A/s Ivarans Rederei v. Puerto Rico Ports Authority, and Third Party v. The Commonwealth Insurance Co., Third Party, 617 F.2d 903, 1st Cir. (1980)
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Scribd Government DocsA/s Ivarans Rederei v. Puerto Rico Ports Authority, and Third Party v. The Commonwealth Insurance Co., Third Party, 617 F.2d 903, 1st Cir. (1980)
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Scribd Government Docs617 F.
2d 903
A/S IVARANS REDEREI et al., Plaintiffs, Appellees,
v.
PUERTO RICO PORTS AUTHORITY, Defendant and Third
Party
Plaintiff, Appellant,
v.
The COMMONWEALTH INSURANCE CO. et al., Third
Party
Defendants, Appellees.
No. 79-1299.
United States Court of Appeals,
First Circuit.
Argued Feb. 5, 1980.
Decided April 1, 1980.
Francisco L. Acevedo-Nogueras, Hato Rey, P. R., with whom Francis,
Doval, Munoz, Acevedo, Otero & Trias, Hato Rey, P. R., was on brief, for
defendant and third party plaintiff, appellant.
Robert J. Giuffra, New York City, with whom Dougherty, Ryan,
Mahoney, Pellogrino, Giuffra & Zambito, New York City, was on brief,
for appellee, Arkwright Boston Mfrs. Mut. Ins. Co., et al.
Harry R. Nadal Arcelay and Cancio, Nadal & Rivera, Hato Rey, P. R., on
brief, for appellees, Commonwealth Ins. Co., et al.
Before COFFIN, Chief Judge, WISDOM, Senior Circuit Judge *
CAMPBELL, Circuit Judge.
COFFIN, Chief Judge.
This appeal arises from the attempt of the Puerto Rico Ports Authority
(Authority), which had been held liable to owners of the M/V SANTOS and her
cargo, to be reimbursed by the Arkwright Boston Manufacturers Mutual
Insurance Company (Arkwright), which had reinsured the Authority's now
insolvent liability insurer, The Commonwealth Insurance Company
(Commonwealth).
2
The relevant facts supportably found by the judge are as follows. The Authority
operated, under a lease, the Pan American Dock in San Juan. Through lack of
dock maintenance, fenders were missing and protruding bolts above the water
line caused damage by puncturing the barge PECK SLIP on two occasions in
1975, giving rise to claims against the Authority. The incidents were reported to
the insurer, Commonwealth, but were not brought to the attention of Arkwright
at any time before it renewed its contract of reinsurance in early 1976.
Subsequently, the Authority cut off the protruding bolts. This action, however,
resulted in exposing certain other bolts below the surface of the water where
they eventually, in 1976, punctured the hull of the SANTOS and brought about
her sinking.
The reinsurance policy, in addition to covering liability arising out of water
pollution and activities of port pilots, also insured against liability arising from
"(t)he negligence of the Captain of the Port or his assistants in the performance
of their duties in connection with the ports and bays under their jurisdiction."
The district court found that the duties to inspect and maintain the dock were
not part of the duties of the Captain of the Port. Appellant cites several
provisions of the Dock and Harbor Law of Puerto Rico, as enacted in 1928,
dealing with the port captain's duty to report damage to docks and "to see . . . to
the preservation of . . . docks", and claims that although these provisions could
be superseded by regulations, they have not been. It argues that Arkwright,
whether notified of these provisions or not, was assumed to know the law.
While it seems probable that Arkwright and Commonwealth did not have in
mind such a broad coverage of port captain liabilities as appellant suggests, we
do not pass upon the point. For it seems sufficient to us to dispose of this case
by concluding that the district court made no clearly erroneous factual findings
and committed no error of law relating to the failure of Commonwealth (and the
Authority) to reveal to Arkwright the two incidents involving the barge PECK
SLIP in 1975.
The reinsurance contract was expressly subject to being voided if "whether
before or after a loss, the Insured (Commonwealth) has concealed or
misrepresented any material fact." The district court was justified in finding that
"(t)he two PECK SLIP incidents were material to the risk". Assuming that the
reinsurance policy covered the maintenance of docks, the fact that the same
defect that occasioned damage to the PECK SLIP in January, 1975, remained
uncorrected and caused damage again to the same vessel ten months later was
obviously material to the nature and quantum of risk being assumed. Whether
the nondisclosure of a known fact material to a marine risk was intended or not
is beside the point; such nondisclosure voids the policy. Fireman's Fund Ins.
Co. v. Wilburn Boat Co., 300 F.2d 631, 646 (5th Cir. 1962).
6
Appellant does not take issue with either the high standard of disclosure
applicable in marine insurance dealings or the materiality of the nondisclosure
in this case. Its position is simply that in notifying Commonwealth, the
Authority also notified Arkwright since the knowledge of the reinsured is
imputed to the reinsurer. No relevant authority is cited for this proposition, and
appellant confuses requirements as to filing proof of loss with
misrepresentations of material fact prior to execution of a reinsurance policy.**
Appellant misconceives the nature of reinsurance as somehow conferring on
the original insured the status of third party beneficiary. Reinsurance, however,
involves no privity between the original insured and the reinsurer; the contract
is entirely between reinsurer and reinsured, 13 A. J. Appleman and J.
Appleman, Insurance Law and Practice, Sec. 7693, at 523, absent any special
undertaking to assume a direct liability to the original insured. Id. Sec. 7694, at
527. As between the reinsured and reinsurer, there is no principle of imputed
knowledge of facts material to the risk that the reinsurer is asked to assume; to
the contrary, there is a duty on the reinsured to disclose such facts. Id. Sec.
7687, at 505. Indeed, were this not so, the business of reinsurance would rest on
blind faith in the reinsured.
We therefore affirm the district court's action in dismissing the third party
complaint against Arkwright.
Affirmed.
Of the Fifth Circuit, sitting by designation
**
Appellant also unhelpfully invokes agency principles as if the reinsured were
agent of the reinsurer, quoting from 43 Am.Jur.2d 1063 at 988 a passage
referring to a situation where one insurance company procures part of a client's
insurance from a second company. Far more pertinent is the following: "In the
case of reinsurance, the insurer seeking to shift the risk it has taken should
communicate its knowledge of the character of the original insured, where such
information would be likely to influence the judgment of an underwriter, ( ) and
the policy may be avoided where the reinsured conceals the fact that a loss has
