Acadia case fails in Storm Sandy-related sinking

US-based international legal firm Chalos & Co PC has said that it had obtained a “Complete Defense Verdict” following a bench trial in the Eastern District of New York in which Atlantic Coast insurer Acadia was the plaintiff.

Michael Chalos and co-counsel Frank Ambrosino, with the assistance of Melissa Russo, defended HMS Bounty Organization LLC and Robert Hansen in a bench trial before Diane Gujarati, who issued her decision on April 11th 2022, finding that the Plaintiff, Acadia Insurance Co had failed to prove any of its claims against the Defendants and granted judgment in favour of Defendants, Chalos & Co said.

In 2014, Acadia filed a declaratory judgment action against the Defendants, seeking to have an insurance policy issued to the Defendants for the HMS Bounty (a wooden replica of the famous British naval vessel) declared void ab initio (from the beginning) or, alternatively, to find that there was no coverage under the policy, based on alleged breaches of the duty of utmost good faith, absolute implied warranty of seaworthiness, implied negative warranty of seaworthiness, implied negative modified warranty of seaworthiness, crew warranty and compliance, express warranty of seaworthiness and warranty to comply with state and federal regulations.

The Vessel was purchased by the Defendants in 2001 to be utilized as an authentic square-rigged sailing vessel for educational and training purposes.  It was operated as an uninspected recreational vessel and a moored attraction vessel throughout the entire time the Defendants owned the Vessel.

In 2008 the Plaintiff began providing protection & indemnity ($1m) and hull & machinery ($4m) coverage to the Vessel.

The Vessel was lost on October 29th 2012 after encountering Hurricane Sandy on its final voyage. Mr. Hansen owned 99% of Bounty Org directly and 1% indirectly at the time of the sinking of the Vessel

When the Vessel left New London, Connecticut several days before the loss, the testimony indicated that it was in good condition and the weather encountered was pleasant. The intended heading of the Vessel was to avoid the hurricane.

However, due to Sandy’s erratic changes of direction coming up the east coast of the United States, the Vessel’s course was altered by its Master on several occasions to avoid the storm.

It was not until the Vessel had sailed for two days that the weather started to worsen, when the Vessel’s and the hurricane’s paths crossed. As a result of the heavy weather encountered, the bilge pumps and generators failed and were unable to keep up with the water ingress.

The Court found that the evidence presented was that the Vessel never intended to sail through Hurricane Sandy but rather planned to avoid the hurricane up until the moment it was encountered.

Acadia was promptly notified of the loss of the Vessel by Bounty Org, which made claims under the policies for the hull, business interruption and coverage under the liability policy. Claims included personal injuries, two deaths, and the loss of the Vessel.

Acacia paid the policy limits for hull & machinery, liability and loss of earnings ($100,000) portions of the policies; and, nearly six months later, issued its first reservation of rights letters. Nearly two years later it filed an action to recover the payments made.

Acadia sent its reservation of rights letters regarding the P&I claims on May 24th 2013, and on the hull claim on June 21st 2013.

Acadia paid the policy limit of $1m under the P&I portion of the Policy for defense and settlement of the personal injury and death claims beginning immediately after the sinking and until November 2014 at which point the policy limit was exhausted.

Judge Guajarati engaged in a detailed analysis of the various types of seaworthiness warranties contained in the policy issued for the Vessel.

The Court was clear that the burden was on the insurer, Acadia, to prove the unseaworthiness of the Vessel. After hearing multiple fact and expert witnesses, the Court found that Acadia had failed to prove by a preponderance of the evidence that the Vessel was unseaworthy at the time the policy was first issued, subsequently renewed, or at the time of the loss.

The Court also held that, while Acadia highlighted certain facts they believed indicated that the Defendants violated the duty of utmost good faith, those same facts were not shown to be material or to have been relied upon by Acadia when making their decision to bind coverage.

“In sum, Acadia did not prove that the Vessel was unseaworthy at any relevant time, including when coverage attached under the 2008 Policy on December 15th 2008; when the 2011 Policy incepted on December 15th 2011; and when the Vessel departed on its final voyage on October 25, 2012”, the Court ruled.

While Acadia also raised claims related to crew warranties and violations of federal regulations, the Count found that Plaintiff had not articulated what regulations with respect to the crew had been violated.

Finally, the Court held that the Defendants had carried their burden to show that the loss of the Vessel was caused by several covered perils of the sea under the Acadia policy, Chalos and Co reported.

The Court granted judgment in favour of the Defendants on each of the Plaintiff’s claims, while Defendant Robert Hansen’s counterclaim was dismissed.