confusion sprung up that year when Wilburn Boat Co. v. Fireman's Fund Ins. Co. constricted the range of scenarios to which uberrimae fidei applied. Id.
In Wilburn Boat, the Supreme Court ruled that because Congress established a strong presumption that states should regulate insurance contracts, if there was not an established federal precedent of applying federal admiralty law to a particular type of marine insurance dispute, then the state insurance regulatory scheme would govern. Because at that time there was not a federal admiralty doctrine concerning the discharge of express and discrete contractual duties, i.e. express warranties, the Supreme Court declined to expand the federal admiralty standard into a new area and instead allowed the strong presumption of state regulation to prevail.
In that case, the owner of a small houseboat which operated on Lake Texoma, a small artificial lake between Texas and Oklahoma, had taken out a marine insurance policy to cover loss by fire. Within the duration of the policy, the owners used the boat for commercial purposes to transport passengers and also transferred legal title of the boat. Both commercial use and title transfer were breaches of express warranties of the insurance policy. The boat was destroyed by fire, and the owners sought to collect on the policy. Under Texas law, the insurance company could not rescind the policy based on the assured's breaches of warranties. The insurer relied instead on the federal doctrine of utmost good faith in admiralty law in refusing payment for the loss. After finding no federal precedent for applying the standard of utmost good faith to express warranties, the Supreme Court ruled that Texas insurance law and not federal admiralty law applied to this dispute.
Subsequent to Wilburn Boat, the courts have differed in the types of factual scenarios in which they concluded that there is established federal precedent. The rulings in the other courts of appeals on the extent to which uberrimae fidei applies in a marine insurance setting have ranged from automatic application of the federal rule, e.g., Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 13 (2d Cir. 1986) ("It is well-established under the doctrine of uberrimae fidei that the parties to a marine insurance policy must accord each other the highest degree of good faith."); Puritan Ins. Co. v. Eagle S.S. Co. S.A. 779 F.2d 866, 870 (2d Cir. 1985); Ingersoll Mill. Mach. Co. v. M/V Bodena, 829 F.2d 293, 308 (2d Cir. 1987); to reluctant application of the state rule, e.g., Albany, 927 F.2d at 889 ("No opinion of this Court has ever explicitly authorized the application of the uberrimae fidei doctrine to invalidate a marine insurance policy. . . . We . . . conclude, albeit with some hesitation, that the uberrimae fidei doctrine is not 'entrenched federal precedent.')
The Seventh Circuit is among those which have not yet addressed Wilburn Boat, nor ruled at all on this aspect of marine insurance contracts. This court is therefore obliged to determine the extent to which uberrimae fidei should apply to marine insurance disputes in this circuit. As an initial matter, this court notes that the case at bar is factually distinguishable from Wilburn Boat for two reasons. First, Wilburn Boat involved discrete contractual duties (i.e. express warranties) which the assured allegedly breached, whereas at bar the dispute covers an ongoing obligation to report changes material to the risk assumed by the insurer. Second, Wilburn Boat involved an inland marine matter while the case at bar involves a trans-ocean commercial setting.
Given that the case at bar is distinguishable, the court must determine if there is established federal precedent governing this particular dispute. The court notes two dispositive points. First, if it applies anywhere, uberrimae fidei applies to those elements of a marine insurance policy which establish ongoing and continuous contractual duties between the parties. Second, the need for a single national voice in the field of international trade, and the need for harmonization of marine insurance laws with the laws of Great Britain, have both long been recognized as justifications for applying a uniform federal doctrine to marine disputes.
The standard of utmost good faith in an assured's ongoing contractual obligations has numerous purposes, including: protecting insurance company assets and the assets of policy holders; deterring the submission of misleading information; promoting personal integrity by imposing harsh penalties on dishonesty; preventing the imposition of frauds and perjuries on the court; and injecting certainty, predictability and uniformity into the law. See generally Duncan B. Cooper III, Misrepresentations and False Warranties in Insurance Applications, 58 Ill. Bar J. 962 (Aug. 1970); cf. Stone v. Those Certain Underwriters at Lloyds, 81 Ill. App. 3d 333, 336-37, 36 Ill. Dec. 781, 401 N.E.2d 622 (5th Dist. 1980) ("The law relating to an insured's duty to make truthful disclosures and representations in applications for insurance arose from maritime law applications.").
One treatise on insurance law contains an eloquent statement of why utmost good faith applies particularly to parties to a marine insurance contract.
It must be recognized that marine insurance is big business. The amounts involved in such policies, usually, are comparatively large. The parties requesting insurance are not unskilled laymen venturing into an unknown field. Shipowners are experts in their field and it would create an intolerable situation to permit such people to shift their losses through subterfuge or nondisclosure of facts available to them. The subject of insurance is not always available for inspection by the underwriter. Ships and cargo may be at sea when coverage is requested.