979 F. Supp. 2d 181
D.P.R.2013Background
- SJT purchased the floating drydock Perseverence in 2006 and insured it with RLI at a $1.75 million value based on a 2006 survey.
- From 2009–2011 SJT repeatedly advertised the drydock for sale at far lower prices ($1.35M, then $800K) negotiated with buyers and ultimately agreed to sell for $700K–$800K in 2011.
- In April 2011 SJT (through broker Toscani) submitted a quote to Catlin including the prior RLI policy reflecting $1.75M; Catlin issued an ocean marine policy effective April 29, 2011.
- The drydock sank in September 2011; Catlin’s surveyor (GL Noble Denton) found extensive, long‑standing corrosion/wastage. Catlin rescinded the policy and returned premiums.
- At trial the court found SJT knew or should have known of the drydock’s poor condition and that SJT had overstated its value when obtaining coverage from Catlin.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether uberrimae fidei (utmost good faith) was violated by nondisclosure/misrepresentation | Catlin: SJT overstated value and concealed poor condition/material facts, so policy is void ab initio | SJT: advertised sale price and condition did not require disclosure; it was not a "willing seller" and some damage occurred from sinking | Court: Found SJT overstated value and concealed condition; violated uberrimae fidei; policy void ab initio |
| Whether SJT misrepresented the Perseverence's value | Catlin: SJT’s submission implied $1.75M though market evidence showed ~$700–800K | SJT: asking prices/public ads reflect sale posture, not fair market value; not compelled seller | Court: Market offers/ads and sale agreement showed true market value ~ $700–800K; misrepresentation was material and occurred |
| Whether SJT concealed the drydock’s condition | Catlin: extensive, progressive wastage existed before policy and was not disclosed | SJT: much of observed damage could have resulted from sinking; inspections varied | Court: Evidence showed long‑standing corrosion, SJT knew or should have known, and failed to disclose it |
| Whether nondisclosure of RLI cancellation/loss history voids policy | Catlin: SJT failed to disclose RLI cancellation for loss history | SJT: underwriter Kirchhofer likely knew loss history from prior dealings | Court: Declined to void on that basis because Kirchhofer had some prior knowledge; voiding based on value and condition nondisclosure sufficed |
Key Cases Cited
- Knight v. U.S. Fire Ins. Co., 804 F.2d 9 (2d Cir.) (insured best positioned to know material facts; duty to disclose)
- Grande v. St. Paul Fire & Marine Ins. Co., 436 F.3d 277 (1st Cir.) (marine insurance duty of utmost good faith explained)
- King v. Aetna Ins. Co., 54 F.2d 253 (2d Cir.) (failure to disclose material facts makes policy voidable)
- Albany Ins. Co. v. Wisniewski, 579 F. Supp. 1004 (D.R.I.) (material misrepresentation permits rescission despite lack of fraud)
- Sun Mut. Ins. Co. v. Ocean Ins. Co., 107 U.S. 485 (U.S. Supreme Court) (insured must disclose circumstances that would influence insurance terms)
- Compagnie De Reassurance D'Ile De France v. New England Reinsurance Corp., 57 F.3d 56 (1st Cir.) (insurer not required to know facts the insurer already knows or ought to know)
- United States v. Cartwright, 411 U.S. 546 (U.S. Supreme Court) (definition of fair market value)
- Worcester Cnty. Trust Co. v. Commissioner, 134 F.2d 578 (1st Cir.) (fair market value definition guidance)
- United States v. E. S.S. Lines, Inc., 171 F.2d 589 (1st Cir.) (fair market value between willing buyer and seller)