Insurers Must Demonstrate Actual Reliance Before Voiding a Policy Based on the Principle of Uberrimae Fidei

Insurers Must Demonstrate Actual Reliance Before Voiding a Policy Based on the Principle of Uberrimae Fidei

 By: Sarah Thompson

St. Paul Fire & Marine Ins. Co. v. Abhe Svoboda, Inc., 2015 U.S. App. LEXIS 14671 (8^th Cir., Aug. 20, 2015), 2015 WL 4939878 After a large storm resulted in the sinking of a barge that had been leased by Abhe Svoboda, Inc. (“Abhe”), Abhe filed a claim for insurance coverage to St. Paul Fire and Marine Insurance Company (“St. Paul Fire”), invoking the Protection and Indemnity part of its marine insurance package. St Paul Fire denied the claim and filed suit in district court to void the policy, and was ultimately granted summary judgment based on the doctrine of uberrimae fidei. The 8^th circuit reversed the summary judgment and remanded the case, finding that there were disputed issues of fact as to the reliance component of an uberrimae fidei defense.The principle of uberrimae fidei, or utmost good faith, requires that parties to a marine insurance contract accord each other the highest degree of good faith, and obligates the insured to disclose all known circumstances that affect the risk of being insured. The facts show that Abhe did not initially disclose the existence of pinholes in the hull of the leased barge that is the subject of this insurance claim. However, the facts also show that St Paul Fire’s insurance underwriter was aware of the pinholes in the bulkhead as a result of a survey of the vessel prior to renewing the insurance policy. Given that the underwriter re-issued the insurance policy after being made aware of the pinholes in the vessel, there is an issue as to just how material the initial omission of this information was in the issuance of the insurance policy.The principle argument of Abhe’s appeal from the district court’s decision was that the district court had failed to consider whether or not St Paul Fire had relied on Abhe’s alleged misrepresentations. Citing the 2^nd circuit in Puritan Insurance Co. v. Eagle Steamship Co. S.A., and in conformity with general contract law, the 8^th circuit declared that an insurer seeking to void a policy must show reliance on the insureds non-disclosure. The 8^th circuit takes note that not all circuits explicitly recognize reliance as an element of uberrimae fidei, but several use a subjective test for materiality that asks whether the insurer in fact would have found the mitted information material. Even under this test however, a material fact is one that has been relied upon.In Summation, in order for an insurer to void a contract based on Uberrimae Fidei they must show actual reliance on a material misrepresentation by the insured. As there exists a dispute as to whether or not Abhe’s initial mission concerning the pinholes in the barge induced St Paul Fire’s reliance, the district court’s decision is reversed, and the case is remanded for further proceedings.