2008 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-29-2008

AGF Marine Aviation v. Cassin

Precedential or Non-Precedential: Precedential

Docket No. 07-1640

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-1-

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

Nos. 07-1640, 07-1641

 

AGF MARINE AVIATION & TRANSPORT

v.

RICHARD C. CASSIN

CIT GROUP/SALES FINANCING, INC.; UNITED STATES

OF AMERICA SMALL BUSINESS ADMINISTRATION,

Intervenor-Defendants 

in District Court

Richard C. Cassin,

 Appellant in 07-1640

CIT Group/Sales Financing, Inc.,

 Appellant in 07-1641
-2-

 

On Appeal from the District Court 

for the Virgin Islands

(No. 01-cv-00049)

District Judge: Honorable Curtis V. Gomez

 

Argued May 5, 2008

Before: RENDELL, FUENTES, and CHAGARES, 

Circuit Judges

(Opinion Filed: September 29, 2008)

Gregory H. Hodges, Esq. (Argued)

Dudley, Topper & Feuerzeig

P.O. Box 756, 1A Fredericksberg Gade

Charlotte Amalie, St. Thomas

USVI, 00804-0000

Counsel for AGF Marine Aviation Transport

Kevin F. D’Amour, Esq.(Argued)

Ogletree, Deakins, Nash, Smoak & Stewart

P.O. Box 10829

Charlotte Amalie, St. Thomas

USVI, 00801-0000

Counsel for Richard C. Cassin
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Alexandra L. Bartsch, Esq. (Argued)

205 Follen Road

Lexington, MA 02421

Carol G. Hurst, Esq.

5150 Dronningens Gade, Suite 4

Charlotte Amalie, St. Thomas

USVI

Counsel for CIT Group/Sales Financing, Inc.

 

OPINION OF THE COURT

 

FUENTES, Circuit Judge:

Richard Cassin filed a claim for insurance with AGF

Marine Aviation & Transport (“AGF”) after his 85-foot charter

yacht (the “Yacht”) sank off the coast of Grenada. Upon

reviewing the claim, AGF discovered that Cassin

misrepresented the purchase price of the Yacht and sought a

declaration from the District Court for the Virgin Islands that

Cassin’s insurance policy was void from its inception. The

District Court granted summary judgment in favor of AGF,

applying the federal maritime doctrine of uberrimae fidei, which

requires that an insured exercise the utmost good faith and

disclose to the insurer all facts material to an insurance risk. In

this appeal we must determine whether uberrimae fidei applies
-4-

to the insurance policy issued to Cassin, and whether Cassin

made a material misrepresentation that voided that policy. We

will resolve both issues in the affirmative, and will therefore

affirm the District Court’s dismissal.

I.

Because our decision is based on the representation of

the purchase price that Cassin made at the time he financed and

insured the Yacht, we begin with a detailed description of those

transactions. In late 1996 or early 1997, Magnus Falk placed

the Yacht on the market for sale with Southern Trades Yacht &

Ship Brokers (“Southern Trades”). Thereafter, the Yacht was

advertised in various boating magazines for $450,000. Cassin

contacted Robert Carson, the owner of Southern Trades, and

expressed interest in purchasing the Yacht. It is undisputed that,

at closing in December 1997, Falk received $400,000 from

Cassin for the sale of the Yacht.

Nevertheless, Cassin represented that the purchase price

for the Yacht was $600,000 in his application for financing to

purchase the Yacht, and in later applications to insure the Yacht.

In August 1997, several months before the purchase, Cassin

applied for financing from Trident Funding Corporation

(“Trident”). In a letter to Trident, Cassin acknowledged that

Falk would only receive $400,000 at closing, but nevertheless

requested financing for “80% of the $600K purchase price,” or

$480,000. App. 189. He explained that in 1995 (two years

before Falk listed the Yacht for sale with Southern Trades), he

acquired a one-third interest in the Yacht from Falk, his “friend

and business partner.” App. 189. A “down payment of

$120,000” for the purchase of the Yacht, Cassin wrote, “will
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come out of [his] existing share of the boat ($200K).” Id.

Finally, “[a]t closing, Magnus Falk will receive $400,000 less

Bob Carson’s 10% commission on the $400K, and I will receive

$80,000 to recapture the remainder of my equity.” Id. Trident

eventually agreed to finance $400,000 of the purchase price. 

After the initiation of this action, and in response to an

interrogatory from AGF, Cassin provided a different account of

his negotiations for the Yacht. He stated that “[a]ll negotiations

for purchase of the vessel were conducted by Mr. Bob Carson of

Southern Trades. . . . I never had a direct conversation with Mr.

Falk or communicated personally with him in any way until

after the purchase transaction was completed.” App. 186. In

addition, contrary to his representations to Trident that he

acquired the equity in 1995, Cassin stated that the equity was

assigned as “part of the Purchase Agreement which Mr. Falk

agreed to and signed before witnesses. It was a component of

the deal.” App. 187. To explain the transfer of the $200,000

equity, Cassin stated that “[i]t was my understanding from Mr.

Carson that Mr. Falk had agreed to cede me a $200K equity in

the vessel in order to be able to net $400,000 from its sale.”

App. 186. In response to a different interrogatory asking for an

explanation for the $200,000 equity, Cassin stated “I was not

given any ‘reason(s)’ why Mr. Falk agreed to assign us a

$200,000 equity position in the yacht.” App. 187. 

The deal between Cassin and Falk for purchase of the

Yacht closed on December 4, 1997. Thereafter, Cassin insured

the Yacht from December 1997 through March 2000 on three

successive insurance policies, each time for approximately

$600,000. None of these policies were with AGF, the plaintiff

in this case. On March 30, 2000, Theodore Tunick & Company
1

The parties dispute whether Tunick was Cassin’s agent

or AGF’s agent. We need not resolve this dispute to dispose of

the case.

2

While Tunick contacted Cassin to renew his insurance,

AGF had never before insured Cassin or the Yacht.

-6-

(“Tunick”) sent Cassin a letter indicating that his insurance

policy was about to end, and offering a “renewal indication”

which listed certain terms for a new insurance policy. App.

241.1

 The renewal indication stated that the policy form would

be “TLD/4/COM,” which is the insurance policy that Cassin

ultimately received from AGF.2

 Id. The letter from Tunick also

stated that “form TLD/4/COM contains certain limitations and

exclusions . . . . A full copy of the policy form is available upon

request.” Id. Cassin completed an application for renewal on

March 30, 2000, and submitted it to Tunick. On the application,

in the space requesting “Purchase Price,” Cassin wrote

“$600,000.” App. 150. Tunick then submitted the application

to TL Dallas, an underwriting agent. TL Dallas presented the

application to AGF on April 4, 2000, and AGF bound coverage

to Cassin for the Yacht from April 1, 2000 to April 1, 2001. 

Two months later, on June 5, 2000, Cassin received a

three-page insurance binder (“Binder”) from Tunick, in which

AGF is listed as “Company” and Tunick is listed as “Producer.”

App. 306. The Binder included the following statement at the

top of the front page: “THIS BINDER IS A TEMPORARY

INSURANCE CONTRACT, SUBJECT TO THE

CONDITIONS SHOWN ON THE REVERSE SIDE.” App.

306 (emphasis in original). On the reverse side, in a section
3

At the time the Yacht sank, it was securing debts to CIT

($390,000) and United States of America Small Business

Administration ($170,000). Both creditors intervened in the

District Court, but only CIT joined Cassin’s appeal. 

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entitled “Conditions,” the Binder states that “[t]he Insurance is

subject to the terms, conditions and limitations of the policy(ies)

in current use by the Company. . . . This binder is cancelled

when replaced by a policy.” App. 307. The Binder also makes

one explicit reference to Citi Group/Sales Financing, Inc.

(“CIT”), Trident’s successor and a first priority lienholder on the

vessel, listing it as a “Loss Payee.” App. 308.3

 The Binder does

not contain a choice of law provision.

Approximately five and a half months after AGF began

insuring the Yacht, TL Dallas, on behalf of AGF, sent Tunick an

insurance policy (“Policy”) marked “TLD/4/COM,” which was

the form code specified in the March 30 renewal indication.

App. 402-418. Tunick forwarded the Policy to Cassin on

October 11, 2000, which was the first time that Cassin saw the

Policy. 

On November 5, 2000, the Yacht sank in 600 meters of

water off the coast of Grenada after it allegedly collided with a

semi-submerged container. Cassin subsequently filed a claim on

the Policy. On March 7, 2001, after AGF investigated Cassin’s

claim, AGF filed the complaint in the present action, alleging

that the Policy was void from its inception because Cassin

misstated the purchase price in his original insurance

application. 

After extensive discovery by the parties, the District
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Court granted AGF’s motion for summary judgment as to both

Cassin and CIT. The District Court noted that under the

Policy’s choice of law provision, “any dispute arising [under the

Policy] shall be adjudicated according to well established,

entrenched principles and precedents of substantive United

States Federal Admiralty law,” when they exist. AGF Marine

Aviation & Transport v. Cassin, No. 2001-49, 2007 WL 309948,

at *4 (D.V.I. January 22, 2007). Next, the District Court

concluded that the doctrine of uberrimae fidei, which “requires

that an insured fully and voluntarily disclose to the insurer all

facts material to a calculation of the insurance risk,” is an

“entrenched federal precedent,” and therefore applies to this

dispute pursuant to the Policy’s choice of law provision. Id. at

*2, *4 (quoting HIH Marine Servs., Inc. v. Fraser, 211 F.3d

1359, 1362 (11th Cir. 2000)). Moreover, the District Court

found that the purchase price for the Yacht was only $400,000,

and that Cassin’s statement to the contrary on the insurance

application was a material misrepresentation in violation of

uberrimae fidei, permitting AGF to void the Policy from its

inception. Finally, the District Court determined that CIT could

not recover under the Policy independently of Cassin.

Cassin and CIT appeal. They argue that the Policy, and

its choice of law provision, do not apply to this dispute; that

uberrimae fidei is not firmly entrenched federal admiralty law;

and that this Court must remand for a trial under Virgin Islands

law, which does not apply the doctrine of uberrimae fidei to

marine insurance disputes. In addition, CIT argues that it is an

additional insured under the policy, permitting it to recover

regardless of whether Cassin breached the duty of utmost good

faith.
-9-

The District Court had subject matter jurisdiction

pursuant to 48 U.S.C. § 1612(a), which provides the District

Court of the Virgin Islands with the same jurisdiction as district

courts of the United States. In New England Mut. Marine Ins.

v. Dunham, 78 U.S. 1 (1870), the Supreme Court recognized

marine insurance contracts as within the federal courts’ maritime

jurisdiction. See also Wilburn Boat Co. v. Fireman’s Fund Ins.

Co., 348 U.S. 310, 313 (1955) (“Since the insurance policy here

sued on is a maritime contract the Admiralty Clause of the

Constitution brings it within federal jurisdiction.”).

 The District Court granted the plaintiff’s motion for

summary judgment, which was a final judgment; thus, we have

jurisdiction pursuant to 28 U.S.C. § 1291. For the following

reasons, we will affirm the District Court’s dismissal. 
4

Because the Binder did not have a choice of law

provision, if it were in effect we would follow the choice of law

analysis set forth by the Supreme Court in Wilburn Boat; that is,

we would apply well established principles of federal admiralty

law to resolve this dispute, but if none existed, we would apply

state law as the federal rule of decision. 348 U.S. at 313;

Calhoun v. Yamaha Motor Corp., 40 F.3d 622, 628 (3d Cir.

1994). As discussed in greater detail below, the first step of the

Wilburn Boat analysis, determining whether there is a well

established principle of federal admiralty law that controls the

dispute, is mirrored in the choice of law provision contained in

the Policy eventually issued to Cassin: “It is hereby agreed that

any dispute arising hereunder shall be adjudicated according to

well established, entrenched principles and precedents of

substantive United States Federal Admiralty law.” App. 411.

Hence, it is the second part of the Wilburn Boat analysis that

differs from the Policy’s choice of law provision. While the

Policy selects New York law as the federal rule of decision

absent applicable federal admiralty law, the appellants contend

that we would apply Virgin Islands law under the Wilburn Boat

analysis. Importantly, the appellants contend that Virgin Islands

law is favorable to them, because to void a policy under Virgin

Islands law, an insurance company must show that the insured

not only made a material misrepresentation, but intended to

make the misrepresentation. 

-10-

II.

Cassin and CIT argue that at the time the Yacht sank the

Binder, and not the Policy, was in effect.4

 Contrary to Cassin

and CIT’s contentions, we conclude that the Policy was in effect
-11-

at the time the Yacht sank.

 As described above, Cassin applied for insurance on

March 30, 1997, to begin two days later on April 1, 1997. On

April 4, 1997, AGF bound coverage for Cassin. As described in

the Binder that Cassin received on June 5, the Binder was a

temporary agreement, “subject to the terms, conditions and

limitations of the policy(ies) in current use by the Company,”

and was “cancelled when replaced by a policy.” App. 307.

Hence, the Binder issued to Cassin signaled an intent to conform

with the textbook understanding of a binder as “[a] temporary

contract of insurance . . . intended to give the applicant

protection pending the execution and delivery of a formal

written policy.” 16 Richard A. Lord, Williston on Contracts §

49:53, at 428 (4th ed. 2000); id. at 431 (“The binder overcomes

the general rule that there is no coverage without the issuance of

a policy.”); 1A Lee R. Russ & Thomas F. Segalia, Couch on

Insurance 3d § 13:1, at 13-2 (1995) (“[I]nsurance companies

often issue a ‘binder,’ also called ‘temporary’ or ‘preliminary’

insurance, upon application for insurance or payment of the first

premium, which covers the applicant until the insurance

company’s investigation of his or her insurability can be

completed and a policy issued or the risk refused.”). As an

interim contract, a binder does not necessarily include all of the

terms of an agreement to insure; rather, “the legal rights and

duties of the contracting parties that are not covered by the

provisions of the binder, or otherwise, must be determined by an

inspection of the terms of the written policy which the parties

expected would be issued.” Williston § 49:53, at 429; Couch §

13:8, at 13-20 (“[T]erms not specified in the binder are, under

ordinary circumstances, to be found in the policy, particularly

where the application or binder incorporates such terms by
-12-

reference.”). 

Tunick’s March 4 letter to Cassin advised that “coverage

form TLD/4/COM contains certain limitations and exclusions”

and that a “full copy of the policy form is available upon

request.” App. 241. The Binder explicitly warned that it was

“subject to the terms, conditions and limitations of the

policy(ies) in current use by the Company.” App. 307.

Moreover, the traditional understanding regarding the formation

of contracts to insure is consistent with both the March 4 letter

and the Binder. Yet neither Cassin nor CIT ever requested to

see AGF’s standard insurance policies. Under these

circumstances, we conclude that the Binder was replaced by the

Policy, which was issued in accordance therewith.

Cassin and CIT argue that the Policy could not replace

the Binder in this case because the Policy was not issued until

September or October 1997, five to six months after coverage

began. However, we conclude that the time between issuance

of the Binder and the Policy, which was explicitly contemplated

in the Binder, did not render the Policy inapplicable. The

appellants also argue that the Policy conflicts with the Binder,

because the Policy contains a choice of law provision and the

Binder does not. We disagree. The absence of a choice of law

provision in the Binder does not create an inconsistency. In fact,

the Binder signaled that there would be provisions in the Policy

that were not explicit in the Binder. See Couch § 13:8, at 13-20

(noting that a binder “merge[s] in the terms and conditions of

the written policy issued in accordance therewith”). Therefore,

the Policy, and its choice of law provision, was in effect at the
5

CIT argues that because it never received notice of the

Policy, which was sent only to Cassin, the changes effected

therein cannot apply to CIT. It references the “Evidence of

Property Insurance” form prepared the day after the Binder,

which labels CIT a “Loss Payee” and indicates that CIT would

be notified “of any changes to the policy.” App. 309. However,

as we conclude that the Policy is consistent with the Binder, no

notification was required.

-13-

time the Yacht sank, and governs this dispute.5 

III.

The Insurance Policy’s choice of law provision stated: 

It is hereby agreed that any dispute arising

hereunder shall be adjudicated according to well

established, entrenched principles and precedents

of substantive United States Federal Admiralty

law and practice but where no such well

established, entrenched precedent exists, this

insuring agreement is subject to the substantive

laws of the state of New York. 

App. 411. The plain language of this provision requires that we

determine whether there are any entrenched principles of

admiralty law that would control the dispute. The relevant

principle to consider is uberrimae fidei. 

The doctrine of uberrimae fidei imposes a duty of the

utmost good faith and requires that parties to an insurance

contract disclose all facts material to the risk. If an insured
6

While we have not evaluated how to determine when a

rule is “judicially established” so as to be the rule of decision,

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defaults on this duty, the contract may be avoided by the insurer.

See Certain Underwriters at Lloyds, London v. Inlet Fisheries

Inc., 518 F.3d 645, 648 (9th Cir. 2008); HIH Marine Servs., 211

F.3d at 1363; Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 13 (2d

Cir. 1986). A party’s intent to conceal, or lack thereof, is

irrelevant to the uberrimae fidei analysis. See Steelmet, Inc. v.

Caribe Towing Corp., 747 F.2d 689, 695 (11th Cir. 1984)

(holding that a material misrepresentation, even if it is a result

of “mistake, accident, or forgetfulness, is attended with the

rigorous consequences that the policy never attaches and is

void”) (internal quotation marks omitted). The only thing that

matters is the existence of a material misrepresentation. 

The Policy’s choice of law provision mandates that we

look to “well established, entrenched principles and precedents

of substantive United States Federal Admiralty law.” App. 411.

Yet, as we mentioned above in footnote 4, we see no difference

between this mandate and the analysis we would undertake

pursuant to Wilburn Boat in the absence of a choice of law

provision. See Wilburn Boat, 348 U.S. at 313 (noting that even

if a contract dispute falls under this Court’s admiralty

jurisdiction, “it does not follow . . . that every term in every

maritime contract can only be controlled by some federally

defined admiralty rule”); Calhoun, 40 F.3d at 627-28 (discussing

Wilburn Boat and comparing the relationship between state and

federal law in admiralty cases to their relationship in preemption

cases such as Clearfield Trust Co. v. United States, 318 U.S. 363

(1943), and its progeny).6

 
Wilburn Boat, 348 U.S. at 314, other Circuits have. The Ninth

Circuit requires that a “rule be sufficiently longstanding and

accepted within admiralty law that it can be said to be

‘established.’” Inlet Fisheries, 518 F.3d at 650. The Fifth

Circuit requires the admiralty rule to be “entrenched federal

precedent.” Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882,

888 (5th Cir. 1991). Meanwhile, the Second Circuit looks to

whether the rule is “well established,” Puritan Ins. Co. v. Eagle

S.S. Co. S.A., 779 F.2d 866, 870 (2d Cir. 1985), and the

Eleventh Circuit determines whether the rule is “well settled,”

Steelmet, Inc., 747 F.2d at 695. While these Circuits might

differ somewhat on the precise language they use, the idea

behind the analysis is consistent, and directs what we must do in

the present dispute.

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We have previously held, in a case decided after Wilburn

Boat, that “in the maritime context a boat owner must meet its

duty of uberrimae [fidei].” East Coast Tender Serv., Inc. v.

Robert T. Winzinger, Inc., 759 F.2d 280, 284 n.3 (3d Cir. 1985)

(concluding that while uberrimae fidei is applicable, the

insured’s “behavior is consistent with the notion of ‘utmost good

faith’”). The majority of our sister circuits to decide the issue

are in agreement that uberrimae fidei controls in maritime

insurance disputes. See Puritan Ins. Co., 779 F.2d at 870 (2d

Cir.) (“It is well established that the parties to a marine

insurance contract are held to the highest degree of good faith[,]

uberrimae fidei.”); Inlet Fisheries, 518 F.3d at 654 (9th Cir.)

(“Following the framework of Wilburn Boat, we hold that the

longstanding federal maritime doctrine of uberrimae fidei, rather

than state law, applies to marine insurance contracts.”); HIH

Marine Servs., 211 F.3d at 1362 (11th Cir.) (“It is well-settled
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that the marine insurance doctrine of uberrimae fidei is the

controlling law of this circuit.”). 

Meanwhile, the First Circuit has questioned whether

uberrimae fidei is well established, but has declined to decide

the issue. See Commercial Union Ins. Co. v. Pesante, 459 F.3d

34, 38 (1st Cir. 2006) (declining to decide issue, because even

under state law, the facts of the case made the policy voidable);

Windsor Mt. Joy Mut. Ins. Co. v. Giragosian, 57 F.3d 50, 54

(1st Cir. 1995) (declining to decide issue, because even under

uberrimae fidei, the insurer would not be able to avoid the

policy).

The Fifth Circuit is the only circuit to disavow the

doctrine of uberrimae fidei as “not ‘entrenched federal

precedent.’” Anh Thi Kieu, 927 F.2d at 889. In Anh Thi Kieu,

the Fifth Circuit reversed the course it had taken in previous

cases. See Fireman’s Fund Ins. Co. v. Wilburn Boat Co., 300

F.2d 631, 647 n.12 (5th Cir. 1962) (declaring that uberrimae

fidei “is solidly entrenched in our body of federal maritime

law”). Despite a lengthy exposition of the history of the

doctrine of uberrimae fidei, going back 200 years, the opinion

concluded that recent application had been “spotty” and

uberrimae fidei “is entrenched no more.” Anh Thi Kieu, 927

F.2d at 889-90.

The Fifth Circuit’s position has been criticized quite

heavily, most recently by the Ninth Circuit in Inlet Fisheries.

See 518 F.3d at 652-53. It also contradicts the general sentiment

in scholarly literature. See Thomas J. Schoenbaum, Admiralty

and Maritime Law 297 (4th ed. 2004); Graydon S. Staring &

George L. Waddell, Marine Insurance, 73 Tul. L. Rev. 1619,

1651 (1999); Mitchell J. Popham & Chau Vo, Misrepresentation
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and Concealment in Marine Insurance Contracts: An Analysis

of Federal and State Law Within the Ninth Circuit, 11 U.S.F.

Mar. L.J. 99, 108-12 (1998-1999); Thomas J. Schoenbaum, The

Duty of Utmost Good Faith in Marine Insurance Law: A

Comparative Analysis of American and English Law, 29 J. Mar.

L. & Com. 1, 11-13 (1998).

In the face of this general agreement regarding uberrimae

fidei’s status as entrenched federal admiralty law, Cassin and

CIT argue that the mere fact that there is a circuit split prevents

a holding that uberrimae fidei is firmly entrenched. However,

they fail to address the fact that our Circuit has already held that

uberrimae fidei applies to maritime insurance contracts. See

East Coast Tender Serv., 759 F.2d at 284 n.3. We reaffirm our

prior precedent, and conclude that the doctrine of uberrimae

fidei is well entrenched and therefore controls this dispute.

IV.

Having determined that uberrimae fidei applies to the

insurance policy issued to Cassin, we now determine whether

Cassin made a material misrepresentation. Cassin argues that

there are outstanding questions of fact regarding whether he

misrepresented the purchase price, and if so, whether such a

misrepresentation was material.
7

There is no survey in the record from 2000, the year

AGF insured the Yacht.

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A.

The District Court concluded that Cassin failed “to offer

any specific facts that place in dispute that the amount paid for

the [Yacht] was anything more than $400,000.” Cassin, 2007

WL 309948, at *5. In particular, the District Court relied on the

fact that all involved parties concede that the only monetary

value exchanged was $400,000. The District Court was

unpersuaded by Cassin’s argument that the purchase price

included a $200,000 equity stake in the Yacht, which was “at

best a benefit that flowed from Falk to Cassin” without

consideration. Id. Therefore, the District Court held that Cassin

misstated the purchase price.

Cassin and CIT concede that only $400,000 in monetary

value was exchanged. But they insist that the purchase price

was $600,000, because that is the price listed on the “Purchase

and Sale Agreement.” Appellant’s Br. at 1. They also point to

surveys from 1997 and 1998, which valued the Yacht at

$600,000.7

We are unpersuaded by the appellants’ arguments. The

record does not contain any deed transferring the $200,000

equity stake from Falk to Cassin. Moreover, Cassin’s

explanations regarding the equity transfer are so incompatible

with one another that no reasonable juror could conclude that

the $200,000 equity was ever transferred to Cassin. Cassin told

Trident, months before the Purchase and Sale Agreement was

signed, that he already had a $200,000 stake in the Yacht. In
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fact, he represented that he acquired the equity in 1995, two

years before he applied for financing. The $200,000 equity in

the boat, according to Cassin, was transferred irrespective of the

ultimate sale of the Yacht. Yet in response to interrogatories,

Cassin argued that Falk transferred $200,000 in equity as part of

the Purchase and Sale Agreement. Cassin struggled to explain

what consideration was exchanged for the equity. He suggested

in one interrogatory that the equity allowed Falk to earn

$400,000 on the boat, which we take to mean that the market

value for the boat was only $400,000. In response to another

question, he stated that no reason was provided. 

We agree with the District Court that the evidence in the

record leaves no question as to the dubious nature of the

$200,000 equity and that the purchase price was $400,000.

Cassin misrepresented the purchase price to Trident in his

application for financing and has continued to misrepresent the

purchase price.

B.

We still must determine whether that misrepresentation

was material. The question of materiality must be viewed from

the perspective of a reasonable person in the insured’s position.

See Knight, 804 F.2d at 13. The Second Circuit has defined

material facts in the uberrimae fidei context as “something

which would have controlled the underwriter’s decision to

accept the risk.” Id. at 13 (citations and quotation marks

omitted). The Ninth Circuit has held more broadly that “[t]he

fact that the insurer has demanded answers to specific questions

in an application for insurance is in itself usually sufficient to

establish materiality as a matter of law.” Freeman v. Allstate

Life Ins. Co., 253 F.3d 533, 536 (9th Cir. 2001) (citation
-20-

omitted); see also N.H. Ins. Co. v. C’Est Moi, Inc., 519 F.3d

937, 939 (9th Cir. 2008). Black’s Law Dictionary, meanwhile,

defines “material” as “of such a nature that knowledge of the

item would affect a person’s decision-making; significant;

essential.” Black’s Law Dictionary 998 (8th ed. 2004); see also

L. Buglass, Marine Insurance and General Average in the

United States 24 (2d ed. 1981) (stating that a material fact is one

that “would influence the judgment of a prudent insurer in fixing

the premium, or determining whether he will take the risk”). 

We believe that the Knight definition of materiality is too

narrow. A fact need not “control” an underwriter’s decision to

be material, as the term is usually understood. On the other

hand, we conclude that the Ninth Circuit’s formulation is more

broad than necessary to resolve this dispute. For example, the

misrepresentation of an applicant’s middle initial on a marine

insurance application, without more, would not violate

uberrimae fidei. Nevertheless, we are persuaded by the Ninth

Circuit’s more limited statement regarding purchase price: “The

purchase price of a vessel ‘is unquestionably a fact material to

the risk,’ as it provides an objective measure of the vessel’s

worth and the corresponding risk of insuring the vessel.” C’Est

Moi, Inc., 519 F.3d at 939 (quoting Certain Underwriters at

Lloyd’s v. Montford, 52 F.3d 219, 222 (9th Cir. 1995)). 

Cassin and CIT contend that the value of the Yacht is a

much more important indicator of the insurance risk, and two

appraisals valued the Yacht at $600,000. However, those

appraisals were from 1997 and 1998, two years before AGF

began insuring the Yacht. More importantly, while a Yacht’s

valuation may entail subjective considerations, the “purchase

price . . . can be presumed to be objective because it was arrived
8

Cassin suggests that AGF should be prohibited from

benefitting from uberrimae fidei because it acted in bad faith by

returning Cassin’s premiums after the Yacht sank, “in a

deceptive attempt to void [the] policy.” Appellant’s Br. 27.

While uberrimae fidei requires the utmost good faith on the part

of both insured and insurer, the record makes clear that AGF did

not breach that duty. AGF explicitly disclosed its intention to

void the Policy in its complaint, filed March 7, 2001, before the

return of any premiums.

9

The parties agree that there is no well established federal

admiralty principle governing this issue. Therefore, pursuant to

the choice of law provision, we will apply New York law.

10CIT argues that it was an “additional insured” under the

Binder. However, the Binder explicitly categorizes CIT as a

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at through arm’s length negotiations between parties with

opposing interests.” C’Est Moi, Inc., 519 F.3d at 940. We

conclude that when a marine insurer asks for the purchase price,

it is a fact material to the risk, the misrepresentation of which

violates uberrimae fidei. As Cassin misrepresented the purchase

price of the Yacht, the Policy was voidable ab initio, relieving

AGF of the duty to satisfy Cassin’s claim.8

V.

Finally, CIT argues that it may recover under the Policy

despite Cassin’s misrepresentation.9

 CIT conceded at oral

argument that under New York law a loss payee is not protected

independently of the insured, absent a clause to that effect in an

insurance policy.10 See Wometco Home Theatre, Inc. v.
“Loss Payee.” See App. 308. A document prepared the day

after the Binder, entitled “Evidence of Property Insurance,” also

explicitly categorizes CIT as “Loss Payee.” See App. 309.

While the first page of the Binder has a checked box next to

“Additional Insured,” CIT is not listed in the space provided.

Rather, CIT is unambiguously listed as a “Loss Payee.” 

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Lumbermens Mut. Cas. Co., 97 A.D.2d 715, 716 (N.Y. App.

Div. 1983) (“In the absence of a provision that the insurance

policy shall not be invalidated by any act or neglect of the

insured, a ‘loss payee’ is not itself an insured under the policy;

it is merely the designated person to whom the loss is to be paid.

It is established that such a loss payee may only recover if the

insured could have recovered.” (citations omitted)). CIT also

conceded that there is no such clause in the Policy. Because we

conclude that the Policy was in effect at the time the Yacht sank,

and that CIT was at best a loss payee under the insurance policy,

it follows that CIT cannot recover under the Policy

independently of Cassin. We will therefore affirm the District

Court’s dismissal of CIT’s claims.

VI.

For the foregoing reasons, we will affirm the District

Court’s grant of summary judgment in favor of AGF.