Geico Marine Insurance Company v. Terry Miller

USCA11 Case: 23-12611 Document: 32-1 Date Filed: 10/17/2024 Page: 1 of 14

[DO NOT PUBLISH]

In the

United States Court of Appeals

For the Eleventh Circuit

____________________

No. 23-12611

Non-Argument Calendar

____________________

GEICO MARINE INSURANCE COMPANY,

Plaintiff-Counter Defendant-Appellee,

versus

TERRY W. MILLER,

ERICKA J. MILLER,

Defendants-Counter Claimants-Appellants.

____________________

Appeal from the United States District Court

for the Middle District of Florida

D.C. Docket No. 5:22-cv-00296-JSM-PRL

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2 Opinion of the Court 23-12611

____________________

Before LUCK, BRASHER, and ABUDU, Circuit Judges.

PER CURIAM:

This is a maritime insurance contract case. Geico Marine

Insurance Company sued Terry and Ericka Miller, seeking a declar-

atory judgment that its maritime insurance contract on the Millers’

yacht did not cover damage the yacht suffered when it failed during

a sea test. The Millers countersued for breach of contract. Resolv-

ing cross motions for summary judgment, the district court found

for Geico, determining that (1) the loss was excluded by the con-

tract’s exclusion for losses caused by mechanical failure and (2) the

record lacked evidence of a latent defect. After careful review, we

conclude there is a genuine dispute of material fact as to the exist-

ence of a latent defect, so we reverse the district court and remand

for further proceedings.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

The Millers owned a 2002 Viking Yacht Cruiser. Geico in-

sured the boat. Under the terms of the maritime insurance con-

tract, Geico promised to “pay for sudden, direct and accidental

property damage, including theft or vandalism, to [the] insured’s

boat and its dinghy.” But the policy had a mechanical breakdown

exclusion that excluded from coverage “any loss, damage or ex-

pense caused directly or indirectly by . . . mechanical breakdown,

electrical breakdown, structural breakdown, overheating or gal-

vanic action.” That exclusion explained, however, that it “does not

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23-12611 Opinion of the Court 3

apply to immediate consequential property damage resulting from

fire, explosion, sinking, demasting, collision or stranding.” A sepa-

rate latent defect exclusion explained that “[c]overage w[ould] not

apply to . . . [t]he cost to repair or replace a part that fail[ed] as a

result of a design, manufacturing or latent defect.” But that exclu-

sion was limited by an exception that explained Geico would

“cover immediate consequential property damage that results

from such failure.”

In November 2021, the Millers’ yacht underwent a sea trial.

Leonardo Avila, the Millers’ marine mechanic, was aboard the

ship. During the sea trial, the starboard engine made an abnormal

noise, and that engine was shut down.

The next day, Avila disassembled the failed engine, and he

determined that it had suffered a connecting rod bearing failure on

either the A5 or B5 bearings, which resulted in other damage to the

engine. The bearings appeared to have “spun” and had visible

damage. The bearing rod failure resulted in damage to the journal

of the crankshaft and the scattering of metal debris throughout the

engine. Avila’s inspection of the failed engine revealed its compo-

nents had metal contamination.

All in all, Avila concluded that the first step in the engine’s

failure was when the A5 and B5 connecting rod bearings stopped

working properly. To him, this was the “primary cause” of the fail-

ure—attributing scattered debris as a “secondary failure.” Avila

noted that the connecting rod bearings’ failure was a mechanical

failure. Avila was unable to determine the cause of the bearing

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4 Opinion of the Court 23-12611

failure, but he did not see anything in the starboard engine to indi-

cate that the bearing failure was caused by lack of maintenance,

lubrication, wear, tear, or corrosion.

The Millers filed a claim with Geico, which it denied. About

six months later, Geico sued the Millers, seeking a declaratory judg-

ment that the damage they claimed was not covered by the policy.

The Millers answered and counterclaimed for breach of contract.

The case proceeded to discovery where the Millers deposed

Geico’s corporate representative, Kerry McCook. McCook testi-

fied that Geico doesn’t have a specific latent defect definition, and

that it follows the dictionary definition of a term when the policy

doesn’t define it. Geico doesn’t follow a specific dictionary, so

where there are conflicting definitions of an undefined term, it uses

the one most favorable to an insured. He indicated that Geico

agreed with Merriam-Webster’s definition of “latent defect” as “a

defect as in a product or property that is not discoverable by rea-

sonable or customary inspection.”

As to the cause of the engine failure, McCook conceded that

manufacturing defects can cause a mechanical breakdown. And he

also admitted that GEICO was not aware of any “obvious,” non-

“onerous,” “reasonable,” or “customary” inspection that could

have determined that the bearings would have failed before they

did.

Based on a report made by Dr. Lee Swanger, an expert for

both the Millers and Geico, McCook testified that the “most likely

cause” of the rod bearing failure, as outlined by Dr. Swanger, was

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23-12611 Opinion of the Court 5

having debris on the bearing surface or the bearing back, and that

Geico “would agree that that issue would be latent.” He “disa-

gree[d]” that the bearing failure itself was latent, but he admitted

that Dr. Swanger’s report revealed “there was a latent . . . defect or

issue with the bearings.” McCook stated that, “[b]ased on

Dr. Swanger’s report, Geico agree[d] that there was a latent issue

with the bearings that caused the mechanical breakdown.” “Based

on [his] knowledge of the dictionary definition of defect,” McCook

“agree[d]” that “latent issue is just another word for latent defect.”

And McCook admitted that Dr. Swanger’s reports indicated “there

could have been debris on the bearing surface or bearing back or a

slight out-of-position location of one or more of the bearing shells”

and that “[b]ased on our agreed definition of latent, those condi-

tions would be latent, as no reasonable inspection would have been

able to uncover that.”

The parties filed cross motions for summary judgment. The

district court granted Geico’s motion and denied the Millers’ mo-

tion, concluding that “the record lacks evidence of a latent defect,”

so the exception to the latent defect exclusion wouldn’t apply, and

that the “loss is excluded by the policy’s mechanical breakdown ex-

clusion.” The district court determined McCook’s testimony

didn’t provide evidence of a latent defect because it was “entirely

speculative” and he “wasn’t qualified to testify about any alleged

defect,” so there was “no competent evidence of a latent defect.”

The Millers appeal the summary judgment for Geico.

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6 Opinion of the Court 23-12611

STANDARD OF REVIEW

We review de novo the district court’s grant of summary

judgment. Mata Chorwadi, Inc. v. City of Boynton Beach, 66 F.4th

1259, 1263 (11th Cir. 2023). We also review de novo the interpre-

tation of marine insurance contracts. Geico Marine Ins. Co. v. Shack-

leford, 945 F.3d 1135, 1139 (11th Cir. 2019).

DISCUSSION

The Millers’ appeal raises two issues for us to decide:

(1) Was there a genuine dispute of material fact as to the existence

of a latent defect? (2) And if so, does the exclusion for losses from

1

mechanical breakdowns preclude recovery?

As to the first issue—whether there was a genuine dispute

of material fact as to the existence of a latent defect—the Millers

argue that McCook’s testimony created a genuine issue. McCook

testified that the “most likely cause” of the rod bearings’ failure, as

outlined by Dr. Swanger, was having debris on the bearing surface

or the bearing back, which Geico agreed “would be latent.” He

also testified that “[b]ased on Dr. Swanger’s report, Geico agrees

1

“Marine insurance contracts”—like the one at issue here—“qualify as mari-

time contracts, which fall within the admiralty jurisdiction of the federal

courts and are governed by maritime law.” Id. (citations omitted). “In the

absence of a ‘judicially established federal admiralty rule,’ we rely on state law

when addressing questions of marine insurance.” Id. (quoting Wilburn Boat

Co. v. Fireman’s Fund Ins. Co., 348 U.S. 310, 314 (1955)). Here, both parties

acknowledge that Florida law supplements the applicable federal admiralty

law.

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23-12611 Opinion of the Court 7

that there was a latent issue with the bearings that caused the me-

chanical breakdown.” And “[b]ased on [his] knowledge of the dic-

tionary definition of defect,” McCook said “I would agree,” when

asked if “latent defect” meant “latent issue.”

We agree with the Millers that the district court erred in con-

cluding there was no genuine dispute as to a latent defect based on

McCook’s testimony. The district court determined that this testi-

mony was “entirely speculative,” and now Geico argues that this

would have been an improper opinion by a lay witness in violation

of Federal Rule of Evidence 702’s expert requirements. Of course,

“[s]peculation does not create a genuine issue of fact; instead, it cre-

ates a false issue, the demolition of which is a primary goal of sum-

mary judgment.” Cordoba v. Dillard’s, Inc., 419 F.3d 1169, 1181

(11th Cir. 2005) (cleaned up). But McCook, Geico’s corporate rep-

resentative, was not speculating about the cause of the mechanical

failure and he was not giving a lay opinion. McCook, as Geico’s

rule 30(b)(6) designee, gave Geico’s position on the cause of the rod

bearing failure based on the expert report Geico and the Millers

commissioned from Dr. Swanger. Based on the expert report,

“Geico agree[d] that there was a latent issue with the bearings that

caused the mechanical breakdown.”

As to the second issue, we must determine whether cover-

age for a latent defect exists despite the mechanical breakdown ex-

clusion. Geico says no, claiming that the mechanical breakdown

was the efficient cause such that there is no coverage. We disagree.

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8 Opinion of the Court 23-12611

In reaching that conclusion, we are mindful that “[w]e must

interpret the policy’s terms ‘in accordance with the plain language

of the policies as bargained for by the parties.’” Travelers Indem. Co.

of Conn. v. Richard Mckenzie & Sons, Inc., 10 F.4th 1255, 1264 (11th

Cir. 2021) (quoting Prudential Prop. & Cas. Ins. Co. v. Swindal, 622

So. 2d 467, 470 (Fla. 1993)). In addition, “we are required to abide

by the Florida rule that ‘exceptions to coverage in an insurance pol-

icy are strictly construed against the insurer and any doubt or am-

biguity is resolved in favor of the insured.’” Arawak Aviation, Inc. v.

Indem. Ins. Co. of N. Am., 285 F.3d 954, 956 (11th Cir. 2002) (cleaned

up) (quoting Hartford Accident & Indem. Co. v. Phelps, 294 So. 2d 362,

364 (Fla. Dist. Ct. App. 1974)). But we do so “only when a genuine

inconsistency, uncertainty, or ambiguity in meaning remains after

resort to the ordinary rules of construction.” Id. (cleaned up) (quot-

ing State Farm Mut. Auto. Ins. Co. v. Pridgen, 498 So. 2d 1245, 1248

(Fla.1986)).

With those background interpretative principles in mind,

we consider Geico’s argument that the exclusion for consequential

property damage based on mechanical breakdown trumps the cov-

erage permitted under the exception to the latent defect exclusion

for immediate consequential property damage. True, as Geico

points out in its brief, the Florida Supreme Court has long said that

“an exclusion does not provide coverage but limits coverage.” La-

2

Marche v. Shelby Mut. Ins. Co., 390 So. 2d 325, 326 (Fla. 1980). But

2

The Millers argue that this latent defect exclusion provision is really an Inch-

maree clause, which has a “rich history” and “purpose . . . to broaden, not

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23-12611 Opinion of the Court 9

the Florida Supreme Court has also explained that “[a]lthough ex-

clusionary clauses cannot be relied upon to create coverage, prin-

ciples governing the construction of insurance contracts dictate

that when construing an insurance policy to determine coverage

the pertinent provisions should be read in pari materia.” U.S. Fire

Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 877 (Fla. 2007) (quoting State

Farm Fire & Cas. Co. v. CTC Dev. Corp., 720 So. 2d 1072, 1074–75

(Fla. 1998)).

When looking at the relevant coverage and exclusion provi-

sions of the contract, as the parties both correctly point out, the

question is whether the mechanical breakdown or the latent defect

was the proximate cause of the damage. “[T]he proximate cause is

the efficient cause and not a merely incidental cause which may be

nearer in time to the result.” Lanasa Fruit S.S. & Importing Co. v.

Universal Ins. Co., 302 U.S. 556, 562 (1938). Put another way, courts

must determine the “predominate and determining cause.” Stand-

ard Oil Co. of N.J. v. United States, 340 U.S. 54, 57–59 (1950) (cleaned

up). This means “[c]ourts analyzing problems of marine insurance

causation have, as a rule, applied strictly the doctrine of causa

restrict, to expand, not withdraw, coverage” in maritime cases. Saskatchewan

Gov’t Ins. Off. v. Spot Pack, Inc., 242 F.2d 385, 391 (5th Cir. 1957). But this pro-

vision is clearly within the “exclusions” provisions within the “coverages” sec-

tion of the contract, and that part in the contract here saying there is coverage

is an exception to the exclusion. Cf. id. at 391 n.5 (featuring an Inchmaree clause

that provided, “[t]his insurance also specially to cover . . . loss of or damage to

the subject matter insured directly caused by the following: . . . any latent de-

fect in the machinery or hull[] (excluding the cost and expense of replacing or

repairing the defective part)”).

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proxima non remota spectatur (‘the immediate not the remote cause

is considered’).” Tillery v. Hull & Co., 876 F.2d 1517, 1519 (11th Cir.

1989). In other words, “courts seeking to determine the cause of a

vessel’s damage assign greater weight to the ultimate, efficient

causes than to the temporally remote causes.” Id.

Florida’s precedent is instructive on this point. Under Flor-

ida’s efficient proximate cause doctrine, “where there is a concur-

rence of different perils, the efficient cause—the one that set the

other in motion—is the cause to which the loss is attributable.”

Sebo v. Am. Home Assurance Co., 208 So. 3d 694, 697 (Fla. 2016) (cit-

ing Fire Ass’n of Phila. v. Evansville Brewing Ass’n, 75 So. 196 (Fla.

1917); additional citation omitted)). For instance, “[i]n Evansville

Brewing, [the Florida Supreme Court] contemplated a chain of

events where one peril directly led to a subsequent peril,” and “[i]n

finding that coverage existed under the policy, [it] drew the distinc-

tion between a covered peril setting into motion an uncovered

peril and an uncovered peril setting into motion a covered peril,”

holding that “[c]overage exists for the former but not the latter.”

Id. (citing Evansville Brewing, 75 So. at 198).

Here, there’s evidence from which a reasonable jury could

conclude that the latent defect was the efficient cause of the engine

failure. McCook testified that the “most likely cause” of the bear-

ing rod failure was “having debris on the bearing surface or the

bearing back among other things,” and he admitted Geico “would

agree that that issue would be latent, yes.” Sure, he “disagree[d]”

that the bearing failure itself was latent, but he admitted that

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Dr. Swanger’s report revealed “there was a latent . . . defect or is-

sue with the bearings.” McCook made perfectly clear that, “[b]ased

on Dr. Swanger’s report, Geico agrees that there was a latent issue

with the bearings that caused the mechanical breakdown.” That’s

evidence that a latent defect caused the mechanical breakdown.

And although Avila was unable to determine what the cause of the

bearing failure was, he did not see anything in the starboard engine

to indicate that the bearing failure was caused by lack of mainte-

nance, lubrication, wear, tear, or corrosion—which means his tes-

timony is consistent with the possibility of a latent defect too. In

other words, the record testimony provides evidence of a genuine

dispute of material fact that a latent defect was the “predominate

and determining” or “efficient cause” of the failure. See Standard

Oil, 340 U.S. at 57–59.

Geico invokes two cases involving engine failure that it ar-

gues undermine this conclusion. Neither help it. The first case is

Little Judy Industries, Inc. v. Federal Insurance Co., 280 So. 2d 14 (Fla.

Dist. Ct. App. 1973). In Little Judy, the trial court concluded that an

exclusion for mechanical breakdown applied—despite exception

language saying the exclusion applied “unless such damage re-

sulted from other damage covered by this [all-risk] policy”—even

though the mechanical failure was “traceable to negligence in its

repair or to improper repair or assembly of the engine.” Id. at 14–

15. The state appellate court affirmed, holding that “[t]he fact that

the failure . . . was traceable to negligence in its repair or to im-

proper repair or assembly of the engine did not make it other than

a mechanical failure. In a great many, if not most instances the

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12 Opinion of the Court 23-12611

mechanical failure of an engine could be attributed to some . . . im-

proper or negligent work.” Id. at 15.

The second case Geico cites is our decision in Arawak Avia-

tion. Relying on Little Judy, we concluded that a “wear and tear”

exclusion that excluded “damage caused by heat that results from

the operation . . . of the engine” should not be read to include an

efficient cause doctrine such that coverage would apply based on

the “damage to the aircraft [being] ultimately ‘caused by’ the neg-

ligence of the pilot.” Arawak Aviation, 285 F.3d at 956–59 (citing

Little Judy, 280 So. 2d at 15). We explained that “[i]f we read the

efficient cause doctrine into the phrase, ‘caused by,’ in the exclu-

sionary clauses of the [insurance] policy, we would make those

very same clauses pointless, because . . . negligence (a covered

cause of damage) is almost always the efficient cause of ‘wear and

tear’ (an excluded cause of damage).” Id. at 958.

We noted efficient cause cases under Florida law “involved

situations in which the efficient cause of the damage was not a nec-

essary antecedent of the damage’s direct cause.” Id. We cited Ev-

ansville Brewing as an example of where the efficient cause doctrine

applied. Id. (citing 75 So. at 198). In Evansville Brewing, we ex-

plained, “the Florida Supreme Court considered whether a policy,

which insured against fire damage but not against explosion dam-

age, would cover a building that was destroyed by an explosion

caused by fire.” Id. “Because fire is not the essential cause of every

explosion, the court was able to look at these two factors separately

and determine which one was the efficient cause of the damage—

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without eviscerating the policy’s provisions excluding coverage for

explosion damage.” Id. But because we concluded that applying

the efficient cause doctrine to negligence as the earlier cause in Ar-

awak Aviation would eviscerate a wear and tear exclusion, we con-

cluded an efficiency cause reading did not apply to the contract at

issue there. Id. at 958–59.

Unlike in Little Judy and in Arawak Aviation, we are not faced

with negligence as the asserted efficient cause here. Our case is

much more like the example from Evansville Brewing we outlined

in Arawak Aviation: a latent, manufacturing, or design defect is not

“almost always the efficient cause” of mechanical breakdown like

we held negligence to be for wear and tear in Arawak Aviation. See

285 F.3d at 958. Nor is it “[i]n a great many, if not most instances”

that mechanical breakdown is caused by a latent, manufacturing,

or design defect—like the court in Little Judy found negligence to

be. See 280 So. 2d at 15. So those negligence-based cases don’t alter

the proximate cause inquiry here. And they certainly don’t change

the genuine dispute of material fact as to the latent defect being the

efficient cause of the engine failure.

CONCLUSION

In short, we conclude that the district court erred in granting

summary judgment because there is a genuine dispute of material

fact as to latent defect and as to that latent defect being the efficient

cause of mechanical breakdown. We therefore vacate the sum-

mary judgment for Geico and remand for further proceedings con-

sistent with this opinion.

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14 Opinion of the Court 23-12611

VACATED AND REMANDED.