U.S. Court of Appeals for the First Circuit, QBE Seguros v. Carlos A. Morales-Vázquez, Docket No. 19-1503

 

Maritime Law

 

Admiralty

 

Marine Insurance Contracts

 

Doctrine of Uberrimae Fidei

 

Duty of Utmost Good Faith

 

Warranty of Truthfulness

 

False Statement

 

Actual Reliance is Not a Necessary Prerequisite for an Insurer to Void a Marine Insurance Policy under the Doctrine of Uberrimae Fidei

 

Materiality of a False Statement or an Omission, Without More, Provides a Sufficient Ground for Voiding Such a Policy

 

Waiver and Estoppel May Be Affirmative Defenses

 

Should Federal or State Common Law Apply?

 

English Admiralty Law

 

 

This appeal involves a dispute between a boat owner (who purchased a policy of marine insurance without disclosing, among other things, a prior grounding) and his insurance company. Resolving the appeal requires us to revisit the doctrine of uberrimae fidei — an entrenched principle of maritime law that imposes a duty of utmost good faith on the parties to marine insurance contracts. Concluding, as we do, that the district court faithfully applied this doctrine, we affirm the entry of judgment in favor of the insurer.

 

As part of his application for this insurance policy, Morales left blank the spaces provided for answers to questions asking him to describe his prior boating history and all accidents related to any vessel he had previously owned, controlled, and/or operated.

 

He omitted the remaining information called for by section six even though the application form plainly stated that "if incorrect answers are provided (either by error, omission or neglect), I will be in breach of this warranty and the policy, if issued, will be void from inception."

 

We think it useful to start by sketching the evolution of the doctrine of uberrimae fidei. The Latin phrase "uberrimae fidei" loosely translates as "utmost good faith." See Black's Law Dictionary (10th ed. 2014). As relevant here, the doctrine requires parties to a marine insurance contract to disclose all known facts or circumstances material to an insurer's risk. See Windsor Mount Joy Mut. Ins. Co. v. Giragosian, 57 F.3d 50, 54-55 (1st Cir. 1995). Under the doctrine, an insurer may void a marine insurance policy if its insured fails to disclose "all circumstances known to the insured and unknown to the insurer" that materially impact the insurer's risk calculus. Caitlin at Lloyd's v. San Juan Towing & Marine Servs., Inc., 778 F.3d 69, 83 (1st Cir. 2015) (emphasis in original); cf. Stipcich v. Metro. Life Ins. Co., 277 U.S. 311, 316 (1928) (holding to like effect with respect to certain contracts outside marine insurance context).

 

The origins of the doctrine can be traced back to eighteenth-century London, which was — and remains — a global insurance hub. In its nascent form, the doctrine applied to a myriad of insurance contracts across a wide swath of industries. As early as 1766, Lord Mansfield recognized that insurance contracts impose a heightened duty of good faith to prevent a party from omitting or concealing facts that would induce the counterparty "into a bargain, from his ignorance." Carter v. Boehm (1766) 97 Eng. Rep. 1162, 1164 (K.B.). Such a requirement was rooted in practical wisdom, recognizing that an insurer often lacked the ability to verify the insured's representations before issuing a policy. See Thomas J. Schoenbaum, Admiralty and Maritime Law § 19:14, at 460 (6th ed. 2018). This practical wisdom still rings true when applied to marine insurance — an industry in which, for example, a policy may have to be issued in London, on a time-sensitive basis, for a vessel berthed halfway across the globe.

 

American courts first recognized the doctrine of uberrimae fidei in connection with marine insurance contracts in the early nineteenth century. See McLanahan v. Universal Ins. Co., 26 U.S. (1 Pet.) 170, 185 (1828). In 1882, the Supreme Court confirmed the strict disclosure requirements that the doctrine imposed on an insured. See Sun Mut. Ins. Co. v. Ocean Ins. Co., 107 U.S. 485, 510-11 (1883).

 

For some time, American and English law concerning marine insurance continued to develop in parallel through a parade of judicial decisions. Parliament, however, codified the by-then-venerable doctrine of uberrimae fidei by including it in the Marine Insurance Act of 1906 (1906 MIA). See Marine Insurance Act 1906, 6 Edw. 7 c. 41, § 17 (U.K.). Congress, however, remained silent; and American courts continued to develop their own federal common law of admiralty and continued to interpret marine insurance policies as incorporating, by implication, the doctrine of uberrimae fidei. See, e.g., San Juan Towing, 778 F.3d at 82; N.Y. Marine & Gen. Ins. Co. v. Cont'l Cement Co., 761 F.3d 830, 839 (8th Cir. 2014); AGF Marine Aviation & Transp. v. Cassin, 544 F.3d 255, 263 (3d Cir. 2008); Certain Underwriters at Lloyd's, London v. Inlet Fisheries Inc., 518 F.3d 645, 650 (9th Cir. 2008); HIH Marine Servs., Inc. v. Fraser, 211 F.3d 1359, 1362 (11th Cir. 2000); Puritan Ins. Co. v. Eagle S.S. Co. S.A., 779 F.2d 866, 870 (2d Cir. 1985).

 

Parliament lately adopted a number of insurance reforms. As relevant here, Parliament passed the Insurance Act of 2015, which (among other things) effectively amended the 1906 MIA to preclude an insurer from voiding a marine insurance policy by recourse to the doctrine of uberrimae fidei. See Insurance Act 2015, c.4, § 14 (U.K.) ("Any rule of law permitting a party to a contract of insurance to avoid the contract on the ground that the utmost good faith has not been observed by the other party is abolished."). Even so, Congress did not follow Parliament's lead.

 

This lack of congressional action is significant. As the federal common law of admiralty developed, the Supreme Court acknowledged that congressional silence left room for courts, among others, to fill the vacuum. See Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 321 (1955) ("We, like Congress, leave the regulation of marine insurance where it has been — with the States.").

 

(This means, of course, that questions sometimes arise in maritime cases as to whether federal or state common law should apply. See San Juan Towing, 778 F.3d at 76-80. Here, however, the parties present their uberrimae fidei arguments exclusively in terms of federal common law, and we therefore may accept the parties' plausible view that federal common law supplies the substantive rules of decision. Cf. Borden v. Paul Revere Life Ins. Co., 935 F.2d 370, 375 (1st Cir. 1991) (holding that, in diversity jurisdiction, court may accept parties' plausible agreement as to which state's law applies).)

 

Standard Oil offers us two important takeaways. First, American courts are not bound by legal developments in the United Kingdom. And even though the Standard Oil Court was speaking of judicial decisions, we think it follows, a fortiori, that acts of Parliament are equally non-binding. Second, although harmony between American and English admiralty law is desirable, "our practice is no more than to accord respect to established doctrines of English maritime law." The respect accorded by American courts to English maritime law stems from the wisdom of the particular doctrine, not from either the acceptance or the rejection of that doctrine by Parliament. It follows, we think, that federal courts tasked with hearing admiralty cases should take heed of developments in English law, but they are not obliged to change course merely because Parliament acts to alter a previously entrenched principle.

 

(…) We have never held that actual reliance is a necessary prerequisite for an insurer to void a marine insurance policy under the doctrine of uberrimae fidei. Rather, we have held that the materiality of a false statement or an omission, without more, provides a sufficient ground for voiding such a policy.

 

(If the named insured has, before or after a loss made a false statement or representation with respect to this insurance or has concealed or misrepresented any material fact or circumstance relating to this insurance, this policy shall be void and without effect. The false statement or representation or concealment need not be related to the damages or loss claimed in order to void the entire policy.

This language embodies the core of the uberrimae fidei
that omission or misrepresentation of a material fact is a sufficient ground, in and of itself, to allow an insurer to void a policy of marine insurance).

 

(…) Contractual requirements may operate as affirmative defenses. For example, waiver and estoppel may be affirmative defenses to a claim that an insured has committed a breach of a policy warranty.

 

 

Secondary sources: Thomas J. Schoenbaum, Admiralty and Maritime Law § 19:14, at 460 (6th ed. 2018); Thomas J. Schoenbaum, The Duty of Utmost Good Faith in Marine Insurance Law: A Comparative Analysis of American and English Law, 29 J. Mar. L. & Com. 1, 11 (1998).

 

 

(U.S. Court of Appeals for the First Circuit, Jan 19, 2021, QBE Seguros v. Carlos A. Morales-Vázquez, Docket No. 19-1503)