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National Liability & Fire Insurance Co. v. Carman

United States District Court, D. Rhode Island

November 4, 2019




         Plaintiff National Liability & Fire Insurance Company and Boat Owners Association of the United States (collectively "National") issued a yacht insurance policy ("the Policy") to Defendant Nathan Carman, insuring a thirty-one-foot recreational sport fishing boat he purchased in December 2015. Nine months later, Mr. Carman's boat sank while he and his mother were out on a fishing trip off the coast of Long Island, New York; the boat was never recovered. He made a claim for the boat's insured value under the Policy. National investigated and denied his claim, filing this lawsuit for declaratory judgment and asking the Court to determine that the Policy does not cover Mr. Carman's loss. Mr. Carman filed Counterclaims against National about the Policy and its claims handling.

         The parties presented their claims and defenses to the Court in a bench trial. Considering all the documentary evidence and witnesses' testimony, the Court finds that the Policy does not cover Mr. Carman's loss. Because the facts show that Mr. Carman made improper and faulty repairs to his boat that contributed to its sinking, Exclusion D in the Policy excludes the claimed loss.


         This litigation brought to light certain facts about Mr. Carman, his family, his boat, and the events leading up to and after the boat sank. To focus on the claims at issue during this bench trial, however, the Court recites only the relevant facts underlying its inquiiy into whether Mr. Carman's boat insurance covered his property loss and whether Mr. Carman has proven any of his Counterclaims asserting breach of contract and bad faith.[1]The Boat

         1. Brian Woods, a lifelong boat builder and refurbisher, purchased a used lobster boat in 2007, which was originally a JC 31' plug. A plug is a mold that a boat manufacturer uses to manufacturer hulls. Mr. Woods named the boat "Chicken Pox."

         2. Mr. Woods installed forward bulkheads of marine plywood to each side of the boat. He affixed the curved bottom of the plywood by fiberglass to the hull in the bilge, the top of the plywood butted to the deck above it, and the inboard perpendicular was tight and sealed with "3M Marine Adhesive Sealant 5200" against the fish box.

         3. Mr. Woods testified that bvdkheads on the boat provided structural strength and integrity to the boat and added some buoyancy because they formed air pockets in the event of flooding in the boat.

         4. Mr. Woods installed two bilge pumps, one at the stern and one at the port cockpit hatch.

         5. Mr. Woods also installed Bennett Marine trim tabs on the transom of the boat, to help trim the vessel by the bow. He installed them by following the manufacturer's directions. He drilled fourXA inch diameter holes through the transom, about 3-4 inches above the waterline, for thru-hull hydraulic connections to the four actuators that controlled the pitch of the trim tabs. The four 34 inch diameter holes were below the aft cockpit deck level and opened into the bilge, a few inches below the scuppers that are even with the aft cockpit deck.

         6. In December 2015, Mr. Woods sold the boat to Nathan Carman for $48, 000.

         7. The Court found Mr. Woods' testimony to be credible. Insurance Policy

         8. National Liability & Fire Insurance Company sold insurance through a marine insurance program with its general agent Boat Owners Association of the United States (d/b/a BoatU.S.).[2]

         9. Mr. Carman received an insurance quotation for a $66, 200 agreed hull value policy ("the Quote"). The Quote indicated that it was an "all risk" Policy "subject to policy limits, warranties and exclusions." A few days later, Mr. Carman received a Marine Insurance Binder ("the Binder"), containing the terms from the Quote. The Binder showed that it was "A TEMPORARY INSURANCE CONTRACT' that would be "cancelled when replaced by a policy."

         10. Before issuing the insurance, National hired marine surveyor Bernard J. Feeney to review the boat's condition to determine if it was seaworthy. Mr. Feeney inspected the boat and found the boat to be in good shape and seaworthy. The Court found Mr. Feeney's testimony to be credible.

         11. The Yacht Policy (Policy No. 3985989-15) (Exhibit 25.3)[3] was mailed to Mr. Carman's home. The Policy echoed the language in the Quote and the Binder, covering property damage to his boat from any accidental cause up to the agreed amount subject to the limitations and exclusions in the Policy. It was in effect for one-year beginning December 22, 2015.

         12. Mr. Carman asserts that he did not accept the terms of the Policy, including its exclusions, because he never received the Policy (just the Binder). This assertion, however, is belied by the facts of the case. Mr, Carman effectively corresponded with National in March 2016, three months after the Policy went into effect, to increase the insured value to $85, 000 following some upgrades, including his purchase of an autopilot, chart plotter, VHF radio, automatic identification system, and a life raft. Mr. Carman also made a claim with National in April 2016 against the Policy for engine damage and National paid him $33, 489.33.

         13. The Court finds from the record that this Policy (Exhibit 25.3) was the polic}' in effect at the time of the loss. National made all information about the Policy, including its terms and exclusions, available to Mr. Carman. In its communications with Mr. Carman about the Policy, National never misrepresented any material fact.

         14. The Policy contained much of the standard property insurance policy language and exclusions. Relevant to this case, Exclusion D excluded coverage for "any loss, damage, expense or cost of repair caused directly or indirectly by incomplete, improper or faulty repair," Repairs Mr. Carman made to the Boat Bulkheads

         15. Mr. Carman removed the forward bulkheads.

         Trim Tab Removal and Repair

         16. On Saturday September 17, 2016, the day he left Ram Point Marina to go fishing with his mother, Mr. Carman removed the trim tabs using an electric power drill. He took off the actuator from the transom leaving four half*dollar-size holes in the transom. At one point upon removing the three screws at the top of each trim tab, he had also to remove a fitting behind for the piston to come out to finish the job of removing the tabs. Mr. Carman drilled larger holes at each of those spots to enable him to remove that fitting through the hull.

         17. Left with these larger holes in the hull and with a plan to fish that day, Mr. Carman bought a package of Epoxy Putty Stick and a Fiberglass Boat Repair Kit. He did not follow the package instructions on how to make the repairs to the holes. Instead, he filled the holes in the boat with the epoxy putty, using about % of the stick from the package. The holes had no backing on them. He did not place the fiberglass mat fabric on the outside of the hull to seal the holes. Simply putting epoxy into the holes without a backing meant that the epoxy could get pushed through the holes.

         Bilge Pumps

         18. Mr. Carman replaced the port bilge pump after it ...

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