Utmost Good Faith vs. Caveat Emptor

Utmost Good Faith vs. Caveat Emptor From the insurer’s perspective, the need to receive accurate and truthful information from a proposed insured is very important. The concept of utmost good faith (or uberrima fide means that all parties entering into an insurance contract must deal in good faith, meaning in an open and fair manner. For example, a person applying for life insurance must disclose all relevant information concerning his health, activities, and other risk factors.

By contrast, some other types of contract are governed by the principle of caveat emptor, or “let the buyer beware.” This principle historically governed many contracts for the sale of real property. In effect, caveat emptor states that the buyer assumes the risk that a purchase may not meet ?the buyer’s expectations. The buyer has the responsibility of reasonably examining the item to be purchased before the purchase is completed. In recent years, consumer protection laws have reduced the number of contracts governed by the caveat emptor principle. Today, caveat emptor applies largely ?to goods and property that are sold “as is,” or that otherwise come with no guarantee or warranty.

Source: LOMA 311 "Defenses to the Formation of a Contract"