Duty of Good faith

Throughout the process, from negotiations to after the signing of the contract, both the insurer and applicant have a duty of good faith of ‘uberrima fides’ – a latin phrase for “utmost good faith”. The legal doctrine means that all parties associated with the insurance contract have to deal with one another in full honesty.

Breaches of good faiths refer to distortion or concealment of material facts, which will influence the underwriter’s judgement or the advantages of either party.

In the event of a breach by either party, the contract may be voided. This can result in failure of claims, termination of the contract and forfeit of premiums paid. The insurer may choose to let it go if there is a breach but any contradictions are not allowed. For instance, an insurer cannot refuse a claim or take partial liability if it allows a contract to be in force despite the breach.

Misrepresentation

There are three kinds of misrepresentation:

• Fraudulent – deliberate false statement
• Innocent – false statement made without ill intentions
• Negligent – error made without necessary checks

Non-disclosure

There are three stages where full disclosure comes to play:

• Pre-negotiation
• Renewal of policy
• Alteration of terms by insured/insurer