Seguros v. Morales-Vázquez, Civil No. 15-2091 (BJM)

QBE SEGUROS, Plaintiff, v. CARLOS A. MORALES-VÁZQUEZ, Defendant.

Civil No. 15-2091 (BJM)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO

November 14, 2017

OPINION AND ORDER

QBE Seguros ("QBE") brought this action under the court's admiralty jurisdiction against Carlos Morales-Vázquez ("Morales"), seeking a judgment declaring that Morales's marine insurance policy is void ab initio, either under the terms of the policy or the doctrine of uberrimae fidei; that Morales breached the "warranty of truthfulness" in the application for the insurance policy, thereby excusing QBE from making any payments to Morales on the policy; or that the policy does not cover all of Morales's claimed losses. Docket No. 14 ("Compl."). Morales counterclaimed, alleging breach of contract and entitlement to consequential damages. Docket No. 15. Morales moved for summary judgment on QBE's claims, Docket Nos. 83, 84, and QBE opposed. Docket Nos. 104, 105. QBE moved for summary judgment only on its breach of warranty claim, Docket Nos. 70, 71, 72, 91, 92, and Morales opposed. Docket Nos. 78, 79, 99. The case is before me on consent of the parties. Docket No. 47.

SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate when the movant shows that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A dispute is "genuine" only if it "is one that could be resolved in favor of either party." Calero-Cerezo v. U.S. Dep't of Justice, 355 F.3d 6, 19 (1st Cir. 2004). A fact is "material" only if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party has the initial burden of "informing the district court of the basis for its motion, and identifying those portions" of the record "which it believes demonstrate the absence" of a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once that bar is cleared, "the burden shifts to the summary judgment target to demonstrate that a trialworthy issue exists," Plumley v. S. Container, Inc., 303 F.3d 364, 368 (1st Cir. 2002), by "affirmatively point[ing] to specific facts" in the record revealing the presence of a meaningful dispute, McCarthy v. Nw. Airlines, Inc., 56 F.3d 313, 315 (1st Cir. 1995).

The court does not act as trier of fact when reviewing the parties' submissions and so cannot "superimpose [its] own ideas of probability and likelihood (no matter how reasonable those ideas may be) upon" conflicting evidence. Greenburg v. P.R. Mar. Shipping Auth., 835 F.2d 932, 936 (1st Cir. 1987). Rather, the court must "view the entire record in the light most hospitable to the party opposing summary judgment, indulging all reasonable inferences in that party's favor." Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir. 1990). And the court may not grant summary judgment "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248.

DISCUSSION

In its complaint, QBE alleges that Morales made two material misrepresentations in his application to QBE for insurance for his vessel: it contends that Morales misrepresented his prior boating history and his prior loss history. Compl. ¶ 17. Misrepresentation is "the act or an instance of making a false or misleading assertion about something, usu[ally] with the intent to deceive. Misrepresentation, Black's Law Dictionary (10th ed. 2014).

Within federal maritime law, there are at least two doctrines that excuse an insurer from paying on a policy where the insured misrepresented facts. The first, uberrimae fidei, or the duty of utmost good faith, is unique to maritime law. Catlin at Lloyd's v. San Juan Towing & Marine, 778 F.3d 69, 75 n.6 (1st Cir. 2015) (explaining that although at one time good faith was a requirement in contract law, it now only exists in maritime insurance). To prove a breach of the duty of utmost good faith, the insurer must show that the insured misrepresented a material fact. Id. at 83. Materiality is judged based on an objective standard. St. Paul Fire & Marine Ins. Co. v. Halifax Trawlers, Inc., 495 F. Supp. 2d 232, 240 (D. Mass. 2007).

The second doctrine is based in federal contract law and is applicable where the contract between the parties includes a warranty of truthfulness. If the contract does include a promissory warranty of truthfulness, then the insured's misrepresentation of fact in that contract will also excuse the insurer from paying on the policy. See Markel Am. Ins. Co. v. Leonor Veras, 995 F. Supp. 2d 65, 77 (D.P.R. 2014) (finding the language of the insurance policy contained a warranty of truthfulness and that the defendant's misrepresentations had breached that warranty). To prove a breach of the warranty of truthfulness, the insurer must show that the insured misrepresented a fact. Leonor Veras, 995 F. Supp. 2d at 77. The contract itself controls any interpretation of the contract terms. Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 31-32 (2004).

Morales seeks summary judgment because he contends that QBE cannot prove the elements required under the first doctrine, uberrimae fidei. Docket No. 83. He also argues that summary judgment is appropriate under the Puerto Rico Insurance Code. Id. at 22-23. QBE seeks summary judgment because it contends that it can prove the elements required under the second doctrine, the warranty of truthfulness in contract law, solely based on Morales's alleged misrepresentation of his prior boating history. Docket No. 72. Neither party is seeking summary judgment on QBE's final count, that the insurance policy does not cover all of Morales' claims, nor do the parties seek summary judgement on Morales's counterclaim.

Morales's Motion for Summary Judgment

I. Background

Except where otherwise noted, the following facts are drawn from the parties' Local Rule 56¹ submissions: Morales's Statement of Uncontested Facts ("SUF"), Docket No. 84, QBE's Opposing Statement of Facts ("OSF"), Docket No. 104, and QBE's Statement of Additional Material Facts ("SAMF"), Docket No. 104.

QBE is a Puerto Rico corporation authorized by the Puerto Rico Insurance Commissioner's Office to sell ocean marine insurance. Compl. ¶ 4. In March 2014, Morales applied for insurance from QBE for his 48' yacht ("QBE Application"). SUF ¶¶ 1, 8. This became policy OYP-00001077-00. SUF ¶¶ 7-8.

Morales placed his application for insurance from QBE through Angel Cruz-Rodríguez, an insurance broker. SUF ¶ 4; OSF ¶ 4. Colonial Insurance is QBE's general agent, which received and processed Morales's QBE Application. SUF ¶ 27; OSF ¶ 27. Cruz-Rodríguez was listed as "Agent" on the Colonial Insurance invoice for the payment of the premium for the insurance policy; both Colonial Insurance and Cruz-Rodríguez were listed as "Agent/Broker" on the declarations page of the policy; and Cruz was listed as "Insurance Agent" on two letters from QBE. SUF ¶¶ 28-33. Cruz-Rodríguez worked with MAPFRE, another insurance company, in the past. SUF ¶ 37. When placing Morales's application, he did not have a written authorized representative agreement with QBE. Docket No. 83 at 10. Cruz-Rodríguez initially suggested that Morales choose a policy with MAPFRE as opposed to QBE. SAMF ¶ 2.

As part of the application process, Morales hired Jose R. Terrassa, a surveyor, to survey his yacht. SUF ¶ 39-40. QBE requires all vessel surveys, which are required for the application process, to be completed by Terrassa. SUF ¶ 39; OSF ¶ 39. Morales and Terrassa had worked together previously. SAMF ¶ 15. Morales paid Terrassa for his services, but QBE gave Morales a credit that covered the cost of those services. SAMF ¶¶ 13-14. Terrassa's final product, the Condition and Valuation Report, stated "in the making of this report or instrument the surveyor is acting on behalf of the person . . . requesting the same." SAMF ¶ 16. The Condition and Valuation Report was not specific to QBE as Morales could have included it as part of his application to any insurance company. Docket No. 105 at 6-7.

When filling out the question on the QBE Application asking about prior losses, Morales did not include the fact that he had grounded a different vessel in 2010. OSF ¶¶ 16, 37. In addition, when filling out the question on the QBE Application asking about prior boating history, Morales listed only two of the seven vessels that he had owned and operated. Docket No. 71 at ¶ 12; Docket No. 78 at ¶ 12.

After receiving the QBE Application, QBE's underwriter sent an email to Cruz-Rodríguez, who had submitted Morales's QBE Application, and attached a quote for a policy that she "quoted basing [herself] on policy OYP-0000746-02." SUF ¶¶ 2-6. In 2012, QBE acquired Optima Insurance Co. Docket No. 78 ¶ 15. The year prior, Morales had applied for and received insurance policy OYP-0000746-02 from Optima Insurance Co. for a different vessel ("Optima Application). SUF ¶ 10; Docket No. 78 ¶¶ 15, 21. In the Optima Application, Morales left blank the questions asking about prior boating history and prior losses. SUF ¶¶ 45-47.

QBE's Underwriting Guidelines, which are used to guide underwriters deciding whether to issue a quote, include the minimum necessary information to provide a quote. Docket No. 85-4 at 11. The list does not include prior losses or boating history. Id. at 11-13. QBE's representative stated that Morales's QBE Application was considered before QBE issued Morales his policy. OSF ¶ 6.

On October 24, 2014, the 48' yacht sustained damages as a result of a fire, and Morales alerted QBE to the damage. SUF ¶ 11. On August 10, 2015, QBE informed Morales that it was rescinding his policy. SUF ¶ 22.

II. Analysis

"This dispute concerns a marine insurance contract and therefore is governed by the principle of uberrimae fidei, or utmost good faith." St. Paul Fire & Marine Ins. Co. v. Abhe & Svoboda, Inc., 798 F.3d 715, 719 (8th Cir. 2015)....