An insurance policy is a document that sets out the terms of coverage and serves as a formal insurance contract. When awarding contracts with applicants, insurance undertakings collect certain information which is crucial for the decision whether or not to insure an applicant and for setting premium prices. When disclosing this crucial information, the doctrine of good faith comes into play. Depending on the nature of the transaction, breaches in good faith can lead to various consequences. Most often, a contract created with inaccurate information from intentional misinformation or fraudulent obfuscation can result in the cancellation of the contract. An applicant for a life insurance policy is asked to provide information about their health and family history. Based on these answers, the insurer decides whether or not to insure the claimant and which premium to charge. For example, when a person applies for health insurance, the contract of the highest faith expects the policyholder to report their previous health problems to the insurer. Similarly, the insurance agent must disclose all information about the terms of the contract. It provides assurance that the parties involved in the transactions are truthful and act ethically.
A breach of this contract often entails various consequences, such as. B the cancellation of the contract and the classification of the contract as fraudulent. Reinsurance contracts (between reinsurers and insurers/assignors) require the highest level of good faith and this extreme good faith is considered the basis of reinsurance, which is an essential part of the modern insurance market. To make reinsurance affordable, a reinsurer cannot duplicate the insurer`s expensive underwriting and claims processing costs and must rely on the absolute transparency and openness of an insurer. In return, a reinsurer must review and reimburse an insurer`s bona fide claims payments accordingly, depending on the fate of the transferor. [2] For example, if you purchase health insurance, you must disclose any relevant health information that affects the terms and rates. An adverse medical history can mean a higher premium rate that matches your risk profile, or even a rejection of your proposal. However, non-disclosure results in the rejection of claims, as the contract is void. Similarly, the insurer must define the conditions of coverage, in particular the exclusions, in order to disclose them to you completely. This principle of contract law requires the buyer to exercise due diligence before purchasing. In other words, a seller only has to disclose the information requested by the buyer.
The doctrine of the greatest good faith – sometimes referred to by its Latin name uberrimae fides – is a contractual legal doctrine that requires the contracting parties to act honestly and not to mislead or retain any information essential to the contract. The parties to an insurance contract include the insurer – that is, the licensed insurance agent or broker – and the applicant or insured. An applicant is a person who wishes to take out insurance as an individual or on behalf of a company. Once an applicant is offered an insurance policy, has paid the initial premiums and has received the policy, they will be insured. In addition, in the event that goods or services are provided, the misinformed party may take legal action before the information is discovered or disclosed. The legal action may include the right to reimbursement of costs related to the performance of the contract that could be considered fraudulent. For example, if you apply for auto insurance, you will need to disclose information such as previous accidents or speeding tickets, as well as information about where you live, income and education. When you apply for life insurance, you will be asked to provide information about your medical and family history. The doctrine of the greatest good faith requires that you provide all “essential” information honestly. The doctrine of extreme good faith, known in Latin as “uberrimae fides”, is a legal doctrine that states that the parties must act honestly in a contract without withholding information or deceiving each other. This doctrine is the minimum standard to which the parties must adhere in a contractual agreement, and it is applied to all phases of human activities. The doctrine of extreme good faith is respected in transactions in insurance, financial markets, real estate and other companies.
What is difficult with insurance is that it is intangible. You can`t see or judge it, which it can do for you very easily like a credit card or home loan.. .