Question

Briefly explain the principle of Utmost good faith of insurance?

Write a short note on utmost good faith.

Explain the principle of utmost good faith in a contract of insurance.

Answer 1

1. An insurance contract is based on the utmost good faith on the part of both parties.
2. It is the legal duty of the proposer (one who wants to get an insurance policy) to disclose all the material facts about the subject to be insured.
3. A material fact is one which would affect the judgement of the insurer in assessing the degree of risk.
4. It includes any communication made to or any information received by the proposer.
5. The insurer has no access to the information which is in the possession of the insured. Therefore, the insurer relies on the information provided by the proposer.
6. The amount of premium is fixed on the basis of the information supplied by the proposer.
7. If the proposer conceals or withholds any material facts, the insurer can repudiate the contract of insurance.
8. Thus, good faith requires each party to disclose all the information at his command to the other party.
9. One party cannot induce the other party, by hiding material facts, to enter into a contract of insurance which is disadvantageous to the other party.
10. If a party fails to disclose any material fact within his knowledge, the other party can avoid the contract on grounds of material misrepresentation.