Acting in Utmost Good Faith: Why It Matters in Insurance

February 2026

An insurance policy is more than just a document; it is a legally binding contract between the policyholder and the insurer. While you pay a premium in exchange for cover, the entire agreement relies on a specific legal standard: The Principle of Utmost Good Faith.  

Unlike a standard commercial contract where "buyer beware" might apply, insurance requires a higher level of honesty. Both parties must be completely transparent and must not withhold any "material facts" that could influence the contract.

For an insurance company to calculate your premium accurately, they need a full and precise picture of the risk they are taking on. This is why the Duty of Disclosure is so vital during the application process.  

When you apply for car or home insurance, you will be asked a series of specific questions regarding:

• The Proposer: Your insurance history, previous claims, or any criminal convictions (where relevant and requested). 
• The Drivers: Details of any other drivers, including their driving records and license points.  
• The Property: Accurate details of the home’s construction or the car’s modifications and usage.  

If information is omitted—even if it wasn't intentionally hidden—it can be considered a "non-disclosure," which may jeopardise your cover. However, under modern consumer insurance legislation in Ireland and the UK, remedies for non-disclosure depend on whether the misrepresentation was innocent, negligent, or deliberate.

Utmost Good Faith is a two-way street. It is equally important that the insurer acts fairly by:  

• Providing Clear Information: Ensuring the policyholder understands exactly what is—and isn't—covered.  
• Meeting Customer Needs: Recommending products that suit the information disclosed during the proposal.  
• Explaining Policy Limits: Being transparent about exclusions, excesses, and conditions that might affect a future claim.

The requirement to act in good faith doesn't end once the policy is issued; it applies throughout the entire life of the contract, especially when making a claim.  

When presenting a claim, you are required to describe the circumstances and the extent of the loss honestly. Providing misleading information or inflating the value of a claim is a direct breach of this principle and can lead to a claim being declined and/or the policy being cancelled in accordance with its terms and applicable law. 

The requirement for both parties to act in good faith does not mean that either must accept without question what the other tells them. The insurer may check to verify information disclosed. They may, for example, request your driver licence number to check information you disclosed against the relevant central database. On Home insurance, they may request a valuation for an insured item of jewellery.

What happens if either the policyholder or the insurer believes that the other has failed to act in good faith? A breach of the principle of utmost good faith is likely to mean a breach of the contract of insurance. This can have serious consequences: it could lead to an insurer declining a claim, reducing the amount payable, or cancelling the policy in line with the terms of the contract and applicable legislation.

At all times both parties must act in a reasonable manner. Where a policyholder believes that an insurer has acted unreasonably (in refusing to deal with a claim or in refusing to continue cover) then, depending on the circumstances, there could be several courses of action available to them. These may include legal action, making a formal complaint to the insurer (all insurers are required to have a formalised complaints handling procedure), referral to arbitration, referral to the Financial Services and Pensions Ombudsman (Republic of Ireland) / Financial Ombudsman Service (United Kingdom).

Known legally as Uberrimae Fidei, it is a principle requiring both the buyer and the seller of an insurance policy to act with total honesty. In consumer insurance contracts in Ireland and the UK, this duty is now primarily reflected through a duty to answer insurers’ questions honestly and with reasonable care.

A material fact is any piece of information that would influence an underwriter’s decision to accept a risk or set the premium price. Examples include a history of subsidence in a home or previous driving convictions in motor insurance.

Even unintentional "non-disclosure" can be seen as a breach of Utmost Good Faith. The outcome will depend on the circumstances and applicable consumer legislation; insurers cannot automatically void a policy in every case of innocent misrepresentation.

Yes. Insurers often verify information using central databases (such as the Claims and Underwriting Exchange or DVLA records), requesting professional valuations, or conducting site inspections. 

This article is for general information purposes only and does not constitute legal advice.

Information correct as at 27/02/2026