What does the term 'utmost good faith' refer to in insurance?

The term 'utmost good faith' in the context of insurance specifically refers to the obligation of the insured to act honestly and disclose all material facts that could influence the insurer's decision to provide coverage or determine the terms of that coverage. This principle is foundational in insurance contracts, as it establishes a trust-based relationship between the insurer and the insured.

When an insured party enters into an insurance agreement, they are expected to provide complete and accurate information regarding their risk profile, such as prior claims, medical history, or any other factors that could affect the insurance policy. Failure to do so may result in the contract being voided or claims being denied, as the insurer relies on this information to assess risk and set premiums. Thus, the concept of utmost good faith emphasizes the importance of transparency and honest communication in the insurance process.