United States District Court, E.D. New York
May 7, 2003
JEFFERSON INSURANCE COMPANY OF NEW YORK, Plaintiff,
Michael CASSELLA, Thomas J. Cassella, Dolphin Marine Transport, Inc., Keith Couch, a minor child, John Munro, a minor child, James Presta, a minor child, Defendants.
The opinion of the court was delivered by: DENIS HURLEY, District Judge.
MEMORANDUM & ORDER
In a declaratory judgment action involving a marine insurance
contract, the Parties have filed cross-motions for summary judgment. For
the reasons discussed infra, the Court grants the Defendants' motion and
denies the Plaintiffs motion.
On or about March 30, 2000, Plaintiff issued a marine insurance policy
("Policy") to Defendant Michael Cassella. The Policy was issued via two
different insurance brokers, to cover Michael Cassella's new "Donzi 38 ZX
boat" ("Boat"). The Policy signed by Michael Cassella is comprised of
four "Parts." Part 1 is the "Declarations Page," on which Michael
Cassella signed the document. Part 1 also provides that "[i]t is
warranted that the vessel be confined to the . . . . [w]aters of Long
Island Sound and Great South Bay."
Part 2, the "Named Perils of Yacht Policy," contains further exclusions
from the Policy. However, Part 2 makes no mention of limitations
regarding users that had permission to operate the Boat. In fact, the
"Definitions" portion of Part 2 expressly states that the term "insured
. . . . [i]n addition to [the named insured] . . . shall mean any person
who may be operating the insured boat with your permission." Policy at 1
At some point after Michael Cassella signed the "Declarations" portion
of the Policy, Plaintiffs issued a "Named Operator(s)/Additional
Operator(s) Endorsement" ("Endorsement"). The Endorsement states: "The
person(s) listed on the following schedule is/are to be sole operator(s)
of the insured vessel. If the insured vessel is operated by any other
person(s), this insurance is null and void." The Endorsement was not
signed by Michael Cassella.
On June 14, 2001, within the relevant period covered by the Policy, the
Boat was being operated, with permission, by Defendant Thomas Cassella.
On this date, the Boat collided with the Dolphin II, a charter vessel
operated by Defendant Dolphin Marine Transport, Inc. ("Dolphin"). At the
time of the collision, both boats were located in Freeport Creek in
Nassau County, New York. (Freeport Creek is connected to the Great South
Bay.) The Boat required $32,000 in repairs. The boat maintained by
Dolphin also was damaged in this collision.
At some time after the collision, Michael Cassella, filed a claim with
Plaintiff. Dolphin also submitted a claim to Plaintiff. Thereafter,
Dolphin initiated a lawsuit alleging negligence by Thomas Cassella and
seeking to hold Michael Cassella vicariously liable for the lost profits
it suffered while its boat was not seaworthy.
Plaintiff refused to pay Michael Cassella's claim and, on October 2,
[261 F. Supp.2d 163]
the instant declaratory judgment action. Plaintiffs complaint argues that
Michael Cassella's failure to expressly list Thomas Cassella amounted to
a material breach of the insurance policy and that the Endorsemert
expressly excluded coverage when anyone other than the named insured
operated the Boat. Based upon those two arguments, Plaintiff seeks
declaratory judgment with regard to the coverage of the Policy. See
28 U.S.C. § 2201. Michael Cassella, while answering the complaint,
filed four counterclaims. These counterclaims assert that Plaintiff has
refused to perform its obligations under the Policy and seeks declaratory
judgment in favor of Michael Cassella. The counterclaims further seek
"attorneys fees, costs and disbursements incurred in connection with the
defense of the within action and/or institution of counter-claims."
On September 30, 2002, the parties filed cross-motions for summary
A. Cross-Motions for Summary Judgment.
It is axiomatic that summary judgment may not be granted unless "there
is no genuine issue as to any material fact and . . . the moving party is
entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also
Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d
265 (1986). The burden to show that no genuine issue of material fact
exists lies with the moving party. Gallo v. Prudential Residential
Servs., Ltd., 22 F.3d 1219, 1223 (2d Cir. 1994). An issue of material
fact is genuine "if the evidence is such that a reasonable jury could
return a verdict for the nonmoving party." Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). When
considering cross-motions for summary judgment in which both parties
assert an absence of a genuine issue of material fact, a court need not
enter a judgment for either party, but must examine each motion
separately and, in each case, draw all reasonable inferences against the
moving party. Morales v. Quintel Entm't, Inc., 249 F.3d 115, 121 (2d
However, genuine issues of fact are not created by conclusory
allegations. Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d
Cir. 1993). Rather, summary judgment is proper when, after drawing all
reasonable inferences in favor of a nonmovant, no reasonable trier of
fact could find in favor of that party. See Matsushita Elec. Industr.
Co. v. Zenith Radio Corp., 475 U.S. 574, 587-588, 106 S.Ct. 1348, 89
L.Ed.2d 538 (1986).
B. New York Insurance Law § 3420(e).
"Absent a specific federal rule, federal courts look to state law for
principles governing maritime insurance policies . . . and apply federal
maritime choice of law rules to determine which state's law to apply."
Commercial Union Ins. Co. v. Flagship Marine Servs., Inc., 190 F.3d 26,
30 (2d Cir. 1999). Applying these principles to the instant contract, and
based upon the representations of the parties, the Court concludes that
New York law controls the interpretation of the Policy. See id. (applying
New York law in similar context).
Michael Cassella contends that New York Insurance Law mandates that
Plaintiff must provide coverage in the instant circumstances. Section
3420(e) of the New York Insurance Law provides:
No policy or contract of personal injury liability
insurance or of property damage liability insurance,
covering liability arising from the ownership,
maintenance or operation of any motor vehicle or of
. . .
[261 F. Supp.2d 164]
any vessel as defined in section fortyeight of the
navigation law [N.Y. Navig. § 48(3)], shall be
issued or delivered in this state to the owner
thereof, or shall be issued or delivered by any
authorized insurer upon any such . . . vessel then
principally garaged or principally used in this
state, unless it contains a provision insuring the
named insured against liability for death or injury
sustained, or loss or damage occasioned within the
coverage of the policy or contract, as a result of
negligence in the operation or use of such . . .
vessel . . . by any person operating or using the
same with the permission, express or implied, of the
N.Y. Ins. § 3420(e) (McKinney's 2002).
Section 48 of the New York Navigation Law refers to the definition
utilized in Section 2 of the New York Navigation Law: "`Vessel' shall
mean any floating craft . . .," N.Y. Navig. § 2(6). There is no
dispute that the Boat is a vessel as defined by the N.Y. Navigation Law.
However, the statute contains exceptions that apply to Section 3420(e).
Section 3420 does not apply to "the kinds of insurances set forth in
[N.Y. Ins. § 2117(b)(3)(B) ]." N.Y. Ins. § 3420(i). "One such
type of insurance set forth in that section is `insurance in connection
with ocean going vessels against any of the risks specified in paragraph
twenty-one of subsection (a) of section one thousand one hundred thirteen
of this chapter [N.Y. Ins. § 1113(a)(21)].'" Progressive Northeastern
Ins. Co. v. American Ins. Co., No. 99 Civ. 8998, 2001 WL 959183, at *3
(S.D.N.Y. Aug. 21, 2001) (quoting N.Y. Ins. § 2117(b)(3)(B))
(emphasis added). Since the "specified risks" embrace the coverage at
issue in the instant case, see N.Y. Ins. § 1113(a)(21), the Court
must ascertain whether the Boat constitutes an "ocean going vessel,"
thereby triggering the exclusion enunciated in N.Y. Ins. § 3420(i).
The New York Insurance Law does not define the term "ocean going
vessel." Neither does the Policy. Three courts have, however, considered
the proper meaning of this terminology. See Progressive Northeastern,
2001 WL 959183, at *3; Hartford Fire Ins. v. Mitlof, 123 F. Supp.2d 762,
766-767 (S.D.N.Y. 2000); Becker v. Allcity Ins. Co., No. 99 CV 2371, 2000
WL 33179289, *2-3 (E.D.N.Y. June 2, 2000); see also Royal Ins. Co. of
America v. A & C Ship Fueling Corp., No. CV 91-3090, 1992 WL 219783,
at * 7 (E.D.N.Y. March 21, 1992), vacated ab initio by stipulation of
parties, 1995 A.M.C. 504, 505 (E.D.N.Y. July 21, 1994). The courts in both
Progressive and Hartford Fire concluded that "[t]he policy itself
determines whether it is of the kind intended to cover `ocean going
vessels.'" Progressive Northeastern, 2001 WL 959183, at *3 (citing
Hartford Fire, 123 F. Supp.2d at 767). In reaching that conclusion, both
courts declined to apply the factual "ocean going" capabilities to the
question of whether a particular vessel is properly considered an "ocean
going vessel" under N.Y. Ins. § 2117(b)(3)(B). See Progressive
Northeastern, 2001 WL 959183, at *3; Hartford Fire, 123 F. Supp.2d at
767. Rather both cases looked to the "Policy Territory" defined by the
relevant policies. Id.
In Progressive, the "Policy Territory" was confined to the land,
tributaries, inland lakes, bays and rivers of the continental United
States or Canada, including the Long Island Sound. Progressive
Northeastern, 2001 WL 959183, at *3. In Hartford Fire, the policy was
geographically limited to "Inland & Coastal Waters of Hudson River
Between Verrazano Narrows Bridge & Albany, Including East River
& Western Long Island . . . ." 123 F. Supp.2d at 767. Based upon
[261 F. Supp.2d 165]
limits, both of these Courts concluded that the vessels at issue were not
"ocean going vessels." Id.; Progressive Northeastern, 2001 WL 959183, at
Plaintiff contends that Becker v. Allcity Ins. Co. stands for the
contrary proposition that "a vessel is `ocean going' if it is physically
capable of being navigated in the ocean." Plaintiffs Memorandum at 9. The
Court does not agree with this reading of the case. Becker involved a "a
small barge that had been abandoned and disabled." Becker, 2000 WL
33179289, at *2. According to the Becker plaintiffs, this physical
condition rendered the barge incapable of ocean travel and, therefore,
the barge could not be considered an "ocean going vessel." Id. (It is
unclear what the underlying insurance policy stated about the use of the
barge.) However, the parties agreed that barges are generally considered
ocean-going vessels. Id. (stating that the parties "do not argue that
barges generally fall outside the category of ocean going vessels.").
With these facts undisputed, the Becker court declined to use the current
physical status of the barge to alter its status as an "ocean going
vessel." Id. Therefore, despite Plaintiffs representatiors to the
contrary, Becker stands for the proposition that the current physical
state of the boat does not control the interpretation of "ocean going
In light of these cases, the Court declines to address the physical
capacities of the Boat. Rather, the Court focuses upon the express
geographic limits expressed in the Declarations portion of the Policy.
This language reads: "It is warranted that the vessel be confined to the
following waters: [w]aters of Long Island Sound and Great South Bay."
See Michael Cassella's Exhibit F, Declarations. Applying this language,
the Court concludes that the Boat is not an "ocean going vessel" for the
purposes of N.Y. Ins. § 2117(b)(3)(B). Accordingly, N.Y. Ins. §
3420(e) applies to the Policy.
C. Breach of the Endorsement.
Plaintiff next argues that "breach of the named operator endorsement
voids the coverage afforded by [the] Policy." Plaintiffs Memorandum at
11. This argument is not persuasive. The Endorsement states that "[t]he
person(s) listed on the following schedule is/are to be sole operator(s)
of the insure vessel . . . . [and i]f the insured vessel is operated by
any other person(s), this insurance is null and void." The language of
the Endorsement directly violates N.Y. Ins. Law § 3420(e). Where a
provision of an insurance policy does not comport with the public policies
codified in N.Y. Ins. § 3420(e), it is void. Royal Indem. Co. v.
Providence Washington Ins. Co., 92 N.Y.2d 653, 658, 684 N.Y.S.2d 470,
707 N.E.2d 425 (1998) ("the exclusion violates our public policy and is
void."). As such, the Court will not enforce this provision.*fn1
Plaintiff also contends that the Endorsement should "be determined to
be an express warranty by this Court." Plaintiffs Memorandum at 11.
Plaintiff urges this interpretation because Section 3106(c) of the New
York Insurance Law provides: "This section shall not affect the express
or implied warranties under a contract of marine insurance in respect
to, appertaining to or in connection with any and all risks or perils of
navigation, transit, or transportation. . . .". N.Y. Ins. § 3106(c).
However, even if the Court were to consider the Endorsement as a
[261 F. Supp.2d 166]
warranty, Section 3106(c) merely limits the effect of Section 3106 on the
enforceability of warranties. Stated differently, by its express terms,
Section 3106(c) does not affect the applicability of Section 3420(e).
Moreover, the statute defines a warranty as "any provision of an
insurance contract which has the effect of requiring, as a condition
precedent of the taking effect of such contract or as a condition
precedent of the insurer's liability thereunder, the existence of a fact
which tends to diminish, or the nonexistence of a fact which tends to
increase, the risk of the occurrence of any loss, damage, or injury
within the coverage of the contract." N.Y. Ins. § 3106(a) (emphasis
added). The Endorsement at issue was not a part of the contract signed.
Nor was the Endorsement promulgated prior to the enactment of the
insurance coverage. In fact, the Endorsement was promulgated after the
Policy's March 30, 2000, effective date. Therefore, the Endorsement
cannot be a warranty within the meaning of N.Y. Ins. § 3106. In light
of the foregoing discussion, the Court finds Plaintiffs warranty argument
Finally, Plaintiff urges the Court to hold that Michael Cassella
violated the terms of the contract by not following the provisions of the
Endorsement. See Plaintiffs Memorandum at 19. Plaintiff urges that the
Court should reach this conclusion even if the Court invalidates the
Endorsement. Id. ("Regardless of the view that this Court ultimately
takes with regard to the viability of the . . . Endorsement . . ., there
is no viable argument to be made that would result in that provision not
voiding the coverage. . . ."). Plaintiff cites no persuasive authority
for this proposition. Id. As such, the Court declines to adopt Plaintiffs
D. Full Disclosure and the Doctrine of Uberrimae Fidei.
Plaintiff also argues that "[w]ithout disclosure of what the record
illustrates was a fact material to the marine insurer's underwriting
decision, summary judgment must be awarded to the Plaintiff." Plaintiffs
Memorandum at 17. Specifically, Plaintiff contends that Michael
Cassella's failure to disclose "the fact that . . . Thomas Cassella would
be utilizing the insured vessel at times . . ." violated the doctrine of
uberrimae fidei. Id. This argument fails to persuade the Court.
The doctrine of uberrimae fidei requires that "the party seeking
insurance is required to disclose all circumstances known to him which
materially affect the risk" to the insurer. Puritan Ins. Co. v. Eagle
Steamship Co. S.A., 779 F.2d 866, 870 (2d Cir. 1985) (citing Btesh v.
Royal Ins. Co., Ltd., of Liverpool, 49 F.2d 720, 721 (2d Cir. 1931)). The
operative question, under the objective standard for disclosure, is
whether a reasonable person in the assured's position would know that the
particular fact is material. Puritan, 779 F.2d at 870. "To be material,
the fact must be `something which would have controlled the underwriter's
decision' to accept the risk." Knight v. U.S. Fire Ins. Co., 804 F.2d 9,
13 (2d Cir. 1986) (quoting Btesh, 49 F.2d at 721).
Based upon the proffered facts, the Court cannot conclude that a
reasonable person in Michael Cassella's position would know that the
identity and driving record of his brother was material. To begin, the
law provided that Plaintiff must cover permissive users even if they were
not named in the Policy. Moreover, other than the invalid Endorsement,
the Policy did not express any limits as to which permissive users could
operate the Boat. See Policy at 1 (the term "insured" shall include "any
person who may be operating the insured
[261 F. Supp.2d 167]
boat with your permission"). Finally, though Thomas Cassella operated the
boat on January 14, 2000, and on one prior occasion, there is no
indication, from the submitted evidence, that Thomas Cassella utilized
the Boat regularly. Therefore, in light of the proffered evidence, the
Court concludes that no reasonable trier of fact could find that Michael
Cassella violated the doctrine of uberrimae fidei. See Francaise S.A. v.
Halbart, 189 F.3d 461, 1999 WL 668122, at *2 (2d Cir. 1999) ("The
[uberrimae fidei] duty to disclose, however, does not require the party
seeking insurance to inform the insurer of his plans to engage in
activities within the scope of the policy's coverage."); Sun Ins. Co. of
New York v. Hercules Secs. Unlimited, Inc., 195 A.D.2d 24,
605 N.Y.S.2d 767, 770-71 (2d Dep't 1993) (holding that, absent fraud, the
insured's failure to disclose a fact about which it was not asked is not
grounds for avoiding the policy).
E. Attorney's Fees.
"Further necessary or proper relief based on a declaratory judgment or
decree may be granted, after reasonable notice and hearing, against any
adverse party whose rights have been determined by [declaratory]
judgment." 28 U.S.C. § 2202. This section allows for the imposition
of attorneys fees. See New York Marine & General Ins. Co. v.
Tradeline (L.L.C.), 266 F.3d 112, 129 (2d Cir. 2001) (reviewing a
decision denying attorneys fees in a declaratory judgment action).
Although, "[u]nder New York law, it is well settled that an insured
cannot recover his legal expenses in a controversy with a carrier over
coverage, even though the carrier loses the controversy and is held
responsible for the risk . . . . a policyholder may recover attorney's
fees, when he has been cast in a defensive posture by the legal steps an
insurer takes in an effort to free itself from its policy obligations."
Employers Mut. Cas. Co. v. Key Pharms., 75 F.3d 815, 824 (2d Cir. 1996)
In the instant action, Michael Cassella claims that he was put into a
defensive position by the institution of this action. Still,
28 U.S.C. § 2202 requires a hearing prior to imposition of attorneys
fees. Moreover, the available case law indicates that the Court must make
a finding "bad faith" prior to the imposition of attorneys fees. See New
York Marine, 266 F.3d at 129. The parties have not adequately briefed the
issue of "bad faith." Therefore, the Court cannot impose attorneys fees
in the context of the instant motion.
Based upon the forgoing discussion, the Court DENIES Plaintiff's
summary judgment motion and GRANTS Michael Cassella's summary judgment
motion. The Clerk of Court is directed to CLOSE this case.