Definition
Utmost Good Faith
Utmost good faith (uberrimae fidei) is the duty of both parties to an insurance contract to fully and honestly disclose all material facts.
Insurance contracts demand a higher standard of honesty than ordinary contracts because the insurer relies on the applicant's disclosures to assess risk. The proposer must reveal all material facts, such as health conditions, prior claims and lifestyle, even if not specifically asked, and the insurer must clearly disclose policy terms.
Breach of this duty, through misrepresentation or concealment, can void the policy or justify claim repudiation. In India, Section 45 of the Insurance Act limits how late a life policy can be questioned, but fraud always allows challenge. This principle underpins the entire underwriting relationship.
Related terms
- Insurable InterestInsurable interest is the legal requirement that the policyholder stands to suffer a genuine financial loss from the insured event, making the contract valid.
- Material FactA material fact is any information that would influence an insurer's decision to accept a risk or the terms and premium it sets.
- Non-DisclosureNon-disclosure is the failure to reveal a material fact to the insurer, which can render a policy voidable or lead to claim rejection.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.