Megayacht Galatea Insurance Policy Voided by Court

PHOTO: Alan Cleaver/Flickr

A recent court ruling in which an insurance policy for a 118-footer (36-meter) was declared invalid due to the owner withholding information should serve as a lesson to megayacht owners worldwide.

The yacht in question is Galatea, a Riva 115 built in 2007. Her owner, who registered her in the British Virgin Islands, acquired her as a new build for €13 million. He still possessed her when she was destroyed by a fire in December 2011. Just seven months prior to the fire, Galatea had been insured for a total of €13 million, with €9.75 million of it covering the hull and machinery. The remaining sum covered what in the marine-insurance industry is called Increased Value. When Galatea suffered the fire, the owner filed a notice of abandonment and then a claim for a total loss.

The underwriters disputed the claim, and the owner then sued the insurer. According to Joe O’Keeffe, a partner with the law firm Ince & Co., which represented the insurance company, the court proceeding revealed three key things that had not been relayed to his client upon the policy’s writing in 2011. First, Galatea had been valued in late 2009 at €7 million. Second, upon weighing a decision to sell Galatea, the owner was advised in March 2011 to list her for at least €8.5 million and expect a closing price of €7 million. And finally, O’Keeffe says, the owner had been actively promoting her for sale for €8 million when the insurance policy went into effect.

Interesting enough, the owner of Galatea reportedly admitted in court that he hadn’t informed the insurance company of any of these details. Furthermore, O’Keeffe says that the owner claimed the non-disclosure was irrelevant and bore no role in convincing the insurance company to write the policy.

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The judge disagreed, stating that, in O’Keeffe’s words, these were “facts or circumstances which a prudent yacht underwriter would wish to take into account when deciding whether to offer cover for a yacht on the basis of an agreed value.” In addition, he says, “the judge also found that the underwriters had been induced by the non-disclosures, as they would not have agreed to insure the yacht for €13 million if full disclosure had been given.” The owner’s claim was therefore dismissed.

O’Keeffe raises another important point related to insurance. Come August 2016, long-awaited commercial-law reforms go into effect in the UK, in the form of the Insurance Act 2015. If the new laws had already been in effect when the Galatea lawsuit was heard, there would have been a different result. “Under the new system, given that the non-disclosures in this case were neither fraudulent nor reckless, the court would be required to consider what the actual underwriter would have done if a fair presentation had been given,” O’Keeffe says. “If the underwriter would have agreed a policy on different terms, the law will rewrite the contract to reflect those terms, and impose that contract on the parties. The judge held that if the relevant material information had been disclosed in this case, the underwriters would have agreed a policy with an aggregate agreed value of €8 million.” He adds that the hull and machinery clauses do state that the policy can be voided if either fraudulent or innocent concealment of facts occurs prior to a contract signing. But, “that clause may be viewed as a ‘disadvantageous term’ under the Act and may have no effect in the absence of effective ‘contracting out,’” O’Keeffe adds.