Uberrimae Fidei and Its Jurisprudential Anchorage in Marine Insurance
LEIS LAW INSIGHT: WK18/D121/24
Uberrimae Fidei, a Latin phrase denoting utmost good faith, forms the cornerstone of insurance law, necessitating an exceptional level of candor and transparency between contracting parties. This doctrine is particularly pivotal within the sphere of marine insurance, where it sustains the integrity and functionality of agreements. Uberrimae Fidei imposes an obligation on the insured to disclose all material facts that could influence the insurer’s decision-making in policy underwriting or premium calculation.[1] Conversely, insurers are equally bound to operate with good faith by providing clear and accurate information regarding the policy details.[2]
The principle underpins the imperative of full disclosure in insurance contracts, thereby enabling both parties to accurately assess risks and form decisions. It acts as a defense against fraud and misrepresentation, ensuring that insurance coverage is obtained and provided under equitable circumstances. The doctrine’s incorporation into statutory frameworks, as seen in the UK’s Marine Insurance Act[3] and its influence on Nigerian law, highlights its jurisprudential importance. Judicial precedents further reinforce the application of Uberrimae Fidei, with Nigerian and foreign case law delineating the consequences of non-disclosure or misrepresentation.
Through legislative and judicial enforcement, Uberrimae Fidei remains a guiding principle, ensuring the longevity and integrity of marine insurance contracts amidst the complexities of global trade.
The Imperative of Disclosure in Insurance Contracts:
Disclosure is a critical component of insurance contracts, allowing both parties to assess the involved risks adeptly and make judicious choices. It allows the insurer to set an appropriate premium and delineate terms that reflect the true nature of the risk. Inadequate or deceptive disclosures may lead to misunderstandings, disputes, and financial harm to all involved parties.
Moreover, Uberrimae Fidei functions as a safeguard against fraud and misrepresentation within insurance transactions. By insisting on the revelation of all material facts, the doctrine deters efforts to obtain coverage under false pretenses or to conceal vital information. This measure not only protects insurers from potential losses but also ensures that legitimate insurance seekers receive coverage under just conditions.
Suffice to reiterate, that Uberrimae Fidei is instrumental in upholding the sanctity and mutual trust embodied in insurance contracts. By adhering to the highest standards of honesty and disclosure, insurers and the insured can cultivate a collaborative relationship defined by shared understanding and cooperation. Such adherence safeguards the interests of both parties and enhances the overall transparency and effectiveness of the insurance sector.
Statutory Framework and Legal Codification:
The United Kingdom’s Marine Insurance Act[4] is a landmark legislative text that governs marine insurance, outlining norms related to vessels, cargo, and Protection and Indemnity (P&I) coverage. Crafted by Sir Mackenzie Dalzell Chalmers,[5] the Act aimed to consolidate common law into a unified legislative framework, embedding the principle of Uberrimae Fidei within its provisions. While Section 17 stipulates that “a contract of marine insurance is a contract based upon the utmost good faith,” Sections 18 to 20[6] detail the obligations concerning disclosure and representations, reinforcing the doctrine of Uberrimae Fidei by mandating the revelation of all material facts by the contractual parties.
The Nigerian Context:
The Marine Insurance Act of 1906 has had a substantial impact on the global marine insurance laws, including those of the Nigerian legal framework. In Nigeria, the essence of Uberrimae Fidei is transposed through sections 19 to 21 of the Marine Insurance Act[7] (MIA), echoing the duty of disclosure as prescribed in the 1906 Act. According to section 19, M.I.A. “a contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith is not observed by either party, the contract may be avoided by the other party.”
Furthermore, Section 20, M.I.A. lays out the scope and substance of the disclosure regime in Nigeria. According to the section:
(1) Subject to the provision of this section, the assured shall disclose to the insurer before the contract is concluded, every material circumstance which is known to the assured and the assured shall be deemed to know every circumstance which in the ordinary course of business ought to be known by him. If the assured fails to make such disclosure, the insurer may avoid the contract.
(2) Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk.
(3) In the absence of inquiry, the following circumstances need not be disclosed namely:
(a) Any circumstance which diminishes the risk
(b) Any circumstance which is known or presumed to be known to the insurer, and for the purpose of his paragraph, the presumptions shall extend and apply to matters of common notoriety or knowledge, and to matters which an insurer in the ordinary course of his business, as such, ought to know;
(c) Any circumstance as to which information is waived;
(d) Any circumstance which is superfluous to disclose by reason of any express or implied warranty.
“Circumstance” in the context of MIA includes any communication made to, or information received by, the assured; and whether any particular circumstance which is not disclosed, is material or not is, in each case of a question of fact.
The Judicial Compass:
Jurisprudence serves as a compass in the application of Uberrimae Fidei, with seminal foreign cases such as Carter v Boehm[8] and Ionides v. Pender[9] clarifying the scope and significance of this duty. The consensus in case law is that non-disclosure or misrepresentation of material facts can render the insurance agreement voidable or entirely void.
In Nigeria, the Supreme Court has reinforced the principle of Uberrimae Fidei in various cases, including NICON v Power & Industrial Engineering Company Ltd,[10] where the Court pronounced that “the basis of all insurance transactions is utmost good faith.” Additionally, the judicial application of Uberrimae Fidei appears to have extended beyond insurance law, as evidenced by the pronouncements in lease transactions by Belgore, JSC (as he then was): “When entering into an agreement of this nature the parties must be uberrimae fidei and I find nothing in the Exhibit 1 (Lease Agreement) to defeat this presumption.”
In adjudicating good faith, courts must balance the policyholder’s interest in receiving payment for legitimate claims against the insurer’s interest in covering the agreed-upon risks. It is not permissible for an insurer to maintain a policy while concurrently refusing payment on a claim on the basis of lack of good faith or non-disclosure, as demonstrated in West v National Motor and Accidental Insurance.[11] For an insurer to validly avoid a policy, they must refund any premiums paid by the insured.
Uberrimae Fidei in Contemporary Jurisprudence:
The principle of Uberrimae Fidei, despite its longstanding origins, continues to be a critical element in modern insurance law. Current legal decisions attest to the sustained relevance of this principle, ensuring the integrity of insurance contracts. The scrutiny of pertinent documents highlights the need for contracts to be unambiguous and truthful.
Implications for the Maritime and Insurance Sectors:
The judiciary’s consistent upholding of Uberrimae Fidei has meaningful implications for the maritime and insurance industries. It dictates the behavior expected of all involved parties, nurturing a collective confidence in their agreements related to risk sharing. Legislative provisions, in conjunction with judicial interpretation, create an environment that fosters transparency and trust—elements that are vital for the smooth operation of marine commerce.
Conclusion:
Uberrimae Fidei acts as a jurisprudential lighthouse, guiding the marine insurance industry through the perils of nondisclosure and misrepresentation. Its incorporation into the Marine Insurance Act, supported by judicious precedent, strengthens the legal ties within maritime contracts. The principle’s enduring relevance ensures the fairness and stability of marine insurance policies, securing them against the uncertainties of international trade.
[1] S. 17, (UK) Marine Insurance Act 1906 & s. 19, (Nigeria) Marine Insurance Act 2003
[2] S. 18, (UK) Marine Insurance Act, Ibid & s. 20, (Nigeria) Marine Insurance Act, Ibid
[3] 1906
[4] Ibid
[5] Sir Mackenzie Dalzell Edwin Stewart Chalmers KCB CSI (7 February 1847 – 22 December 1927) was a British judge and civil servant. He was Parliamentary Counsel to the Treasury, a judge of the county courts and a Law Member of the Viceroy’s Council in India. Chalmers also served as Permanent Under-Secretary of State at the Home Office from 1903 to 1908. Noteworthily, Sir Mackenzie Dalzell Chalmers also drafted the Bills of Exchange Act 1882, and Sale of Goods Act of 1893. Mackenzie Dalzell Chalmers <https://en.wikipedia.org/wiki/Mackenzie_Dalzell_Chalmers > Last Accessed on 30/04/2024
[6] Marine Insurance Act, Ibid.
[7] 2004 previously 1961
[8] (1766) 3 Burr 1905
[9] (1874) LR 9 QB 531
[10] (1986) LCER-3587(SC)
[11] [1955] 1 Lloyd’s Rep 207
Levi I. Shaapera, Esq., is a legal research enthusiast with a passion for exploring the intricacies of the law. As the Founder and Editor-in-Chief of LawCompass Electronic Reports (LCER), he is dedicated to providing comprehensive legal analyses and insights. In addition to his role at LCER, Levi serves as the Managing Partner at Leis Law Clinic, where he applies his expertise to offer comprehensive legal services. With a commitment to excellence and a deep passion for the law, Levi plays a pivotal role in advancing legal scholarship and practice.
Email: sil@leislawlp.pro Phone: 09023499999 Website: www.leislawlp.pro
© LEIS LAW CLINIC