By Caitlin Morgenstern of Koch & Schmidt posted in Maritime Law on Tuesday, November 8, 2016.
“Uberrimae fidei” means of the utmost good faith. The uberrimae fidei doctrine requires the insured to disclose to the insurer all known circumstances that materially affect the insurer’s risk. Under the doctrine, when the marine insured fails to disclose to the marine insurer all circumstances known to it and unknown to the insurer which materially affect the insurer’s risk, the insurer may void the marine insurance policy at its option.
The doctrine of utmost good faith was discussed in detail in QBE Seguros v. Carlos Marales-Vasquez, No. 15-2091 (PR Sept. 28, 2016), QBE Seguros (“QBE”). In this case, QBE issued a policy of marine insurance to Carlos Morales-Vazques (“Morales”) for his 48′ yacht. In October 2014, the yacht sustained damages as a result of the fire, Morales informed QBE of the damage, and QBE immediately began investigating the claim. The adjuster discovered that around 2010 a difference insurance company had adjusted a yacht insurance claim for Morales. Morales failed to disclose this incident on his insurance application with QBE. The application also asked Morales to detail his boating experience by listing the boats he owned or operated. When questioned under oath, Morales admitted owning five vessels not included in his application with QBE.
QBE filed an action against Morales seeking a judgment declaring Morales’s marine insurance policy void ab initio, that Morales had breached a “warranty of truthfulness,” or that the policy did not cover all Morales’s claimed losses. Morales moved for a judgment on the pleadings, and also to dismiss the complaint for failure to state a claim.
Morales moved for a judgment on the pleadings because United Kingdom’s insurance Act of 2015 abolished the doctrine of uberrimae fidei. He argued that the Supreme Court instructed federal courts to adopt “uniform and harmonious application[s] of American and English marine insurance law and that federal courts should abolish the doctrine from American maritime law.
The court declined to diverge from entrenched federal law for three reasons. First, the court noted that the First Circuit in Catlin at Lloyd’s v. San Juan Towing & Marine, 778 F.3d 69 (1st Cir. 2015), recently joined the view of most circuit courts in adopting the doctrine of uberrimae fidei Second, that Morales argument depended on the proposition that the Supreme Court had commanded federal courts to follow in step with the developments of English marine insurance law so as to ensure uniformity in the marine insurance market. This is simply not the case. Third, recent U.S. court decisions do not evince a change in the well-established long-standing doctrine of uberrimae fidei. As a result, the court denied Morales’ motion for judgment on the pleadings.
Morales also filed a motion for failure to state a claim asserting that the complaint failed to assert that Morales did not disclose material facts on his application. A material fact, in the context of marine insurance, is a fact which can possibly influence the mind of a prudent and intelligent insurer in determining whether it will accept a risk. The court noted that an insured’s loss history is a relevant and material fact that must be disclosed to the insurer, as it affects the riskiness of issuing an insurance policy. QBE alleged that Morale’s failed to disclose various material facts, one of which relates to Morales’ loss history. The complaint further alleged that had QBE’s underwriters known about the prior loss they would not have insured the yacht or would have done so under different terms and conditions. The court found these allegations sufficient to establish a plausible violation of the doctrine of uberrimae fidei and dismissed Morales’ motion for failure to state a claim.