Insurance Contracts CP - Law Reform Commission

8.56 Thirdly, in Diab v Regent Insurance Co Ltd (Belize) 90 the insured argued that the insurer‘s
entitlement to rely on a term was subject to a duty of good faith to warn the insured that he had to act
promptly in making his claim. The Privy Council stated obiter that good faith obligations might have been
in point had the insured asked for an extension of time in providing the requisite particulars and the
insurer had refused.
8.57 Fourthly, in Goshawk Dedicated Ltd v Tyser & Co Ltd 91 it was held by the Court of Appeal that
there was in insurance contracts made in the Lloyd‘s market an implied term that placing and claims
documents which have previously been shown to underwriters, and premium accounting documents
which are necessary for the operation of the contract, where retained by the insureds‘ Lloyd‘s brokers,
should be available to the underwriters in cases of reasonable necessity. Rix LJ, effectively delivering the
judgment of the Court of Appeal held that ―the implication is to be made on the traditional basis that it is
necessary for business efficacy‖. 92 Rix LJ added that the duty of good faith extends to other classes of
documents as well: ―An example of such an implication, made for the purposes of business efficacy but
informed by the insurance context of good faith, can be found in Phoenix General Insurance Co of
Greece SA v Halvanon Insurance Co Ltd, 93 where Hobhouse J accepted an implied term which extended
to the obligation to keep proper accounting records and to make them reasonably available to reinsurers
as being something which ‗would probably be imported anyway by the duty of good faith‘.‖ 94 In both
Goshawk and Phoenix the court‘s decision was, in the absence of a governing rule expressed by law or
contract, focused on and correctly arrived at by the traditional process of implication of a term for
business efficacy. In both cases, there are obiter dicta that the decision is supported by ―the duty of good
faith‖. But in neither case was consideration given to the implications of recasting the duty as one of good
faith.
8.58 In summary, a duty of good faith on the insurer has been conceded by Lord Mansfield in Carter
v Boehm, and supported by the principle of mutuality in the Marine Insurance Act 1906, s 17 and by
implication in recent judicial dicta; but it has yet to find expression in binding authority. On one view,
authoritative recognition of such a duty is only a matter of time, for, as the cases indicate, there are a
number of situations in which insurers could be expected to behave better towards insureds. 95 However,
a fundamental difference between the circumstances in which the insured‘s and the insurer‘s possible
duties might arise indicates that an insured is unlikely to have a remedy of avoidance for the insurer‘s lack
of good faith: for, whereas the duty lying on the insured arises, primarily at least, pre-contractually, the
situations in which an insurer might be expected to behave with good faith are mainly post-contractual (in
relation to the processing of claims) and therefore more likely to be recognised, if at all, as the subject of
implied contractual terms, consequently with different remedies for breach. Even so, a shift in the
perception of the nature of an insurance contract is likely to be necessary before greater duties on the
insurer are established. An insured‘s pre-contractual duty of disclosure is an understandable concomitant
of a contract of which the main concern is the risk to the subject-matter of the insurance. A more bilateral
interpretation—balancing the risk of a casualty‘s occurring against the risk of the insurer‘s unsatisfactorily
processing of the claim — needs to be more clearly recognised in order for good faith duties resting on
the shoulders of the insurer to be sanctioned by judicial decision.
8.59 Apart from asserting that the law does not allow the award of damages to compensate
insureds for the insurers failure to handle a claim within reasonable time, Eggers puts forward a number
of arguments suggesting that such a development would be undesirable:
―As a matter of policy, absent fraud on the part of the insurer, there are several reasons why
the insurer should not be answerable for consequential losses. First, insurance cover serves
90
91
92
93
94
95
[2006] UKPC 29.
[2006] 1 Lloyd‘s Rep 566.
Ibid, p.576; Mills, Duty of Good Faith (2006) 80 ALJ 397.
[1988] QB 216.
Ibid, p.241.
Eggers in Soyer, Reforming Marine and Commercial Insurance Law (Informa Law 2008) at 251.
177