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Marine Insurance and the Doctrine of Uberrimae Fidei

While Latin is often referred to as a “dead language” it is still alive and well in the ancient principles of marine insurance. In particular, the doctrine of uberrimae fidei still lives on. When translated, this Latin phrase refers to the duty of “utmost good faith and fair dealing.” This is the duty owed by a vessel owner to a marine insurer whenever he applies for a policy of marine insurance.

The doctrine of uberrimae fidei traces its origins to the days of sail, when a vessel owner seeking insurance for a hazardous voyage would venture into one of the London pubs where marine insurance underwriters (who later became Lloyds of London), first carried out their business. In those days, the underwriters had to place great reliance upon the representations of the owner regarding the seaworthiness of his vessel, the risks of the voyage, and his prior claims history. Each vessel was unique, and there was no database of vessel inspections or claims history for the underwriters to consult in evaluating the risk. A marine survey could not be conducted on a vessel in a far away port and faxed to the insurer overnight. The underwriters would make coverage decisions on the spot, and would set the premium based upon the presumption that the applicant’s representations were true, and that no material facts bearing upon the risk of loss had been concealed or misrepresented. In the event it was later discovered that the seaworthiness of the ship or the risks of the adventure, had been concealed or misrepresented, it was the insurer’s option to void the policy, and to refuse to pay claims.

With respect to marine insurance, the doctrine of uberrimae fidei remains valid in most States today. When applying for insurance, the vessel owner has an absolute duty to disclose to the insurer every known fact that may bear upon the risk of loss, even though no inquiry is made. It is not enough to simply answer the questions on the insurance application. If there are facts known to the vessel owner which might affect the risk of loss, but which are not specifically inquired into on the application, it is the vessel owner’s duty to voluntarily disclose these facts. This can be a trap for the unwary, since the vessel owner who seeks to lower his insurance premium is under terrific pressure not to disclose negative claims history or problems with the condition of his vessel. In most places, such an affirmative duty of disclosure is not present when applying for car insurance, homeowners insurance, or other common forms of coverage where it is enough to simply answer the questions on the application. However, with respect to marine insurance it is better to err on the side of disclosure, since the entire purpose of having the insurance could be frustrated, if a claim is made, but coverage is denied and the policy is voided because the insurer discovered that the boatowner concealed material facts relating to unseaworthy conditions or negative loss history. “Material” facts are those facts that, if known, would affect the insurer’s decision whether to issue the policy, or which would affect the amount of premium charged for the coverage.

In recent cases the doctrine of uberrimae fidei has been breached, and marine insurance policies have been voided, due to material mistakes such as failing to name the correct owner on the application (e.g., corporations may be charged a higher premium); failing to reveal prior insurance claims and vessel losses; overstating the value of the vessel; incorrectly describing the vessel (e.g., its age and model), its engines (e.g., gas vs. diesel) and equipment (e.g., fire-fighting systems); failing to disclose unseaworthy conditions; failing to disclose intended commercial use; failing to personally sign the application (where signature by only the owner himself is required); and knowingly hiring an incompetent marine surveyor to perform the pre-insurance vessel survey.

Boatowners are not commonly given any instructions with regard to the doctrine of uberrimae fidei at the time they apply for marine insurance. They are simply bound by notions of fairplay and the expectation that they will appreciate the importance of making full disclosure to the insurer of every known fact that is material to the risk of loss. While commercial operators tend to be more familiar with their obligations in this regard, most recreational boaters have no idea the doctrine even exists. While some writers have criticized the duty of utmost good faith and fair dealing as an antiquated notion, others have praised it as an enduring example of the ideals to which everyone in society was once expected to adhere. Regardless of which faction wins this debate, uberrimae fidei remains part of the law of marine insurance. Vessel owners and operators must continue to act with utmost good faith and fair dealing when applying for marine insurance.

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