What describes the intention of returning the insured to their financial position prior to loss?

The correct answer is indemnity. Indemnity is a fundamental principle in insurance that aims to ensure that the insured is restored to their original financial position before the loss occurred, without allowing them to profit from the insurance payout. This principle safeguards against moral hazard by ensuring that insurance serves to compensate for losses rather than provide an opportunity for gain.

In the context of title insurance, if a property is found to have a defect covered by the policy, indemnity allows the insured to recover their losses or encumbrances, thus effectively putting them back in the same financial situation they were in prior to the loss. This principle is vital for maintaining the integrity of the insurance system and ensuring that it serves its intended purpose.

The other terms, while related to insurance and risk management, do not specifically describe this intention. Representation pertains to the statements made by the insured about the condition of the property or risks involved. Utmost good faith is an obligation where both parties must act honestly and not misrepresent facts. Waiver involves the relinquishment of a known right or privilege, which does not align with the concept of restoring financial standing after a loss.