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 as mentioned earlier, 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 all variables are not 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. Continuity Of Interest Doctrine ...

    A doctrine which stipulates that a corporate acquisition can ...
  2. Continuity Of Business Enterprise ...

    The continuity of business enterprise doctrine is a taxation ...
  3. Good Faith Money

    Good faith money is a deposit of money into an account by a buyer ...
  4. Full Faith And Credit

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

    Shingle theory is a suitability doctrine that suggests that a ...
  6. American Rule

    American Rule is the standard that two opposing sides in a legal ...
Related Articles
  1. Personal Finance

    Legality Of Selling Used Items

    An upcoming U.S. Supreme Court ruling could make it illegal for consumers to resell items due to copyright infringement.
  2. Financial Advisor

    Women Advisors: Jenn's Journey

    Jenn took a leap of faith that paid off when she switched careers. Fidelity provided a new path.
  3. Investing

    10 Hurdles to Closing on a New Home

    A home will probably be the biggest purchase of your life - find out what can go wrong before you even close the deal.
  4. Personal Finance

    Top 10 Common Mortgage Scams To Avoid

    How do you know which companies to avoid? Look for these telltale signs.
  5. Investing

    Arm's Length Transaction

    An arm’s length transaction describes business deals in which the buyer and seller act independently and with no interest in the other’s benefit.
  6. Insurance

    12 Car Insurance Cost-Cutters

    If car insurance costs are dragging you down, use these tips to free yourself from some of the extra weight.
  7. 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.
  8. Personal Finance

    Standards and Ethics for Financial Professionals

    Scandals and fraud have hurt the reputation of financial professionals over the years. Learn how to avoid these ethical dilemmas while being in compliance.
  9. Investing

    Party City Holdings: How It's Fared Since Its 2015 IPO (PRTY)

    Learn about Party City Holding's performance as a public company. Investors would have lost much more than the Russell 2000 Index by investing after the IPO.
  10. Personal Finance

    Understanding escrow

    Are you in the process of buying a house? Here is everything you need to know about the escrow process, a step-by-step guidance of buying a home.
RELATED FAQS
  1. Are good faith estimates (GFEs) accurate?

    Learn how federal guidelines regarding good faith estimates protect consumers under the revised 2010 version of the Real ... Read Answer >>
  2. What is the difference between a capital good and a consumer good?

    Learn to differentiate between capital goods and consumer goods, determined by how those goods are used, and see why capital ... Read Answer >>
  3. Can companies insure their accounts receivable?

    Understand what credit insurance is and how it protects companies against payment problems they may encounter in trying to ... Read Answer >>
Hot Definitions
  1. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  2. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  3. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  4. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  5. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  6. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
Trading Center