General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Insurance contracts are said to require utmost good faith. Which statement correctly describes the insurer's side of that duty?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Utmost good faith is mutual: the insured must disclose material facts at application, and the insurer must deal honestly with the insured throughout the relationship — clearly presenting policy terms, acting fairly in claims handling, and not misrepresenting coverage. California reinforces the insurer's side through fair-claims regulations that require prompt, thorough, and honest claim handling. Recognizing that good faith runs both ways is central to understanding the insurance relationship.
Why the other options are wrong
- B) The duty of good faith is reciprocal; drafting the contract does not exempt the insurer from honest dealing.
- C) Good faith obligations apply during marketing, issuance, servicing, and claims — not only after litigation begins.
- D) Acting fairly is an ongoing duty, not a standard met only by responding to court orders.
Memory hook
Good faith is a two-way street: the applicant spills the facts, the insurer plays it straight.