CERTAIN UNDERWRITERS AT LLOYD'S V. INLET FISHERIES INC

United States Court of Appeals, For the Ninth Circuit, McKeown and Clifton, Circuit Judges and Schwarzer, District Judge. 11 February 2008

Insurance (marine) – Vessel pollution cover – Whether marine insurance –Whether Federal or State law applied - Whether doctrine of uberrimae fidei entrenched in US law – Whether the doctrine of uberrimae fidei applied to vessel pollution insurance policies covering statutory environmental liabilities

After receiving a cancellation notice from its previous insurer, but before its effective date, the defendant shipowners sought vessel pollution insurance from the claimants for its vessels. The reason for the cancellation of the previous insurers was the failure of Inlet to comply with a request to conduct surveys of its vessels following a casualty involving a vessel that had shortly before been involved in another pollution incident. There were concerns about the standard of more than one of Inlet’s vessels and the company was close to bankruptcy. Inlet sought vessel pollution insurance from the claimants. In response to a request for “pollution loss history”, Inlet wrote “None”. In this action, the claimant underwriters sought a declaratory judgment that ir had the right to void the policy ab initio under the doctrine of uberrimae fidei. Inlet counterclaimed and argued that Alaska State law, rather than Federal maritime law applied; that the doctrine of uberrimae fidei in any case did not apply to the type of policy in question; and that the underwriters never asked for the relevant information. This was the appeal from the Alaskan District Court judgment, granting judgment for the claimants. The Court of Appeal granted the relief sought, reasoning as follows. Following Wilburn Boat, if extant federal admiralty law did not contain an applicable rule, courts should look to state law. The doctrine of uberrimae fidei was a long standing doctrine of marine insurance law. Wilburn Boat had not been designed to modify such an entrenched doctrine and the relative paucity of case law in recent years was not a sign that the doctrine had been uprooted. It remained a doctrine of federal law. The next question was whether vessel pollution insurance was marine insurance. The Court held that it was. Like traditional P&I insurance, vessel pollution insurance, designed to cover liabilities under the Oil Pollution Act 1990 and other environmental statutes, covered vessel owners’ liabilities to third parties for marine incidents, namely pollution. It was a contract of indemnity triggered by an event that was maritime in character. On the issue whether the information was material, the Court concluded that loss history in itself was capable of being a material fact and considered the following. The vessel sank two days before the renewal deadline on the policy. Lloyd’s agent was informed the next day, but because of the time difference, Lloyd’s did not receive notice of the spill until the day Inlet’s policy was due to be renewed. On the same day, Lloyd’s agent also reported hearsay reports that there had been numerous complaints about Inlet, a previous spill and that Inlet had filed for bankruptcy. The underwriters had quoted a renewal price some weeks earlier. It was unclear what information they had at their disposal at the point the contract was made; however the underwriters were concerned that a refusal to renew the policy based on unsubstantiated rumours would have exposed them to allegations that they had violated their duty of uberrimae fidei. The facts undisclosed by Inlet were material to the insurance risk undertaken by Lloyds and these circumstances warranted voiding of the insurance contract by Lloyds.