The Northern Assurance Co. of America v. Keefe

Filing 35

Judge Douglas P. Woodlock: MEMORANDUM AND ORDER entered granting 23 Motion for Summary Judgment; finding as moot 25 Motion for Summary Judgment; denying 27 Motion for Summary Judgment (Woodlock, Douglas)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
THE NORTHERN ASSURANCE
COMPANY OF AMERICA,

)
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Plaintiff,
v.
DANIEL J. KEEFE, JR.,
Defendant.

CIVIL ACTION NO.
10-11998-DPW

MEMORANDUM AND ORDER
February 23, 2012
The Northern Assurance Company of America (“Northern
Assurance”) filed this action seeking declaratory judgment
pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. §
2201, that it is not obligated to indemnify Daniel J. Keefe, Jr.,
for any costs, expenses, or damages relating to the grounding of
the M/V WILHELMINA under the Yacht Policy issued by Northern
Assurance to Keefe.

Keefe responded with six counterclaims, all

relating to Northern Assurance’s failure to pay what Keefe claims
is owed under the insurance contract.

The parties have filed

cross-motions for summary judgment.
I.
A.

BACKGROUND

FACTUAL BACKGROUND
Daniel J. Keefe, Jr., is the owner of the yacht the M/V

WILHELMINA.

Since he obtained ownership of the yacht in the mid-

2000s,1 he has maintained recreational yacht insurance coverage
through Northern Assurance.

The Yacht Policy covers

“[a]ccidental, direct physical loss of or damage to the insured
property.”

The Policy provides $265,000.00 in insurance.

The Policy includes a “Protection and Recovery Expenses”
clause, stating that the insurer “will pay the reasonable costs
‘you’ incur to protect or recover the covered ‘yacht’ from
further loss or damage following an insured loss.”

The Policy

also includes clauses providing coverage for, inter alia,
“Commercial Towing and Assistance,” “Liability Insurance”
(describing coverage for loss of life and bodily injury and
property damage), and “Pollution Liability.”

The Policy

explicitly excludes coverage for “any loss, injury, damage or
expense arising out of or during any illegal purpose on ‘your’
part or on the part of anyone using the insured property with
‘your’ permission.”
The Yacht Policy coverage was originally limited only to
“private pleasure” excursions.

The Policy states:

Coverage under this policy applies only while the covered
“yacht” is used for private pleasure purposes. This
includes recreational boating and leisure time activities.
There is no coverage while the covered “yacht” is used for
charter, hire, to carry persons or property for a fee or for
any other commercial use unless prior written consent has
been obtained from “us”. Commercial use includes use in any
There is some dispute about whether Keefe acquired the
yacht in 2003-04 or in 2006. The year of acquisition is not
relevant to motion before me.
1

2

trade, occupation, or profession. Business entertainment
for which there is no direct remuneration is private
pleasure use.
Dkt. 1-2, p. 8.
In May, 2008, Keefe requested and Northern Assurance issued
a Chartering Coverage Endorsement, adding breadth of coverage to
the Policy.

The Endorsement states:

You may charter the yacht described on the declarations page
of this policy, subject to the following special terms and
conditions:
1.
NO MORE THAN 6 PASSENGERS may be carried on board the
yacht.
2.
You may not have more than 12 charters in one policy
year.
3.
With regard to Sections B-1 - LIABILITY INSURANCE, B-2
- POLLUTION LIABILITY, and SECTION D - MEDICAL
PAYMENTS, a deductible of $100.00 shall apply to all
claims arising from any one accident or occurrence.
. . . .
7.
The NON-OWNED YACHT coverage provided in this policy
will be null and void during the entire duration of any
charter.
8.
SECTION C - LONGSHORE AND HARBOR WORKERS’ COMPENSATION
INSURANCE shall be null and void during the entire
duration of any charter.
IF YOU VIOLATE ANY OF THESE TERMS AND CONDITIONS AT ANY
TIME, THIS POLICY SHALL IMMEDIATELY BECOME NULL AND VOID,
AND SHALL REMAIN NULL AND VOID DURING THE TERM OF SUCH
VIOLATION.
The coverage issued is the only charter coverage available
through Northern Assurance.

The Yacht Policy, with the

Chartering Coverage Endorsement, was renewed and in effect for
the time period of August 30, 2009 through August 30, 2010.

3

On August 21, 2010, Keefe agreed to charter the yacht for
eighteen passengers.2

He did not obtain

prior written consent

for this number of passengers from the insurance company. During
the Charter on August 21, 2010, the passengers, Keefe, and one
additional crew-member were aboard.
While the yacht was engaged in the Charter, it grounded on a
shoal known as Devil’s Back and became stuck.

Keefe claims that

at the time of the grounding there was not much damage to the
hull.

The passengers were removed after the grounding by a

Massport vessel; none of the passengers was injured.

After the

passengers departed, the salvage personnel began to work.

Keefe

claims that as the tide receded after the passengers disembarked,
the vessel laid over and that only then was the bottom of the
boat punctured.
The United States Coast Guard investigated the grounding and
fined Keefe for negligent operation and for “carrying passengers
without a valid Certificate of Inspection.”

The Coast Guard

Report stated that “[t]he WILHELMINA has a 5 ½’ draft” and that
“Devil’s Back is charted to have only a 1' depth and pierced the

There is some evidence that the yacht was chartered for
(and was carrying) sixteen passengers. Uncertainty regarding the
number of passengers is not material to the pending motion; the
parties agree that the yacht was chartered for more than six
passengers and that more than six passengers were aboard at the
time of the grounding.
2

4

hull of the WILHELMINA just starboard of the centerline causing
uncontrollable flooding.”
Keefe filed a Statement of Loss with the insurer on August
26, 2010, stating:
Vessel grounded on a rock outside of North Channel SE of #5
while heading toward the channel. As the tide fell the boat
listed to starboard and the rock penetrated the hull midship
starboard side. Vessel was flooded as the tide came in. 18
persons and 2 crew were on board. All people were removed
with no injury to report.
(original in mostly capital letters).
The vessel was hauled to Boston Harbor Marina & Shipyard on
the day after the accident and remained there as of the filing of
the motions before me.

Keefe claims that the cost to repair the

yacht is estimated to be $195,557.31 and the current value of the
yacht is estimated to be $16,000.00.

He claims that while the

vessel has not been repaired, it has been cleaned and the engines
have been pickled at a cost of $3,410.86.

He claims that the

storage bill for the yacht as of September, 2011, was
approximately $11,000.

Northern Assurance disputes these

expenses, but does not provide an alternative statement as to
what expenses and damages have actually been incurred.
On September 8, 2010, Northern Assurance sent Keefe a letter
explaining that it was investigating his compliance with the
Chartering Coverage Endorsement and reserving its rights to deny
coverage.

On September 27, 2010, Keefe (through counsel) sent

Northern Assurance a demand letter pursuant to G.L. c. 93A
5

demanding that Northern Assurance provide coverage for the loss
and costs.

On October 27, 2010, Northern Assurance responded to

the demand letter and made no offer of settlement.

On November

15, 2010, Northern Assurance issued Keefe a Denial of Coverage
letter.
B.

PROCEDURAL HISTORY
Northern Assurance filed this suit on November 18, 2010

seeking a declaration that it is not obligated to indemnify Keefe
for his loss, for any protection and recovery expenses, or for
any other costs, expenses, or damages relating to the grounding
and damages to the M/V WILHELMINA.
Keefe’s six counterclaims, filed on December 1, 2010, seek
the following: (1) declaratory judgment that Northern Assurance
is obligated under the Policy to pay Keefe for the loss, salvage
costs, and equipment protection expenses; (2) judgment against
Northern Assurance for breach of contract due to its failure to
provide coverage under the Policy; (3) judgment against Northern
Assurance for breach of the implied covenant of good faith and
fair dealing due to its refusal to provide coverage under the
Policy; (4) judgment against Northern Assurance for engaging in
unfair trade practices under G.L. c. 93A for its refusal to
provide coverage under the Policy; (5) judgment against Northern
Assurance for engaging in unfair claim settlement practices in
violation of G.L. c. 176D for failing to provide coverage under
6

the Policy; and (6) declaratory judgment that Northern Assurance
is obligated to pay Keefe for any losses suffered and for any
salvage or equipment protection expenses undertaken after the
passengers disembarked from the yacht.
Northern Assurance’s motion for summary judgment contends
that it properly denied coverage to Keefe, a holding in favor of
which also would resolve Keefe’s counterclaims, all of which
depend on wrongful denial of coverage.

I accept Northern

Assurance’s contention in disposing of the cross-motions for
summary judgment before me.
II.

STANDARD OF REVIEW

A movant is entitled to summary judgment when “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.”
R. Civ. P. 56(a).

Fed.

“A dispute is genuine if the evidence about

the fact is such that a reasonable jury could resolve the point
in the favor of the non-moving party,” and “[a] fact is material
if it has the potential of determining the outcome of the
litigation.” Farmers Ins. Exch. v. RNK, Inc., 632 F.3d 777, 782
(1st Cir. 2011) (quoting Rodríguez–Rivera v. Federico Trilla
Reg'l Hosp., 532 F.3d 28, 30 (1st Cir. 2008)).
In evaluating a motion for summary judgment, a court “must
construe the record in the light most favorable to the nonmovant
and resolv[e] all reasonable inferences in that party’s favor
7

while safely ignoring conclusory allegations, improbable
inferences, and unsupported speculation.”

Collins v. University

of New Hampshire, 2011 WL 6350429, at *4 (1st Cir. 2011).
“Where, as here, a district court [is called upon to] rule[]
simultaneously on cross-motions for summary judgment, it must
view each motion, separately, through this prism.”

Estate of

Hevia v. Portrio Corp., 602 F.3d 34, 40 (1st Cir. 2010).

Thus,

the “court may enter summary judgment only if the record, read in
this manner, reveals that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment
as a matter of law.” Id.
III.
A.

ANALYSIS

JURISDICTION
The district courts have original jurisdiction over “any

civil case of admiralty or maritime jurisdiction.”
§ 1333.

28 U.S.C.

“Suits on maritime insurance policies are classic

examples of matters within federal maritime jurisdiction.”
Central Int’l Co. v. Kempter Nat’l Ins. Cos., 202 F.3d 372, 373
(1st Cir. 2000).

See also Acadia Ins. Co. v. McNeil, 116 F.3d

599, 602 (1st Cir. 1997) (“It is, therefore, readily evident that
the protection afforded by the yacht policy is tied closely to
the pleasure boat and matters arising out of its ownership,
operation, and maintenance in specified waters.

On that basis,

the yacht policy constitutes an ocean marine policy within the
8

federal courts’ admiralty jurisdiction.”); Windsor Mount Joy Mut.
Ins. Co. v. Giragosian, 57 F.3d 50, 54 (1st Cir. 1995) (“The
propriety of maritime jurisdiction over a suit involving a
maritime insurance policy is unquestionable.”).
B.

CHOICE OF LAW
Although this Court’s jurisdiction is clear, the First

Circuit has noted that the appropriate choice of law is not:
Beneath this surface agreement on general principles
[regarding jurisdiction] lies an abyss of confusion. One
might think that construing a maritime insurance policy, in
relation to damage occurring on the high seas, would be a
paradigm case for a uniform body of federal law. But the
tensions in Supreme Court precedents are legendary . . .
with regard to the reach of state law in federal maritime
law generally . . . .
Central Int’l Co., 202 F.3d at 373.

The confusion was manifest

in the briefing submitted for this case.
The Policy states that “[t]he rights and obligations of the
parties under this policy shall be governed by the general
maritime law of the United States.”

However, not “every term in

every maritime contract can only be controlled by some federally
defined admiralty rule.

In the field of maritime contracts, as

in that of maritime torts, the National Government has left much
regulatory power in the States.”

Wilburn Boat Co. v. Fireman’s

Fund Ins. Co., 348 U.S. 310, 313 (1955).

This observation holds

especially true in the instant case, because “this state
regulatory power, exercised with federal consent or acquiescence,

9

has always been particularly broad in relation to insurance
companies and the contracts they make.”

Id. at 314.

In Wilburn Boat Co., the Supreme Court held that “in the
absence of controlling Acts of Congress,” a court should ask
whether a judicially established federal admiralty rule governs
the interpretation of the policy, and whether, in the absence of
such a rule, a court should fashion one.

Id.

The Supreme Court

concluded that there was no such rule and that “[t]he whole
judicial and legislative history of insurance regulation in the
United States warns us against the judicial creations of
admiralty rules to govern marine policy terms and warranties.”
Id. at 316.

It held that the Court, “like Congress, [would]

leave the regulation of marine insurance where it has been—-with
the States.”

Id. at 321.

In their initial briefing, both parties relied on Wilburn
Boat Co. and its progeny and agreed that Massachusetts law,
instead of federal admiralty law, should be applied to construe
the marine insurance policy at issue here.

Northern Assurance

stated that “[t]here is no judicially established rule under
General Maritime Law concerning a breach of a passenger warranty
clause.”

Keefe stated that “[a]s a general principle, the First

Circuit has held that all questions involving the interpretation
of marine insurance policies are to be governed by state law.”
Unfortunately, neither party paid more than lip service to the
10

Supreme Court’s most recent discussion of choice of law issues in
maritime cases in Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14
(2004), and both parties overlooked the First Circuit’s most
recent discussion of federal admiralty law regarding breaches of
warranties in maritime insurance contracts in Lloyd’s of London
v. Pagan-Sanchez, 539 F.3d 19 (1st Cir. 2008).
In Norfolk S. Ry. Co., the Supreme Court held that “[w]hen a
contract is a maritime one, and the dispute is not inherently
local, federal law controls the contract interpretation.”
Norfolk S. Ry. Co., 543 U.S. at 23.

It elaborated that “when

state interests cannot be accommodated without defeating a
federal interest, as is the case here, then federal substantive
law should govern.”

Id at 27.

Applying the principles of Norfolk S. Ry. Co., the First
Circuit in Lloyd’s of London investigated whether there was a
well-established general federal rule governing the contract at
issue, and, upon finding such a rule, stated that “the question
becomes whether [the state] has either clearly stated a contrary
rule or demonstrated a strong interest in having a different
rule.

Only if so, would we address the question of whether this

is inherently a local dispute to [the state].”
London, 539 F.3d at 25.

Lloyd’s of

I will follow the same analytic

framework to determine whether federal admiralty law or
Massachusetts law governs in the instant case, and in an
11

abundance of caution I will make alternative determinations under
both bodies of law.
C.

ISSUES PRESENTED
At issue is whether the statements in the Chartering

Coverage Endorsement that Keefe “may charter the yacht . . .
subject to the following special terms and conditions: (1) NO
MORE THAN 6 PASSENGERS may be carried on board the yacht” and “IF
YOU VIOLATE ANY OF THESE TERMS AND CONDITIONS AT ANY TIME, THIS
POLICY SHALL IMMEDIATELY BECOME NULL AND VOID, AND SHALL REMAIN
NULL AND VOID DURING THE TERM OF SUCH VIOLATION” (emphases in
original) are sufficient bases to deny Keefe coverage under the
Policy, when Keefe ran aground on Devil’s Back with far more than
six passengers aboard on a chartered excursion.3
Northern Assurance argues that Keefe breached an
additional warranty by negligently operating the vessel and
carrying passengers without a valid Certificate of Inspection.
Northern Assurance argues that this violated the “Illegal
Purpose” clause under the policy, which states that Northern
Assurance “will not pay any loss, injury, damage or expense
arising out of or during any illegal purpose on ‘your’ part or on
the part of anyone using the insured property with ‘your’
permission.” I need not decide whether negligent operation of
the vessel or carrying passengers without a valid Certificate of
Inspection is an “illegal purpose” under the Yacht Policy. Even
if it is an “illegal purpose,” the violation (carrying too many
passengers on a charter) is the same and the analysis (regarding
whether the violation affects the coverage despite the lack of
causation and despite the claim that the damage occurred after
the departure of the passengers) does not change. Northern
Assurance cites no cases regarding this issue and Keefe cites
only two, Kelly v. Home Ins. Co., 97 Mass. 288 (1867), and Ocean
Ins. Co. v. Polleys, 38 U.S. 157 (1839), which are related to
unlawful contracts and not to illegal purpose clauses within
contracts. Given the lack of pertinent briefing regarding
3

12

The parties raise three distinct questions regarding the
application of this exclusion of coverage.

The first is whether

such a clause will be construed to exclude coverage even where,
as here, the insurer provides no evidence that the breach of the
condition led to or contributed in any way to the accident or the
damage.

The second is whether such a clause will be construed to

exclude coverage for damage inflicted and expenses incurred after
the passengers were evacuated by Massport, when, strictly
speaking, the insured was no longer in violation of the passenger
limitation.

The third is whether the exclusions of the

Chartering Coverage Endorsement apply to the property coverage
(for damage to the yacht) or only to the liability coverage (for
personal injury, etc., to passengers) provided by the Policy.
1.

Impact of Breach of Warranty Without Causation
I.

Federal Admiralty Law

Although both Northern Assurance and Keefe initially denied
the existence of a judicially established federal admiralty rule
regarding the breach of a warranty or condition, the First
Circuit held otherwise in Lloyd’s of London.

The First Circuit

held that “[t]he prevailing view, both in federal law and state
maritime insurance law, is that a breach of a warranty will

whether the charter constituted an “illegal purpose,” where I
need not decide the issue, I decline to do so.
13

excuse the maritime insurer from payment regardless of any causal
connection to the loss.”

Lloyd’s of London, 539 F.3d at 21.

The Policy’s exclusion of charters for more than six
passengers operates as a warranty as the First Circuit defined
the term.

The First Circuit cited 6 Couch on Insurance § 81:14

to define a promissory warranty as “one by which the insured
stipulates that something shall be done or omitted after the
policy takes effect and during its continuance,” id. at 23, and
cited the Second Circuit to define a warranty as “a promise by
which the assured undertakes that some particular thing shall or
shall not be done, or that some condition shall be fulfilled,”
id. (quoting Commercial Union Ins. Co. v. Flagship Marine Servs.,
Inc., 190 F.3d 26, 31 (2d Cir. 1999) (internal citation
omitted)).

In this case, the contract’s exclusion of coverage

for chartered excursions of more than six passengers was a
promise by Keefe that he would not conduct charters of more than
six passengers during the period of the insurance contract.

It

indicates an acknowledgment that if Keefe did conduct such
charters, coverage would be null and void during that period.
The First Circuit concluded that where such a warranty
exists in a marine insurance contract, it is a “well-established
general rule,” id. at 25, that “a breach . . . excuses the
insurer from coverage,” id. at 24.

Thus, the First Circuit has

held that there is a judicially established federal rule
14

governing this particular area of marine insurance contract
interpretation; this Court may not ignore it, as both parties
did, to focus almost exclusively on state law.4
ii.

Massachusetts Law

Massachusetts insurance law regarding the impact of a breach
of warranty that does not lead to or contribute to the damages at
issue is somewhat more complicated than federal maritime law.
Nonetheless, the result is the same under the facts of this case:
Keefe’s coverage under the Chartering Coverage Endorsement is
suspended during the breach, regardless of whether the breach led
to the accident.
Under Massachusetts law, the terms ‘condition’ and
‘warranty’ that I have been using interchangeably thus far are
distinct terms of art.

The Massachusetts Supreme Judicial Court

has explained how to distinguish between the two:
[A] statement made in an application for a policy of
insurance may become a condition of the policy rather than
remain a warranty or representation if: (1) the statement
made by the insured relates essentially to the insurer’s
intelligent decision to issue the policy; and (2) the
statement is made a condition precedent to recovery under
Keefe argues that Lloyds is distinguishable because the
First Circuit addressed Puerto Rico and not Massachusetts law.
This argument addresses “whether [a particular state] has either
clearly stated a contrary rule or demonstrated a strong interest
in having a different rule,” Lloyd’s of London, 539 F.3d 19, 25
(1st Cir. 2008), not whether the First Circuit had held that the
courts have established a federal rule. Moreover, as I hold
infra, Section III(C)(1)(ii), the analysis under Massachusetts
law produces the same conclusion as the analysis under the
federal rule.
4

15

the policy, either by using the precise words ‘condition
precedent’ or their equivalent.
Charles, Henry & Crowley Co. v. Home Ins. Co., 212 N.E.2d 240,
242 (Mass. 1965).
The difference between a condition and a warranty is crucial
to the application of state law in this case because a
Massachusetts statute provides:
No oral or written misrepresentation or warranty made in the
negotiation of a policy of insurance by the insured or on
his behalf shall be deemed material or defeat or avoid the
policy or prevent its attaching unless such
misrepresentation or warranty is made with actual intent to
deceive, or unless the matter misrepresented or made a
warranty increased the risk of loss.
G.L. c. 175, § 186.

However, “General Laws c. 175, § 186,

applies only to representations and warranties and does not apply
to conditions precedent included expressly within the terms of a
policy.”

Charles, Henry & Crowley Co., 212 N.E.2d at 241-42.

Here, I find the exclusions within the Chartering Coverage
Endorsement to be conditions precedent for purposes of
Massachusetts insurance law.

The limitation in coverage to

charters with a maximum of six passengers “relate[d] essentially
to the insurer’s intelligent decision to issue the policy,” id.
at 240; not only is such a limitation a rational way to limit an
insurer’s risk, but the insurer, while being deposed, explained
that it does not offer any other chartering packages beyond the
package (with its six-passenger limitation) provided to Keefe.

16

While Keefe argues that the precise words “condition
precedent” are not used, the policy includes “their equivalent,”
id., by stating that “IF YOU VIOLATE ANY OF THESE TERMS AND
CONDITIONS AT ANY TIME, THIS POLICY SHALL IMMEDIATELY BECOME NULL
AND VOID, AND SHALL REMAIN NULL AND VOID DURING THE TERM OF SUCH
VIOLATION.”

This sentence states unambiguously that coverage is

dependent on compliance with the terms and conditions in the
Chartering Coverage Endorsement.

“The structure and phraseology”

of the sentence and the preceding conditions “combine to make the
whole functionally equivalent to a direct statement that the
stipulations . . . comprise a condition precedent to recovery on
the policy.

Any other construction would both mock common sense

and lead inevitably to the nanization” of the chartering
limitations.

U.S. Fire Ins. Co. v. Producciones Padosa, Inc.,

835 F.2d 950, 954-55 (1st Cir. 1987).
Because the conditions in the Chartering Coverage
Endorsement are conditions precedent, G.L. c. 175, § 186 does not
apply and “coverage will be avoided whether or not the breach in
fact contributed to the accident.”
212 N.E.2d at 242.

Charles, Henry & Crowley Co.,

“Conformance with stated conditions that are

agreed to govern the attachment of the policy is obligatory,
regardless of their irrelevancy to the actual loss.”
Ins. Co., 835 F.2d at 954.

U.S. Fire

Thus, whether or not the presence of

an excess of passengers on the chartered excursion was a
17

contributing factor to the grounding of the M/V WILHELMINA, the
exclusion of the Chartering Coverage Endorsement still applies
under Massachusetts law.
iii.

Accommodation of State Interests

The well-established federal admiralty rule and
Massachusetts law construe the Policy in the same way, such that
the exclusions in the Chartering Coverage Endorsement apply
whether or not the breach of the condition was related to the
accident.

Thus, “state interests can[] be accommodated without

defeating a federal interest,” Norfolk S. Ry. Co., 543 U.S. at
27.

Where the state has not “clearly stated a contrary rule or

demonstrated a strong interest in having a different rule,” the
First Circuit would not determine “the question of whether this
is inherently a local dispute . . . .”
F.3d at 25.

Lloyd’s of London, 539

Nor will I.5

I will note, as the Supreme Court did in 1955, that the
“state regulatory power, exercised with federal consent or
acquiescence, has always been particularly broad in relation to
insurance companies and the contracts they make.” Wilburn Boat
Co. v. Fireman’s Fund Ins. Co., 248 U.S. 310, 314 (1955). The
Supreme Court stated:
The whole judicial and legislative history of insurance
regulation in the United States warns us against the
judicial creation of admiralty rules to govern marine policy
terms and warranties. The control of all types of insurance
companies and contracts has been primarily a state function
since the States came into being.
Id. at 316. Thus, there is certainly historical support for the
proposition that a marine insurance dispute, at least where (as
here) it is between a local insurance company and a local boatowner and involves no other actors, is “inherently local.”
Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 23 (2004).
5

18

2.

Reinstatement After Breach of Warranty

Keefe argues that even if the conditions in the Chartering
Coverage Endorsement are construed to apply to the grounding,
Northern Assurance nonetheless remains obligated to provide
coverage for any damage incurred by the vessel after the
passengers disembarked.

The Endorsement states that the Policy

“SHALL REMAIN NULL AND VOID DURING THE TERM OF SUCH VIOLATION.”
Keefe contends that the term of violation ended when the
passengers disembarked, and so the Policy should have been
reinstated at that time.
Neither party presents any case law (federal or state)
applicable to the issue.6
I.

Federal Admiralty Law

While two federal circuits have adopted a rule governing the
issue, I nonetheless hold that no judicially established federal
admiralty rule exists here.
The Second Circuit addressed the issue in what has been
termed “the celebrated case,” Canal Ins. Co. v. Baldree, 489 F.2d
1393, 1395 (5th Cir. 1974), of Hejnes v. Aetna Ins. Co., 132 F.2d
715 (2d Cir. 1943).

In Hejnes, a tug was towing more than one

Northern Assurance, for its part, appears to
misunderstand Keefe’s argument, responding that Keefe is
misconstruing the clause regarding salvage in the Yacht Policy.
Keefe’s argument, as I understand it, is based not on the salvage
clause but instead on the language that the Policy “SHALL REMAIN
NULL AND VOID DURING THE TERM OF SUCH VIOLATION” (emphasis
added).
6

19

barge in violation of a promissory warranty in its maritime
insurance policy when a storm began.

When the tug was pulled

into shallow water and endangered, its captain “cut loose in an
attempt to take his vessel to safety.”
18.

Hejnes, 132 F.2d at 717-

However, it was too late; “[t]he tug soon sank and was a

total loss.”

Id. at 718.

At the time that the tug sank, it “was not towing in
violation of warranty in the policy,” id., because it had cut
loose from the barges.

Nonetheless, the Second Circuit held that

the policy excluded coverage:
[O]ur construction need not, and does not, permit a tug
owner to break the warranty by towing more than one vessel
and when trouble comes get his insurance back in force in
ample time as a practical matter merely by cutting the line
to the forbidden tow. A tug owner cannot thus have the
benefit of low-rate insurance with more extensive towage
operations than his policy permits . . . . The insured may
not by breach of warranty increase the risk and put that
added burden upon the insurer. The latter need take back
only what he had before and that obviously did not include
the dangers faced by the tug in fulfilling her duty to her
tow of this kind at this place. The undisputed evidence
here was that the vessel while the policy was suspended
became involved in a severe storm; was pulled into shallow
water because she was too small for the job she tried to do;
pounded on the bottom for about twenty minutes; and then was
freed of her tow only because her own need to seek safety
from dangers so created required her freedom to such an
extent. Even so, her every effort to save herself was
fruitless though she had the aid of a Coast Guard cutter.
That evidence, we think, left no fair question of fact to be
decided by the jury.
Id. at 720.

Under the principle stated in Hejnes, Northern

Assurance would not be obligated to indemnify Keefe for injuries
incurred after the passengers disembarked because Northern
20

Assurance must reinstate coverage only when no dangers were posed
during and remained after the breach of warranty.
The Hejnes principle has also been explicitly endorsed by
the Fifth Circuit.7

The Fifth Circuit, citing Hejnes, stated that

“[o]f course, if the warranty is complied with at attachment,
then the policy is effective and subsequent breaches merely
suspend coverage until the breach is cured and the consequences
of the breach are obliterated.”

Gulfstream Cargo, Ltd. v.

Reliance Ins. Co., 409 F.2d 974, 983 n.28 (5th Cir. 1969)
(emphasis added).
However, Hejnes was decided before Wilburn Boat Co., and the
Second Circuit cited a mixture of federal and New York law
throughout the opinion, never indicating which body of law
governed the case.

See Hejnes, 132 F.2d 715.

Furthermore, the

Second Circuit provided no citations at all in support of its

In non-admiralty insurance cases, the Hejnes principle
has been cited with approval by the Fourth Circuit, see FidelityPhenix Fire Ins. Co. of N.Y. v. Pilot Freight Carriers, 193 F.2d
812, 817-18 (4th Cir. 1952) (“The insured may not by breach of
warranty increase the risk and put that added burden upon the
insurer.”); by the Supreme Court of South Dakota, see Ranger Ins.
Co. v. Macy, 227 N.W.2d 426, 430 (S.D. 1975) (“[S]uspended
coverage will not be reinstated by merely eliminating the
proscribed condition after the statistically greater risk has
manifested itself as an actual precarious circumstance.”); and by
the Western District of Virginia, see Powell Valley Elec. Coop.,
Inc. v. U.S. Aviation Underwriters, 179 F.Supp. 616, 618 (W.D.
Va. 1959) (“It is well settled that when the coverage of an
insurance policy is validly suspended that the coverage is not
reinstated if anything has taken place while the insurance was
suspended that would increase the insurer’s risk of loss.).
7

21

principle regarding reinstatement after risk is increased,
leaving ambiguous which body of law anchored the rule.
720.

Id. at

As for Gulfstream Cargo, the Fifth Circuit stated that it

was “unnecessary” to resolve the choice of law question,
Gulfstream Cargo, 409 F.2d at 981, because the state law and
maritime law were not in conflict, “and there is every indication
that if Florida’s preceding law is inadequate to fill in all the
gaps, Florida would draw heavily on maritime law in fashioning
its own principles,” id. at 980.
Thus, neither Hejnes nor Gulfstream clearly endorsed an
established federal judicial rule regarding reinstatement of a
suspended maritime insurance policy.

Given that the Supreme

Court has cautioned that “[t]he whole judicial and legislative
history of insurance regulation in the United States warns us
against the judicial creations of admiralty rules to govern
marine policy terms and warranties,” Wilburn Boat Co., 348 U.S.
at 316, I am reluctant to hold dispositively that such a federal
rule governs.

I turn to consideration of Massachusetts insurance

law to resolve the issue.
ii.

Massachusetts Law

While I am not satisfied that the rule recited by the Second
and Fifth Circuits clearly represents a judicially established
federal admiralty rule, it ultimately makes little difference.
Longstanding Massachusetts law applies the same rule.
22

Under the

common law in Massachusetts, insurance contract coverage is not
revived after a breach unless the risk to the insurer remains at
the same level as it was prior to the breach.
The rule was first enunciated by the Supreme Judicial Court
in 1866 in Worthington v. Bearse, 94 Mass. 382 (1866).

In

Worthington, the owner of a schooner temporarily sold thirteen
sixteenths of the ownership of the schooner to another party,
discharging the insurer.

The interest was reconveyed to the

owner, and subsequently the schooner was lost.
Mass. at 382.

Worthington, 94

The Supreme Judicial Court stated that the policy

was not voided by the sale, but “was only suspended during the
time that the title to the vessel was vested in the vendee, and
was revived again on the reconveyance to the insured during the
term specified in the policy.”

Id. at 384.

The policy was treated as revived because the risk had not
increased during the period of suspension:
No fact [was] shown from which any inference can be made
that by the alienation of the title to the vessel during the
time named in the policy, the risk of the insurers upon the
subsequent retransfer of the vessel to the assured was in
any degree increased or affected, or that any loss, injury
or prejudice to the underwriter was occasioned by the fact
that the absolute title to the vessel was temporarily vested
in a third person.
Id. at 384-85.

The Supreme Judicial Court explained:

[W]hen this interest was revived or restored during the term
designated in the policy, without any increase or change of
risk or other prejudice to the underwriter, there seems to
be no valid reason for holding the policy has become
extinct. Inasmuch as neither the subject nor the person
23

insured is changed, and the risk remains the same, the
intermediate transfer is an immaterial fact, which can in no
way affect the claim under the policy.
Id. at 385 (emphasis added).
Two decades later, the Supreme Judicial Court summarized the
case:
[I]n Worthington v. Bearse, 12 Allen. 382, it was held, on
great consideration by this court, that if the assured in a
marine policy temporarily parts with his interest in the
property insured, and afterwards buys it again, the policy
will revive, if there are no express provisions making it
void, and there is no increase of risk.
Hinckley v. Germania Fire Ins. Co., 1 N.E. 737, 739 (Mass. 1885).
The Supreme Judicial Court then applied the principle to another
occasion for suspension of a policy:
As between the insurer and the assured, there is no reason
why the former should be allowed to avail himself of a
temporary illegal use like that which existed in the present
case [operation, later ceased, of a business without a
license] unless it can be shown that the subsequent risk was
thereby increased, or the position of the insurer otherwise
injuriously affected.
Id.

The Massachusetts Supreme Judicial Court therefore

effectively developed the Hejnes principle decades before it was
pronounced by the Second Circuit.
In the instant case, no reasonable jury could find that the
risk to the insurer was not increased during the period that the
Policy was suspended.
Devil’s Back.

During that time, the boat ran aground on

The parties dispute whether the hull was breached

or damage incurred before the passengers disembarked, but it is
not necessary to determine the factual issue for purposes of the
24

motion before me.8

Keefe concedes that the puncture was caused

because the vessel listed to starboard in the waning tide; the
risk that the waning tide would cause a puncture was increased
(in a practical sense, it was created) because the boat was
grounded.

No reasonable jury could find that the grounding did

not lead to the puncture; therefore, Keefe raises no genuine
dispute regarding the increased risk.
Thus, under Massachusetts law, the Policy was not revived
when the passengers disembarked from the M/V WILHELMINA.

Whether

or not Keefe was still in violation of the condition precedent,
the coverage would not be reinstated until the increased risk was
neutralized.9

Where, as here, there is no clearly established

Keefe points to his own deposition testimony that the
damage occurred after the passengers left. Northern Assurance
points to the ambiguity regarding the timing in the Coast Guard
Report and Statement of Loss (which Northern Assurance overstates
to be more than ambiguity and instead an acknowledgment that the
damage occurred while the passengers were aboard). Additionally,
the Coast Guard Report documents an interview with Lebarron,
Keefe’s deck-hand (and son-in-law), in which Mr. Lebarron states
that neither he nor Keefe “realized the WILHELMINA was leaking
until 10 minutes had gone by” after the grounding. Dkt. 22-5, p.
42. This may be sufficient to raise a factual question regarding
whether and how much damage was incurred before the passengers
disembarked. However, the specific facts here are immaterial
because they do not have the potential to determine the relevant
issues in the litigation.
8

Similarly, Keefe may not claim indemnity under the
“Protection and Recovery Expenses” clause of the Yacht Policy.
The clause states that the insurer “will pay the reasonable costs
‘you’ incur to protect or recover the covered ‘yacht’ from
further loss or damage following an insured loss.’” Where, as
here, the loss itself is not covered (and thus not an ‘insured
loss’), the “Protection and Recovery Expenses” clause does not
9

25

federal admiralty rule, state law may be said to govern.

Under

longstanding Massachusetts case law, presaging the federal
courts’ embrace of the Hejnes principle, the coverage remained
suspended even after the passengers disembarked.
3.

Applicability of Conditions in Chartering Coverage
Endorsement to Property Insurance Coverage

Keefe contends that the exclusions or conditions within the
Chartering Coverage Endorsement apply only to the liability
coverage and not to the property insurance coverage provided by
the Policy.

In other words, Keefe argues that, while any

coverage for personal injury or for personal property would be
suspended during a violation of one or more of the conditions of
the endorsement, coverage for the yacht itself would remain in
place.
I.

Federal Admiralty Law

This presents a straightforward matter of contract
interpretation. The parties do not contend, and I do not find,
that any federal maritime rule applies.

Thus, I will turn to

Massachusetts contract law to resolve the issue.

See Littlefield

v. Acadia Ins. Co., 392 F.2d 1, 6 (1st Cir. 2004) (“[W]e note
apply. I note that in its briefing, Northern Assurance confuses
the “Protection and Recovery Expenses” clause with the liability
insurance covering “[t]he costs or expenses incurred for the
attempted or actual raising, removal or destruction of the wreck
of the covered ‘yacht’ if compulsory by law.” Keefe has not
claimed indemnity under the latter clause and has not made a
showing that the removal of the wreck of the yacht was compulsory
by law.
26

that general principles of contract law are used to interpret
marine insurance policies.”)
ii.

Massachusetts Law

In Massachusetts, interpretation of an insurance contract is
a question of law for the court.

Allmerica Financial Corp. v.

Certain Underwriters at Lloyd’s, London, 871 N.E.2d 418, 425
(Mass. 2007).

“An insurance contract is to be interpreted

according to the fair and reasonable meaning of the words in
which the agreement of the parties is expressed.”
citation omitted).

Id. (internal

“Although it is true that ambiguities in an

insurance contract must be construed in favor of an insured, it
is equally true that clear and unambiguous provisions should be
maintained unimpaired by loose and ill considered
interpretations.”

Mutual Fire, Marine and Inland Ins. Co. v.

Costa, 789 F.2d 83, 87 (1st Cir. 1986) (internal citation and
quotation omitted).
The plain terms of the exclusionary language in the
Chartering Coverage Endorsement indicate that it applies to all
categories of coverage included within the main body of the Yacht
Policy.

The Endorsement states: “IF YOU VIOLATE ANY OF THESE

TERMS AND CONDITIONS AT ANY TIME, THIS POLICY SHALL IMMEDIATELY
BECOME NULL AND VOID . . . .”

Violation of the conditions

therefore results in the suspension of the “policy,” not of the
liability insurance alone.

To the degree that Keefe is
27

contending the term “policy” is ambiguous, the Chartering
Coverage also states that “[y]ou may charter the yacht described
on the declarations page of this policy,” which makes clear that
the policy refers to the Yacht Policy (as it is labeled) as a
whole; the Declaration Page is listed as starting on page 1 in
the Yacht Policy Index.
Additionally, several individual conditions within the
Chartering Coverage Endorsement indicate that the conditions
apply to the entire policy and not to the liability coverage
alone.
3.

7.
8.

Within the terms and conditions are the following:
With regard to Sections B-1 - LIABILITY INSURANCE, B-2
- POLLUTION LIABILITY, and SECTION D - MEDICAL
PAYMENTS, a deductible of $100.00 shall apply to all
claims arising from any one accident or occurrence.
. . . .
The NON-OWNED YACHT coverage provided in this policy
will be null and void during the entire duration of any
charter.
SECTION C - LONGSHORE AND HARBOR WORKERS’ COMPENSATION
INSURANCE shall be null and void during the entire
duration of any charter. “With regard to SECTIONS B-1 LIABILITY INSURANCE, B-2 - POLLUTION LIABILITY, and
SECTION D - MEDICAL PAYMENTS, a deductible of $100.00
shall apply to all claims arising from any one accident
or occurrence.

(emphases in original).

The inclusion of limitations and

exclusions relating to different types of coverage (and not just
to the liability coverage) makes clear that the Chartering
Coverage Endorsement exclusions apply to coverage under the Yacht
Policy more generally.

28

There is no language to which Keefe can point that implies
that the exclusions would be limited to the liability coverage.
Keefe must argue that the Chartering Coverage Endorsement applies
to all types of coverage in order to collect under the Property
Insurance Coverage for the yacht itself, yet somehow
simultaneously contend that the exclusions within the Endorsement
apply to the liability coverage alone.

Keefe offers no argument

in favor of his reading, and no reason to believe that it is
anything but a “loose and ill considered interpretation[].”
Mutual Fire, Marine and Ins. Co., 789 F.3d at 87 (quoting Sherman
v. Metropolitan Life Ins. Co., 8 N.E.2d 892, 895 (Mass. 1937)).
Keefe frames his argument by contending that he himself
“understood this endorsement to have a direct effect on the
liability portion of the policy, not the hull coverage.”

This

subjective standard finds no support in the law and creates
terminal inconsistency.
To the extent that Keefe is arguing that his personal
interpretation is somehow determinative, the insured’s subjective
understanding does not set the standard for marine insurance
contract interpretation.

A court “must construe the words of the

policy in their usual and ordinary sense.”

Boston Gas. Co. v.

Century Indemnity Co., 910 N.E.2d 290, 304 (Mass. 2009).

Courts

“consider what an objectively reasonable insured, reading the
relevant policy language, would expect to be covered.”
29

Hazen

Paper Co. v. U.S. Fidelity and Guaranty Co., 555 N.E.2d 576, 583
(Mass. 1990).

Keefe’s idiosyncratic interpretation, while it may

be subjectively accurate, is not objectively reasonable.

Under

the unambiguous words of the Chartering Coverage Endorsement,
compliance with the conditions is a prerequisite for any type of
coverage in the policy.
To the extent that Keefe is arguing that the Chartering
Coverage Endorsement as a whole applies only to liability
coverage, then he has conceded that his damages are not covered
under the Yacht Policy.

Before the Endorsement was added, the

Policy provided:
Coverage under this policy applies only while the covered
“yacht” is used for private pleasure purposes. This
includes recreational boating and leisure time activities.
There is no coverage while the covered “yacht” is used for
charter, hire, to carry persons or property for a fee or for
any other commercial use unless prior written consent has
been obtained from “us”.
(emphasis added).

In order to claim any coverage for the

accident under the Yacht Policy, Keefe must rely on the expanded
coverage of the Chartering Coverage Endorsement; without the
endorsement, the coverage does not apply to chartered excursions
at all.
D.

KEEFE’S COUNTERCLAIMS
Keefe did not comply with the conditions necessary to

maintain coverage under the clauses based on which he claims
indemnity.

It is irrelevant whether the breach contributed to
30

the accident, and it is irrelevant whether the damage was
incurred after the passengers disembarked, so long as the risk
that accrued during the breach had not been neutralized.
Therefore, Keefe has no valid claim for indemnity under the Yacht
Policy.
Keefe’s additional (non-declaratory judgment) counterclaims
are all based upon and presuppose that Northern Assurance
wrongfully denied him coverage.

Although Northern Assurance

filed a motion seeking summary judgment on a number of those
counterclaims on alternate grounds, those arguments are moot.
Without a wrongful denial of coverage, Keefe cannot show that
Northern Assurance breached their contract, breached the implied
duty of good faith and fair dealing, violated G.L. c. 93A, or
engaged in an unfair insurance claim settlement practice in
violation of G.L. c. 176D.
IV.

CONCLUSION

For the reasons set forth above, I (1) DENY summary judgment to
Keefe (Dkt. No. 27) and (2) GRANT summary judgment to Northern
Assurance on Count 1 of the Complaint and on all Counterclaims
(Dkt. No. 23).

I find Northern Assurance’s motion for summary

judgment on alternative grounds as to Counts III, IV, and V (Dkt.
No. 25) moot in light of the above rulings.

/s/ Douglas P. Woodlock
DOUGLAS P. WOODLOCK
UNITED STATES DISTRICT JUDGE
31