What does utmost good faith require in insurance contracts?

• A. Full honesty by both parties and disclosure of all relevant facts, with voiding rights for nondisclosure
• B. Only the insurer must be truthful in policy terms
• C. Only the insured must disclose all personal information
• D. Disclosures are optional as long as a premium is paid

Answer: (A)

Utmost good faith means both parties in an insurance contract must deal with complete honesty and disclose all information that could affect the insurer’s decision to issue the policy or set the premium. The insured has to reveal all material facts about the risk, and the insurer must be upfront about policy terms and conditions. If the insured withholds important information or misstates facts, the insurer can void the policy ab initio (as if it never existed) because the contract wasn’t formed on full, accurate information. This principle keeps the contract fair and based on true risk. The other choices miss the mark because they place the duty on only one party or treat disclosures as optional.