The Supreme Court of the Republic of Yemen (المحكمة العليا), the country's highest court of appeal in civil and commercial matters, delivered a landmark judgment on the insured's duty of disclosure in marine cargo insurance. The dispute concerned a Sana'a-based trading house that insured a consignment of textiles and electronics shipped from Dubai to the Port of Aden, and an insurer that refused to pay a total-loss claim on the ground that the insured had failed to disclose two prior cargo losses and the high-risk destination of the voyage at the time the policy was placed. The Court held that (i) insurance, and marine cargo insurance in particular, is a contract of the utmost good faith (عقد من عقود الغاية القصوى في حسن النية), so that the insured is under a positive duty to disclose every fact material to the insurer's assessment of the risk, whether or not the insurer asks; (ii) a material non-disclosure — even if wholly innocent — entitles the insurer to avoid the policy and to resist the claim; (iii) the test of materiality is an objective one, namely whether a prudent insurer would have treated the undisclosed fact as affecting its decision to accept the risk or the premium it would demand, and the burden of establishing materiality rests on the insurer; and (iv) the right to avoid is lost where the insurer, with knowledge of the non-disclosure, affirms the policy or accepts a further premium. The decision is the leading Yemeni authority on the doctrine of uberrimae fidei and aligns Yemeni insurance law with the marine-insurance tradition embodied in the English Marine Insurance Act 1906 and the civil-law codes of the wider Arab world.
Yemen's legal framework for insurance rests on the Commercial Code and the Insurance Law, which govern insurance and reinsurance contracts entered into in the Republic and, in common with the Egyptian and other Arab civil-law systems on which Yemeni commercial law is based, treat insurance as a contract of the utmost good faith requiring full and honest disclosure between the parties. In 2023, the respondent, a Sana'a trading house, sought marine cargo cover from the claimant, a Yemeni insurer, for a consignment of textiles and consumer electronics valued at approximately USD 2.4 million, shipped from Jebel Ali, Dubai, to the Port of Aden. The proposal form required the insured to declare any cargo losses suffered in the preceding five years and the intended route and destination of the voyage. The insured declared no prior losses and described the destination simply as "Aden". In fact, the insured had suffered two substantial cargo losses in the preceding three years — one by theft at a transshipment port and one by war-related detention — and the goods were ultimately destined for onward road carriage to an area of heightened insecurity in the interior. The voyage proceeded and the vessel was detained, resulting in a constructive total loss of the cargo. When the insured claimed under the policy, the insurer discovered the undisclosed facts, denied liability, and sought a declaration that it was entitled to avoid the policy ab initio. The insured contended that the omissions were innocent, that the underwriter should have made its own enquiries, and that the insurer had waived any right to avoid by accepting the premium and issuing the policy without further question. The court of first instance found for the insurer; the Court of Appeal reversed, holding that only fraudulent non-disclosure would justify avoidance. The insurer appealed to the Supreme Court.
The Supreme Court framed three questions for determination: (1) Whether a contract of marine cargo insurance under Yemeni law is a contract of the utmost good faith, and whether the insured is obliged to disclose facts material to the risk even where the insurer has not specifically asked; (2) Whether innocent (non-fraudulent) non-disclosure of a material fact is sufficient to entitle the insurer to avoid the policy, and by what standard materiality is to be judged — the subjective view of the particular insurer or the objective standard of a prudent insurer; and (3) Whether the insurer, by accepting the premium, issuing the policy, or otherwise affirming the contract, had waived any right to avoid for non-disclosure of which it knew or ought to have known.
The Supreme Court allowed the insurer's appeal, restored the first-instance judgment in substantial measure, and issued the following holdings:
(1) Marine cargo insurance is a contract of the utmost good faith. The Court held that insurance, and marine cargo insurance above all, is a contract of the utmost good faith (uberrimae fidei) in which the insured possesses knowledge of facts concerning the risk that the insurer cannot ordinarily obtain for itself. The insured is therefore under a positive and continuing duty to disclose every fact material to the insurer's assessment of the risk at the time of placement, whether or not the insurer has asked a specific question; silence, where the insured knows of a material fact, is itself a misrepresentation. The Court rejected the insured's contention that the underwriter should have made its own enquiries, holding that the duty of disclosure lies squarely on the party who knows the facts.
(2) Innocent material non-disclosure suffices to avoid the policy, and materiality is judged objectively. The Court held that, because the remedy for breach of the duty of good faith is the avoidance of the contract ab initio rather than damages, it is not necessary for the insurer to prove fraud or an intention to deceive; an innocent failure to disclose a material fact is sufficient. Materiality is tested objectively: a fact is material if it is one which a prudent insurer would have taken into account in deciding whether to accept the risk at all, or on what terms and at what premium. Applying that standard, the two undisclosed prior losses and the undisclosed high-risk onward destination were plainly material, since each bore directly on the insurer's evaluation of the risk and the premium it would have demanded. The Court further held that the burden of proving that an undisclosed fact is material rests on the insurer, and that the insurer had discharged that burden here.
(3) The right to avoid is lost by affirmation or acceptance of premium with knowledge. The Court held that the insurer's right to avoid for non-disclosure is an equitable one which may be lost by waiver or election: where an insurer, with knowledge of the non-disclosure, treats the policy as subsisting, continues to accept premium, or otherwise affirms the contract, it cannot later avoid. On the facts, however, the insurer had no knowledge of the undisclosed facts until after the loss was notified, and its mere acceptance of the premium and issue of the policy before that knowledge was acquired did not amount to affirmation. The insurer was accordingly entitled to avoid the policy ab initio and to decline the claim, and to recover any sums already paid by way of indemnity.
This judgment is the leading Yemeni statement of the duty of utmost good faith in insurance, and it carries particular weight in a trading environment shaped by conflict, insecurity, and heightened marine and cargo risk. Since the escalation of the conflict in 2015, Yemen's import trade — upon which the country depends for food, fuel, and manufactured goods — has been channelled almost entirely through the ports of Aden, Hodeidah, and Mukalla, and marine cargo insurers have repeatedly been confronted with claims arising from detention, theft, and war-related perils. By confirming that the insured bears a strict and continuing duty to disclose prior losses and the true nature of the voyage, and that even innocent non-disclosure of a material fact permits avoidance, the Supreme Court has armed insurers with a clear remedy against concealment while simultaneously confining that remedy through the objective prudent-insurer test, the allocation of the burden of proof to the insurer, and the doctrines of waiver and affirmation. The decision also has clear practical guidance for shippers and importers in Yemen and the wider region: the proposal form is not a mere formality, prior losses and onward destinations must be disclosed candidly and in full, and a failure to do so can forfeit cover at the very moment it is needed. Practitioners note the resonance of the Court's reasoning with the marine-insurance tradition codified in the English Marine Insurance Act 1906 and applied across the Arab civil-law systems, and observe that the same principles are likely to govern fire, motor, and other classes of insurance in which the doctrine of utmost good faith is recognised. The case is expected to be cited wherever Yemeni courts are asked to reconcile the duty of disclosure with the Sharia-based principles of good faith and the prohibition of gharar that underpin the Islamic (takaful) alternative to conventional insurance.
"Insurance is a contract of the utmost good faith. The insured, who knows the facts concerning the risk and the insurer, who does not, are not on an equal footing, and it is therefore the duty of the insured to disclose every fact material to the risk, whether or not the insurer asks. A fact is material if a prudent insurer would take it into account in deciding whether to accept the risk and on what terms. A material non-disclosure — even if innocent — entitles the insurer to avoid the policy; but the insurer bears the burden of proving materiality, and loses the right to avoid where, with knowledge of the non-disclosure, it affirms the policy or accepts further premium." — Justice of the Supreme Court of Yemen