What principle emphasizes honesty and full disclosure in insurance contracts?

The principle that emphasizes honesty and full disclosure in insurance contracts is known as utmost good faith. This principle is foundational in the insurance industry and requires both parties—insurers and insured—to engage in honest communication and provide all relevant information during the formation and execution of an insurance contract.

Under the principle of utmost good faith, the insurer must accurately represent the terms of the policy and the coverage it provides, while the insured has a responsibility to disclose material facts that could influence the insurer's decision to provide coverage or determine premiums. This asymmetry of information is critical in insurance transactions because the insurer, relying on the information provided, assesses risk, sets premiums, and designs coverage.

If utmost good faith is not adhered to, it can lead to situations where either party could face adverse consequences, such as claims being denied or contracts being voided because of non-disclosure or misrepresentation. Consequently, this principle serves to foster trust and transparency between policyholders and insurers, promoting fairness in insurance dealings.