What does the principle of utmost good faith require in an insurance contract?

• A. Only the insured must disclose material facts.
• B. Both parties must disclose all material facts; misrepresentation or concealment can void or void coverage.
• C. The insurer is not required to disclose material facts.
• D. Material facts are irrelevant to policy validity.

Answer: (B)

Utmost good faith means both sides of an insurance contract must be honest and disclose all information that could affect the risk. The insured is required to reveal all material facts about the risk being insured—things that would influence underwriting decisions, such as health conditions, previous claims, or property conditions. If a material fact is concealed or misstated, the insurer has grounds to void the contract or deny coverage because the policy was issued based on incomplete or inaccurate information. The insurer also has a duty to be fair and clear in its dealings, but the central idea here is that concealment or misrepresentation by the insured undermines the contract, and coverage can be voided as a result. This is why the best choice emphasizes both parties’ disclosure and the consequences of withholding material facts.