CII Certificate in Insurance - Insurance, Legal and Regulatory (IF1) Practice Test

Breach of good faith in an insurance context typically refers to the obligation of both parties—insurers and insureds—to act honestly and fairly towards each other while fulfilling the terms of the insurance contract. When an insured breaches good faith, it could involve actions such as providing false information, failing to disclose important details, or committing fraud.

In such situations, the insurer may still be required to pay out claims, particularly if the breach does not significantly impact the claim or the financial exposure of the insurer. This means that even if there has been a breach of good faith, the insurer may evaluate the breach's relevance to the specific claim and determine if it affects their obligation to pay.

The other choices suggest definitive outcomes that do not consider the nuances of how breaches of good faith are handled in practice, such as denying all claims outright or only impacting certain types of claims, which does not fully encapsulate the potential outcomes of such situations.