Caveat Emptor is a Latin term meaning “let the buyer beware.” It is an implied warning, without being stated openly, that a seller is not bound to volunteer any negative information about the item he is selling to a buyer. The buyer therefore assumes all the risk should the item be found defective after the sale; unless the seller issued a written warranty with the sale of the item. In normal run of the mill business contracts the rule of caveat emptor applies, even in large purchases such as a car or house. Where it can be proven that substantial information was withheld from the buyer – one that would have influenced his decision whether to buy or not – the buyer will have the right to take the issue to court.

Insurance contracts, be it long term or short term insurance such as car insurance is not based on the rule of caveat emptor but on the rule of Uberrima Fides meaning “utmost good faith.” By its very nature insurance contracts cannot rely on “let the buyer beware.” The insurance company relies on the utmost good faith of the client to declare all the information available regarding the item being insured, such as a car. Not disclosing all the facts or misrepresenting information gives the insurance company the right to cancel the contract.