A PRESENTATION ON “UTMOST GOOD FAITH”
A PRESENTATION ON
“UTMOST GOOD FAITH”
The principle of utmost good faith means a
higher degree of honesty is imposed on
both parties to an insurance contract
This principle has its historical roots in
ocean marine insurance
The principle imposes a more higher degree of
honesty on the applicant for insurance
The principle of utmost good faith is supported by three important legal doctrines as follows:
Representations
Concealment
warranty
Representations:
The statements made by the applicant for insurance. That’s tell the true facts about the insured and/or the subject matter.( 1 ) In life insurance, the applicant should be asked questions concerning the insured’s age, height, occupation, state of health, family history, and other relevant questions. ( 2 ) In property insurance, such information as quality, quantity, location, value, so on should be stated. ( 3) Increase in hazard
Representations:
An Insurance contract is voidable at the insurer’s
option if the presentation is:
(1) Material (the true facts not fitting for the required
conditions by the insurer. )
(2) False (not true facts, or misleading)
(3) Relied on by the insurer (at specified /adjusted
premium)
(4) Innocent misrepresentation ( unintentional )
Concealment:
It is intentional failure for the applicant to reveal a
material fact to the insurer. That is the applicant
deliberately withholds material information from the
insurer.
The legal affect of a material concealment is:
The contract is voidable at the insurer’s
option.
warranty:
It is a statement of fact or a promise made by
the insured, which is part of the insurance
contract and must be true if the insurer is to be
liable under the contract. Examples:
Not drunk driving
Locking the door
Fire extinguisher
Any breach of the warranty allows the insurer
to deny payment of a claim.
Against the responsibilities of
Representation:
The insurer may not take the
responsibility due to such reasons as:
negligence, mis-represent the facts, or
conceal the facts deliberately .
The legal effect of breaking the utmost
good faith principle is that the insurer
will deny the loss claim.
Definition of the principle of proximate cause
In many cases, a loss is caused by several
reasons, not a single one. Thus, the principle of
proximate cause is used in the insurance contract.
It means among several causes, the insurer tries
to examine whether the most effective and
decisive cause is under the coverage of the
insurance contract. If yes, the insurer pay the sum
of insurance amount; otherwise, will not pay.
Means the DIRECT, DOMINANT or effective cause of Means the DIRECT, DOMINANT or effective cause of
which the loss is the natural consequence. which the loss is the natural consequence.
It is the cause which is most closely connected with the It is the cause which is most closely connected with the
loss, not necessarily in time but in efficiency. loss, not necessarily in time but in efficiency.
Example: Example:
An insured sustained an accident while hunting. An insured sustained an accident while hunting.
Due to shock and weakness, he was unable to walk Due to shock and weakness, he was unable to walk
and whilst lying on wet ground, he contracted cold and whilst lying on wet ground, he contracted cold
which developed into pneumonia causing death which developed into pneumonia causing death
ultimately.ultimately.
The proximate cause was considered to be the The proximate cause was considered to be the
accident and not the pneumonia, the disease, which accident and not the pneumonia, the disease, which
was only a remote cause. The claim was payable was only a remote cause. The claim was payable
under personal accident policy.under personal accident policy.
The principle of utmost good faith means that a
higher degree of honesty is imposed on both
parties to an insurance contract.
The legal doctrine of representations,
concealment and warranty support the principle
of utmost good faith .
There are several derived principles from the
principle of indemnity .