PROJECT REPORT

ON

THE DOCTRINE OF UBERRIMAE FIDEI

Submitted to:
Mr. Jagadeesh Chandra T.G.
(Faculty: Insurance Law)

Submitted By:
Naveen Meena
Registration No: 13A074
Semester: VIII
Section: A
B.Com. LL.B. (Hons.)
 ACKNOWLEDGEMENTS

I feel highly elated to work on the topic The Doctrine of Uberrimae Fidei, because it has
significant importance.

I express my deepest regard and gratitude for Mr. Jagadeesh Chandra T.G., Faculty of
Insurance Law, GNLU, Gandhinagar. His consistent supervision, constant inspiration and
invaluable guidance have been of immense help in understanding and carrying out the
importance of the project report.

I would like to thank my family and friends without whose support and encouragement, this
project would not have been a reality.

I take this opportunity to also thank the University for providing extensive database resources
in the Library and through Internet.

Naveen Meena
Semester VIII
Section- A
Registration No. 13A074
B.Com.-L.L.B (Hons.)

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 TABLE OF CONTENTS

Acknowledgement 2

Research Methodology 4

Research Objectives 4

Introduction 5

I. Rationale for the Rule 6

II. Doctrine under Indian Insurance Law 6

III. Application of the Doctrine 7

IV. Content of the Doctrine 8

Duty at the pre-contractual stage 9

Duty at the post-contractual stage 11

Conclusion 14

Bibliography 15

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 RESEARCH METHODOLOGY

The research methodology used in this project is analytical and descriptive. It is largely based
on electronic and secondary sources of data. Data has been collected from various cases,
articles, papers and web sources. Footnotes have been provided in Bluebook Citation Format
(19th ed.), wherever needed, either to acknowledge the source or to point to a particular
provision of law.

OBJECTIVES

The main objectives of this project are:

To discuss the application of the Doctrine of Uberrimae Fidei in insurance contracts.
To determine the extent of duty of insured and insurer to observe utmost good faith.
To know the remedies of the parties to the insurance contract in case of breach of duty
of utmost good faith.

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 INTRODUCTION
Insurance contracts are a special class of contracts, having distinctive features such as utmost
good faith, insurable interest, indemnity, subrogation and contribution and doctrine of
proximate cause which are more or less common to all branches of insurance. These
doctrines are governed by the common law and certain aspects are also modified by statutes
such as S. 30 of the Contract, 1872 Act, the Indian Marine Insurance Act 1963 and Chapter
VII of the Motor Vehicles Act, 1939 (now M. Vehicle Act, 1988) and the Railways Act,
1989. They are also modified by contract, as in the case of the contractual duty of good faith,
and the doctrines of subrogation and contribution. In this project, the doctrine of good faith in
its application to insurance contracts will be considered.

The principle of utmost good faith, expressed by the Latin maxim uberrima fidei, meaning
fullest confidence, originated from English insurance law and is regarded as a fundamental
principle of insurance law in many jurisdictions around the world, whether civil or common
law. However, the doctrine does not have the same meaning nor does it operate in the same
way in each legal system in which it has been adopted.

The doctrine of utmost good faith requires that those involved in negotiations for an
insurance contract must disclose all relevant information to all the other parties in the
negotiation. Originally, the common law duty of utmost good faith applied only at the pre-
contractual stage. But nowadays, it is a continuing duty that exists while the relationship
between the insurer and the insured subsists and the application of the doctrine has been
extended to the exercise of contractual rights and the processing of claims. In some of these
jurisdictions, the duty of disclosure forms part of the principle of utmost good faith and thus,
is indistinguishable, whereas in other jurisdictions it is a separate duty imposed on the insured
by statute.

Thus, the contract of insurance is the primary illustration of a class of contract described as
uberrimae fidei, that is, of the utmost good faith. As a result, the potential parties to it are
bound to volunteer to each other before the contract is concluded information which is
material.

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 I. RATIONALE FOR THE RULE
In the leading case which established the duty of disclosure in insurance contracts, namely,
Carter v. Boehm,1 Lord Mansfield said:
Insurance is a contract upon speculation. The special facts, upon which the
contingent chance is to be computed, lie most commonly in the knowledge of the insured
only: the under-writer trusts to his representation, and proceeds upon the confidence that he
does not keep back any circumstance in his knowledge, to mislead the under-writer into a
belief that the circumstance does not exist, and to induce his to estimate the risqu as if it did
not exist.

There can be no doubt that the contract of insurance is a special one in the terms that Lord
Mansfield expressed, such that it requires a special duty of good faith to be observed in the
contract.

II. DOCTRINE UNDER INDIAN INSURANCE LAW

The principle of utmost good faith is both a common law principle and a statutory principle.
The principle has evolved through common law and it has been subsequently recognised in
India by way of statutes as well as case laws. In India insurance is primarily governed by the
Insurance Act 1938, the Insurance Regulatory and Development Authority Act, 1999, Marine
Insurance Act, 1963 and the Indian Contract Act 1872. There is no definition per se of the
principle of utmost good faith under statutes governing insurance contracts or under case
laws. However, the said principle has been statutorily recognised.

The Insurance Act, 1938 provides that an insurer can call in question a life insurance policy if
the insured had not disclosed material matters or suppressed facts which were material to be
disclosed and were fraudulently made by the insured and that the insured knew at the time of
making it that the statement was false or that it suppressed facts which were material to be
disclosed.2

1
(1766) 3 Burr. 1905.
2
Section 45 of the Insurance Act, 1938
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Further the Marine Insurance Act, 1963 provides that a contract of marine insurance is a
contract based upon the utmost good faith, and if the utmost good faith be not observed by
either party, the contract may be avoided by the other party.3

What would amount to good faith has been explained by way of case laws in India. The
Supreme Court of India has laid down the following:4
It is a fundamental principle of insurance law that utmost good faith must be observed by
the contracting parties. Good faith forbids either party from concealing (non-disclosure)
what he privately knows, to draw the other into a bargain, from his ignorance of that fact and
his believing the contrary. Just as the insured has a duty to disclose, similarly, it is the duty of
the insurers and their agents to disclose all material facts within their knowledge, since
obligation of good faith applies to them equally with the assured. The duty of good faith is of
a continuing nature. After the completion of the contract, no material alteration can be made
in its terms except by mutual consent. The materiality of a fact is judged by the circumstances
existing at the time when the contract is concluded.

III. APPLICATION OF THE DOCTRINE

It is a common law principle that the duty of utmost good faith applies to all types of
insurance contracts such as marine, fire, life, general insurance etc. It has been held by the
Supreme Court of India that it is a fundamental principle of insurance law that utmost good
faith must be observed by the contracting parties.5 Further, in an English case, London v/s
Mansel,6 Jessel M R held as follows:
Whether it is life, or fire or marine insurance, good faith is required in all cases, and though
there may be certain circumstances from the peculiar nature of marine insurance which
requires to be disclosed and which do not apply to other contracts of insurance, that is
rather, in my opinion, an illustration of the application of the principle than a distinction in
principles.

3
Section 19 of the Marine Insurance Act, 1963
4
Life Insurance Corporation of India v. Ajit Gangadhar Shanbag AIR 1997 Kant 157
5
The United India Insurance Co. Ltd. vs. M.K.J. Corporation AIR 1997 SC 408
6
[1879] 11 ch D 363 at 367 .
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Also, the duty of utmost good faith applies both at the pre-contractual stage and the post-
contractual stage but the nature and extent of the duty may vary. Parties to the contract are
required to observe the principle of utmost good faith in performance of the contract. Further,
the duty of good faith is of a continuing nature and no material alteration can be made to the
terms of the contract without the mutual consent of the parties.7

The principle of utmost good faith applies to both the insured and the insurer at the pre-
contractual stage. If the principle of utmost good faith is not observed by either party, the
contract may be avoided/set aside by the other party.8

Good faith forbids either party from concealing (non-disclosure) what he privately knows, to
draw the other into a bargain, from his ignorance of that fact and his believing the contrary.
Just as the insured has a duty to disclose. Similarly, it is the duty of the insurers and their
agents to disclose all material facts within their knowledge,9 since obligation of good faith
applies to them equally with the assured.10 To illustrate better, an insured would be required
to disclose all material facts and refrain from misrepresenting facts to the insurer at the pre-
contractual stage. On the other hand the insurer/insurance agent would be required to disclose
requisite information in respect of insurance products offered to the insured11 and ensure that
any advertisement with respect to insurance products offered by him, are not deceptive or
misleading12 etc.

IV. CONTENT OF THE DOCTRINE

Duty of the Insured at the pre-contractual stage

At the pre-contractual stage, the insured is required to (i) disclose all material facts known to
him (ii) refrain from suppressing facts knowing them to be true and material to be disclosed
and (ii) refrain from misrepresenting facts knowing them to be false at the time of making it
to the insurer.13 What would constitute as material would depend on the facts and

7
Hanil Era Textiles Ltd. v Oriental Insurance Co. Ltd. (2001) 1 SCC 269
8
Section 19 of the Marine Insurance Act, 1963 and Section 19 of the Indian Contract Act, 1872.
9
4 J.V.N. JAISWAL, LAW OF INSURANCE 1340 (2008).
10
The United India Insurance Co. Ltd. vs. M.K.J. Corporation AIR 1997 SC 408 .
11
Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations, 2000
12
Regulation 6 of the Insurance Regulatory and Development Authority (Insurance Advertisements and
Disclosure) Regulations, 2000
13
Section 45 of the Insurance Act, 1938
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circumstances of each case.14 The Supreme Court of India has discussed the term material
facts in insurance contracts in Mithoolal v. Life Insurance Corporation of India.15 In this case
the insured had entered into a life insurance policy with the insurer and fraudulently
suppressed the fact that he had certain serious ailments such as anaemia, shortness of breath
etc. The Supreme Court held that the same was essential to be disclosed. While deciding on
the said case, the Supreme Court pointed out that:
in order to call in question an insurance policy by the insurer three conditions must be
satisfied: (a) the statement of the assured must be of a material fact or must have suppressed
facts which it was material to disclose; (b) the suppression must be fraudulently made by the
policy holder, and (c) the policy holder must have known at the time of making the statement
that it was false for that he suppressed facts which it was material to disclose.

Further, in P. Sarojam v. LIC of India16, it was held that a person seeking insurance is bound
to disclose all material facts relating to the risk involved. False answers to the questions in the
proposal form given by the assured relating to the state of health vitiate the contract of
insurance. The English case, Carter v. Boehm,17 has been heavily relied upon by the courts in
India. This lays down the extent of the insureds pre-contractual duty of utmost good faith as
it may be presumed that the underwriter knows nothing about the subject matter in question,
it is the duty of the insured to disclose all material circumstances which may greater the risk
involved.

A breach by the insured of the duty of utmost good faith allows the insurer to avoid/set aside
the contract.18 The insured cannot claim benefit of a contract, where the insured enters into a
contract with the insurer as a result of fraudulent concealment of material facts.19

14
E.R. HARDY IVAMY, GENERAL PRINCIPLES OF INSURANCE LAW 147 (6th ed. 1993).
15
1962 AIR 814
16
AIR 1986 Ker 201, 203
17
Supra note 1.
18
M.N. SRINIVASAN, PRINCIPLES OF INSURANCE LAW 284 (8th ed. 2006).
19
Mithoolal Nayak v/s. LIC, AIR 1962 SC 814
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Duty of the Insurer at the pre-contractual stage
The various regulations framed under the Insurance Regulatory and Development Authority
Act, 1999 set out the duties cast on an insurer while dealing with the insured at the pre-
contractual stage. Some of these are listed below:
(i) The insurer is required to provide all material information in respect of a proposed cover
to the insurer to enable the insured to decide on the best cover that would be in his or her
interest and where the insured depends upon the advice of the insurer, the insurer must advise
the prospect dispassionately;20 and
(ii) The insurer must ensure that any advertisement with respect to an insurance product must
not contain deceptive information.21

The insurer is bound to (i) disclose all facts (including all risks involved) essential to enable
the insured to take an informed decision prior to entering into the contract and (ii) refrain
from misrepresenting the conditions of the insurance policy to enable the insured to enter into
such a contract. In Carter v Boehm,22 the leading English case law on this point and heavily
relied upon by courts in India has explained the extent of the insurers pre-contractual duty of
utmost good faith. It was held that
The policy would be equally void against the underwriter, if he concealed; as if he insured a
ship on her voyage, which he privately knew to be arrived: and an action would lie to recover
the premium. Good faith forbids either party, by concealing what he privately knows, to draw
the other into a bargain from his ignorance of the fact, and his believing the contrary.

Thus, the insurer must act fairly and honourably to the insured, explaining properly the
implication of the declaration to be signed by the insured and the range and amplitude of the
questions required to be answered.23

The insured may seek for damages or claim specific performance of the contract in case of
pre-contractual breach by the insurer of its duty of utmost good faith.

20
Regulation 3(2) and 3(3) of the Insurance Regulatory and Development Authority (Protection of
Policyholders Interests) Regulations, 2002
21
Regulation 6 of the Insurance Regulatory and Development Authority (Insurance Advertisements and
Disclosure) Regulations, 2000
22
Supra note 1.
23
LIC v/s Shakunthalabai, AIR 1975 AP 68.
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Duty of the Insured and the third party at the post-contractual stage (at the Claim Stage)
The duty of utmost good faith commences before a policy is made and it continues so long as
the parties are in a contractual or continuing relationship with each other.24 The insured shall
be bound to observe the duty of utmost good faith at the claim stage as well as long as the
relationship continues. Therefore, the insured is required to make claims honestly without
exaggeration or carelessness. There is no contractual relation between the insurance company
and the third party.25 The duty of utmost good faith binds the parties to the contract and since
a third party beneficiary is not a party to a contract, strictly speaking there is no duty cast on a
third party.

It is a common law principle that the duty of disclosure ceases once the insurance contract
has been entered into, unless the contract provides otherwise. The famous case Agapitos v
Agnew (The Aegeon)26 has explained the post-contractual duty of utmost good faith for the
insured. The said case lays down that the post-contractual operation of the duty of good
faith by the insured does not require a duty of disclosure but a duty not to make
misrepresentations. In other words, where a policy requires the assured to make post-
contractual notifications, the duty is not one of disclosure (i.e. the same as pre-contractual
disclosure) but a lesser duty not to misrepresent.

Any failure on the part of the insured to disclose material facts to the insurer at the time of
entering into the insurance contract would entitle the insurer to call in question the contract.27
The policy cannot be avoided on the ground of misstatements or untrue answers unless the
insurers establish (a) that the statements were inaccurate or false; (b) that such statements
were on material factors or that material facts were suppressed and not disclosed, and (c) that
the assured knew at the time of making those statements that they were false to his
knowledge or knew that these facts were material to disclose and deliberately suppressed.28
Therefore depending on the facts and circumstances of each case, in the event the disclosure
of criminal activities would be a material factor and the insurer intentionally concealed the
fact, it would amount to a breach of the duty of utmost good faith.

24
The United India Insurance Co. Ltd. vs. M.K.J. Corporation AIR 1997 SC 408
25
National Insurance Co. Ltd. vs. Laxmi Narain Dhut AIR 2007 SC 1563
26
[2002] EWCA Civ 247.
27
Section 45 of the Insurance Act, 1938.
28
New India Assurance Co. Ltd. v. T. S. Raghava Reddi.
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Duty of the Insurer at the pre-contractual stage
The insurers duty of utmost good faith continues until the contract is in existence. While
dealing with a claim of insurance an insurer cannot avoid or repudiate an insurance policy on
the ground of non-disclosure of facts which had no bearing on the risk taken by the insurer.29

Further, the Insurance Regulatory and Development Authority (Protection of Policyholders

Interests) Regulations, 2002 provides that the insurer, upon receiving a claim, is required to
process the claim without delay. Any queries or requirement of additional documents, to the
extent possible, all at once and not in a piece-meal manner, within the period stipulated in the
regulations. In the event there is a delay on the part of the insurer in processing a claim, the
insurer is required to pay interest on the claim amount as per the provisions of the
regulations.30

The duty of utmost good faith is required to be observed by parties to a contract. There is no
contractual relation between the insurance company and the third party. 31 Therefore strictly
speaking the insurer does not owe a duty of utmost good faith towards third party
beneficiaries. However since a third party is protected by such a contract, while handling a
claim, the insurer will have to ensure that he processes the claim without any delay.32

The insurer cannot make any alterations in the contract without the consent of the insured and
is required to disclose any change in the risk factors etc. to the insured pursuant to the
execution of the contract. In United India Insurance Co Ltd. v. M.K.J. Corporation,33 the
Supreme Court of India has laid down the principle relating to the post-contractual duty of
utmost good faith which states as follows:
The duty of good faith is of a continuing nature. After the completion of the contract, no
material alteration can be made in its terms except by mutual consent. The materiality of a
fact is judged by the circumstances existing at the time when the contract is concluded.

29
National Insurance Co. V. Rais Abbas Naqvi 1996 (2) CPR 108..
30
Regulation 8 and 9 of the Insurance Regulatory and Development Authority (Protection of Policyholders
Interests) Regulations, 2002.
31
National Insurance Co. Ltd. vs. Laxmi Narain Dhut AIR 2007 SC 1563.
32
Regulation 8 of the Insurance Regulatory and Development Authority (Protection of Policyholders Interests)
Regulations, 2002.
33
(1996) 6 SCC 428.
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The conduct of insurers in India is regulated by the Insurance Regulatory and Development
Authority. The Insurance Regulatory and Development Authority (Licensing of Insurance
Agents) Regulations, 2000, Insurance Regulatory and Development Authority (Insurance
Brokers) Regulations, 2002 and Insurance Surveyors and Loss Assessors (Licensing,
Professional Requirements and Code of Conduct) Regulations, 2000 lay down the code of
conduct in the practice of insurance. For example the Code of Conduct for insurance agents
under the Insurance Regulatory and Development Authority (Licensing of Insurance Agents)
Regulations, 2000 stipulates that every insurance agent is required to disseminate the
requisite information in respect of insurance products offered for sale by his insurer. The
Code of conduct laid down for insurance brokers etc. is also similar to the code of conduct
laid down for insurance agents. These regulations are in line with the common law principle
of the duty of utmost good faith.

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 CONCLUSION
Principles of Insurance law forms the basis of an insurance contract for which parties enter
into an agreement. These principles govern the relationship between insurers and insured in
an insurance contract and also assist in determining the terms of the policy and the first and
foremost principle of insurance agreement is uberrimea fidei i.e. of good faith. Both the
parties to the contract are required to observe utmost good faith and should disclose every
material fact known to them. Parties entering into the contract should not make any false
statement or any misrepresentation.

In the project it has been explained that this duty of observing utmost good faith exists in all
types of contract be it marine, life or fire. And it exists to be observed by both of the parties
of the contract, be it insured or insurer. Generally the onus of the duty is more on insured
because he is the one who possesses most of the knowledge pertaining to the subject matter
of the contract of insurance, thus, it lies upon him to make the insurer aware of all the
material information regarding the subject matter. He has to disclose all the relevant and
material facts and not conceal them. Also, the duty involves not resorting to
misrepresentation, fraud or other similar circumstance, in order to conclude a contract and to
make the terms favourable dishonestly.

Therefore, the principle of utmost good faith makes the application for insurance easier. If a
material fact listed in the insurance application is false or was not revealed, then the insurance
company will be able, in most cases, to void the contract and deny the payment of any claims.
Thus, for insurance applicants, honesty is the best policy, since dishonesty could lead to no
compensation for losses even though premiums were paid.

Similarly, it also makes it easier for the insured because insurer cannot make any alteration in
the contract without the consent or permission of the insured. The insurer has a duty to
disclose all the risks factors and other occasions which are covered by the policy and the
terms on which the claim depends, so that the insured is able to make an informed decision.

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 BIBLIOGRAPHY

Statutes
The Indian Contract Act, 1872.
The Insurance Act, 1938.
The Marine Insurance Act, 1963.
Books
4 J.V.N. JAISWAL, LAW OF INSURANCE 1340 (2008).
E.R. HARDY IVAMY, GENERAL PRINCIPLES OF INSURANCE LAW 147 (6th ed. 1993).
M.N. SRINIVASAN, PRINCIPLES OF INSURANCE LAW 284 (8th ed. 2006).
Cases
Agapitos v Agnew (The Aegeon), [2002] EWCA Civ 247.
Carter v. Boehm, (1766) 3 Burr. 1905.
Hanil Era Textiles Ltd. v Oriental Insurance Co. Ltd. (2001) 1 SCC 269
LIC v/s Shakunthalabai, AIR 1975 AP 68.
Life Insurance Corporation of India v. Ajit Gangadhar Shanbag AIR 1997 Kant 157.
London v. Mansel, [1879] 11 ch D 363.
Mithoolal Nayak v/s. LIC, AIR 1962 SC 814
Mithoolal v. Life Insurance Corporation of India, AIR 1962 SC 814
National Insurance Co. Ltd. vs. Laxmi Narain Dhut AIR 2007 SC 1563
National Insurance Co. Ltd. vs. Laxmi Narain Dhut AIR 2007 SC 1563.
National Insurance Co. V. Rais Abbas Naqvi 1996 (2) CPR 108.
P. Sarojam v. LIC of India, AIR 1986 Ker 201,
The United India Insurance Co. Ltd. v. M.K.J. Corporation AIR 1997 SC 408
The United India Insurance Co. Ltd. vs. M.K.J. Corporation AIR 1997 SC 408.
The United India Insurance Co. Ltd. vs. M.K.J. Corporation AIR 1997 SC 408
United India Insurance Co Ltd. v. M.K.J. Corporation (1996) 6 SCC 428.

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