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14 October 2020
In 2019 the Flensburg court considered damage to a sailing yacht which had occurred during a sailing regatta (ie, a series of boat races) in 2010. In 2005 the yacht had run aground and was repaired. In 2007 the yacht had been checked by a shipyard and the owner was informed that it was technically in order. However, the yacht hull insurer denied coverage for the 2010 damage referring to Section 138 of the Insurance Contract Act (VVG) which reads as follows:
In the case of insurance of a ship, the insurer shall not be obligated to pay compensation for loss arising on account of the fact that the ship was not in a fit state to sail or not sufficiently equipped or not sufficiently manned when it set sail. This provision shall also apply to loss only arising as a result of the wear and tear onboard a ship in normal use.
The Flensburg court ruled that the insurer must cover the damage. Under Section 138 of the VVG, insurers should not have to cover for damages which the insured could have avoided by keeping the yacht in a seaworthy condition. The insured must reckon with a loss of insurance coverage only when they are responsible for the yacht not being in a fit state when the voyage commenced. The Flensburg court clarified that a yacht's unseaworthy condition is insufficient – rather, the insurer must prove that the owner had started the regatta intentionally aware of the yacht's unseaworthiness. The respective Section 28(2) of the VVG reads as follows:
Where the contract provides that the insurer is not obligated to effect payment in the event of the non-observance of an incidental obligation on the part of the policyholder, [t]he[y] shall be released from the liability if the policyholder intentionally breached the obligation. In the case of grossly negligent non-observance of the obligation, the insurer shall be entitled to reduce any benefits payable commensurate with the severity of the policyholder's fault; the burden of proof that there was no gross negligence shall be on the policyholder.
The Flensburg court found at most slight negligence by the owner when the regatta started in 2010. Even if it was assumed that the owner had been aware of the yacht's possible unseaworthiness in 2005 when the yacht had run aground, the owner could have trusted that the yacht was seaworthy in 2010 as he had sailed approximately 17,00 nautical miles with the yacht between 2005 and 2010 without any problems. Further, the owner had taken part in several regattas with the yacht – in particular, he had competed twice in the same regatta in which the 2010 damage occurred. Finally, the Flensburg court held that based on the shipyard's 2007 statement, the owner could have legitimately believed that the yacht was technically in order.
The judgment strengthens the legal position of insureds with yacht hull insurance. It highlights that insurers have the onus to prove that the insured was aware of the unseaworthiness when the voyage commenced. It is not enough to prove the unseaworthiness – insurers must prove that the owner was aware thereof. This is a big obstacle for insurers to successfully deny coverage. Owners are well advised to not accept denials of coverage in similar circumstances to that of this case.
For further information on this topic please contact Steffen Maelicke at Arnecke Sibeth Dabelstein by telephone (+49 69 97 98 85 0) or email (firstname.lastname@example.org). The Arnecke Sibeth Dabelstein website can be accessed at www.asd-law.com.
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