North American Specialty Ins. Co. v. Savage, Civil Action No. CCB-95-2891.

• Decision Date: 30 April 1997
• Docket Number: Civil Action No. CCB-95-2891.
• Citation: 977 F.Supp. 725
• Parties: NORTH AMERICAN SPECIALTY INSURANCE COMPANY and National Marine Underwriters v. Warren Kim SAVAGE and Joanna Maxine Carillo.
• Court: U.S. District Court — District of Maryland

977 F.Supp. 725

NORTH AMERICAN SPECIALTY INSURANCE COMPANY and National Marine Underwriters v. Warren Kim SAVAGE and Joanna Maxine Carillo.

Civil Action No. CCB-95-2891.

United States District Court, D. Maryland.

April 30, 1997.

COPYRIGHT MATERIAL OMITTED

Christopher D. Buck, Buck, Midgal & Myers, Annapolis, MD, for Plaintiff.

Stuart H. Arnovits, Law Office of Jeffrey J. Silver, Baltimore, MD, for Defendants.

MEMORANDUM

BLAKE, District Judge.

Plaintiffs North American Specialty Insurance Company ("North American") and National Marine Underwriters ("NMU") have brought a declaratory judgment action against defendants Warren Kim Savage and Joanna Maxine Carillo related to a marine insurance policy issued to Mr. Savage. Cross-motions for summary judgment have been filed. For the reasons stated below, plaintiffs' motion for summary judgment will be granted, and defendant Carillo's motion for summary judgment will be denied.

BACKGROUND

Mr. Savage contacted NMU in early July 1992 in order to secure marine insurance. (Logan Aff. ¶ 3, Pls.' Mot. Summ. J. Ex. D.) A declaration page was presented to Mr. Savage that required him to disclose whether his driver's license had ever been suspended or revoked; whether he had ever been convicted of a felony, of driving while intoxicated, or of driving under the influence of alcohol; and to state the particulars of any losses or moving traffic violations in the past three years. (Flagship Policy Decl. Page, Pls.' Mot. Summ. J. Ex. A.) Mr. Savage answered "no" to the question whether his license had ever been revoked or suspended, and whether he had ever been convicted of a felony or an alcohol-related driving offense. He also did not claim that he had experienced any losses in the last three years. (Id.) He did disclose two speeding tickets in 1990 and 1991, and a reckless driving violation. (Id.) Enclosed in a red outlined box, just above the signature line, was the following statement: "The information above is the basis for this policy. I/we understand that if any of the statements are not true, then there will be no coverage under this policy." (Id.) The declaration page was signed by Mr. Savage on August 2, 1992. (Id.)

Plaintiffs issued a marine insurance policy to Mr. Savage effective July 30, 1992. On August 22, 1992 Ms. Carillo suffered injuries resulting from a boating accident that occurred while she was a passenger on a boat owned by Mr. Savage, insured by North American, and underwritten by NMU.

Mr. Savage's driving record, pulled as part of the investigation following the accident, indicates that he was convicted on June 22, 1992 of failure to submit to a blood/ breath alcohol test in March 1992 which resulted in a six month suspension of his license. He also had his license suspended in 1987-1988.¹ (Savage Driver Record Service Report, Pls.' Mot. Summ. J. Ex. C.) In addition, he had been involved in an accident in June 1991 that resulted in personal injury. (Id.)

Plaintiffs sent several letters to Mr. Savage. The first letter, reserving all of plaintiffs' rights and defenses under the contract, was sent by certified mail on September 28, 1992 and was not claimed. (Pls.' Reply Ex. C.) The second letter was sent October 27, 1992 and enclosed a copy of the first letter. (Pls.' Reply Ex. D.) The third letter, dated November 13, 1992, informed Mr. Savage that, because he failed to reveal two prior driver's license suspensions, his insurance policy was void ab initio. (See Pls.' Mot. Summ. J. Ex. G.)

Ms. Carillo filed suit to recover for her injuries. North American and NMU have brought this declaratory judgment action against both Ms. Carillo and Mr. Savage in order to determine whether the policy could be voided ab initio. Default judgment has been entered against Mr. Savage. The plaintiffs invoke both the diversity and the admiralty jurisdiction of this court. Accordingly, both Maryland and maritime law will be addressed. See Puritan Ins. Co. v. Eagle Steamship Co. S.A., 779 F.2d 866, 872 (2nd Cir.1985) (considering whether admiralty or state law applies in a diversity action).

ANALYSIS

North American and NMU have moved for summary judgment alleging that the marine insurance policy in this case can be voided ab initio because they issued the policy in reliance on a material misrepresentation Mr. Savage made in his application. Ms. Carillo opposes the plaintiffs' motion and has moved for summary judgment. She argues that plaintiffs should not be permitted to avoid their responsibilities under the contract for several reasons:(1) Mr. Savage's driving record was not material to the marine insurance contract; (2) the right of a marine insurer to void a contract ab initio where innocent third-parties are injured is against public policy; (3) estoppel principles apply; and (4) plaintiffs failed to exercise good faith in accordance with the doctrine of "Uberrimae Fidei" applicable to marine insurance.

I. Material Misrepresentation

Generally, insurance policies may be voided ab initio when an insurer issued a policy in reliance on a material misrepresentation in the application. See Fitzgerald v. Franklin Life Ins. Co., 465 F.Supp. 527, 534 (D.Md.1979), aff'd, 634 F.2d 622 (1980). Materiality is determined by considering whether, given the circumstances of the case, the information omitted could "`reasonably have affected the determination of the acceptability of the risk.'"² Hartford Accident and Indem. Co. v. Sherwood Brands, Inc., 111 Md.App. 94, 109, 680 A.2d 554, 561 (1996) (quoting Nationwide Mut. Ins. Co. v. McBriety, 246 Md. 738, 744, 230 A.2d 81, 84 (1967)), cert. granted, 344 Md. 116, 685 A.2d 450 (1996). The misrepresentation must actually have been relied on in issuing the policy or setting the premium in order for it to be material. See id. (relying on Erie Ins. Exch. v. Lane, 246 Md. 55, 59, 227 A.2d 231, 234 (1967), overruled in part on different grounds, Cohen v. American Home Assurance Co., 255 Md. 334, 258 A.2d 225 (1969)). Summary judgment is appropriate when "there is no genuine issue as to any material fact, and if the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). The materiality of a misrepresentation can be determined as a matter of law "when the evidence is clear and convincing, or uncontradicted." See Peoples Life Ins. Co. v. Jerrell, 271 Md. 536, 538, 318 A.2d 519, 520 (1974); see also National Life and Accident Ins. Co. v. Gordon, 45 Md.App. 139, 140-41, 411 A.2d 1087, 1088 (1980) (citing cases).

North American claims that Mr. Savage's failure to disclose that his license had been suspended two times in the past constituted a material misrepresentation warranting avoidance of the policy.³ During the process of obtaining insurance Mr. Savage answered "no" to the straight forward, unambiguous question, "[h]as your license ever been suspended or revoked?" See Stumpf v. State Farm Mut. Auto. Ins., 252 Md. 696, 707, 251 A.2d 362, 367-68 (1969) (citing Government Employees Ins. Co. v. Cain, 226 F.Supp. 589 (D.Md.1964)) (requiring a court to find the question unambiguous before voiding the policy).

Mr. Savage's response amounts to a misrepresentation because his driving record indicates that his license was suspended on at least two prior occasions. On August 4, 1988 his license was suspended for ninety days for driving under revocation or suspension⁴; on June 22, 1992 he was convicted of failing to submit to a blood/breath alcohol test, and his license was suspended for six months. (See Savage Driver Record Service Report, Pl.'s Mot. Summ. J. Ex. C.) From the record it appears that Mr. Savage did not have a valid driver's license when he sought and obtained marine insurance from plaintiffs.

Failure to reveal a suspended driver's license, or a history of moving violations, has been considered a material misrepresentation in the context of applications for automobile insurance. See Southern General Ins. Co. v. O'Keefe, 275 F.Supp. 107, 109 (D.Md.1967); West, 149 F.Supp. at 305; Erie Ins. Co. v. Insurance Comm'r, 84 Md.App. 317, 321-22, 579 A.2d 771, 773 (1990) (citing cases). Although a valid driver's license is not required to operate a boat in Maryland, as a matter of policy, North American does not issue marine insurance "IF A CUSTOMER HAS HAD HIS LICENSE REVOKED OR SUSPENDED AND DOES NOT HAVE A CURRENT DRIVERS LICENSE. AUTOMATIC DECLINE." (Underwriting Guidelines at 2, Pls.'s Mot. Summ. J. Ex. E; see also Logan Aff. Ex. D ¶ 9; Goodchild Dep. Ex. F at 12.) This policy appears reasonable given the similarity of skills and risks involved in operating either an automobile or a boat.⁵

Plaintiffs assert that they relied on Mr. Savage's representations on the declaration page in issuing the policy and that if Mr. Savage had disclosed his suspension he would have been denied coverage pursuant to the policy. (See Logan Aff. ¶ 11, Pls.' Mot. Summ. J. Ex. D.) The court finds that the withholding of this information affected plaintiffs' decision to insure Mr. Savage; specifically, a policy was issued that otherwise would have been declined. Accordingly, the court concludes as a matter of law that there was a material misrepresentation on the application.

II. Right of a Marine Insurer to Invalidate a Policy Ab Initio

North American and NMU claim that in the event of a material misrepresentation on an application for marine insurance the insurer has the right to void the contract ab initio. See Fitzgerald, 465 F.Supp. at 534 (explaining the general rule that an insurance contract may be voided for material misrepresentation on an application). Ms. Carillo argues against the insurers' right to void the contract by relying on the strong public policy in favor of compensation of injured third-party victims as evidenced by the Court of Appeals' decision in Van Horn v. Atlantic Mutual Insurance Co., 334 Md. 669, 641 A.2d 195 (1994).

The...