The Legal Doctrine of Uberrimae Fidei

Long before consumer protection legislation, the essential principle of contract law, and of commerce, was caveat emptor: “let the buyer beware”. The Common Law was reluctant to interfere in private agreements. If you made yourself a bad bargain, well, too bad.

A very early exception to the rule had to do with insurance contracts. The usual problem before the court was that insurance premiums are calculated according to risk, but in most cases the insured knew much more about the risk than did the insurer. To insure a fishing boat is one thing, to insure a rum-runner is something else. It’s not enough simply to tell the insurer, “I need boat insurance.”

Starting in the late 1700s, the courts developed and applied the doctrine of uberrimae fidei, “utmost good faith”. To be able to calculate risk from an actuarial point of view, and set premiums accordingly, the insurer needs to know what it is getting into. At the same time, the insured needs to know, before incurring the risk, that the insurer has his back. Each relies on the other to be honest, forthright and open about material issues. Each, if you like, walks on the other’s tightrope.

The courts said that in such cases, caveat emptor didn’t operate, because one party was basing its entire calculation on matters exclusively within the knowledge of the other. If you hadn’t been forthcoming, the court would not support you.

But this isn’t a law blog– it’s a discussion of life, leadership and communication. The point today is that the doctrine of uberrimae fidei operates in life, too.

Notwithstanding our advanced technology and our sophistication, we remain fragile beings. When we enter into marriages, partnerships and similar high-risk enterprises with one or more other fragile beings, we are vulnerable, and they are vulnerable. To the extent the other party is putting most or all of their eggs in our basket, we owe it to them to reveal how safe that basket may be.

As we communicate and transact with others, we need to be mindful of the vulnerability and reliance of the other parties and to commit ourselves to truthfulness and integrity in our dealing.