Uberrimae Fidei: Utmost Good Faith

Uberrimae fidei, utmost good faith, is an ancient marine insurance doctrine.  Historically, all insurance policies were contracts uberrimae fidei, meaning both parties were held to the highest standard of good faith in the transaction.  An applicant for a marine insurance policy is bound to reveal every fact within his knowledge that is material to the risk.  The doctrine of uberrimae fidei was grounded both in morality and efficiency; insureds were considered morally obligated to disclose all information material to the risk the insurer was asked to shoulder, but such a principle was also an economic necessity where insurers had no reasonable means of obtaining this information efficiently, without the ubiquity of telephones, e-mail, digital photography, and air travel.  Stecker v. Am Home Fire Assurance Co., 84 N.E. 2d 797 (1949).  Today uberrimae fidei has been displaced in most insurance contexts.

Nevertheless, the doctrine enjoys continuing vitality in the world of marine insurance.  If an insured fails to reveal every fact within his knowledge that is material to the risk the insurer may rescind the policy, even if the material misrepresentation was not intentional.  As you might imagine, the application of this rule has led to litigation, and recent decisions demonstrate that the courts will not hesitate to enforce its application.

For instance, in New Hampshire Insurance Co. v. C’est Moi, Inc., 519 F.3d 937 (9thCir. 2008), a yacht sank in calm waters.  Investigation revealed the cause to be a defective bilge pump.  New Hampshire Insurance Co. moved the court to rescind the policy it issued for the yacht on the grounds that the owner/applicant, when he applied for insurance, misrepresented the purchase price of the yacht and the identity of the insuror of the yacht.  In upholding rescission of the policy, the 9th Circuit Court of Appeals held that the terms of a policy cannot supersede the insured’s duty under uberrimae fidei.  The owner argued that as written in the policy, it could only be voided by intentional misrepresentation.  The 9th Circuit rejected this argument and held that unless the policy contained clear and unequivocal policy language disclosing a mutual intent to supersede uberrimae fidei, it will not be disregarded.  Thus, having found the information requested material and the information provided false or misleading the court rescinded the policy.

Similarly, in Lloyds, London v. Inlet Fisheries, Inc., 518 F.3d 145 (9thCir. 2008), the court rescinded a policy following a pollution event.   When the owner of the vessel applied for insurance he stated that the vessel had no pollution loss history.  The insurance was provided and thereafter an oil spill occurred.  On learning additional information about Inlet, including the true pollution history and poor condition of its vessels, Lloyds sued to rescind the policy.  The owner argued that Alaska state law should apply and not the federal doctrine of uberrimae fidei.  In a lengthy opinion, the court rejected the application of state law and rescinded the policy.

In applying this doctrine to rescind policies and void coverage, the courts have held that even if information is not specifically requested, the applicant must still disclose all information that could be relevant to the insurer’s decision to provide coverage.  A misrepresentation of any fact material to the insurer’s decision to issue coverage is enough to trigger rescission of the policy.  Thus, the applicant, if he wants to avoid coverage issues, must make every effort to provide a complete and accurate history of the vessel and its operations, even if it is not specifically requested by the insurer.