Travelers Property Casualty Company of America v. Ocean Reef Charters LLC
[PUBLISH] (2023)
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Rule of Law:
To avoid coverage under Florida's anti-technical statute (Fla. Stat. § 627.409(2)), an insurer must prove that the insured's breach of a marine insurance warranty had a material effect on the specific loss, and this causal link generally requires expert testimony when the issue involves specialized knowledge and hypothetical scenarios.
Facts:
- Ocean Reef Charters LLC (Ocean Reef) owned the M/Y My Lady, a 92-foot yacht, which was covered by a $2 million property damage insurance policy with Travelers Property Casualty Company of America (Travelers).
- The Travelers insurance policy included a 'Captain Warranty' requiring Ocean Reef to employ a full-time professional captain and a 'Crew Warranty' requiring at least one full-time or part-time professional crew member for the yacht.
- In early September 2017, as Hurricane Irma approached Florida, Richard Gollel, a representative for Ocean Reef regarding the yacht, moored the M/Y My Lady behind his Pompano Beach, Florida residence.
- Gollel contacted Captain Michael McCall, a former captain of the My Lady, to serve as a temporary captain during the storm, but McCall advised Gollel on September 5, 2017, that he did not see a safe place to move the boat due to the hurricane's unpredictable forecast.
- Travelers’ agent informed Gollel's agent on September 7, 2017, that Travelers would not approve moving the boat because Gollel was 'in between captains' and the policy could not be changed on short notice.
- Gollel, with the assistance of his two sons, secured the yacht to the dock behind his residence with extra ropes, extreme commercial bumpers, and by chaining the boat to a secure tree and concrete pilings.
- Between September 10 and 11, 2017, Hurricane Irma, a Category 4 storm, struck, causing a mooring pile to come loose, the yacht to hit Gollel’s cement sea wall, breaking its hull, and resulting in the total loss of the M/Y My Lady.
- At the time of Hurricane Irma, Ocean Reef did not have a full-time, professional, or Travelers-approved captain or crew employed for the M/Y My Lady.
Procedural Posture:
- Travelers Property Casualty Company of America (Travelers), as plaintiff, preemptively filed a declaratory judgment action against Ocean Reef Charters LLC (Ocean Reef) in the U.S. District Court for the Western District of New York, seeking a declaration that its insurance policy did not cover the loss of the M/Y My Lady.
- The U.S. District Court for the Western District of New York granted Ocean Reef's motion to transfer the case to the U.S. District Court for the Southern District of Florida, finding venue proper and choice-of-law favoring Florida.
- After the transfer, Ocean Reef, as defendant and counter-plaintiff, counterclaimed against Travelers for damages for breach of the insurance contract and sought declaratory judgments that the warranties did not preclude coverage under Florida law.
- The U.S. District Court for the Southern District of Florida granted summary judgment for Travelers, ruling that federal admiralty law applied, which would mean Ocean Reef forfeited its coverage due to warranty breaches.
- Ocean Reef appealed to the Eleventh Circuit Court of Appeals, which reversed the District Court's decision, holding that Florida law (specifically the anti-technical statute) applied, and remanded the case for Travelers to prove the failure to retain a full-time captain 'played a part in the loss.'
- On remand, the U.S. District Court for the Southern District of Florida granted Ocean Reef's motion for summary judgment, finding that Travelers lacked competent evidence (specifically expert testimony) to prove its case under Florida law.
- Travelers (plaintiff-counter defendant-appellant) appealed the District Court's summary judgment ruling to the Eleventh Circuit Court of Appeals.
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Issue:
Does an insurer seeking to deny coverage under Florida's anti-technical statute, which requires proof that a breach of warranty increased the hazard of a loss, need to present expert testimony to establish that the breach had a material effect on the specific accident, or can it rely on lay or 'hybrid' testimony?
Opinions:
Majority - TJOFLAT, Circuit Judge
No, an insurer seeking to deny coverage under Florida's anti-technical statute cannot rely on lay or 'hybrid' testimony; it must present expert testimony to establish that the breach of a marine insurance warranty had a material effect on the specific accident. The court affirmed the District Court's grant of summary judgment to Ocean Reef because Travelers failed to present expert testimony to demonstrate that the absence of a full-time captain and crew materially contributed to the yacht's destruction during Hurricane Irma. Florida Statute § 627.409(2), an 'anti-technical statute,' prevents insurers from avoiding coverage based on a breach of warranty unless the breach 'increased the hazard by any means within the control of the insured' and played a material part in the loss, as established in Pickett v. Woods. The question of what a professional captain would have done differently to avoid the loss in a hypothetical scenario like Hurricane Irma necessarily requires specialized knowledge and expert opinion, which lay witnesses (under Federal Rule of Evidence 701) are not competent to provide. The court rejected Travelers' argument for 'hybrid fact-expert witness testimony,' noting that Federal Rule of Evidence 701(c) was amended to prevent parties from evading Rule 702's reliability requirements and Rule 26's disclosure rules by presenting expert opinions as lay testimony. Furthermore, Travelers' rebuttal expert, Captain Ahlstrom, could not be used to meet Travelers' burden of proof in its case-in-chief, as rebuttal experts are intended solely to contradict or rebut evidence presented by the opposing party. Since Travelers did not offer a case-in-chief expert and did not move to redesignate Ahlstrom as a primary expert after remand, it lacked sufficient admissible evidence for a jury to find in its favor, thus warranting summary judgment for Ocean Reef.
Analysis:
This decision significantly reinforces the evidentiary burden on insurers in Florida seeking to deny marine insurance claims based on warranty breaches, especially when applying Florida's anti-technical statute. It clarifies that proving a 'material effect' of a breach on a specific loss, particularly in complex or hypothetical scenarios, almost invariably requires expert testimony. The ruling also firmly delineates the boundaries between lay and expert testimony under Federal Rules of Evidence 701 and 702, preventing parties from circumventing expert disclosure requirements by re-characterizing expert opinions. This case serves as a crucial reminder for litigation strategy, emphasizing the necessity of proactive and proper expert witness identification and disclosure, particularly when the burden of proof may shift or evolve during a case.
