Naresh took a fire insurance policy from NICL of Rs 50 Lakhs for his factory at the annual premium of Rs 75,000 in order to avoid premium more than his amount he did not disclose that highly explosive chemicals are being manufactured in his factory, due to a fire his factory gets damaged. The insurance company NICL refused to make the payment for the claim as they were aware of the highly explosive chemicals. Is Naresh entitled to claim? Explain the principle of insurance violated by Naresh.
Naresh took a fire insurance policy from NICL of Rs 50 Lakhs for his factory at the annual premium of Rs 75,000 in order to avoid premium more than his amount he did not disclose that highly explosive chemicals are being manufactured in his factory, due to a fire his factory gets damaged. The insurance company NICL refused to make the payment for the claim as they were aware of the highly explosive chemicals. Is Naresh entitled to claim? Explain the principle of insurance violated by Naresh.
No, Naresh is not entitled to receive the claim because he has violated Principle of 'Good Faith'.
(a) Good faith or disclosure of all material facts : An insurance contract is a contract of good faith. Both parties to the contract are bound to likely to affect the acceptance of the proposal by the insurance company. It is known as a contract ubenimae fidie, i.e. contract requiring absolute good faith and the disclosure of all material fads. In ordinary contracts, when consent to an agrement is caused by mis-representation, the agreement is avoidable. But in an insurance contract, there should not only be no mis-representation but also no concealment of any material fact, otherwise, the policy becomes void. According to Lord Mansfield, '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".
The proposer is liable to disclose all material facts before the insurance company which are known to him. Every fact which is likely to influence the mind of prudent insurers in deciding whether to accept the proposal or not or in fixing the rate of premium is material fact.
No, Naresh is not entitled to receive the claim because he has violated Principle of 'Good Faith'.
(a) Good faith or disclosure of all material facts : An insurance contract is a contract of good faith. Both parties to the contract are bound to likely to affect the acceptance of the proposal by the insurance company. It is known as a contract ubenimae fidie, i.e. contract requiring absolute good faith and the disclosure of all material fads. In ordinary contracts, when consent to an agrement is caused by mis-representation, the agreement is avoidable. But in an insurance contract, there should not only be no mis-representation but also no concealment of any material fact, otherwise, the policy becomes void. According to Lord Mansfield, '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".
The proposer is liable to disclose all material facts before the insurance company which are known to him. Every fact which is likely to influence the mind of prudent insurers in deciding whether to accept the proposal or not or in fixing the rate of premium is material fact.
