Eurys Gamez v. Ace American Insurance Company
638 F. App’x 850 (2016)
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Rule of Law:
Under Florida Statute § 627.409, an insurer may rescind a marine insurance policy based on fraudulent or material misrepresentations in the application without having to prove that the misrepresentation increased the hazard that caused the loss. The statute's "increased hazard" requirement applies only to post-issuance breaches of a policy's terms, not to misrepresentations made during the application process.
Facts:
- In October 2007, Eurys Gamez applied for and obtained a 'Yachtsman' marine insurance policy from Ace American Insurance Company for a new 32-foot Glasstream boat.
- In the application, Gamez falsely stated that he was the owner, would be the primary operator, would store the boat at his residence, and had four years of prior boat ownership experience.
- In reality, Gamez's cousin, Alfredo Hassun, was the de facto owner and primary operator, and the boat was stored at Hassun's home.
- Upon taking delivery of the boat in November 2007, Gamez immediately gave possession and full use of it to Hassun.
- About a month later, Hassun loaned the boat to Alexis Suarez, an acquaintance he had known for only a few weeks.
- Suarez took the boat and trailer and disappeared; neither he nor the vessel were ever seen again.
Procedural Posture:
- Eurys Gamez brought a breach of contract action against Ace American Insurance Company in the U.S. district court.
- The case was tried before a jury.
- The jury returned a special verdict, finding that Gamez had intentionally misrepresented a material fact in his insurance application.
- The district court entered a judgment in favor of Ace American based on the jury's verdict.
- Gamez filed a motion for judgment as a matter of law and an alternative motion for a new trial, both of which the district court denied.
- Gamez (appellant) appealed the judgment to the U.S. Court of Appeals for the Eleventh Circuit, with Ace American Insurance Company as the appellee.
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Issue:
Does Florida Statute § 627.409(2), which prevents an insurer from voiding a wet marine policy for a breach unless the breach increased the hazard, apply to fraudulent or material misrepresentations made in the initial application for insurance under § 627.409(1)?
Opinions:
Majority - Hodges, District Judge
No. The provision in Florida Statute § 627.409(2) requiring an insurer to prove a breach 'increased the hazard' does not apply to misrepresentations made in the insurance application, which are governed by § 627.409(1). The statute creates two distinct analytical frameworks. Subsection (1) governs misrepresentations made in the application prior to the policy's issuance and allows an insurer to void the policy if the misrepresentation was fraudulent or material to the acceptance of the risk. In contrast, Subsection (2) applies to breaches of a policy's terms or warranties after the contract has been formed, providing that such a breach is not a defense unless it increased the hazard within the insured's control. The court rejected Gamez's attempt to 'conflate' the two subsections, reasoning that Subsection (1) addresses the risk assessment in forming the contract, while Subsection (2) addresses post-formation conduct that directly affects the hazard causing a loss.
Analysis:
This decision clarifies the scope of Florida's key statute on insurance misrepresentations, establishing a clear line between fraud in the inducement and post-issuance breach of contract. It reinforces the insurer's right to rescind a policy based on material misrepresentations in the application without needing to prove a causal link between the falsehood and the ultimate loss. The ruling underscores the high duty of disclosure (uberrimae fidei) in marine insurance and limits the 'increased hazard' defense for policyholders to situations involving breaches of policy terms, not application fraud. This precedent strengthens an insurer's ability to combat application fraud by removing the often-impossible burden of proving the lie directly caused the specific, and sometimes unknown, peril.
