he provided them the next day. Since he had provided all the requested information and done everything he was asked, he assumed that he had coverage. The agency never told him that he needed to do anything else, he said.
On November 3, the yacht barreled into a 21-foot recreational boat 3 miles offshore. The owner of the other boat was fishing on its deck at the time. The force of the impact knocked him over and pushed him around his boat. The court opinion did not describe the nature of his injuries or the amount of damages he sought. However, his boat was stationery while the yacht was moving at top speed. The opinion mentioned that his own boat insurance policy provided $500,000 for uninsured and underinsured boat coverage. It is likely that his injuries were severe enough that he was forced to make a claim under that coverage.
Four days after the accident, the yacht insurance policy for which the owner applied in August finally took effect. He had no coverage for any liability for the November 3 accident. The fisherman sued his own insurance company and the yacht owner in 2021. In the spring of that year, the yacht owner sued his insurer and the agency. He accused the agency of breach of contract, negligence, misrepresenting the facts, professional malpractice and fraud. The agency asked the court to dismiss all the claims.
In early 2023, the court dismissed the breach of contract, malpractice and fraud claims. However, the claims of negligence and misrepresentation were allowed to go forward. The judge explained that a valid misrepresentation claim (known as “estoppel”) requires a deliberate or innocent misrepresentation of the facts and reasonable reliance by the injured party on that misrepresentation. “…(I)t is plausible,” he wrote, “… that (the agency’s) alleged statement misled him into believing that coverage would go into effect when he supplied the engine serial numbers and that he reasonably relied on this statement to his detriment.” Since the owner was under the impression that he was insured if he provided all the requested information, the judge ruled that he had a valid argument and allowed the claim to go forward.
The judge ruled three days before this article was written, so the final outcome is not yet known. It seems likely that the parties will reach an out of court settlement.
The court’s opinion does not describe what happened on the agency’s side to cause this misunderstanding. If the agency had any emails, cover letters or text messages that might be evidence that they told their client that his insurance was not yet in force, they apparently did not present them to the court. The fact that the client provided the serial numbers in mid-September but the policy did not take effect until November indicates that perhaps the application was forgotten.
The lessons for insurance agencies from this case are simple:
- Communicate, communicate, communicate
- Have a system for tracking all prospective and current submissions
Following these two rules will help prevent misunderstandings with clients and carriers alike and keep submissions from being forgotten. That alone will reduce the potential for errors and omissions liability claims.
