Page 40 - MODULE1_Insurance Introduction_CHA

Hence the contracts of insurance are referred to as

contracts of utmost good faith. Since these contracts are

based on prediction of an event (known as a contingency),

they are called as contingent contracts. The prediction

depends on complete disclosure being made of all facts

that would impact the risk. The proposer in insurance thus

has a legal obligation (legal duty) to disclose everything

and all material facts that are relevant to the subject-

matter of insurance so that the insurer can rationally

evaluate the risk.

 A material Fact - A material fact is one which would affect

the judgment of a prudent insurer in deciding whether to

accept the risk and if so, at what rate or premium and

subject to what terms and conditions. Example: while

taking a life insurance policy, disclosing all medical

ailments (diabetes mellitus, hypertension etc) as well as

habits (smoking, alcoholism etc) have to be disclosed. Non-

disclosure implies, not disclosing material fact and is one of

the commonest reasons of claim repudiation.

40