1. ABA Regional Meeting February 2, 2017
THE RISING TIDE OF MARINE INSURANCE AND ITS CORNERSTONE DOCTRINE OF UTMOST GOOD FAITH: WHAT YOU NEED TO KNOW AS THE LINE BETWEEN MARINE INSURANCE AND COMMERCIAL INSURANCE MOVES INLAND
ABA Regional Meeting
February 2, 2017
Presented By:
P. Ryan McElduff Lisa Jaye Joshua E. Kirsch
DUANE MORRIS LLP JAYE & ASSOCIATES, INC GIBSON ROBB & LINDH LLP
New York, NY San Francisco, CA San Francisco, CA
Moderated by: David Loh, Cozen O’Connor, New York, NY

2. Uberrimae Fidei Strictissimi
Latin phrase meaning “utmost good faith”
Literally, “most abundant faith”
“The most abundant good faith, absolute and perfect candor or openness and honesty; the absence of any concealment or deception, however slight. A phrase used to express the perfect good faith, concealing nothing, with which a contract must be made.”
Thebes Shipping, Inc. v. Assicurazonia Ausonia SPA, 599 F. Supp. 405, 427 (S.D.N.Y. 1984).

3. OK, That Sounds Nice. What Does it Mean in Practice?
“The contract of insurance has been said to be a contract uberrimae fidae, and the principles which govern it, are those of an enlightened moral policy. The underwriter must be presumed to act upon the belief, that the party procuring insurance, is not, at the time, in possession of any facts, material to the risk which he does not disclose.”
M’Lanahan v. Universal Ins. Co., 26 U.S. (1 Pet.) 170 (1828)

4. Requires Insured to Disclose, Not a Duty of Enquiry
“It is the duty of the assured to place the underwriter in the same situation as himself; to give to him the same means and opportunity of judging of the value of the risks; and when any circumstance is withheld, however slight and immaterial it may have seemed to himself, that, if disclosed, would probably have influenced the terms of the insurance, the concealment vitiates the policy.”
Sun Mutual Insurance Company v. Ocean Insurance Co., 107 U.S. 485, ; 1 S. Ct. 582; 27 L.Ed. 337 (1883)

5. Requires Insured to Disclose, Not a Duty of Enquiry
Cigna Prop. & Cas. Ins. Co. v. Polaris Pictures Corp., 159 F.3d 412, 418 n. 1 (9th Cir. 1998) (UF “requires a marine insurance applicant, even if not asked, to reveal every fact within his/her knowledge that is material to the risk”). Even if unintentional!
Steelmet, Inc. v. Caribe Towing Corp., 747 F.2d 689, 695 (11th Cir. 1984) (a misrepresentation, even if it is a result of "mistake, accident, or forgetfulness, is attended with the rigorous consequences that the policy never attaches and is void").

6. Why Is the Burden on the Insured?
“Uberrimae fidei…requires an assured to disclose any information that materially affects the risk being insured, because the assured is more likely to be aware of such information.”
New York Marine v. Tradeline (L.L.C.), 266 F.3d 112, 123 (2d
Cir. 2001).
How could the insurer check? Who would pay the cost? Could the insurer check quickly enough?

7. Why Have the Doctrine?
“Marine insurance is vital to the adequate flow of commerce. The nature of the risks that are covered by maritime insurance is such that, given the urgent necessity for the placement of this type of insurance coverage that is often present in the business of maritime commerce, as well as the extreme distances that often separate the insurance seeker and the insurer, it is imperative that the insurer be provided with truthful and valid information about the risk the insurer is asked to undertake by the party most able to provide such data: the insured.”
Catlin (Syndicate 2003) at Lloyd’s v. San Juan Towing &
Marine Services, Inc., 778 F.3d 69 (2015)

8. Other Usages of the Doctrine
“It is well-established under the doctrine of uberrimae fidei that the parties to a marine insurance policy must accord each other the highest degree of good faith.”
Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 13 (2d Cir. 1986), citing
Puritan Ins. Co. v. Eagle S.S. Co.S.A., 779 F.2d 886, 870 (2d.
Cir.1985)

9. Other Usages of the Doctrine
Debate as to what that encompasses
Representations about the scope of coverage provided? Classic example - underwriter knows the ship safely arrived before the policy issued.
Candor in claims presentation? English case law suggests yes. See e.g. Manifest Shipping & Co. v. Uni-Polaris Ins. Co. (THE STAR SEA), [1997] 1 Lloyd’s Rep. 360 (C.A.)
Interplay between UGF and state bad faith laws

10. Material Facts
“A…fact is material if it would have affected the insurer’s decision to insure at all or at a particular premium.”
New York Marine, 266 F.3d at 124
This approach prevents courts from having “to divine what would have occurred had there been full disclosure.”
Knight v. U.S. Fire Ins. Co., 804 F.2d 9, (2d Cir. 1986)
EASY POINT: If it’s requested in the application, it’s material.
Kerr v. Union Marine Ins. Co., 130 F. 415, 417 (2d Cir. 1904). See also Great Lakes Reinsurance (UK) PLC v. Atl. Yacht & Marine Servs., 2008 WL , *3, U.S. Dist. LEXIS , *6-7 (S.D. Fl. 2008); St. Paul Fire and Marine Ins. Co. v. Halifax Trawlers, Inc., 495 F. Supp. 2d 232, 240 (D. Ma. 2007); and Pacific Insurance Co. v. Kent, 120 F. Supp.2d 1205 (C.D.Cal.2000).
Relates to acceptance of risk or premium amount.

11. Test for Materiality
“[T]he materiality of the non-disclosure does not depend on what an investigation would have revealed. […] Instead, the insurer should be afforded the opportunity to investigate prior to its acceptance of the risk. Accordingly, the assured is required to communicate the information to the insurer before the policy is issued, so that the insurer can decide for itself at that time whether to accept the risk.”
Knight, 804 F.2d at 13-14
A hypothetical “prudent” underwriter or the actual, subjective underwriter?

12. Remedy for Breach
“Under uberrimae fidei, 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. In other words, the policy becomes voidable.”
Catlin. See also Stipcich v. Metropolitan Life Ins. Co., 277
U.S. 311, 316 (1928), CNR Atkin v. Smith, 137 F.3d 1169
(9th Cir. 1998)

13. Applies to Marine Insurance
Marine insurance contracts are usually maritime contracts.
Ins. Co. v. Dunham, 78 U.S. (11 Wall.) 1, 30-36; 20 L.Ed. 90 (1870)
How do you know if an agreement is a maritime contract?
“We have recognized that "[t]he boundaries of admiralty jurisdiction over contracts — as opposed to torts or crimes — being conceptual rather than spatial, have always been difficult to draw." To ascertain whether a contract is a maritime one, we cannot look to whether a ship or other vessel was involved in the dispute the answer “depends upon the nature and character of the contract,” and the true criterion is whether it has “reference to maritime service or maritime transactions.”
Norfolk Southern Railway Company v. Kirby, 543 U.S. 14, (2004)

14. What is Marine Insurance in the Wake of Kirby?
Primary purpose test
Sentry Select Ins. Co. v. Royal Ins. Co. of America, 481 F.3d
1208 (9th Cir. 2007) (End of severability?)
“Predominant Purpose”
Acadia Ins. Co. v. McNeil, 116 F.3d 599, 603 (1st Cir.
1997)
“Primary Objective…relates to the navigation, business or commerce of the sea”
Catlin, 778 F.3d at 74.

15. What is Marine Insurance in the Wake of Kirby?
“Principal Objective”
Folksamerica Reinsurance Co. v. Clean Water, New York, 413 F.3d 307, 315 (2d Cir. 2005) (“In applying what we have previously called the ‘incidental’ exception, we should focus ‘on whether the principal objective of a contract is maritime commerce,’ rather than on whether the non-maritime components are properly characterized as more than ‘incidental’ or ‘merely incidental’ to the contract”)
Examples of State law definitions (Superseded by Federal Law):
Cal Ins. Code. §103 (broad, including inland marine)
New York: inland marine is not marine and not subject to UF. Stecker v. American Home Fire Assur. Co., 299 NY 1 (NY 1949)

16. Is UGF an “Established Admiralty Rule”?
Wilburn Boat Doctrine (Wilburn Boat v. Fireman’s Fund Ins. Co., 348 U.S. 310 (1955))
Regulation of marine insurance left to states except where there is—or should be—a rule established by Federal common law or statute.
Also statutory in some states, e.g. CA.

17. Cases Confirming UGF is an Established Admiralty Rule
M’Lanahan v. Universal Ins. Co., 26 U.S. (1 Pet.) 170 (1828).
Isn’t the Supreme Court enough? Apparently not.

18. 1st Circuit
Catlin (Syndicate 2003) at Lloyd’s v. San Juan Towing & Marine Services, Inc., 778 F.3d 69 (2015)
“Although this court had not yet held definitively that uberrimae fidei is an established rule of maritime law, we do so now, thus joining the near-unanimous consensus of our sister circuits, ruling without further equivocation that the doctrine of uberrimae fidei is an established rule of maritime law in this Circuit.”

19. 2nd Circuit Knight v. U.S Fire Insurance Company, 804 F.2d 9 (1986)
Duty to Disclose, not Enquire.
Materiality not evaluated by what would have been learned

20. 5th Circuit Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882 (1991)
Maritime rule under Wilburn Boat must be “entrenched” not just “established”
Held UF not “entrenched”
Roundly criticized in other circuits
Even the 5th Circuit recognizes that its position ““run[s] counter to the great weight of authority which has embraced th[e] doctrine in maritime insurance cases.”
Great Lakes Reinsurance (UK) v. Durham Auctions, 585 F.3d 236, 244
(5th Cir. 2009).

21. 8th Circuit
New York Marine & General Ins. Co. v. Continental Cement Co., LLC, 761 F.3d 830 (2014)
“[N]o rule of marine insurance is better established tha[n] the utmost good faith rule.”.

22. 9th Circuit
The Ninth Circuit detailed the unanimous rejection of the Kieu decision, noting it was “an abrupt change of course”, “disclaiming this overwhelming body of precedent both within and without its own circuit”:
“Ironically, were it not for the Anh Thi Kieu decision itself, there would be little cause at all to doubt that uberrimae fidei is indeed firmly entrenched maritime law.
***
Not surprisingly, no other circuit has followed Anh Thi Kieu in the sixteen years since it was decided.”
Certain Underwriters v. Inlet Fisheries Inc., 518 F.3d 645, (9th
Cir. 2008)

23. 11th Circuit
HIH Marine Services, Inc. v. Fraser, 211 F.3d 1359, (11th Cir. 2000):
“It is well-settled that the marine insurance doctrine of uberrimae fidei is the controlling law of this circuit.”
NOTE: The Eleventh Circuit split from the 5th Circuit, and older 5th Circuit precedent is controlling. The Eleventh also rejects Kieu.

24. Recent Developments
St. Paul v. Abhe & Svoboda, 798 F.3d 715 (2015). Case involved an admitted non-disclosure of material information, a survey report. Relying on Second Circuit precedent, found:
“Before a party can rescind a contract due to the other party's non-disclosure or misrepresentation, he must show that the misrepresentation induced him to enter the contract. In other words, a party is required to show a causal connection between the other party's omission and the issuing of the contract. We discern no reason why the requirement of causation should be removed in the context of marine insurance contracts.
* * *
[W]e think clarity is enhanced by preserving actual reliance and objective materiality as distinct elements.”

25. The Second Circuit’s Response?
“Citing our decision in Puritan, the Eighth Circuit recently held that materiality and reliance are "distinct elements," both of which must be proven for the doctrine to apply. See St. Paul Fire & Marine Ins. Co. v. Abhe & Svoboda, Inc., 798 F.3d 715, (8th Cir.2015). "[M]ateriality examines whether a fact would have influenced the judgment of a reasonable and prudent underwriter," id., in deciding whether "to insure at all or at a particular premium," Tradeline, 266 F.3d at 123; see also Sun Mut. Ins. Co., 107 U.S. at , 1 S.Ct. 582 (holding that nondisclosure permitted avoidance of the contract where, "[h]ad [the undisclosed information] been known, it [was] reasonable to believe that a prudent underwriter would not have accepted the proposal as made"). Reliance, however - according to the Eighth Circuit - requires "a causal connection between the misrepresentation or concealment of that material fact and the actual underwriter's decision to issue the policy." St. Paul Fire, 798 F.3d at 722; see Puritan, 779 F.2d at 871 ("[A] marine insurance policy `cannot be voided for misrepresentation where the alleged misrepresentation was not relied upon and did not in any way mislead the insurer.'" (quoting Rose & Lucy, Inc. v. Resolute Ins. Co., 249 F.Supp. 991, 992 (D.Mass ))).
We need not decide here whether subjective reliance is required in all cases in order for the doctrine to apply.”
Fireman’s Fund Ins. Co. v. Great Am. Ins. Co., 822 F.3d 620, 638 (2016)

26. UK Marine Insurance Act 2015
UK Marine Insurance Act of 1906 Codified UGF in the United Kingdom
Looked to by US Courts for numerous reasons, including national and international uniformity (the reason for the Constitutional grant of Admiralty Jurisdiction):
Queen Insurance Co. v. Globe & Rutgers Fire Ins. Co., 263 U.S. 487, 493 (1924).
February 2, 2015: “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.”
QBE Seguros v. Morales-Vasquez, 2016 WL (DPR 2016)

27. Procedural Issues Declaratory Relief State v. Federal Court?
Who files first can be important

28. Questions? Rotten Tomatoes?