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''Uberrima fides'' (sometimes seen in its genitive form ''uberrimae fidei'') is a
Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally a dialect spoken in the lower Tiber area (then known as Latium) around present-day Rome, but through ...
phrase meaning "utmost good faith" (literally, "most abundant faith"). It is the name of a legal doctrine which governs
insurance contract In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as ...
s. This means that all parties to an insurance contract must deal in
good faith In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
, making a full declaration of all material
fact A fact is a datum about one or more aspects of a circumstance, which, if accepted as true and proven true, allows a logical conclusion to be reached on a true–false evaluation. Standard reference works are often used to check facts. Scient ...
s in the insurance proposal. This contrasts with the legal doctrine ''
caveat emptor ''Caveat emptor'' (; from ''caveat'', "may he/she beware", a subjunctive form of ''cavēre'', "to beware" + ''ēmptor'', "buyer") is Latin for "Let the buyer beware". It has become a proverb in English. Generally, ''caveat emptor'' is the contr ...
'' ("let the buyer beware").


Principle of uberrima fides

A higher duty is expected from parties to an
insurance contract In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as ...
than from parties to most other contracts, in order to ensure the disclosure of all material
fact A fact is a datum about one or more aspects of a circumstance, which, if accepted as true and proven true, allows a logical conclusion to be reached on a true–false evaluation. Standard reference works are often used to check facts. Scient ...
s so that the contract may accurately reflect the actual risk being undertaken. The principles underlying this rule were stated by
Lord Mansfield William Murray, 1st Earl of Mansfield, PC, SL (2 March 170520 March 1793) was a British barrister, politician and judge noted for his reform of English law. Born to Scottish nobility, he was educated in Perth, Scotland, before moving to Lond ...
in the leading and often-quoted case of '' Carter v Boehm'' (1766) 97 ER 1162, 1164,
Insurance is a contract of speculation... The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only: the under-writer trusts to his representation, and proceeds upon confidence that he does not keep back any circumstances in his knowledge, to mislead the under-writer into a belief that the circumstance does not exist... Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary.
Therefore, the insured must reveal the exact nature and potential of the risks that he transfers to the insurer (which may, in turn, be sold onto a reinsurer), while at the same time the insurer must make sure that the potential contract fits the needs of, and benefits, the insured.
Reinsurance Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself (at least in part) from the risk of a major claims event. With reinsurance, the company passes on ("cedes") some part of its own insu ...
contracts (between reinsurers and insurers/cedents) require the highest level of utmost
good faith In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
, and such utmost good faith is considered the foundation of reinsurance, which is an essential component of the modern insurance marketplace. In order to make reinsurance affordable, a reinsurer cannot duplicate costly insurer
underwriting Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liabilit ...
and claim handling costs, and must rely on an insurer's absolute transparency and candor. In return, a reinsurer must appropriately investigate and reimburse an insurer's good faith claim payments, following the fortunes of the cedent.


Fiduciary duties

The fact that a contract is one of utmost good faith does not mean, however, that it gives rise to a general fiduciary relationship. The relationship between insured and insurer is not akin to the relationship between, say,
guardian Guardian usually refers to: * Legal guardian, a person with the authority and duty to care for the interests of another * ''The Guardian'', a British daily newspaper (The) Guardian(s) may also refer to: Places * Guardian, West Virginia, Unit ...
and
ward Ward may refer to: Division or unit * Hospital ward, a hospital division, floor, or room set aside for a particular class or group of patients, for example the psychiatric ward * Prison ward, a division of a penal institution such as a pris ...
, principal and
agent Agent may refer to: Espionage, investigation, and law *, spies or intelligence officers * Law of agency, laws involving a person authorized to act on behalf of another ** Agent of record, a person with a contractual agreement with an insuranc ...
, or
trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to ...
and
beneficiary A beneficiary (also, in trust law, '' cestui que use'') in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. For example, the beneficiary of a life insurance policy is the person ...
. In these latter instances, the inherent character of the relationship is such that the law has traditionally imported general fiduciary obligations. The insurer-insured relationship is contractual; the parties are parties to an arms-length agreement. The principle of ''uberrima fides'' does not affect the arms-length nature of the agreement, and cannot be used to find a general fiduciary relationship. The insurance contract, as noted above, imposes certain specific obligations on its parties. These obligations, however, do not import general fiduciary duties into each and every insurance relationship. Before such fiduciary obligations can be imported there must be specific circumstances in the relationship that call for their imposition. In ''Murray v. Beard'', 7 N.E. 553, 554-55 (N.Y. 1886), applying the doctrine of
faithless servant The faithless servant doctrine is a doctrine under the laws of a number of states in the United States, and most notably New York State law, pursuant to which employees who act unfaithfully towards their employers must forfeit to their employers a ...
, the
New York Court of Appeals The New York Court of Appeals is the highest court in the Unified Court System of the State of New York. The Court of Appeals consists of seven judges: the Chief Judge and six Associate Judges who are appointed by the Governor and confirmed by ...
held that a broker could not recover commissions from his employer, holding that "An agent is held to ''uberrima fides'' in his dealings with his principal; and if he acts adversely to his employer in any part of the transaction ... it amounts to such a fraud upon the principal, as to forfeit any right to compensation for services."


Limitations

''Uberrima fides'' is strictly limited in
English law English law is the common law legal system of England and Wales, comprising mainly criminal law and civil law, each branch having its own courts and procedures. Principal elements of English law Although the common law has, historically, bee ...
to the ''formation'' of the insurance contract. During the mid-20th century, American courts expanded it much farther into a post-formation
implied covenant of good faith and fair dealing In contract law, the implied covenant of good faith and fair dealing is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as to not destroy the right of the other party or parties ...
. Violation of that implied covenant came to be seen as a tort, now known as
insurance bad faith Insurance bad faith is a tort unique to the law of the United States (but with parallels elsewhere, particularly Canada) that an insurance company commits by violating the " implied covenant of good faith and fair dealing" which automatically exi ...
.


See also

*
Adverse selection In economics, insurance, and risk management, adverse selection is a market situation where buyers and sellers have different information. The result is that participants with key information might participate selectively in trades at the expe ...
*
Information asymmetry In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. Information asymmetry creates an imbalance of power in transactions, which can ...
*
List of Latin phrases __NOTOC__ This is a list of Wikipedia articles of Latin phrases and their translation into English. ''To view all phrases on a single, lengthy document, see: List of Latin phrases (full)'' The list also is divided alphabetically into twenty page ...


References

{{reflist


External links


Uberrima Fides And Concealment in the Marine Policy Application
from the
Maritime Law Association of the United States Maritime may refer to: Geography * Maritime Alps, a mountain range in the southwestern part of the Alps * Maritime Region, a region in Togo * Maritime Southeast Asia * The Maritimes, the Canadian provinces of Nova Scotia, New Brunswick, and Prin ...
*
New Hampshire Ins. v. C'Est Moi, Inc.
' Contract law Insurance law Latin legal terminology