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The regulation of marine insurance is with the states.
The owners, residents of Texas, insured a small houseboat against loss from fire. The boat was used for commercial carriage of passengers on Lake Texoma, an artificial inland lake between Texas and Oklahoma. While moored on the lake, the boat was destroyed by fire. In an action brought in Texas for the loss by the original owners and a corporation wholly owned by them, to which the boat's legal title had been transferred, the insurer denied liability because of breaches of policy warranties providing that, without the insurer's consent, the boat could not be transferred and that it must be used solely for private pleasure purposes. Without finding whether the policy had been made and delivered in Texas and refusing to give any effect to Texas law, under which the policy provisions containing the warranties might have been void, the courts below decided in favor of the insurer, applying, as a matter of federal admiralty law, the "literal performance" rule, which requires literal fulfilment of every policy warranty so that any breach bars recovery, even though a loss would have happened had the warranty been carried out to the letter.
Did the District Court and the Court of Appeals correctly determined that federal admiralty law –not state law–governed the validity and scope of warranties in a marine insurance contract?
The Supreme Court reversed and remanded the case to the District Court for a trial under appropriate state law. Where a great deal of regulatory power was vested in the states, the states were free to determine the liability of maritime insurers. Where congressional statutes and judicial rules did not occupy the field of marine insurance regulation, the states were free to adjudicate marine insurance disputes. The court abstained from fashioning a judicial rule regarding marine contracts where the task was best left to Congress.