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.