Principle of Utmost Good Faith – Term Paper

We are glad to submit it as part of completion f the requirements for our Insurance & Risk Management (F-210) course with you. Insurance industry. Writing this report has been a great pleasure & an interesting experience. This project helped us tremendously to understand the implication of theoretical knowledge in the practical field. It has also shaped some of our basic views like how to communicate & carry ourselves in the world of business. We have tried our best to put up a good report with as much information as we could gather during the short time span allotted for writing this report.

Thank you for your kind support and help throughout the course, we remain. We hope you will appreciate this sincere effort. Sincerely, Group: 13 Section: A Batch: 18th Roll Signature Generalissimo’s Similarities Farmland Circumnavigates Almighty ALLAH for giving us the opportunity to accomplish such an enjoyable task of preparing this report in time. We would like to pay our gratitude to all of the people who helped us a lot and for the completion of this report before, during, and after the working period.

At first we would like to acknowledge the Almighty, who helped s every time and was with us and gave us moral support and strength every moment. We are especially grateful to our honorable course teacher Ms. Valetudinarianism giving us valuable suggestions and support to prepare this report. Without her advice and support, it would not be possible for us to prepare this report. Contents Page No. Concept of Principle Of Utmost Good Faith The Principle Of Utmost Good Faith A Brief History 10 The law relating to utmost good faith Material fact 12 Facts required to be disclosed& not to be disclosed 13 Breach Of Duty 14

Principle of utmost good faith under life insurance 16 Principle of utmost good faith under the Marine Insurance 17 Analysis Of Insurance Company a) Sanding Life Insurance Company Company profile 19 Main Analysis 21 b) Statesmanship Corporation 26 Conclusion 29 utmost good faith for analyzing it & make a comparative analysis between Sanding life insurance company limited Corporation about the application of this principle. We have tried our best to complete the report properly but because of our lack of enough experience to this work, there may have been some mistakes in the report.

The duty of utmost good faith is implied into all insurance contracts by Section 13. It applies to both the insurers and to insured. A higher duty is expected from parties to an insurance contract than from parties to most other contracts in order to ensure the disclosure of all material facts so that the contract may accurately reflect the actual risk being undertaken. The basis of this rule can be found in the famous case of Carter v. Boone (1766) 3 Burr 1905, where L. Mansfield stated that Insurance is a contract of speculation.

The duty of utmost good faith applies in both situation in pre intercultural & post contractual stage. A failure to comply with the duty of utmost good faith on the part of policyholders may result in the refusal or reduction of a claim or cancellation of their policy. In this report the practical application of principle of utmost good faith of a life insurance company (Sanding Life Insurance Company limited) & a general insurance company (Statesmanship Corporation) are described briefly.

In case of general insurance company we took two types of policy fire insurance policy & marine hull insurance policy and discuss about the covers under this types of policies. We also discuss what types of question generally asked by the insurance company to the proposes in time of effecting these policies to ensure principle of utmost good faith. Management (F-210). The Topic “Principle of utmost good faith- a comparison between Shanghai life insurance company and Statesmanship corporation” was assigned to us by our honorable course teacher Platitudinous.

While preparing the report, we gave our best effort to incorporate all relevant aspects of the topic. The objectives of the report are as following: Enriching the knowledge about an insurance company by reviewing its company refill & products offered by them. Enriching capability to interpret about a company by reviewing annual reports. Application of utmost good faith in insurance Industry. Knowing the basic difference & Differences in application of utmost good faith.

Primary: Visiting the company Internet Secondary: Public Survey to know the popularity of the insurance companies Interviewing some employees of insurance companies. There are some limitations of this study. Therefore the report may lack some crucial data. We couldn’t find enough source of information for preparing the report. As a exult, we mainly had to depend on the internet and some business Journals for the The term paper was prepared within a very short time considering the topics related to report.

So we can’t describe all the parts of the report in detail. The officials had sometimes been unable to provide information because of their huge routine work. The assignment has encountered these limitations that may have hinder progress. But with constant effort, our goal was to minimize the negative efforts of these limitations. Insurance contracts are a special class of contracts which are guided by certain basic reminisces like those of utmost good faith, insurable interest, proximate cause, indemnity, subrogation and contribution.

As such, an insurance contract is generally a combination of more than one of these principles and no single principle can be used at one time. The rest is dependent on the contract between the parties. These principles are mostly guided by common law principles from which they have developed. They have also been modified by principles of contract and by statutes as in the case of the Marine Insurance Act, 1963 which has to a certain extent relaxed he basic principles of insurance law. The most crucial principle of insurance is the principle of utmost good faith.

The duty of good faith is central to and regulates all aspects of the contract of insurance, from inception through to the terms of the contract, to each party’s responsibilities in the event of a claim under the contract of insurance. Information that is of vital importance is only known to one party to the contract. To make the dealings as fair as possible, the principle of utmost good faith was developed whereby the party possessing the knowledge owes a duty to disclose he material and relevant facts to the other party of the contract so that the other party can make an accurate assessment of what they are undertaking.

In the insurance market, the doctrine of utmost good faith requires that the party seeking insurance discloses all relevant personal information. For example, if anyone is applying for life insurance, he/she is required to disclose any previous health problems he/she may have had. Likewise, the insurance agent selling anyone the coverage must disclose the critical information he/she needs to know about his/her contract and its terms. The Word-Bridesmaids : Sometimes seen in its genitive form bridesmaid is a Latin phrase meaning “utmost good faith” literally, “most abundant faith”.

It is the name of a legal doctrine which governs insurance contracts. This means that all parties to an insurance contract must deal in good faith, making a full declaration of all material facts in the insurance proposal. This contrasts with the legal doctrine caveat emptor I. E. Let the buyer beware. Thus the insured must reveal the exact nature and potential of the risks that he transfers to the insurer, while at the same time the insurer must aka sure that the potential contract fits the needs of, and benefits, the assured.

A higher duty is expected from parties to an insurance contract than from parties to most other contracts in order to ensure the disclosure of all material facts so that the contract may accurately reflect the actual risk being undertaken. The duty of utmost good faith is implied into all insurance contracts by Section 13. It applies to both the insurers and to insured. The duty covers all aspects of the insurance relationship and is additional to all other duties that the Act imposes.

The principle of utmost DOD faith (beriberi fide) implies into each insurance contract a requirement to act with the highest degree of integrity towards the other party, to be full and frank in disclosure and to act with fairness. There must be no intention to mislead or to deceive. The courts have held that while innocent errors or mere carelessness will not be sufficient to demonstrate a lack of utmost good faith, reckless conduct is likely to do so. Conduct that is fraudulent or dishonest is a breach of duty of utmost good faith.

Section 14 states that if the reliance by a party on any provision of the contract loud fail to be an act of good faith, then the party cannot rely on that provision. This is generally aimed at the insurer and is merely another way of saying that the insurer must have due regard to the insured’s interests when the insurer is placed in a position of conflict such as deciding whether to pay out on a claim. A Brief History : At common law a contract of insurance is based on the principle that the insurer and insured act with the utmost good faith towards each other which is known as “bridesmaids”.

A greater duty is cast on the assured to make known to the insurer ill the date of validity of the policy about all such material facts connected with the subject matter of the insurance which the insurer does not know or is not deemed to know. Evolution of the doctrine under Common Law : where the duty of disclosure lies on both the parties. A failure to disclose such fact, even if done innocently, will entitle the insurer to avoid the contract within a reasonable time period. The basis of this rule can be found in the famous case of Carter v. Boone (1766) 3 Burr 1905, where L. Mansfield stated that Insurance is a contract of speculation.

The Renville was settled by the Judgment of Lord Mansfield in Carter v Boone (1766) Case. The principles underlying this rule were stated by Lord Mansfield in the leading and often quoted case of Carter v Boone – “Insurance is a contract of speculation… The special facts upon which the contingent chance is to be computed lie most commonly in the knowledge of the assured only; the underwriter trusts to his representation and proceeds upon confidence that he does not keep back any circumstance in his knowledge to mislead the underwriter into a belief that the circumstances do not exist.

The keeping back of such circumstances is fraud, and therefore the policy is void. Although the suppression should happen through mistake, without any fraudulent intention, yet still the underwriter is deceived and the policy is void; because the risk run is really different from the risk understood and intended to be run at the time of agreement. The policy would be equally void against the underwriter if he concealed. Good faith forbids either party; by concealing what he privately knows to draw the other into a bargain from his ignorance of the fact, and his believing the contrary.

Clearly so, L. Mansfield here talks only about the obligation of the insured towards the insurer at the time of making of the contract. This statement fails to cover such disclosures as are ought to be made by the assured after the completion of the contract and during the validity of the policy. The statements of the principles governing non-disclosure by Lord Mansfield is to be considered as in the context of the inception of the contract of insurance. At common law the duty of utmost good faith applies after the inception of a contract and during its currency.

The duty of principle of utmost good faith: The relationship between the assured and the insurer is one of bridesmaids, or of utmost good faith. In the event that either party does not observe utmost good faith, the innocent party may avoid the contract . The principle of utmost good faith implies into each insurance contract a requirement to act with the highest degree of integrity towards the other party, to be full and frank in disclosure and to act with fairness. There must be no intention to mislead or to deceive.

A failure to comply with the duty f utmost good faith on the part of policyholders may result in the refusal or reduction of a claim, or in cancellation of their policies. If insurers breach their duty of utmost good faith to policyholders they may not be able to rely on particular provisions of their insurance contracts.