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

136 CONNECTICUT INSURANCE LAW JOURNAL [Vol. 16:1
avoid in circumstances where that remedy, “which has been described in
recent years as draconian,” would operate unfairly. 200 He went on to note
that in recent years, there has been a realisation that in certain respects
English insurance law has developed too stringently. 201 Citing Pan
Atlantic, Rix L.J. stated that leading modern cases show that the courts are
prepared to introduce safeguards and flexibility. 202 Importantly, he said
that it would not be in good faith to avoid a policy without first allowing
the insured an opportunity to address the reason for the avoidance. 203 He
concluded by stressing that not all insurance contracts are made by those
engaged in commerce and the widespread nature of consumer insurance
presented new problems. 204 “It may be necessary to give wider effect to the
doctrine of good faith and recognize that its impact may demand that
ultimately regard must be had to a concept of proportionality implicit in
fair dealing.” 205
Turning to the mutuality of the duty of utmost good faith, the Court
of Appeal sought to refine the insurer’s duty further. Rix and Clarke L.J.J.
took the view that if the insurer had actual knowledge or blind-eye
knowledge of the fact that the accident was “no-fault,” it would have been
a matter of bad faith had the insurer avoided the policy. 206 Rix L.J. left the
question open whether “something less than such knowledge would have
been enough to qualify an unrestricted right to avoid.” 207 Pill L.J.,
however, discusses blind-eye knowledge and points out that there must be a
suspicion that relevant facts exist and a deliberate decision not to make an
200
[2003] EWCA Civ. 1834, [2004] Q.B. 601, 628. For criticism of the
court’s finding that the insurer’s right of avoidance was subject to good faith, see
Neil Campbell, Good Faith: Lessons from Insurance Law, 11 N.Z. BUS. L.Q. 479
(2005). It was, of course, inevitable that the Court of Appeal in North Star
Shipping Ltd. v. Sphere Drake Ins. plc, [2006] EWCA Civ. 378, did not permit the
amendment to the notice of appeal and, therefore, did not have the opportunity to
comment on this aspect of Drake.
201 Drake Ins. [2003] EWCA Civ. 1834.
202 Id.
203 Id., [2004] Q.B. at 628, 630.
204 Id. at 629.
205 Id.
206 Id.
207
Drake Ins., [2004] Q.B. at 630. Clarke L.J., denied the existence of “a
general principle that insurers must always give the insured an opportunity to
address the reason why they are considering avoidance.” Id. at 642.