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Question

Which of the following talks about the principle of utmost good faith?

A
Premium is computed on the basis of assessment of the proposal form.
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B
Insurer agrees to compensate for loss of sea perils.
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C
A person who enters into contract has a legal obligation to act with honesty.
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D
It is mainly concerned with how the losses or damages happened.
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Solution

The correct option is C A person who enters into contract has a legal obligation to act with honesty.
An insurance contract is a contract found on utmost good faith. It implies that the insurer and the insured both are under a legal obligation to disclose all the material facts related to the contract of insurance.
The insured shall disclose all the material facts accurately and voluntarily to the insurer. The insurer should also disclose all the terms and conditions clearly to the insured.

In case the insured fails to make such disclosure the insurance contract is voidable at the discretion of the insurer i.e. the insurance company.

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