Uberrimae Fidei: Marine Insureds Have A Duty To Make Full Disclosure On Marine Insurance Applications
By Marissa Henderson The difficult-to-pronounce doctrine of uberrimae fidei is alive and well in marine insurance. Translated “utmost good faith,” it means the insurance company has the right to assume the applicant has disclosed all facts material to the risk. Those purchasing marine insurance are well-advised to disclose all facts that would matter to the insurance company even if the question is not asked on the application. The penalty for failing to disclose a material risk: the insurer can deny a claim, or, worse yet, it can declare the policy dead from the beginning, or void ab initio.
This harsh result is upheld by the Supreme Court in the marine insurance context only. Admiralty law has ancient and deep traditions. This tradition of utmost good faith has survived in admiralty even while it has quickly eroded in most other insurance contexts. Once the province of all insurance contracts, uberrimae fidei is now a peculiar principle of marine insurance. Stipich v. Metropolitan Life Ins. Co., 277 U.S. 311, 316 (1928). (“Insurance contracts are traditionally contracts uberrimae fidei.”).
How does this doctrine apply in practical terms? Good faith may not be enough. An insured acting in good faith and without intent to hide or deceive may be held to have violated uberrimae fidei. It is a bit of a guessing game in which the insurance applicant has to anticipate all facts that would matter to an insurer assessing the risk.
However, it is not all one-sided. A marine insurance company has some reciprocal obligations under uberrimae fidei. It must read all facts in the insurance application, and ask for more information if some fact prompts it to want to learn more. A marine insurer is expected to have basic knowledge of certain things, such as a vessel’s design and typical features. However, the doctrine of utmost good faith is rarely used against a marine insurer.
A good marine insurance broker knows this doctrine of utmost good faith and guides applicants through the process to ensure the application does disclose all material risks. Though the law is not well-developed in terms of a broker’s duties with respect to uberrimae fidei, a broker has some heightened duties in marine insurance. Because of this peculiar doctrine, choosing an insurance broker with substantial knowledge of marine insurance is most important to marine businesses.
In our practice, we have put uberrimae fidei to work by having a court declare a marine insurance policy void ab initio some years after the policy period. The application had both minor and major misrepresentations and nondisclosures. We also used utmost good faith as a sword against a broker to pursue recovery of marine insurer’s losses when the broker withheld key facts about the insured’s business from the application. If you need marine insurance, relying on the strategy of “if they don’t ask, I won’t tell” to keep your premiums down could find you alone and uninsured when it matters most.
Thanks and credit is given to Graydon S. Starin, of San Francisco, whose 2001 article for the Maritime Law Association, “Uberrrima Fides and Concealment in The Marine Insurance Application,” provided a good source of information. It is available at http://www.mlaus.org/article.ihtml?id=572&issue=40&folder=0.