Utmost Good Faith (Treu und Glauben)

Concept

Utmost good faith is a fundamental legal principle of insurance contract law that obliges both the policyholder and the insurer to act honestly, fairly, and in mutual trust throughout the entire contractual relationship – from pre-contractual negotiations through ongoing contract performance to claims settlement.

Historical Basis

The principle of utmost good faith has its historical origin, particularly in Anglo-American law, in the doctrine of “uberrimae fidei” (utmost good faith), which developed because of the particular information asymmetry between policyholder and insurer: the insurer can generally assess the risk to be assumed only on the basis of the information provided by the policyholder, which is why particularly high demands are placed on the policyholder’s disclosure obligations.

Concrete Manifestations

In insurance contract law, the principle of utmost good faith is given concrete expression in, among other things, the policyholder’s pre-contractual duty of disclosure, the policy conditions applicable during the contract term and in the event of a loss, and the requirement of fair and prompt claims settlement by the insurer; a breach of this principle, for example through fraudulent misrepresentation at contract inception or an unjustified denial of coverage, can give rise to significant legal consequences, up to and including the voidability of the contract or a claim for damages.