Whither the Duty of Good Faith in UK Insurance Contracts, John Lowry

120 CONNECTICUT INSURANCE LAW JOURNAL [Vol. 16:1
reform ground to a halt no doubt because of the intense lobbying by the
insurance industry. Some six years after the Report was laid before
Parliament, the Secretary of State for Trade and Industry, Mr. Channon,
said, by way of a written response to a question asking for a progress report
on the reforms, that he was convinced that self-regulation, through the
Statements of Practice issued by the Association of British Insurers, would
meet the need of protecting private insureds from the harsher aspects of the
disclosure duty. 118
118
Paul Channon, Secretary of State, Written Answers (Commons) of 21
Feburary 1986, Insurance Contracts (Feb. 21, 1986) (transcript available at
http://hansard.millbanksystems.com/written_answers/1986/feb/21/insurancecontracts).
The Secretary of State said,
The insurers have informed me that they are willing to
strengthen the non-life and long-term statements of insurance
practice on certain aspects proposed by the Department. These
concern the limitation of the duty of disclosure, warranties,
disputes procedures and, in the case of the long-term statements,
the payment of interest on life insurance claims. The statements
apply to insurance taken out by private consumers…These
changes are in the right direction. I am well aware of the
arguments, advanced amongst others by the representatives of
consumers, in favour of legislation on non-disclosure and breach
of warranty. But I consider that on balance the case for
legislation is out-weighed by the advantages of self-regulation so
long as this is effective. I look to all insurers, whether or not
they belong to the Association of British Insurers which has
promulgated the statements, to observe both their spirit and their
letter. In the light of the insurers' undertakings I do not consider
there is any need for the moment to proceed with earlier
proposals for a change in the law….
The Statements of Practice, first issued in 1977 (revised in 1986), covered
General and Long Term Insurance. The General Statement came to an end in
January 2005 when it was incorporated into the Code of Business Conduct Rules
(ICOB) by the Financial Services Authority. The ICOB adopts the language of the
ABI’s Statements. In essence, rule 7.3.6 provides that except where there is
evidence of fraud, an insurer should not avoid a claim by a retail customer on the
ground of non-disclosure of a fact material to the risk that the customer could not
reasonably be expected to have disclosed. It is also noteworthy that in the field of
motor insurance the right of insurers to avoid liability to a third party is
substantially restricted by section 152 of the Road Traffic Act 1988. The Long