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Insurance Policy Void under Doctrine of Uberrimae Fidei

In this case, Defendant insurer issued a combined Hull and Machinery/Protection and Indemnity policy ("Policy") to insured "Stanley Lambert/Pacific Dawn Ltd" covering the vessel M/V PACIFIC DAWN. In procuring this Policy, Mr. Lambert represented that he was the owner and operator of the M/V PACIFIC DAWN. Approximately two months after the policy issued, the M/V PACIFIC DAWN encountered heavy weather and sustained damage to items stored in one of the holds on a voyage from Vancouver, B.C. to American Samoa via Honolulu. The insurer was notified of the loss, and the vessel dry-docked in Hawaii for cleanup and painting unrelated to the weather damage. Several days later, Mr. Lambert was injured in a motorcycle accident and passed away.

Shortly after Mr. Lambert’s death, plaintiff SW Traders LLC—a limited liability company with a sole member, Reginald Gates--emerged, and alleged that it was the true owner of the M/V PACIFIC DAWN exclusively entitled to payment of the Policy proceeds. Thereafter, plaintiff via the broker intervened and on three separate occasions requested Defendants alter the Policy’s named insured as follows: (1) Stanley Lambert F/V Pacific Dawn & SW Traders LLC; (2) Estate of Stanley Lambert, S.W. Traders (c/o Tracy Lambert); and (3) SW Traders LLC. The second request superseded and came before the insurer acted on the first. The insurer amended the endorsement per the second request, but denied the third request.

Thereafter, Plaintiff filed a "Notice of Bad Faith Claim" with the Washington State Insurance Commissioner, and then filed suit against Defendants alleging breach of insurance contract, bad faith insurance practices and violation of the Washington State Insurer Fair Conduct Act (RCW 48.30.010, et seq.). Defendants removed the action from King County Superior Court (No. 09-2-17958-1SEA) to the Federal District Court for the Western District of Washington (09-CV-00778 MJP) based on diversity jurisdiction. Cross-motions for summary judgment were filed by both parties. Defendants were represented by LeGros Buchanan and Paul attorneys David C. Bratz and Kathryn P. Fletcher.

On cross-motions for summary judgment, the Honorable Marsha Pechman found Defendant’s motion for summary judgment dispositive. Specifically, the Court held that vessel ownership was undisputedly a fact material to the insurer’s risk, and that under the doctrine of uberrimae fidei Lambert’s failure to disclose ownership of the M/V PACIFIC DAWN by SW Traders and/or Mr. Gates on the policy application was a nondisclosure of a material fact that voided the Policy “regardless of whether the omission was intentional or not.” The Court held the Policy void as a matter of law.
Although the application of uberrimae fidei was dispositive, the Court went on to address issues regarding choice of law and "insured party" status in the interests of thoroughness. Applying Washington law, the Court held that Plaintiff was not a named insured, and that there was no evidence that could establish that SW Traders was a party to, or participated in procuring, the insurance contract. Moreover, any arguable insured interest could have arisen no earlier than at the time of the changes to the Policy’s endorsement—which all occurred after the covered loss. Accordingly, Plaintiff was found to have “no insurable interest entitl[ing] [it] to recover for the loss at issue in this lawsuit."

In sum, the Court concluded:

Plaintiff has based its attempt to secure compensation under this policy at least in part through recourse to principles in equity. The equities do not favor its position. Plaintiff seeks recovery from the proceeds of a policy for which it paid nothing, covering the property from a vessel in which it had no investment. The Court finds the policy void because of nondisclosure of material facts concerning its ownership and operation, and further declares that Plaintiff has no insurable interest in the proceeds from the damage at the center of this controversy. 

Appeal pending.

A full text version of the Court’s order is attached.


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