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Maritime Law--8th Circuit Finds for Marine Insurer on Utmost Good Faith (Uberrimae Fidei) Principles

In New York Marine & General Ins. v. Continental Cement Co., Case No.13-2313 (8th Cir. July 17, 2014), the Eighth Circuit Court of Appeals has found that the District Court did not abuse its discretion in submitting the uberrimae fidei instruction against the insured.

Starr Indemnity filed a declaratory judgment action in the United States District Court for the Eastern District of Missouri, seeking a determination of its rights and obligations under Continental Cement's insurance policies after MARK TWAIN, a cement barge owned by Continental Cement, sank in the Mississippi River. Continental Cement counterclaimed for breach of contract and vexatious refusal to pay under Missouri law.

While conducting its investigation into the loss, Starr Indemnity discovered that a survey had been undertaken of MARK TWAIN in 2008 which indicated that the barge had not been watertight at the time Continental Cement obtained its policies. On the grounds that Continental Cement had breached its duty of uberrimae fidei by withholding this survey from its insurance application, Starr Indemnity asserted that the insurance policies were void. The doctrine of uberrimae fidei holds that parties to an insurance contract must deal with each other in "utmost good faith", which includes the obligation of the insured to make full disclosure in connection with the negotiations for insurance of all facts which may materially affect the underwriting of the risk. Under this doctrine, if utmost good faith is not exercised by the insured, the insurer may avoid the policy, retroactive to inception of the risk.

This doctrine has been found to be a well-entrenched doctrine of federal maritime law in apparently all circuits, except the Fifth Circuit.

Determining that Continental Cement did not waive its appeal, the Eighth Circuit concluded that the District Court did not err by applying the federal doctrine of utmost good faith, a judicially established federal admiralty rule, instead of Missouri state law; Continental Cement waived its appeal of the denial of its motion for judgment as a matter of law on Starr Indemnity's utmost good faith defense; and, apart from the issue of waiver, the district court did not abuse its discretion in submitting the utmost good faith instruction. Accordingly, the Eighth Circuit affirmed the judgment of the District Court.

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