The principle of Utmost Good Faith (known also as “Uberrimae Fide”) remains the backbone of the oldest form of insurance: Marine insurance!
In truth, the doctrine of Utmost Good Faith is of universal application and is entrenched in industry custom and practice. It is also a legal requirement in many jurisdictions and is specifically addressed within the provisions of the Marine Insurance Act 1906 of the United Kingdom as well as within similar statutes enacted in a number of other countries, particularly those of the former British Commonwealth.
Historically, this important doctrine arises principally from the need to protect marine underwriters against acts of misrepresentation, concealment or non-disclosure during the application or renewal process in relation to a policy of marine insurance.
In non marine classes of insurance, property and casualty underwriters often have the advantage of drawing on independent resources to confirm or verify information presented by the insured during the application process.
On the other hand, in the world of marine insurance, due to the nature of the risks being underwritten, marine underwriters do not have the same resources available to independently confirm information provided by an insured and must rely, rather, solely on what an insured is telling them about the risk in question as a basis for providing terms. In cargo insurance, for example, an underwriter may have to rely substantially on information provided by the insured as to how cargo is packed and stowed within a shipping container. Likewise, a marine underwriter must rely on the insured’s declarations as to quantity and value of the cargo. Underwriters in this specialized class, generally, do not have any other source for verifying this information.
Hence, for as long as marine insurance has been in existence, there has been a need to protect marine underwriters from inaccurate or misleading information submitted by an insured during the application stages of the risk.
Consequently, the effects of misrepresentation or concealment are serious and generally allow underwriters to avoid a policy ab initio.
In the United States, there is no federal marine insurance statute. Concealment and misrepresentation in relation to marine insurance policies has tended to fall under state jurisdiction. American courts have, time after time, recognized the doctrine of utmost good faith.
In a newly-issued decision in Catlin (Syndicate 2003) v. San Juan Towing and Marine Services, the United States Court of Appeals for the First Circuit has held that the maritime doctrine of uberrimae fidei – “utmost good faith” – is an established rule of maritime law, joining the Second, Third, Eighth, Ninth, and Eleventh Circuits
It is interesting to note that during this same time frame, the UK Parliament is in the process of passing the Insurance Act 2015. This legislation repeals and amends certain provisions of the century old Marine Insurance Act including provisions relating to Utmost Good Faith. Though in its early days and whilst continuing to recognize the time honored doctrine of Utmost Good Faith, the new Act purports to relax some of the harsh provisions relating to misrepresentation and non-disclosure, thus providing some relief to an insured.
It will be interesting to see to what extent American courts will be influenced by these changes in the future.
The doctrine of utmost good faith must not be confused with the duty of good faith. The former is generally a duty imposed on an insured to provide accurate information material to a marine risk whereas the latter addresses the conduct of an insurer in relation to an insurance policy and any claims filed hereunder.
Alan Jervis B.A. Hons is a general, marine, P and I, transportation and energy insurance expert and has been active in the industry for over 36 years. He has been retained as an insurance expert involving complex litigation on matters before federal and state courts and arbitration in the United States and before the courts and tribunals of Canada and the United Kingdom.
During his career, Alan has worked as an underwriter, claims handler and adjuster and as a subrogation expert, servicing policies in the American, Canadian, British and French markets.
He has served on both national and international technical committees and has spoken at conferences and workshops based in Toronto, Singapore, Oslo and Tokyo. He has hosted over 250 workshops and is the author of over 10 books on marine insurance.