The U.S. Eleventh Circuit Court of Appeals recently held that a marine insurance policy was voidab initio due to a material misrepresentation made by the insured and that a mortgagee was not entitled to coverage under the policy because the mortgagor and the named insured were not the same. AIG Centennial Ins. Co. v. O’Neill, 782 F.3d 1296 (11th Cir. 2015).
An insured submitted a claim under his marine insurance policy after determining that his sport-fishing vessel suffered from a number of structural defects rendering the vessel unseaworthy. The insurer sought a declaration that the policy was void ab initio as to the insured and the mortgagee listed on the policy. The district court found that the insured had made misrepresentations in his application for the policy regarding his prior loss history and the purchase price of the vessel which rendered the policy void ab initio. The district court also concluded that the named insured on the policy was not the mortgagor on the loan. Therefore, it held, the mortgagee had no rights under the standard mortgage clause in the policy. The insured and mortgagee appealed.
The Eleventh Circuit affirmed, finding that the policy was void as to the insured and that the policy did not cover the mortgagee. The Eleventh Circuit dismissed the insured’s argument that the misrepresentations on his application were not material and the mortgagee’s argument that it had a valid contract with the insurer. The Eleventh Circuit found that the insured’s misrepresentations regarding the purchase price of the vessel were material, rendering the policy void ab initio. The Eleventh Circuit also held that the insurer and the mortgagee never entered into an insurance contract because the named insured was an individual, whereas the mortgagee on the loan was the insured’s limited liability company.