Utmost Good Faith Binding Between Insured and Insurer. What is utmost good faith? It is one the important principle that often overlooks by the agent and the insured. Why is it important?

Utmost Good Faith

Utmost good faith is a common law principle (sometimes called Uberrimae Fidei). The principle means that every person who enters into a contract of insurance has a legal obligation to act with utmost good faith towards the company offering the insurance. A person must, therefore, always be honest and accurate in the information they give to the insurance company. The insurance company also has a responsibility to act in good faith in all its dealings with the insured.

In a common layman term, its meaning that when insured signed the insurer’s proposal form. The insured must honestly answer all the question in the proposal form. Likewise, it is the same with the insurer after scan through the proposal form. The acceptance of the insurer when issue the policy contract must be acted in utmost good faith from the inception date of the policy.

The Important of Utmost Good Faith

When one party of the contract, be it be insured or insurer in breach of the contract, the other party can null and void the contract from the day of the breach.

When I was in the general insurance company. One the agent dealing with an insured a young lad called Mr. Robert whom they classmate during the secondary school. They had lost contact with each other almost a decade.

Personal Accident Policy

” Mr. Robert, since a father of a bubbly 2 years young boy, do you have a personal accident since you are riding a motorbike to working in Pasir Gudang shipyard.  It is very dangerous to ride on the road, Why not signed up for a personal accident from me?”

” OK, no problem.” he signed up. ” In the column, what is your present occupation?” He put “Clerk” Indeed he was a bank clerk after finishing Upper secondary.  He did not pursue further his tertiary education due to financial constraint.

One fine day, Mr. Robert called his agent stating his right hand was torched by the welding rod during working. A contract worker on call basis, his boss did not enroll him for the Socso benefit. It burnt 30% on the epidermis of the skin. The doctor put him on medical leave for a month. The agent assisted him to claim the medical expenses and weekly benefit.

No Claim

The insurer repudiated his Claim based on Utmost Goof Faith. The claimant was furious the claim been denied by the insurer. A meeting between both insured and the insurer was held at the office with the presence of the agent.

” Why put your occupation as clerk instead as a welder? I questioned him.

” I was told welder cannot get a personal accident policy, moreover the premium is very high.”

” No, it is not true,   a welder is a hazardous and high-risk occupation, the premium is quite a substantial comparing with other normal class of occupation. Luckily, it was a 30% burn on your right-hand epidermis of the skin that does not hinder your normal duty. If you want to continue with the policy, we have to adjust your premium on pro rata basis for the balance period of the policy year. Isn’t it ok with you” I explained clearly to him!

After some discussion with his agent, he finally accepted our term and condition continuing with the policy with an additional premium.

What will happen when there is a fraudulent misrepresentation in Utmost Good faith? Be patient, it will roll out soon.

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