Which principle of insurance is involved when parties must act honestly and not misrepresent information?

The principle of utmost good faith, known in Latin as "uberrima fides," is fundamental to the insurance relationship and requires that both parties—typically the insurer and the insured—act honestly and disclose all relevant information. This principle emphasizes the need for transparency, where neither party should misrepresent or conceal information that could influence the coverage or terms of the insurance contract.

In practice, this means that when a person applies for insurance, they must provide all pertinent details about the risk being insured, such as their health status or history of claims. The insurer, in turn, must be honest and clear about the policy terms, conditions, and any exclusions. Failure to adhere to this principle can lead to disputes, where one party may seek to avoid a contract or deny a claim based on alleged misrepresentations. Therefore, utmost good faith underpins the trust necessary for the insurance mechanism to function effectively, distinguishing it from other types of contracts where such a high level of honesty may not be legally required.

This principle reinforces the essential relationship between insurers and insured parties, ensuring that both sides have a mutual understanding and are accountable for the information they provide.