1 principle: utmost good faith 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 purchases 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 using ovens and other equipment, 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.
- John must maintain any safety measures 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.
