Is uberrima fidei in insurance pre-contractual duties still alive?


‘A person who proposes for insurance knows every information about the risk: the insurer (underwriter) has no way of finding out except at great expense. The proposer therefore owes a pre-contractual duty to voluntarily disclose (and avoid making misrepresentations while doing so) every material information which would influence the decision of a prudent underwriter to accept or decline the risk, and to price appropriately if she were to accept it. The insurer also has a duty to disclose the terms of cover to the insured.’

This age-old reasoning birthed the most influential doctrine in insurance- uberrimae fidei, or utmost good faith. The authorities provide the need to prevent fraud (in a technical sense, whose definition includes mistakes- Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2001] UKHL 1) and protect the fledgling [insurance] industry (as it was some 250 odd years ago) as the rationale for the doctrine of utmost good faith.

Uberimma fidei has been a source of much academic and legal debate, not least because of its susceptibility to abuse by insurers. My interest in this article is to explore the current state of the uberrima fidei doctrine in the Ghanaian context – given reforms in English insurance law which may have influence on Ghana.

The origins: From English law to the world

The corpus of insurance law literature agrees on the [obiter] remarks of Lord Mansfield in the seminal case of Carter v Boehm ([1766] 3 Burr 1905) as the fountainhead of the doctrine of good faith. The doctrine found its earliest traceable codification in the UK’s Marine Insurance Act of 1906 (MIA). Any breach of the disclosure duty under utmost good faith, even innocently, occasioned the sole remedy of avoidance: parties were placed in their prior position as if the contract never existed (Section 17 of MIA).

The industrial revolution and Britain’s dominance in international commerce saw the expansion of British insurers around the world, shaping development of the profession and practice of insurance as a result. The Marine Insurance Act 1906 became the reference point for the law on insurance in the world post-World War 1. It is instructive to note that the subsistence of the doctrine of utmost good faith in the Ghanaian insurance market and across the Common law world is a relic of English insurance principles.

The doctrine in action

The fact that ‘full disclosure’ by an insured was determined to the standard of a ‘prudent underwriter’ served as an effective trap for insurers over the years. The case law is replete with examples of insurer bad faith perpetrated paradoxically on the altar of utmost good faith.

Additionally, the sole remedy of avoidance often over-compensated the insurer and served no value to an insured when an insurer was in breach. An insured would only discover a breach by the insurer when she had suffered a loss with no coverage.

Reform of uberrima fidei

As of August 2016, the duty of uberrima fidei had been completely repealed in English law; and any rule of law(effectively catching the Common law) permitting a party to an insurance contract to avoid the contract for a breach of the utmost good faith abolished. The pre-contractual duties of insureds are governed by a new [dichotomous] set of legislation: a consumer’s insurance legislation founded on consumer protection, and a non-consumer legislation (for corporates and business insurances) which eliminates the catch-all reach of the prior amorphous disclosure duty.

Does the repeal of the utmost good faith in English insurance law mean anything for insurance in Ghana? I will attempt to lead you to an answer.

Continuing influence of the London Market

London is reputed to be the birthplace of modern insurance, and ‘the London Market’ has since the 19th century retained its reputation as the world’s leading market for complex and high value risks. Lloyds of London has successfully arranged cover for prized moustaches, tongues, and chest-hair among other ‘treasures’.

A number of high value risks from the Ghanaian market end up in the London Market. Unless specifically agreed and properly drafted, the choice of law in reinsurances procured in the London market is English law. For any reader who may be a practitioner of reinsurance, your standard “All terms, clauses, and conditions as original” and its other variants are inadequate to incorporate choice of law clauses from the underlying policy.

An interesting scenario may arise where a Ghanaian insurer who reinsures a risk in the London market becomes entitled to repudiate a claim made by the [Ghanaian] underlying insured on the grounds of breach of the utmost good faith while a claim on the reinsurance may otherwise succeed. Mind you, an underlying contract and the reinsurance contract are independent under English law (Wasa International Insurance Co Ltd v Lexington Insurance Co [2009] UKHL 40).

What does the Ghana insurance law say?

Given that insurance contracts are commercial contracts, the Contract Act, 1960, (Act 25) applies in a general sense. But insurance contracts are different in a material respect. For example, whereas warranties in commercial contracts are non-fundamental terms in a general sense, a warranty in an insurance contract is a fundamental term with repudiatory consequences. The main legislation on insurance in Ghana, the Insurance Act 2006 (Act 724), regulates the operation of ‘insurance business’ but says nothing about the peculiar elements, terms, doctrines and principles of insurance contracts.

In the absence of adequate statutes, development of insurance law in Ghana is left to the courts and other sources of law. Every reference to doctrines and principles of insurance goes back to English Common law. Note that the Chartered Insurance Institute, UK, (until very recently) served as the professional body for practitioners in Ghana; and English law was the basis of the qualifications.

So, what do we do when the English Common law (on which our understanding of uberrima fidei) is based has shifted?

In the absence of legislation, it appears accurate to suggest that uberrima fidei – to the extent that the superior courts have previously pronounced on it -will remain good law in Ghana. Judicial ingenuity – as was displayed in the Supreme Court’s decision in SIC Insurance Company Ltd. Vs Asamoah (J4/49/2018) [2018] GHASC 60 (21 November 2018) – will be the fall-back for insureds who come under the heavy axe of the doctrine.

Given that our courts rely on the Common law in matters of insurance (obviously because the law on insurance in Ghana has not developed), it is perceivable that a superior court may take judicial notice of the developments in English insurance law and draw on it where relevant.

Is the uberrima fidei doctrine relevant at all today?

A critical look at the founding rationale for the doctrine casts significant doubt on its utility in insurance today.

Given the financial might of insurers, the original reason to protect a fledgling industry 250 years ago appears untenable. The real need now is to rebalance the scales to protect policyholders and cure the obvious inequity of the utmost good faith doctrine.

Again, the thinking that proposers know something insurers do not know and cannot elicit by asking the right questions may not pass scrutiny. Insurers have access to enormous stores of data from accumulated disclosures, loss statistics, and aggregate knowledge from research over the years. Insurers should therefore be in the position to ask every relevant question, and an answer given to the best of the insured’s knowledge should be adequate. It is an excessive burden to require a lay-person to imagine what is material to the standard of a prudent underwriter.

It is my considered opinion that the catch-all doctrine of utmost good faith serves little beyond retaining uncertainty in the law for the insured.

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