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Yacht Issues

Home > Yacht Issues
Jun 3, 2018 | By Alan Kolodny | Read Time: 2 minutes | Maritime Law

For those who have achieved the “American Dream,” owning a yacht is often a sign of such achievement. In fact, owning a yacht puts you in a very exclusive club. You are given status of ultra-high net worth and are considered enviable. Even though you are wealthy enough to purchase a yacht, however, you are not immune from the law. A recent Circuit Court case involving a yacht thrust maritime law into the spotlight. Yachts, due to their ability to travel more than the average boat, can become the topic of significant maritime discussion.

Supremacy Clause

Article IV, Paragraph 2 of the United States Constitution provides that the Constitution, treaties, and federal law enacted pursuant to the Constitution are the supreme law of the land. This is known as the Supremacy Clause of the Constitution, wherein federal law and the like are supreme law over state law and state constitutions. The Supremacy Clause is important, according to Constitutional scholars, because it acts as a guarantor that the United States remains one union.

Insurance Law

In 1945, Congress passed the McCarran-Ferguson Act that, among other things, exempted insurance companies from federal law. In general, insurance companies are regulated by state laws and subject only to state regulators. Although the Supremacy Clause is in play, federal insurance laws, via McCarran-Ferguson, do not apply to state insurance laws. Therefore, when filing an insurance claim, state law will control.

Galilea LLC

Recently, the United States Ninth Circuit Court of Appeals heard arguments about the Galilea LLC case, which placed maritime law as a factor with respect to state insurance regulation. This case is known as Galiela LLC v. ACGS Marine Insurance Company et al. In that case, a yacht owned by Galilea LLC, a Montana-based company, crashed in Panama, causing damage. Galilea submitted a claim to its maritime insurance to pay for the damages. Liberty Mutual Insurance, an underwriter on the insurance, objected.

Galilea signed insurance coverage with ACGS and its underwriters. Part of the rules under the insurance plan is that the yacht only has insurance coverage in a certain zone, which did not include Panama. Consequently, Liberty Mutual claimed that Galilea was outside its coverage zone and therefore not eligible for an insurance payout. Galilea countered that under Montana insurance law, an insurance company cannot limit coverage based on where the insured is located in a geographical sense.  

The Ninth Circuit cited the US Supreme Court’s ruling in the Wilburn Boat case from 1955 where the ruling was that an insurance policy in a maritime contract falls under the Admiralty Clause of the US Constitution. In Article III, Section 2: “The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority;–to all Cases affecting Ambassadors, other public Ministers and Consuls;–to all Cases of admiralty and maritime Jurisdiction[.]” As such, the contract between Galilea and the insurance companies fall under federal maritime law and is therefore not subject to the McCarran-Ferguson Act. Judgment in favor of the insurance companies.

Involved in the maritime business? Contact the Kolodny law firm, experienced maritime lawyers.

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Alan Kolodny

Alan Kolodny is committed to representing injured clients in Texas and throughout the United States. Alan earned his B.A. from Rice University and his J.D. from Southern Methodist University.

He focuses his practice on representing plaintiffs in personal injury cases involving the following matters: maritime and offshore accidents, including those under the Jones Act; automobile and 18-wheeler truck accidents; and industrial site accidents, work-related accidents, and claims for injured railroad workers under the Federal Employers’ Liability Act.

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