Principle of Utmost Good Faith (uberrimae fidei) In Marine Insurance

Uberrimae Fidei in marine insurance is the Latin text for the principle of utmost good faith. It refers to the mutual responsibility of the insured and the insurer. It requires both parties to act in good faith towards one another and reveal all the material facts which may affect the insurance contract.

As per the principle, both the insured and the insurer must disclose all facts and not withhold any critical information from one another.

The principle of good faith is legally obliging the parties to the contract, to be honest with each other at all times. Violating this principle may lead to the contract becoming void, or legal action may sometimes be taken against the violator.

Let us understand the principle of utmost good faith in insurance with an example.

When entering into a marine insurance contract with an insurance company, the owner of the ship or vessel must disclose all the critical information related to the ship, such as any accidents in the past, changes in the ship, etc.

Good Faith In Marine Insurance: Meaning of Material Fact

The principle of good faith in insurance implies that both parties to an insurance contract reveal all material facts to one another. Material facts are those which may affect the judgement or opinion of a party. They refer to the information that can change the consequences or actions of the other party to the insurance contract.

• Some instances of material facts are:

• Facts that increase the risk.

• Facts that were immaterial earlier but became material later on.

• Losses and claims received under the previous policies.

• The subject matter must be described accurately by the insured. For instance, the insured must provide all the minute details of the ship/vessel.

• Facts that increase the risk. For example, if the vessel is going to take a route that is highly dangerous.

• It is the duty of the insured to reveal all the material facts related to the insured property that may affect the decision of the insurer to accept the risk, decide the premium, coverage, etc.

• The insured is responsible for disclosing any changes to the subject matter or any other aspect that affects the marine insurance policy.

• It is the duty of the insured to uphold the principle of utmost good faith at every stage of the insurance process.

• The insured must reveal any instance of the past where an insurance policy was denied to him.

• The insurer must disclose the correct and accurate terms and conditions of the insurance contract to the policyholder.

• The insurer must reveal any changes in the premium amount, extent of coverage, etc., to the insured.

• The insurance company must carry out the investigation and claim settlement in a fair manner.

The doctrine of utmost good faith in marine insurance lays the very foundation of the insurance contract. It emphasises the need for both parties to the agreement to disclose all the material facts to one another.

Upholding this principle ensures that both parties can calculate the risk, expenses, etc., involved in the contract.
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What happens if the insured breaches the principle of utmost good faith?

In case of a breach of this principle by the insured, the insurance company can reject the claim proposal for marine cargo insurance or any other policy. The insurance company may also refuse to return the premium, or terminate the contract.

What happens if the insurer fails to follow the principle of utmost good faith?

If the insurer/insurance company fails to uphold the principle, the insured can challenge the validity of the contract and seek compensation for his losses.