Doctrine of Utmost good Faith

According to the notes of business law, the Doctrine of Utmost Good Faith under the insurance law refers to each party to a proposed contracts is under a duty to disclose to the other all information which would influence his decision to enter into the contract, whether such information is requested or not.

Insurance is a contract governed by the doctrine of utmost good faith

Most contracts are governed by the maxim 'caveat emptor' or 'let the buyer beware'. However, insurance is governed by the doctrine of utmost good faith, both at common law and by reason of section. 17 of the Marine Insurance Ordinance which applies both to marine and non-marine insurance policies.

One of the reasons for this is the natural imbalance between the insurer and the insured in terms of knowledge. For example, before the pre-contractual process of disclosure is commenced, the proposer for insurance is in position to know all about his state of health, family history and his habit such as smoking. If that person is not obliged to make full disclosure, insurance could not work from either insured's point of view. The insurer initially would only consider offering a policy based on an average person's life expectation, the premium for which would tend to be too high for the healthy person to contemplate.

Caveat emptor

According from wikipedia, caveat emptor refers to the property law doctrine that controls the sale of real property after the date closing.Furthermore, under the doctrine of caveat emptor, the buyer could not recover from the seller for defects on the property that rendered the property unfit for ordinary perposes. The only exception was id the seller actively concealed latent defects or otherwise made material misrepresentations amounting to fraud. Before statury law, the buyer had no warranty of the quality of goods. In many jurisdictions now, the law requires that goods must be of 'merchantable quality'. However, this applied warranty can be difficult to enforce and may not apply to all products. Hence, buyers are still advised to be cautious.