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ST. PAUL INS. CO. v. GREAT LAKES TURNINGS

August 5, 1993

ST. PAUL INSURANCE COMPANY OF ILLINOIS, Plaintiff, Counter-Defendant
v.
GREAT LAKES TURNINGS, LTD., NATIONAL MATERIAL TRADING, NATIONAL PINKERT STEEL, a Division of NATIONAL MATERIALS, LTD., and TANK INDUSTRIES, INC., Defendants, Counter-Plaintiffs. GREAT LAKES TURNING, LTD., Third-Party Plaintiff, v. ALEXANDER & ALEXANDER, INC., Third-Party Defendant.



The opinion of the court was delivered by: BRIAN BARNETT DUFF

 This is a marine insurance case. Counts II and III of the Second Amended Complaint ask for rescission of an insurance policy under the doctrine of uberrimae fidei (utmost good faith and honesty) based on misrepresentations and nondisclosures which the Defendant assureds allegedly made to the Plaintiff insurer. The Defendants have filed a motion to dismiss Counts II and III of the Second Amended Complaint. They assert that uberrimae fidei is not applicable and that, accordingly, the Illinois doctrine of ordinary good faith in insurance contracts governs this dispute. Under this doctrine, the Defendants assert that the Plaintiff has not stated a claim for relief. *fn1" For the following reasons, the motion to dismiss is denied.

 BACKGROUND

 The Plaintiff, St. Paul Insurance Company of Illinois, insures ship charterers against liabilities incurred on chartered voyages. The Defendant, Great Lakes Turnings, Ltd. ("Great Lakes"), fashions and transports steel turnings. In June 1987, Defendant Great Lakes took out a one-year charterer's protection and indemnity "open policy" with the Plaintiff to insure voyages it would charter to ship its steel turnings between the Great Lakes area and Spain ("the Policy"). An open marine insurance policy is one for which a premium is typically paid for each individual voyage. See George J. Couch, 15 Couch on Insurance 2d § 55:2 (rev. ed. 1979); John Alan Appleman, 4 Insurance Law and Practice § 2390 (Berdal ed. 1979 & Supp. 1991). Unlike a "valued" policy, the assured is usually required to declare each voyage made within the duration of the policy. See id. (Supp. 1991). The Policy was renewed in 1988, 1989 and 1990. Between 1987 and 1990, the Defendants chartered thirty-seven voyages and informed the Plaintiff of and paid the premium for five of these. (Second Am. Compl. Count I P 79.)

 Clauses 10 and 14 of the Policy provide that the assured must give prompt notice of changes in policy conditions and pay additional premiums if necessary, and that "the Assured agrees to advise the Assurer as soon as practicable the Name, Tonnage, and On Hire and off Hire date of all vessels chartered during the currency of the policy." (Pl.'s Ex. 1.) The Plaintiff asserts that Form SP 23 (a standard marine P & I form) was also part of the Policy. In relevant part, the Form SP 23 provides that the Defendant will promptly notify and forward to the Plaintiff information about any occurrence which may result in liability.

 DISCUSSION

 The standard governing this court's decision on a Rule 12(b)(6) motion is well established. Only if the allegations in the complaint, and all reasonable inferences drawn therefrom, could not support any cause of action may this court grant the motion. See generally Charles Wright & Arthur Miller, 5A Federal Practice and Procedure: Civil 2d § 1357 (West Publishing, 2d ed. 1990). The court, however, need not strain to find inferences favorable to the Plaintiff which are not apparent on the face of the complaint. Coates v. Illinois State Board of Education, 559 F.2d 445, 447 (7th Cir. 1977).

 It is undisputed that marine contracts, including marine insurance contracts, fall under federal admiralty jurisdiction in Article 3, Section 2 of the United States Constitution. The New England Marine Insurance Co. v. Dunham, 78 U.S. (11 Wall.) 1, 31, 20 L. Ed. 90 (1871); Kossick v. United Fruit Co., 365 U.S. 731, 735, 6 L. Ed. 2d 56, 81 S. Ct. 886 (1961); Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882, n.2 (5th Cir.), cert. den. 116 L. Ed. 2d 230, 112 S. Ct. 279 (1991); Albany Ins. Co. v. Wisniewski, 579 F. Supp. 1004, 1013 (D.R.I. 1984). However, Congressional acquiescence to state insurance regulation has established a broad presumption that state codes regulating marine insurance contracts are valid notwithstanding the federal nature of admiralty law. Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 313, 99 L. Ed. 337, 75 S. Ct. 368 (1955), citing the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et seq.

 When no particular state code exists to govern a marine insurance dispute, but the state does possess a general regulatory scheme over insurance contracts, state law will govern if the state has a substantial and legitimate interest in the furtherance of its own laws in the dispute and there is no relevant established federal precedent. Kossick, 365 U.S. 731, 6 L. Ed. 2d 56, 81 S. Ct. 886 ; Wilburn Boat, 348 U.S. 310, 99 L. Ed. 337, 75 S. Ct. 368.

 I. Substantial and Legitimate State Interest in Marine Insurance.

 Illinois has no substantial and legitimate interest in the application of its regulatory scheme concerning insurance nondisclosures and misrepresentations to the dispute at bar. As noted above, state insurance regulatory schemes do not govern marine insurance disputes if the state does not have a substantial and legitimate interest in the application of its law. Kossick, 365 U.S. at 738; Albany, 927 F.2d at 887. In other words, unless the local interest in the controversy materially exceeds the federal marine concerns, federal admiralty law will apply. Id.

 In Kossick, a seaman on shore in New York made an oral agreement by telephone with his employer regarding medical treatment. Under the New York Statute of Frauds, the oral agreement was not a contract; however, under federal admiralty law, the oral agreement was a contract. The Kossick court ruled that the controlling question for deciding whether state or federal law applies to a marine contract dispute is "whether the alleged contract, though marine, is 'maritime and local.'" 365 U.S. 738 (citation omitted). This balancing of state and federal interests addresses the "process . . . of accommodation, entirely familiar in many areas of overlapping state and federal concern," that allows states to maintain an interest in the "status and well-being" of its citizens. Kossick, 365 U.S. at 739. The Supreme Court found that the application of state law would disturb the uniformity of marine law because such an oral contract "may well have been made anywhere in the world, and that the validity of it should be judged by one law wherever it was made." Id. at 741. Moreover, the Supreme Court held that the contract at issue was not "peculiarly a matter of state and local concern." Id. (citation omitted).

 Likewise, in the case at bar, the contract at issue is not peculiarly a matter of state and local concern. *fn2" First, the Illinois statute on point, 215 ILCS 5/154, specifically excludes marine insurance from its scope: "this section shall not apply to policies of marine . . . insurance." 215 ILCS 5/154. The statute requires an insurer to request specific information and for the insured to intentionally provide a false reply before a policy can be avoided. 215 ILCS 5/154 (Michie 1993); Preferred Risk Mutual Insurance Company v. Hites, 125 Ill. App. 2d 144, 259 N.E.2d 815 (1970). This standard demands substantially less strict behavior of assureds than the federal standard in which any nondisclosure or misrepresentation, even if made unknowingly, will void the policy if it pertains to information material to the risk assumed by the insurer. Ingersoll Mill. Mach. Co. v. M/V ...


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