Utmost Good Faith 最高誠信

Ordinary Good Faith 一般誠信

Ordinary commercial contracts require only ordinary good faith: neither party may make misrepresentations, but neither has to volunteer information the other has not asked for. This is the principle of caveat emptor, "let the buyer beware": the buyer must examine the goods for themselves.

Utmost Good Faith 最高誠信

Insurance is different: only the proposer knows the full details of the risk, and the insurer often cannot check them independently. The law therefore imposes a positive duty on both parties to disclose all material facts voluntarily, accurately and fully, whether or not they are asked.

The duty applies to both sides. The proposer must disclose material facts about the risk, and the insurer must explain the policy terms truthfully and must not mislead the proposer.

Material Fact 重要事實

A material fact is any circumstance that would influence a prudent underwriter in deciding whether to accept a risk, or on what premium and terms.

Facts that generally need not be disclosed include: facts that reduce the risk; facts the insurer knows or is presumed to know, such as matters of common knowledge; matters of law; information the insurer has waived; and facts the proposer does not know.

When to Disclose Material Facts 何時須披露重要事實

The duty starts during negotiations and lasts until the contract is concluded. Once the policy is in force, the insured generally does not need to disclose changes in the risk unless a policy condition requires it.

On renewal, a policy renewed each year (as most general insurance is) is treated as a new contract, so the duty revives. If the insured asks to alter the cover mid-term, they must also disclose material facts relevant to the alteration.

Types of Breach of Utmost Good Faith 違反最高誠信的類別

Breaches fall into two groups, each split by whether there was intent to deceive.

Non-disclosure: innocent non-disclosure, where the proposer omits a fact without realising it is material, and concealment, where they deliberately withhold a fact they know is material.

Misrepresentation: innocent misrepresentation, a statement the proposer believes true but is not, and fraudulent misrepresentation, a statement made knowing it is false or recklessly careless whether it is true.

Remedies for Breach of Utmost Good Faith 違反最高誠信的補救

The injured party can choose to avoid the contract from the beginning (the contract is voidable, not automatically void); where fraud is involved, it may also sue for damages; or it can waive the breach and let the contract continue.

The choice must be made within a reasonable time of learning of the breach. Continuing to accept premiums after finding out may be treated as waiving the right to avoid.