Opinion ID: 3051098
Heading Depth: 3
Heading Rank: 1

Heading: uberrimae fidei as an established federal

Text: ADMIRALTY RULE [5] Wilburn Boat itself provides limited direction on how we are to determine whether a rule is “judicially established.” 1868 CERTAIN UNDERWRITERS v. INLET FISHERIES In Bohemia, we fleshed out our approach, explaining that “state law will control the interpretation of a marine insurance policy only in the absence of a federal statute, a judicially fashioned admiralty rule, or a need for uniformity in admiralty practice.” 725 F.2d at 510. In the Ninth Circuit, we require that the rule be sufficiently longstanding and accepted within admiralty law that it can be said to be “established.” Putting a slightly different spin on Wilburn Boat, the Fifth Circuit requires an admiralty rule be “entrenched federal precedent.” See Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882, 886 (5th Cir. 1991). Under either gloss, however, we have little doubt that the application of uberrimae fidei to marine insurance fits the bill. [6] Uberrimae fidei was first recognized in 1766 by Lord Mansfield, and was codified in English law in 1906. SCHOENBAUM § 17-14, n.1; English Mar. Ins. Act 1906. Writing for the Court, Justice Story incorporated the rule into American maritime insurance law in 1828: “The contract of insurance, is one of mutual good faith; and the principles which govern it, are those of an enlightened moral policy. The underwriter must be presumed to act upon the belief, that the party procuring insurance, is not, at the time, in possession of any fact material to the risk, which he does not disclose.” McLanahan, 26 U.S. at 176. The roots of the uberrimae fidei doctrine, then, are deeply embedded in American law, having had almost 200 years to take hold. Not only is uberrimae fidei longstanding, but at the time Wilburn Boat was decided, few maritime insurance doctrines were more uniformly accepted in admiralty law. Wilburn Boat did nothing to change the standing of this doctrine. Notably, the Supreme Court in Wilburn Boat expressed a reluctance for federal courts to fashion new admiralty rules, not a desire to do away with existing ones. [7] Following Wilburn Boat, we have never directly addressed whether uberrimae fidei or state insurance law CERTAIN UNDERWRITERS v. INLET FISHERIES 1869 applies in marine insurance cases. Nonetheless, we have repeatedly acknowledged uberrimae fidei as part of admiralty law. See, e.g., Sentry Select Ins. Co. v. Royal Ins. Co. of Am., 481 F.3d 1208, 1220 (9th Cir. 2007) (“Because admiralty jurisdiction does not extend to [this case] . . . . we do not apply the federal maritime doctrine of uberrimae fidei.”); Cigna Prop. & Cas. Ins. Co. v. Polaris Pictures Corp., 159 F.3d 412, 420, n.3 (9th Cir. 1998) (“[U]berrimae fidei exists under both California insurance law, and federal admiralty law.”) (internal citation omitted). Indeed, because uberrimae fidei has been incorporated into the laws of several of the states within this circuit, whether to apply federal or state law often makes no difference. For example, as noted in Cigna Property, California has codified the doctrine. See Cigna Prop., 159 F.3d at 420, n.3. Oregon and Alaska also have enacted provisions exempting most traditional marine insurance from their statutes governing standards for other types of insurance. See OR. REV. STAT. § 742.001; ALASKA STAT. § 21.42.010. Other circuits have noted the continuing vitality of uberrimae fidei following Wilburn Boat.2 For example, the Second Circuit has repeatedly applied the doctrine. In Ingersoll Milling Machine Co. v. M/V Bodena, 829 F.2d 293 (2d Cir. 1987), the court considered whether an insurance policy was voidable under uberrimae fidei where the shipper hired by the insured breached his contract by improperly stowing the insured cargo. The court held that under uberrimae fidei, there 2 The First Circuit has considered and twice declined to formally decide whether uberrimae fidei applies in light of Wilburn Boat. See Commercial Union Ins. Co. v. Pesante, 459 F.3d 34, 38 (1st Cir. 2006) (declining to formally decide whether uberrimae fidei was an established admiralty rule, 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) (concluding it was not necessary to decide whether uberrimae fidei is “an established rule of maritime law . . . applicable to the dispute at bar,” because even under that doctrine, given the facts of the case, the insurer would have had no basis for voiding the policy). 1870 CERTAIN UNDERWRITERS v. INLET FISHERIES was no duty for the insured to notify the insurer, because there was no change to the circumstances affecting the risk. Id. at 308. In voiding a marine insurance policy for failure to disclose the cancellation of a prior policy, the court in Knight v. U.S. Fire Insurance Co., 804 F.2d 9 (2d Cir. 1986), said “[i]t is well-established under the doctrine of uberrimae fidei that the parties to a marine insurance policy must accord each other the highest degree of good faith.” Id. at 13; see also Puritan Ins. Co. v. Eagle S.S. Co., 779 F.2d 866 (2d Cir. 1985) (holding uberrimae fidei applicable to marine insurance policies). The Eleventh Circuit is in accord and has succinctly stated that “[i]t is well-settled that the marine insurance doctrine of uberrimae fidei is the controlling law of this circuit.” HIH Mar. Serv., 211 F.3d at 1362; see also King v. Allstate Ins. Co., 906 F.2d 1537 (11th Cir. 1990) (holding that parties can contract around uberrimae fidei). Until 1991, the Fifth Circuit, too, fit neatly within this pattern. On remand in Wilburn Boat, the court of appeals — although not using the term uberrimae fidei — held that “[n]othing is better established in the law of marine insurance than that ‘a mistake or commission material to a marine risk, whether it be wilful or accidental, or result from mistake, negligence or voluntary ignorance, avoids the policy. And the same rule obtains, even though the insured did not suppose the fact to the [sic] material.’ ” Fireman’s Fund Ins. Co. v. Wilburn Boat Co., 300 F.2d 631, 646 (5th Cir. 1962) (“Wilburn Boat II”) (citing 3 Couch Insurance at 2568). Because Texas law also appeared to embrace the principle, the court assumed that the doctrine applied without formally deciding the choice of law question, but noted: [t]here is good reason behind appellant’s argument that federal maritime law, rather than state law, governs [the] issue. Appellant contends, and we agree, that [Wilburn Boat] merely held that state law is to CERTAIN UNDERWRITERS v. INLET FISHERIES 1871 be applied in the field of marine insurance only where ‘entrenched federal precedent is lacking’ with respect to a specific issue. . . . Since the above stated rule of concealment in marine insurance is solidly entrenched in our body of federal maritime law [citing McLanahan], it would seem that this rule should apply in the instant case. Id. at 647 n.12. The Fifth Circuit came to the same conclusion just seven years later in Gulfstream. Again, declining to decide the issue, because Florida state law embraced the same rule, the court held “[w]ith much ground for echoing the Court’s conclusion . . . expressed [in Wilburn Boat II], we again find it unnecessary to resolve the point further.” Gulfstream, 409 F.2d at 981. The court went on to observe that “[a]ll the precedents agree with the general rule as stated above.” Id. (citing Corpus Juris Secundum, Black’s Law Dictionary, and numerous treatises). Then, in 1991, the Fifth Circuit abruptly changed course, disclaiming this overwhelming body of precedent both within and without its own circuit. In Anh Thi Kieu, the court concluded, “albeit with some hesitation, that the uberrimae fidei doctrine is not ‘entrenched federal precedent’ ” and held that while “[p]erhaps the doctrine was ‘entrenched federal precedent’ at the time of the [Wilburn Boat II] and [Gulfstream] decisions, . . . the uberrimae fidei doctrine is entrenched no more.” Anh Thi Kieu, 927 F.2d at 889-90. Ironically, were it not for the Anh Thi Kieu decision itself, there would be little cause at all to doubt that uberrimae fidei is indeed firmly entrenched maritime law. To determine whether uberrimae fidei controlled, the Fifth Circuit applied a three-factor test of its own creation: “(1) whether the federal maritime rule [in that case, uberrimae fidei] constitutes ‘entrenched federal precedent’; (2) whether 1872 CERTAIN UNDERWRITERS v. INLET FISHERIES the state has a substantial and legitimate interest in the application of its law; [and] (3) whether the state’s rule is materially different from the federal maritime rule.” Id. at 886. After determining that Texas state insurance law was not materially different from uberrimae fidei3 and finding that Texas had a material interest in application of its law,4 the court finally turned to whether uberrimae fidei was an entrenched federal precedent, and held it was not. Id. at 887-890. With all three 3 Unlike the doctrine of uberrimae fidei, Texas law required the insurer to show the insured’s misrepresentations and omissions were intended to deceive. Nonetheless, the court decided “[t]he fundamental nature of both laws . . . is the same,” because “Texas insurance law shares the concern of federal maritime law that an assured should not profit from her material misrepresentations to the underwriter.” Anh Thi Kieu, 927 F.2d at 887. While both laws do share this concern — as do most, if not all, insurance laws — the ways in which they address it are materially different, and the Fifth Circuit has been criticized for not acknowledging this point. Popham at 110-11 (“With regard to the third factor, the Fifth Circuit erroneously equated the standards of ‘materially different’ and ‘reasonably similar’ in finding that Texas law applied.”). 4 By explicitly taking the state’s interest in applying its own law into account in determining whether federal law is entrenched, the Fifth Circuit’s test inevitably tips the scales in favor of applying state law, as this factor almost always weighs in favor of state law. This factor appears to be derived from Kossick v. United Fruit Co., in which the Supreme Court held that state law ought to be applied to maritime contracts where its application “would not disturb the uniformity of maritime law.” 365 U.S. 731, 738 (1961). In that case, however, the Supreme Court specifically distinguished the inquiry from that under Wilburn Boat, saying “[n]or is [Wilburn Boat] apposite. The application of state law in that case was justified by the Court on the basis of a lack of any provision of maritime law governing the matter there presented.” Id. at 742. At most, then, Kossick sets forth an exception to Wilburn Boat’s general rule for instances where an application of a peculiarly local rule would have no effect on the uniformity of maritime law in general. See Bohemia, 725 F.2d at 510 (“Our decisions rely on Wilburn Boat and Kossick which, when read together, hold that state law will control . . . only in the absence of a federal statute, a judicially fashioned admiralty rule, or a need for uniformity in admiralty practice.”) (citations omitted). Notably, in Kossick, the Supreme Court decided that New York’s statute of frauds was not such a rule and that admiralty law applied. CERTAIN UNDERWRITERS v. INLET FISHERIES 1873 factors weighing in favor of state law, the court applied Texas law. Id. at 890. The Fifth Circuit’s analysis of whether uberrimae fidei is widely entrenched federal precedent is not persuasive. First, the court admitted that the question of entrenchment “is troublesome.” Id. at 888. The court went on to state that “the sole remaining substantial vestige of the doctrine is in maritime insurance law,” recited that the doctrine “is a rule which this Court has recognized but never applied,” noted that there were few cases discussing the availability of the doctrine post-Wilburn Boat, but acknowledged that those few confidently asserted the doctrine to be “well-recognized” in federal law, and then with “some hesitation” concluded “the uberrimae fidei doctrine is not ‘entrenched federal precedent.’ ” Id. at 888-89 (emphasis changed). This recitation of the long history of the rule of uberrimae fidei in maritime law bears out why the Fifth Circuit’s conclusion is indeed more than “troublesome.” The logic chain is not a comfortable fit. Despite nearly universal acceptance in maritime insurance law, the Fifth Circuit threw the doctrine overboard because of its “spotty application” in recent years. At least one commentator has suggested that this void in the case law reflected “[uberrimae fidei’s] unquestioned acceptance, rather than its abandonment.” Popham at 111. It does violence to the meaning of the term ‘entrenched’ to reason that because few cases have disputed the application of uberrimae fidei, it has somehow become unmoored or “unentrenched.” And, even the Fifth Circuit did not think its new rule should necessarily apply outside the context of that particular case. Anh Thi Kieu, 927 F.2d at 890, n.7 (“We need not at this time explore all of the situations in which application of the uberrimae fidei doctrine might be proper.”). [8] Not surprisingly, no other circuit has followed Anh Thi Kieu in the sixteen years since it was decided. In our view, in 1874 CERTAIN UNDERWRITERS v. INLET FISHERIES the face of 200 years of precedent, it takes more than a single circuit case and spotty citation in recent years to uproot an entrenched doctrine. [9] Whatever traction it might have, Anh Thi Kieu does not undermine our conclusion that “no rule of marine insurance is better established tha[n] the utmost good faith rule.” 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 (1998). 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. The parties offer a number of policy arguments for and against application of uberrimae fidei to marine insurance. Our role is not, however, to decide on the “best” rule for efficient and fair administration of marine insurance markets. In fact, it was precisely to avoid this sort of federal judicial policy-making that the Supreme Court in Wilburn Boat cautioned against the creation of new maritime rules by the courts. Our only task is to determine whether uberrimae fidei is already an established rule of federal maritime law or not. Because we hold that it is, we now look at its application in the context of this case. B. VESSEL POLLUTION INSURANCE AS MARINE INSURANCE [10] We next address whether marine insurance includes vessel pollution insurance and this policy in particular. Marine insurance is, simply, insurance against “the losses incident to the marine adventure.” SCHOENBAUM § 17-1 (quoting the British Marine Insurance Act, Edw. 7, ch. 41 § 1); see also Dunham, 78 U.S. at 30. Marine insurance generally has three “central conceptual elements:” (1) “it is a contract of indemnity against loss;” (2) “the indemnity . . . is only triggered by an accident or fortuity;” and (3) “the ‘adventure’ or CERTAIN UNDERWRITERS v. INLET FISHERIES 1875 peril insured against must be specifically maritime in character.” SCHOENBAUM § 17-2. [11] One type of insurance typifying marine insurance is protection and indemnity (“P&I”) insurance, which insures the shipowner against claims by third parties. Id. P&I insurance historically included pollution liability, but the expansion of such liability by modern statutes led many P&I insurers to exclude coverage for pollution damages and the Coast Guard to demand more insurance than P&I policies can provide. 9A COUCH ON INSURANCE 3D § 137:101 (Lee R. Russ & Thomas F. Segalla eds., 2005) (1995); Robert T. Lemon, Allocation of Marine Risks: An Overview of the Marine Insurance Package, 81 TUL. L. REV. 1467, 1486 (2007). [12] Vessel pollution policies mirror P&I policies in their general terms, but cover liability under the OPA and other environmental statutes. Id. at 1486-87. That vessel pollution insurance covers new statutory liabilities, occasioned by modern environmental legislation, does not alter the fact that the risks of incurring that liability stem from the same vagaries of marine life that have shaped maritime insurance law for centuries. Like traditional P&I insurance, vessel pollution insurance, or at least the policy in this case, covers vessel owners’ liabilities to third parties for marine incidents, namely pollution. Finally, it bears noting that vessel pollution insurance fits well within the general conception of marine insurance, as it is a contract of indemnity triggered by an event that is maritime in character. The policy language in this case best illustrates the maritime nature of the coverage. Coverage under the policy extends to “[l]iability . . . [under the OPA, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), and similar statutes] for a discharge of oil . . . into or upon the navigable waters or adjoining shorelines . . . of the United States,” provided that “the discharge, substantial threat of discharge, or release . . . was 1876 CERTAIN UNDERWRITERS v. INLET FISHERIES [among other requirements] sudden and was unintended and unexpected by the Assured . . . .” Inlet attempts to distinguish vessel pollution insurance from marine insurance by reference to Port of Portland v. WQIS, 796 F.2d 1188 (9th Cir. 1986). That case dealt with whether a policy offering “coverage tailored to liabilities created by the Federal Water Pollution Control Act (FWPCA), 33 U.S.C. §§ 1251-1376 (1982),” qualified as “wet marine” or “general marine” insurance under an Oregon statute. Port of Portland, 796 F.2d at 1191, 1195-96. Although the categories overlap, generally speaking, wet marine insurance relates to marine vessels, whereas general marine insurance, as defined in the statute and despite its name, covers losses associated with transportation generally, whether over land or water. Id. at 1196; see also OR. REV. STAT. § 731.194 (1985); OR. REV. STAT. § 731.174 (1985). [13] Inlet’s argument fails for two reasons. Significantly, our case does not concern the statutory classification of vessel pollution insurance under state law. Rather, the issue here is whether vessel pollution insurance falls within the boundaries of marine insurance in federal admiralty law, a question not resolved by reference to a state statutory scheme. Second, the policy Inlet purchased is very different from the one at issue in Port of Portland, where we made a point of distinguishing the specific policy from traditional P&I insurance, noting that “[t]raditional P&I policies cover oil pollution damage to third persons. [This] policy contains that coverage but the Port did not purchase it.” Port of Portland, 796 F.2d at 1196, n.4. That distinction is not, of course, an issue in Inlet’s coverage. For purposes of applying uberrimae fidei, we hold that the vessel pollution insurance policy issued to Inlet is appropriately characterized as marine insurance.