Utmost Good Faith-The Bedrock of Insurance Contracts
The contracts of insurance are founded on utmost good faith. The utmost good faith is the essence of them. These are are basically of fiduciary in character. The insurance companies given to the large volume of transactions they regularly enter into with so numerous clients, face the practical difficulties in processing an insurance proposals to have detailed look at the risk element of a specific proposal. Whereas the proposer is placed at an advantageous position of knowing all the details about the subject-matter of the insurance. Thus it sticks out a mile that both the parties to the contract are not on the same level-playing filed. It gives rise to the play of this principle of “Utmost Good Faith” on the part of the propose.
There is an important condition in a standard insurance contract which runs like this: ' Policy shall be voidable in the event of misrepresentation, misdescription or non-disclosure of any material particular.” If further light is thrown on this clause it would crystal clear that any attempt on the part of the insured to conceal or suppress any information which would materially affect the character of a risk would lead to repudiation by the insurance company to honour the contract.
The import of the phraseology ' Utmost Good Faith' has to be determined in the light of what has been discussed in the earlier paragraphs and to expand it further it would mean absence of fraud or deceit. At law a commercial contract would be a nullity if any of the parties to it has tainted it with illegality by resorting to fraud and deception or by not observing the principle of utmost good faith. It is simple enough to understand that while all the laws are there to protect our legitimate rights and interests but such protection is not available in the case of the illegitimate ones.
And it can be observed that the proposer is bound legally to disclose every thing which is relevant to the subject-matter of insurance and remains under this duty to disclose throughout the negotiations till final acceptance by the insurance company. The position remains unchanged in the case renewals, alteration etc. It is the duty of the insured to formally intimate to the insurance company any material change in the policy during the currency of the insurance contract. The insurance ceases to attach as regards the property affected unless the insured, obtains the sanction of the company signified by endorsement upon the policy if there is change in the line of trade or manufacture. Similarly acceptance and endorsement by the insurers are also required if there is any change in the nature of occupation of or other circumstances affecting any property insured or if the insured property is changed in such a way which is likely to increase the risk of loss or damage.
If a claim is tainted by fraud in the form of false declaration or some fraudulent means or ways are adopted on the part of the insured or any person acting on his behalf to secure any benefit under the policy or any loss arising out of the willful act or the connivance of the insured, all the benefits under would be forfeited.
There are certain situations which need not be disclosed like the circumstances which diminish the risk, or which are known or presumed to be known to the insurer in the ordinary course of business or any information which is waived by the insurer.
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