Insurance Contracts CP - Law Reform Commission

―The classic example of an insured‘s obligation of utmost good faith is a requirement of full
disclosure to an insurer, that is to say, a requirement to pay regard to the legitimate interests of
the insurer. Conversely, an insurer‘s statutory obligation to act with utmost good faith may
require an insurer to act, consistently with commercial standards of decency and fairness, with
due regard to the interests of the insured. Such an obligation may well affect the conduct of an
insurer in making a timely response to a claim for indemnity. 55
10.51 Callinan and Heydon JJ agreed, drawing an analogy between the reciprocal duty of good faith
and the ―clean hands‖ doctrine that underpins the availability of equitable reliefs, ―observing that the
doctrine was, like the maxim that ―he who seeks equity must to equity‖ 56 In his dissenting judgment, Kirby
J, wrote that the absence of honesty was a universal feature of section 13 duty; following ealier case-law
Kirby J favoured the adoption of a test of whether a party was guilty of ―dishonest, capricious or
unreasonable conduct.‖ 57
10.52 The Commission note that in Issues Paper 6 the Law Commissions have suggested that
damages for breach of the duty of utmost good faith should be available. However, damages for distress
and disappointment do not generally feature in the Issues Paper (there is a limited discussion at
paragraphs 5.43 to 5.48) and English courts suggest that where awards are possible the award should be
―restrained and modest‖ 58 although the decision in Farley v Skinner from which this standard is taken is
not always appropriate. In contrast, in Ireland, the Financial Services Ombudsman has taken a different
view in some instances.
In one case, where non disclosure avoided a life policy of €20,000 the Ombudsman awarded
compensation of €5,000 to mark the fact that the insurer‘s own sales guidelines has not been
followed by the company representative.
In a case of high pressure sales practices deployed to sell an inappropriate product, the insurer
had returned all premiums when discovering how company representatives had acted. The
Ombudsman awarded compensation of €1.500 ―for the distress caused‖ to the vulnerable
insured.
Maladministration of a high value Whole of the Life policy led to an award of €50,000 in lieu of an
offer of €15,000 offered by the insurer to mark the ―great inconvenience‖ and ―loss of trust‖
caused.
A compensatory award of €8,000 was ordered, partly to reflect the fact that the company had
refused to pay the claim ―without adhering to its own policy requirements‖.
Refusal to repatriate the remains of a deceased insured under a travel policy based on
(unsatisfactory) allegations that death occasioned by alcohol. Compensation of €500 for distress
caused to the family was awarded.
Reductions in maternity cover protection effected under the guise of an ―upgrade‖ were ruled
impermissible with the insured receiving a compensatory payment of €2,000.
Compensation of €4,000 awarded to a man who made claims on a loan protection policy that
became operative upon becoming unemployed ―by way of compensation for the wholly
inadequate and unprofessional level of service provided to him and the degree of inconvenience
caused‖.
Following upon the death of his wife the insured had wrongly been told on four occasions that
death benefit cover would result in a payment of €130,000. The Ombudsman ordered a goodwill
payment of €7,500 ―in recognition of the distress caused‖.
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56
57
58
Para. 16 of the Judgment.
Para. 257 of the Judgment.
Para. 131 of the judgment, following Owen J in Kelly v New Zealand Insurance Co Ltd (1996) 130 FLR 97 at
p.111; Speno Rail Maintenance Australia Pty Ltd v Metals and Minerals Insurance [2009] WASCA 31
Paragraph 5.47.
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