Dagger, Shield, or Double-Edged Sword?: The Reciprocal Nature of the Doctrine of Uberrimae Fidei

The doctrine of uberrimae fidei is generally recognized as one of the most firmly entrenched principles in maritime law. Almost every circuit court has recognized the continuing vitality of this doctrine in modern marine insurance cases, and it is experiencing a recent trend toward consistent use. The utility of the doctrine as applied by insurers cannot be understated, because it is a recognized and common method for voidance of the insurance policy. The doctrine is a mutual one, requiring both parties to an insurance contract to act in good faith. However, reliance upon the doctrine is almost exclusively by insurance companies against their insureds, as a method for voiding the policy, rather than the other way around. Insureds have just begun to press for the application of this doctrine against insurers, which requires a certain level of conduct in the underwriting process.

What are the ramifications of the reciprocal duty of good faith as applied to the marine insurer? As will be discussed below, the doctrine originally grew out of the nature of marine insurance at the time. In previous centuries, underwriters did not have the resources to obtain all material information relative to the risk insured; thus, it was imperative that the insured provide full disclosure of all such information that was solely in its possession. However, with the advent of modern technology, skilled marine surveyors, and worldwide agents, modern underwriters are at less of a disadvantage with respect to investigating a risk. The Internet, modern communications, and transportation now provide more options than ever for an underwriter to obtain significant information about a vessel, cargo, or other marine risk prior to binding coverage. Therefore, may an underwriter rest on its laurels and require that the insured provide any and all information that might be relative to the risk, without any reciprocal obligation to conduct its own investigation, or at least to ask questions designed to obtain the information he needs? What about once the contract is entered into: Does the insurer have a reciprocal duty of good faith in adjusting and investigating a claim? While the reciprocal duty is only beginning to be explored and relied upon by insureds as a way to respond to the potentially harsh consequences of the doctrine, it is likely that such arguments will increase.

This Article will explore the historical context of uberrimae fidei and its use and application in marine insurance law. It will also provide an analysis of the current state of the acceptance of the doctrine in the various federal circuits which have addressed its application in maritime law. The Article will then address the reciprocal nature of the doctrine by examining both U.S. and English case law in which the doctrine has been applied, or was sought to be applied, against insurers. The Article will further address bad faith in maritime cases and how and whether an overlap exists between the reciprocal duty of uberrimae fidei and state law regarding bad faith. Finally, the Article will conclude with some thoughts regarding the nature of the reciprocal duty and what ramifications it may hold for legal practitioners representing underwriters and claims handlers.

Offshore Energy Insurance

In the United States, offshore energy coverage is most often manifest in the ubiquitous Energy Package Policy. That policy appears in many forms and is very much a product tailored to the needs of the individual assured involved. A great deal of work goes into the underwriting of these policies, which frequently afford hundreds of millions of dollars in coverage to their assureds. Each broker and underwriter tends to approach the various coverages differently, so it is essential that every policy's wording be considered to determine when there are variations from the norm (if indeed there is a norm). Notwithstanding, this Article attempts to review the typical risks that are insured under an Energy Package Policy and some of the common ways in which policy wording addresses those risks. It also discusses recurrent issues more recently presented under these policies and how the underwriters, their assureds, and the brokers have addressed those issues. This discussion is limited to practice in the United States and focuses primarily on situations encountered in the Gulf of Mexico.

Please note that the writer is a lawyer and has no experience in brokering or underwriting energy claims. There are many instances in which these policies work quite well to afford coverage for the risks encountered in the offshore oil and gas business, and in almost all of those instances, counsel are not involved.

The Sky Has Not Fallen Yet on Punitive Damages in Admiralty Cases

As surely everyone knows, the United States Supreme Court has recently brought the Due Process Clause to bear on awards of punitive damages made pursuant to state law. The law of the land now  includes a judicially manageable standard that protects a defendant otherwise liable for punitive damages from awards that are so excessive as to be unfair, that is, arbitrary and capricious. Punitive damages are usually assessed by juries, subject to review by trial and appellate courts. This initiative has sparked considerable controversy, and the exact parameters of the constitutional standard are still far from certain.

Into this situation came the case of Exxon Shipping Co. v. Baker. The case was one within admiralty jurisdiction, although by a tortuous path it ended up in federal court based on federal questions. Applying federal maritime law, a jury assessed damages, both compensatory and punitive. Trial by jury is not unheard of in cases in which maritime law governs, but it is not the norm. Having already sketched out a constitutional limit to the size of punitive damages, the Supreme Court was presented in this case with an opportunity for something humbler, that is, an opportunity to either find in federal maritime law the same limit or else to set a different one within the constitutional outer boundary. The Court chose to take a step, and no more, along the latter course. The length of that step and where the next might carry federal maritime law remain to be seen. The better view of what has been decided in this case is a modest one.

Going on Twenty Years: The Pollution Act of 1990 and Claims Against the Oil Spill Liability Trust Fund

It is now well known that in the wake of the catastrophic EXXON VALDEZ oil spill off the coast of Alaska on March 24, 1989, Congress passed the Oil Pollution Act of 1990 (OPA or OPA 90). How far have we come since the passage of OPA? What issues remain outstanding? Although many issues raised by OPA have been resolved, or at least are subject to general agreement, a surprising number of issues remain unresolved or are evolving and in flux. Several of these issues relate to defenses under OPA, claims made to recover oil spill response or removal costs, and damages paid by the owners and operators of vessels from which there has been an oil spill or a substantial threat of an oil spill. This Article examines these issues, including the burden of proof to be applied in respect of such claims and the deference to be accorded to the agency operating under the United States Coast Guard that adjudicates and pays these claims.

Interaction Between Admiralty and Bankruptcy Law: Effects of Globalization and Recurrent Tensions

Bankruptcy cases increasingly have international connections. In the realm of commercial bankruptcy cases, it is the rare case in which a commercial debtor's business does not have some international aspect. In some cases, the debtor has business operations in both the United States and abroad. In other cases, the debtor has manufacturing facilities located overseas and operations headquartered in the United States. In still other cases, the debtor may acquire raw materials or finished goods from suppliers located abroad. Cross-border lending has also become common.

In light of the trend toward globalization in commerce and finance, it is not surprising that maritime issues are increasingly implicated in bankruptcy cases. Unlike bankruptcy law, which can vary dramatically from nation to nation based upon the unique domestic social values attached to financial matters, given its origins  and purpose, maritime law is inherently international in nature. In addition to the obvious tension between admiralty and bankruptcy law, when a debtor in the maritime industry seeks bankruptcy protection, there are increasingly frequent tensions in the nonmaritime bankruptcies, when maritime creditors seek to exercise their admiralty law rights in bankruptcy court. For example: a retail debtor may have goods in containers aboard ships at sea at the time the case is filed; a construction debtor may utilize the services of a crane mounted on a barge or stevedoring services to offload its equipment in a foreign port; or an oil and gas service debtor may use the services of a marine contractor or ship architect to convert a trawler to a seismic research vessel or may use barges to transport oil, gas, and other petrochemi-cals.

The impact of bankruptcy law on the maritime industry, and the special admiralty doctrines by which that industry has historically dealt with debtors and creditors, has led to recurrent tensions. This Article will examine manifestations of some of these tensions since the 1985 publication of The Tulane Admiralty Law Institute Symposium on Admiralty Interface: Bankruptcy v. Maritime Rights. As shown below, while there have been some key developments, many of the questions from 1985 remain unanswered today.

Contractual Risk-Shifting in Offshore Energy Operations

Offshore operations in the Gulf of Mexico and on the Outer Continental Shelf generally are subject to contractual arrangements that present significant legal issues for the practitioner negotiating or litigating the contracts. This Article presents a discussion of the relevant choice-of-law analysis for these contracts and the substantive law under alternate regimes for indemnification provisions, insurance and “additional insured” provisions, release agreements, consequential damage caps, liquidated damage provisions, and other clauses limiting remedies otherwise available at law.

Classification Societies and Limitation of Liability

Consonant with the vicissitudes and perils of maritime ventures, limitation of liability is a well-entrenched and long-established precept of federal maritime law, benefiting shipowners and mercantile interests alike. For over a century and a half, shipowners, vessel managers, and bareboat charterers have invoked the Limitation of Liability Act of 1851 (Limitation Act) to shield themselves from significant claims brought on behalf of cargo interests, crewmembers, and third parties. Likewise, the United States Carriage of Goods by Sea Act (COGSA) and its attendant package limitation have effectively limited ocean carriers' exposure to cargo claims. By virtue of Himalaya clauses and similar contractual provisions inserted into bills of lading, charter parties, and service contracts, several other parties--stevedores, terminal operators, warehousemen, and rail carriers, to name a few--have also gained the benefits of limited liability. Even the liability of vessel owners, operators, and demise charterers, with respect to environmental claims, is subject to limitation.

Historically, classification societies have played an integral role in the development of safety in shipping and maritime commerce. Yet their unique function and episodic contact with the vessels and offshore structures that they class and/or certify have left classification societies in a precarious position vis-à-vis shipowners and other maritime venturers. Although certain international conventions, as well as federal maritime law, offer limited liability to nearly all parties to a maritime enterprise, classification societies per se have not enjoyed such recognition. As both the M/V ERIKA and M.T. PRESTIGE oil spills have demonstrated, third-party claims against classification societies can result in potential liability exposure that vastly exceeds their net worth or insurable liability.

An international convention developed and adopted by the world's maritime nations that addresses the scope of a classification society's duties and provides for limitation of liability is one answer to the question of class liability. Realistically, such an undertaking likely would take years to implement, and whether those countries of strategic maritime importance would adopt such a convention remains an open question. In the absence of a convention, the issue of unlimited liability of classification societies is one for the courts and commentators to address.

Part II of this Article defines the role of classification societies and their surveyors in the maritime world. Part III traces the historical development of the liability of classification societies in the United States and, based upon this legal framework, Part IV argues that the only third-party claim cognizable in admiralty against a classification society is negligent misrepresentation. Part V proposes that a third party's reliance upon the representation that a vessel is “in class” cannot be a limited or partial reliance. Instead, the stated reliance must be analyzed in conjunction with all class representations, including those representations that portend a limitation of liability of the classification society, whether such a limitation provision is found in the Class certificate or other document upon which the third party relies, the classification contract, or even the applicable Class rules. This Article concludes by arguing that such a limitation of liability provision should be enforced against both those in privity as well as third parties that claim beneficial status or reliance on a classification society's representation that a vessel or structure was “in class.”

Allocation of Marine Risks: An Overview of the Maritime Insurance Package

Those engaged in maritime commerce are exposed to considerable risk in the day-to-day course of their business. Whether it be the owner of a vessel, the cargo on board, or the operator of the terminal at which the vessel calls to load that cargo, risk of loss and risk of liability attaches to all those involved in marine operations. This Article examines in summary fashion the various marine insurance policies and the coverage those policies afford those involved in maritime commerce.

Port Security Inside Out: A Systems Approach to Safeguarding Our Nation's Ports

In the wake of the terrorist attacks of September 11, 2001, Congress quickly realized that the porous nature of ports and waterways throughout the United States made them an attractive target for transportation security incidents. While there was a patchwork of regulations that endowed the United States Coast Guard with the authority to address port security, Congress adopted far-reaching legislative measures to bolster existing port security regulations and enhance maritime domain awareness. Both the Maritime Transportation Security Act of 2002 and the SAFE Port Act of 2006 seek to create a comprehensive and layered approach to preventing and responding to events that have the potential to disrupt the flow of waterborne commerce.

Smoother Seas Ahead: The Draft Guidelines as an International Solution to Modern-Day Piracy

Piracy is an increasing problem for commercial trade. As the oceans are used by all and controlled by no one, a regulatory vacuum exists with respect to laws guiding state responses to piratical acts. This Article promotes the Draft Guidelines as the most appropriate response to this international conundrum.