- Contracts uberrimae fidei (of utmost good faith) go a step beyond fiduciary
relationships, and impose an absolute duty to disclose all material facts to
the other party. In certain contracts, where only one party possesses full
knowledge of all the material, or relevant, facts, the law requires that party
to show uberrima fides (utmost good faith). The main example of this is in
contracts of insurance, especially now when the contract is often made over
the telephone, and the insurer has no idea whether the customer is telling the
truth. Material facts (those which must be disclosed) were said in the Marine
Insurance Act 1906 to be those likely to influence the prudent insurer in
setting the premium (the payment) or in deciding whether to take the risk at
all. This applies to all forms of insurance (motor, life, fire, theft, accident,
etc.). The penalty for non-disclosure is usually that the insurance company
will claim that the contract is rescinded (ended – see p. 179), and they can
either decide not to pay at all when a claim is made, or they may decide to
make a reduced payment as a gesture of goodwill. The following case is an
early example of non-disclosure.
In Bufe v Turner (1815) an insurance company refused to pay when a house
owner did not report the circumstances of a fire in an adjoining property.
In Lambert v Co-operative Insurance Society(1975) a lady was not entitled
to recover the cost of her stolen jewellery because she had not informed the
insurers of her husband’s conviction for conspiracy to steal.
Misrepresentation 173who held this information, so they were deemed to be in a position
of trust. When Easipower defaulted on payments a claim of
misrepresentation was made against Heller. This would have
succeeded, because of the relationship, had it not been for a technical
clause in the letter of assurance (it was given ‘without responsibility’).
So the principle of law from Hedley Byrne is obiter (not technically
binding), but is respected as the current legal position.Seaman v Fonereau (1743)
A ship was sited in difficulties when out at sea, but it recovered from
them. When it was later captured by Spaniards, the insurers refused to
pay for it, since the previous difficulties had not been reported. It was
held that they were entitled to do so, as this was a contract of uberrima
fides which imposed a duty to report all material facts, and the ship
being in difficulties was one such fact.Can you think of any facts which may affect an insurer in deciding whether
to insure a person to drive a car, or in deciding how much to charge for the
insurance cover?