Good Faith and Insurance Contracts
Page 139
CHAPTER 6
Legislation affecting the duty of good faith
Legislation affecting the duty of good faith
6.01 A number of statutes have had an influence on the development of the duty of the utmost good faith in an indirect way. For example, the Sea Insurance Contracts Act 1867, which rendered a contract of insurance enforceable and binding only by the issuance of a policy of insurance, helped the courts to delineate the duration of the duty as it applies at the placing of the insurance.1 6.02 The direct influence of statutes, however, in the development of the duty of good faith has, until recently, been limited. Until 2012, Acts of Parliament had been passed in relation to two classes of insurance, namely marine and motor insurance, which set down some of the rules that apply pursuant to the principle of uberrima fides. However, in respect of marine insurance, the intention of Parliament in passing the Marine Insurance Act 1906 was merely to codify the common law. Parliament’s object in its legislation on motor insurance was to ensure that insurance coverage existed for the benefit of innocent third parties who are injured by an insured vehicle against the assured’s liabilities to that victim. In this latter respect, Parliament’s reforming zeal was focused on one specific problem, albeit worthy of attention. 6.03 Generally, however, Parliament and the insurance industry had been happy to allow the law to evolve at the hands of the courts. The recommendations for reform proposed by the Law Reform Committee of 19572 and the Law Commission of 1979–19803 were not acted upon.4 6.04 Following the Law Commission’s insurance contract law project instituted in 2006, there have been two pieces of legislation that have fundamentally reformed the law governing the duty of utmost good faith as it applies to insurance contracts, namely the Consumer Insurance (Disclosure and Representations) Act 2012 and the Insurance Act 2015. 6.05 It is instructive to consider the relevant statutes in order to look upon the common law as it was crystallised at the time of enactment and to consider how Parliament sought to protect the innocent third party from the harsh consequences of a breach of the duty of good faith. We shall also consider the effect of other statutes upon the duty of the utmost good faith in so far as they influence the individual elements required of a breach of the duty in order to sustain a cause of action.Page 140
Marine Insurance Act 1906
6.06 In 1906, the Marine Insurance Act was drafted by Sir Mackenzie Chalmers and was passed by Parliament to codify the then existing state of the law of marine insurance.5 The Act was designed to set out the accepted, uncontroversial rules applicable to marine insurance. Indeed, much of the Act has been said to represent the law of non-marine insurance.6 Thus the Act of 1906 also was intended to codify the uncontroversial aspects of the common law duty of the utmost good faith as it applied to contracts of marine insurance. One of the first occasions (if not the first) the House of Lords had to consider the Act was in the Scottish case Thames and Mersey Marine Insurance Co Ltd v Gunford Ship Co Ltd,7 where the Appellate Committee did not consider the status of the provisions it had to apply nor the origin of the Act or its relationship with the common law. The House of Lords simply applied the rules of the non-disclosure of a material fact as set down in sections 18 and 19.8 6.07 The provisions of the Marine Insurance Act 1906 relating to the duty of utmost good faith, in their unamended form, still apply in so far as the contract of insurance, or the relevant variation, was concluded before 6 April 2013 (in so far as the contract was a consumer insurance contract) or 12 August 2016 (in so far as the contract was a non-consumer insurance contract). The sections of the Marine Insurance Act 1906 that concern the duty of good faith, prior to their amendment by the Consumer Insurance (Disclosure and Representations) Act 2012 and the Insurance Act 2015, are as follows:
“Disclosure and Representations