EXPLAIN THE CONCEPT OF : 1) UTMOST GOOD FAITH 2) INSURABLE INTEREST 3) INDEMNITY 4)SUBROGATION 5) PROXIMATE CAUSE 6) CONTRIBUTION 7) MITIGATION
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Explanation:
There are six principles in insurance:
Utmost Good Faith
Insurable Interest
Proximate Cause
Indemnity
Subrogation
Contribution
1.0 Utmost Good Faith
Utmost Good Faith (‘Uberrima Fides’) opposite of ‘Caveat Emptor’ (let the buyer beware) is fundamental to the buying and selling of insurance. The insurer and the proposer have the obligation to deal honestly and openly amongst themselves in the negotiations that lead up to the formation of the contract.
Condition 6 of MSI policy – Alternation, emphasizes that any changes made to the risk insured must be revealed, otherwise insurers will be permitted to avoid liability. Also the MSI policy underlines that any misdescription and fraud will make the policy voidable:
‘… the Company shall not be liable upon this Policy so far as it relates to property affected by any such misdescription, misrepresentation or omission .’
Furthermore:
‘If the claim be in any respect fraudulent or if any false declaration be made or used in support thereof …all benefit under this Policy shall be forfeited ’.
In Joseph Muscat v. Joseph Gasan et noe (1998) , which concerned a claim of a loss of a ring, the insurers refused to meet the claim due to misrepresentation and non-disclosure, which made the policy invalid. However the case was later revised and was concluded that the principle of ‘Uberrima Fides’ lies also in the hands of the insurer.
Moreover, in Antonio Zammit v. Joseph Micallef ne (1952) , the insured gave false declarations, thus invalidates the policy. The insurers were not liable to indemnify the plaintiff since ‘fraus omina corrumpit ’, in Latin.
From Kettlewell v. Refuge Assurance (1908) we see that misrepresentation on part of the insurers is also likely.
In insurance there is a positive duty of disclosure, this origin is found in the case of Carter v. Boehm (1766) :
‘The special facts, upon which the contingent chance is to be computed, lie 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 if it did not exist.’
Furthermore, in Rozanes v. Bowen (1928):
‘As the underwriter knows nothing and the man who comes to him to ask him to insure knows everything, it is the duty of the assured … to make a full disclosure to the underwriter without being asked of all the material circumstances.’
Both cases quoted above underline the fact that the policyholder will know more information about the risk insured than the insurer. Consequently the judgement presumes that the insurer will not be able to find out the full details related to the risk, unless the proposer volunteers the required information.
The principle of ‘Uberrima Fides’ imposes the:
Insurer to disclose all applicable information and advice
Insured to disclose all material facts. ‘Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk’.
Examples of material facts needed to be disclosed in relation to property insurance:
Those representing a greater exposure than expected– Example: A garage having vintage cars
Outside factors making risk greater– Example: Property situated next to a fire factory or valley
Previous losses and claims
Declinature
Existence of other policies– Condition 3 of MSI policy, Other Insurances, highlights the duty of the insured to give notice of any existent insurance policies
Full facts related to description of the risk insured– Example: Construction and age of building, number of rooms etc
Restriction of subrogation rights– If both, Waiver of Subrogation and Hold Harmless exist in the contract, the insurer cannot sew the guilty party on the behalf of the policyholder.
Like Uberrima Fides, the principle of Insurable Interest is not applicable only to Property Insurance.