The law imposes a greater duty on the parties to an insurance contract than those involved in commercial contracts. They need to have utmost good faith in each other, which implies full and correct disclosure of all material facts by both the parties to the contract of insurance. The term “material fact” refers to every fact or information, which has a bearing on the decisions with respect to the determination of the severity of risk involved and the amount of premium.

The disclosure of material facts determines the terms of coverage

of the policy. Any concealment of material facts may lead to negative repercussions on the functioning of the insurance company’s normal business. Non-disclosure of any fact may be unintentional on the part of the insured. Even so such a contract is rendered voidable at the insurer’s option and it can refuse any compensation.