Charter Violation Voided Yacht Coverage

A yacht was lost at sea during a five-month charter to a sailing school. The yacht's insurer filed a lawsuit seeking a declaratory judgment against the owners, claiming the charter duration violated policy limits. Because the case involved a maritime insurance contract, it fell under the jurisdiction of a United States district court.

The policy contained a "navigation limits" provision. It permitted yacht operation along the Atlantic coast and in certain parts of the Caribbean. A separate "chartering coverage" endorsement allowed the yacht to be used for five one-day charters per year. For an additional premium, a "trip endorsement" was added for a described five-month trip starting in Palm Beach, passing through various Caribbean islands, and terminating in Essex, Connecticut.

The insurer contended that the insureds breached their insurance contract by arranging the five-month sailing school charter. The policy’s language permitted only five one-day charters. The insureds argued that they were entitled to recovery because they informed their broker of their intention to charter the yacht, and the loss occurred within the time frame and boundaries set forth within the terms of the special "trip endorsement."

While examining the case, the court observed that the permit for one-day charters and the extended "trip endorsement" language might have created ambiguity. However, it was not convinced by the insureds' argument that a "reasonable insured" would believe coverage was in place for the loss.

Rather, the court stated that the extension of the navigation limits did not suspend the other pertinent provisions. The special "trip endorsement" did not create an ambiguity or serve as notice to the insurer that the insureds arranged a five-month charter. The court noted another policy provision to the effect that, unless such use was accepted by the insurer in writing, the policy would terminate upon chartering, except as permitted, and upon use of the yacht "...to carry persons or property for a fee or for any other commercial or business purposes whatsoever..."

After determining that the insurer was not liable under the policy, the court granted its motion and denied the insureds' motion.

Commercial Union Ins. Co., Plaintiff v. Horne Et Al., Defendant. United States District Court, Southern District of New York. No. 91 Civ. 4430(RPP). Mar. 27, 1992. CCH 1992 Fire & Casualty Cases, Paragraph 3665.