I was having lunch with a friend the other day and the concept of gephyrophobia came up. I had never heard of this, but it is the fear of bridges. As an arachnophobe myself, I can understand a seemingly irrational fear. We decided that since I have no issues with bridges, I could handle those if he would undertake all spider duties. Keeping true to my promise, I found an interesting case stemming from the repair of a bridge. If you’re not a gephyrophobe, please read on. . . .
The case is St. Paul Fire & Marine Insurance Company v. Abhe & Svoboda.1 Abhe had a marine insurance policy with St. Paul. During a storm, a leased barge was sunk. Abhe filed a claim, St. Paul denied it and sued seeking a declaration from the court that the policy was void under the doctrine of uberrimae fidei (parties to an insurance contract must afford each other the highest degree of good faith). Abhe filed counterclaims. The district court awarded summary judgment to St. Paul, finding that Abhe failed to disclose material facts on its application for insurance. The ruling was appealed and the appellate court reversed, holding that reliance was an element of defense and there were disputed issues of fact.
Abhe repairs dams and bridges. It contracted to repair a bridge in Rhode Island. It leased two barges from Sterling Equipment, Inc. Neither one had a motor and they were used as stationary equipment platforms. Per the lease, Abhe was to hire a surveyor to establish the condition of the barges at delivery and re-delivery. Barge SEI-34 was found to have pinholes in the deck, under-deck tanks were not watertight and there was mud, sand and water in some tanks. It was valued at $90,000 for scrap metal “plus a little more because the barge was still useful.”
Abhe anchored the barges and used them for seven months. Employees regularly inspected the barges and made repairs. A utility pump was installed to remove accumulated water.
During the first three months, Abhe was insured under its existing Marine Hull and Protection and Indemnity policy. Abhe then purchased a package marine policy from St. Paul. St. Paul did not ask for a new application, rather it accepted Abhe’s 2010 application from its prior insurer. The schedule of vessels did not include the leased barges. It also stated that no surveys had been done.
On May 3, 2011, Abhe sent an updated schedule of vessels to St. Paul which included SEI-34 with a stated value of $225,000 which was agreed to with Sterling. The St. Paul policy was effective on July 1, 2011. On October 29, 2011, a severe storm occurred causing SEI-34 to sink to the bottom of the bay and land upside down. The Coast Guard ordered Abhe to remove it. Abhe hired Donjon Marine Company to remove the wreck. Abhe provided St. Paul with necessary paperwork and turned over the negotiations with Donjon.
After five weeks, Donjon raised the wreck and all attached equipment, but refused to recover the remaining equipment based on the language of the contract it negotiated with St. Paul. Abhe retained another company and incurred additional costs.
St. Paul had agreed to guarantee 50% of the payment to Donjon. Donjon went after Abhe for the remainder. They went to arbitration, so Abhe sought defense and indemnification from St. Paul—which was refused due to Abhe’s non-disclosure of SEI-34’s 2010 survey. The panel awarded $665,351.15 to Abhe, finding Donjon breached its contract.
St. Paul sought a declaration it had no duty to defend or indemnify Abhe. The court found the insurance policy was void ab initio because Abhe breached its duty of good faith under the doctrine of uberrimae fidei for failure to disclose the survey.
Marine insurance contracts are governed by the principle of uberrimae fidei, or utmost good faith.2 This requires the insured to “disclose to the insurer all known circumstances that materially affect the risk being insured.”3
The parties agreed that Abhe was required to disclose all material facts. Abhe argued that to void the policy it must be shown that it failed to disclose a material fact and that the non-disclosure induced the insurer to issue the policy, i.e., there was reliance.
The principle of uberrimae fidei does not require the voiding of the contract unless the undisclosed facts were material and relied upon. A fact is not material unless it is something which would have controlled the underwriter’s decision, and a marine insurance policy cannot be voided for misrepresentation where the alleged misrepresentation was not relied upon and did not in any way mislead the insurer.4
There must be a causal connection between one party’s omission and the issuance of the contract or policy.5 Actual reliance has been required before to void a policy based on the principle of uberrimae fidei.6 “Insurance policies are traditionally contracts uberrimae fidei,” and “[i]f a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.”7
Other circuits have applied a materiality test to see if the insurer would have found the omitted information to be material, requiring actual reliance.8 Materiality looks to whether an underwriter’s judgment would be influenced, while reliance looks to whether there was a causal connection between the fact and the decision to issue the policy.9 As a concept, this is fairly easy to understand but asking an underwriter to go back in time and decide whether something was material or whether they would have relied upon the fact, proves more difficult.
Below is a picture of the bridge that started this conversation. It is the Sunshine Skyway Bridge in Tampa, Florida. To me, it looks beautiful and not scary. Notably, you won’t find me posting a picture of a spider, so to each his own.
1 St. Paul Fire & Marine Ins. Co., v. Abhe & Svoboda, 798 F.3d 715 (8th Cir. 2015).
2 See N.Y. Marine & Gen. Ins. Co. v. Cont’l Cement Co., 761 F.3d 830, 839 (8th Cir. 2014).
3 Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 13 (2d Cir. 1986).
4 Puritan Ins. Co. v. Eagle Steamship Co., S.A., 779 F.2d 866, 871 (2d Cir. 1985).
5 See R. Lord, 27 Williston on Contracts § 69:32 (4th ed. 2014).
6 Shipley v. Arkansas Blue Cross & Blue Shield, 333 F.3d 898 (8th Cir. 2003).
7 Id. at 903. (emphasis added) (internal quotation marks omitted).
8 See, e.g., I.T.N. Consolidators, Inc. v. N. Marine Underwriters Ltd., 464 Fed.Appx. 788, 794 (11th Cir.2012); Certain Underwriters at Lloyd’s, London v. Inlet Fisheries, Inc., 518 F.3d 645, 655 (9th Cir.2008); Certain Underwriters at Lloyd’s v. Montford, 52 F.3d 219, 222 (9th Cir.1995); Gulfstream Cargo, Ltd. v. Reliance Ins. Co., 409 F.2d 974, 980 (5th Cir.1969).
9 See 2 Thomas J. Schoenbaum, Admiralty and Maritime Law § 19-14 (5th ed. 2011).