Hurricane Warranty Sinks Claim
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Great Lakes Insurance, S.E. insured the Hello Dolly VI, a boat owned by Gray Group Investments, L.L.C. The Hello Dolly sank in Pensacola, Florida, during a hurricane. Gray Group filed a claim under the insurance policy, Great Lakes denied coverage, and Great Lakes then sought a declaratory judgment that it properly did so.
In Great Lakes Insurance, S.E. v. Gray Group Investments, L.L.C., No. 22-30041, United States Court of Appeals, Fifth Circuit (August 1, 2023) Hurricane Sally struck the Gulf Coast in September 2020. In its path lay the Hello Dolly VI (hereafter, the Vessel), which was moored behind Gray Group’s eponymous member Michael Gray’s house in Pensacola, Florida. The Vessel sustained damage during the storm and sank at its mooring. Great Lakes denied coverage, asserting that Gray Group had breached several warranties.
The Warranties
Great Lakes contended that Gray Group breached the “hurricane protection plan” (the HPP) that Gray Group had submitted in response to Great Lakes’s “hurricane questionnaire” (the HQ). The HQ requested the Vessel’s location during hurricane season and asked a series of questions regarding Gray Group’s contingency plans in the event of a hurricane. In the HPP, Gray Group stated that the Vessel would be located at the Orleans Marina in New Orleans, Louisiana, and detailed the protective measures Gray Group would take when a hurricane approached. At the time the Vessel sank it was not even near Louisiana nor did Gray Group comply with the HPP.
Gray Group moved for judgment on the pleadings. The district court denied the motion, holding that the phrase application for insurance was ambiguous because it could refer solely to the Application Form, or to a broader set of documents inclusive of the HQ and the HPP. The district court found that evidence outside the pleadings was necessary to determine the meaning of “application for insurance.”
The district court agreed with Great Lakes and granted it summary judgment. Specifically, the district court held that the phrase “application for insurance” was ambiguous but that extrinsic evidence showed that the parties intended “application for insurance” to encompass the HPP. Continuing the analysis, the court concluded that Gray Group’s statement in the HPP that the Vessel was to be located at the Orleans Marina during hurricane season was also ambiguous. Resorting to extrinsic evidence, the court found that the HPP meant that the Vessel would be moored at the Orleans Marina for the majority of hurricane season. The court determined that the HPP’s “marina or residence” location constituted a warranty by Gray Group and found that the Vessel had not in fact been moored at the Orleans Marina for the majority of hurricane season. Gray Group had thus breached its warranty, justifying Great Lakes’s denial of coverage.
ANALYSIS
The Great Lakes insurance policy at issue incorporated in full the application form signed by Gray Group. The policy also incorporated in full Gray Group’s application for insurance.
The Court of Appeals of New York has long recognized the concept of incorporation by reference. For nearly as long as New York has recognized incorporation by reference, its Court of Appeals has allowed parol evidence to prove the identity of the paper that the parties attempted to incorporate.
Gray Group’s HPP, with its representation that the Vessel’s “marina or residence” location during hurricane season was the Orleans Marina, was included in the policy’s ambiguous incorporation of Gray Group’s application for insurance.
Under a bolded header labeled “WARNING,” the HQ, which prompted Gray Group’s submission of the HPP, advised that “this declaration and warranty shall be incorporated in its entirety into any relevant policy of insurance.” Therefore, the district court did not err in holding that the extrinsic evidence was “so one-sided that no reasonable person could decide” that the HPP was not incorporated into the policy. The district court concluded that the HPP’s representation regarding the Vessel’s “marina or residence” location meant “the place where the [V]essel [was] to be moored the majority of hurricane season.”
The district court concluded that the HPP’s representation regarding the Vessel’s “marina or residence” location was a warranty such that Gray Group’s breach of it voided the policy. The Hello Dolly VI never got to where she belonged. Gray Group’s representations to the contrary were validly incorporated into the policy as warranties, and Gray Group’s breach of its warranties justified Great Lakes’s denial of coverage when the Hello Dolly sank.
A warranty is a promise made by an insured that must be kept in its entirety for the policy to be effective. When, during hurricane season the Vessel was docked in Florida rather than the promised marina in Louisiana, with special protections from hurricanes, the promise was not kept and the warranty was breached, not only did the vessel sink, the breach of warranty sunk the claim.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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About Barry Zalma
An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
