In today's post, we return to the federal maritime doctrine of uberrimae fidei, previously reviewed here. Should the doctrine, which requires an insured to exercise the utmost good faith and disclose to the insurer all facts material to an insurance risk, apply when considering coverage under a marine policy? The Third Circuit applied the doctrine in AGF Marine Aviation & Transport v. Cassin, Nos. 07-1640, 07-1641(3rd Cir. Sept. 29, 2008), and voided coverage under a marine policy.
Cassin purchased a yacht for $400,000. Nevertheless, in an application to insure the Yacht, he represented the purchase price was $600,000. He then insured the yacht under successive policies for $600,000. The policy provided any dispute would be "adjudicated according to well established, entrenched principles and precedents of substantive United States Federal Admiralty law and practice."
In 2000, the yacht sank of the coast of Grenada. Cassin filed a claim. After investigating, the insurer sued, alleging the policy was void because Cassin misstated the purchase price in his application. Cassin argued there was no misrepresentation because the purchase price included a $200,000 equity stake in the Yacht. The district court applied the doctrine of uberrimae fidei and determined Cassin had materially misrepresented the purchase price of the yacht. Therefore, the insurer was permitted to void the policy.
Cassin appealed, arguing uberrimae fidei was not firmly entrenched in federal admiralty law. The Third Circuit noted that most circuits agreed uberrimae fidei controlled in maritime insurance disputes. The Third Circuit agreed the doctrine was well entrenched and applied in this dispute. The Court determined the $200,000 equity was never transferred to Cassin. Consequently, the purchase price was $400,000 and Cassin had misrepresented this amount in his application.
Finally, the misrepresentation was material. When a marine insurer asks the purchase price, it was a fact material to the risk, the misrepresentation of which violated uberrimae fidei. Because Cassin misrepresented the purchase price, the policy was voidable ab initio.
