Opinion ID: 579835
Heading Depth: 3
Heading Rank: 2

Heading: Materiality of Cole's Misrepresentations or Omissions

Text: 22 Preliminarily, we note that the underwriters argue that the district court applied an incorrect legal standard to determine materiality. 5 We disagree. The district court's Determination discusses the immateriality of Cole's nondisclosures, and nothing there reveals that the court applied an incorrect legal standard. We therefore turn to the specific findings regarding materiality. 23 The court found that the Johnson-Cole agreement was not a typical arms-length transaction, and therefore the purchase price did not adequately reflect the Kingfisher's market value. This finding is not clearly erroneous. The court based the finding on the testimony of Cole, Johnson, and Johnson's son. Johnson, who wanted to retire, was desperate to sell the corporation owning the Kingfisher. Cole, who did not initiate the transaction, believed he was receiving a remarkable deal. Determination at 3. 24 Nor did the court clearly err in finding that Cole's failure to reveal the purchase price was not a material omission. Although a purchase price reflecting fair market value generally is material to an insurer, here the district court found that because the purchase price did not reflect market value it was not material. 25 The underwriters argue the district court clearly erred in finding Cole had no duty to reveal that he unsuccessfully attempted to sell the Kingfisher for $140,000. Again, we disagree. The lead underwriter in the sport fishing department testified that even if Cole had provided such information, it merely would have been noted on the record and it would not have affected either the premium or the decision to insure the vessel. Further, the listed sale price was not necessarily probative of the fair market value of the vessel; Cole testified that he wanted to sell it cheaply and quickly. 26 Hartford Insurance Co. v. Garvey, 1989 A.M.C. 652, cited by the underwriters, is inapposite. In Hartford, the defendant had listed his boat with a brokerage firm with an asking price of $112,500. Id. at 653. It had been surveyed at $125,000. Id. He thereafter sought to insure the boat for $150,000, and then falsely told the insurer the boat had never been surveyed. The court found that the market value of the vessel was no more than $112,500. Id. at 659. The court concluded that Garvey intentionally concealed a material fact regarding the market value of the vessel. 27 Here, the district court could have believed Cole's testimony that he offered the Kingfisher for sale for less than market value. Cole obtained insurance before he put the vessel up for sale. Further, a survey in Cole's possession which was approximately two years old listed the market value at $225,000, exactly the agreed value insured by the underwriters. 28 Finally, the underwriters argue that the lack of proper Coast Guard documentation and the names of all the licensed operators of the ship were material and that Cole failed to reveal this information. The district court, after finding that Cole did not intentionally misrepresent this information, implicitly found that these facts were immaterial to a reasonable insurer in bearing the risk or in setting the premium rate. Closing Argument, at 18 (Reprinted in Excerpts of Record, Tab 134) (I assume that [the lead underwriter] would have said, he should have sent me a report every time the toilet was flushed on the vessel). 29 The district court's findings here are not clearly erroneous. An insurer cannot expect the insured to report to it these relatively minor matters which do not affect the risk assumed.