Why does an insured have a duty to disclose facts to the insurer?

The duty of an insured to disclose facts to the insurer is fundamentally based on the principle of utmost good faith, or "uberrima fides," which underpins insurance contracts. The insured is required to provide all material information that might influence the insurer's decision-making process in evaluating the risk associated with providing coverage. This includes any facts that might affect the terms of the insurance contract, including premiums and conditions of coverage.

When the insurer assesses an application for coverage, it relies heavily on the accurate and complete information provided by the insured. If the insured fails to disclose relevant facts, it could lead to an improper evaluation of the risk, resulting in inappropriate pricing of the insurance policy or even the denial of a claim later on. The relationship between the insurer and the insured is thus built on trust; the insurer trusts that the insured is being forthright about their circumstances.

Considering this context, the idea that the insurer relies on the information provided is paramount. The disclosure of facts is not just a formal requirement but is crucial for the insurer to make an informed decision, ensuring that the risk is adequately assessed and managed.