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

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126 CONNECTICUT INSURANCE LAW JOURNAL [Vol. 16:1 that in cases where the court is in doubt, the defence of non-disclosure should fail because “[a]t the end of the day it is for the insurer to prove that the non-disclosure did induce the writing of the risk....” 146 Further, in Assicurazioni Generali SpA v. Arab Ins. Group, the Court of Appeal took the view that although the non-disclosed (or misrepresented) fact need not be the sole inducement operating on the insurer, it must cause the actual insurer to enter into the contract. 147 Significantly, the majority of the court followed earlier decisions to the effect that the insurer must give evidence as to his state of mind. 148 This, therefore, gives the insured the opportunity to cross-examine the insurer with a view to demonstrating that he was not induced by the non-disclosed fact but would have entered into the contract on the same terms had there had been full disclosure of all material facts. 149 If the underwriter fails to give evidence, without "good reason", inducement will not be made out. 150 Clarke L.J. summarised the position as follows: 1. In order to be entitled to avoid a contract of insurance or reinsurance, an insurer… must prove on the balance of probabilities that he was induced to enter into the contract by a material non-disclosure or by a material misrepresentation. 2. There is no presumption of law that an insurer… is induced to enter in the contract by a material nondisclosure or misrepresentation. 3. The facts may, however, be such that it is to be inferred that the particular insurer… was so induced even in the absence from evidence from him. Insurance Contracts Act for a New Century? (Mar. 5, 2001), available at http://www.bila.org.uk/lecture_scripts/lectsaxt.asp. 146 Marc Rich & Co., [1996] 1 Lloyd’s Rep. at 442. 147 [2002] EWCA Civ. 1642, [2003] 1 W.L.R. 577. Following the decision in St. Paul’s Fire & Marine Ins. Co. v. McConnell Dowell Constructors Ltd., [1995] 1 All E.R. 96, 104. 148 Assicurazioni Generali SpA [2002] EWCA Civ. 1642. 149 Id. 150 Marc Rich & Co. AG, 1 Lloyd’s Rep. at 442.
2009] GOOD FAITH IN UK INSURANCE CONTRACTS 127 4. In order to prove inducement the insurer or reinsurer must show that the non-disclosure or misrepresentation was an effective cause of his entering into the contract on the terms on which he did. He must therefore show at least that, but for the relevant non-disclosure or misrepresentation, he would not have entered into the contract on those terms. On the other hand, he does not have to show that it was the sole effective cause of his doing so. 151 Insurers must, therefore, establish that the non-disclosed or misrepresented fact was an effective cause, although not necessarily the only cause, of their agreement to underwrite the risk. The link between materiality and inducement has thus been severed. Where the underwriter does give evidence, he will need to demonstrate a causal link between the presentation of the risk and its acceptance. Further inroads have recently been made into the notion of utmost good faith. This has been done by first adopting a narrow, insured friendly approach towards the requirement of inducement, one incident of which has led to the courts to re-examine the defence of waiver; and second, by aligning the exercise of the remedy of avoidance for non-disclosure with the insurers’ duty of good faith. In tandem with this process, the courts have also been examining the role of insurers as recipients of information during the disclosure process. The effect is that the burden imposed by the duty is being recalibrated so as to strike some balance between the respective obligations of the parties especially at the stage when the risk is being presented for underwriting. A further and significant recent development relates to the vexed question of whether the insured’s duty of good faith continues after the insurance contract has been concluded so that it again triggers when a claim is made under the policy. A. REFINING INDUCEMENT The emphasis now being placed on the need to demonstrate inducement has been bolstered by the radical step taken by the court in Drake Insurance plc v. Provident Insurance plc, to the effect that, in deciding whether the non-disclosed fact had induced the insurer to enter the contract, it is necessary to examine what would have happened had full 151 [2003] 1 W.L.R. 577.
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Whither the Duty of Good Faith in UK Insurance Contracts, John Lowry

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