QBE Seguros brought a successful action declaring a marine insurance policy was void ab initio under the doctrine of uberrimae fidei and the breach of the warranty of truthfulness in the application for insurance.
In Morales’ application for insurance, he did not include the fact that he had previously grounded a 40’ yacht and listed only two of the seven vessels that he had owned and operated when asked. Following an endorsement, Morales held hull insurance for a vessel named Making Waves, which sustained damage as a result of a fire. Thereafter, QBE rescinded the policy.
The Court first looked at uberrimae fidei, or the duty of utmost good faith, which requires the insurer to show that the insured misrepresented a material fact. Having determined Morales misrepresented his prior boating history and prior loss history on his application, the Court looked at whether such misrepresentation was material. “A fact is material if it can possibly influence the mind of a prudent and intelligent insurer in determining whether it will accept the risk.” QBE testified that prior loss history is an important factor to take into consideration when evaluating the risk posed by issuing a particular policy. The Court determined this information was material: “it is entirely logical that an insured’s loss history would affect their premiums and whether an insurance company would want to accept the risk of issuing them a policy.”
The Court then looked at whether the contract between the parties included a warranty of truthfulness, and if so, the insured’s misrepresentation of fact in that contract will also excuse the insurer from the policy contract. The insurance application stated the information provided therein is warranted by the applicant “to be true and correct in all respects.” The Court found the “warranty of truthfulness was material to the risk assumed by QBE in issuing the policy.” The Court rejected Morales’ affirmative defenses, finding that “Morales breached the warranty of truthfulness in the QBE Application and policy by failing to disclose his prior loss history and his prior boating experiences. His breach gives QBE the right to void the policy.”
The Court denied Morales’ counterclaims for breach of contract and consequential damages due to QBE’s bad-faith adjustment.