What principle requires full disclosure of risk by the applicant in an insurance contract?

The principle that requires full disclosure of risk by the applicant in an insurance contract is known as utmost good faith. This principle emphasizes that both parties—especially the insured—must act honestly and transparently. The insured has an obligation to fully disclose all relevant information that may affect the insurer's decision to issue a policy and the terms under which it is offered.

This level of candor is crucial because insurance is based on the insurer's evaluation of risk. If an applicant withholds critical information or misrepresents facts, it can lead to unjust scenarios where the insurer is blindsided by undisclosed risks, potentially resulting in losses that they might otherwise have avoided. As a result, the principle of utmost good faith helps ensure a fair and equitable insurance contract reflective of the actual risk involved.

While misrepresentations relate to the providing of false statements, representations and warranties involve the terms of the agreement that may be asserted but do not embody the overarching requirement of honesty and transparency present in utmost good faith. Fraud involves intentional deception but is a broader legal concept compared to the specific expectations of disclosure embodied in the principle of utmost good faith.