The insurer of an ocean-going yacht sought a declaratory judgment against the owners of the yacht that was lost at sea while under a five-month charter to a sailing school, allegedly in violation of policy limitations. The matter was within the jurisdiction of a United States district court, as suits upon maritime insurance contracts are subjects for federal courts.

The policy contained a "navigation limits" provision stipulating use of specified areas along the Atlantic coast and certain Caribbean areas. A separate "chartering coverage" endorsement granted permission for five one- day charters of the yacht per year. For an additional premium, a "trip endorsement" was added for a described five-month trip from Palm Beach to various Caribbean islands and terminating in Essex, Connecticut. The insurer contended that the insureds breached their insurance contract by the five-month charter, as charter permission was granted for only five one-day charters. The insureds argued that they were entitled to recovery for their loss, as they told their broker that they intended to charter the yacht and the loss occurred within the time frame and boundaries set forth within the terms of the special "trip endorsement."

The court was not persuaded by the insureds' claim that a "reasonable insured" would assume that there was coverage for the loss, having noted the permit for one-day charters and the extended "trip endorsement" immediately following, which at least created an ambiguity.

The court said that the extension of the navigation limits did not suspend the other pertinent provisions. The special "trip endorsement" did not create an ambiguity or serve as notice to the insurer that the insureds arranged a five-month charter. The court noted another policy provision to the effect that, unless such use were accepted by the insurer in writing, the policy would terminate upon chartering, exceptas permitted, and upon use of the yacht "....to carry persons or property for a fee or for any other commercial or business purposes whatsoever...."

Finding the insurer not liable under the policy, the court granted its motion and denied that of the insureds.

(COMMERCIAL UNION INS. CO., Plaintiff v. HORNE ET AL., Defendant. United States District Court, Southern District of New York. No. 91 Civ. 4430(RPP). Mar. 27, 1992. CCH 1992 Fire & Casualty Cases, Paragraph 3665.)