California Property & Casualty Broker-AgentGeneral InsuranceHard
A commercial property owner is reviewing their insurance policy and notices a clause that states if they intentionally cause damage to their own property, the insurer will not pay for the loss. Which general insurance principle does this clause uphold?
- APrinciple of Insurable Interest
- BPrinciple of Subrogation
- CPrinciple of Utmost Good Faith
- DPrinciple of Indemnity
Show answer & explanationAnswer & explanation
Correct answer: C. Principle of Utmost Good Faith
The principle of Utmost Good Faith (Uberrimae Fidei) requires both the insured and the insurer to act honestly and not mislead each other. Intentionally causing damage violates this principle, as it is a dishonest act that undermines the entire premise of the insurance agreement.
Why the other options are wrong
- A. Insurable interest means a person would suffer a financial loss if the insured event occurred, which is a prerequisite for a policy, but not directly related to intentional damage after policy inception.
- B. Subrogation allows the insurer to recover payment from a third party responsible for the loss, not applicable here.
- D. Indemnity aims to restore the insured to their pre-loss condition without profit, but doesn't specifically address intentional acts.
Principle of Utmost Good Faith
A fundamental principle of insurance requiring both the insured and the insurer to act with complete honesty and transparency regarding all material facts.
- Requires honesty from both parties
- No misleading or concealment
- Violated by intentional acts of damage
Memory trick: Good faith: Honesty is the foundation of the deal.