In insurance, what principle requires both parties to disclose all material facts honestly?

In insurance, the principle requiring both parties to disclose all material facts honestly is utmost good faith.

The principle is traditionally expressed by the Latin phrase uberrima fides. It places a higher duty of disclosure on an insurance applicant than ordinary commercial contracts usually require. Facts that could influence an insurer’s decision to accept a risk or set a premium are considered material.

For example, a life-insurance applicant may need to disclose significant medical conditions, while a property-insurance applicant may need to reveal previous losses or hazardous activities at the premises. The insurer also has duties, including presenting policy terms accurately and not concealing important limitations.

Utmost good faith is often confused with insurable interest. Insurable interest concerns whether the policyholder would suffer a real financial or other recognized loss; utmost good faith concerns honest disclosure. Misrepresentation or concealment of material facts can allow an insurer to void a policy or deny a claim, depending on the law and policy wording.