Albany Ins. Co. v. Anh Thi Kieu

Decision Date05 April 1991
Docket NumberNo. 90-4218,90-4218
PartiesALBANY INSURANCE COMPANY, Plaintiff-Appellant, v. ANH THI KIEU, Defendant-Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Richard J. White, Clann, Bell & Murphy, Houston, Tex., Francis J. Barry, Jr., Deutsch, Kerrigan & Stiles, New Orleans, La., for plaintiff-appellant.

Jon B. Burmeister, Everrett H. Sanderson, Moore, Landrey, Garth & Jones, Beaumont, Tex., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Texas.


JOHNSON, Circuit Judge:

Oblivious to the tangled mess it has left the practitioner to decipher, this Court has extended numerous--and often seemingly inconsistent--explanations of the appropriate choice of law in marine insurance disputes. Our task in the instant appeal is to untie the Gordian knot. Albany Insurance Company ("Albany") challenges the district court's declaration that appellee Anh Thi Kieu recover some $90,405 in damages and "sue and labor" charges under a marine insurance contract. The district court determined that Texas insurance law, and not federal maritime or Louisiana insurance law, governed the parties' rights and obligations. Unable to conclude that the district court committed reversible error, this Court affirms the judgment of the district court.


In February 1988, Anh Thi Kieu, a Vietnamese immigrant who resides in Texas, attempted to secure marine hull insurance coverage on the F/V STACY MARIE, a sixty-five foot shrimping vessel. An independent agent, the Edgar Coco Agency, Inc., of Marksville, Louisiana, submitted to Anh Thi Kieu an application for insurance coverage from Albany Insurance Company. Although it was printed in English, Anh Thi Kieu completed the application. The Edgar Coco Agency forwarded the application to Albany's general agent, G & M Insurance Company. On March 1, 1988, Albany approved coverage of the STACY MARIE and forwarded a policy to Anh Thi Kieu. 1

It is undisputed that Anh Thi Kieu's application for insurance coverage contained several inaccurate statements. Among other things, Anh Thi Kieu recited (1) that she regularly operated the STACY MARIE as captain, (2) that the vessel had sustained no damages in the last five years, and (3) that she had purchased the vessel for $110,000. In truth, Anh Thi Kieu purchased the STACY MARIE in 1984 for $30,000 and assembled an independent crew to guide the vessel in fishing and shrimping operations off the coast of Port Arthur, Texas. Late in 1984, the STACY MARIE collided with an offshore repair boat and suffered minor damage that was repaired by a marine shipyard in Freeport, Texas. Albany Insurance Company had ample opportunity to discover these facts and cancel coverage. Instead, Albany continued to receive premiums from Anh Thi Kieu and to extend coverage on the STACY MARIE.

On November 3, 1988, the STACY MARIE allided with an unmarked offshore Department of Energy platform. The allision damaged the hull planking on the vessel and opened a gaping hole on its port bow. Assisted by the Coast Guard and another shrimp boat, the crew of the STACY MARIE successfully floated the vessel to Sabine Pass, Texas. There, Sabine Offshore Services, Inc. ("Sabine Offshore"), agreed to place the STACY MARIE in dry storage in its dock yard. Anh Thi Kieu apparently secured these dry storage arrangements with Sabine Offshore in an effort to "save and preserve" the STACY MARIE.

After learning from Anh Thi Kieu that the vessel had suffered an allision, Albany investigators surveyed the damage. The investigators recommended that Albany deny any liability under the marine hull insurance policy. Subsequently, Albany filed a declaratory judgment action in federal district court requesting a declaration of Anh Thi Kieu's rights in the policy. The district court entered findings of fact and conclusions of law on February 21, 1990. The court declared that Anh Thi Kieu should recover the insured value of the STACY MARIE ($90,000) minus the salvage value of the vessel's hull ($15,000)--a total of $75,000 in damages. In addition, the court ordered that Anh Thi Kieu recover $15,405 in "sue and labor" charges--an amount intended to cover the storage fees at Sabine Offshore.


Albany raises a number of arguments on appeal. The most significant of these arguments attack the district court's application of Texas insurance law. Albany argues that the district court erroneously applied Texas insurance law and instead should have applied the federal law of uberrimae fidei. In the alternative, Albany argues that the district court should have applied Louisiana insurance law instead of Texas insurance law. Maritime commerce traverses the waters of many states. A set of facts in a maritime case could conceivably implicate the laws of several states, as well as the federal laws of the United States. Thus, in determining the applicable law, a court first must consider whether federal maritime law is preeminent, and then often must also consider whether one state's law is applicable over another state's law. We begin with the federal preemption analysis.

A. Maritime Preemption

Albany contends that the federal law of uberrimae fidei, which invalidates marine insurance contracts on evidence of the assured's material misrepresentations to the underwriter, supports its denial of liability on the policy covering the STACY MARIE. Anh Thi Kieu responds that relevant provisions of the Texas Insurance Code preclude Albany's denial of coverage. The issue is simply stated, but the law is complex: does federal maritime law or state insurance regulation determine the effect of an assured's misrepresentations? Although the courts typically rely upon federal common law to resolve maritime disputes, state law occasionally can be used to supplement or even supersede maritime law. Coastal Iron Works, Inc. v. Petty Ray Geophysical, 783 F.2d 577, 582 (5th Cir.1986); J. Ray McDermott & Co. v. The Vessel Morning Star, 457 F.2d 815, 818 (5th Cir.) (en banc), cert. denied, 409 U.S. 948, 93 S.Ct. 271, 34 L.Ed.2d 218 (1972). 2 State law is particularly significant in marine insurance disputes.

In Wilburn Boat Co. v. Fireman's Fund Insurance Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955), the United States Supreme Court concluded that the regulation of marine insurance is, in most instances, properly left with the states. Id. at 321, 75 S.Ct. at 374-75. Following the direction of the Court in Wilburn Boat, the Fifth Circuit has ruled that "the interpretation of a contract of marine insurance is--in the absence of a specific and controlling federal rule--to be determined by reference to appropriate state law." Ingersoll-Rand Financial Corp. v. Employers Ins. of Wausau, 771 F.2d 910, 912 (5th Cir.1985). This presumption of state law is, by now, "axiomatic." INA of Texas v. Richard, 800 F.2d 1379, 1380 (5th Cir.1986). State law, therefore, governs the interpretation of marine insurance policies unless an available federal maritime rule controls the disputed issue. This Circuit has identified three factors that a court should consider in determining if a federal maritime rule controls the disputed issue: (1) whether the federal maritime rule constitutes "entrenched federal precedent," Fireman's Fund Ins. Co. v. Wilburn Boat Co., 300 F.2d 631, 633 (5th Cir.), cert. denied, 370 U.S. 925, 82 S.Ct. 1562, 8 L.Ed.2d 505 (1962); (2) whether the state has a substantial and legitimate interest in the application of its law, Morrison Grain Co. v. Utica Mut. Ins. Co., 632 F.2d 424, 429 (5th Cir.1980); (3) whether the state's rule is materially different from the federal maritime rule, Walker & Sons, Inc. v. Valentine, 431 F.2d 1235, 1239 (5th Cir.1970). See Kossick v. United Fruit Co., 365 U.S. 731, 738-39, 81 S.Ct. 886, 891-92, 6 L.Ed.2d 56 (1961). 3 These factors are merely instructive and not dispositive. We address them in reverse order.

State insurance law generally should not govern marine insurance disputes if it is materially different from federal maritime law. The application of state law inconsistent with the core principles of maritime law "would defeat the reasonably settled expectations of maritime actors." Exxon Corp. v. Chick Kam Choo, 817 F.2d 307, 318 (5th Cir.1987), rev'd on other grounds, 486 U.S. 140, 108 S.Ct. 1684, 100 L.Ed.2d 127 (1988). While there is no requirement that state insurance regulations precisely mirror parallel federal regulations, state law should not be applied unless it bears a reasonable similarity to the federal maritime practice. We find a reasonable similarity between the applicable federal and state laws in the instant case. Under the uberrimae fidei doctrine, an assured's material misrepresentations invalidate the policy of insurance ab initio. Gulfstream Cargo, Ltd. v. Reliance Ins. Co., 409 F.2d 974, 980-81 & n. 20 (5th Cir.1969). Under Texas law, an assured's misrepresentations may invalidate the policy of insurance, but only if the insured intended to deceive the insurer. Mayes v. Massachusetts Mutual Life Ins. Co., 608 S.W.2d 612, 616 (Tex.1980). Texas law, unlike federal law, imposes an appropriate limitation that relatively minor misstatements which the insured did not intend to make do not afford the insurer an excuse to refuse payment. The fundamental nature of both laws, however, is the same. Texas insurance law shares the concern of federal maritime law that an assured should not profit from her material misrepresentations to the underwriter.

State insurance law generally should not govern marine insurance disputes if the state does not have a substantial and legitimate interest in the application of its law. Federal maritime law properly controls any maritime dispute in the absence of a substantial and legitimate state interest....

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