West Virginia Adjusters Practice Exam

What is the key legal principle governing insurance contracts?

1. Transparency

2. Utmost good faith

3. Equity

4. Reciprocity

The correct answer is: Utmost good faith

The key legal principle governing insurance contracts is utmost good faith, also known as "uberrima fides." This principle requires both parties— the insurer and the insured— to act honestly and transparently in their transactions. The insurer must provide clear and accurate information regarding the coverage, terms, and conditions of the insurance policy, while the insured must disclose all relevant facts and information that could affect the risk being underwritten. This mutual obligation to deal fairly allows for an effective and trusting relationship, ensuring that both parties are protected and understand their obligations towards each other. It sets the foundation for the trust necessary in insurance dealings, helping to prevent potential disputes or misunderstandings concerning the terms of the contract.