The Principle of Utmost Good Faith, or Uberrimae Fidei, is a legal rule in insurance that requires both you and the insurer to be completely honest and share all important information from the very beginning.
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Why Does This Matter?
- It builds trust so the whole insurance system stays fair for everyone, both customers and insurers.
- It requires you to honestly tell the insurer everything important that could affect your premium or whether they’ll cover you at all.
- If you break this rule, the insurer can cancel the policy or refuse/reduce your claim.
- It protects both sides: customers are protected from unfair treatment by insurers and insurers are protected from customers who mislead them.
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What are Your Key Obligations?
- Full Disclosure by the Insured: You must reveal all material circumstances before entering the contract, including business risks.
- Honest Claims Handling by Insurers: Insurers must investigate claims fairly, communicate timelines, and avoid undue delays.
- Transparency in Policy Terms: Both parties must avoid misleading statements about coverage limits or exclusions.
- Cooperation During the Relationship: This includes providing updates on changing risks and responding reasonably to requests for information.
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What Does It Look Like in Practice?
- A café owner applying for Public Liability Insurance doesn’t mention they had a slip-and-fall claim last year. Due to the café owner’s dishonesty, the insurer could refuse a new claim or cancel the policy.
- A farmer, in a rural area buying insurance for his crops, forgets to say the property is in a high bushfire zone. The insurer might reduce or deny a fire claim.
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Typical Misconceptions
- Thinking “they didn’t ask, so I don’t have to tell”. You still have to volunteer important information.
- Believing it only applies when you first buy the policy. It continues for the whole time the policy is in force.
- Assuming small things don’t matter. Even minor details can be “material” if they would affect the premium or decision to insure.
- Thinking only the customer has to be honest. Insurers can also breach utmost good faith such by delaying claims unfairly.
- Believing that once the policy is issued, you’re completely off the hook for earlier mistakes. If an innocent or fraudulent non-disclosure or misrepresentation is discovered later, the insurer can still reduce or refuse claims, vary the policy or in serious cases cancel it from the start
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Talk to a Broker
Insurance disclosure rules can be tricky and differ between policies. An insurance broker can review your situation, help make sure nothing important is missed and explain exactly what needs to be disclosed.
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Still Confused?
A quick chat with Tank Insurance can help make sure your disclosures are complete and your cover stays solid.
