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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
In a contract of insurance each party “must communicate to the other, in good faith, all facts within his knowledge which are material to the contract, and which the other has not the means of ascertaining. As a general rule, a failure by the insured to disclose conditions affecting the risk, of which he is aware makes the contract voidable at the option of the insurer. The reason for this rule is that insurance policies are traditionally contracts “uberrimae fidei” which means most abundant good faith; absolute and perfect candor or openness and honesty; the absence of any concealment or deception however slight. (Antonio, J., concurring, Vicente E. Tang vs. Hon. Court of Appeals, G.R. No. L-48563, May 25, 1979)
Jurisprudence says:
The contract of insurance is one of perfect good faith (uberrimae fidei) not for the insured alone, but equally so for the insurer; in fact, it is more so for the latter, since its dominant bargaining position carries with it stricter responsibility. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, the ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, specially to avoid a forfeiture. (Qua Chee Gan, Law Union and Rock Insurance Co., Ltd., G.R. No. L-4611, December 17, 1955)
There is one really important rule in insurance contracts, called the “doctrine of uberrimae fidei.” Derived from Latin, meaning “utmost good faith”. This rule says that both the insurance company and the person getting insurance have to trust each other and tell the truth about everything. It is like a foundation for the whole insurance deal, making sure everyone is fair and open. So, whether you are getting insurance or providing it, honesty is the name of the game.
At its core, the doctrine of uberrimae fidei imposes a stringent duty on both parties—the insurer and the insured—to conduct themselves with the highest level of integrity. This duty encompasses the obligation to disclose all material facts relevant to the insurance contract and prohibits any form of misrepresentation, whether intentional or inadvertent.
Before the formation of an insurance contract, both parties are obligated to provide complete and accurate information regarding the subject matter of the insurance, the risks involved, and any other relevant details that may influence the insurer’s decision to underwrite the policy. This disclosure ensures that the insurer has all the necessary information to assess the risk accurately and determine appropriate terms and premiums.
Moreover, the duty of utmost good faith extends beyond the initial formation of the contract and continues throughout its existence. Even after the contract is in force, both parties are expected to maintain transparency and honesty in their dealings with each other. Any material changes in circumstances that may affect the insurance coverage must be promptly disclosed to the insurer, enabling them to adjust the terms of the policy accordingly.
Furthermore, the doctrine acts as a safeguard against adverse selection and moral hazard. By requiring full disclosure of material facts, insurers are better equipped to assess and price risks accurately. This, in turn, helps to mitigate the potential for fraudulent claims and ensures the financial stability of the insurance market.
Read also:
Characteristics of Insurance Contracts
Misrepresentation in an Insurance Contract
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