Great Lakes Reinsurance (UK) PLC v. Fortelni
Filing
37
DECISION AND ORDER denying 34 cross motion for summary judgment; granting 27 motion for summary judgment - The Court (1) grants the Plaintiffs motion for summary judgment in all respects and issues a declaration that there is no coverage under t he Policy for the damage to the Defendants vessel in the October 30, 2012 incident; (2) denies the Defendants cross-motion for summary judgment in all respects; (3) and directs the Clerk of the Court to close this case. So Ordered by Judge Arthur D. Spatt on 7/21/2014. C/ECF Judgment Clerk, CI. (Coleman, Laurie)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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GREAT LAKES REINSURANCE (UK) PLC,
Plaintiff,
-against-
DECISION AND ORDER
12-cv-6278 (ADS)(WDW)
MARIUS FORTELNI,
Defendant.
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APPEARANCES:
Kelly, Rode, & Kelly
Attorneys for the Plaintiff
330 Old Country Road
Suite 305
Mineola, NY 11501
By:
John W. Hoefling, Esq., of Counsel
Goldman & Hellman
Attorneys for the Plaintiff
800 S.E. 3rd Avenue
4th Floor
Fort Lauderdale, FL 33316
By:
Steven E. Goldman, Esq., of Counsel
Law Offices Of Richard A. Fogel, P.C.
Attorneys for the Defendant
389 Cedar Avenue
Islip, NY 11751
By:
Richard A. Fogel, Esq., of Counsel
SPATT, District Judge.
On December 21, 2012, the Plaintiff Great Lakes Reinsurance (UK) PLC (“Great Lakes”)
commenced this action against the Defendant Marius Fortelni (“Fortelni”), seeking a declaratory
judgment to determine the rights of the parties with regard to a contract of marine insurance.
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Presently before the Court are the parties’ respective motions for summary judgment
pursuant to Federal Rule of Civil Procedure (“Fed. R. Civ. P.”) 56. For the reasons that follow,
the Plaintiff’s motion is granted and the Defendant’s cross-motion is denied.
I. BACKGROUND
A. Factual Background
Unless otherwise stated, the following facts are drawn from the parties Rule 56.1
statements and exhibits submitted therewith. Triable issues of fact are noted.
On or about August 1, 2012, the Defendant procured a “Commercial Yacht Insuring
Agreement” (the “Policy”) from the Plaintiff. The Policy provided first-party property coverage
and general liability coverage for the Defendant’s boat. The Plaintiff and/or its agents drafted
the Policy, which covers the period from August 14, 2012 through August 14, 2013. In pertinent
part, Coverage A of the Policy stated:
[The Plaintiff] provides coverage for accidental physical loss of or 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.
The Policy addressed exclusions to coverage as well. In pertinent part, the
Policy stated:
Exclusions to Coverage A
Unless specifically agreed by [the Plaintiff] in writing and additional premium
charged the following losses and/or damages (whether incurred directly or
indirectly) are not covered by this insuring agreement:
******
b)
Losses due to wear and tear, gradual deterioration, lack of maintenance,
inherent vice, weathering, insects, mould, animal and marine life.
******
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r)
Damage to the Scheduled Vessel’s engines, mechanical and electrical
parts, unless caused by an accidental external event such as a collision,
impact with a fixed or floating object, grounding, stranding, ingestion of
foreign object, lightning strike or fire.
On or about October 30, 2012, the Defendant’s boat, operated by a professionally
licensed Captain, sustained extensive damage in the inter-coastal waterway between Palm Beach
and Miami, Florida. The boat began taking on water into its engine compartment, stopping the
boat’s engines. A towing service was able to pump the flooded engine compartment and tow the
boat back to port.
The Defendant subsequently notified the Plaintiff of the occurrence. A boatyard later
concluded, and it is undisputed, that the seawater entered the compartment from a hose that
became disconnected from a water pump. The water pump pumped raw seawater through the
hose to cool the engines. The boatyard initially estimated the damage to the boat was
approximately $250,000. At the present time, the total damage is likely to be closer to $470,000.
The Defendant subsequently provided the Plaintiff with copies of all documents,
including the estimate of damages, and cooperated with the Plaintiff’s agent when the agent
inspected the vessel. However, the Plaintiff refused to pay for the damage to the vessel. The
Plaintiff alleges that its investigation established that the damages sustained by the boat were not
“accidental” as “the damage sustained by the vessel resulted from the failure of a stainless steel
clamp used to secure a raw water hose connection.” (Disclaimer, Exh. F.)
Neither party knows why the particular hose clamp failed. The Plaintiff’s surveyorinvestigator never observed the hose clamp and, therefore, did not observe if it was corroded.
The clamp was lost when the vessel was in the possession of the boatyard, so it could not be
examined. The two eyewitnesses who saw the broken clamp both testified that it appeared to
have snapped clean through. Eyewitness Captain Paul St. Germain testified that the clamp was
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not corroded. St. Germain further testified that the broken clamp looked similar to other clamps
on the vessel.
The Plaintiff’s representative, B.A. Usher, testified that a defective part such as a clamp
may be covered by the Policy but that the insurer would have subrogation rights. Usher further
testified that the damage to the vessel by the seawater was unexpected and unintended from the
standpoint of the insured. (Usher Dep., at 42.)
The parties agree that seawater does not belong in the engine room and is foreign to the
engine compartment. As noted above, the Policy covers damages caused by “ingestion of a
foreign object.”
However, Usher also testified that the Policy was designed so that insureds do not look to
their insurers to fix mechanical problems “just like your auto policy; if your car breaks down,
you don’t phone your insurance company.” (Usher Dep., at 30.).
B. Procedural History
On December 21, 2012, the Plaintiff Great Lakes commenced the instant action seeking a
declaratory judgment under 28 § U.S.C. 2201 as to the rights of each party to the Policy.
Of relevance here, the Plaintiff contends that the October 30, 2012 incident does not
constitute an “accidental physical loss” for which coverage would be afforded under the express
terms of the Policy. The Plaintiff also alleges that the damage to the Defendant’s vessel was not
caused by an “accidental external event” such as a collision. As such, the Plaintiff alleges that
coverage is excluded under the terms of subsection r under Exclusions to Coverage A in the
Policy.
In response, the Defendant counterclaimed for a declaratory judgment stating that
the Plaintiff must indemnify the Defendant for the damages to his boat as a result of the
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October 30, 2012 incident. Second, the Defendant asserted that the Plaintiff breached its
obligations under the Policy and, as a result, the Defendant suffered continuing damages.
Third, the Defendant alleged that the Plaintiff’s disclaimer of coverage constituted an act
of bad faith.
On January 24, 2013, the Plaintiff filed a motion pursuant to Fed. R. Civ. P.
12(b)(6) to dismiss the Defendant’s third counterclaim for failure to state a claim.
On June 27, 2013, the Court granted the Plaintiff’s motion to dismiss the
Defendant’s third counterclaim.
On May 5, 2014, the Plaintiff moved, pursuant to Fed. R. Civ. P. 56, for summary
judgment. The Plaintiff emphasizes that, for purposes of its motion for summary
judgment, it does not dispute the vessel’s seaworthiness or record of maintenance as of
the date of the incident. Rather, the Plaintiff argues that it is entitled to summary
judgment declaring that the loss or damage to the insured vessel owned by the Defendant
was not the result of an “accidental physical loss” under the Policy. Alternatively, to the
extent the Defendant seeks to recover for damages related to the vessels’ engines, the
Plaintiff seeks a partial summary judgment declaration that coverage for any such
damage is not warranted because it not caused by an “accidental external event” under
the Policy.
On May 23, 2014, the Defendant cross-moved for summary judgment pursuant to
Fed. R. Civ. P. 56. Of relevance here, the Defendant contends that, under New York law,
an “accident” is an occurrence that results in damage that is unexpected and unintended
from the standpoint of the insured.
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As an initial matter, the Court notes that there are no disputed issues of fact in the
parties’ Rule 56.1 statements, thereby indicating that this case can be resolved as a matter
of law. Indeed, the crux of the dispute is whether an unexplained and unexpected defect
to a hose clamp, causing seawater to flood the vessel, qualifies as an “accidental physical
loss” within the meaning of the Policy.
II. DISCUSSION
A. The Legal Standard Under New York Law Governing Interpretation of Insurance
Contracts
New York law applies in the first instance. See Wilburn Boat Co. v. Fireman's
Fund Insurance Co., 348 U.S. 310, 321, 75 S. Ct. 368, 374, 99 L. Ed. 337 (1955) (state
law is controlling on marine insurance issues).
Under New York law, “an insurance contract is interpreted to give effect to the
intent of the parties as expressed in the clear language of the contract.” Parks Real Estate
Purchasing Grp. v. St. Paul Fire & Marine Ins. Co., 472 F.3d 33, 42 (2d Cir. 2006)
(citation and internal quotation marks omitted); see also Goldberger v. Paul Revere Life
Ins. Co., 165 F.3d 180, 182 (2d Cir. 1999) (“In New York State, an insurance contract is
interpreted to give effect to the intent of the parties as expressed in the clear language of
the contract.” (citation and internal quotation marks omitted)). If the terms are
unambiguous, courts should enforce the contract as written. See Parks Real Estate, 472
F.3d at 42; Goldberger, 165 F.3d at 182 (quoting Village of Sylvan Beach v. Travelers
Indemnity Co., 55 F.3d 114, 115 (2d Cir. 1995)).
However, if the contract is ambiguous, “particularly the language of an exclusion
provision,” the ambiguity is interpreted in favor of the insured. See Goldberger, 165 F.3d
at 182 (quoting Travelers Indemnity Co., 55 F.3d at 115). “[I]f the language of the policy
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is doubtful or uncertain in its meaning, any ambiguity must be resolved in favor of the
insured and against the insurer.” Pepsico, Inc. v. Winterthur Int'l Am. Ins. Co., 13 A.D.3d
599, 600, 788 N.Y.S.2d 142, 144 (2d Dep’t 2004) (citation and internal quotation marks
omitted). “An ambiguity exists where the terms of an insurance contract could suggest
more than one meaning when viewed objectively by a reasonably intelligent person who
has examined the context of the entire integrated agreement and who is cognizant of the
customs, practices, usages and terminology as generally understood in the particular trade
or business.” Morgan Stanley Grp. Inc. v. New England Ins. Co., 225 F.3d 270, 275 (2d
Cir. 2000) (citation and internal quotation marks omitted).
B. An “All-Risk” Policy
In the Court’s view, the Policy is an “all-risk” policy. See City of Burlington v.
Indem. Ins. Co. of N. Am., 332 F.3d 38, 47 (2d Cir. 2003) (“All-risk policies . . . cover all
risks except those that are specifically excluded.”). As the Defendant-insured is asserting
a claim under this “all-risk” Policy, it is the Plaintiff-insurer’s burden to show by a
preponderance of the evidence that the claim is based on an exclusionary provision, such
as the “wear and tear” exclusion.
Stated differently, an all-risk policy places the burden on the insured to establish
only the existence of the all-risk policy and its loss. Then the burden shifts to the insurer
to show that the coverage of the loss comes within one of the exceptions under the
Policy. Pan American World Airways, Inc. v. Aetna Casualty & Surety Co., 505 F.2d
989, 999 (2d Cir. 1974). However, “[a] loss which does not properly fall within the
coverage clause cannot be regarded as covered thereby merely because it is not within
any of the specific exceptions . . . .” 10 Couch on Insurance 148:48 (3d ed. 1998).
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The Policy states that the Plaintiff will provide coverage for all “accidental
physical loss of or damage” to the Vessel. The Policy does not define the term
“accidental.” However, the parties’ papers reflect an understanding that, in the context of
“all-risk” policies, the term “accident” is synonymous with “fortuitous.”
The RESTATEMENT OF CONTRACTS, Section 291, comment a (1932),
defines a “fortuitous” event 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,
such as the loss of a vessel, provided that the fact is unknown to the parties.
In contrast, “[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. However, loss due to the negligence of the insured or his agents has generally
been held to be fortuitous and, absent express exclusion, is covered by an all risks
policy.” Goodman v. Fireman's Fund Ins. Co., 600 F.2d 1040, 1042 (4th Cir. 1979).
C. Application to this Case
The “loss” in this case is the approximate $470,000 in damage to the Defendant’s
vessel. The Court finds that this loss was not a fortuitous loss. To hold otherwise would
transform this “all-risk” policy into a maintenance contract. As the record makes clear,
there was no severe weather nor was there a collision with any fixed or floating object.
The Defendant has provided no evidence that any fortuitous event caused, even in part,
the damage at issue.
Furthermore, the Defendant has not provided any persuasive case law supporting
its theory that a mechanical failure of an unknown cause could, on its own, satisfy the
Defendant’s burden of proving a fortuitous event. “In other words, [the Defendant has]
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not provided any case law for the proposition that an insured can satisfy its burden of
proving fortuity by showing nothing to establish a fortuitous cause of some type of loss.”
Class Action of South Florida v. National Union Fire Ins. Co., 2013 U.S. Dist. LEXIS
13096, at *17-18 (S.D. Fla. 2013). Indeed, the Defendant concedes that “[n]obody
knows why the particular chose clamp failed.” (Rule 56.1 Statement of Material Facts, at
¶ 15.)
To be sure, “the law places only a nominal burden . . . upon the insured to prove
that a loss occurred and that it was due to some fortuitous event or circumstance, and the
insured has no burden to prove the exact cause of the loss.” Fed. Ins. Co. v. PGG Realty,
LLC, 06 CIV. 2455 (JSR), 2007 WL 1149245, at *8 n. 4 (S.D.N.Y. Apr. 17,
2007)(citations and quotation marks omitted), aff'd sub nom. Fed. Ins. Co. v. Keybank
Nat. Ass'n, 340 F. App'x 5 (2d Cir. 2009). Nevertheless, it is a burden “that the Court
cannot simply cast aside.” Class Action of South Florida, 2013 U.S. Dix. LEXIS 13096,
at *18.
In this regard, the Defendant has not presented evidence sufficient to meet the
burden of establishing that a fortuitous, accident, or chance event caused the damage to
the vessel. Great Lakes Reinsurance (UK) PLC v. Soveral, No. 05–80923–CIV–
Ryskamp/Vitunac, No. 05-80923 (KLR), 2007 WL 646981, at *4 (S.D. Fla. Feb. 27,
2007) (granting summary judgment to the insurance carrier concerning an all-risks
maritime insurance policy because the insured did not show that his boat sank as a result
of an accident, which would have been considered a fortuitous loss).
Fed. Ins. Co. v. PGG Realty, LLC., 538 F. Supp. 2d 680 (S.D.N.Y. 2008) is an
instructive case. There, the court conducted a bench trial concerning a capsized vessel.
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The court found that the vessel capsized, in large part, because of the fortuity of
unforeseeable and unpredictable severe weather. The insured prevailed because it
provided significant evidence that a fortuitous event — severe weather— was a critical
condition in causing the vessel to capsize. Here, even after discovery, the Plaintiff fails
to point to any “fortuitous” event for purposes of the all-risk policy.
This is not to say that only severe weather may qualify as a “fortuitous” event.
However, where, as here, the Defendant fails to point to any evidence of such an event,
the Defendant is foreclosed from recovery as a matter of law.
The fact that Usher testified that the damage caused by a broken clamp would be covered
by the Policy is legally irrelevant. There are no material disputed issues of fact and therefore the
coverage is an issue of law for the Court to decide, rather than an insured’s representative.
In sum, the Court concludes that the Plaintiff is entitled to judgment as a matter of law.
Having made this determination, the Court need not address the Plaintiff’s alternative argument
disputing the Defendant’s prayer for damages related to the vessels’ engines.
For the foregoing reasons, the Court (1) grants the Plaintiff’s motion for summary
judgment in all respects and issues a declaration that there is no coverage under the Policy for the
damage to the Defendant’s vessel in the October 30, 2012 incident; (2) denies the Defendant’s
cross-motion for summary judgment in all respects; (3) and directs the Clerk of the Court to
close this case.
SO ORDERED.
Dated: Central Islip, New York
July 21, 2014
Arthur D. Spatt
ARTHUR D. SPATT
United States District Judge
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