Principle of Utmost Good Faith in Insurance

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  • 0:03 Doctrine of Utmost Good Faith
  • 0:36 Insurance Contract Basics
  • 1:39 Representations
  • 3:09 Disclosures
  • 3:35 Warranties
  • 5:03 Lesson Summary
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Lesson Transcript
Instructor: Tiffany Spencer

Tiffany has taught ESL online and has a master's degree in business administration.

This lesson explains the doctrine of utmost good faith as it applies to insurance contracts. It also discusses the related concepts of representations, disclosures, and warranties, as well as the repercussions of failing to comply with the doctrine.

Doctrine of Utmost Good Faith

The doctrine of utmost good faith, also know by its Latin name uberrimae fides, is a legal doctrine of contracts that requires contracting parties to act honestly and not mislead or withhold information essential to the contract from one another. This doctrine applies to most contract types, including contracts of insurance. Although this lesson discusses how the doctrine applies to representations, disclosures, and warranties, the doctrine may be applied to many aspects of the contracting process.

Insurance Contract Basics

In insurance contracts, there are generally two parties involved: the insurer and the applicant (or insured). The insurer is the party licensed to offer insurance products. For example, if you get your automobile insurance from Northern Insurance, then Northern Insurance is the insurer. The applicant is the party seeking to purchase an insurance policy. An applicant can be an individual, such as you purchasing automobile insurance. An applicant can also be an organization or business and may apply for general liability insurance.

An insured is the party that owns a valid insurance policy. Once the applicant has been offered a policy, paid the initial premium, and received the policy, the applicant becomes the insured. An insurance policy is a document that sets forth terms and conditions and serves as the formal insurance contract. If you purchase a policy of automobile insurance, its terms and conditions may require that you pay a deductible and that it will only cover 80% of the cost of replacement if your vehicle is damaged beyond repair.


Representations are the statements made by the applicant on an insurance application. When you apply for automobile insurance, you are required to make representations about your driving history, such as how many citations you have received. A representation is considered essential, or material in legal terms, if it is relied upon by the insurer. Something is relied on if it is considered in making decisions. Because your driving history is specifically relevant to the decision to give you an automobile insurance policy, any information you provide on this topic will be both material and relied upon by the insurer.

A material statement that is false or untrue is called a misrepresentation. Concealment, while similar to misrepresentation, is the failure to provide material information. Problems may arise if an applicant makes a false material representation or concealment. The insurance contract may be voided, and the insurance policy rescinded, if the misrepresentation or concealment is of the sort that would have caused the insurer to issue a policy under different terms or at higher premiums.

However, to void the contract and rescind the policy, the insurer must prove that the applicant knew of the misrepresentation or concealment and intended to deceive the insurer. If you represented to your automobile insurer that you had a great driving record hoping for better rates, when in fact you had caused an accident recently and been cited for a moving violation, this would be a misrepresentation. If you simply did not tell them about your driving record, this would be a concealment.

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