Doctrine of Utmost Good Faith

Doctrine of Utmost Good Faith is known in its Latin form as "uberrimae fidei". The common law doctrine of "good faith" in insurance contracts originated in the 18th Century. Lord Mansfield is credited with first articulating this concept in Carter v Boehm (1766) 3 Burr 1905.

Doctrine of utmost good faith means that each party to a proposed contract is under a duty to disclose to the other all information which would influence his decision to enter into the contract, whether such information is requested or not. This doctrine is applied to many common financial transactions.

According to Investopedia, in the insurance market, the doctrine of utmost good faith requires that the party seeking insurance discloses all relevant personal information. The duty to disclose all the material facts of information rests more heavily on the insured than the insurer because the insured knows more about the subject matter of the insurance. For example, when taking a life insurance, the insurer would like to know the state of health, previous ailments or operations, family history and lifestyle habits like smoking or exercise. The premium that will be charged to the potential insured would be based on all the information that he or she has given.

A person is only required to disclose material facts and the non-disclosure of non material facts does not affect the validity of the contract. Take back the example of life insurance. The information regarding the insured's health and previous ailments are material facts as these will influence the mind of the insurer in deciding whether to accept the risk in insuring the insured and at what premium. On the other hand, the insured does not need to tell the insurer regarding his or her education background or the number of siblings in his or her family.

The failure to disclose material facts will give the other party (insurer) the right to avoid the contract. Two cases that are related to the doctrine of utmost good faith are case of Goh Chooi Leng v. Public Life Co. Ltd (1964) and case of New India Assurance v. Pang Piang Chong (1971).