Insurance Contracts CP - Law Reform Commission

3.04 Carter v Boehm of course is also at the heart of another cardinal principle of insurance law that
is similarly enshrined in statute law, s.17 of the Marine Insurance Act 1906:
―A contract of marine insurance is a contract based on utmost good faith, and, if the utmost
good faith be not observed by either party, the contract may be avoided by the other party.‖
3.05 The utmost good faith principle, and the duty of disclosure,are in most instances linked
together. However, there are cases where judges have stressed that non-disclosure may occur even
though the proposer did not act mala fides. 3 Most traditional jurisprudence however inclines towards
placing the emphasis on the duty of disclosure as a means of protecting the insurer, decoupling the duty
from the wider implications of the (mutual) duty of utmost good faith. 4
3.06 In Manor Park Homebuilders Ltd v AIG Europe (Ireland) Ltd, 5 the proposer for fire insurance in
relation to a property failed to make disclosures in relation to security measures concerning that property.
McMahon J held that these matters were on the facts not material but went on to consider whether the
insurer‘s failure to examine the property or investigate this risk was pertinent in a case of non-disclosure:
―The principle of uberrimae fidei, which applies to all insurance contracts, imposes a heavy
onus of disclosure on the insured. Without this obligation to divulge information frequently
available only to the insured, the insurer would have great difficulty in assessing the risk or in
calculating the premium. This does not, however, mean that the insurer can cover its eyes or
abstain from making normal inquiries or investigations, in the expectation that, in the event of
the risk materialising, it can point to the insured‘s omission and repudiate the contract. The
insured‘s duty is balanced by a reciprocal duty on the insurer to make its own reasonable
inquiries, to carry out all prudent investigations and to act at all times in a professional manner.
In fact the onus to do this, because of its experience and expertise, lies primarily on the
insurer. The law is willing to assist this process by obliging the insured to volunteer information
not easily available to the underwriter and which is material to the risk. The uberrimae fidei
principle applies with the greatest force to situations where the relevant facts are peculiarly
within the knowledge of the insured and are not easily available to the underwriter. Where,
however, the full extent of the risk can readily be defined without the insured‘s participation, the
law does not insist on full disclosure...‖
3.07 The emphasis that this ‗knowledge‘ exception places upon the insurer to follow up on facts that
are disclosed and to carry out an examination of the property, the medical condition of the assured, and
so on, cannot be overstated. American judges have voiced their opposition to an over broad duty of
disclosure on the basis that where a proposal can be examined by the insurer, a duty of disclosure is
inappropriate. In explaining why Carter v Boehm was never extended into fire insurance underwriting, in
3
4
5
Curran v Norwich Union Life Insurance Society [1987] IEHC 5. Irish case law, however, particularly in relation
to life cover and income protection does treat good faith and non-disclosure as closely related: see Keating v
New Ireland Insurance Co [1990] 2 IR 383 and Coleman v New Ireland Insurance Co [2009] IEHC 273.
See generally MacDonald Eggers, Picken and Foss, Good Faith and Insurance Contracts (3rd ed) (2010)
(Eggers, et al): Bennet, “Mapping the Doctrine of Utmost Good Faith in Insurance Law” [1999] LMCLQ 165;
Bennett Reflections on Values in Soyer, Reforming Marine and Commercial Insurance Law (Informa Law
2008); Bridge, “Does Anglo-American Contract Law need a doctrine of Good Faith” (1984) 9 Can Bus LJ 385.
Butcher, in “Good Faith in Insurance Law: A Redundant Concept?” [2008] JBL 375 argues that the doctrine
has led to ―serious problems‖ such as the development of a series of structured rules emerging from a
sweeping principle, the unfair operation of the sole remedy of recission, the vagueness of the law and
uncertainty as to the scope of the doctrine. Butcher prefers statutory reform of insurance contract law, opining
that such reforms would render the good faith principle otiose. The Commission has much sympathy with this
approach.
[2009] 1 ILRM 190. See Ahern, ‗The Formation of Insurance Contracts and the duty of Insurers‘ [2009] CLP
84.
64