An insurance contract is characterized by both parties promising to be truthful. What is this principle called?

The principle that requires both parties in an insurance contract to act honestly and disclose all relevant facts is known as utmost good faith, or "uberrima fides." This principle underscores the expectation that both the insurer and the insured will be transparent and truthful in their dealings with one another, as insurance contracts often involve a level of asymmetry in the information available to each party.

For instance, the insured needs to provide accurate information about the risk being insured, while the insurer must also represent the terms and conditions of the coverage fairly. Failure to adhere to this principle can lead to issues such as policy cancellation or claims denial if one party discovers that the other was not forthright.

The other terms mentioned, such as consideration, adhesion, and indemnity, describe different aspects of insurance contracts:

• Consideration refers to something of value exchanged between the parties, such as premiums paid for coverage.
• Adhesion describes contracts that are drafted by one party (typically the insurer) and accepted by the other party without negotiation, often leading to interpretations that favor the insured in case of ambiguity.
• Indemnity pertains to the principle that insurance policies will provide compensation to restore the insured to the financial position they were in prior to a loss, without profit