Which term describes an insurance contract's obligation to act in good faith?

The term that describes an insurance contract's obligation to act in good faith is known as "utmost good faith." This principle requires both parties involved in the contract—namely the insurer and the insured—to deal honestly and transparently with one another. In practical terms, this means that the insured must provide truthful and complete information when applying for coverage, while the insurer must honor the terms of the policy and fulfill its obligations in a fair manner.

This concept is fundamental in insurance because it builds trust and ensures that both parties can rely on the information and representations made by the other. The emphasis on utmost good faith helps to minimize disputes and misunderstandings, which can arise when one party withholds information or misrepresents facts.

The other terms listed refer to different concepts in insurance. "Unilateral" refers to contracts where one party makes a promise that the other party can accept indefinitely, typically seen in insurance policies where the insurer makes a promise to pay claims. "Adhesion" describes contracts that are drafted by one party and signed by another, where the latter cannot negotiate the terms, often leading to interpretations in favor of the insured in the event of ambiguity. "Conditional" refers to insurance contracts that include obligations that must be fulfilled for coverage to