Great Lakes Reinsurance (UK) PLC v. Kranig

• Decision Date: 12 June 2013
• Docket Number: Civil No. 2011-122
• Parties: GREAT LAKES REINSURANCE (UK) PLC, Plaintiff, v. GLENN KRANIG and NATIONAL EXCHANGE BANK AND TRUST, Defendants.
• Court: U.S. District Court — Virgin Islands

GREAT LAKES REINSURANCE (UK) PLC, Plaintiff,

v.GLENN KRANIG and NATIONAL EXCHANGE BANK AND TRUST, Defendants.

Civil No. 2011-122

DISTRICT COURT OF THE VIRGIN ISLANDS DIVISION OF ST. THOMAS AND ST. JOHN

Dated: June 12, 2013

MEMORANDUM OPINION

Before the Court is Great Lakes Reinsurance (UK) PLC's ("Great Lakes") Motion for Summary Judgment [DE 57] pursuant to Rule 56 of the Federal Rules of Civil Procedure and Rule 56.1 of the Local Rules of Civil Procedure of the District Court of the Virgin Islands. Defendants oppose the motion. [DE 63].

I. FACTUAL BACKGROUND¹

This litigation arises out of the total loss of the 2002 catamaran sailboat "Solitude" (the "Vessel"), owned by Glenn Kranig ("Kranig"), and the subsequent denial of Kranig's insurance claim by his insurer, Great Lakes.

Great Lakes issued a policy of marine insurance to Kranig in 2010 (the "2010 Policy") and a second policy in 2011 (the "2011 Policy"). Great Lakes issued both policies through authority granted to Osprey Special Risks Limited ("Osprey"), Great Lakes' underwriting agent. Theodore Tunick & Co., St. Thomas, USVI ("Tunick"), a retail surplus line broker, acted as theagent on behalf of Kranig. Pl.'s Statement of Facts ("SOF") ¶¶ 4, 6-8 [DE 59]; Decl. Beric Anthony Usher ("Usher Decl.") ¶ 8 [DE 59-1].² National Exchange Bank and Trust ("NEBAT") has a lien on the Vessel.³ Pl.'s SOF ¶ 5; Ex. C [DE 59-3].

A. Kranig's Application for Coverage & Issuance of the 2010 Policy

On April 4, 2010, Kranig submitted an Osprey Yacht Application (the "Application") to Tunick. Pl.'s SOF ¶ 8; Ex. E [DE 59-5]. In the four-page Application, Kranig disclosed himself and Christina Bonwit ("Bonwit") as the sole operators of the Vessel and stated that neither he nor Bonwit had (1) been involved in a loss in the last 10 years (insured or not), (2) been convicted of or pled no contest to a criminal offense, and/or (3) received auto violations or suspensions in the last five years. Pl.'s SOF ¶ 9; Ex. E [DE 59-5]. The Application contained the followingstatement: "WARNING: THIS IS A NAMED OPERATOR POLICY ONLY. ANY PERSON OPERATING THIS VESSEL WITHOUT PROVIDING FULL DETAILS & RECEIVING WRITTEN ACCEPTANCE BY UNDERWRITERS WILL NOT BE COVERED." Pl.'s SOF ¶ 10; Ex. E [DE 59-5] (emphasis in original). The Application included the following terms immediately preceding Kranig's signature:

1. This application will be incorporated in its entirety into any relevant policy of insurance where insurers have relied upon the information contained therein.

2. Any misrepresentation in this application for insurance will render insurance coverage null and void from inception. Please therefore check to make sure that all questions have been fully answered and that all facts material to your insurance have been disclosed, if necessary by a supplement to the application.

Pl.'s SOF ¶ 9; Ex. E [DE 59-5].

Following submission of the Application, Great Lakes issued the 2010 Policy, which provided coverage for the period May 20, 2010 to April 1, 2011. Pl.'s SOF ¶ 8.

B. The Renewal Questionnaire

On April 5, 2011, after the 2010 Policy expired, Kranig completed a Virgin Islands Charter Yacht League ("VICL") "Renewal Questionnaire Effective: April 1, 2011" (the "Renewal Questionnaire"). Pl.'s SOF ¶ 11; Ex. F [DE 59-6]. The one-page Renewal Questionnaire stated that "[a]ny misrepresentation in this application for renewal of insurance will render insurance coverage null and void from inception." Pl.'s SOF ¶ 11; Ex. F [DE 59-6]. The Renewal Questionnaire sought information regarding "any changes in coverage limits," the intended location of the Vessel at various times of the year, whether there had been changes to navigation or safety equipment, and "details of any other changes." Ex. F [DE 59-6]. The Renewal Questionnaire also provided that any items "left blank [on the questionnaire] will result in coverage remaining 'as is.'" Ex. F [DE 59-6].

Thereafter, Great Lakes issued the 2011 Policy, dated May 31, 2011, which provided coverage for the period May 1, 2011 to April 1, 2012. Pl.'s SOF ¶¶ 6, 11; Ex. D [DE 59-4].

C. The 2011 Policy & the Survey of the Vessel

The 2011 Policy provided, inter alia, the following:

• 'Covered person,' means you, and/or any person detailed on your application form which has been submitted by you and approved by us, provided that person has been declared to us in writing as an operator of the Scheduled Vessel.

• This is a legally binding insurance contract between you and us, incorporating in full the application form signed by you. We will provide the insurance coverage described in the insuring agreement, in return for payment to us of the premium due and compliance by covered persons with the provisions, conditions and warranties of this insuring agreement.

• This insuring agreement incorporates in full your application for insurance and together with any endorsements issued herein, constitutes the entire contract between us. At your request, various provisions of this insuring agreement may be varied by us but only by our prior written agreement.

• This contract is null and void in the event of non-disclosure or misrepresentation of a fact or circumstances material to our acceptance or continuance of this insurance. No action or inaction by us shall be deemed a waiver of this provision.

• Unless we agree in writing to the contrary, if we request a survey of the Scheduled Vessel then it is warranted that survey is in existence prior to the effective date of this insurance . . . Failure to comply with this warranty will void this agreement from inception.

• Where any term herein is referred to as a "warranty'' or where any reference is made herein to the word "warranted," the term shall be deemed a warranty and regardless of whether the same expressly provides that any breach will void this insuring agreement from inception, it is hereby agreed that any such breach will void the policy from inception.

Ex. D, Commercial Yacht Insuring Agreement ("CYIA") §§ 1-2, 9(b), 9(l), 9(q), 9(s).

The 2011 Policy also provided that "Additional Warranties, Terms and Conditions" includes "Survey as per VICL survey warranty." Ex. D at 3 [DE 59-4]. The VICL survey warranty appears in the Amendatory Clauses Effective April 1, 2011 VICL Master Policy Schedule OSPYP/130700 ("Amendatory Clauses"), which provided as follows:

Survey Warranty.

Our definition of a current out of water survey is as follows:

1) All vessels under 5 years of age - no survey required.

2) All vessels over 5 years of age - survey required.

3) 1st survey should be out of water.

4) An out of water survey is valid for 3 years.

5) An in water survey is valid for 2 years (valid three years if supplied with a divers inspection).

6) Vessels over ten years of age or of non-fiberglass construction MUST supply a divers inspection if supplying an in water survey.

7) Vessels must have an out of water survey within the last 5 years.

8) Vessels over 25 years of age must submit an out of water survey not more than 2 years old prior to quotation.

9) Vessels of Wood Construction Out-Of-Water survey Valid for 2 Years.

* Unless specifically agreed in writing all vessels requiring a survey must be surveyed by July 1, 2011 or within 90 days of attachment. Survey recommendations to be complied with within a further 30 days. Underwriters agree to accept owners/assureds signed statement of recommendations compliance subject to the attachment of repair receipts or surveyors compliance report.

Ex. D, CYIA Amendatory Clauses [DE 59-4] (emphasis in original).

On September 26, 2007, an out-of-water survey was conducted on the Vessel. Ex. 7 [DE 65-4]; see also Ex. G, Kranig Dep. at 86:17-20 [DE 59-7]. On March 30, 2011, an in-water survey was conducted on the Vessel. Ex. 6 [DE 65-3]. In either May or June 2011, Kranig received a notice from Tunick entitled "WARRANTY SCHEDULE - FINAL[;] ONLY ITEMS MARKED BY 'X' ARE REQUIRED," which provided in relevant part as follows:

In order to satisfy the new Survey Warranty, please submit the following documentation as requiredX Diver's Bottom Inspection Condition/Valuation Survey(s) Due By: July 1, 2011

...

X Owner's Statement of Compliance, as/if required by the Diver's Bottom Inspection Due By[:] July 1, 2011

...

NOTE: FAILURE TO COMPLY WITH THIS SURVEY WARRANTY WILL VOID COVERAGE FROM INCEPTION &/OR LACK OF COMMUNICATION MAY BE CAUSE FOR CANCELLATION WITHOUT FURTHER NOTICE

Ex. G at 38 [DE 59-7] (emphasis in original).

D. The Vessel's Final Voyage

On August 6, 2011, Bonwit released the Vessel's mooring in Elephant Bay, Water Island in order to move the Vessel to another mooring. In the process, Bonwit grounded the Vessel, which eventually sank. Pl.'s SOF ¶¶ 14-15.

E. Investigation of the Sinking Vessel

As part of Kranig's insurance claim proceedings, Great Lakes retained Nautilus Investigations ("Nautilus") to investigate the circumstances surrounding the sinking of the Vessel. Pl.'s SOF ¶ 16. As part of its investigation, Nautilus examined both Kranig and Bonwit under oath.⁴ Ex. J [DE 59-10]; Ex. M [DE 59-13]. The investigation revealed, inter alia, the following:

(1) In 2009, Kranig was charged in the Superior Court of the Virgin Islands in an Amended Complaint in Criminal No. 120/09 with grabbing Bonwit and pulling her "down the stairs" (count one); aggravated assault and battery for strangling her (count two); pushing her off a boat (count three); and simple assault and battery for strangling her (count four). Pl.'s SOF ¶ 22; Ex. N [DE 59-14]. Kranig pled guilty to "simple assault and battery - domestic violence" in violation of 14 V.I.C. § 299(2) and 16 V.I.C. § 91(b)(1)(2), and a judgment was entered on his guilty plea on June 5, 2009.⁵ Ex. O [DE 59-15]; Ex. G,Kranig Dep. 22:15-25, 24:4-19 [DE 59-7].

(2) In 2006, Bonwit had an automobile accident while driving under the influence of alcohol and drugs and pled guilty to a DUI.⁶ Pl.'s SOF ¶ 17; Ex. J at 53:4-16, 56:3-4 [DE 59-10].

(3) In 2008, Bonwit's license was suspended. Ex. L, State

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