U.S. District Court upholds denial of insurance coverage

Daily Record (Rochester, NY), Jan 26, 2005 by Helen Nguyen

Because the plaintiff was not operating his boat at the time of the accident as required by his insurance policy, the U.S. District Court for the Western District of New York held it was reasonable for the insurance company to deny him coverage.

In granting the insurance company's motion for summary judgment, Judge John T. Elfvin in Mark Gfroerer v. ACE American Insurance Co. and ACE American Insurance Co. d/b/a Inamar determined the plaintiff was not entitled to coverage since a provision in the insurance policy specified the boat must be operated by the plaintiff in order for coverage to apply.

The Parties

In November 2003, the plaintiff, Mark Gfroerer, filed a lawsuit against the defendants, ACE American Insurance Co. and ACE American Insurance Co. d/b/a Inamar.

Gfroerer claimed ACE wrongly denied him coverage for his powerboat after an accident in September 2003 in which the boat overturned. The boat was a 1999, 38-ft. Donzi model and was insured for $100,000.

Shortly after purchasing the policy, Gfroerer tried to sell the boat. He received an offer and took one of the purchasers and a couple of other passengers out on the boat.

During the trip, he allowed one of the passengers to drive the boat. The passenger was allegedly a marine mechanic who had experience driving high performance water craft. However, while driving the boat, the passenger increased the speed as he tried to turn, resulting in the boat overturning when he tried to overcorrect the steering.

The overturn caused severe hull and mechanical damage to the boat rendering it totally useless. Gfroerer sought recovery of the policy's agreed value hull coverage in the amount of $100,000.

Summary Judgment Motion/ Insurance Policy

In April 2004, ACE moved for summary judgment claiming Gfroerer was not entitled to coverage since he had breached a provision of the policy by allowing his powerboat to be operated by someone other than himself at the time of the accident. Entitled, High Performance Vessel Endorsement, the provision stated: 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, (emphasis added).

In response, Gfroerer filed a cross-motion for summary judgment. He argued the words operated by in the provision of the insurance policy were ambiguous and that he was entitled to coverage under New York Insurance Law Section 3420.

Court's Discussion

The court first determined Gfroerer was not entitled to coverage under Section 3420. Specifically, it noted Section 3420 did not apply to all vessels and the Donzi was not an ocean going vessel since the policy stated the Donzi should be confined to non-tidal waters. ...

In addition, the court found Section 3420(e) was not intended to limit parties from negotiating first party coverage issues. Instead, Section 3420 was 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 US Dist. LEXIS 25820 (EDNY Oct. 21, 2003).

Based on this standard, the court determined the provision in the insurance policy was valid and ACE had justifiable reasons for including it in the insurance policy. In particular, the court pointed out ACE included the provision in the policy because the Donzi required a skilled driver since it was capable of speeding up to 80 mph and was considered a dangerous boat.

Lastly, the court determined the term operated by in the provision was not ambiguous. The court disagreed with Gfroerer's argument that operated by meant he must have ultimate control for the vessel. Instead, the court interpreted the term operated by to mean actually driving the Donzi.

The Donzi is designed to operate at extremely high speeds - reaching almost 80 mph - and a sudden sharp turn can cause the Donzi to spin out and rotate over, wrote Judge Elfvin. 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.

Court's Ruling

In conclusion, the court granted ACE's motion for summary judgment and denied Gfroerer's cross-motion.