CII Certificate in Insurance - Packaged Commercial Insurances (IF8) Practice Test

The term that refers to the legal obligation to disclose material facts in insurance is called utmost good faith, also known as "uberrima fides." This principle is fundamental to insurance contracts, stipulating that both parties—insurer and insured—must act honestly and disclose all material information relevant to the contract. This means that the insured must fully disclose any facts that could influence the insurer's decision to provide coverage or determine the premium.

If an insured fails to disclose material facts, it could lead to claims being denied or the contract being voided. This principle is crucial because insurance operates on trust, and the insurer must have all pertinent information to assess risk accurately and price the policy appropriately.

Other terms like indemnity, subrogation, and proximate cause pertain to different aspects of insurance. Indemnity relates to compensation for loss, subrogation involves the right of the insurer to pursue recovery from a third party responsible for a loss, and proximate cause refers to the primary cause of a loss in determining coverage. None of these terms reflect the obligation of disclosure that utmost good faith encapsulates.