Marine Insurance Policy Language May Restrict Uberrimae Fidei

By:  Henry C. Lucas, III

     Applying New Jersey law, NJ Federal District Judge N. Hillman held a marine insurance policy may on its face allow the insurer to deny coverage only where the insured has intentionally concealed or misrepresented a material fact or circumstance relating to the insurance application - thereby lessening the insured’s uberrimae fidei obligation.

In so ruling, the NJ Federal Court - in the face of a conflict between the 9^th and 11^th Circuits as to whether or how the parties to a maritime contract may contract out of, or circumvent, the uberrimae fidei doctrine and in the absence of any “entrenched” Federal maritime precedent on this issue in the Third Circuit - looked to, and applied NJ state law to determine the “Concealment or Representation Provision” in the policy indeed modified the doctrine of uberrimae fidei to restrict avoidance of coverage only where the insured intentionally conceals or misrepresents material facts. The Court implicitly determined NJ law permits the parties to a marine insurance contract to modify, by contract, common law obligations such as equitable fraud and uberrimae fidei.

At the center of this litigation, were arguably five misrepresentations in the application for marine insurance.  The application was initially completed by the insurance broker to obtain a quote “via an intermediary for the carrier,” and ultimately signed by the insured.  The broker and insured disputed whether they had a discussion concerning the information on the application loss history.

The claim which gave rise to the litigation was hull damage sustained to the insured’s vessel during a fishing contest in the Atlantic Ocean during the summer of 2006. Approximately seven (7) months after the loss and following and examination under oath, the carrier denied the claim contending the insured intentionally concealed and/or misrepresented material facts in his insurance application as well as his examination under oath.  Specifically, misrepresentations allegedly existed as to the full amount of damages suffered during prior incidents, as well as a misrepresentation concerning a licensed captain and engine horsepower. 

The carrier filed a complaint seeking a declaration of no coverage afforded under the policy deemed void ab initio and rescinded.  Moreover, the carrier sought reimbursement of costs and expenses related to the storage, survey, salvage and hauling of the vessel in connection with the loss.  The insured counterclaimed for coverage, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, bad faith and estoppel.  The insured also filed a third party complaint against its broker and an entity which designed and manufactured the vessel, as well as an entity who made repairs to the vessel prior to the loss.

In reaching its conclusion, the Court noted the irony inherent in the carrier’s argument the general principle of uberrimae fidei should trump the contractual language.  In a comprehensive opinion Judge Hillman noted conflicting authority exists as to the issue of, in what way, if at all, a marine insurer and a marine insured may contractually abandon, modify or otherwise circumvent the doctrine of uberrimae fidei.  In support of the carrier’s argument the parties cannot contract around the doctrine without explicitly stating their intent to do so, reliance was made on a recent decision handed down by the 9^th Circuit in which the Circuit Court went on to state any such modification would certainly require very clear policy language, unequivocally disclosing a mutual intent to supersede the insured’s common law obligation.  By contrast, Judge Hillman noted the position of the 11^th Circuit which held the parties are free to contract out/around State or Federal law with regard to an insurance contract so long as there is nothing void as to public policy or contrary to statutory law.  The court noted the absence of the Third Circuit addressing this precise issue and the diametrically opposed decisions of two Circuit Courts, established the absence of a well entrenched principle of Federal admiralty law whether there is an absolute bar on a contractual modification of uberrimae fidei.  Thus, New Jersey law would apply as to the issue as to whether the policy provision modified the doctrine of uberrimae fidei and only enabled the carrier to void the policy if there was an intentional concealment or misrepresentation of a material fact. 

As a practical tip to carriers, it is important to review exclusion language to determine if you are unnecessarily reducing the protections otherwise afforded by well established maritime law.