The doctrine of disclosing all material facts is embodied in the important principle ‘utmost good faith’ which applied to all forms of insurance.
Both parties of the insurance contract must be of the same mind (ad idem) at the time of contract.
There should not be any misrepresentation, non-disclosure or fraud concerning the material.
In case of insurance contract the legal maxim ‘Caveat Emptor’ (let the buyer beware) does not prevail, where it is regard of the buyer to satisfy himself of the genuineness of the subject-matter and the seller is under no obligation to supply information about it.
But in insurance contract, the seller, i.e., the insurer will also have to disclose all the material facts.
An insurance contract is a contract of uberrime fidei, i.e., of absolute good faith both parties of the contract must disclose all the material facts and fully.
A material fact is one which affect the judgement or decision of both parties in entering to the contract.
Facts which count materially are those which knowledge influence a party in deciding whether or not to offer or to accept such risk and if the risk, is acceptable, on what terms and conditions the risk should be accepted.
These facts have a direct bearing on the degree of risk in relation to the subject of insurance.
In case of life insurance, the material facts or factors affecting the risk will be age, residence, occupation, health, income, etc., and in case of property insurance, it would be use, design, owner and situation of the property.
Full and True Disclosure
The utmost Good Faith says that all the material facts should be disclosed in true and full form. It means that the facts should be disclosed in that form in which they really exist.
There should be no concealment, misrepresentation, mistake or fraud about the material facts. There should be no false statement and no half truth nor nay silence on the material facts.
Duty of Both the Parties
The duty to disclose the material facts lies on both the parties the insured as well as the insurer, but in practice the assured has to be more particular, about the observance of this principle because he is usually in full knowledge of facts relating to the subject-matter which , despite all effective inspections of the insurer, would not be disclosed.
Facts need not be disclosed by the insured
The following facts, however, are not required to be disclosed by the insured:
- facts which tend to lessen the risk.
- facts of public knowledge
- facts which could be inferred from the information disclosed
- facts waived by the insurer
- facts governed by the conditions of the policy