The owner of the vintage 1968 57-foot Chris Craft Constellation Yacht could barely recognize the custom mahogany plank craftsmanship of his boat through the blackened ash and the tears. Yet it was the owner’s insurance company who should have been crying. After being put in dry storage for the winter at a local marina, a fire caused by a negligent marina employee destroyed the antique boat along with dozens of others. Subrogation looked good until the marina produced a storage agreement signed by the owner, which stated, “The boat owner fully agrees and releases the marina from any liability for loss or damage to the boat, under any circumstance, including any negligent acts or omissions by the marina or its personnel.” Suddenly, the light of successful subrogation dimmed considerably.
A claim for subrogation against a marina for a loss occurring while on marina property is often met with a denial letter because most marina agreements contain an exculpatory clause much like the one above. Sadly, far too many subrogation journeys end at this point, when they should just be beginning. Wet slip, mooring, and dry rack storage agreements are often governed by maritime law instead of anti-subrogation state law. Am. E. Dev. Corp. v. Everglades Marina, Inc., 608 F.2d 123 (5th Cir. 1979). Admiralty jurisdiction and maritime law would apply when a “potential hazard to maritime commerce arises out of activity that bears a substantial relationship to traditional maritime activity.” Sisson v. Ruby, 497 U.S. 358, 362, 110 S. Ct. 2892, 2895-96, 111 L. Ed. 2d 292 (1990). A fire or damage that occurs at a marina located on a navigable waterway has the potential to disrupt maritime commerce, so federal maritime law would apply. Id. As a result, both state and federal courts will often be required to apply the federal maritime law when interpreting a marina storage agreement no matter where the yacht is located in the marina. Depending on the jurisdiction, the application of maritime law might just be what the subrogation professional needs in order to find the exculpatory clause unenforceable.
There are three primary claims a subrogated insurance carrier can bring against a marina, including breach of contract, breach of bailment, and negligence. Under the laws of many states, all three causes of action can often be defeated with an appropriately-drafted and enforceable exculpatory clause contained within a marina storage agreement. However, by utilizing maritime law instead of state law, the catastrophic subrogation-destroying effect of the agreement can often be sidestepped. Knowing when this is the case is the key to successful subrogation.
Circuits are split on whether, under admiralty law, the exculpatory clause is capable of fully absolving a party from liability for its own negligence. The 11th Circuit has held that the exculpatory clause cannot absolve all liability because there must be a deterrent to negligence. Diesel “Repower,” Inc. v. Islander Invs. Ltd., 271 F.3d 1318, 1324 (11th Cir. 2001) and La Esperanza de P.R., Inc. v. Perez y Cia. de Puerto Rico, Inc., 124 F.3d 10, 19 (1st Cir. 1997). On the other hand, the 5th Circuit and 9th Circuit have found exculpatory clauses enforceable even if they release the party from liability for its own negligence. Royal Ins. Co. of Am. v. S.W. Marine, 194 F.3d 1009, 1014 (9th Cir. 1999) and Theriot v. Bay Drilling Corp., 783 F.2d 527, 540 (5th Cir. 1986).
Nearly every marina storage agreement contains a self-serving exculpatory clause. The enforceability of these clauses greatly depends on the precise wording of the agreement. Exculpatory agreements must be clear and unequivocal in order to demonstrate the intent of the parties. See Sander v. Alexander Richardson Investments, 334 F.3d 712, 715 (8th Cir. 2003); M/V Am. Queen v. San Diego Marine Constr. Corp., 708 F.2d 1483, 1488 (9th Cir. 1983); Edward Leasing Corp. v. Uhlig & Assocs., Inc., 785 F.2d 877, 889 (11th Cir.1986); and Randall v. Chevron U.S.A., Inc., 13 F.3d 888, 905 (5th Cir. 1994). Such agreements are actually looked upon with disfavor in many states and are often strictly construed against the drafter/marina.
In the 8th Circuit, subrogation is going to be more difficult where there is an exculpatory clause. For an exculpatory agreement to be enforced, both parties must have equal bargaining power. In one instance, the 8th Circuit held that an exculpatory clause that absolved a marina from liability for its own negligence was enforceable only if the parties’ intent to do so was clear and the clause was not the result of overreaching. Sander v. Alexander Richardson Investments, 334 F.3d 712, 719 (8th Cir. 2003). With regard to overreaching, the Court stated “[i]t is not enough to assert that one party was less sophisticated than the other. There must be some evidence that the party holding the superior bargaining power exerted that power in overreaching the less sophisticated party by, for example, engaging in fraud or coercion or by insisting on an unconscionable clause.” Sander v. Alexander Richardson Investments, 334 F.3d 712, 720 (8th Cir. 2003). The facts before the Court in Sanders were devoid of any overreaching, and the Court made note that having the ability to go to other marinas in the area may show that there was no overreaching since the boat owners could have went elsewhere if they did not like the terms of their storage agreement. Id.
Marina storage agreements also often require the boat owner to waive his or her insurer’s right of subrogation for losses occurring as a result of the marina’s negligence. Such clauses are generally enforceable, provided the intent to shift the risk of loss to the owner’s carrier is express and unequivocal. Quite often, this clause standing alone will not be enough to waive the carrier’s subrogation interests, unless the carrier itself consents to the clause under the terms of its policy or an endorsement thereto.
A marina will frequently require the owner, through the terms of storage agreement, to add the marina to the individual boat owner’s policy as an additional insured. In addition to lowering the premium of the marina’s insurance, claims paid due to the marina’s negligence would then become part of the boat owner’s claims history, rather than the marina’s. In summary, when attempting to subrogate against a marina is met with an agreement containing an exculpatory clause, be sure to go the extra step to determine whether there are any ways around it.
If you should have any questions regarding this article or subrogation in general, please contact Alyssa Johnson at firstname.lastname@example.org.