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The Ninth Circuit affirmed the district court's grant of summary judgment in favor of plaintiff Lloyds of London (“Lloyds”), holding the doctrine of uberrimae fidei applies to contemporary “vessel pollution insurance,” a stand-alone pollution coverage for statutory environmental liabilities. Under this ancient legal doctrine, both parties to an insurance contract are held to the highest standard of good faith in the transaction.
Inlet Fisheries, Inc. and Inlet Fish Producers, Inc. (together "Inlet") are Alaska-based fish buying and processing businesses. Inlet’s prior vessel pollution insurance carrier had sent notice of cancellation to Inlet based on Inlet's failures to conduct a survey of its vessels and to pay its premiums. In addition, prior to seeking coverage from Lloyds, several of Inlet’s vessels were involved in accidents and oil spills.
In its application for coverage from Lloyds, submitted through its broker, Inlet falsely wrote “none” in response to a request on Lloyd’s application for “pollution loss history.” Lloyds did not request information regarding the general seaworthiness of Inlet’s vessels or regarding the company’s overall financial health, however.
In August 2002, one of Inlet's vessels spilled oil and pollutants when it sank. Inlet made a claim to Lloyds, at which point Lloyds investigated both that incident and Inlet generally. Upon learning Inlet failed to disclose the prior losses, the poor condition of its vessels, and its pending bankruptcy, and after Inlet refused to cooperate with Lloyds' investigation, Lloyds filed suit 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, ruled that uberrimae fidei applied and that Lloyds was entitled to void the policy.
The doctrine of uberrimae fidei imposes a duty of utmost good faith and requires the insured’s full and voluntary disclosure of all facts material to the risk. Whether the doctrine applied in this case was particularly important because Lloyds claimed Inlet failed to disclose material information, while Inlet argued Lloyds never asked for the information Lloyds claimed was material. Under uberrimae fidei, however, Inlet would have been obligated to disclose all material information, regardless of a request by Lloyds.
In deciding uberrimae fidei applied, rather than Alaska law, the court relied on Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310 (1955), in which the United States Supreme Court held that when faced with potential conflicts between federal and state law, courts should look first to whether federal admiralty law contains an “established, applicable rule.” The court determined uberrimae fidei is an established admiralty rule in part because it has been embedded in American law for almost 200 years, and noted that California has codified the doctrine.
Under uberrimae fidei, a marine insurance applicant must reveal every fact within the applicant’s knowledge that is material to the risk, even if not asked. An insurer may rescind a marine policy if it can show either intentional misrepresentation of a fact, regardless of materiality, or nondisclosure of a fact material to the risk, regardless of intent. The court held the unseaworthiness of Inlet’s vessels, the prior accidents and spills, and the fact of, and reason for, the cancellation of its previous policy were material and should have been disclosed to Lloyds. Under these circumstances Lloyds was permitted to rescind the policy.
Inlet argued that even if uberrimae fidei applied in the Ninth Circuit, it did not apply to Inlet’s specific policy of vessel pollution insurance because such coverage is not “marine insurance.” The court disagreed. Marine insurance, which is simply insurance against losses “incident to the marine adventure,” includes contemporary vessel pollution coverage.
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