Insurance Contracts CP - Law Reform Commission

in the Aro Road case who wrote that ―good faith is not raised in its standard by being described as the
utmost good faith; good faith requires candour and disclosure, not, I think, accuracy in itself.‖ 6 The Law
Commissions have suggested that any statutory formation should drop the reference to ―utmost‖, a
position already taken in the PEICL Article 1:104 with particular regard to be ―had to the need to promote
good faith and fair dealing in the insurance sector, certainty in contractual relationships, uniformity of
application and the adequate protection of policyholders.‖
8.04 It is arguable that the references in Article 1:104 of the PEICL provide additional guidance on
how contract rules should be interpreted and applied, over and above the need for good faith.
B
Rationale for the duty of utmost good faith
8.05 The Law Commissions observe that it is right that the law should provide safeguards against
the moral hazards of insurance particularly the possibility that policyholders may lie, or insurers may delay
in processing a claim. Insurance is:
―a bargain in which one party pays money to another not in return for goods or services but for
a promise to pay should a particular event occur. The insurer has to be confident that the
policyholder has provided a fair presentation of the risk, and has acted honestly in making a
claim. Policyholders have to be confident that their claims will be considered in a fair an
unbiased way. Mutual duties of good faith reinforce the parties‘ contractual arrangements.‖ 7
8.06 While the duty of good faith is most readily identified with a proposer‘s duty to make full
disclosure, the duty is a mutual duty that can be invoked by the proposer. Lord Mansfield said as much in
Carter v Boehm, and Eggers, Picken and Foss give a number of instances where a misrepresentation
made by an insurer could give rise to liability. 8 However, in relation to non disclosure by an insurer to an
insured, the leading English case 9 holds that liability in contract, tort and the Misrepresentation Act 1967
cannot be established vis-a-vis damages: the sole remedy that is available following on from breach of
the mutual duty of good faith is limited to avoidance. Damages are not available for breach of the mutual
duty, which, in a post contractual setting is wholly one sided as a remedy, of value to the insurer only, and
affording the insurer a disproportionate benefit by allowing the insurer to retrospectively avoid the liability
to indemnify the insured.
8.07 It should be highlighted at the outset that there are no Irish cases that support a general duty of
post contractual good faith. It is also evident that there is scant authority in other countries, other than
where statute mandates such a proposition. 10 Eggers, Picken and Foss 11 challenge recent assertions that
there is no such post contractual duty, relying essentially upon one case to support the existence of such
a duty. 12 Hirst J formed the view that there was a post-contractual duty of good faith on the basis of dicta
in cases concerning held covered clauses 13 orders for ship‘s papers 14 and fraudulent claims. 15 On this
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[1986] IR 403 at 413.
Issues Paper 7 p.1.
Eggers, Picken & Foss, Good Faith and Insurance Contracts, 3 rd ed (ISBS 2010) at 201-2; see Duffell v
Wilson (1808) 1 Camp. 401 for an early example.
Banque Financiere de la Cite v Westgate Insurance Co [1990] 2 All ER 947.
Eg Australia, Insurance Contracts Act 1984, sections 13 and 14.
Eggers, Picken & Foss, Good Faith and Insurance Contracts, 3 rd ed (ISBS 2010) at 243. See Morison J in
Bonner v Cox [2004] EWHC 2963 (Comm), following The Star Sea: ―post contract the source of the
obligations must be found in the contract; there is no concept of a free standing duty of good faith after the
contract has been concluded… no general duty of ―fair dealing‖ or disclosure.‖
The Litsion Pride [1985] 1 Lloyd‘s Rep 437 at 509-512.
Overseas Commodities Ltd v Style [1958] 1 Lloyd‘s Rep 546: Liberian Ins Agency v Mosse [1977] 2 Lloyd‘s
Rep 560.
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