A merchant insured a commercial building against fire for ₦20,000,000. During the proposal stage, the merchant knowingly concealed the fact that inflammable chemical solvents were stored on the premises. Three months later, an accidental electrical fault destroyed the building. Which basic principle of insurance allows the insurer to legally reject the compensation claim?
- Utmost good faith, because the insured failed to disclose a material fact that would influence the insurer's decision.Answer
- BIndemnity, because life assurance principles prohibit financial recovery when electrical faults occur.
- CSubrogation, because the insurer cannot recover the lost amount from the electrical company prior to claim settlement.
- DInsurable interest, because property owners lose legal right over their building once an electrical fault develops.
Answer
Utmost good faith, because the insured failed to disclose a material fact that would influence the insurer's decision.
The principle of utmost good faith (uberrimae fidei) imposes a duty on both the insurer and the insured to disclose all material facts prior to entering the agreement. Concealing the presence of volatile chemical solvents altered the insurer's risk assessment, giving them the legal right to void the contract and refuse compensation.
Step-by-Step Solution
Key Concept
Utmost Good Faith (Uberrimae Fidei)
Estimated Time:1m 0s