Ninth Circuit Reiterates The Applicability Of Uberrimae Fidei To Marine Insurance And Mandates Utmost Good Faith In The Context Of Vessels Pollution Insurance, Absent Clear Policy Language Unequivocally Superseding The Good Faith Obligation
July, 2008
by Kimbley A. Kearney and Daniel R. Bryer
In Certain Underwriters at Lloyds, London v. Inlet Fisheries Corp., 518 F.3d 645 (9th Cir. 2008), and New Hampshire Ins. Co. v. C’est Moi, Inc., 519 F.3d 937 (9th Cir. 2008), the Ninth Circuit emphasized that the doctrine of uberrimae fidei requires that an insured fully and voluntarily disclose to the insurer all facts material to a calculation of an insurance risk, and held the principle applicable to vessel pollution insurance, as well as other marine insurance where a policy lacks any unequivocally superseding language.
Facts
In Inlet Fisheries, two Alaska-based fish buying and processing businesses (“Inlet”) received notice from their insurer that their stand-alone pollution insurance policy was being canceled. The stated reasons for the cancellation were Inlet’s failures to conduct a survey of its vessels and to pay its premiums. Inlet’s original insurer requested a survey after one of Inlet’s insured vessels hit a sandbar and sank with 3000 gallons of diesel oil on board. In addition, the day after the notice of cancellation was sent, another of Inlet’s vessels spilled approximately 55 gallons of oil at the city pier in Bethel, Alaska. After receiving the notice of cancellation, but before its effective date, Inlet sought vessel pollution insurance from Lloyds. In its application for insurance, Inlet indicated that it had no prior pollution loss history. Further, Inlet did not supply, and the application did not request, information about the condition of Inlet’s vessels, Inlet’s financial status, or the fact of, or reason for, the cancellation of Inlet’s previous policy. Two years later, one of Inlet's vessels spilled oil and pollutants when it sank off the cost of Bethel, Alaska. Inlet made a claim to Lloyds under its vessel pollution policy, prompting Lloyds to commence an investigation of Inlet. It discovered Inlet’s failure to disclose the prior incidents of pollution loss, the poor condition of its vessels, and its pending bankruptcy. Lloyds filed suit against Inlet seeking a declaratory judgment that it had the right to void the policy ab initio under the doctrine of uberrimae fidei. Inlet counterclaimed and argued that Alaska state law, rather than federal maritime law, applied, and that Lloyds never asked for the allegedly material information. On cross-motions for summary judgment, the district court granted Lloyds’ motion, and ruled that uberrimae fidei applied and that Lloyds was entitled to void the policy.In
C'Est Moi, a yacht owned by C’Est Moi, Inc., was severely damaged in a fire. The yacht was insured by Washington International Insurance Company, which paid Lawrence O’Rourke, the president of C’Est Moi, $450,000 for the loss. O’Rourke reacquired the yacht from Washington International at salvage, paid off a loan and began restoring it. Washington International stopped insuring the yacht after the fire, and it remained uninsured until 2001, when C’Est Moi obtained insurance from New Hampshire Insurance Company. Three years later, the yacht sank in calm waters while docked at Newport Beach, California, and O’Rourke, on behalf of C’Est Moi, filed an insurance claim. New Hampshire Insurance then sued C’Est Moi to rescind the insurance policy on the basis on uberrimae fidei, claiming that C’Est Moi misrepresented material facts in its application for insurance, including the yacht’s purchase price and present insurer. C’Est Moi argued that express language contained in the policy superseded its uberrimae fidei obligation and substituted it with a lower standard requiring intentional material misrepresentations to invalidate the policy. The district court granted summary judgment in favor of New Hampshire Insurance, holding that uberrimae fidei applied and that C’Est Moi misrepresented material facts on its insurance application.Analysis
In both Inlet Fisheries and C'Est Moi, the Ninth Circuit held in favor of the insurers, emphasizing that uberrimae fidei imposes a duty of utmost good faith and requires an applicant for a marine insurance policy to reveal every fact within his/her knowledge that is material to the calculation of risk. In Inlet Fisheries, the Ninth Circuit upheld the district court’s grant of summary judgment in favor of the insurer, holding uberrimae fidei applicable in the context of vessel pollution insurance. It began its analysis by addressing Inlet’s argument that it did not violate its obligation of utmost good faith by failing to disclose its financial status or the condition of its vessels because Lloyds never asked for that information.The court rejected the argument stating that, under uberrimae fidei , an insured is obligated to disclose all material information, regardless of a request by the insurer. As to the nature of uberrimae fidei itself, the court stated that “few maritime insurance doctrines [are] more uniformly accepted in admiralty law.” The court then went on to characterize a vessel pollution policy as marine insurance which requires the disclosure of any facts material to a calculation of risk for such a policy. The court found that Lloyds produced overwhelming evidence that the undisclosed facts at issue would have affected the decision to insure Inlet. Therefore, Inlet violated its uberrimae fidei obligation by not disclosing material facts.
Similarly, in C'Est Moi, the Ninth Circuit affirmed the district court’s decision in favor of the insurer, holding that uberrimae fidei requires that an insured disclose all facts material to the insurable risk, and that even an unintentional material misrepresentation can serve as a basis for policy rescission. The court first addressed C’Est Moi’s argument that its uberrimae fidei obligation was superseded by policy language invalidating coverage for “intentionally” concealing or misrepresenting material facts. The court indicated that a modification of a party’s uberrimae fidei obligation is permissible, but stated that to do so “would certainly require very clear policy language, unequivocally disclosing a mutual intent to supersede the insured's common law obligation.” The court held that the language in the instant policy was grossly insufficient to constitute a modification, as it contained no mention of uberrimae fidei and did not purport to supersede any right. The court further held that the yacht’s purchase price and its present insurer were essential facts in calculating the insurance risk, and that C’Est Moi violated its uberrimae fidei obligation by misrepresenting those facts, even if the misrepresentation was unintentional.
Learning Point
The well established admiralty principle of uberrimae fidei imposes a duty of utmost good faith and requires that an insured fully disclose to the insurer all facts material to the calculation of an insurance risk, whether or not the insurer requests such information. This duty is applicable to all insurance policies that can be considered “maritime,” including vessel pollution insurance. While the duty of utmost good faith can be modified or eliminated by contract, doing so requires very clear policy language, unequivocally disclosing a mutual intent to supersede the insured’s common law obligation.
Back to CM Report of Recent Decisions (2008v2) 2008 Volume 2 Table of Contents
