Contract Of Utmost Good Faith

What Does Contract Of Utmost Good Faith Mean?

A contract of utmost good faith is a principle applied in insurance contracts that legally requires all parties to disclose essential information that could influence the decisions of others regarding the contract. Most insurance contracts are drafted with this principle in mind, meaning that honesty is imperative when forming all types of contracts, particularly commercial agreements. If the principle of utmost good faith is not upheld by both parties involved, insurance policies may be considered voidable.

Insuranceopedia Explains Contract Of Utmost Good Faith

A contract of utmost good faith, also known as uberrimae fidei, represents the minimum standard of honesty expected from parties engaged in transactions, requiring them to avoid misleading or withholding important information from one another. While it is particularly relevant in insurance law, it also applies to everyday financial transactions.

For example, when applying for health insurance, the contract of utmost good faith obligates the policyholder to disclose any previous health problems to the insurer. Similarly, the insurance agent must provide all relevant information about the terms of the contract. This principle ensures that the parties involved in transactions are truthful and act ethically. Violating this contract can lead to various consequences, such as voiding the contract and classifying it as fraudulent.