Commercial Union Ins. Co. v. Franklin Lord, et al.
2005 AMC 2925 (D. Conn 2005)
Lord applied to Commercial Union for hull insurance on his forty-nine foot vessel, WANDERLUST. In the application he made various representations about the WANDERLUST. He stated that the vessel was a new purchase and had been built in 2000 at Ontario, Canada by Kantor. He indicated that he has purchased the vessel on November 7, 2000 for $450,000. He also stated that the engines were built in 2000 by Perkins. Lord left blank a space on the application for additional "facts material to this insurance". Commercial Union issued a policy for a one year period, May 24, 2001 to May 24, 2002. The policy was renewed for a one year period to end on May 24, 2003. In March 2003, Commercial Union advised Lord that the policy would not be renewed again.
In April 2003, the WANDERLUST sank, probably as the result of an engine room explosion and fire. The remains of the vessel were never located. Lord made a claim for $450,000 under the Commercial Union policy. Commercial Union filed a declaratory relief action seeking a judgment that the policy was void ab initio due to material misrepresentations made by Lord. Specifically, Commercial Union determined that Kantor had built the hull of the vessel in Ontario in 1984 and that Lord had purchased it unfinished in 1996 for $48,000 from someone in Virginia. Lord himself completed construction of the vessel in 2000 for a total cost of what he claimed to be $450,000. Further, Commercial Union learned that the engine was built in 1996 and had been used several times by Lord before he completed the insurance application.
Commercial Union contended that Lord made material misrepresentations on the application which rendered the policy void. Lord denied making misrepresentations of material fact and alleged that the answers were "essentially the truth". Commercial Union moved for summary judgment and the motion was granted because Lord failed to submit any evidence that was sufficient to create a genuine issue of material fact.
Both parties agreed that the doctrine of uberrimae fidei controlled, that is, that "the parties to a marine insurance policy must accord each other the highest degree of good faith". Under that doctrine, the insured must disclose all information known to him that would materially affect the risk. A material fact is one which would have controlled the decision to insure the risk.
Commercial Union argued that the representations made by Lord were material and that common sense suggested that Commercial Union decided to accept the risk based upon information about the price and age of the hull and engines. The District Court did not accept Lord's attempt to justify the representations. For example, Lord argued that his expenditures to complete the construction of the vessel were $402,000 which when added to the $48,000 spent to buy the unfinished vessel, totaled $450,000. The District Court found that the only reasonable conclusion that could have been drawn from the application was that Lord purchased the WANDERLUST, built by Kantor in Ontario Canada for $450,000 on November 7, 2000, which was not true.
Lord also argued that Commercial Union should have inferred from the hull and engine identification numbers that the hull was completed in 1984 and that the engine was used before. The Court also rejected that argument stating that even if there were universal recognition that certain of the digits in the hull identification number indicate the year of manufacture, the information on the application negated the effect of the identification number.
The Court found that Lord conveyed a "materially false" impression to Commercial Union when he applied for the insurance and did not provide a satisfactory explanation for his responses that he purchased the WANDERLUST for $450,000 on November 7, 2000 and that the vessel was built by Kantor in Ontario, Canada. Because Lord did not comply with his obligation to provide accurate and complete responses to the questions on the application, the policy was held void ab initio.