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Uberrimae fidei

Uberrimae fidei (Latin for "the utmost good faith") is shorthand for the rule in the law of marine insurance that parties to a contract of marine insurance must exercise the utmost good faith in their dealings with each other. Under the most familiar application of the rule of uberrimae fidei, the assured must disclose to the underwriter everything it knows about the risk, and nondisclosure affords the underwriter grounds to void the policy.

Uberrimae fidei is among the oldest rules of marine insurance recognized by courts in the United States. Litigation concerning the application of the rule dates to [Justice Story]. It has also been recognized, following Justice Frankfurter's decision in Wilburn Boat, as a "specific and established federal rule" of marine insurance. Wilburn Boat (5th Cir.). Although exceptions are sometimes made, see, e.g. Ahn Thi Kieu, the rule is firmly established in the general maritime law.

The rule is obviously derived from English law, but its reign may becoming to an end there. According to Business Insurance, Insurance Bill, HL2014-15, was introduced in the House of Lords, the U.K. Parliament's upper chamber, in late July 2014. The bill would reform measures contained in the Marine Insurance Act 1906 that applies to commercial insurance contracts written in the United Kingdom. The legislation would change current practices that include insurers being able to avoid paying claims if any part of an insurance submission contains a misrepresentation — even if that information is not pertinent to the claim.

In February 2015, the House of Commons unanimously passed the Insurance Bill. It is expected by the Law Commission and industry experts to receive royal assent — by which Queen Elizabeth II signs it into law — by March 2015 and go into effect soon thereafter.

Uberrimae fidei is generally raised by insurers, but if the foundation of the rule is that all parties must act with the utmost good faith, then it would seem that it imposes certain obligations on insurers as well. The rule should, at least in theory, find application in mutual P&I insurance, in which the member-assureds in effect insure one another, and in which unforeseen obligations might be perceived to exceed the member's reasonable expectations.

Steven Hazelwood, in his book P&I Clubs, Law & Practice, mentions a case brought against the Oceanus Club by a member who argued that the Club's decision to write fixed premium business was insufficiently disclosed to members. The case was settled, but it illustrates how uberrimae fidei can be a sword in the hands of member-assureds who are insurers as well as insureds.

Does uberrimae fidei impose an obligation on Clubs to make certain disclosures to their members?

[More text goes here. Is it possible that uberrimae fidei could exceed the requirements imposed by insurance regulation and the directors' fiduciary responsibilities?]

Could uberrimae fidei be a defense to excess calls?

Perhaps, but only in unlikely circumstances. The member would have to show that the Club managers had failed to disclose significant facts about the Club's financial position, a difficult showing given the transparency of most Club's accounts and the considerable uncertainty concerning the liability side of a Club's balance sheet. The member would also have to agree that the cover was void from inception, leaving itself uninsured for a period of time, something most shipowners are reluctant to do. The member might not even have that option, given that it had accepted the benefits of its insurance contract for a significant period of time before the excess calls were levied.

The only reported cases I know concerning liability for excess calls are Turner v. American SS Owners Mutual P&I Assn, 16 F.2d 707, 1927 AMC 337 (5th Cir. 1927) and Columbia SS Co. v. American SS Owners Mutual P&I Assn, 1974 AMC 982 (D.Ore. 1973). Both of them uphold the Club directors' right to issue dividends in closed years and simultaneously levy assessments (supplementary calls) in open years.