Utmost good faith, or uberrima fides, is a contract law principle, especially critical in insurance, requiring full honesty and disclosure between parties. It mandates transparency, with both parties sharing relevant information. Breaches may void contracts or claims, highlighting its role in fostering trust and fairness in high-stakes agreements. This article covers the various aspects of utmost good faith as a doctrine in insurance law.

Introduction
Every contract of insurance is based on mutual trust and faith. It is a contract of utmost good faith (Uberrima fides) . According to this principle, the insured must disclose all material facts and should not make any misrepresentation. It is true that the underwriter can have a pre-survey but even then there are certain facts which are not apparent at the time of the survey.

The general principle is that both parties have a duty to disclose all the material facts. The law imposes a greater duty on the insured. However, there is no obligation on the insured to disclose facts of public knowledge, mentioned in the documents. A material fact is one which enables both the parties to form views or make decisions before entering into a contract. Knowledge of true facts influences a party in deciding whether to accept or not such risk. The duty of disclosure of facts is on both sides[1].

Definition of Utmost Good Faith

The principle of utmost good faith is defined in Collins English dictionary as:

• "A principle used in insurance contracts, legally obligating all parties to reveal to the other party any info that might influence the other's decision to enter into the contract."
• Also known in its Latin form as "uberrimae fidei".

Origin of Utmost Good Faith

The common law doctrine of good faith in insurance contracts originated in the 18th Century. Lord Mansfield first articulated this concept in the case of Carter vs. Boehm:

"The general position was that special facts upon which the contingent chances are to be computed, most commonly in the knowledge of the insured only, the underwriter trusts to his representation and proceeds upon the confidence that he does not keep back any circumstances in his knowledge to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risk as not existing."

Illustrations of Utmost Good Faith

• Health Insurance: If A is applying for health insurance, A must disclose any known medical conditions, past surgeries, or medications. If A withholds information—such as a recent surgery—the insurer may void the policy later if they find out. Likewise, the insurer must disclose any policy limitations or exclusions.
• Life Insurance: When applying, A must disclose all relevant personal and health information, like smoking habits or risky hobbies. If A fails to disclose such information, the insurance company may refuse to pay the death benefit later, citing a breach of good faith.

Meaning of Material Facts

Material facts refer to any information that could influence a party's decision in entering a contract. For insurance contracts, both applicant and insurer must disclose all material facts fully and honestly:

In Woolcott v. Sam Alliance and London Insurance, it was held that non-disclosure of a criminal conviction was grounds for invalidating the policy due to lack of transparency.

Test of Determination of Material Facts

The test for material facts depends on each case's specific facts and circumstances. A material fact is one that would affect the insurer's decision on the risk undertaken.

Facts Which Must Be Disclosed

• Facts showing higher risk exposure.
• External facts that increase the risk.
• Insurance history, including previous losses and claims.
• If any other insurer declined to insure the property or imposed special conditions.
• Existence of other insurance policies.
• Full details about the subject matter of insurance.

Facts Which Are Not Required to Be Disclosed

• Facts that lessen the risk.
• Facts unknown to the applicant.
• Publicly known information.
• Information identifiable from the proposal form.
• Facts covered by policy conditions.
• Facts of law (de facto laws).

Indian Laws On Utmost Good Faith
The principle of utmost good faith has been accepted by the supreme court of India in the case of LIC v. Asha Goyal[6]. Further the supreme court reiterated this principle in the case of PJ Shakha v. Chairman LIC[7]. Section 45 of the insurance act 1938 is based on the principle of utmost good faith and makes provisions about consequences of non disclosure under Life Insurance.

Furthermore in the case of LIC vs shakuntalabai[8] it was held at the duty to show good faith false on both the insurer and the insured in all types of insurance contract. Section 19, 20, and 21 of The Marine Insurance act, 1963 relates to utmost good faith.

Conclusion
In conclusion, utmost good faith serves as a vital safeguard in insurance law, fostering equitable and transparent dealings between insurers and insured parties. It ensures that each party can make informed decisions, which is essential for the integrity of the insurance industry.

The importance of utmost good faith lies in its role in promoting fairness and trust between the parties. Insurance contracts are unique in that the insured possesses more knowledge about the risk being insured than the insurer. Thus, failure by either party to disclose material facts or to act honestly can undermine the agreement, often leading to voiding the policy or refusal of claims.

References:

• Section 21(a) of the Indian Marine Insurance Act, 1906
• Carter vs Boehm (1766)
• Woolcott v. Sam Alliance and London Insurance (1978) 1 WLR 493
• Roshini Nandan v. Ocean Accident and Guarantee Corporation (AIR 1960)
• Section 18 (1) and 20 (1) of the Marine Insurance Act
• LIC v. Asha Goyal (2001)
• PJ Shakha v. Chairman LIC (2008)
• LIC vs Shakuntalabai

Written By Shaista Waseem, LL.B (Hons) Fifth Year Student At Unity P.G And Law College