Uberimma fides (FIDEI)

After a couple of weeks’ interruption, we shall continue with our discussions on the six principles of insurance today. In those days, I used to see “Caveat Emptor” on the walls of buildings and sometimes underneath, there is a suit number. I knew it had something to do with the courts. I also knew caveat meant proviso, but never knew the meaning of caveat emptor. I later found out that it means “let the buyer beware,” which simply means look well before you buy because the seller is under no obligation to reveal the details, including status or defects, of the item to you. The buyer must do due his diligence before buying. Today’s topic is the reverse. It is a high-sounding Latin phrase, “Uberimma Fides,” with a simple meaning: Utmost Good Faith.

Utmost Good Faith is one of the six principles of insurance. Whereas in other contracts, especially sale of properties, the seller has no obligation to disclose details of the property to the buyer,
provided the seller does not deliberately conceal latent defects or make material misrepresentation which amount to fraud (these also give the buyer the legal grounds, which ordinarily he would not have been availed of, to sue the seller), in insurance, the proposer (prospective policy holder) has an obligation to disclose all material facts.

A material fact is defined as that which would influence the judgment of a prudent underwriter in deciding whether or not to accept a risk and if he is accepting, on what conditions. A debilitating or terminal ailment is a material fact in life insurance. Reduction of actual age negates the principle of Utmost Good Faith in life insurance. Concealing previous convictions for driving offences also negates the Principle of Utmost Good Faith in motor insurance, unless it is spent, in which case the proposer is regarded as never been convicted.

This duty of disclosure rests on both the insured and the insurance company. The insured has a duty to disclose all the details of the risk he is bringing for insurance, be it property, life, limb or potential liability. The insurance company, on the other hand, has a responsibility not to accept any insurance from a proposer, which it knows is unenforceable in law. The insurance company should also not withhold any information it knows would be potentially injurious to the policy holder, neither should it take undue advantage of the policy holder via false statements.

Generally, a proposer is obliged to disclose facts which aggravate the risk or make the risk worse than it should ordinarily be. A proposer should also disclose previous losses and claims history where applicable. But the proposer need not disclose facts which lessen the risk; for instance, presence of fire extinguishers in his car. The proposer also need not disclose facts, which the insurance company ought to know or matters of law which are public knowledge. The proposer can also not disclose facts unknown to him.

But the Insurance Act of 2003 modifies the doctrine of Utmost Good Faith and makes life easier for the insuring public. The act provides that the insurance company draws its proposal form in a way as to elicit all material facts and any information not specifically asked for is deemed immaterial.

Blatant and unintended breach of the Doctrine of Utmost Good Faith is one of the reasons why the insuring public distrust of insurance. The average Nigerian does not take time to go through contract documents, including insurance. So, unintended breach of the Utmost Good Faith is quite common, especially among policy holders who did not go through a Registered Insurance Brokers. Many brokers do take time to explain the dos and don’ts of insurance policies to policy holders to avoid hiccups in the event of an incident leading to a claim. This is another very good reason to go through a Registered Insurance Broker when taking an insurance policy. Beyond guiding the policy holder, if the policy holder inadvertently breaches the Doctrine of Utmost Good Faith, the insurance company might waive its right to repudiate or avoid the claim and treat the claim as if there was no breach of Utmost Good Faith. Alternatively, it can make payment ex gratia (payment not deserved, but made as a favour, out of grace or due to some other considerations). But insurance companies usually take a hard stand where there is a deliberate attempt by a policy holder to misrepresented facts or defraud the insurance company.