When a contract is made it is presumed that people will deal honestly with one another, but it is also deemed that neither party will be a fool. You are therefore expected in the eyes of the law to ask sensible questions when entering into a contract. The law says caveat emptor, let the buyer beware. If I want an oak dining table and I agree to buy the table for RM 6,000, the law will not allow me to back out of the agreement, if the table turns out to be made of walnut. I should have inquired about which wood it was made from before I placed a firm order. The rule therefore for simple contracts is caveat emptor, let the buyer beware.
With insurance contacts the rules are more strict. Uberrimae Fidei, ‘of utmost good faith’ is the rule with these contracts. The person wishing to be insured must be absolutely open in his dealings with the insurance company, because in deciding what is a fair premium to charge, the insurance company will depend absolutely on the truth of the facts given by the applicant. For instance, if I reply to the question ‘ How old are you?’ that I am 20 years old when in fact I am 45 years old, this would make a great difference to the premium in certain policies. Life assurance is very cheap to a 25-year-old, and much more expensive to a 45-year-old. We shall see later that a Proposal Form filled up by an applicant for insurance is really a set of questions designed to discover the full facts. On the basis of these facts a fair premium is decided. False answers to the question render the policy voidable at the election of the aggrieved party, so that the insurance company need not pay out compensation, nor need they refund the premium to the applicant.
The requirement to show the ‘utmost good faith’ is strict. Supposing I am asked in the proposal form, ‘Is your father living?’ It so happens that he is , but he is on his death-bed and in fact dies later the same day. It would be a breach of’ utmost’ good faith not to reveal this material fact even though I were telling the truth when I wrote ‘ yes ‘ in answer to the question.
These first two principles of insurance(insurable interest and utmost good faith) apply to all contracts of insurance. You may insure only if you have an insurable interest, and you must show the utmost good faith in all your dealings with the insurance company
Therefore it is incumbent on both parties to an insurance contract-the insurance company as well as the insured- to disclose at the time the insurance is effected all relevant particulars which might materially influence the other party's willingness to make the contract. No important information must therefore be held back. This would debar a man from taking out a life-assurance policy if he knew that he was suffering from an incurable disease without first informing the insurance company of the fact.
With insurance contacts the rules are more strict. Uberrimae Fidei, ‘of utmost good faith’ is the rule with these contracts. The person wishing to be insured must be absolutely open in his dealings with the insurance company, because in deciding what is a fair premium to charge, the insurance company will depend absolutely on the truth of the facts given by the applicant. For instance, if I reply to the question ‘ How old are you?’ that I am 20 years old when in fact I am 45 years old, this would make a great difference to the premium in certain policies. Life assurance is very cheap to a 25-year-old, and much more expensive to a 45-year-old. We shall see later that a Proposal Form filled up by an applicant for insurance is really a set of questions designed to discover the full facts. On the basis of these facts a fair premium is decided. False answers to the question render the policy voidable at the election of the aggrieved party, so that the insurance company need not pay out compensation, nor need they refund the premium to the applicant.
The requirement to show the ‘utmost good faith’ is strict. Supposing I am asked in the proposal form, ‘Is your father living?’ It so happens that he is , but he is on his death-bed and in fact dies later the same day. It would be a breach of’ utmost’ good faith not to reveal this material fact even though I were telling the truth when I wrote ‘ yes ‘ in answer to the question.
These first two principles of insurance(insurable interest and utmost good faith) apply to all contracts of insurance. You may insure only if you have an insurable interest, and you must show the utmost good faith in all your dealings with the insurance company
Therefore it is incumbent on both parties to an insurance contract-the insurance company as well as the insured- to disclose at the time the insurance is effected all relevant particulars which might materially influence the other party's willingness to make the contract. No important information must therefore be held back. This would debar a man from taking out a life-assurance policy if he knew that he was suffering from an incurable disease without first informing the insurance company of the fact.
I will further elaborate on this subject ( utmost good faith) in my future posting at this site.
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