The principle of utmost good faith, also known as uberrimae fidei, is a fundamental principle in insurance that requires both the insured and the insurer to act honestly, disclose all material facts, and provide accurate information during the pre-contractual stage and throughout the duration of the insurance policy. Here are some key points related to the principle of utmost good faith:
- Duty of Disclosure: The insured has a duty to disclose all relevant and material information to the insurer before the insurance policy is issued. This duty includes providing complete and accurate information about the risk to be insured, such as previous losses, existing insurance coverage, and any other factors that could impact the underwriting decision of the insurer.
- Duty of Honesty: Both the insured and the insurer have a duty to be honest and truthful in their dealings. This duty extends beyond the initial application stage and continues throughout the life of the insurance policy. It requires the insured to promptly notify the insurer of any changes in circumstances that may affect the risk or the insurer’s decision to provide coverage.
- Materiality of Information: Material facts are those that would influence the insurer’s decision to accept or decline the risk, determine the premium, or set policy terms and conditions. The insured must disclose all material facts, even if not specifically asked by the insurer. Similarly, the insurer must provide accurate and relevant information to the insured regarding policy coverage, exclusions, and other pertinent details.
- Consequences of Non-Disclosure or Misrepresentation: Failure to disclose material information or making a misrepresentation can have serious consequences. If the insured fails to disclose material information, the insurer may have grounds to void the policy or deny a claim. On the other hand, if the insurer knowingly withholds or misrepresents information, the insured may have legal recourse and may seek remedies such as voiding the policy, claiming damages, or pursuing legal action.
- Duty to Investigate: The principle of utmost good faith places a duty on the insurer to make reasonable inquiries and investigate the risk based on the information provided by the insured. If the insurer suspects that there is missing or inaccurate information, they have an obligation to seek clarification or request additional details from the insured.
The principle of utmost good faith aims to promote fairness, transparency, and trust between the insured and the insurer. It ensures that both parties enter into the insurance contract with full knowledge and understanding of the risks involved. By upholding this principle, insurers can accurately assess risks and set appropriate premiums, while the insured can have confidence in the coverage provided by the policy.
