Principle of Utmost Good Faith
Principle of Uberrimae fidei or simply the Principle of Utmost Good Faith, is a very basic and first primary principle of insurance. According to this principle, the insurance contract must be signed by both parties (i.e insurer and insured) in an absolute good faith or belief or trust.
The person getting insured must willingly disclose and surrender to the insurer his complete true information regarding the subject matter of insurance. The insurer’s liability gets void (i.e legally revoked or cancelled) if any facts, about the subject matter of insurance are either omitted, hidden, falsified or presented in a wrong manner by the insured.
The principle of Utmost Good Faith applies to all types of insurance contracts.
Utmost good faith; If the insured provides a mis-description or does not disclose any material information to the insurer the policy shall be voidable. While insuring the goods the insured must declare all relevant information to the insurance company. As the premium rate will be higher for hazardous goods, the insured, to avoid higher premium may not declare the goods as hazardous and this will not be in utmost good faith.
Misrepresentation or non-disclosure
The current law on misrepresentation and non-disclosure.Marine Insurance Act 1906 in section 18 has framed the law on misrepresentation and non-disclosure.
Before the subject is insured both insured and insurer should act in utmost Good Faith. Under this obligation “misrepresenting material facts” should not take place and even if no questions asked material facts should be disclosed
The law states that a policy holder is under obligation to disclose the risk associated with the insured goods. The insurer has to fill up application prior to entering in to a contract and Misrepresentation or non-disclosure at this stage is serious and will affect the judgement of the insurer as to what premium should be charged. Depending on the risk associated an insurer fixes the terms and conditions on which the risk has to be accepted.
If the policy holder does not declare the material circumstances the insurer avoids the contract and returns the premium. On returning the premium the contract becomes null and void.
An insurer can avoid a policy successfully only if he or she proves that misrepresentation or non disclosure was material. An expert view of the underwriters is taken as evidence under such circumstances.
