Reliance Nat. Ins. Co. (Europe) Ltd. v. Hanover

• Decision Date: 22 July 2002
• Docket Number: No. CIV.A.00-11202-RGS.,CIV.A.00-11202-RGS.
• Citation: 222 F.Supp.2d 110
• Parties: RELIANCE NATIONAL INSURANCE COMPANY (EUROPE) LTD. v. Alain HANOVER and Daniel Hanover
• Court: U.S. District Court — District of Massachusetts

222 F.Supp.2d 110

RELIANCE NATIONAL INSURANCE COMPANY (EUROPE) LTD. v. Alain HANOVER and Daniel Hanover

No. CIV.A.00-11202-RGS.

United States District Court, D. Massachusetts.

July 22, 2002.

Cheryl Enright, Morrison, Mahoney & Miller, Boston, Steven Goldman, Fort Lauderdale, FL, Bryan E. Chase, Larson & King, LLP, Boston, MA, for Reliance National Insurance Co., Plaintiff.

Robert S. Wolfe, Wolfe Associates, Gloucester, MA, for Alain J. Hanover, Daniel A. Hanover, Defendants.

MEMORANDUM AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

STEARNS, District Judge.

On February 23, 2000, the STIARNA, a 12 meter sailboat owned by defendants Alain Hanover and Daniel Hanover, caught fire and sank while ferrying between Trinidad and Grenada. After rejecting the Hanovers' claim for the loss of the boat, plaintiff Reliance National Insurance Company (Europe) Ltd. (Reliance)¹ brought this declaratory action seeking the court's imprimatur of its decision to rescind coverage. The Hanovers counterclaimed, alleging breach of contract, unjust enrichment and "bad faith." Both sides now move for summary judgment.

BACKGROUND

Alain Hanover is a wealthy Massachusetts businessman. Daniel Hanover is his son. The Hanovers, sailors of some experience, decided to buy a full-fledged yacht.² In October of 1999, Alain Hanover saw an ad for the STIARNA on the website of the Authentic Yacht Brokerage (AYB). The STIARNA had been built in 1937 by Camper & Nicholson, a British shipwright of longstanding reputation. The STIARNA had an asking price of $250,000. According to the website listing, $800,000 had been spent on her refurbishment in the late 1980s. The ad claimed that the STIARNA had since been "carefully maintained." The STIARNA was described, in nautical parlance, as "85% of excellent."

In December of 1999, Douglas Coupar, an AYB employee, faxed the Hanovers a copy of a 1999 survey of the STIARNA.³ The survey deemed most of the yacht's systems as "very good" or "excellent." However, the steel framing was described as only "average 30% needs reinforcement or replacing." The survey also noted that the engine "smoked" and needed new "valve sleeves", that the mast required a new stay, and that the electrical system needed repair.

Coupar arranged for the Hanovers to inspect the STIARNA in Trinidad on January 15, 2000. The Hanovers met the STIARNA's owner, Donald Steinmeyer, and took the vessel for a sea trial. The STIARNA performed "beautifully" under full sail. The Hanovers did notice that the bright work (exterior varnish) had deteriorated. They also had difficulty starting the engine. Alain Hanover concluded that, while the STIARNA was in less than its advertised "impeccable" condition, the 1999 survey was essentially accurate. The Hanovers agreed to pay $130,000 for the boat.

After consulting with Fred Thomas of Shipwrights, Ltd., who had been the STIARNA's caretaker, the Hanovers decided to replace the STIARNA's engine, iron ribs, hull planking, and the stem, keel and horn timbers. Thomas estimated that the refitting would cost $250,000 and take sixty days. The Hanovers also decided to refurbish the STIARNA's interior once the structural work was done, at an expected cost of $450,000. The Hanovers commissioned Thomas to do the initial refitting at his shipyard, which had been recently relocated on the island of Grenada (some seventy miles from Trinidad).

Alain Hanover asked Coupar to obtain insurance for the STIARNA. Coupar recommended UFANS, a Canadian marine insurance broker. Alain Hanover requested that Coupar forward the AYB listing and the 1999 survey to UFANS. Coupar did so and asked UFANS to fax Alain Hanover an insurance application. The application stated in pertinent part:

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

2. Any misrepresentations 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.

Alain Hanover completed the UFANS application on January 25, 2000. He stated that the STIARNA had been built in 1937, that her engine had been installed in 1957, and that the Hanovers had bought her for $150,000.⁴

UFANS was a correspondent producer for TL Dallas, Reliance's yachting underwriter. On January 27, 2000, Cedric Miller of UFANS sent TL Dallas a sixteen-page fax. The fax stated in pertinent part:

Here is one to get your teeth into... a U.S. buyer Alain Hanover ... will be taking the yacht from Trinidad to Grenada very shortly for some work to be done and then will sail vessel back up to the U.S. ... In the Fall she will undergo further refurbishment etc.

The purchase price as is will be U.S. $150,000 and that is the amount we require to insure until work is done in Grenada (approx. 60 days). Thereafter we will need to increase the value for the next part of the voyage.

Trinidad to Grenada is less than 100 miles so I would suggest a full survey be required after the work has been done in Grenada and a new value is established.

The fax included a copy of Hanover's application, a printout of the AYB website listing, and a copy of the 1999 survey. No details were provided about the refitting work to be done in Grenada.

Beric Usher, an underwriter at TL Dallas, reviewed the application. On January 31, 2000, Usher faxed UFANS, offering to insure the STIARNA subject to certain conditions. One of the conditions was: "New out of water survey required after refit and prior to voyage to Boston."⁵ The same day, UFANS faxed the Hanovers confirmation of the coverage subject to the special conditions.⁶ On February 3, 2000, TL Dallas faxed a second quote to UFANS with higher limits and an increased premium to cover "crew liability for the voyage from Grenada to Boston (captain and 3 crew)." On February 3, 2000, UFANS notified the Hanovers that it would "bind coverage" at the higher premium. The same day, UFANS confirmed the binder by fax to TL Dallas. In the fax, UFANS stated that "vessel is leaving Trinidad Feb. 20th for Grenada then refit will occur at Ship Wrights, St. Davids Harbor." UFANS issued an invoice in the amount of $4,300, which the Hanovers paid on February 4, 2000. TL Dallas then issued a temporary cover note to the Hanovers as the insureds and to UFANS as the producer. TL Dallas also asked UFANS to have Alain Hanover sign a second application form with more complete information. Alain Hanover signed the second application on February 14, 2000.⁷

Immediately prior to the February 20, 2000 closing, the Hanovers retained Eric Wiberg, a professional captain, and flew to Trinidad to prepare the STIARNA for the trip to Grenada. With Thomas's and Wiberg's assistance, they set about to replace the defective mast stay. When Wiberg removed the radar housing from the mast, he observed rot. Thomas also saw that there was a separation at the scarf joint. The Hanovers decided that they would replace the mast during the refit in Grenada.⁸ Thomas concluded that the vessel was seaworthy and fit for the short voyage to Trinidad.

To aid the passage, the Hanovers chartered a commercial vessel, the Calypso II, to accompany the STIARNA. Wiberg recommended the auxiliary charter because the STIARNA would be traveling at night in strong currents over shallow waters.⁹ The STIARNA and the Calypso II left Trinidad for Grenada on February 23, 2000, at 6:00 a.m. Fire broke out in the engine room at approximately 7:00 a.m. The crew fought the fire without success, and the STIARNA sank. Reliance became aware of the loss no later than February 28, 2000.¹⁰

TL Dallas employed Douglas Wager to determine the loss. Wager obtained the official casualty reports, took statements from crew members, and gathered affidavits from the Hanovers and from Wiberg. As of February 28, 2000, Wager advised TL Dallas to establish a reserve of $150,000.

On April 4, 2000 Wager wrote his preliminary report to TL Dallas.

1. This accident is wholly fortuitous and did not occur out of any intentional effort or omission of the assureds.

2. The assureds have a documentable investment at the time of loss, which clearly is in the range of the $150,000 amount of insurance.

* * * * * *

4. The unusual circumstances of this accident lead to a cynical suspicion that this aged vessel might not have been in a seaworthy condition on departure from Trinidad. However, the only credible evidence that this vessel was not in a seaworthy condition at the time of departure comes from the assured's own post loss written statement in which "considerable rot and damage" was reported.... The dry rot in the mast was discovered after the purchase and was verbally reported to us by Wiberg. It is equally noteworthy that the loss apparently did not originate from the known suspected deficient conditions.

While the unusual employment of the M/V Calypso II also suggests to the cynic a knowledge of potentially dangerous conditions, it is clearly possible that this safety measure can be accounted for solely as a "belt and suspenders" action of a wealthy careful yachtsman.

5. ... The assured's plans for rehabilitation of the vessel were clearly and fully disclosed to the insurance broker and presumably to the UK insurers, thus suggesting that the vessel's condition and need of repairs was known to all parties.

Mark Thomas of TL Dallas responded to the report with an acerbic request that Wager "answer with full particularity why it is your view that a sailing vessel is seaworthy notwithstanding an inability to navigate safely under sail. When responding please restrict your answers to the above and not engage yourselves [sic] in pure speculation as to the intention, character of the assured or otherwise." On April 26, 2002, Wager responded...