QBE Seguros v. Morales-Vázquez

• Decision Date: 19 January 2021
• Docket Number: No. 19-1503,19-1503
• Citation: 986 F.3d 1
• Parties: QBE SEGUROS, Plaintiff, Appellee, v. Carlos A. MORALES-VÁZQUEZ, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

986 F.3d 1

QBE SEGUROS, Plaintiff, Appellee,

v.Carlos A. MORALES-VÁZQUEZ, Defendant, Appellant.

No. 19-1503

United States Court of Appeals, First Circuit.

January 19, 2021

Alberto J. Castañer, San Juan, PR, with whom Castañer & Cía P.S.C., Juan Rafael González-Muñoz, and González Muñoz Law Offices, PSC were on brief, for appellant.

Manuel Sosa-Báez, with whom Ian P. Carvajal, San Juan, PR, and Saldaña, Carvajal & Vélez-Rivé, P.S.C. were on brief, for appellee.

Before Barron and Selya, Circuit Judges, and Katzmann, Judge.^*

SELYA, Circuit Judge.

This appeal involves a dispute between a boat owner (who purchased a policy of marine insurance without disclosing, among other things, a prior grounding) and his insurance company. Resolving the appeal requires us to revisit the doctrine of uberrimae fidei — an entrenched principle of maritime law that imposes a duty of utmost good faith on the parties to marine insurance contracts. Concluding, as we do, that the district court faithfully applied this doctrine, we affirm the entry of judgment in favor of the insurer.

I. BACKGROUND

We briefly rehearse the relevant facts and travel of the case. In 2011, defendant-appellant Carlos Morales-Vázquez (Morales) purchased an insurance policy for his forty-foot Riviera yacht (the Riviera Policy) from Optima Insurance Company, an entity later acquired by another insurance company, plaintiff-appellee QBE Seguros (QBE). As part of his application for this insurance policy, Morales left blank the spaces provided for answers to questions asking him to describe his prior boating history and all accidents related to any vessel he had previously owned, controlled, and/or operated. Morales renewed this policy (with QBE) in both 2012 and 2013.

In March of 2014, Morales applied for a separate insurance policy for his forty-eight-foot Cavileer yacht (the Cavileer Policy). Section seven of the application required Morales to disclose any accidents or losses sustained in connection with any vessel he had owned, controlled, and/or operated. This time, Morales indicated that he had been involved in an accident some eleven years earlier, explaining that the accident was a "propeller strike" and that "[p]ropellers were replaced [and] shaft and rudders rectified." But Morales did not see fit to mention that in January of 2010 he had grounded a forty-foot Riviera Offshore yacht in Fajardo, Puerto Rico.

The omission of the earlier grounding was not Morales's only oversight. Section six of the application for the Cavileer Policy required Morales to recount his boat-ownership and boat-operating history. When responding, Morales listed only two of the seven boats that he previously had owned and/or operated (a forty-foot Riviera Offshore yacht and a forty-foot Riviera Sport Fisherman). He omitted the remaining information called for by section six even though the application form plainly stated that "[i]f incorrect answers are provided (either by error, omission or neglect), I will be in breach of this warranty and the policy, if issued, will be void from inception."

Morales submitted the application for the Cavileer Policy to an insurance broker, who contacted an underwriter at QBE. The broker indicated that the putative insured wanted to obtain a quote the same day. Thirty-six minutes after receiving the application, the underwriter quoted a premium to the broker. In pricing the quotation, the underwriter relied, among other things, on the information contained in the applications for both the Riviera Policy and the Cavileer Policy, as well as Morales's "more than 15 years" of nautical "owner experience." QBE Seguros v. Morales-Vázquez, No. 15-2091, 2018 WL 3763305, at *1-3 (D.P.R. Aug. 7, 2018). She later testified at trial that she had evaluated the paperwork thoroughly before authorizing the issuance of the policy. The net result of the dealings between the broker and the underwriter was that, as of March 7, 2014, Morales's Cavileer yacht was insured by QBE for the ensuing year in the face amount of $550,000.

On October 24, 2014, the Cavileer yacht sustained appreciable damage from a fire. Morales reported the loss to QBE, and QBE retained an independent adjustor to work with its own employees toward resolving Morales's claim. Following a number of surveys, QBE made a settlement offer in December of 2014: it offered to pay Morales $63,774.10 in satisfaction of the loss. Morales rejected the offer.

Negotiations between the parties continued over the next few months, and Morales rejected several other settlement offers from QBE. The tectonic plates shifted, though, in May of 2015, when QBE became aware of Morales's 2010 grounding. QBE exercised its right to question Morales under oath, and Morales admitted that he had not disclosed the 2010 grounding — nor had he disclosed (in his application for the Cavileer Policy) the existence of five vessels that he previously had owned and/or operated.

With Morales's admissions in hand, QBE repaired to the federal district court in mid-2015. Invoking the court's admiralty jurisdiction, see 28 U.S.C. § 1333, QBE sought a declaratory judgment voiding the policy on the grounds that Morales had failed to honor his duty of utmost good faith (known as "uberrimae fidei" in maritime law) in acquiring the Cavileer Policy and, in the bargain, had breached the warranty of truthfulness contained in the Cavileer Policy. Morales answered QBE's complaint, denied that QBE was entitled to the relief that it sought, asserted affirmative defenses of waiver and estoppel, and counterclaimed for damages arising out of QBE's alleged bad faith. The parties consented to proceed before a magistrate judge, see 28 U.S.C. § 636(c) ; Fed. R. Civ. P. 73, and — following preliminary motion practice and extensive pretrial discovery — they cross-moved for full or partial summary judgment. The district court denied both motions, but noted the relevance of the doctrine of uberrimae fidei and QBE's corresponding right to void the Cavileer Policy if Morales had made a material omission or misrepresentation.

A six-day bench trial ensued. The district court reserved decision, entertained post-trial briefing, and decided the case in a thoughtful rescript. The court concluded that QBE was entitled to void the policy for two independently sufficient reasons: Morales had breached not only the duty of uberrimae fidei but also the policy's warranty of truthfulness. See QBE, 2018 WL 3763305, at *16. In connection with the latter holding, the court rejected Morales's affirmative defenses. See id. at *12-14. This timely appeal followed.

II. ANALYSIS

In this venue, Morales propounds four arguments. First, he asks that we hold the doctrine of uberrimae fidei inapplicable because of recent legal developments in the United Kingdom. Second, he says that even if the doctrine applies generally, the district court made no finding that QBE actually relied on his omissions and, thus, erred in holding that he had breached the duty. Third, he argues that the district court erred in finding that he breached the warranty of truthfulness. And finally, he argues that his affirmative defenses trump any right that QBE may have had to void the Cavileer Policy. The first two arguments are obviously related, and we discuss them together. As matters turn out, the resolution of those arguments suffices to lay this appeal to rest.

Given the thrust of Morales's first argument, we think it useful to start by sketching the evolution of the doctrine of uberrimae fidei. The Latin phrase "uberrimae fidei" loosely translates as "utmost good faith." See Black's Law Dictionary (10th ed. 2014). As relevant here, the doctrine requires parties to a marine insurance contract to disclose all known facts or circumstances material to an insurer's risk. See Windsor Mount Joy Mut. Ins. Co. v. Giragosian, 57 F.3d 50, 54-55 (1st Cir. 1995). Under the doctrine, an insurer may void a marine insurance policy if its insured fails to disclose "all circumstances known to [the insured] and unknown to the insurer" that materially impact the insurer's risk calculus. Catlin at Lloyd's v. San Juan Towing & Marine Servs., Inc., 778 F.3d 69, 83 (1st Cir. 2015) (emphasis in original); cf. Stipcich v. Metro. Life Ins. Co., 277 U.S. 311, 316, 48 S.Ct. 512, 72 L.Ed. 895 (1928) (holding to like effect with respect to certain contracts outside marine insurance context).

The origins of the doctrine can be traced back to eighteenth-century London, which was — and remains — a global insurance hub. In its nascent form, the doctrine applied to a myriad of insurance contracts across a wide swath of industries. As early as 1766, Lord Mansfield recognized that insurance contracts impose a heightened duty of good faith to prevent a party from omitting or concealing facts that would induce the counterparty "into a bargain, from his ignorance." Carter v. Boehm (1766) 97 Eng. Rep. 1162, 1164 (K.B.). Such a requirement was rooted in practical wisdom, recognizing that an insurer often lacked the ability to verify the insured's representations before issuing a policy. See Thomas J. Schoenbaum, Admiralty and Maritime Law § 19:14, at 460 (6th ed. 2018). This practical wisdom still rings true when applied to marine insurance — an industry in which, for example, a policy may have to be issued in London, on a timesensitive basis, for a vessel berthed halfway across the globe.

American courts first recognized the doctrine of uberrimae fidei in connection with marine insurance contracts in the early nineteenth century. See McLanahan v. Universal Ins. Co., 26 U.S. (1 Pet.) 170, 185, 7 L.Ed. 98 (1828). In 1882, the Supreme Court confirmed the strict disclosure requirements that the doctrine imposed on an insured. See Sun Mut. Ins. Co. v. Ocean Ins. Co., 107 U.S. 485, 510-11, 1 S.Ct. 582, 27 L.Ed. 337 (1883).

For some time, American and English law concerning marine insurance continued to develop in parallel through a parade of judicial decisions....