What principle must be adhered to when creating an insurance contract regarding truthful statements?

The principle of Good Faith is fundamental in the context of creating an insurance contract, as it requires both the insurer and the insured to deal with each other honestly and transparently. This principle obligates parties to disclose all relevant information that might affect the insurance agreement. The rationale behind Good Faith is to foster trust and eliminate any possibility of misrepresentation, fraud, or deceit.

In insurance, the insured must provide accurate information regarding the risk being insured, as this affects the underwriting process and the determination of premium rates. If it is discovered that the insured has withheld information or provided false statements, the insurer may have grounds to deny a claim or rescind the policy. Therefore, adherence to Good Faith is crucial for ensuring that the insurance contract remains valid and binding.

In contrast, waiver refers to the voluntary relinquishment of a known right, estoppel prevents a party from asserting something contrary to what is implied by a previous action or statement, and indemnity refers to compensating for a loss or damage. While these concepts are significant within the insurance realm, they do not specifically address the necessity for truthful statements in forming an insurance contract. Thus, Good Faith is the cornerstone that governs the truthfulness and transparency expected from both parties in an insurance agreement.