FIREMAN‘S FUND INSURANCE COMPANY, ONE BEACON INSURANCE COMPANY, NATIONAL LIABILITY AND FIRE INSURANCE COMPANY, QBE MARINE & ENERGY SYNDICATE 1036, Plaintiffs – Counterclaim-Defendants – Appellants, v. GREAT AMERICAN INSURANCE COMPANY OF NEW YORK, Defendant – Crossclaim-Defendant – Counter-Claimant – Appellee, MAX SPECIALTY INSURANCE COMPANY, Defendant – Crossclaim-Defendant – Counter-Claimant – Appellee, v. SIGNAL INTERNATIONAL, LLC, Defendant – Crossclaim-Defendant – Cross-Claimant.*
Nos. 14-1346-cv(L)
United States Court of Appeals For the Second Circuit
August Term, 2014 Argued: June 24, 2015 Decided: May 20, 2016
CABRANES, POOLER, and DRONEY, Circuit Judges.
* The Clerk of the Court is directed to amend the official caption to conform to the above. Signal International, LLC is no longer a party to the appeal.
Fireman‘s Fund Insurance Company (“Fireman‘s Fund“) and Signal International, LLC (“Signal“) appealed from judgments of the United States District Court for the Southern District of New York (Oetken, J.), granting summary judgment to Great American Insurance Company of New York (“Great American“) and Max Specialty Insurance Company (“MSI“). Fireman‘s Fund, Great American, and MSI underwrote insurance policies that included coverage for a dry dock that Signal owned. After the dry dock sank, Signal and Fireman‘s Fund sought contribution for losses and cleanup costs from Great American and MSI. Fireman‘s Fund initiated this action to resolve disputes regarding coverage.
The district court held that the Great American and MSI policies were void because (1) Great American‘s pollution insurance policy was a marine insurance contract subject to the doctrine of uberrimae fidei, and Signal‘s failure to disclose that the dry dock had deteriorated and that repairs recommended over several years had not been made violated its duty of utmost good faith under that doctrine, and (2) Signal materially misrepresented the dry dock‘s condition when it applied for coverage from MSI. We AFFIRM.
GEORGE R. ZACHARKOW (Stephen J. Galati, Christian T. Johnson, on the brief), Mattioni, Ltd., Philadelphia, PA, for Defendant-Appellee Great American Insurance Company of New York.
STEPHEN D. STRAUS, Traub Lieberman Straus & Shrewsberry LLP, Hawthorne, NY, for Defendant-Appellee Max Specialty Insurance Company.
OPINION
DRONEY, Circuit Judge:
Plaintiffs-Appellants are Fireman‘s Fund Insurance Company, One Beacon Insurance Company, National Liability and Fire Insurance Company, and QBE Marine & Energy Syndicate 1036 (collectively “Fireman‘s Fund“), insurance companies that provided marine general liability and marine excess liability policies to Defendant–Appellant Signal International, LLC (“Signal“).1
Fireman‘s Fund and Signal appealed from a judgment of the United States District Court for the Southern District of New York (Oetken, J.), granting summary judgment to Defendants-Appellees Great American Insurance Company of New York (“Great American“) and Max Specialty Insurance Company (“MSI“).
Fireman‘s Fund, Great American, and MSI issued insurance policies that provided various coverages for a dry dock in Port Arthur, Texas owned by Signal. After the dry dock sank in 2009, Signal and Fireman‘s Fund sought contributions from Great American and MSI for the loss of the dry dock and resulting environmental cleanup costs. The district court ruled in adjudicating a number of summary judgment motions that the Great American and MSI policies were void in light of Signal‘s failure to
After submission of this appeal, MSI and Signal reached a settlement and obtained a dismissal of the case between them. Therefore, Signal no longer appeals the grant of summary judgment to MSI. Nonetheless, Fireman‘s Fund asserts that it may still pursue appeal of the issues relating to the policy issued to Signal by MSI based on our decision in Maryland Cas. Co. v. W.R. Grace & Co. See 218 F.3d 204, 211 (2d Cir. 2000) (“[T]he contract of settlement an insurer enters into with the insured cannot affect the rights of another insurer who is not a party to it. Instead, whatever obligations or rights to contribution may exist between two or more insurers of the same event flow from equitable principles.“). Fireman‘s Fund was granted summary judgment below against MSI
We agree with the district court‘s orders. We hold that the Great American policy was a marine insurance contract subject to the doctrine of uberrimae fidei and that Signal‘s nondisclosure violated its duty under that doctrine, permitting Great American to void the policy. We further hold that MSI‘s policy was governed by Mississippi law; that, under that law, Signal materially misrepresented the dry dock‘s condition; and that MSI was entitled to void the policy on that basis. Accordingly, we AFFIRM.
I. Factual Background
A. The Operation and Loss of the Dry Dock
Signal is a marine construction firm involved principally in building and repairing ocean-going structures such as offshore drilling rigs, platforms, and barges. In 2003, Signal purchased six facilities—two in Mississippi and four in Texas—for use in its business of repairing, upgrading, and converting offshore drilling rigs.2 One of the Texas facilities was a dockyard in Port Arthur, Texas. In acquiring that facility, Signal assumed an existing lease of a dry dock (“the dry dock“) located along the Sabine-Neches
Throughout its lease and ownership of the dry dock, Signal received a number of reports on the dry dock‘s deteriorated condition. These included the following:
- The Heger Reports: The dry dock engineering firm Heger Dry Dock, Inc. (“Heger“) of Holliston, Massachusetts, periodically inspected the dry dock between 2002 and 2009. In 2002, Freide Goldman Offshore—the operator of the dry dock before Signal—asked Heger to inspect the dry dock in order to provide an estimate of its fair market value.4 In a December
2002 appraisal, Heger described “the dry dock [as being] . . . in fair to good condition, with the exception of the pontoon deck . . . , which [was] in poor condition and should be replaced, and section H, which showed markedly more corrosion internally . . . .”5 J.A. 4215. Heger estimated that the dry dock would have “10 years of remaining useful life if the pontoon deck [was] completely repaired,” but the costs of making these “extensive repairs” in the United States rendered the dry dock‘s value “below zero.”6 J.A. 4215, 4216. In a series of subsequent reports from 2007 through 2009 commissioned by Signal to assist it in prolonging the existing life of the dry dock, Heger found that the dry dock had continued to deteriorate and that long-term repairs had not been made. Instead, Signal had simply patched damaged areas with “doublers.”7 J.A. 688. Heger provided recommendations for extensive repairs that would be required for the dry dock to continue to operate safely. However, Heger repeatedly advised that “the expected life extension for the dock . . . [would] only be a few years” and therefore “the cost, time and effort to perform this work [was] not economically justifiable.” J.A. 689. Heger also provided Signal with plans for converting the dry dock to a seven-pontoon configuration (by removing Pontoon H) but warned that “the dry dock structure . . . should be satisfactorily restored before using the dock or proceeding with any modifications.” J.A. 4513-14. - The ABS Audits: Auditor ABS Consulting (“ABS“) of Houston, Texas, a maritime risk management firm, was designated by the Port of Port Arthur to review and report on Signal‘s maintenance and repair programs at the dry dock. In 2003, ABS observed “the rapidly increasing rate of overall deterioration” of the dry dock, which was “largely due to the drydock‘s age . . . , and . . . lack of adequate maintenance and/or repair.” J.A. 4166. ABS noted that, although it had notified the dry dock‘s owners and operators in January 2000 of the “advanced state of . . . deterioration,” they had “made no apparent efforts” to implement ABS‘s recommended repairs. J.A. 4168. Instead, “more than a hundred doubler plates ha[d] been welded over severely wasted/holed . . . platings.” J.A. 4167. Six months later, ABS reported that Pontoon H was “leaking severely,” and Pontoons E and G were “leaking significantly” as well. J.A. 4161. ABS concluded that “it appeared that unsafe drydock operations were being conducted” and recommended that “additional drydockings [not be conducted] until substantial hull repairs [were] made to ‘H’ pontoon and the repairs [were] verified.” J.A. 4162 (emphases omitted).
- Internal Staff Study: In April 2003, Signal conducted an internal “staff study” to determine whether to purchase the
leased dry dock from the Port Commission of Port Arthur. The study found that, “without major renewal costs,” the dry dock‘s remaining useful life was “only 3 to 5 years.” J.A. 4188. The study concluded that it would cost $21.88 million to extend the life of the dry dock‘s pontoons “for maybe 10 to 15 years.” J.A. 4186-87. The study ultimately advised against purchasing the dry dock in light of its “relatively short remaining useful life and extreme costs of renewal/life extension.” J.A. 4188. - The DLS Surveys: The marine appraiser, surveyor, and consulting firm Dufour, Laskay & Strouse, Inc. (“DLS“) of Houston, Louisiana, and Florida was hired to inspect and appraise Signal‘s Texas and Mississippi facilities “for the purpose of asset allocation and financial review” by GE Commercial Finance, Signal‘s financing company. J.A. 526. Between 2005 and 2007, DLS observed that the dry dock “had significant water in most compartments . . . [that] require[d] pumping and trimming every four hours,” which was “indicative of some wastage holes in the bottom.” J.A. 551, 4437; see also J.A. 5314. Each year, DLS noted that “[t]he deck plating . . . ha[d] significant doubler plates where plating ha[d] either wasted or separated from internal framing” and that “there was . . . a 12’ long tear in the plating extending along a transverse frame” that “reportedly . . . w[ould] be fitted with a proper doubler in the near future.” J.A. 551, 4437, 5314. In 2007, DLS concluded that the dry dock was in “fair to good condition” but recommended that its pontoons be dry-docked and repaired “[a]s soon as practical within the succeeding eighteen months . . . to render [it] in good stable operating condition and provide a life extension.” J.A. 4437.
The 2009 Heller Property Risk Assessment Report: Stephen Heller & Associates Inc. (“Heller“) of Houston—a loss prevention consulting firm—was hired by Signal in 2008 to conduct a risk review of Signal‘s Mississippi and Texas facilities in order to “assist [insurance] underwriters in evaluating the exposures, operations, and loss prevention” for those facilities. J.A. 2267. In a January 2009 report, Heller rated the Mississippi and Texas facilities “[o]verall” as “Above Average,” meaning that they met “[a]cceptable standards including some industry best practices.” J.A. 2270. Heller found that “[t]he maximum foreseeable loss (MFL) or worst case scenario for these facilities [included] a sinking or structural collapse of [the] dry dock at . . . Port Arthur.” J.A. 2269. The maximum foreseeable loss was described as “one of extremely low probability and frequency based on previous industry experience.” J.A. 2298-99.
Signal never replaced the dry dock‘s pontoons or pontoon decks. Instead, Signal continued to use inserts and doublers to patch holes in the decks.
In 2009, Signal decided to implement the seven-pontoon configuration by removing Pontoon H. On August 20, 2009, it attempted to remove that pontoon, but during that procedure the entire dry dock sank.
B. The Insurance Policies Covering the Dry Dock
Signal had obtained five insurance policies that insured against risks related to the dry dock at the time of its sinking: (1) a marine general liability policy issued by Fireman‘s Fund; (2) a marine excess liability policy issued by Fireman‘s Fund; (3) a pollution policy issued by Great American (the “Pollution Policy“);
Great American first underwrote the Pollution Policy in 2004 and renewed it annually through 2009. To obtain the renewal of the policy for 2009, Signal completed and submitted Great American‘s standard “Vessel Pollution Liability Application” along with a “Schedule of Vessels,” which included the dry dock and approximately twenty-five tugboats and barges owned by Signal. The Pollution Policy insured Signal against losses of up to $5 million for each property in the Schedule resulting from pollution discharges into navigable waters. The policy specifically insured against claims under the
MSI underwrote the EPI Policy in January 2009. To apply for the policy, Signal submitted its “2009-2010 Property Insurance Submission.” This document included a “Statement of Values” that described the dry dock‘s value as $13.6 million and the 2009 Heller Report, but it did not include other information—such as the Heger
C. Post-Loss Insurance Claims
In January 2010, Westchester paid Signal its total coverage amount of $10 million pursuant to the PPI Policy for losses related to the dry dock. MSI paid Signal $3.6 million of its total coverage amount of $15 million under the EPI Policy based on the $13.6 million value of the dry dock, as represented in the Statement of Values. Great American refused to make any payments under its Pollution Policy.
In meetings between Signal and its insurers in early 2010, MSI and Great American argued that their policies did not cover the
II. Procedural Background
On March 2, 2010, Fireman‘s Fund commenced this action against Signal, Great American, and MSI, seeking a declaration as to the obligations of Signal and its insurers for losses associated with the sinking of the dry dock. MSI asserted cross-claims against Signal for the $3.6 million it had paid, and also sought to void the EPI Policy on the ground of misrepresentation after discovery revealed the various reports on the dry dock‘s poor condition that Signal had not provided to MSI when applying for the policy. Signal cross-claimed against MSI for cleanup and removal costs and additional damages. Great American filed claims against Signal and Fireman‘s Fund, seeking a declaration that the Pollution Policy was void under
On October 15, 2010, Signal assigned to Fireman‘s Fund its rights under the Great American Pollution Policy, and Fireman‘s Fund continued to pursue coverage against Great American. Both Signal and Fireman‘s Fund maintained their claims against MSI; Signal opposed MSI‘s efforts to obtain from Signal the $3.6 million it had already paid, and both Signal and Fireman‘s Fund sought additional payments from MSI under its EPI Policy.
This appeal arises out of eight motions that were filed after the close of discovery. Fireman‘s Fund, Signal, Great American, and
On March 25, 2013, the district court granted partial summary judgment, holding that under the EPI Policy, MSI was required to contribute to the payments that Fireman‘s Fund had made to Signal. Fireman‘s Fund Ins. Co. v. Great Am. Ins. Co. of New York, No. 10 Civ. 1653 (JPO), 2013 WL 1195277, at *8-9 (S.D.N.Y. Mar. 25, 2013).
However, on March 31, 2014, the district court ruled—also on summary judgment—that the Great American Pollution Policy and the MSI EPI Policy were void ab initio because of Signal‘s failure to disclose the dry dock‘s deteriorated state. See Fireman‘s Fund Ins. Co. v. Great Am. Ins. Co. of New York, 10 F. Supp. 3d 460, 466 (S.D.N.Y. 2014). The court concluded that the Great American Pollution Policy
After submission of this appeal, MSI and Signal reached a settlement and obtained dismissal of the case between them. We
DISCUSSION12
I. Great American’s Pollution Policy
Fireman’s Fund argues that Great American’s Pollution Policy is not subject to the doctrine of uberrimae fidei. It further argues that,
A. Admiralty Jurisdiction and the Doctrine of Uberrimae Fidei
Great American argues—and the district court concluded—that the Pollution Policy is void under the maritime doctrine of uberrimae fidei. For the doctrine to apply, Fireman’s Fund’s suit against Great American “must . . . be sustainable under the [court’s] admiralty jurisdiction.” Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 23 (2004) (emphasis omitted). This is because federal courts’ “authority to make decisional law for the interpretation of maritime contracts stems from the Constitution’s grant of admiralty jurisdiction to federal courts.” Id.; see
“
“[T]here are few ‘clean lines between maritime and non-maritime contracts.’” Folksamerica Reinsurance Co. v. Clean Water of N.Y., Inc., 413 F.3d 307, 311 (2d Cir. 2005) (quoting Kirby, 543 U.S. at 23). “The boundaries of admiralty jurisdiction over contracts are conceptual rather than spatial, and defined by the purpose of the jurisdictional grant—to protect maritime commerce.” Id. (citations omitted). “[W]hether a contract is a maritime one . . . ‘depends upon the nature and character of the contract,’ and the true criterion
“[A]dmiralty jurisdiction will exist over an insurance contract where the primary or principal objective of the contract is the establishment of ‘policies of marine insurance.’” Id. at 315 (quoting Ins. Co. v. Dunham, 78 U.S. (11 Wall.) 1, 35 (1870)). “[W]hether an insurance policy is marine insurance depends on ‘whether the insurer assumes risks which are marine risks.’” Id. at 316 (quoting Jeffcott v. Aetna Ins. Co., 129 F.2d 582, 584 (2d Cir. 1942)). “[A]n insurance policy’s predominant purpose, as measured by the dimensions of the contingency insured against and the risk
The question of whether an insurance contract is subject to the court’s admiralty jurisdiction “ha[s] implications beyond conferring federal jurisdiction.” Id. at 310. In particular, “[w]hen a contract is a maritime one, and the dispute is not inherently local, federal law controls the contract interpretation.” Kirby, 543 U.S. at 22-23.
Under federal law, a marine insurance contract is subject to “the federal maritime doctrine of uberrimae fide, or utmost good faith.” Folksamerica, 413 F.3d at 310; see also Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 13 (2d Cir. 1986) (“[T]he substantive law governing marine insurance . . . . [includes the] well-established [principle that] under the doctrine of uberrimae fidei . . . the parties to a marine
Accordingly, under the doctrine, “the party seeking insurance is required to disclose all circumstances known to it which
B. The Pollution Policy is a Marine Insurance Contract
1. The “Threshold Inquiry”: The Maritime Nature of the Dispute
In determining whether a contractual dispute falls within our admiralty jurisdiction, “[s]everal of our cases . . . [have] require[d] that, prior to inquiring into the subject matter of the contract, we first make a ‘threshold inquiry’ into the subject matter of the dispute.” Folksamerica, 413 F.3d at 312. Those cases hold that “a
“[S]ome uncertainty [exists] as to the extent to which this Court’s ‘threshold inquiry’ test survives the Supreme Court’s . . . decision [in Kirby] . . . . [where,] [f]ocusing on the contract subject matter, the [Kirby] Court found admiralty jurisdiction.” Id. at 313. “[T]he absence of any discussion by the Supreme Court [in Kirby] of a ‘threshold inquiry’ akin to that found in our precedents is notable.”14 Id. at 314.
Moreover, the parties’ dispute here concerns information provided to an insurer for pollution coverage for a structure used in vessel repair and maintenance. These questions directly implicate the business of maritime commerce. See Folksamerica, 413 F.3d at 313 (“The business of ship maintenance has long been recognized as maritime . . . .”); id. at 321 (“Pollution coverage is widely recognized as marine in nature.”); cf. Sirius Ins. Co. (UK) Ltd. v. Collins, 16 F.3d 34, 36 (2d Cir. 1994) (“There are few objects—perhaps none—more essentially related to maritime commerce than vessels.”).
Thus, “the insurance claim [here] . . . has more than a ‘speculative and attenuated’ connection with maritime commerce.” Folksamerica, 413 F.3d at 313 (quoting Balfour, 968 F.2d at 200). Assuming that the threshold inquiry survives Kirby, the dispute here is sufficiently maritime in nature to withstand that inquiry.
2. The Maritime Nature of the Pollution Policy
Our next inquiry is whether the Pollution Policy itself is sufficiently “marine” to warrant application of federal maritime law, including the doctrine of uberrimae fidei.
Fireman’s Fund urges us to consider only the policy’s coverage of the dry dock in determining whether the contract is marine insurance. It maintains that such a “fixed structure drydock” is not a vessel, and thus pollution coverage for the dry dock is not subject to maritime jurisdiction. Fireman’s Fund Br. at 17. Fireman’s Fund argues that this coverage is severable from the
Prior to Kirby, this Court had held that admiralty jurisdiction was limited to “contracts, claims, and services [that were] purely maritime.” Folksamerica, 413 F.3d at 314 (quoting Rea v. The Eclipse, 135 U.S. 599, 608 (1890)). “A ‘mixed’ contract, i.e., a contract that contain[ed] both admiralty and non-admiralty obligations [was], therefore, usually not within admiralty jurisdiction.” Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 109 (2d Cir. 1997). “[T]he general rule that ‘mixed’ contracts f[e]ll outside admiralty jurisdiction” was subject to two exceptions: (1) cases where the “claim [arose] from a breach of maritime obligations that [were] severable from the non-maritime obligations of the contract” (“the severability exception”), and (2) cases “where the non-maritime elements of a contract [were] merely incidental to the
After Kirby, however, we “amended our jurisprudence on maritime contracts.” Williamson v. Recovery Ltd. P’ship, 542 F.3d 43, 49 (2d Cir. 2008). We held that “[i]n applying what we have previously called the ‘incidental’ exception, we should focus ‘on whether the principal objective of a contract is maritime commerce,’ rather than on whether the non-maritime components are properly characterized as more than ‘incidental’ or ‘merely incidental’ to the contract.” Folksamerica, 413 F.3d at 315 (citation omitted) (quoting Kirby, 543 U.S. at 25).
We have not yet addressed the impact of Kirby on the severability exception.15 The Ninth Circuit has held that the exception “collapses in the wake of the [Kirby] Court’s conceptually-based ‘primary objective’ test.” Sentry Select Ins. Co. v. Royal Ins. Co. of Am., 481 F.3d 1208, 1218 (9th Cir. 2007).
We need not to resolve
To reach this conclusion, we consider whether “the primary or principal objective of the [Pollution Policy’s dry dock coverage] is the establishment of policies of marine insurance,” which “depends on whether the insurer assumes risks which are marine risks.” Folksamerica, 413 F.3d at 315, 316 (citations and internal quotation marks omitted). This requires consideration of “the terms of the insurance contract and the nature of the business insured.” Id. at 317.
As it pertains to the dry dock, the Pollution Policy insures against liability for “accidental discharge or substantial threat of a discharge” from the dry dock “into the navigable waters of the
In addition to emissions from the dry dock itself, the policy insures against liability for emissions from “all Vessels while under repair” within “a 100 nautical mile radius” of the Port Arthur dockyard. J.A. 738. Thus, the policy provides coverage for vessels located at the dry dock in connection with Signal’s repair business—
We conclude that the primary object of the Pollution Policy’s coverage of the dry dock was to insure against the risk of liability for pollutants emitted during Signal’s ship repair and maintenance operations there. Insurance policies protecting against such risks have long been considered marine in nature. See Folksamerica, 413 F.3d at 321 (finding pollution coverage provisions to be marine, given that “[p]ollution coverage is widely recognized as marine in nature,” marine insurance contracts often include pollution coverage, and “[t]he insured’s business operations in oil and cargo transportation render[ed] pollution coverage potentially significant”); see also Certain Underwriters at Lloyds v. Inlet Fisheries Inc., 518 F.3d 645, 654 (9th Cir. 2008) (“One type of insurance
C. Signal Violated Its Duty of Utmost Good Faith by Failing To Disclose the Dry Dock’s Condition
We turn next to the questions of whether Signal violated its duty of utmost good faith under the doctrine of uberrimae fidei and whether this breach permits Great American to void the Pollution Policy. Under the doctrine, Signal was “bound, although no inquiry be made, to disclose every fact within [its] knowledge that [was] material to the risk [insured against].” 2 Schoenbaum, supra, § 19-14, at 405-06; see Puritan, 779 F.2d at 870.
Citing our decision in Puritan, the Eighth Circuit recently held that materiality and reliance are “distinct elements,” both of which must be proven for the doctrine to apply. See St. Paul Fire & Marine Ins. Co. v. Abhe & Svoboda, Inc., 798 F.3d 715, 720-22 (8th Cir. 2015). “[M]ateriality examines whether a fact would have influenced the
In applying for the 2009-2010 Pollution Policy, Signal’s insurance broker submitted only Great American’s standard “Vessel Pollution Liability Application” along with a “Schedule of Vessels,” which listed the dry dock. It appears that the only information in those materials related to the dry dock’s condition was that it was built in 1945, that it was constructed from steel, and that its gross tonnage was less than 27,000 tons; neither Signal nor Fireman’s Fund has argued otherwise. Signal did not provide any surveys to Great American when it applied for coverage for the dry dock.
Notwithstanding the paucity of relevant information furnished by Signal to Great American, it is undisputed that by 2009
This undisclosed information was clearly material—that is, it “would have influenced the judgment of a reasonable and prudent underwriter.” St. Paul Fire, 798 F.3d at 722 (emphasis omitted). That multiple engineers and Signal’s own internal staff study described considerable deterioration of the dry dock and Signal’s failure to make recommended repairs over several years was precisely the type of information that would have affected a reasonable insurer’s decision “to insure [the dry dock] at all or [at least] at a particular
There is also no genuine dispute that in “decid[ing] to issue the policy,” St. Paul Fire, 798 F.3d at 720, the underwriters at Great
Stringer’s testimony also established that, in agreeing to underwrite the policy, she was acting on the understanding that
If the insured had information that could materially affect our policy, it would be their obligation to furnish us with that information. . . . [F]or example, if you were to read a survey that said that you had a vessel that was about ready to collapse or something like that, that would be something that you should bring to the attention of your broker, who would then bring it to our attention.
J.A. 6443. She also opined that “it would be common sense if you had a vessel that was about ready to collapse or in danger of sinking or something like that, you would definitely want to let somebody know about it,” because “if a prudent insured [is] aware of a condition that would put a vessel in jeopardy, . . . they owe the duty to let underwriters know of that condition.” J.A. 6444.
Reese Lever, an underwriter who worked with Stringer on the 2009 renewal of the Pollution Policy,22 similarly testified that, if Signal was “doing repairs on a vessel, . . . if they’re major repairs, it’s
Fireman’s Fund argues that Signal did not have an obligation to provide the undisclosed information because Great American did not request surveys or additional information about the dry dock’s condition as part of its underwriting criteria or application. However, under the doctrine of uberrimae fidei, Great American was not obligated to request such information. See Knight, 804 F.2d at 13 (“Since the [insured] is in the best position to know of any circumstances material to the risk, he must reveal those facts to the underwriter, rather than wait for the underwriter to inquire.” (emphasis added)). Instead, Great American was entitled make its decision to underwrite the policy based on the information that Signal
Fireman’s Fund also argues that a genuine dispute exists as to whether the undisclosed information was material because Great American agreed to insure another dry dock owned by Signal (“the Bender dry dock”) under the Pollution Policy after the Port Arthur dry dock sank, despite receiving a survey that “raised concerns” about the Bender dry dock’s condition. J.A. 6019. For several reasons, we are not persuaded. First, although Lever testified that he considered several points in the Bender dry dock survey significant to his underwriting analysis,23 none of those conditions rose to the level of extensive dilapidation described in the undisclosed reports regarding the Port Arthur dry dock. Moreover,
We conclude that Signal breached its duty of utmost good faith by failing to disclose information about the dry dock’s condition to Great American. Because this information was both material and relied upon, Great American is entitled to void the Pollution Policy. See Puritan, 779 F.2d at 871; see also Catlin, 778 F.3d at 83 (“[T]he evidence conclusively shows that [the insured] failed to disclose material information about the [dry dock’s] actual value and preexisting deteriorated condition prior to [the insurer] determining whether it would accept the risk. [The insurer] was free, therefore, to void the policy.”). We affirm the district court’s grant of Great American’s motion for summary judgment and its denial of Fireman’s Fund and Signal’s cross-motions.
II. MSI’s Excess Property Insurance Policy
We next consider the EPI Policy issued by MSI. The district court held that the EPI Policy was not a maritime contract, Fireman’s Fund Ins. Co. v. Great Am. Ins. Co. of New York, No. 10 Civ. 1653 (JPO), 2013 WL 311084, at *5 (S.D.N.Y. Jan. 25, 2013), a conclusion that is not challenged on appeal.24 Nevertheless, the court found that the
Fireman’s Fund argues that the district court erred in holding that the EPI Policy was governed by Mississippi law rather than Texas law. Alternatively, it contends that, even if Mississippi law applies, the court erred in its application of that state law. For the reasons below, we reject both arguments.
1. New York Choice of Law Rules
“We review the district court’s choice of law de novo.” Fin. One Pub. Co. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325, 331 (2d Cir. 2005).
“A federal court sitting in diversity . . . must apply the choice of law rules of the forum state.” Rogers v. Grimaldi, 875 F.2d 994, 1002 (2d Cir. 1989). “Generally, [New York] courts will enforce a choice-of-law clause so long as the chosen law bears a reasonable relationship to the parties or the transaction.” Welsbach Elec. Corp. v. MasTec N. Am., Inc., 859 N.E.2d 498, 500 (N.Y. 2006) (citation omitted). This is because “[a] basic precept of contract interpretation is that agreements should be construed to effectuate the parties’ intent.” Id. (citations omitted).
Where a choice of law clause is not dispositive, “[t]he first step . . . is to determine whether there is an actual conflict between the laws of the jurisdictions involved.” In re Allstate Ins. Co. (Stolarz), 613 N.E.2d 936, 937 (N.Y. 1993); see 28 Glen Banks, New York Practice Series: New York Contract Law § 8:4 (2015) (“If the contract has no choice-of-law clause and the laws of different jurisdictions could apply, New York courts may undertake a choice-of-law analysis. The first step in any case presenting a potential choice-of-law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved.”). If an actual conflict exists, New York applies “[t]he ‘center of gravity’ or ‘grouping of contacts’ choice of law theory.” Stolarz, 613 N.E.2d at 939.
[A]pplication of the “grouping of contacts” theory to choice-of-law disputes “gives . . . the place having the most interest in the problem paramount control over the legal issues arising out of a particular factual context, thus allowing the forum to apply the policy of the jurisdiction most intimately concerned with the outcome of the particular litigation[.]”
In re Liquidation of Midland Ins. Co., 947 N.E.2d 1174, 1179 (N.Y. 2011) (quoting Auten v. Auten, 124 N.E.2d 99, 102 (N.Y. 1954)). “[B]y stressing the significant contacts, [this analysis] enables the court, not only to reflect the relative interests of the several jurisdictions
“Under this approach, the spectrum of significant contacts—rather than a single possibly fortuitous event—may be considered[.]” Stolarz, 613 N.E.2d at 939 (citation omitted). “[T]he New York Court of Appeals has endorsed the following factors (identified in the Restatement [(Second) of Conflict of Laws]): ‘the places of negotiation and performance; the location of the subject matter; and the domicile or place of business of the contracting parties.’” Schwartz v. Liberty Mut. Ins. Co., 539 F.3d 135, 151-52 (2d Cir. 2008) (quoting Zurich Ins. Co. v. Shearson Lehman Hutton, Inc., 642 N.E.2d 1065, 1068 (N.Y. 1994)).
2. Choice of Law Governing the EPI Policy
Fireman’s Fund argues that the district court erred by treating “the state of the insured’s domicile [as] determinative” of the choice of law analysis, Fireman’s Fund, 10 F. Supp. 3d at 496, and by alternatively holding that the grouping-of-contacts analysis favors application of Mississippi law over Texas law.26
However, contrary to this claim, there is no genuine dispute that Signal International, LLC, was the relevant insured under the EPI Policy. Signal’s consultant and former Senior Vice President of Texas Operations, John Haley, stated in his affidavit that “Signal International, L.L.C. . . . was the owner and operator of the AFDB-5 Drydock.” J.A. 1852. Furthermore, the EPI Policy itself names
Moreover, an analysis that would look to a subsidiary of the insured based on the particular loss that triggered coverage would be at odds with New York’s choice of law rules. Under New York law, “barring extraordinary circumstances, only one state’s law should govern an insurance agreement.” Md. Cas. Co., 332 F.3d at 153. New York courts have declined to look to the location of an insured’s subsidiaries in determining choice of law, because “applying multiple states’ laws to the enforcement of a single
We therefore conclude that, in determining what law governs the EPI Policy, the relevant insured is Signal International LLC, and its domicile is Mississippi.27
Fireman’s Fund argues that the district court erred by treating the insured’s domicile as dispositive of the choice of law analysis.
Nevertheless, even if the totality of the relevant contacts is considered, the result is the same. The EPI Policy‘s “Declarations” page states that “[t]his Insurance policy is issued pursuant to Mississippi law covering surplus lines insurance.” J.A. 168. The same page contains information specific to the Signal policy, including the insured, the covered property, and the policy premium.28 Signal‘s 2009-2010 Property Insurance Submission also
The balance of the other choice of law factors does not clearly favor the law of one state over another. The EPI Policy was negotiated in Virginia and New York. Performance of the contract was to take place in Texas and Mississippi, and the value of the assets insured by the EPI Policy was split almost evenly between
The mere presence of the dry dock in Texas does not give Texas an overriding interest in having its law govern the policy. “[T]his is merely a dispute over who—[the insured or the insurer]—must bear the cost[s]” related to the loss of the dry dock. Md. Cas. Co., 332 F.3d at 155. “[T]he interest [of a state in which a covered item is located] diminishes when the question is not whether someone will or can pay for the cleanup but rather who will pay.” Id. (internal quotation marks omitted).
Because the parties’ understanding and the insured‘s domicile favor application of Mississippi law, while the other choice of law factors do not favor the law of any one particular state, Mississippi has the “most significant relationship to the transaction and the parties,” such that Mississippi law governs the EPI Policy. Midland, 947 N.E.2d at 1179 (quoting Zurich Ins. Co., 642 N.E.2d at 1068).
Fireman‘s Fund next argues that, even if Mississippi law governs the EPI Policy, the district court‘s grant of summary judgment to MSI was error. It contends that MSI failed to show that the requirements to void a contract for material misrepresentation were met, or that, at the very least, genuine disputes of fact preclude summary judgment.
1. Material Misrepresentation under Mississippi Common Law
“Under Mississippi law, if an applicant for insurance is found to have made a misstatement of material fact in the application, the insurer that issued a policy based on the false application is entitled to void or rescind the policy.”29 Carroll v. Metro. Ins. & Annuity Co.,
“Whether the misrepresentation was intentional, negligent, or the result of mistake or oversight is of no consequence.” Id.
If the applicant for insurance undertakes to make a positive statement of a fact, if it be material to the risk, such fact must be true. It is not sufficient that he believes it true, but it must be so in fact, or the policy will be avoided, provided, always, that the misstatement be about a material matter.
“A misrepresentation in an insurance application is material if knowledge of the true facts would have influenced a prudent insurer in determining whether to accept the risk.” Carroll, 166 F.3d at 805. “Stated differently, a fact is material if it might have led a prudent insurer to decline the risk, accept the risk only for an increased premium, or otherwise refuse to issue the exact policy requested by the applicant.” Id.
2. The EPI Policy‘s Concealment Clause Did Not Require MSI to Prove “Intent to Deceive”
Fireman‘s Fund argues that, in order to void the EPI Policy, MSI was required to prove that Signal intended to deceive MSI
The EPI policy‘s “Concealment, Misrepresentation or Fraud” clause (“the concealment clause“) provides that “[t]his Coverage Part is void in any case of fraud by the Insured as it relates to this Coverage Part at any time. It is also void if the named insured or any other insured, at any time, intentionally conceal or misrepresent a material fact . . . .” J.A. 172 (emphasis added).
However, although the policy‘s concealment clause permits the insurer to void the policy where concealment or misrepresentation is intentional, it does not state that this is the exclusive ground upon which the contract may be voided. Under Mississippi law, “[w]hether the misrepresentation was intentional, negligent, or the result of mistake or oversight is of no consequence” in determining whether an insurer may void a policy for misrepresentation or concealment. Carroll, 166 F.3d at 805. Nothing
3. MSI Was Not Required To Request “Answers” on an “Application” To Void the Policy for Material Misrepresentation
Fireman‘s Fund next argues that MSI could not void the EPI Policy on grounds of material misrepresentation because MSI did not demonstrate that Signal made any false or misleading “answers”
Instead, Signal provided a property insurance submission of its own creation (the 2009-2010 Property Insurance Submission), which included the 2009 Heller Report and a “Statement of Values.” The Statement of Values described the dry dock‘s value as $13.6 million, and the Heller Report described the possibility of the dry dock sinking as a “worst case scenario” “of extremely low probability.” J.A. 2269, 2298-99. Fireman‘s Fund claims that Signal had no affirmative duty to provide further information about the dry dock in the absence of a request from MSI.
We are not persuaded by these arguments. While Mississippi
When Signal provided this information, it was required to do so in a way that was not misleading, because “[i]n making [its] underwriting decision[], [MSI] ha[d] the right to rely on the information supplied.” Carroll, 166 F.3d at 805; see also Golden Rule Ins. Co. v. Hopkins, 788 F. Supp. 295, 301 (S.D. Miss. 1991) (“[T]he
By providing MSI with the Statement of Values and only the 2009 Heller Report, Signal represented (1) that the dry dock was valued at $13.6 million, (2) that Signal was operating its facilities—including the Port Arthur dockyard—in accordance with “[a]cceptable standards including some industry best practices,” J.A. 1318, and (3) that the likelihood of the dry dock sinking was a “worst-case scenario . . . of extremely low probability,” J.A. 2298-99. Signal made these representations despite knowing that (1) multiple engineers—and its own employees—had concluded over several years that the dry dock was in poor condition, in need of extensive
4. Signal‘s Misrepresentation Was Material and Induced MSI To Issue the EPI Policy
Fireman‘s Fund argues that MSI failed to show that any misrepresentation that Signal might have made regarding the dry dock was material or relied upon in MSI‘s decision to underwrite the EPI Policy. It also argues that, at the very least, there are genuine disputes of fact that should have precluded summary judgment on these issues.
We disagree. The EPI Policy insured against business interference and extra expenses resulting from the loss of specific properties, including the dry dock. Information that the dry dock had been appraised as having a negative value, had been described as dilapidated and nearing the end of its useful life, and had not undergone long-term repairs (despite the recommendations of
Signal‘s experience in applying for hull insurance prior to applying for the EPI Policy also demonstrates the materiality of the undisclosed information and Signal‘s knowledge that it was material. In 2005, Signal‘s insurance broker, Willis of Alabama, Inc., applied for hull insurance for the dry dock by submitting the 2002 Heger Report to two insurance providers—Fireman‘s Fund Insurance Company (“FFIC“) and Trident Marine (“Trident“). The FFIC underwriter inquired as to what repairs had been made, observing that “[t]he [a]ppraisal [in the 2002 Heger report] reflects an ‘Inside the United States’ net value of ($1,150,00) less than zero” and that he was “going have a tough time convincing anybody” to provide the requested insurance. J.A. 4251. Trident‘s underwriter
We therefore find that there is no genuine dispute that Signal‘s misrepresentation to MSI—which presented only positive information regarding the dry dock‘s condition while omitting
There is also no genuine dispute that MSI was, in fact, induced to underwrite the policy based on this misrepresentation. See Carroll, 166 F.3d at 805 (“[T]he insurer that issued a policy based on the false application is entitled to void or rescind the policy.” (emphasis added)); see also Republic Fire & Cas. Ins. Co. v. Azlin, No. 4:10-CV-037-SA-JMV, 2012 WL 4482355, at *6 (N.D. Miss. Sept. 26, 2012) (“[M]isstatements of material fact in an application for
James F. Morano, III, the MSI underwriter responsible for the EPI Policy, testified at his deposition that MSI “relied upon the [2009] Heller report,” which “gave a favorable overview of the condition of the properties,” for information regarding the dry dock‘s condition. J.A. 3241. He further testified that, if other surveys had “told [him] information that was different from the information that was being provided to [him], [he] would like to see it” when making his underwriting decision. J.A. 3264. In particular, “if [Signal] had surveys to indicate [the dry dock‘s] deteriorated condition, [or] repairs that ha[d] been done, that would be helpful.” Id. In a sworn declaration, Morano further stated as follows:
Had the conflicting information regarding the condition of the drydock been provided to [MSI] before the Policy was issued, I would have either declined to bind coverage, or offered coverage that expressly excluded claims arising out of the drydock, because the full picture regarding the condition of the drydock, as revealed in the many [undisclosed] engineer reports . . . , portrayed a material risk of imminent catastrophic failure.
J.A. 5629. Having reviewed Morano‘s account and the remainder of the record, we conclude that there is no genuine dispute that Signal‘s misrepresentation regarding the dry dock in its 2009-2010 Property Insurance Submission induced MSI to underwrite the EPI Policy.
Because there is no genuine dispute that Signal induced MSI to underwrite the EPI Policy by materially misrepresenting the dry dock‘s condition when it applied for coverage, the district court correctly held that MSI was entitled to void the EPI Policy under Mississippi law. Consequently, Fireman‘s Fund may not succeed on its claim for equitable contribution against MSI that it was granted on summary judgment below, as the validity of the EPI policy is a
CONCLUSION
We hold that Great American‘s Pollution Policy is a marine insurance contract and that Great American was entitled to void the policy under the doctrine of uberrimae fidei due to Signal‘s failure to disclose material information indicating that the dry dock was in a deteriorated condition and that recommended long-term repairs were not being made. We also hold that MSI was entitled to void the EPI Policy under Mississippi law because Signal materially misrepresented the dry dock‘s condition when it disclosed to MSI only reports reflecting positively on the dry dock, while failing to disclose numerous other reports indicating that the dry dock was in a dilapidated state and nearing the end of its useful life. Because no genuine disputes of fact exist as to these issues, the district court properly granted Great American‘s and MSI‘s motions for summary
Notes
The district court concluded that the dry dock was not a “vessel” under Lozman v. City of Riviera Beach, 568 U.S. 115, 133 S. Ct. 735 (2013), see Fireman’s Fund, 2013 WL 311084, at *3-5, and that “the vessel status of the Drydock was relevant [to the question of whether the EPI Policy was a marine insurance contract] because it informed the primary purpose of the PPI and EPI Policies[] and . . . was dispositive because the Drydock was ‘by far’ the largest piece of property insured” under those policies, Fireman’s Fund, 10 F. Supp. 3d at 479. The court did not find the dry dock’s status to be similarly dispositive of the question of whether the Great American Pollution Policy was a marine insurance contract. See id.
We need not review the district court’s conclusion that the EPI Policy was a non-maritime contract. Although MSI originally filed a cross-appeal challenging that conclusion, MSI later moved to withdraw its cross-appeal without prejudice to re-filing if we ordered a remand in the appeals considered here. We granted the motion, and therefore the question of whether the EPI Policy is a maritime contract is not before us.