By: AgencyEquity.com
A $1.45 million yacht ran aground in a Hawaiian harbor and had to be sunk by the authorities. When its insurer denied coverage for the loss, its owners sued an independent insurance agency and its principal, among others.
A married couple met a man who owned a yacht chartering company and his wife (the company’s sole employee) in Hawaii in 2022 and chartered several trips with them. During one of them, the company owner proposed to the husband that the couple purchase a yacht that the company would manage to expand its Maui operations.
The couple then purchased a 94-foot yacht in the name of a trust they had set up and sought a loan through a specialty brokerage specializing in financing luxury sea vessels. One condition for the loan was physical damage insurance on the yacht that included a “breach of warranty” endorsement. There is no standard breach of warranty endorsement, but its purpose is to protect the lender’s interest should the borrowers breach a policy condition and void the coverage.
The couple and their new business partners understood that obtaining the insurance was the charter company’s responsibility. The owner’s wife contacted an independent agency and provided a list of loan requirements, including the requirement for breach of warranty coverage, and a signed application.
A loan was conditionally approved in October 2022. The approval was subject to, among other things, procurement of the required insurance. The couple sent the approval letter to the charter company’s owner with a reminder to obtain the insurance. A few days later, a brokerage employee asked the couple for the name of a contact at the insurance agency. The husband referred her to the owner of the charter company who in turn referred her to the agency. The agency’s principal provided her with a certificate of insurance that inaccurately stated that the policy provided breach of warranty coverage. He had obtained coverage through a managing general agent (MGA) who represented a Costa Rican insurer.
The lender granted the loan and the couple closed on the purchase in late October. Two months later, the couple’s trust signed a contract to sell the yacht to the charter company for its use and operation. The company agreed to pay the trust $1.45 million over 15 years.
After a February 2023 meeting between the two couples, the company owner asked the yacht’s captain to take them up the coastline to a nearby bay. However:
- The insurer had not approved that individual to captain the yacht.
- The captain moored the yacht in the bay for two nights, disregarding rules permitting vessels to be moored for no longer than 2.5 hours.
On the second morning, the yacht broke free of its mooring and ran aground. Efforts over the next several days by the charter company and its owner, along with state authorities and the U.S. Coast Guard, to salvage the yacht proved futile. The authorities sank it in early March.
The couple submitted an insurance claim the same day but the insurer and its MGA denied coverage in April, citing policy exclusions and a number of conditions that had been violated, including using an unapproved captain. The couple proceeded to sue the insurer, the MGA, the agency and its principal, and the loan brokerage and its principal. The court quickly dismissed the counts against the MGA.
In August 2025, a federal district court judge dismissed all 12 claims against the other parties. The common reason for denying each claim was that the couple had not shown that the lack of breach of warranty coverage caused their loss. He wrote, “… (T)here is simply no indication, on the record presented to the Court, that better communication, discussion of coverage options, … and/or breach of warranty coverage would have made any difference in (their) ability to recover for the loss of (the yacht.)”
The agency in this case was fortunate the lender did not press a case against them. The breach of warranty coverage was for the lender’s benefit, not the owners’. The agency should not have issued a certificate indicating that the policy had this coverage. It won this case but exposed themselves to another lawsuit.
