The Fifth Circuit Court of Appeals recently held that an insurer waived its right to rely upon the defense of unseaworthiness by not issuing a "reservation of rights" letter before making payments on a maritime insurance policy. 

In North American Specialty Insurance Company v. Debis Financial Services, Inc., at issue was the sinking of a "jack up" barge in the Gulf of Mexico.  A post-incident investigation revealed that the owner of the barge knew of a pre-voyage malfunction with the "jacking" system.  Such knowledge would breach the "warranty of seaworthiness" implied in the owner’s Hull and Machinery policy.  This breach, would thereby void coverage. 

The insurer won summary judgment in trial court.  On appeal, the court held that with knowledge of facts indicating non-coverage, an insurer HAD to reserve its rights, else it would waive its defenses.  Typically, this reservation of rights is in the form of a letter.