A couple of years ago I brought to our attention the doctrine of uberrimae fidei, utmost good faith, in marine insurance. In a nutshell the doctrine requires that an applicant for marine insurance is bound to reveal every fact within his knowledge that is material to the risk. Its origin is grounded both in morality and efficiency; insureds were considered morally obligated to disclose all information material to the risk the insurer was asked to shoulder. This principal was an economic necessity where insurers had no reasonable means of obtaining this information efficiently, without the ubiquity of telephones, e-mail, digital photography, and air travel. If an insured breached this duty the insurer may rescind the policy, even if the material misrepresentation was not intentional. Even in today’s world where information is only a click away, the doctrine of uberrimae fidei lives on.
In October this year a federal judge voided an ocean marine policy when he found that the owner of a dry dock, San Juan Towing (“SJT”), had misrepresented its condition and value. The insured originally purchased the dry dock for $1.05 million in 2006. In 2009 it put the dry dock up for sale for $1.35 million. When there were no takers, the asking price was reduced to $800,000. It remained on the market until April, 2011 when a shipyard agreed to purchase it for $700,000.
From 2006 to 2011 the dry dock was insured by RLI Insurance Company (“RLI”) for $1.75 million because of modifications made by its owner. RLI’s underwriter on the account left RLI for another insurer Catlin (Syndicate 2003) at Lloyd’s in January, 2011. RLI then cancelled the policy in February, 2011. Thereafter, SJT’s insurance broker called the underwriter in his new role with Catlin and asked if Catlin would be interested in providing insurance for the dry dock since he was already familiar with the account. Catlin sent a quote to SJT which was accepted and the insurance was bound. SJT never told Catlin’s underwriter that the value of the dry dock should be less than the $1.75 million at which it had been originally valued. SJT did not tell the underwriter that it originally advertised it for sale for $1.35 million, and later reduced to $800,000.
In September, 2011 the dry dock sank. Catlin sent surveyors to the scene who reported that the dry dock was in poor condition with significant deterioration and long standing corrosion. Catlin refused to pay the claim stating that SJT had the duty to have notified Catlin of the dry dock’s true condition and value. If SJT was representing to the public that the dry dock was worth only $800,000, it should have made this known to Catlin. Not unexpectedly, litigation ensued.
After a trial, the judge found in favor of Catlin. While he questioned the soundness of the underwriter’s decision not to request the updated condition and value information, the doctrine of uberrimae fidei places the burden on the insured to disclose all material information regarding the risk to the insurer. SJT breached its duty by failing to disclose an accurate description of the dry dock’s condition when seeking insurance from Catlin and overstating its value. The judge ordered the policy void and dismissed all of SJT’s claims. At the end of the day, SJT was left with no insurance.