A PRESENTATION ON

“UTMOST GOOD FAITH”

The principle of utmost good faith means a

higher degree of honesty is imposed on

both parties to an insurance contract

This principle has its historical roots in

ocean marine insurance

The principle imposes a more higher degree of

honesty 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 the subject matter.（ 1 ） In life insurance, the applicant should be asked questions concerning the insured’s age, height, occupation, state of health, family history, and other relevant questions. （ 2 ） In property insurance, such information as quality, 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 to reveal a

material fact to the insurer. That is the applicant

deliberately withholds material information 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 if the 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 cause

In many cases, a loss is caused by several

reasons, not a single one. Thus, the principle of

proximate cause is used in the insurance contract.

It means among several causes, the insurer tries

to examine whether the most effective and

decisive cause is 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 Means the DIRECT, DOMINANT or effective cause of

which the loss is the natural consequence. which the loss is the natural consequence.

It is the cause which is most closely connected with the It is the cause which is most closely connected with the

loss, not necessarily in time but in efficiency. loss, not necessarily in time but in efficiency.

Example: Example:

An insured sustained an accident while hunting. An insured sustained an accident while hunting.

Due to shock and weakness, he was unable to walk Due to shock and weakness, he was unable to walk

and whilst lying on wet ground, he contracted cold and whilst lying on wet ground, he contracted cold

which developed into pneumonia causing death which developed into pneumonia causing death

ultimately.ultimately.

The proximate cause was considered to be the The proximate cause was considered to be the

accident and not the pneumonia, the disease, which accident and not the pneumonia, the disease, which

was only a remote cause. The claim was payable was only a remote cause. The claim was payable

under personal accident policy.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 .