Great Lakes Reinsurance (UK) PLC v. Kan-Do, Inc.

Filing 49

ORDER denying 27 Plaintiff's Motion for Summary Judgment. See Order for details. Signed by Judge Virginia M. Hernandez Covington on 6/16/2014. (KAK)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
GREAT LAKES REINSURANCE (UK) PLC,
Plaintiff,
Case No. 8:12-cv-2923-T-33TGW
v.
KAN-DO, INC.,
Defendant.
_______________________________/
ORDER
This
Plaintiff

matter
Great

comes
Lakes

before

the

Reinsurance

Court

(UK)

pursuant

PLC’s

to

Motion

for

Summary Judgment (Doc. # 27), Memorandum in Support (Doc. #
32), and Statement of Undisputed Facts (Doc. # 33) filed on
February 28, 2014.

Defendant Kan-Do, Inc. filed a Response

in Opposition to the Motion (Doc. # 42) on March 14, 2014.
Great Lakes filed its Reply (Doc. # 43) on March 24, 2014.
After
submissions,

considering
the

Court

the

record

denies

the

and
Motion

the
for

parties’
Summary

Judgment.
I.

Background
The vessel Kan-Do was a 51-foot Bluewater Motor Yacht

that was built in 1989. (Doc. # 33-1 at 2).

-1-

The Kan-Do was

insured

by

Great

Lakes

for

$77,622.00.

(Id.).

Before

coverage was first underwritten in 2009, the Kan-Do was
surveyed by marine surveyor William Schiffner, who issued a
“preinsurance survey.” (Schiffner Dep. Doc. # 38-1 at 6).
Schiffner explained that he completed the inspection of the
vessel “for the benefit of insurance underwriters. . . . And
you’re looking for various deficiencies that might affect
the risk as it is presented to the underwriters.” (Id. at
8).

Presumably, the Kan-Do passed the inspection, because

Great Lakes insured the Kan-Do.
However, on November 15, 2012, the Kan-Do sank at Port
of

Tarpon

Marina,

in

Tarpon

Springs,

Florida,

waters. (Carlevatti Dep. Doc. # 35 at 5-11).
report

filed

by

Kan-Do,

Inc.,

to

which

in

calm

An expert
Great

Lakes

stipulates, indicates that the Kan-Do sank due to water
intrusion when the bilge pump system failed. (Doc. # 33 at
6; Doc. # 39). It is undisputed for the purposes of summary
judgment that the bilge pump system failed due to a blown
fuse. (Id.).
Kan-Do, Inc. sought insurance benefits from Great Lakes
pursuant to an all risk insurance policy. (Doc. # 33-5 at
2).

Great Lakes denied coverage and, on December 27, 2012,
-2-

filed an action for declaratory judgment against Kan-Do,
Inc. requesting, inter alia, that the Court find that Great
Lakes did not have a duty to provide coverage. (Doc. # 1).
A.

The Policy

Among other provisions, the Policy states:
Coverage A, Hull, Machinery, Equipment and Dinghy
. . . [W]e provide coverage for accidental
physical loss of, or accidental physical damage to
the Scheduled Vessel which occurs during the
period of this insuring agreement and within the
limits
set
out
in
the
insuring
agreement
declarations
page,
subject
to
the
insuring
agreement
provisions,
conditions,
warranties,
deductibles and exclusions.
(Doc. # 1-1 at 10).

Exclusion “b” to “Coverage A” is for

“Losses due to wear and tear, gradual deterioration, lack of
maintenance,

inherent

vice,

weathering,

animal and marine life.” (Id. at 11).
“Coverage

A”

is

for

“Damage

to

the

insects,

mould,

Exclusion “r” to
Scheduled

Vessel’s

engines, mechanical and electrical parts, unless caused by
an accidental external event such as collision, impact with
a fixed or floating object, grounding, stranding, ingestion
of foreign object, lightning strike or fire.” (Id. at 12).
One relevant warranty applicable to the Policy is that
“[i]t is warranted that the Scheduled Vessel is seaworthy at
all times during the duration of this insuring agreement.
-3-

Breach of this warranty will void the insuring agreement
from

its

inception.”

“seaworthy”
purpose.

as

“fit

(Id.
for

at

the

17).

The

Scheduled

Policy

Vessel’s

defines
intended

Seaworthiness applies not only to the physical

condition of the hull, but to all its parts, equipment and
gear

and

includes

adequate crew.

the

responsibility

of

assigning

an

For the Scheduled Vessel to be seaworthy, it

and its crew members must be reasonably proper and suitable
for its intended use.” (Id. at 9).
B.

Maintenance of the Vessel

The

owners

of

the

Kan-Do

have

supplied

evidence

regarding the steps that were taken to ensure that the KanDo was properly maintained.

Among other things, Guy Kunnen,

“the brother of Laura Lyons who is the president of Kan-Do,
Inc.” filed a declaration stating that “for the year before
the

Kan-Do

sank,

I

was

the

one

who

had

the

primary

responsibility for overseeing the maintenance of the KanDo.” (Kunnen Decl. Doc. # 40 at ¶¶ 2-3).

He stated that on

a weekly basis he checked on the Kan-Do by making sure that
the shore power was plugged in so that the batteries which
ran the boat’s three bilge pumps would always maintain their
charge; started the generators, motors, and air conditioner;
-4-

inspected the bilge compartments “to make sure the bilge was
dry;” and tested the bilge pumps “to make sure that they
were working.” (Id. at ¶ 4).
Kunnen also explained that he utilized the services of
Wayne Brown for repairs when needed and that “[i]f there was
something that the Kan-Do needed, it was always taken care
of.

Nothing was ever put off or not replaced.” (Id. at ¶

7).

He further stated, “The last time that I was at the

Kan-Do before it sank was on October 22, 2012.
before

the

boat

was

insurance survey.
generators,

pulled

out

of

the

It was just

water

for

the

On that date, I checked [shore power,

motors,

air

conditioner,

bilge

compartments,

bilge pumps] and [t]he bilge pumps were working that day.”
(Id. at ¶ 8).
The record also contains the deposition of Brown, who
testified that he maintained the Kan-Do for fifteen years,
and he provided many services to keep the vessel in good
working order. (Brown Dep. Doc. # 36 at 7).

For instance,

in 2010, he repaired the generator and bilge pumps, tested
and ran the engines, and replaced a wire harness. (Id. at 811).

In

2011,

he

repaired

a

water

leak,

repaired

the

generator, replaced the transmission, replaced the water
-5-

pump, and replaced an air conditioner duct. (Id. at 12-16).
Prior to the Kan-Do sinking in 2012, Brown checked the
generator,

replaced

the

impeller,

and

replaced

a

faulty

steering cylinder. (Id. at 16-17).
In addition, days before the Kan-Do sank, the vessel
was pulled out of the water and dry docked so that an
inspection could be undertaken and so that the bottom of the
vessel could be painted.
The

individuals

who

(Carlevatti Dep. Doc. # 35 at 6).

were

involved

“follow[ed]

standard

procedure” including checking the hatches and checking for
leaks. (Id. at 9-10).

No problems were detected at that

time. (Id. at 10).
However, on November 5, 2012, the Kan-Do sank. (Id. at
11-12). Thereafter, Kan-Do, Inc. retained expert Dan Avoures
to determine the cause of the submersion. (Doc. # 39 at 2).
Avoures prepared a detailed report and came to the final
conclusion that:
[A]n incursion of water from the port shaft
stuffing box allowing water to accumulate in the
bilges.
The failure of the main bilge pump to
dewater the vessel because of a blown fuse allowed
water to accumulate to the point that a bilge
discharge through hull fitting submerged and
allowed rapid incursion of water.
(Id. at 3)(emphasis added).
-6-

II.

Legal Standard
Summary judgment is appropriate “if the movant shows

that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a).
enough

to

defeat

a

A factual dispute alone is not

properly

pled

motion

for

summary

judgment; only the existence of a genuine issue of material
fact will preclude a grant of summary judgment.

Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
An issue is genuine if the evidence is such that a
reasonable jury could return a verdict for the nonmoving
party.

Mize v. Jefferson City Bd. of Educ., 93 F.3d 739,

742 (11th Cir. 1996) (citing Hairston v. Gainesville Sun
Publ’g Co., 9 F.3d 913, 918 (11th Cir. 1993)).

A fact is

material if it may affect the outcome of the suit under the
governing law.

Allen v. Tyson Foods, Inc., 121 F.3d 642,

646 (11th Cir. 1997).

The moving party bears the initial

burden of showing the court, by reference to materials on
file, that there are no genuine issues of material fact that
should be decided at trial.

Hickson Corp. v. N. Crossarm

Co., Inc., 357 F.3d 1256, 1260 (11th Cir. 2004) (citing
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)).
-7-

“When

a moving party has discharged its burden, the non-moving
party must then ‘go beyond the pleadings,’ and by its own
affidavits, or by ‘depositions, answers to interrogatories,
and admissions on file,’ designate specific facts showing
that

there

is

a

genuine

issue

for

trial.”

Jeffery

v.

Sarasota White Sox, Inc., 64 F.3d 590, 593-94 (11th Cir.
1995) (citing Celotex, 477 U.S. at 324).
If there is a conflict between the parties’ allegations
or evidence, the non-moving party’s evidence is presumed to
be true and all reasonable inferences must be drawn in the
non-moving party’s favor.

Shotz v. City of Plantation,

Fla., 344 F.3d 1161, 1164 (11th Cir. 2003).

If a reasonable

fact finder evaluating the evidence could draw more than one
inference from the facts, and if that inference introduces a
genuine issue of material fact, the court should not grant
summary
Atlanta,

judgment.
846

F.2d

Samples
1328,

ex

1330

rel.
(11th

Samples
Cir.

v.

1988)

City

of

(citing

Augusta Iron & Steel Works, Inc. v. Emp’rs Ins. of Wausau,
835 F.2d 855, 856 (11th Cir. 1988)).
movant’s
repetition

response
of

his

consists

of

conclusional

However, if the non-

nothing

allegations,”

judgment is not only proper, but required.
-8-

“more

than

a

summary

Morris v. Ross,

663 F.2d 1032, 1034 (11th Cir. 1981), cert. denied, 456 U.S.
1010 (1982).
III. Analysis
A.

Burden Shifting Standard for All Risk Policy

The

parties

agree

that

the

Policy

is

an

all

risk

policy. “An all risk policy is one which provides coverage
against all risks covering every loss that may happen except
by the fraudulent acts of the insured.” Lamadrid v. Nat’l
Union Fire Ins. Co., No. 13-11416, 2014 U.S. App. LEXIS
9548, at *14 (11th Cir. May 22, 2014)(internal citations
omitted). An all risk insurance policy “creates a special
type of coverage that extends to risks not usually covered
under other insurance; recovery under an all risk policy
will be allowed for all fortuitous losses not resulting from
misconduct or fraud, unless the policy contains a specific
provision expressly excluding the loss from coverage.” Id.
at *14-15.
To recover under an all risk marine insurance policy,
the insured must first show that the loss occurred during
the coverage period and that the contract encompasses the
loss. Banco Nacional de Nicaragua v. Argonaut Ins. Co., 681
F.2d 1337, 1340 (11th Cir. 1982); Morrison Grain Co. v.
-9-

Utica Mut. Ins. Co., 446 F. Supp. 414, 429 (M.D. Fla. 1977).
The Policy states that Great Lakes will provide coverage for
“accidental physical loss of, or accidental physical damage
to the Scheduled Vessel.” (Doc. # 1-1 at 10).

Although the

Policy contains a plethora of defined terms, it does not
define “accident” or “accidental.”
The Eleventh Circuit has explained that marine all risk
insurance contracts that refer to an accident or accidental
losses are governed by the fortuity doctrine. See Lamadrid,
2014 U.S. App. LEXIS 9548, at *17 (a “fortuitous event” is
defined as: “an event which so far as the parties to the
contract are aware, is dependent on chance.

It may be

beyond the power of any human being to bring the event to
pass; it may be within the control of third persons; it may
even be a past event, as the loss of a vessel, provided that
the fact is unknown to the parties.”)(internal citations
omitted).
However,

as

stated

in

International

Ship

Repair

&

Marine Services v. St. Paul Fire & Marine Insurance Company,
944 F. Supp. 886, 892 (M.D. Fla. 1996):
[A] loss is not considered fortuitous if it
results from an inherent defect in the object
damaged, from ordinary wear and tear, or from the
intentional misconduct of the insured. . . .
-10-

[F]ortuitous events are accidents or casualties of
the seas, unforseen and unexpected events, and are
not losses occasioned by the incursion of water
into a vessel’s hull owing to the defective,
deteriorated or decayed condition of the hull or
ordinary wear and tear.
Id. (internal citations omitted). The Eleventh Circuit has
underscored that “the burden of demonstrating fortuity is
not a particularly onerous one.” Lamadrid, 2014 U.S. App.
LEXIS 9548, at *16-17.
If the insured establishes fortuity, the burden then
shifts to the insurer to prove that an exclusion in the
contract applies. Hollywood Flying Serv., Inc. v. Compass
Ins. Co., 597 F.2d 507, 508 (11th Cir. 1979); Great Lakes
Reinsurance (UK) PLC v. Soveral, No. 05-80923, 2007 U.S.
Dist. LEXIS 13261, at *7 (S.D. Fla. Feb. 27, 2007).
B.

Was there an Accident or Fortuitous Event?

Great Lakes asserts that it is entitled to summary
judgment on the issue of insurance coverage because Kan-Do,
Inc. has not shown that an accident or fortuitous event
caused

the

loss.

In

support

of

its

argument

that

“absolutely nothing of an accidental nature has been shown
to have taken place,” Great Lakes primarily relies upon two
cases: Miller Marine Services, Inc. v. Travelers Property
Casualty

Insurance

Co.,

No. 04-cv-5679,
-11-

2005

U.S.

Dist.

LEXIS

39906

(E.D.N.Y.

Sept.

19,

2005)

and

Great

Lakes

Reinsurance (UK) PLC v. Soveral, No. 05-80923, 2007 U.S.
Dist. LEXIS 13261 (S.D. Fla. Feb. 27, 2007).
Both cases involved vessels which sank at the dock in
which insurance coverage was denied.

In Miller, the court

determined that the insurance policy was not an “all risk
policy” and was rather a “named perils policy.” 2005 U.S.
Dist. LEXIS 39906, at *15.

There, the insurer was not

required to cover the loss because the evidence showed that
the

vessel

sank

due

to

vandalism

perpetrated

disgruntled employees of the vessel’s owner.

by

two

Specifically,

the vessel sank when “five valves” were left open, allowing
water to flood the engine compartment and crew quarters. Id.
at *6.

Therefore, the Miller case is inapposite because it

did not involve an all risk insurance policy and because the
parties agreed that the vessel sank due to an affirmative
act of vandalism.
The

factual

scenario

in

Soveral,

is

somewhat

more

similar to that which has been presented here, but it is
nevertheless distinguishable.

In Soveral, the vessel was

insured pursuant to “an all-risk policy that covered all
accidental losses” and the vessel sank while tied to a dock
-12-

behind the boat owner’s home in the Bahamas. 2007 U.S. Dist.
LEXIS 13261, at *5.

The evidence showed that the vessel

was not sheltered from the elements and was not hooked up to
any shore power. Id. at *9.

Thus, during the rainy season,

the battery-operated bilge pumps eventually stopped pumping
when the batteries died, allowing the boat to succumb to the
sea. Id. The court framed the issue as follows:
[T]he question here is whether the bilge pumps
failure, due to dead batteries, constitutes an
accidental loss. This Court holds that it is not
an accidental loss. The evidence shows that the
boat was left completely uncovered in the Bahamas,
a tropical locale, during the rainy season. The
reason the boat sunk was because water entered the
boat and the bilge pumps eventually drained the
battery. Once the battery died, the bilge pumps
stopped removing the water and the boat sunk.
Batteries do not last forever. . . . The
deterioration of a battery constitutes normal wear
and tear and is not fortuitous.
Moreover, this
Court does not find that water entering into an
uncovered
vessel
during
rainy
season
is
fortuitous.
Id. at *8-9.
Great Lakes has agreed that the Kan-Do sank due to a
blown fuse, which cut off power to the bilge pumps.
situation

is

not

analogous

to

facts

that

This

transpired

in

Miller, in which disgruntled vandals purposely left valves
open causing the vessel to sink.
comparison

can

be

drawn

between
-13-

In addition, while a
the

dead

batteries

in

Soveral

and

the

blown

fuse

in

this

case,

the

factual

circumstances in Soveral are nevertheless distinguishable.
The Kan-Do was hooked up to shore power to ensure that
electrical charge was supplied to all necessary equipment,
including the bilge pumps, whereas the vessel in Soveral was
not connected to any external power supply and was left
unsheltered during the rainy season in the Bahamas.
a

blown

fuse,

occurrence,

it

which
is

may

be

almost

considered
an

an

Unlike

unpredictable

inevitability

that

an

unsheltered vessel left in the tropics during the rainy
season will be filled with rainwater and will sink, if its
battery operated bilge pumps are unconnected to shore power.
The burden to show that a loss was fortuitous is not a
heavy one. Lamadrid, 2014 U.S. App. LEXIS 9548, at *16-17.
As noted by Kan-Do, Inc., “[n]o one knows when the fuse blew
or why it blew. This is consistent with an accident or a
fortuitous event that is sudden, unexpected and unforeseen.
There are various possibilities for what caused the bilge
pump’s fuse to blow . . . but this does not change the
accidental and fortuitous nature of the event.” (Doc. # 42
at 11).

There is a genuine issue of material fact regarding

whether the Kan-Do sank due to an accidental or fortuitous
-14-

occurrence.

The

Court

accordingly

denies

Great

Lakes’

Motion for Summary Judgment to the extent it is based on the
argument that no accident has occurred.
C.

Was the Kan-Do Seaworthy?

Great Lakes also asserts that it is entitled to summary
judgment

because

previously

the

noted,

Kan-Do

the

was

Kan-Do

not

seaworthy.

warrantied

that

As

it

was

seaworthy and agreed that “Breach of th[e] warranty [of
seaworthiness] will void the insuring agreement from its
inception.”

(Doc.

#

1-1

at

17).

“The

Standard

[for

seaworthiness] is not perfection, but reasonable fitness;
not a ship that will weather every conceivable storm or
withstand every imaginable peril of the sea, but a vessel
reasonably

suitable

for

her

intended

service.”

Italia

Societa per Azioni di Navigazione v. Oregon Stevedoring Co.,
376 U.S. 315, 322 (1964).
There is a rebuttable inference of unseaworthiness upon
a vessel sinking while moored to the dock in calm waters.
Reisman v. N.H. Fire Ins. Co., 312 F.2d 17, 20 (5th Cir.
1963).

If

the

vessel’s

owner

produces

evidence

to

contrary, the burden shifts back to the insurer. Id.

the
The

Court applies the inference of unseaworthiness in this case
-15-

because the Kan-Do sank in calm waters while moored at its
berth.

However, Kan-Do, Inc. has rebutted the presumption

and created a genuine dispute of material fact regarding
seaworthiness

because

it

has

supplied

copious

evidence

regarding the manner in which the vessel was maintained.
In addition to keeping the vessel at a marina hooked up
to shore power, Kunnen provided a declaration in which he
stated

that

he

frequently

checked

the

Kan-Do’s

engines,

generator, bilge, and other systems. (Kunnen Decl. Doc. # 40
at ¶¶ 2-4).
the

Kan-Do

painted.

Furthermore, just days before the Kan-Do sunk,
was

subject

to

a

marine

inspection

(Carlevatti Dep. Doc. # 35 at 6).

and

was

See Markel Am.

Ins. Co. v. Olsen, No. 10-11667, 2013 U.S. Dist. LEXIS
75750, at *26-27 (E.D. Mich. May 30, 2013)(finding that
shipowners “provided evidence to rebut the presumption of
unseaworthiness resulting from the [vessel] sinking in calm
waters” with testimony that “Defendant is a meticulous and
knowledgeable

boat-owner

who

spent

significant

time

and

resources maintaining the [vessel].”).
Pointing to Axis Reinsurance Co. v. Resmondo, No. 8:08cv-569-T-33TBM, 2009 U.S. Dist. LEXIS 122778 (M.D. Fla. May
8, 2009)(report and recommendation), Great Lakes asserts
-16-

that “a vessel is unseaworthy and in breach of the express
policy warranty where its bilge pumps are missing or fail to
function.” (Doc. # 43 at 5).

However, the facts of Axis

Reinsurance reveal that the vessel sank when its owner, a
novice

boater

who

experienced

engine

trouble

(including

“popping noises” and overheating) on his first voyage, left
the vessel at “an unmanned marina where he tied it to the
dock and left it with a note” and “did not connect the
vessel to electrical shore power.”

Id. at *3.

With water

leaking into the vessel due to a crack in the exterior of
the vessel, “the bilge pump removed water from the vessel
until the vessel’s battery was exhausted and then it quit.
Thereafter, the vessel continued to flood and then it sank.”
Id. at *6.
In Axis Reinsurance, the evidence revealed that the
vessel sustained significant damage from running aground
prior to the issuance of the insurance policy in question,
and sank within days of the policy being issued. Id. at *56.

Similar

evidence

established here.

of

unseaworthiness

has

not

been

Furthermore, Kan-Do, Inc.’s expert has

opined that “[t]he bottom of the vessel appears to be sound
and in good general maintenance and condition.” (Doc. # 39
-17-

at 2).1

In the present case, genuine issues of fact remain

for resolution during trial regarding whether the Kan-Do
complied with all warranties of the Policy, including the
warranty of seaworthiness.
D.

“Engines, Mechanical and Electrical Parts”

Great
coverage

Lakes
for

points

the

out

Kan-Do’s

that

Exclusion

“engines,

“r”

excludes

mechanical

and

electrical parts” unless those parts are damaged by “an
accidental external event such as collision, impact with a
fixed or floating object, grounding, stranding, ingestion of
foreign object, lightning strike or fire.” (Doc. # 1-1 at
12).

Great Lakes asserts that it is entitled to summary

judgment on the issue of coverage for the Kan-Do’s engines,
mechanical and electrical parts because the record does not
support that these parts were damaged by “an accidental
external force” as described in the Policy. (Id.).
Kan-Do, Inc. asserts that the language in Exclusion “r”
is “inconsistent with the other language in Great Lakes’ own

1

With respect to Avoures’ report, Great Lakes indicates:
“For purposes of the instant summary judgment motion, the
undersigned counsel for the Plaintiff will concede and in fact
will gladly stipulate to everything asserted in the report
prepared by Defendant’s own expert witness.” (Doc. # 33 at
6)(emphasis in original).
-18-

‘all risk’ policy with coverage for accident[al] physical
loss of or damage to a scheduled vessel.” (Doc. # 42 at 19).
Kan-Do, Inc. further contends that “any ambiguity should be
held against the drafter, namely Great Lakes.” (Id.)(citing
Fireman’s Fund, Inc. Co. v. Tropical Shipping & Constr. Co.,
254 F.3d 987, 1003 (11th Cir. 2001)(“We examine the language
of the policy in its entirety, construing any ambiguity
against the insurer.”)).
The Court is persuaded by Kan-Do, Inc.’s argument and
determines that the provisions in “Coverage A” and Exclusion
“r” are ambiguous and potentially inconsistent.
exists

in

contract

an

insurance

policy

susceptible

to

when

its

“Ambiguity

terms

different

make

the

reasonable

interpretations, one resulting in coverage and one resulting
in exclusion.” Id.
While the Policy covers accidental damage to the “hull,
machinery, and equipment,” in coverage A, it excludes damage
to “engines, mechanical, and electrical parts” unless that
damage

was

sustained

by

an

“accidental

external

event.”

(Doc. # 1-1 at 10, 12). None of these operative terms are
included in the “definitions” section of the Policy, and it
appears that, giving these terms their plain and ordinary
-19-