Page 67 - Reinsurance Management IC85
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The Insurance Times
reinsurers. In accordance with the principle of
indemnity, the ceding insurer must prove that the
loss is one which falls within the terms of the
reinsurance contract, although reinsurers will, at
times, follow the direct insurers, if the latter decide
to make an ex-gratia payment.
Q. Discuss the importance of Utmost Good
Faith in reinsurance contracts.
Ans: The principle of Utmost Good Faith is an essential
feature of reinsurance as of direct insurance. Legally,
reinsurance contracts have been consistently treated as
contracts of Uberrimae fidei by the Courts. In practice,
the parties negotiating the contract are under duty not
to make misrepresentation but to disclose all material
facts.
In facultative reinsurance, full details of the risk are to
be disclosed to reinsurers. The principle of Utmost Good
Faith is assumed because of the limited nature of
information given to the reinsurers. The effect is that
the duty of Utmost Good Faith operates in respect of
each risk ceded under the treaty. 66
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