The relationship between an insured, the policyholder, and an insurer, the insurance company, is contractual, governed by the terms of the insurance policy. However, unlike most contracts, this relationship is built upon a special legal principle known as “uberrimae fides,” which means “utmost good faith.”
This doctrine imposes a heightened duty of honesty, full disclosure, and integrity on both parties, but especially on the insured.
What “Utmost Good Faith” Means
Insurance is based on information that only the insured truly knows, such as the condition of the property, prior losses, or potential risks. The insurer relies entirely on what the insured tells them when underwriting the policy.
Under the doctrine of uberrimae fides, the insured must disclose all material facts, meaning anything that would influence the insurer’s decision to issue the policy, set the premium, or determine coverage limits or exclusions.
The disclosure requirement is “ALL Material Facts”, not some, “all”. And, there is no relationship to defects, latent, patent or real estate law. This is “insurance law”.
If the insured fails to disclose a material fact, or provides false or misleading information, even unintentionally, the insurer can deny coverage or void the policy altogether.
The obligation applies at three key points:
- When applying for insurance,
- When renewing or amending coverage, and
- When making a claim.
Is It a Fiduciary Duty?
Not exactly, although the two concepts share similarities.
A fiduciary duty arises when one party is legally bound to act solely in the best interests of another, with loyalty, trust, and avoidance of conflicts of interest. Common examples include lawyers, trustees, and real estate agents.
By contrast, the relationship between insured and insurer is not fiduciary in the traditional sense. Each party has its own interests to protect, the insured wants coverage and compensation, while the insurer wants to limit risk and ensure honesty.
However, the duty of utmost good faith serves a similar ethical function. It demands openness, honesty, and fairness, but it does not require one party to act exclusively for the other’s benefit.
So, while both fiduciary relationships and uberrimae fides involve high standards of honesty and trust, only the former requires selfless loyalty. The insured–insurer relationship remains fundamentally contractual, not fiduciary.
Why It Matters
In practice, this means that a homeowner or policyholder must be completely truthful when answering insurance questions. A misrepresentation about plumbing, electrical systems, or previous damage can later justify a denial of coverage, even if the misstatement was minor or unintentional.
Conversely, insurers are also bound by good faith. They must assess claims honestly, without deception or delay, and cannot deny coverage on improper grounds.
Summary:
- The insured–insurer relationship is contractual, not fiduciary.
- It is governed by the doctrine of utmost good faith (uberrimae fides).
- Both parties must act honestly and disclose material facts.
- Failure to do so can void the insurance contract or lead to denied claims.
Brian Madigan LL.B., Broker
www.OntarioRealEstateSource.com