IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 00-20406
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HOUSTON CASUALTY COMPANY,
Plaintiff-Appellant–
Cross-Appellee,
versus
CERTAIN UNDERWRITERS AT
LLOYD’S, subscribing to
reinsurance policy no. 839/DA44790,
and COLIN BAKER
Defendants-Appellees–
Cross-Appellants.
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Appeals from the United States District Court for the
Southern District of Texas
USDC No. H-97-CV-1381
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April 5, 2001
Before FARRIS*, JOLLY, and DAVIS, Circuit Judges.
PER CURIAM:**
In this appeal we are presented with the question whether the
Underwriters may avoid the reinsurance policy because the Houston
Casualty Company, acting through Fenchurch Insurance Brokers,
misrepresented a material fact that induced the making of the
*
Circuit Judge of the Ninth Circuit, sitting by designation.
**
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
policy. The resolution of this issue depends largely upon whether
Texas law or English law applies. We have reviewed the district
court’s choice-of-law determination de novo, see Arochem Corp. v.
Wilomi, Inc., 962 F.2d 496, 498 (5th Cir. 1992), and agree fully
with the district court’s careful application of the “most
significant relationship” test as set forth in the Restatement
(Second) of Conflict of Laws. We further agree that England has
the more significant relationship to the transaction and the
parties.
Applying English law, the district court held that the
doctrine of uberrimae fidei allowed the Underwriters to avoid the
policy because Fenchurch’s unintentional misrepresentation (that
the original insurance policy contained language similar to LSW
507) was material and induced the Underwriters to agree to the
reinsurance policy. The district court’s conclusion was correct.
The Underwriters reasonably believed–based on Fenchurch’s negligent
misrepresentation embodied in Endorsement 3–that the LSW 507
language was already part of the original insurance policy and
would thus “follow through” to the reinsurance policy. Moreover,
the evidence fails to show that any policy would have been issued
without the misrepresentation embodied in Endorsement 3.
HCC argues, however, that even if uberrimae fidei applies to
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this case,1 the Underwriters are entitled to avoid liability based
on only Endorsement 3 and not based on the entire contract.
Specifically, HCC contends that Fenchurch’s misrepresentation could
not have induced the Underwriters to enter into this reinsurance
contract because the misrepresentation occurred approximately one
year after the slip was scratched. However, if the Underwriters
were permitted to avoid only Endorsement 3, we would be left with
a slip whose terms were so unclear with respect to the basis of
loss that Fenchurch and the Lloyd’s Policy Signing Office agreed
that a policy could not be assembled. The Fenchurch employees who
drafted and approved Endorsement 3 on behalf of HCC evidently
understood the endorsement to do nothing more than clarify an
ambiguous term already contained in the slip. Under these
circumstances, it is, as a matter of contract construction, legally
improper to treat the slip, the endorsement, and the final policy
as discrete and severable agreements. The district court thus did
not err in concluding that the Underwriters were entitled to avoid
the reinsurance agreement in its entirety.
With respect to the contract reformation issue raised on
cross-appeal, we must determine “only whether the court clearly
erred in its finding as to whether there was clear and convincing
1
Contrary to HCC’s suggestion at oral argument, there is no
indication that the English doctrine of uberrimae fidei (as opposed
to the American version of this doctrine) has been limited to
maritime contracts.
3
evidence of mutual mistake.” Enserch Corp. v. Shand Morahan & Co.,
Inc., 952 F.2d 1485, 1502 (5th Cir. 1992). We conclude that the
district court did not err in refusing to reform the contract
because the weight of the evidence supports the conclusion that the
parties had not reached a definitive and explicit agreement as to
the basis of loss.
A F F I R M E D .
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