Question $3(13$ marks$)$

a$.$ Briefly define 'utmost good faith' in insurance. Why does utmost good faith apply in insurance?

$7$ marks

b$.$ Nick is a cigar smoker and consumes half a bottle of brandy every night. However, when he applied for his health insurance policy, he failed to disclose his cigar smoking habits and heavy brandy consumption. After nine months, he was diagnosed with coronary heart disease, and his doctor recommended heart bypass surgery. Nick was admitted to a private hospital for the surgery and subsequently filed an insurance claim to cover the $$200,000$ he incurred.

Unfortunately, the insurance company rejected Nick's claim for his hospital and surgical expenses incurred.

Why is the insurance company entitled to decline the claim submitted by Nick? Briefly explain.

$6$ marks