After an insurance company declined to pay for the loss of a yacht that sank off the Mexican coast, it sued to have a court affirm its coverage denial. The insured sued the carrier and everyone involved in the policy purchase, including two insurance brokers.
A married Kansas couple formed a personal trust. The trust formed a limited liability company (LLC.) In 2021, the LLC purchased a yacht. They asked an insurance brokerage to obtain coverage on the yacht. The brokerage worked with a United Kingdom based wholesale broker. The wholesaler obtained coverage through a managing general agent (MGA) that represented a particular insurer.
At the wholesaler’s request, the MGA provided three quotes with identical terms in November and December 2021. The MGA also requested a survey of the vessel as a pre-condition to issuing a policy. The LLC provided a survey report prepared by a third party. That report contained eight recommendations for repair of the vessel. They subsequently gave the insurer a certified letter of compliance (LOC) stating that they had complied with all recommendations except for one involving the yacht’s refrigerator.
A temporary binder of coverage was issued in late January 2022, followed by a policy in mid-February, effective from December 24, 2021 to December 24, 2022. It contained a “recommendations warranty.” This provision warranted that the insured will complete any survey recommendations within 30 days and that either the surveyor or the shop completing the work must certify the completion in writing. It also said, “Failure to comply with this warranty will void this agreement from inception.”
The judge’s opinion stated that the documents submitted by all the parties numbered “in the thousands of pages.” However, there is no mention of documents showing that the insurance broker discussed this or other warranties with the insureds. The husband did testify at his deposition that he reviewed all the warranties and had no questions. The policy authorized a specific individual as the operator.
That May, he operated the yacht for another, unapproved, individual who chartered it for passengers without the LLC’s authorization. The yacht struck a rock off the coast of Mexico and sank. The individual who chartered the yacht faced criminal charges related to the accident in Mexico, but the operator did not. The record did not give the amount of the loss, but a charter passenger yacht likely would cost six figures to replace.
The LLC submitted an insurance claim the day after the sinking. The insurer hired an independent adjusting firm to investigate and asked it to obtain receipts or certifications showing compliance with the repair recommendations.
The insured provided three documents that showed compliance with refrigerator recommendations but not the other seven. They claimed that the previous owner had completed them without providing receipts. In August, the adjuster told the insurer the insureds had not complied with the seven recommendations. In October, the insurer denied coverage and declared the policy void. It then filed a legal action to have a court declare that no coverage was owed.
The insureds counter-sued the carrier and sued five other parties, including both brokers and the MGA. They later dropped the suits against three of them but left in place the suits against their broker and the MGA.
In August 2025, the court upheld the coverage denial and dismissed the insureds’ cases against the insurer and MGA. However, he declined to dismiss the case against the broker. The insureds’ claims that the broker obtained a policy that was void from the beginning, misrepresented the policy’s status, never advised them of terms that could jeopardize coverage, and failed to obtain adequate insurance must be resolved by a jury unless the two sides settle out of court.
It appears that the brokerage did not document discussions with the insureds about the policy’s coverage limitations and the recommendations warranty. A paper trail showing that these discussions occurred would have enabled them to have the case dismissed. Without one, the case against them will continue with an out of court settlement likely.
