The principle of utmost good faith in insurance law

On the restraint of the principle of utmost good faith on the insurer

Source: Consumer Guide Theoretical Edition Author:

[ Abstract] In view of the defects of the principle of utmost good faith and its influence on the development of the insurance industry, this paper discusses the theoretical and practical basis for the insurer to assume the responsibility of utmost good faith, and puts forward to strengthen the restraint of the insurer according to the principle of utmost good faith in combination with the shortcomings of the restraint of the insurance legislation in China.

[ Keywords] the principle of utmost good faith

The principle of good faith is the basis of civil and commercial laws in all countries, and it is regarded as the "imperial clause" by scholars. Article 4 of the General Principles of Civil Law of China also stipulates the principle of good faith as the basic principle of civil law of our country. Because of the lucky nature of insurance contract, the principle of good faith plays an important role in insurance law, which is unparalleled in other laws, and is known as "the principle of utmost good faith in insurance". Understanding the principle of utmost good faith is an important prerequisite for understanding the insurance law and signing insurance contracts, and perfecting the principle of utmost good faith is one of the important ways to improve the insurance system and safeguard the legitimate rights and interests of insurers and insurance counterparts.

The principle of utmost good faith in insurance is mainly a tool for insurers to restrain policyholders in the early days. With the development of the insurance industry, in order to protect the interests of the insured and prevent the insurer from malicious defense, the insurance laws of various countries have been revised one after another, and the principle has been extended to both the insurer and the insured. The traditional insurance law theory has fully expounded the binding force of the principle of utmost good faith on the insured. This paper intends to discuss the application of the principle of utmost good faith to the insurer in order to improve the principle of utmost good faith and insurance legislation.

I. the meaning and content of the principle of utmost good faith

The so-called principle of utmost good faith means that the parties to an insurance contract should be honest and trustworthy to the greatest extent in the process of concluding an insurance contract, so as to conclude a fair and reasonable contract.

Throughout the legislation of various countries, the basic content of the principle of good faith in insurance law generally includes three aspects: obligation to inform, guarantee and waiver and estelle.

1. obligation to inform. The obligation of disclosure means that the applicant shall truthfully tell the insurer the important facts related to the subject matter of insurance when concluding an insurance contract. Regarding the content of the notification, the insured should inform the important facts when applying for insurance. The so-called important fact refers to the fact that can influence a normal and prudent insurer to decide whether to accept underwriting or to determine the insurance premium rate accordingly. Regarding the form of notification, China's insurance law stipulates that it is a form of inquiry and answer, that is, all questions asked by the insurer in writing are considered as important facts, while questions not asked by the insurer are not important facts, and the insured has no obligation to inform. The insurer has the right to terminate the insurance contract if the applicant intentionally conceals the facts and fails to perform the obligation of telling the truth, or fails to perform the obligation of telling the truth due to negligence, which is enough to affect the insurer's decision whether to agree to underwrite or increase the insurance premium rate.

2. guarantee. Guarantee means that the insurer and the insured agree in the insurance contract that the insured guarantees the act or omission of a certain matter or the authenticity of a certain matter. It is usually attached to the insurance policy in written form or agreed terms. For example, it is agreed that the insured shall properly keep the subject matter insured. Some of the warranties are unwritten, that is, implied warranties. Guarantee is the basis of insurance contract. If it is violated, the insurer can obtain the right to terminate the contract or not be liable for compensation.

3. waiver and estelle. Waiver and estelle means that once the insurer gives up the rights arising from the violation of the informing obligation or guarantee by the applicant or the insured, it will not be allowed to go back on its word and claim the abandoned rights from the other party in the future.

2. Necessity of binding the insurer according to the principle of utmost good faith

(1) Bias in understanding:

From the perspective of legal theory and insurance law, the principle of utmost good faith requires all parties to an insurance contract to abide by honesty and credit to the maximum extent, that is, the principle is binding on both the insurer and the insured. However, when it comes to its specific content, some scholars think that it is extremely unlikely that the insurer will violate the principle of utmost good faith, which mainly binds the insured. "This kind of understanding comes from the study of articles 17 to 21 of the British Marine Insurance Act of 196 in isolation, without a comprehensive demonstration of the whole insurance activity." Specific to the legal norms and judicial practice, the principle of utmost good faith is often a contract criterion that only binds the insured, because it only emphasizes the obligation of truthful disclosure and guarantee of both parties, but fails to make full use of waiver and estelle's incontestability, which weakens the binding force on both parties, especially the insurer.

(2) Problems in reality:

Because China is currently in the transitional stage of economic system, various laws and regulations on the construction of credit system are not perfect, and the insurance industry in China started late, especially the extraordinary development in the past ten years, unfair competition and extensive scale expansion have occurred in the insurance market, resulting in frequent occurrence of fraud by insurance companies, and the problem of misleading or even cheating policyholders exists to varying degrees. The main manifestations are as follows: First, the business information of insurance companies is not disclosed enough, and the insured can't understand the assets and liabilities, solvency and other information related to integrity of insurance companies, so they can only make judgments based on subjective impressions and the introduction of agents; Second, the principle of true disclosure is intended to safeguard the interests of insurance companies, and some insurance companies abuse this right and refuse to pay insurance premiums at will; Third, some clauses in the insurance contract restrict the conditions for the entry into force of the contract, but the insurer fails to explain the meaning of this clause and the possible legal consequences to the insured, which leads the insured to mistakenly think that the contract will take effect after paying the insurance premium and cannot take extraordinary measures to remedy it; Fourth, the overall quality of the insurance agent team is mixed, and there are endless scams in insurance promotion, and even lawsuits caused by insurance agents signing insurance documents have damaged the industry image and reputation of insurance companies; Fifth, insurance companies "emphasize the exhibition industry and neglect claims;" Paying more attention to premium and neglecting management has caused "easy insurance and difficult claim" to the society; The bad impression of collecting money quickly and delaying compensation.

(3) The author's point of view:

Based on the above-mentioned theoretical bias and problems in reality. The author thinks that with the development of modern insurance industry, great changes have taken place in both law and market demand, and it is not conducive to the further development of insurance industry to keep the understanding of the principle of utmost good faith in the past. As the basis of insurance activities, the principle of utmost good faith should be applied to both policyholders and insurers, so as to achieve the balance of interests between insurers and policyholders. This is because:

First, in terms of social impact, although the possibility of insurers violating the principle of utmost good faith is less than that of policyholders, the impact on the insurance industry is enormous. The policy holder's violation of the principle of utmost good faith is a scattered single act and an obvious illegal act; The insurer's violation of this principle is a common business behavior and a hidden violation of the law, and it is often difficult for the insured to find the basis for making him bear the responsibility. Although this unfairness makes insurers evade their responsibilities for a while, the damage to society is long-term and profound, which makes it difficult to expand insurance business, reduces people's ability to resist risks and increases social instability.

Secondly, from the point of view of the formation of insurance contracts, China adopts the principle of "no need" for the formation of insurance contracts. Article 12 of China's Insurance Law stipulates: "An insurance contract is formed when the applicant requests insurance and the insurer agrees to underwrite it, and an agreement is reached on the terms of the contract." That is, an insurance contract is established after an offer and an acceptance, and it does not take effect until the law requires it to be in writing. In most cases, after the issuance of the insurance policy, the insurance contract is established. If the insurer invokes the relevant restrictive clauses in the policy that the insured does not know or understand, or invokes the insurance regulations that the insured does not know, it is inconsistent with the procedures for the establishment of the insurance contract stipulated by Chinese laws, and it is unfair to the insured.

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