This and That by Dennis Wade

In coverage litigation, policyholder attorneys cite cases that reside in every jurisdiction for the proposition that policy language susceptible to more than one reasonable interpretation creates an ambiguity which must be construed in the insured’s favor.  Often, it is an easy argument to make because the general coverage grant in most CGL policies is broadly worded.  But that wide wording is subject to policy exclusions which take away coverage from the general coverage grant for specifically delineated circumstances.

In some cases, policyholder attorneys argue that the limitation contained in the exclusion, when compared to the broad coverage grant, creates “illusory coverage” because it undermines what the insured sees as a broad coverage grant.

Facing these arguments daily, I was struck by an eminently sensible ruling from the 11th Circuit in which the Circuit upheld a win by Travelers in a coverage contest in the District Court for the Southern District of Florida.

Travelers v Salt ‘N Blue, LLC, et al., involved a tragic mishap in which a recreational diver became ensnared in net and drowned for want of air in his tank (before the divemaster could return to assist the diver).

The diver’s estate sued the vessel owner (Salt ‘N Blue), the Captain (Wranovics) and the divemaster (Barkley).  Having gone through classes in and out of the water to get my own diving certification, I have little doubt that divemaster Barkley was negligent because he allowed the ill-fated diver to go back down–without a “buddy”–to retrieve a tagged lobster trap.  The mantra of all diving schools is simple: Never, never, dive without a buddy.  But the obvious negligence of the divemaster did not drive the coverage contest.

Barkley was a named insured under the policy Travelers issued to Salt ‘N Blue and he demanded to be defended and indemnified under that policy.  Travelers agreed to defend Barkley under a Reservation of Rights.  But while the underlying litigation was pending, Travelers brought an action seeking a declaration that it was neither obligated to defend nor indemnify Barkley because of a Diveboat Limitation Endorsement in the Travelers’ policy, which excluded from coverage. “[B]odily injury, loss of life, an illness of any person while in the water or arising as a consequence of being in the water.”

The general coverage grant obligated Travelers to “pay sums [when]…a covered person under this policy become[s] legally obligated to pay as a result of the ownership, operation maintenance of the insured’s vessel because of bodily injury or loss of life.”

To be sure, on its face, the diver’s death, in a general sense, arose from the “operation of the vessel” but the District Court (and later the 11th Circuit) ruled that the Diveboat Exclusion was unambiguous and limited the general coverage grant in Travelers policy, ruling “[s]imply because one provision gives a general grant of coverage and another provision limits coverage does not mean there is an ambiguity.”  The court went on to explain it is the very nature of insurance coverage exclusions to limit and modify the general coverage grant.

Beyond that, the Circuit found that limiting coverage for a subset of claims that would ordinarily fall within the general coverage grant, standing alone, did not create “illusory coverage,” pointing out that Travelers coverage extended to claims arising from negligence in the vessel’s operation.

The take away from this well-reasoned decision is never fall into the lobster trap (ouch!) of false comparisons between the general coverage grant and specific policy exclusions,.  And, of course, never dive without a buddy.

If you would like to discuss this case further, please call or email me.  And that’s it for this This and That.