AIG Centennial Insurance Co. v. O’Neill

Defendant-appellant J. Brian O'Neill purchased the Bryemere, a sport-fishing vessel, in 2006. As he negotiated the Bryemere’s price, O’Neill incorporated a limited-liability company in the state of Rhode Island, Carolina Acquisition, LLC to take ownership of the vessel. O’Neill then applied for a preferred ship mortgage with Bank of America, N.A. (BOA) to fund the Bryemere’s cost. O’Neill signed the mortgage in his capacity as managing member of Carolina, using the ship as collateral. As a condition of the loan, BOA required proof of insurance for the Bryemere, and requested that the insurance policy contain a mortgage clause that would protect BOA’s interests as a mortgagee in the event the underlying insurance policy was found void. O’Neill’s insurance broker, Willis of Pennsylvania, Inc., sought an insurance quote for the Bryemere from AIG Centennial Insurance Company. Susan Bonner, an underwriter, handled the application process on behalf of AIG. Sharon King, a broker, was assigned to O’Neill’s case on behalf of Willis. Instead of working directly with King, O’Neill delegated the task of obtaining insurance for the Bryemere to his executive secretary, Desiree Foulds. Instead of explaining the insurance-application process to Foulds, King forwarded the application to Foulds without comment and returned the application Foulds had completed to Bonner without reviewing it for accuracy or completeness. Foulds made three mistakes on the application that were relevant to this appeal: (1) she listed O’Neill as the owner of the vessel instead of Carolina; (2) in response to a question about whether the owner or captain had ever suffered any “losses,” she disclosed one prior loss in 2003, when O’Neill lost a boat due to fire, when in fact (by his own admission at trial) O’Neill had suffered two additional losses that went undisclosed: propeller damage to his Ocean yacht and a blown engine on his sailing vessel; and (3) Foulds listed the Bryemere’s purchase price as $2.35 million, when the closing statement reflected a purchase price of $2.125 million. AIG issued the final policy. Following the Bryemere’s purchase, O’Neill invested $225,000 to pay for repairs recommended for the ship. During the voyage from Florida to Rhode Island, the crew “noticed considerable flexing in the vessel’s hull.” Upon arrival in Rhode Island, several marine experts inspected the Bryemere and concluded that it suffered from a number of structural defects rendering the vessel, in the words of one marine surveyor, “un-seaworthy, dangerous and unsafe for any use.” O’Neill then submitted a claim to AIG for coverage under his insurance policy. In response, AIG filed a declaratory judgment action with the federal district court in Florida seeking affirmation that the insurance policy was void ab initio as to both O’Neill and BOA. After an eight-day bench trial, the District Court issued an order finding that neither O’Neill nor BOA could recover under the policy. As to O’Neill, the District Court held that the misrepresentations regarding O’Neill’s prior loss history and the Bryemere’s purchase price rendered the policy void ab initio under the maritime doctrine of uberrimae fidei. As to BOA, the District Court held, among other things, that the named insured on the policy, O’Neill, was not the mortgagor on the loan and that BOA had no rights under the standard mortgage clause as a result. O’Neill and BOA appealed. But finding no reversible error, however, the Eleventh Circuit affirmed the district court. View "AIG Centennial Insurance Co. v. O'Neill" on Justia Law