Why You Need Protection
What's the value of a vessel if you don't own it or if your lien is not in a priority position? In fact, the position of your lien can be at risk even if title is not at issue and a preferred mortgage can be unenforceable even if properly recorded. The following are only a few examples of risks that could have been avoided with vessel title insurance:
FRAUD
- Fraudulent Titles. A West Michigan boat broker engaged in a scheme to defraud over $16 million from area banks. A Federal investigation is proceeding to uncover the full extent of the fraud, but initial findings show that he manipulated state title documents and changed Hull Identification Numbers.
- Fraudulent Loans. A criminal case in which the defendants perpetuated a scheme in which they sought and made $1,200,000 worth of loans on a non-existent vessel. United States v. Camaille
- Multiple Titles/Mortgages. An owner documented a vessel with the U.S. Coast Guard, filed a preferred ship mortgage, and then registered the vessel with the state. The state-registered vessel was sold and then documented with the Coast Guard under a new official number, then resold, and another preferred ship mortgage was filed. Maryland National Bank v. The Vessel Madame Chapel
THE RISKS OF RELYING ON TITLE OPINIONS AND TITLE ABSTRACTS
- Cannot Rely on Certificate of Documentation. Issuance of certificate of documentation is not conclusive as to ownership of vessel, but rather, courts are guided by the underlying contract. In re Tacoma Boatbuilding Co.
- No Recourse Against Legal Opinion. Lender pursued claim against owner’s attorneys who issued an opinion on which the lender relied, but which contained false assurances. Trial court said there was no privity between the lender and the borrower’s attorney and, thus, denied the lender the right to rely on the opinion. Prudential Insurance Company v. Dewey Ballantine
- No Protection in Record Title. Record title is not conclusive as to ownership of a vessel. In re Lykes Bros. S.S. Co.
- No Protection in Federal Registration. Although relied on by many lenders, Federal registration does not of itself confer endowments of title and ownership to a vessel. Jones v. One Fifty Foot Gulfstar Motor Sailing Yacht
- Certificate of Documentation Not Sufficient. Although one party has a “Certificate of Documentation” for the vessel, this is not conclusive evidence of ownership in a proceeding in which ownership is an issue. Hozie v. The Vessel Highland Light
ERRORS IN GOVERNMENT RECORDS
- Coast Guard Information “Untrustworthy” and “Voodoo” Information. Plaintiff presented evidence of ownership from the U.S. Coast Guard’s vessel database. The court rejected that evidence and called it inherently “untrustworthy” and “voodoo information.” Reliance on the Coast Guard’s vessel database for vessel ownership, title or related questions is extremely imprudent. St. Clair v. Johnny’s Oyster & Shrimp, Inc.
- Recording Errors by Coast Guard. Two mortgagees were fighting over mortgage priority. U.S. Coast Guard erred because it reflected in the public record that one mortgage had been terminated. The other party entered into a mortgage almost ten months later and almost five months after the erroneous record was established. The court said that even though a search of public records could not have disclosed the pre-existing encumbrance due to Coast Guard error, that mortgage (the pre-existing encumbrance) is valid against third parties from the time it was filed. Mayfield v. The Energy VII
OTHER LIENS
- Maritime Liens Supreme. A maritime lien is non-consensual and unrecorded; it also follows the vessel into the hands of even a good faith purchaser. United States v. Z. P. Chandon
- Maritime Liens Not Extinguished. Though a new owner may have purchased a vessel free of any personal obligations under an existing time charter, the purchaser could not terminate the vessel’s obligations under the charter that may be the subject of a maritime lien. Thus, the vessel can be arrested pursuant to that maritime lien. Bargecarib Incorporated v. Offshore Supply Ships Incorporated
- Maritime Liens Not Extinguished in Judicial Sale. A vessel purchased at a judicial sale, which was thought to be free and clear of all liens and encumbrances, the court would not permit summary judgment against maritime lien holder whose lien predated the judicial sale. Crescent Towing and Salvage Co. Inc. v. M/V Anax
- UCC Does Not Apply to Maritime Liens. Sub-freights earned by the charterer prevailed against the bankruptcy trustee, even though the lien was not filed. Walsh v. Placedo Shipping Corp. of Liberia