Pollution policy held void when insured fails to disclose facts material to risk even though not requested- Winter 2008
April, 2008
By
Marilyn Raia
Certain Underwriters at Lloyds v. Inlet Fisheries
2008 WL 351688 (9th Cir. 2008)
Inlet has fish buying and processing businesses that own several vessels. It was originally insured by WQIS for pollution risks but the policy was cancelled due to Inlet's failure to conduct surveys of its vessels and the failure to pay the policy premium.
After receiving the cancellation notice, Inlet applied for pollution insurance from Lloyds of London. On the application, Inlet indicated that its "current" pollution insurer was WQIS and that it had no history of pollution losses. Those representations were not true. In fact, WQIS cancelled the policy it had issued to Inlet before the application was made. Further, one of Inlet's barges had struck a sandbar and sank with 3,000 gallons of diesel on board. It had also been involved in a pollution incident one week before it sank. A second vessel was reportedly listing at a city pier with the potential of capsizing. The day after WQIS sent its cancellation notice, a third vessel spilled 55 gallons of oil at a city pier.
Inlet did not supply and the application did not request information about the condition of Inlet's vessels, Inlet's financial condition, or WQIS's cancellation of the policy it issued to Inlet.
After the Lloyds policy was issued, one of Inlet's vessels sank, resulting in a spill of oil and pollutants. Inlet made a claim under the Lloyd's policy. Lloyds investigated the claim and learned what Inlet failed to disclose.
Lloyds filed suit against Inlet seeking a declaratory judgment that the policy was void
ab initio under the doctrine of
uberrimae fidei which imposes a duty of utmost good faith and requires an insured to disclose all facts material to a risk. Inlet filed a counterclaim asserting that state law not federal maritime law applied and that Lloyds had not requested the non-disclosed information.
The District Court entered summary judgment for Lloyds allowing it to void the policy. Inlet appealed. The Ninth Circuit affirmed.
The Ninth Circuit recognized that the doctrine of
uberrimae fidei required Inlet to disclose all material information whether or not Lloyds had requested it. The Ninth Circuit also analyzed whether the doctrine of
uberrimae fidei is a "judicially established federal admiralty rule" that precluded the application of state law under
Wilburn Boat v. Fireman's Fund Ins. Co. 348 US310 (1955). It concluded that the roots of the doctrine of
uberrimae fidei are "deeply embedded in American law" and that it is well established as a federal precedent in marine insurance cases. The Ninth Circuit further concluded that a pollution liability policy "fits well within the general conception of marine insurance."