What is meant by the principle of utmost good faith in insurance?

The principle of utmost good faith, or "uberrima fides," is fundamental to insurance contracts and emphasizes the necessity for both the insurer and the insured to act honestly and transparently throughout the policy process. This principle means that both parties are required to fully disclose all relevant information that could affect the insurance agreement.

For the insured, this involves providing complete and accurate details about their situation or property when applying for coverage, as undisclosed risks could lead to the denial of claims or cancellation of the policy. On the part of the insurer, they must also be transparent in providing clear information about the terms, conditions, and limitations of the policy, ensuring that the insured understands their rights and responsibilities.

This mutual obligation fosters trust and integrity in the insurance relationship, which is critical given that the nature of insurance involves pooling risks and sharing losses. The other options do not accurately reflect this foundation of the insurance contract: they either misrepresent the obligations of the parties or suggest conditions that do not align with the principle of utmost good faith.