Insurance Contracts CP - Law Reform Commission

and other points, The Litsion Pride was overruled in The Star Sea. 16 In Canada it has been held that the
concept of utmost good faith ―plays no part when it comes to an allegation of fraud in the proof of loss‖:
Tumbles Video Ltd v INA Insurance Co of Canada. 17 It is certainly arguable that enthusiasts for a general
post contractual duty require section 17 of the Marine Insurance Act 1906 to carry more weight than it can
realistically sustain.
8.08 Critics of a post contractual duty of good faith point to not only the inherent vagueness of the
duty and the fact that the remedy of avoidance found in section 17 is inappropriate. Lord Hobhouse, in
The Star Sea said that, apart from some reinsurance situations ―it is hard to think of circumstances where
an assured will stand to benefit from the avoidance of the policy for something that has occurred after the
contract has been entered into.‖ 18
8.09 There are good policy reasons why the duty of pre-contractual good faith on both sides – ie the
duty to make disclosure and not to misrepresent matters of fact – should be supported. It is generally
cheaper and easier for proposers to disclose what they already know, or may be able to readily discover
(be the most effective source of information in other words) than for an insurer to have to investigate
circumstances and phycical and other conditions, perhaps at some remote place. Nevertheless, there
are equally valid reasons why it may be appropriate for the insurer to separately evaluate ―the risk‖, (eg
examine a site or locality for the purposes of property insurance), failure to do so constituting a waiver of
the duty of disclosure. The insurer will be in the best position to assess risk when the proposer has no
special knowledge or no appreciation of the risk. The Commission believe that the provisional
recommendations made on recasting the duty of disclosure to a redacted duty that genuinely depends on
disparity of information will more appropriately reflect the spirit of Lord Mansfield‘s views in Carter v
Boehm. Rose provides three interesting explanations for the exceptional nature of the utmost good faith
obligation in insurance law, isolated as it generally is in the common law:
―The first is formal. Simply, the pre-contractual duty of disclosure is established by judicial and
statutory authority so cannot be overcome without legislative intervention, until which time it
remains as a base for potential expansion. A second possibility is psychological. The duty of
disclosure is commonly articulated superlatively within a more grandly expressed idea – utmost
good faith – and it is also expressed in terms of an ancient and dignified language (uberrima
fides or uberrimae fidei) – as indeed is the best known emanation of the contrary general
principle (caveat emptor). This both enhances its apparent authority and seems to have
encouraged an indiscriminate and symbiotic association between different expressions of good
faith and duties to disclose. Thirdly, there has been habitual conditioning…judiciary seems to
have accepted that constant reference to post-contractual duties of good faith and disclosure –
often unaccompanied, indeed perhaps because unaccompanied, by specific illustrations of
their practical application – has given them some form of validity which may now need to be
removed rather than simply denied. The law has been allowed to appear more complicated
than it really is, and to be given support for becoming so.‖ 19
8.10 The concept of uberrimae fides or uberrimae fidei itself has not been universally acclaimed as
an essential part of insurance law. In South Africa the Court of Appeal, in Mutual and Federal Insurance
Co Ltd v Oudtshoorn 20 saw no real role for utmost good faith in Roman Dutch Law.
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Leon v Casey [1932] 2 KB 576 and China Traders Ins Co Ltd v Royal Enchange Assurance Corp [1898] 2 QB
187; Boulton v Holder Bros & Co [1904] 1 KB 784; Harding v Bussell [1905] 2 KB 83.
Britton v Royal Ins Co (1866) 4 F&F 905, 909.
[2001] UKHL 1, [2003] 1 AC 469.
[1992] 2 WWR 66: Saskachewan Crop Insurance Crop v Deck [2008] 8 WWR 501.
[2001] UKHL 1, [2003] 1 AC 469, at para. 57.
[2007] LMCLQ 181, at 195.
1985 1 SA 419; Joubert JA said that utmost good faith was unknown to Roman law. For a discussion on
PEICL and the duty of disclosure in Dutch law see Delfos-Roy (2011) 19 ERPL 71.
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