Eleventh Circuit Upholds Summary Judgment For Insurer Citing Doctrine Of Uberrimae Fidei
By Michele T. Bachoon
The legal doctrine of uberrimae fidei literally means “utmost good faith”. This term is common in the insurance industry as the insurance policy, which is a legal contract, is said to be executed in utmost good faith. This means that all parties to an insurance contract must deal in good faith, making a full declaration of all material facts in the insurance proposal.
In Quintero v. Geico Marine Ins. Co., 2020 U.S. App. Lexis 40091, the United States Court of Appeals for the Eleventh Circuit affirmed the decision of the U.S. District Court for the Southern District of Florida granting summary judgment to the insurer. This case involves the theft of a vessel and a marine insurance policy that was reinstated after a lapse in insurance coverage due to the insured’s refusal to pay the increased premium for the new policy term. After reinstatement of the policy, the insured reported the vessel stolen.
The Insured owned a 32-foot powerboat which was initially insured by Geico for the policy period of May 5, 2017 to May 5, 2018. Several months prior to the expiration of the policy, on March 13, 2018, Geico sent a renewal package to the insured identifying policy changes and requesting the down payment for the annual premium. The package included an urgent reminder that the policy expired on May 5, 2018 and advising that to avoid a lapse in coverage, payment was required. Notably, the annual premium increased by 25% and the insured was paying his premiums through Geico’s automatic payment system.
On May 4, 2018, the day before the policy was to expire, Geico charged the insured’s credit card on file for automatic payment, but the charge was denied. The same day the insured called Geico about the attempted charge and increased premium. The insured was advised that Geico debited renewal payments from the card on file. Geico further advised the insured that his card was declined and he was automatically disenrolled from the automatic payment system. The insured questioned the rate change and was advised that there was a rate change for everyone. When the customer service representative refused to lower the premium, the insured complained about the increase and requested a supervisor. The insured was transferred to a supervisor, however, the call went into voicemail. As the insured had updated his address he was sent a new endorsement reflecting the address change. The insured did not make a payment and so his policy was not renewed. On May 10, 2018 Geico sent the insured a “Notice of Policy Expiration” which stated the policy expired May 5, 2018. The insured still did not make a payment nor did he call Geico about the Notice of Policy Expiration.
On May 25, 2018 at 4:58 a.m. the insured’s boat and trailer were stolen. At 7:28 a.m. on May 25, 2018, the insured called Geico to “pay for his policy”. The customer service representative advised that the policy had expired and inquired if the insured wanted to reinstate the policy. The insured behaved as if he was unaware of the lapse in coverage and agreed he wanted to reinstate the policy. During the call, the insured advised that his boat was not damaged, it was sound and seaworthy; and that he saw the boat every day because it was at his house. The insured then paid the premium due and Geico reinstated the policy. The insured asked if the policy was active right away and was advised that it was reinstated as of May 5, 2018; the date the original policy expired. At 2:43 p.m. the insured reported the stolen boat and trailer to the police and at 6:28 p.m. he reported them stolen to Geico. The insured advised that the boat was stored in his driveway and that he had last seen the boat around 11:30 p.m. to 12:00 a.m. the night before. The insured further advised that he discovered the boat was missing when his wife came home from work just after noon and asked him where the boat was. The insured advised he assumed the boat was there when he went to work in the morning but he did not see it because he had to run to his truck due to heavy rain.
Geico investigated the loss and advised the insured it was waiting for the final police report and requested the insured submit to an examination under oath. The insured refused to be examined under oath and filed a complaint in Florida state court seeking a declaration that Geico breached the policy by failing to cover the loss of the vessel. Geico removed the case to federal court.
After the lawsuit was filed, Geico obtained the final report from the sheriff’s office which described video surveillance showing the boat and trailer being towed away just before 5:00 a.m. on May 25, 2018. Geico then denied the claim, and rescinded the policy ab initio (“from the beginning”), as the insured was not in possession of the boat when he called to reinstate his expired policy. The misrepresentation that the insured was in possession of the boat and that it was in good condition were material to Geico’s agreement to insure the boat after the policy expired and was non-renewed at his request or lack of action.
The lower court concluded that the insured’s misrepresentations concerning the status of the boat on May 25, 2018, voided the policy ab initio under the doctrine of uberrimae fidei because they were material to Geico’s calculation of the risk of insuring the vessel.
The insured argued that the policy was never cancelled or non-renewed; however, the lower court found that the policy, Notice of Policy Expiration, and recorded telephone transcripts, indicated the previous policy’s term expired on May 5, 2018. The court concluded that the policy was void ab initio under the uberrimae fidei “regardless of whether it was renewed, cancelled, or expired.” The district court granted Geico’s motion for summary judgment and denied the insured’s motion for partial summary judgment.
The Court of Appeals reviews the district court’s grant of summary judgment de novo. On appeal, the insured argued the district court erred in applying the doctrine of uberrimae fidei because (1) his policy was not cancelled, non-renewed, or expired when he spoke to Geico the morning of May 25, 2018, (2) his coverage continued in full force without a lapse, and (3) his May 25, 2018 statements were not material to Geico’s decision to insure his boat because Geico reinstated and backdated his policy and did not require a new underwriting process.
The insured argued that as Geico originally backdated the policy, his statements were not material to the issuance of coverage. Geico argued that the renewal was void ab initio due to the insured’s material misrepresentations in his May 25, 2018 call before Geico reinstated the policy.
The Court of Appeals concluded that the initial policy by its terms expired on May 5, 2018 because the insured did not pay the required premium and he knew the policy would not be renewed. As such, the initial policy did not cover the boat loss that occurred on May 25, 2018 and coverage was not in effect at the time the insured called Geico to reinstate the policy on May 25, 2018 after the boat was stolen. The court found that the insured’s boat was uninsured at the time of theft as there was a lapse of coverage.
Marine insurance contracts are governed by federal maritime law. “It is well settled that the marine insurance doctrine of uberrimae fidei is controlling even in the face of contrary state authority. The doctrine requires an insured to “fully and voluntarily disclose to the insurer all facts material to a calculation of the insurance risk,” and “[t]he duty to disclose extends to those material facts not directly inquired into by the insurer.” HIH Marine Servs., Inc. v. Fraser, 211 F.3d 1359, 1362 (11th Cir. 2000). This disclosure includes all material facts that are “within or ought to be within, the knowledge of one party, and of which the other party has no actual or presumptive knowledge.” Steelmet, Inc. v. Caribe Towing Corp., 747 F.2d 689, 695 (11th Cir. 1984); see also HIH Marine, 211 F.3d at 1363 (“[T]he law has placed the burden of good faith disclosure with the person in the best position to know all the facts: the insured.”).
The court further found that under uberrimae fidei, an insured’s material misrepresentation to an insurer renders a marine insurance policy void ab initio. See AIG Centennial Ins. Co. v. O’Neill, 782 F.3d 1296, 1303 (11th Cir. 2015). The policy is void even if the insured’s misrepresentation was the result of “mistake, accident, or forgetfulness,” or the insurer did not inquire about the particular material fact the insured failed to disclose. HIH Marine, 211 F.3d at 1362-63. As such, even if the insured was not aware of the stolen boat, the fact that it was not in his possession at the time he “renewed” his policy, made the policy void at the onset.
The court stated that the insured was correct that the doctrine of uberrimae fidei applies only when an insurer issues a policy, not when the policy is already in full force. Here, the policy was not in effect at the time the insured made the material misrepresentation because it had expired without renewal. Therefore, the insured’s statements were material to Geico reinstating the policy. The boat was missing when the insured called to reinstate the policy and the insured had a duty to disclose that fact. Whether the insured was actually aware of the theft was irrelevant as the theft was a fact that should have been within his knowledge.
An insured’s possession of the subject property is clearly material to the insurer’s risk in insuring it, and the Eleventh Circuit Court of Appeals agreed with the district court’s commonsense observation that “insuring a stolen Vessel is akin to insuring a loss.” Accordingly, the district court properly applied the doctrine of uberrimae fidei and correctly held insured’s renewal policy was void ab initio.
Learning Point: While Quintero involved a marine policy and federal maritime law, the doctrine of good faith applies in all insurance contracts. When examining the materiality of a statement, the court will ask whether a particular fact could possibly influence the mind of a prudent and intelligent insurer in determining whether they would accept the risk. If a policy expires and there is a lapse in coverage, regardless of whether it is termed renewal, reinstatement or is back dated to the date of expiration of the old policy, any statements made by the insured must be made in good faith. Insurance companies should consider re-evaluating a risk following any lapse in coverage to avoid the pitfall of insuring an already damaged risk.