The principle of utmost good faith means a higherdegree of honesty is imposed on both parties to aninsurance contractThis principle has its historical roots in ocean marineinsuranceThe principle imposes a more higher degree ofhonesty on the applicant for insurance
The principle of utmost good faith is supported by three important legal doctrines as follows: Representations Concealment warranty
Representations:The statements made by the applicant for insurance.That’s tell the true facts about the insured and/or thesubject matter.（ 1 ） In life insurance, the applicant should be askedquestions concerning the insured’s age, height,occupation, state of health, family history, and otherrelevant questions.（ 2 ） In property insurance, such information asquality, quantity, location, value, so on should be stated.（ 3) Increase in hazard
Representations:An Insurance contract is voidable at the insurer’s option if the presentation is ：(1) Material (the true facts not fitting for the required conditions by the insurer. )(2) False (not true facts, or misleading)(3) Relied on by the insurer (at specified /adjusted premium)(4) Innocent misrepresentation （ unintentional ）
Concealment:It is intentional failure for the applicant toreveal a material fact to the insurer. That is theapplicant deliberately withholds materialinformation from the insurer.The legal affect of a material concealment is:The contract is voidable at the insurer’s option.
warranty:It is a statement of fact or a promise made by the insured,which is part of the insurance contract and must be true ifthe insurer is to be liable under the contract. Examples: Not drunk driving Locking the door Fire extinguisher Any breach of the warranty allows the insurer to deny payment of a claim.
Against the responsibilities of Representation: The insurer may not take the responsibility due to such reasons as: negligence, mis- represent the facts, or conceal the facts deliberately . The legal effect of breaking the utmost good faith principle is that the insurer will deny the loss claim.
Definition of the principle of proximate causeIn many cases, a loss is caused by several reasons, not asingle one. Thus, the principle of proximate cause isused in the insurance contract.It means among several causes, the insurer tries toexamine whether the most effective and decisive causeis under the coverage of the insurance contract. If yes,the insurer pay the sum of insurance amount; otherwise,will not pay.
Means the DIRECT, DOMINANT or effective cause of which the loss is the natural consequence. It is the cause which is most closely connected with the loss, not necessarily in time but in efficiency.
Example: An insured sustained an accident while hunting. Due to shock and weakness, he was unable to walk and whilst lying on wet ground, he contracted cold which developed into pneumonia causing death ultimately. The proximate cause was considered to be the accident and not the pneumonia, the disease, which was only a remote cause. The claim was payable under personal accident policy.
The principle of utmost good faith means that a higher degree of honesty is imposed on both parties to an insurance contract. The legal doctrine of representations, concealment and warranty support the principle of utmost good faith . There are several derived principles from the principle of indemnity .