“Good faith lies at the root of the insurance company”…. a special reference to life, fire, and marine insurance.


An insurance policy is a contract between the policyholder and the insurer. The policyholder pays a premium. In return, the insurer provides the agreed insurance cover. The parties to an insurance contract must be honest with each other and must not hide any information relevant to the contract from each other. This is known as the principle of Utmost Good Faith (Uberrimae Fidei, Latin Term). It is important to the insurer that they have a full and accurate picture of the risk that is proposed to them. It is equally important that the policyholder is informed about the insurance cover that they are buying. The product and cover offered by the insurer should meet the proposers’ needs, based on the information disclosed by them on their proposal.

The requirement to act in good faith applies throughout the duration of the insurance contract, including to claims. When presenting a claim, the policyholder is required to present the circumstances and the details of any loss or damage honestly and fully.

  • Principal of Utmost Good Faith in Life Insurance:

Life insurance requires that both parties should preserve the principle of utmost good faith. The utmost good faith says that both the parties, the proposer (insured) and insurer, must be of the same mind at the time of contract because only then the risk may be correctly ascertained.

They must make full and true disclosure of the facts material to the risk. In life insurance, material facts are age, income, occupation, health, habits, residence, family history, and insurance plan.

Material facts are determined not on the basis of opinion. Therefore, the proposer should disclose not only those matters, which the proposer may feel are material, but all facts which are material.

It is not only the proposer but also the insurer responsible for disclosing all the material facts that will influence the decision of the proposer, whether apply or not to apply for insurance.

Since the decision is taken mostly on the basis of subject matter, the life to be insured in life insurance, and the material facts relating to the subject matter are known or is expected to be

known by the proposer; it is much more responsibility of the proposer to disclose the material facts.

The duty of disclosure finishes when the proposal form has been fully and correctly fulfilled, provided there are no such facts that he considers or expected to be considered material and has not been disclosed. The proposer cannot defend on the ground that he had omitted to disclose it by carelessness or by mistake or that; he did not regard it material to the contract.

In the absence of utmost good faith, the contract will be voidable at the option of the person who suffered a loss due to non-disclosure. The intentional non-disclosure counts fraud and is void “ab initio” and the unintentional non-disclosure is voidable at the option of the party not at fault. Once the party not at fault has validated the voidable contract, he cannot avoid the on Once the party not at fault has validated the voidable contract, he cannot avoid the contract later on.

The doctrine of utmost good faith works as a great hardship for a long period on the plea of misstatement at the time of proposal. In such cases, it would be very difficult to prove or disprove whether a particular statement made at the time of policy was true. Therefore, to remove this hardship, certain sections in the concerned Act are provided. The indisputable clause handles these kinds of disputes.

The following facts are not required to be disclosed:

  1. Circumstances which are diminishing the risk.
  2. Facts that are known or reasonably should be known to the insurer in his ordinary course of business.
  3. Facts which the insurer should infer from the information given.
  4. Facts that the insurer waives.
  5. Facts that are superfluous to disclose by reason of a condition or warranty.
  6. Facts of public knowledge.
  • Principle of Utmost Good Faith in Marine Insurance:

The doctrine of caveat emptor (let the buyer beware) applies to commercial contracts, but insurance contracts are based upon the legal principle of uberrimae fides (utmost good faith). If either of the parties does not observe this, the other party can avoid the contract. The duty of the utmost good faith also applies to the insurer. He may not urge the proposer to affect insurance which he knows is not legal or has run off safely. But the duty of disclosing material facts rests highly on the insured because he is aware that the material common in other insurance branches is not used in marine insurance.

Ships and cargoes proposed for insurance may be thousands of miles away, and surveys on underwriters’ behalf are usually impracticable. Therefore, the assured must disclose all the material information that may influence the decision of the contract.

Any non-disclosure of a material fact enables the underwriter to avoid the contract, irrespective of whether the non-disclosure was intentional or inadvertent. The assured is expected to know every circumstance which ought to be known by him in the ordinary course of business. He cannot rely on his inefficiency or neglect. The duty of the disclosure of all material facts falls even more heavily on the broker. He must disclose every material fact which the assured ought to disclose and also every material fact which he knows.

The broker is expected to know or inquire from the assured all the material facts. Failure in this respect entitles the underwriter to avoid the policy, and if negligence can be held against the broker, he may be liable for damages to his client for breach of contract.

Exception: In the following circumstances, the doctrine of good faith may not be adhered to:

  1. Facts of common knowledge.
  2. Facts that are known should be known to the insurer.
  3. Facts that the insurers do not require.
  4. Facts which the insurer ought reasonably to have inferred from the details given to him.
  5. Facts of public knowledge.
  • Principle of Utmost Good Faith in Fire Insurance

Fire insurance is a device to compensate for the loss consequent upon destruction by fire. Thus, the fire insurer shifts the burden of fire losses from their actual victims over to all the members of society. It is a cooperative device to share the loss.

The contract of fire insurance is one in which the observance of the utmost good faith (uberrimae fides) by both parties is of vital significance. The utmost good faith in fire insurance has two aspects first, the disclosure of material facts, and second, preservation of the property insured. The insurer and the insured must furnish detailed information regarding the subject matter to be injured.

The insured, since he has more, information about the subject matter, must disclose all the information asked truly and fully. The assured is also required to disclose all the material information which are known to him although it was not asked by the insurer; the material fact is one that influences the decisions of the insurance.

The decision may be pertaining to the acceptance or declination or determination of the premium. In the case of fire insurance, the examples of material facts are the construction of buildings. If the assured has not observed good faith, the contract can be avoided by other parties. It was immaterial to plead that the insured was unaware of the fact and could not disclose it.

In a given circumstance, it is expected from the insured to know all the material facts. The insurer has also to disclose such material facts as are within his knowledge.

The second phase of good faith is the preservation of property. Thus; The observance of good faith is necessary not only during the negotiations of the contract but throughout the term of the policy and in making claims.

Any change after the commencement of risk must be communicated to the insurer. The insured or his agents, as well as the insurer, must take all such steps as may be reasonable for averting or minimizing loss.

Since the insured is near to the property, he must act to prevent fire and if a fire occurred, he must do his utmost to extinguish it. In such cases, he must act as if he was not insured.

In the following circumstances, the insured is not required to disclose information:-

  1. All those circumstances which diminish the risk.
  2. All those facts which are known or reasonably presumed to be known to the insurer.
  3. The information which is of common knowledge.
  4. Those facts which the insurer in the ordinary course of his business ought to know or which the
  5. insurer ought reasonably to have inferred from the details given.
  6. Those facts which are superfluous to disclose by reason of a condition or warranty.


Therefore, In the context of insurance contracts, the doctrine of utmost good faith requires the full and accurate disclosure of relevant information. The doctrine of good faith requires that both parties to an insurance contract must honestly disclose all relevant information. As applied to the insurance company, this means honestly providing premium figures and coverage limitations. Applicants must truthfully disclose all requested pertinent personal information.

Thus, the phrase “Good faith lies at the root of the insurance company” is
totally justiciable when compare to the above-given context which relies upon one of the most
important principles of the Insurance contract.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

Do follow me on FacebookTwitter  Youtube and Instagram.

The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

If you would also like to contribute to my website, then do share your articles or poems at secondinnings.hr@gmail.com

In the year 2021, we wrote about 1000 Inspirational Women In India, in the year 2022, we would be featuring 5000 Start Up Stories.

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