Don’t lie to the insurer!

Ms Koikoi, a trader in Kantamanto, who claimed to be selling only cooking utensils, insured her shop against fire and allied perils. In her desperation to pay a lesser premium, she quoted GH¢200,000 as the value of her property, instead of GH¢320,000.

Unfortunately, four months into the policy, fire razed Ms Koikoi’s shop, extending into several other adjoining shops and destroying several valuable properties in the process.
Investigations later revealed that besides cooking utensils, Ms Koikoi also sold combustibles such as fire crackers and oil paints in the shop; thus, contradicting her original claim of selling only cooking utensils.

The claim and matters arising
In completing the claim documentation, Ms Koikoi, apparently, quoted GH¢320,000 as the value of her facility, stating all the wares in her shop, including the combustibles, which may have caused the inferno.

Instructively, the insurance company declined the claim on grounds of non-disclosure, leading to the lack of utmost good faith. However, the insurer decided, on humanitarian grounds, to pay Ms Koikoi an ex-gratia based on the GH¢200,000 cover.

Dissatisfied with the turn of events, Ms Koikoi started badmouthing the insurer with the popular cliché that ‘insurance companies are thieves’.

Analysis
Undoubtedly, Ms Koikoi was expected to have complete information about the property she intended to insure. It was, therefore, supposed that such information would have been provided to the insurer in order to ascertain both the insurability of the property and the appropriate premium to charge.

Utmost good faith was, therefore, breached when Ms Koikoi deliberately failed to disclose all the content in the shop, as well as the actual value of the subject matter for the insurance. By refusing to disclose such material facts, Ms Koikoi lost her right to any claim arising thereon, even though premium may have been paid.
Ms Koikoi was, therefore, fortunate that out of magnanimity, her insurer decided to pay her an undeserving ex-gratia.

Utmost good faith
At the heart of every insurance contract is the demonstration of good faith by both the insurer and insured. Suffice it to say, utmost good faith (i.e. buyer or seller beware), which is the foremost principle of insurance, holds that every insurance contract must be signed by both parties (i.e. insurer and insured) in an absolute good faith or belief or trust.

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Thus, the insured must willingly disclose and surrender to the insurer his complete true information regarding the subject matter of insurance, the insurer's liability gets void (i.e. legally revoked or cancelled) if any facts about the subject matter of insurance are either omitted, hidden, falsified or presented in a wrong manner by the insured.

Why the lack of utmost good faith
The lack of utmost good faith may arise due to factors such as ignorance on the part of clients; taking insurance for compliance and not a necessity; under-cutting premiums to gain unfair advantage; deliberate intent to defraud or fleece insurers, and poor or lack of due diligence by insurers.