Insurance Contracts CP - Law Reform Commission

of good faith. This declaratory provision should also make it clear that the policy is not avoided by reason
of the making of the fraudulent claim but that any claim made on the basis of the fraud is forfeited.
8.22 Support for this position is found in the PEICL, in the Australian Act and in Issues Papers 6 and
7 produced by the Law Commissions in 2010. Article 6:102 PEICL operates in the context of a duty
placed upon an insured to respond to an insurer‘s reasonable requests for information and the supply of
documentary evidence and information generally. Implicit in this is an honesty and accuracy requirement.
As an article that is labelled as a claims cooperation provision, the article distinguishes cases of breach
simpliciter from breach with intent to cause prejudice or breaches made recklessly and with knowledge
that predjudice would result. For breach simpliciter a proportionality remedy vis-a-vis the insurance
money is the remedy. In the breach with intent context, ―the insurer shall not be obliged to pay the
insurance money.‖
8.23 The Australian Insurance Contracts Act 1984, relating to fraudulent claims provides at section
56(1):
―Where a claim under a contract of insurance, or a claim under this Act against an insurer by a
person who is not the insured under a contract of insurance is made fraudulently, the insurer
may not avoid the contract but may refuse payment of the claim.‖
8.24 This part of section 56 has not proved controversial. The rest of the section however has been
the subject of much adverse comment, as will be shown.
8.25 In the specific context of section 17 and the Marine Insurance Act 1906 (it should be recalled
that most of the influential recent cases on the forfeiture for fraudulent claims have not been marine
insurance): the Law Commissions reached the ―tentative conclusion‖ that the section 56(1) Australian
approach should be followed, a solution that the Law Commissions said was ―well established and
accepted.‖ 44 The Commission will return to this question in Chapter 10, Remedies.
E
Other (contractual) remedies
8.26 One question that arises is the scope of the duty of good faith and whether, by contract,
remedies other than forfeiture will be available. Lord Hobhouse, in The Star Sea was extremely hostile to
both an expansive view on the nature of the duty of good faith and the development of any post
contractual duty of good faith. Any support for the idea that good faith was a continuing duty, post
contract formation, was scant. Even accepting that the duty could be broken when an insured submitted
a fraudulent claim, the weight of authority indicated that submission of such a claim did not give the
insurer the right to treat the contract as void ab initio, but rather, the claim was forfeit by virtue of the
fraud. Lord Hobhouse closed his analysis of the authorities by remarking that they ―show that suitable
caution should be exercised in making any extensions to the law of non disclosure and that the courts
should be on their guard against the use of the principle of good faith to achieve results which are only
questionably capable of being reconciled with the mutual obligation to observe good faith.‖ Eggers et al
speculate that should the parties to an insurance contract expressly provide for an insured to be under a
duty not to submit a fraudulent claim, or a court be prepared to imply a term into a contract having such
an effect, the applicable remedy would not be self evident, as the law stands. Clearly if the obligation is
an express term the contract will be dispositive, but resort to implied terms as a source of the obligation
will hardly provide a coherent basis for the remedy. Eggers cautions against expanding the law in an
unbalanced and uncertain manner. 45
44
45
Issues Paper 7, para. 4.81.
Eggers, ‗Utmost Good Faith and the Presentation and Handling of Claims‘ in Soyer, Reforming Marine and
Commercial Insurance Law, p.229 at 235-6.
169