Hartford Fire Ins. Co. v. Mitlof, 99 CIV. 9841(WCC).

• Decision Date: 26 June 2002
• Docket Number: No. 99 CIV. 9841(WCC).,99 CIV. 9841(WCC).
• Citation: 208 F.Supp.2d 407
• Parties: HARTFORD FIRE INSURANCE COMPANY, Plaintiff, v. Joseph MITLOF d/b/a Hudson Valley Waterways, Village of Nyack, Nyack Parking Authority, and Key Bank U.S.A., Defendants, M. Diane Koken, Liquidator for Reliance Insurance Company, Intervenor.
• Court: U.S. District Court — Southern District of New York

208 F.Supp.2d 407

HARTFORD FIRE INSURANCE COMPANY, Plaintiff, v. Joseph MITLOF d/b/a Hudson Valley Waterways, Village of Nyack, Nyack Parking Authority, and Key Bank U.S.A., Defendants M. Diane Koken, Liquidator for Reliance Insurance Company, Intervenor.

No. 99 CIV. 9841(WCC).

United States District Court, S.D. New York.

June 26, 2002.

COPYRIGHT MATERIAL OMITTED

Hughes Hubbard & Reed, LLP, New York City (Norman C. Kleinberg, David R. Biester, of counsel), for plaintiff.

Joseph Mitlof, Nyack, NY, defendant pro se.

MacCartney, MacCartney, Kerrigan & MacCartney, Nyack, NY (Chris J. Walsh, William K. Kerrigan, of counsel), for defendants Village of Nyack, Nyack Parking Authority.

Stradley Ronon Stevens & Young, LLP, Philadelphia, PA (Ellen Rosen Rogoff, Gina M. Scamby, of counsel), for intervenor M. Diane Koken, Liquidator for Reliance Insurance Company.

OPINION AND ORDER

WILLIAM C. CONNER, Senior District Judge.

In this declaratory judgment action, plaintiff Hartford Fire Insurance Company ("Hartford") seeks, inter alia, to void or deny coverage under a marine insurance policy that it issued to defendant Joseph Mitlof d/b/a Hudson Valley Waterways ("Mitlof"). Hartford now moves for summary judgment declaring that there is no insurance coverage under the policy for liability in connection with an accident involving Mitlof's vessel Conservator on August 23, 1999. For the reasons that follow, Hartford's motion is granted.

BACKGROUND¹

In 1998, Hartford issued Mitlof a marine hull protection and indemnity policy with passenger vessel amendments and warranties (the "Hartford Policy") for Mitlof's vessel Lenape Seal. (Pl.Rule 56.1 Stmt. ¶ 1; Biester Aff., Ex. A.) On July 14, 1998, the Hartford Policy was amended to provide coverage to a second vessel, the Conservator. (Pl.Rule 56.1 Stmt. ¶ 2; Biester Aff., Ex. B.) The Hartford Policy covered both the vessels themselves and liability resulting from the loss of life or personal injury in their use. (Biester Aff., Ex. A.) The Hartford Policy contained a warranty, entitled "Passenger and Crew Warranty" (the "Passenger Warranty"), which provided, in part:

PASSENGER AND CREW WARRANTY

Warranted that the number of passengers shall not exceed 49, or the number of passengers permitted by the United States Coast Guard or other governmental authority, whichever is less.

(Id.) Also attached to the Hartford Policy were American Institute Hull Clauses ("Hull Clauses"). (Id.) Defendants Village of Nyack and Nyack Parking Authority ("Nyack defendants") are named as additional insureds in the Hartford Policy and defendant Key Bank U.S.A. is named as a loss payee.² (Biester Aff., Ex. B.)

When Mitlof purchased the Conservator from the Maritime Aquarium at Norwalk, Inc. ("Norwalk Maritime"),³ the vessel was certified by the United States Coast Guard ("USCG") for the carriage of twenty passengers and one crew member within the limits of the Norwalk Harbor area. (Biester Aff., Ex. K (USCG Certificate of Inspection ("COI") for the Conservator).) After Norwalk Maritime sold the Conservator to Mitlof, it contacted the USCG to revoke the COI, which was done effective August 6, 1998. (Pl.Rule 56.1 Stmt. ¶ 15.) On August 23, 1998, the Conservator capsized while carrying passengers on the Hudson River (the "Accident"). (Id. ¶ 6.) At the time of the Accident, there were at least twenty-five passengers and two crew members on board. (Amicus Rule 56.1 Stmt. ¶ 5; see also Smith v. Mitlof, 130 F.Supp.2d 578, 582 (S.D.N.Y.2001).)

After conducting an investigation, Hartford notified Mitlof, by letter dated October 26, 1998, that there was no coverage under the Hartford Policy for the Accident. (Biester Aff., Ex. P.) One of the reasons cited for the denial of coverage was breach of the Passenger Warranty. (Id.) On September 17, 1999, Hartford commenced this declaratory judgment action. In moving for summary judgment, Hartford claims that breach of the Passenger Warranty voids coverage for liability arising from the Accident.⁴

DISCUSSION

I. Summary Judgment Standard

Under FED.R.CIV.P. 56, summary judgment may be granted where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. See FED.R.CIV.P. 56(c); Anderson v. Liberty Lobby, 477 U.S. 242, 247-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The burden rests on the movant to demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine factual issue exists if there is sufficient evidence favoring the nonmovant for a reasonable jury to return a verdict in his favor. Anderson, 477 U.S. at 248, 106 S.Ct. 2505. In deciding whether summary judgment is appropriate, the court resolves all ambiguities and draws all permissible factual inferences against the movant. See id. at 255, 106 S.Ct. 2505. To defeat summary judgment, the nonmovant must go beyond the pleadings and "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The court's role at this stage of the litigation is not to decide issues of material fact, but to discern whether any exist. See Gallo v. Prudential Residential Servs., L.P., 22 F.3d 1219, 1224 (2d Cir.1994).

II. Choice of Law

The Hartford Policy is a contract for marine insurance that falls within the admiralty jurisdiction of this Court. See Advani Enters., Inc. v. Underwriters at Lloyds, 140 F.3d 157, 161 (2d Cir.1998). Marine insurance policies are governed by federal admiralty law when there is an established federal rule, and by state law when there is not. Ingersoll Milling Mach. Co. v. M/V Bodena, 829 F.2d 293, 305-06 (2d Cir.1987) (citing Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 313-14, 75 S.Ct. 368, 99 L.Ed. 337 (1955)). Because there is no specific federal rule governing the construction of marine insurance contracts, see Commercial Union Ins. Co. v. Flagship Marine Servs., Inc., 190 F.3d 26, 30 (2d Cir.1999), New York law applies. See Hartford I, 193 F.R.D. at 157 (New York law applies to the Hartford Policy). New York law therefore determines "the scope and validity of the marine insurance policy provisions involved and the consequences of breaching them." Advani, 140 F.3d at 162 (internal quotations omitted).

III. Breach of Warranty

A warranty is a promise by the insured to do or not to do some thing that the insurer considers significant to its risk of liability under an insurance contract. Commercial Union, 190 F.3d at 31. Warranties hold a special status under the law governing maritime insurance contracts. Id. While in all other areas of insurance, an insured will generally not be precluded from recovery if the insured breaches a warranty that is collateral to the primary risk, see N.Y.INS.L. § 3106(b), warranties in maritime insurance contracts must be strictly complied with. Commercial Union, 190 F.3d at 31. New York's Insurance Law specifically carves out a maritime exception from its general rule regarding breach of collateral warranties. Id. at 32; N.Y.INS.L. § 3106(c) ("This section [stating that breach of collateral warranties shall not preclude recovery] shall not affect the express or implied warranties under a contract of marine insurance.") Under New York law, recovery under a marine insurance contract is precluded if a warranty is breached, regardless of its materiality to the insurer's risk. See Commercial Union, 190 F.3d at 32. As the Second Circuit explained, "[t]he rule of strict compliance with warranties in maritime insurance contracts stems from the recognition that it is peculiarly difficult for marine insurers to assess their risk, such that insurers must rely on representations and warranties made by insureds regarding their vessels' condition and usage." Id. at 31-32. The Passenger Warranty is undoubtedly a warranty under a contract for marine insurance and must therefore be strictly complied with as a condition precedent to coverage. It is thus necessary to construe the contract in order to determine whether the Passenger Warranty was breached on the day of the Accident, thereby precluding coverage.

"The starting point in interpreting an insurance policy is to determine whether the policy terms are ambiguous." Id. at 32-33 (quoting Ingersoll, 829 F.2d at 306). "As with contracts generally, a provision in an insurance policy is ambiguous when it is reasonably susceptible to more than one reading." Id. at 33 (quotations omitted). If an insurance policy is ambiguous, all ambiguity must be resolved in favor of the policy holder in order to promote coverage for losses to which the policy relates. See Kimmins Indus. Serv. Corp. v. Reliance Ins. Co., 19 F.3d 78, 81 (2d Cir.1994); Ingersoll, 829 F.2d at 306. The rule that insurance policies are to be construed in favor of the insured is applied most strictly in construing the meaning of an exclusion from coverage. Ingersoll, 829 F.2d at 306. "In order to be enforced, exclusions or exceptions from policy coverage must be specific and clear; they are not to be extended by interpretation or implication." Kimmins, 19 F.3d at 81 (internal quotations omitted). We therefore turn to the terms of the Passenger Warranty to determine whether it is ambiguous.

The Passenger Warranty states that the covered vessel shall not carry more than forty-nine passengers, "or the number of passengers permitted by the United States Coast Guard or other governmental authority, whichever is less." (Biester Aff., Ex. A (emphasis added).) In the amicus brief, the Tort Claimants maintain that the Passenger Warranty is vague and ambiguous. In support of this claim, they argue that an agent for Hartford received the COI for the Conservator issued to Norwalk Maritime, which stated that the number of permissible passengers on the vessel was limited to twenty plus one...