Contracts of insurance and reinsurance are contracts of utmost good faith. In the event that either party fails to observe utmost good faith towards the other in regard to the negotiation of cover then the other party may avoid the contract. The duty of utmost good faith requires each party to inform the other all material facts during the negotiation of the placement, renewal or alteration of cover. An insured has a separate duty of good faith when making a claim under an insurance policy.
*****
A basic principle of insurance. Mutual trust in negotiating an insurance contract. The insured and the broker must disclose and truly represent every material circumstance to the underwriter before acceptance of the risk. A breach of good faith entitles the underwriter to avoid the contract.
******
Firm adherence to promises made to another, including disclosure of all relevant facts, and complete trust in the fidelity of the other. Black’s Law Dictionary states: “The most abundant good faith, absolute and perfect candor, openness and honesty; the absence of any concealment or deception, however, slight.”
***
An obligation of the insured to disclose material facts, i.e. facts that would influence the insurer before accepting the contract. The insurer must reciprocate but in practice the duty weighs more heavily on the insured. A breach by the insured makes the contract voidable ab inito at the insurer’s option. Breaches may be through concealment; non-disclosure; fraudulent misrepresentation; innocent misrepresentation. The duty is pre-contractual but revives at renewal and to certain midterm alterations affecting the risk. See CONTINUING DUTY OF UTMOST GOOD FAITH.
******
Legally, the parties to an insurance contract are assumed to have entered the contract in the “utmost good faith,” which means they have not misrepresented any facts and intend to abide by the terms of the contract.
******
A legal doctrine in which the highest standard of honesty is imposed upon the parties to an insurance contract.