Utmost Good Faith

What Does Utmost Good Faith Mean?

Utmost good faith, or uberrimae fidei in Latin, refers to the principle of honesty expected from both the insured and the insurer during the transaction of a policy. For the insured, it means fully disclosing any facts that could impact the purchase of the policy or future claims. For the insurer, it means providing clear information about the coverage’s extent and exclusions, without concealing any features of the policy that might deter the insured from purchasing it.

Insuranceopedia Explains Utmost Good Faith

In an ideal world, an insurance company would have prior access to all relevant information about a person seeking a policy to determine eligibility. Similarly, the potential policyholder would be able to independently find out everything about the policy. However, in reality, both the insurer and the insured face limitations in obtaining all necessary information. Both parties must operate on the principle of utmost good faith, meaning they should share any data that could affect either party.

Additionally, necessary information must be disclosed even if a party (whether insured or insurer) hasn’t explicitly asked for it. Violating this principle includes not only lying but also concealing important facts.

For example, when applying for life insurance, the insured must disclose all health issues, including those that could increase premiums or make them ineligible for the policy. Conversely, the insurer, often represented by an agent, must inform the policyholder about the features of the policy, including limitations and exclusions that may influence their decision to purchase it. This is one reason picking a policy takes some homework, since the answers you give on the application directly shape what the insurer agrees to cover, and our guide on how to choose the right life insurance policy walks through what you will be asked and why.

If the insurer discovers that the insured has violated this principle, it can void the policy and refuse to honor any claims. Even policies marketed as easier to qualify for, like no medical exam life insurance, still depend on accurate answers from the applicant, and a misstatement found during the contestability period can give the insurer grounds to deny a payout. Conversely, if the insurer violates the principle, the insured can file a case seeking damages, and the same applies to the insurer if the insured violates the principle.