What is 'Doctrine Of Utmost Good Faith'

The Doctrine of Utmost Good Faith, also known as uberrimae fidei, is the minimum standard requiring transacting parties to act honestly and not mislead or withhold critical information from one another. The doctrine of utmost good faith applies to many everyday financial transactions and is one of the most fundamental doctrines in insurance law. 

BREAKING DOWN 'Doctrine Of Utmost Good Faith'

In the insurance market, the principle of utmost good faith requires the applicant to disclose all relevant personal information, such as previous health problems. Likewise, the insurance agent must reveal critical details about the contract and its terms. Unlike insurance contracts, most commercial agreements do not subscribe to the doctrine of utmost good faith. Instead, most are subject to caveat emptor, or "buyer beware." A seller need only disclose information requested by the buyer.

The doctrine of utmost good faith provides general assurance that the parties involved in a transaction are truthful and acting ethically. Ethical transactions include assuring all relevant information is available to both parties during negotiations or when amounts are determined.

Variations of Doctrine of Utmost Good Faith

Aside from the use in the insurance market, individuals exercise good faith while completing various financial transactions. This includes businesses or individuals seeking to finance from banking institutions, or financial institutions providing fee estimates. 

Often, estimates provided by individual service providers, such as plumbers and electricians, are made in good faith. Good faith estimates suggest the service provider is confident in the cost estimate based on the known factors surrounding the transaction. In this context, it is not legally binding as not all variables are known. Furthermore, specific issues may not be discoverable by either party until work has begun.

Repercussions for Violations of Good Faith

Depending on the nature of the transaction, violations of the doctrine of good faith can result in a variety of consequences. Most commonly, a contract created with inaccurate information from intentional misinformation or fraudulent concealment may cause the contract to become voidable.

Further, in the case of the provision of goods or services before the information is discovered or disclosed, the misinformed party may enforce legal action. Legal action can include the right to recoup costs associated with the fulfillment of the contract that could be deemed fraudulent.

RELATED TERMS
  1. Real Bills Doctrine

    The Real Bills Doctrine refers to a norm in which a bank exchanges ...
  2. Bad Faith Insurance

    Bad faith insurance refers to a number of ways insurance company ...
  3. Uberrimae Fidei Contract

    An uberrimae fidei contract is a legal agreement requiring the ...
  4. Full Faith And Credit

    Full faith and credit is a phrase used to describe the unconditional ...
  5. Privity

    Privity is a doctrine of contract law which says contracts are ...
  6. Adverse Domination

    A legal doctrine that allows regulators to bring litigation against ...
Related Articles
  1. Insurance

    How To Easily Understand Your Insurance Contract

    Understanding your insurance contracts can go a long way in making sure that your advisor's recommendations are on track. Learn how to read yours today.
  2. Financial Advisor

    Asset Manager Ethics: Rules Governing Capital Markets

    The integrity of the capital markets needs to be kept at utmost importance for all investors. This article shows how to maintain the integrity while investing.
  3. Personal Finance

    Top 10 Common Mortgage Scams To Avoid

    How do you know which companies to avoid? Look for these telltale signs.
  4. Small Business

    How to Master the Art of Negotiation

    Negotiation is all about coming to an agreement, learn the tactics that good negotiators use to help you get what you want in any negotiation.
  5. Personal Finance

    The “F” Word of Financial Planning

    When it comes to financial planning, "fiduciary" is the only F word you should need to know.
  6. Tech

    Are Smart Contracts the Best of Blockchain?

    Smart contracts may be one of the best innovations to accompany blockchain development.
  7. Investing

    Attention Home Buyers: Why You Need a Lawyer

    Property transactions are complex and subject to specific state/local rules. Hiring a lawyer can simplify the process.
  8. Investing

    Real Estate Flipping: 8 Disclosures You Must Make

    If you don't tell potential buyers about these situations and possible hazards, you could find yourself in court. Here's how to profit – and stay out of trouble.
  9. Insurance

    Don't Forget to Review Your Life Insurance

    It is important to review a life insurance policy regularly to make sure that it's still relevant.
RELATED FAQS
  1. How are industrial goods different from consumer goods?

    Understand the difference between industrial goods and consumer goods, and learn the different types of industrial goods ... Read Answer >>
  2. Why do insurance policies have deductibles?

    Learn the basic concept of an insurance deductible and why they mitigate moral hazards and provide financial viability to ... Read Answer >>
Trading Center