In Certain Underwriters at Lloyds, London v. Inlet Fisheries Inc., et al., ___ F.3d ___, 2008 WL 351688 (9th Cir. Alaska Feb. 11, 2008), the Ninth U.S. Circuit Court of Appeals applied the doctrine of uberrimae fidei in holding that an insurer was entitled to rescind a policy where the insured failed to disclose material facts in its application for insurance.
Uberrimae Fidei is an ancient doctrine that historically applies to insurance policies. It holds both parties to the highest standard of good faith, and it requires insurance applicants to fully disclose all facts material to a calculation of the insurance risk even if the insurer does not request such disclosure. Although the doctrine has been superseded to some extent by the use of specific insurance applications, it survives in various jurisdictions, and particularly in the world of marine insurance.
Inlet Fisheries, Inc. and Inlet Fish Producers, Inc. (collectively "Inlet") owned and operated the vessels YUKON II, FORT YUKON, MAREN I, HARVESTER BARGE (HB) and the QANIRTUUQ PRINCESS (QP). The Water Quality Insurance Syndicate (WQIS) issued a vessel pollution policy to Inlet in 2000 that provided coverage for environmental statutory liabilities. In August 2000, the MAREN I sank and the QP was "listing at the city dock with the potential of turning turtle (capsizing)." As a result, WQIS issued a notice of cancellation. One day later, the HB spilled 55 gallons of oil at a city pier.
After receiving WQIS' cancellation notice, Inlet's agent obtained insurance through Lloyd's for the FORT YUKON, the YUKON II, the HB and the QP. In its application for insurance, Inlet listed WQIS as its current pollution insurance carrier and stated that it had no pollution loss history. The application did not request, and Inlet did not disclose, the condition of Inlet's vessels or Inlet's financial status, or the fact that the WQIS policy was cancelled or the reasons for the cancellation.
In August 2002, the QP sank, spilling oil and other pollutants. Inlet made a claim to the Lloyd's syndicates who agreed to underwrite Inlet's policy ("Lloyd's"). Lloyd's commenced an investigation, which revealed Inlet's failure to disclose material facts such as the MAREN I sinking, the HB spill, the cancellation of Inlet's WQIS policy and the reasons therefor, the poor condition of the QP, and Inlet's financial troubles.
Lloyd's filed a declaratory judgment action regarding its right to rescind the policy under the doctrine of uberrimae fidei. Inlet argued that state law, not federal maritime law, applied and that Lloyd's failed to request the allegedly material information. The district court granted summary judgment in favor of Lloyd's, holding that the uberrimae fidei doctrine applied and that Lloyd's could void the policy.
On appeal, the Ninth Circuit rejected Inlet's argument that state law applied. The court noted that the Supreme Court has held that, in marine insurance cases, courts should first look federal maritime law for an applicable rule before resorting to state law. Since the court found that the policy issued to Inlet was properly characterized as marine insurance, it applied the longstanding federal maritime doctrine of uberrimae fidei.
Based on evidence presented by Lloyd's that any of the facts undisclosed by Inlet would have affected Lloyd's decision to offer the policy were it known, the court held that the undisclosed facts were material to the insurance risk undertaken by Lloyd's. Therefore, the court affirmed the summary judgment in favor of Lloyd's based on the application of the doctrine of uberrimae fidei.
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