Court Opinion

ID: 3051436
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:35:39.342655+00
Date Added: 2024-06-11T11:41:12.291435
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

NEW HAMPSHIRE INSURANCE CO.,                     No. 06-55031
                  Plaintiff-Appellee,
                 v.                                D.C. No.
                                                CV-05-00243-DOC
C’EST MOI, INC.,
                                                   OPINION
             Defendant-Appellant.
                                            
         Appeal from the United States District Court
            for the Central District of California
          David O. Carter, District Judge, Presiding

                    Argued and Submitted
             August 9, 2007—Pasadena, California

                       Filed March 20, 2008

 Before: Alex Kozinski, Chief Judge, Johnnie B. Rawlinson,
     Circuit Judge, and Miriam Goldman Cedarbaum,*
                    Senior District Judge.

                Opinion by Chief Judge Kozinski

   *The Honorable Miriam Goldman Cedarbaum, Senior United States
District Judge for the Southern District of New York, sitting by designa-
tion.

                                 2723
2726        NEW HAMPSHIRE INS. v. C’EST MOI, INC.
                         COUNSEL

Robert G. Dyer, Law Offices of Robert G. Dyer, San Diego,
California, for the defendant-appellant.

Neil S. Lerner and Benjamin A. Shapiro, Sands Lerner, Los
Angeles, California, for the plaintiff-appellee.

                          OPINION

KOZINSKI, Chief Judge:

  We consider the doctrine that’s on everyone’s lips: uberri-
mae fidei.

                             Facts

   Lawrence O’Rourke purchased C’Est Moi, Inc. (C’Est
Moi) in 1986, and became its president and sole shareholder.
As part of this purchase, O’Rourke acquired a yacht owned by
C’Est Moi, and subsequently insured it through Washington
International Insurance Co. (Washington International). A fire
destroyed the yacht in 1992, and Washington International
paid O’Rourke $450,000 for the loss. O’Rourke reacquired
the yacht from Washington International at salvage, paid off
a loan and began restoring it. Washington International
stopped insuring the yacht after the fire, and it remained unin-
sured until 2001, when C’Est Moi obtained insurance from
New Hampshire Insurance Company (NHIC).

  In 2004, the yacht sank in calm waters while docked at
Newport Beach, California. O’Rourke, on behalf of C’Est
Moi, filed an insurance claim. NHIC investigated and deter-
mined that the likely cause was a malfunctioning bilge pump.
NHIC then sued C’Est Moi to rescind the insurance policy,
and the district court granted summary judgment in favor of
             NEW HAMPSHIRE INS. v. C’EST MOI, INC.          2727
NHIC, holding that uberrimae fidei applied and that C’Est
Moi misrepresented material facts on its insurance applica-
tion. C’Est Moi appeals.

                           Analysis

   [1] 1. Uberrimae fidei is a “longstanding federal mari-
time doctrine” that “applies to marine insurance contracts.”
Certain Underwriters at Lloyds, London v. Inlet Fisheries
Inc., No. 06-35383, slip op. at 1857, 1874 (9th Cir. Feb. 11,
2008); see also Cal. Ins. Code § 1900. Uberrimae fidei “im-
poses a duty of utmost good faith,” Inlet Fisheries, slip op. at
1864, so “an applicant for a marine insurance policy is bound
to reveal every fact within his knowledge that is material to
the risk,” Cigna Prop. & Cas. Ins. Co. v. Polaris Pictures
Corp., 159 F.3d 412, 420 (9th Cir. 1998) (emphasis added).
If an insured fails to do so, the insurer may rescind the policy,
even if the material misrepresentation wasn’t intentional. Id.

  C’Est Moi argues that paragraph 10 of the insurance poli-
cy’s General Conditions and Exclusions section supersedes its
uberrimae fidei obligation by substituting a different, and
lower, standard:

    10. CONCEALMENT OR MISREPRESENTA-
    TION:

    Any relevant coverage(s) shall be voided if you
    intentionally conceal or misrepresent any material
    fact or circumstance relating to this insurance, or
    your insurance application, before or after a loss.

(Emphasis added.) C’Est Moi reads this clause as allowing
NHIC to rescind the insurance policy only for a material mis-
representation that is intentional.

 [2] It’s an open question in this circuit whether parties may
modify or eliminate an insured’s uberrimae fidei obligation
2728         NEW HAMPSHIRE INS. v. C’EST MOI, INC.
through terms in the insurance policy. However, if this were
possible at all, it would certainly require very clear policy lan-
guage, unequivocally disclosing a mutual intent to supersede
the insured’s common law obligation. Uberrimae fidei is a
well-entrenched doctrine that protects not merely the insurer
but also the integrity of the risk pool; only “an unambiguous
statement” in the policy, purporting to supersede the doctrine
in express terms, would be sufficient to accomplish that pur-
pose. T. 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, 13 (1998). The
clause here comes nowhere close: It does not mention uberri-
mae fidei or its colloquial equivalent, the “duty of utmost
good faith,” and it doesn’t purport to supersede other rights
and responsibilities that the parties may have vis-a-vis each
other by operation of law. In short, nothing in paragraph 10
of the policy indicates that it is meant to displace rights or
responsibilities imposed by operation of law rather than create
an additional set of rights and responsibilities.

   We acknowledge that the Eleventh Circuit in King v. All-
state Insurance Co., 906 F.2d 1537, 1539-41 (11th Cir. 1990),
held that a policy clause similar to paragraph 10 was suffi-
cient to supersede the insured’s duty under uberrimae fidei,
but (for reasons explained above) we are unpersuaded and
decline to follow the Eleventh Circuit. We hope, rather, that
our colleagues there will reconsider this question the next
time they have occasion to rule on it.

   [3] 2. The district court correctly found that there is no
factual dispute as to whether C’Est Moi made material mis-
representations in the insurance policy application. “The 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) (quoting
Thompson v. Occidental Life Ins. Co., 9 Cal. 3d 904, 915
(1973) (in bank)). Here, NHIC’s insurance application asked
               NEW HAMPSHIRE INS. v. C’EST MOI, INC.                  2729
for the yacht’s purchase price and present insurer, and C’Est
Moi misrepresented both facts, thereby making material mis-
representations as a matter of law.1

   [4] C’Est Moi listed the yacht’s purchase price in 1986 as
“$450,000 ++,” while O’Rourke only paid about $300,000 for
the yacht when he bought it in 1986. C’Est Moi doesn’t dis-
pute that the yacht’s purchase price was $300,000. Instead, it
argues that the $450,000 figure is accurate because it reflects
the amount that O’Rourke had spent restoring the vessel, and
that the purchase price wasn’t material because the yacht was
destroyed by the 1992 fire. But when a marine insurance
application “specifically asks for the purchase price,” the
insured may not substitute, without a clear explanation, the
“present market value” for the “actual purchase price.” Cer-
tain Underwriters at Lloyd’s v. Montford, 52 F.3d 219, 222
(9th Cir. 1995) (emphasis omitted). The purchase price of a
vessel “is unquestionably a fact material to the risk,” id., as
it provides an objective measure of the vessel’s worth and the
corresponding risk of insuring the vessel. The value of the
vessel, as it may or may not have been increased by the
owner’s efforts over the years, is a far more debatable propo-
sition. It requires an evaluation of whether work done on the
vessel was merely for normal upkeep or truly enhanced its
worth, and by how much. An insured is not free to substitute
his own subjective evaluation of worth for what the insurance
company sought to obtain, namely a purchase price that can
be presumed to be objective because it was arrived at through
arm’s length negotiations between parties with opposing
interests. By failing to disclose the purchase price and substi-
tuting another figure, without clearly disclosing that it had
done so, C’Est Moi made a material misrepresentation to
NHIC, in violation of its duty of uberrimae fidei.
   1
     C’Est Moi’s misrepresentation of either the yacht’s purchase price or
its present insurer is sufficient to uphold the district court’s ruling that
C’Est Moi made material misrepresentations. We therefore do not address
whether C’Est Moi also made a material misrepresentation by failing to
list all of O’Rourke’s prior marine losses on the insurance application.
2730        NEW HAMPSHIRE INS. v. C’EST MOI, INC.
   [5] C’Est Moi also stated that “Wash Int” was the “present
marine insurer,” but the yacht wasn’t insured in 2001 when
the application was filled out. C’Est Moi argues that it made
this mistake because the forms were confusing (NHIC’s quote
request form asked for the previous insurer, while its insur-
ance application asked for the present insurer). This may
show that C’Est Moi’s misrepresentation wasn’t intentional,
but under uberrimae fidei, NHIC only needs to show that the
misrepresentation was material. Cigna, 159 F.3d at 420.
NHIC was under the impression that it was taking on a risk
that another insurance company had been insuring against,
which would have led NHIC to believe that C’Est Moi was
a good candidate for insurance. We can presume that, if NHIC
had known that the yacht had been uninsured for about 9
years, this “would have affected [NHIC’s] decision to insure
at all or [. . .] at a particular premium.” Inlet Fisheries, slip
op. at 1877 (quoting N.Y. Marine & Gen. Ins. Co. v. Tradeline
(L.L.C.), 266 F.3d 112, 123 (2d Cir. 2001)). C’Est Moi there-
fore made a material misrepresentation by listing “Wash Int”
as the present insurer, when the yacht was actually uninsured.

  There was no factual dispute as to either of these issues, so
summary judgment for NHIC was proper.

   3. C’Est Moi also argues that the district court erred by
relying on the declaration of Rod Clingman—the NHIC
underwriter who issued the policy—in determining that the
misrepresentations were material. Specifically, C’Est Moi
asserts that Clingman’s declaration should have been stricken,
as C’Est Moi couldn’t impeach Clingman because NHIC
failed to give C’Est Moi its underwriting guidelines during
discovery. But C’Est Moi’s misrepresentations were material
as a matter of law; Clingman’s declaration is beside the point.
See Inlet Fisheries, slip op. at 1877; Freeman, 253 F.3d at
536; Cigna, 159 F.3d at 420; Montford, 52 F.3d at 222.

                           *   *   *
            NEW HAMPSHIRE INS. v. C’EST MOI, INC.        2731
   [6] The parties didn’t attempt to contract out of uberrimae
fidei, and C’Est Moi misrepresented material facts in the
insurance policy application. NHIC was therefore entitled to
rescind the policy, so the district court correctly granted
NHIC summary judgment.

  AFFIRMED.