Canadian Accredited Insurance Broker (CAIB) One Practice Exam

Which statement accurately describes the concept of utmost good faith in insurance?

1. It allows for hidden information during the application process.

2. It requires full disclosure of all material facts.

3. It emphasizes the insurer’s duty over the insured’s.

4. It only applies after the insurance policy is enacted.

The correct answer is: It requires full disclosure of all material facts.

The concept of utmost good faith, also known as "uberrima fides," is a fundamental principle in insurance that requires all parties involved, especially the insured, to act honestly and disclose all material facts relevant to the insurance contract. This obligation is particularly critical during the application process, where full disclosure of information can significantly affect the insurer's decision to offer coverage and at what terms. By ensuring that the insurer has all pertinent information at hand, the principle aims to promote trust and transparency in the insurance relationship, preventing any unfair advantage or misleading actions that could lead to disputes later on. This principle applies not only to the insured but also to the insurer, who is expected to uphold fairness and clarity in all dealings. The requirement for full disclosure underlines the importance of truthfulness and integrity in the insurance industry, ensuring that both parties are entering into the contract with a clear understanding of the terms and risks involved.