Utmost good faith is a common law principle(sometimes called ubrimae fidae).

The principle
means that every person who enters into a contract of insurance has a legal obligation to act with
utmost good faith towards the company. The insurance company offering the insurance. A person must
therefore always be honest and accurate in the information they give to the insurance company. The
insurance company also has a responsibility to act with good faith in all its dealing with the insured.

Non-disclosure refers to the situation where a customer fails to reveal a relevant fact when applying
for the renewing of an insurance contract. It is widely recognized that in the same situations involving
non-disclosure, applying the strict legal position can result in an unduly harsh outcome for the customer.
For this reason, when we deal with insurance cases involving non-disclosure or misinterpretation of an
incorrect utmost by a customer we take account of both the law and good industry practice.

An insurance contract is a contract of utmost good faith which means that all parties to the contract are
under a strict duty to deal fully and frankly with each other . Customers must disclose all facts that are
material to the risk for which they are seeking cover.

Material facts of utmost good faith in insurance contacts

Utmost good faith in insurance contracts

It has long been recognized that insurance contracts are governed by a higher standards of
utmost good faith which does not apply to other contracts. In the leading case of Carter Vs Boehm
(1776), Lord Manfield stated that if the true facts are concealed in any way, whether frequently or not,
then the risk taken by the insurers may be different from the risk they intended to take in which case
the policy would be void. This was seen as a natural consequence of an imbalance of knowledge of most
of the information which should form the basis for a risk assessment by the insurer.

This general principle of good faith is affirmed in section 17 of the marine insurance Act
1906(The Act). The Act spells out that the requirement of utmost good faith must be observed by both
parties (as did Lord Manfield)