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What is the principle of 'utmost good faith' (uberrimae fidei) in insurance contracts?

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

Correct answer

Both parties to an insurance contract are expected to act in good faith, fully and honestly disclosing material facts, because insurance relies on accurate information

  1. A Only the insurer must be honest
  2. B Neither party must disclose anything
  3. C It applies only to the insured's payments
  4. D Both parties to an insurance contract are expected to act in good faith, fully and honestly disclosing material facts, because insurance relies on accurate information

Why this is the answer

Utmost good faith (uberrimae fidei) is the principle that an insurance contract requires a higher standard of honesty than ordinary commercial contracts, with both parties — especially the applicant — obligated to disclose all material facts truthfully. The insured must honestly disclose information the insurer needs to assess risk (since the insurer relies on it for underwriting), and the insurer must deal fairly with the insured. Breaches can involve concealment (failing to disclose a material fact) or misrepresentation (stating a material falsehood), which may void coverage. This principle underlies the duty of honest disclosure in applications. Understanding utmost good faith is foundational across all insurance lines.
Source: NAIC Model Outline, Utmost Good Faith

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About this topic: Casualty Insurance Basics

Casualty insurance basics cover the concept of legal liability, negligence and its elements, the types of damages, and how liability policies respond — including the duty to defend. This is one of 11 Casualty Insurance questions on casualty insurance basics, each with a full explanation on a single study page.

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