QS Study

An insurance contract is a contract of Uberrimae Fidei – 

The contract of insurance is very useful to indemnify any loss. In this light, the contract of insurance is also called as a contract of indemnity in which insurer indemnifies the loss incurred due to the happening or non-happening of an event depending upon contingency.

When an insurer considers accepting a risk, it must have accurate and complete information to make a reasonable decision. Should the insurer assume the risk and, if so, under what terms and conditions? Because insurance involves a contract of “uberrimae fidei”, or utmost good faith, potential insured’s are held to the highest standards of truthfulness and honesty in providing information for the underwriter. In the case of contracts other than for insurance, it is generally assumed that each party has equal knowledge and access to the facts, and thus each is subject to requirements of “good faith,” not -utmost good faith.”

In contrast, eighteenth-century ocean marine insurance contracts were negotiated under circumstances that Forced underwriters to rely on information provided by the insured because they could not get it firsthand. For example, a ship being insured might be unavailable for inspection because it was on the other side of the world. Was the ship seaworthy?. The underwriter could not inspect it, so he (they were all men in those days) required the insured to warrant that it was. If the warranty was not strictly true, the contract was voidable. The penalty for departing from utmost good faith was having no coverage when a loss occurred. Today, the concept of utmost good faith is implemented by the doctrines of (1) representations and (2) concealment.

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