Uberrimae Fidei Contract

Key takeaways

• Uberrimae fidei (Latin for “utmost good faith”) requires parties to certain contracts—most commonly insurance contracts—to disclose all material facts that could influence the other party’s decision.
• Failure to disclose material information or making deceptive statements can void the contract and free the other party from its obligations.
• The doctrine originated in English law (Carter v. Boehm, 1766) and is especially important in insurance and reinsurance to address information asymmetry and adverse selection.

What it means

Uberrimae fidei imposes a heightened duty of disclosure: parties must honestly and fully reveal relevant facts that would affect the counterparty’s assessment of risk. Unlike ordinary contracts, where each side generally looks after its own interests, contracts governed by utmost good faith shift the burden onto the disclosing party to present material information.

Application in insurance

Insurance contracts are the classic example:
* The insured typically knows more about personal risk factors (health, lifestyle, past claims) than the insurer.
* Full disclosure enables the insurer to set an appropriate premium, impose conditions, or decline coverage if the risk is unacceptable.
* If a policyholder conceals material facts or misrepresents information (for example, denying a history of smoking on a life-insurance application), the insurer can rescind the policy or deny claims based on the breach of utmost good faith.

This rule aims to reduce problems from information asymmetry, particularly adverse selection, where those with higher risk are more likely to seek insurance without disclosing that risk.

Reinsurance and special considerations

Uberrimae fidei is treated as an implied term in reinsurance contracts:
* Reinsurers rely on primary insurers’ underwriting and claim-handling processes and cannot duplicate all those checks.
* In turn, reinsurers must adequately investigate and reimburse legitimate claims paid in good faith by the ceding insurer.
* The doctrine facilitates trust between insurers and reinsurers while allocating duties and expectations on disclosure and investigation.

Origin

The principle was articulated by Lord Mansfield in Carter v. Boehm (1766). He explained that insurance depends on the insured’s disclosure of special facts known only to them, and that good faith forbids concealing such facts to induce a contract.

Examples of breach

Breach occurs when a party conceals or misstates material facts, for example:
* Failing to disclose regular tobacco use on a life or health insurance application.
* Omitting prior claims history or a preexisting condition when applying for property or casualty coverage.
* Providing false answers on medical questionnaires or omitting known risk-enhancing behaviors.

Consequences typically include rescission of the policy, denial of benefits, or other legal remedies.

Uberrimae fidei vs. caveat emptor

• Uberrimae fidei: highest duty of disclosure—parties must reveal material facts.
• Caveat emptor (“buyer beware”): places the burden on the buyer to discover defects or risks; seller has no heightened duty to volunteer information.

They represent opposite approaches to allocating risk and responsibility in transactions.

Common causes of breaches and their effects

Typical causes:
* Deliberate concealment or lying.
* Negligent omissions (failing to realize information is material).
Legal effects:
* Voidance or rescission of the contract.
* Denial of claims and potential civil liability for fraud or misrepresentation.

Bottom line

Uberrimae fidei requires complete and honest disclosure of material facts in certain contracts—most notably insurance and reinsurance—to correct information imbalances and prevent adverse selection. Parties subject to this duty should provide accurate, full information at formation and during the life of the contract to avoid voidance and other legal consequences.