Insurance Contracts CP - Law Reform Commission

clauses have no obvious ―good faith‖ characteristics inherent in them and that satisfactory control of these
clauses can be left to the judiciary who can and do interpret them restrictively.
C
Post contractual duty of good faith – the duty not to make a fraudulent claim
8.16 English case-law in recent times has been generally emphatic in holding that an insured is
under a duty not to make a fraudulent claim. The basis of the duty however is a matter upon which the
judges have differed. For our purposes the statutory basis, section 17 of the Marine Insurance Act 1906
can be left to one side: although the Litsion Pride 28 provides support for affording an ―utmost good faith‖
basis for this duty, Manifest Shipping Co. Ltd v Uni-Polaris Shipping Co. Ltd (The Star Sea) effectively
overruled The Litsion Pride. In that case Hirst J had ruled that the duty extended to the giving of
information on the voyage being undertaken. The House of Lords criticised the view that, absent a
breach of contract, avoidance of the policy could be available outside the framework of the 1906 Act.
Lord Hobhouse indicated that forfeiture, as a common law remedy that prevented a fraudulent claim form
being met, was both the correct and most desirable remedy. Alternative views on the correct judicial
basis of the duty not to make fraudulent claims that were canvassed prior to The Star Sea have focused
on an implied contractual term, but these judgments 29 are now incompatible with The Star Sea. Eggers 30
et al are prepared to argue that, conceptually, the duty not to make a fraudulent claim can be
accommodated under the duty of utmost good faith and that both the weight of authority, 31 and the
information imbalance that is at the core of the duty, favour this approach. While the House of Lords in
The Star Sea were concerned to limit both the scope of post contractual duties of good faith and the
avoidance of the contract remedy, Eggers argues that the law requires a rule which will deter insurance
fraud while at the same time averting the prospect that avoidance, as an inflexible remedy, can be a
possible source of injustice. The Commission agrees with this perspective and would support the view
that Irish law should attempt to provide a flexible response to the fraudulent claims problem, whilst
eschewing difficult questions of definition eg ―forfeiture‖ of claims as distinct from contractual rescission,
―avoidance‖, whether retrospective or prospective. The Commission will examine this issue in Chapter 10,
Remedies.
8.17 The Law Commissions have examined post The Star Sea case-law and have apparently not
endorsed the analysis of Longmore LJ in The Mercandian Continent 32 in which an attempt was made to
align pre and post contractual good faith by requiring the non disclosure or misrepresentation to be
material and to have induced the contract. The Law Commission notes that MacGillivray comments that
this is not an onerous standard for the insurer to meet – ―in most cases, the fraud is material and would
be sufficient to allow the insurer to repudiate‖ under section 17. 33 A bolder attempt to clarify the law was
made by Mance LJ in Axa General Insurance Ltd v Gottlieb: 34
―there is no basis or reason for giving the common law rule relating to fraudulent claims a
retrospective effect on prior separate claims which have already been settled under the same
policy before any fraud occurs. It is unnecessary to reach any conclusion on this case on the
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[1985] 1 Lloyd‘s Rep 437.
Eg Orakpo v Barclays Insurance Services [1995] LRLR 443 per Hoffmann LJ, outlining a theory of repudiatory
breach by way of the making of a fraudulent claim, fraud going to the root of the contract (p.451).
Eggers, ―Utmost Good Faith and the Handling of Claims‖ in Soyer, Reforming Marine and Commercial
Insurance Law, at 243.
Britton v Royal Insurance Co (1866) 4 F & F 905; Lek v Mathews (1927) 29 LI.L. Rep. 141; Galloway v
Guardian Royal Exchange (UK) Ltd [1999] Lloyd‘s Rep IR 209.
[2001] EWCA Civ 1275.
Issues Paper 7, para. 2.19. See also Eggers, ―Utmost Good Faith and the Handling of Claims‖ in Soyer,
Reforming Marine and Commercial Insurance Law at.247.
[2005] EWCA Civ 112.
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