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Ancient Maritime Doctrine is Used to Foil Modern Insurance Scam By Martin Berg Los Angeles Daily Journal July 17, 1997 Unlike other forms of insurance, maritime insurance requires a boat owner to disclose everything about his loss history - even if the insurance company doesn't specifically ask, according to experts in the area. When the first underwriters of maritime insurance began writing policies 200 years ago at Lloyds of London, they did so without being able to see the trading vessels they were insuring - which were often on the other side of the world. As a result, they had to rely on ship owners for their information, thus giving rise to the doctrine known as "uberrimae fidei," or uttermost good faith. Defense lawyers for Polaris Pictures contended in legal briefs in Cigna Property and Casualty v. Polaris, CV 93-2259 JSL, that the ancient doctrine did not apply in the case against their client. They argued that the policy applies to questions about a vessel's seaworthiness, not to questions on an insurance application. "Uberrimae fidei was never intended to require the insured to rewrite an insurance application drafted by an expert insurer," argued defense attorney Timothy Morris, of the Los Angeles firm of Gianelli & Morris, "nor to invalidate waivers made by an underwriter as to matters which were distinctly implied in the information provided by the insured." Uberrimae fidei cases, they argued, generally involved unseaworthy vessels or a "material misrepresentation response to a clear application question." Lawyers for Polaris Pictures, the film company initially owned by Rex DeGeorge, claimed that Cigna tried to render Polaris' truthful answers "ambiguous in order to avoid liability. Thus, Polaris did not violate the principle of uberrimae fidei ... and Cigna cannot avoid payment for the loss of the Polaris vessel on this ground." Cigna's lawyer, Neil Lerner of Los Angeles' Sands, Narwitz, Forgie, Leonard & Lerner, disagreed. "Uberrimae fidei means you disclose everything and then we decide whether to issue insurance - not that you don't disclose and then we fight about it." In the world of maritime law, the saga of the Principe Di Pictor has gained significance because U.S. District Judge J. Spencer Letts extended uberrimae fidei to a mortgagee, in this case, a company called U.S. Inbanco Ltd. Cigna claimed DeGeorge created Inbanco as a shell corporation in his scheme to defraud the insurer. DeGeorge maintained, however, that Inbanco was going to finance the purchase of the yacht, and that the company was capitalized with $200,000 from DeGeorge's nephew. Letts ruled that despite DeGeorge's testimony, "no evidence showed that this nephew was capitalizing Inbanco. In addition, no credible evidence was introduced that Inbanco, even with this contribution from the lawyer-conspirator's nephew, had the assets to finance the purchase of this yacht." The marine insurance policy obtained by Polaris and Inbanco contained a breach of warranty clause, guaranteeing that the lender would get paid by the insurance company - even if the insured [Polaris] commits insurance fraud. According to case law, it applies only if the lender, in this case, Inbanco, is innocent, Cigna's lawyers argued. Letts' decision stemmed from the uniqueness of the circumstances surrounding the sinking of the Principe Di Pictors, according to Lerner. "The reason that this is the first time a judge held that uttermost good faith applies to a lender is that it's probably the first time anybody designed a scam where the lender is in on it. Usually there's distance between the lender and the boat owner. Whoever designed the scam, the lawyer-conspirator, was brilliant." Lerner, who has worked on the case for more than four years, contended that for Cigna, the case was never about money, but about defending the principle of uberrimae fidei. "I think the most interesting thing about the case is how this ancient doctrine foiled a modern scam." |
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