District of Puerto Rico Rejects Notion That U.S. Courts Must Follow House of Lords Decisions Automatically

On September 28, 2016, the U.S. District Court for the District of Puerto Rico, in Q.B.E. Segueros v. Moralex-Vazquez, 2016 U.S. Dist. LEXIS 133822 (D. P.R. 2016), held that the recent abolishment of the uberrimae fidei doctrine by the U.K. Marine Insurance Act of 2015 does not compel U.S. courts to follow so as to ensure uniformity in the marine insurance market.

Plaintiff QBE Segueros (“QBE”) brought an action against Carlos Morales-Vazquez (“Morales”), seeking a declaratory judgment that Morales’s marine insurance policy was void ab initio, because Morales breached a “warranty of truthfulness.” Morales counterclaimed, alleging breach of contract and entitlement to consequential damages.  Morales later moved for a judgment on the pleadings.

QBE had issued to Morales a marine insurance policy. The policy stated that it “shall be void and without effect” if the insured made a false statement or misrepresentation with respect to the insurance. During the term of the policy, Morales’s yacht sustained fire damages, and Morales filed a claim with QBE. In the claim, Morales failed to disclose a 2010 incident giving rise to a claim to a separate insurer, when asked a question of whether he had any accidents or losses in connection with a vessel he owned.

Morales pointed out that the U.K. Insurance act of 2015 abolished the uberrimae fidei doctrine and argued that the U.S. Supreme Court had instructed federal courts to adopt uniform and harmonious application of American and English marine insurance law.  The “Uberrimae fidei” doctrine (meaning “of the utmost good faith”) requires the insured to disclose to the insurer all known circumstances that materially affect the insurer’s risk.  Thus, under the doctrine, when an insured fails to disclose to the insurer all circumstances known to it and unknown to the insurer which ‘materially affect the insurer’s risk,’ the insurer may void the marine insurance policy at its option.

The District Court rejected Morales’s argument reasoning that uberrimae fidei is a recognized federal law in the First Circuit and is bound by same until otherwise instructed by the First Circuit Court of Appeals or by the U.S. Supreme Court. The Court recognized that “is true that [the Supreme Court] and other American courts have emphasized the desirability of uniformity in decisions here and in England in interpretation and enforcement of marine insurance contracts”, but the Supreme Court made it clear in Standard Oil Co. v. United States, 340 U.S. 54, 58 (1950), that “this does not mean that American courts must follow House of Lords’ decisions automatically.”

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