Question: What Utmost Good Faith and Duty of Disclosure mean in terms of auto insurance and in layman’s terms? They sound like legal terms.
Answer: Auto insurance policies are contracts that bound both the insurer and the policyholder. Utmost Good Faith require both parties to observe and honor this contract conditions. In layman’s term, the information you exchange with your insurer must be absolute truth. Both parties should be open and honest with each other to the best of their knowledge. You cannot help if you didn’t know about an issue but you should have taken all the measures to make sure nothing omitted. In the same way, auto insurers should take every step to lay the terms of insurance for their policyholders.
Duty of Disclosure requires policyholders to inform their insurers of any material facts that can affect the calculation of premiums. Any information that suggests policyholder may be high risk should be disclosed. Especially, policyholders must not knowingly withhold information or provide misleading and incomplete details. And insurers must clearly lay out under which circumstances you may not be covered and how your policy works. If there are any conditions and exclusions to your policy it should be clearly stated in the policy documents.
In simple terms, policies should not be unambiguous or open to subjective interpretations. And policyholders should not have a secret agenda of avoiding to pay higher premiums by being economical about the truth. If you know about something you should tell and tell it in a timely fashion. This open communication reduces problems in the future when you have a claim. And the insurers can go back to the policy document and point out the relevant section to their policyholders when there is disagreement. It would be terrible to find out after a claim that your insurer is disputing it based on technicality or new found information.