Insurance contracts are governed by uberrimae fidei, the duty of utmost good faith. This is a heightened standard above ordinary commercial good faith: both parties must voluntarily disclose every material fact that would influence the other's decision, even when not asked.
- A material fact is one a prudent insurer would consider in deciding whether to accept the risk, on what terms, or at what premium. Past claims, prior cancellations for non-payment, criminal driving convictions, and undisclosed business use of a home are typical examples.
- Under section 233 of the Insurance Act (Ontario), misrepresentation or non-disclosure of a material fact in an application for automobile insurance, or any change material to the risk, can render the contract voidable by the insurer. Equivalent statutory conditions apply to fire and other property contracts (statutory conditions schedule under the Insurance Act).
- A representation is a statement of belief or expectation made before the contract is formed. A warranty is a contractual promise written into the policy itself. Breach of a warranty is normally fatal to coverage; an innocent misrepresentation of a non-material fact is usually not.
The broker's role is to elicit material information from the client at application and renewal and to transmit it accurately to the insurer. Failure to do either exposes the broker to professional negligence and errors & omissions (E&O) claims.
Common mistake: assuming silence is safe because the insurer did not ask the question. Uberrimae fidei requires volunteered disclosure Silence about a known material fact is itself a misrepresentation.
⚠️ Trap: An application question phrased broadly ("any other information we should know?") is sufficient to trigger the duty for facts that did not fit a specific question. Encourage the client to answer it fully.
Recall: What is uberrimae fidei, and how does it differ from ordinary commercial good faith? What is the difference between a representation and a warranty?