1 pricinple utmost goodfaith binding insured and insurer

The principle of utmost good faith, also known as “uberrimae fidei,” requires both the insurer and the insured to act honestly and disclose all relevant information when entering into an insurance contract. Here’s a true-to-life example in the context of general fire insurance:

Example:

Scenario: John owns a small bakery and decides to purchase a fire insurance policy to protect his business.

Insured’s Responsibility: John must disclose all material facts about his bakery to the insurer. This includes information such as:

• The type of materials used in the construction of the building (e.g., wood, brick).
• The presence of any fire safety equipment (e.g., fire extinguishers, smoke detectors).
• Any previous incidents of fire or claims made.
• The nature of the business operations, including the use of ovens and other equipment that might increase fire risk.

Insurer’s Responsibility: The insurance company, in turn, must provide clear and accurate information about the terms and conditions of the fire insurance policy. This includes:

• The coverage limits and exclusions.
• The premium amount and payment terms.
• The process for filing a claim in the event of a fire.
• Any safety measures that John must maintain to keep the policy valid.

Outcome: By disclosing all relevant information, John ensures that the insurer can accurately assess the risk and provide appropriate coverage. If John fails to disclose a material fact, such as a previous fire incident, the insurer may later void the policy or deny a claim based on non-disclosure. Conversely, if the insurer fails to inform John about a specific exclusion in the policy, they could be held liable for any losses that fall under that exclusion.

This mutual transparency builds trust and ensures that both parties are fully aware of their rights and obligations under the fire insurance policy

Would you like to know more about other insurance principles or have any specific questions?