Lloyd's Maritime and Commercial Law Quarterly
THE FATE OF "GOOD FAITH" IN INSURANCE CONTRACTS
Margaret C Hemsworth*
Following extensive review undertaken by the English and Scottish Law Commissions, the Marine Insurance Act 1906, s.17 has been amended: the remedy of avoidance on breach of the duty of good faith has been removed. The Law Commissions have suggested a number of aspirations for a future role of the duty of good faith. This article considers those aspirations, to submit that the duty of good faith in the context of disclosure has been removed; that accordingly s.17 has no further scope in that regard. It further argues that any continuing role is likely to be somewhat muted as a pervasive influence relevant to the construction of insurance contracts and of questionable utility beyond.
Since 12 August 2016, the Marine Insurance Act 1906, s.17 has read “A contract of marine1 insurance is a contract based upon the utmost good faith”. Those engaged with insurance law and practice may find the abrupt halt to the provision of note, or at least will be more familiar with the provision in its pre-reform state, which for over one hundred years had continued with the wording “and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party”. These words have been excised by the Insurance Act 2015, s.14, which, together with s.17, underlines the result that any rule of law to permit avoidance as a remedy for breach of the duty of good faith is henceforth abolished. The provisions make it clear that any rule of law as to the basis of the insurance contract being based on good faith is modified by the express provisions of the Consumer Insurance (Disclosure and Representations) Act 2012 (“CIDRA”) (in relation to consumer insureds) and by the Insurance Act 2015 (in relation to business insureds). All that leaves s.17 in a somewhat enigmatic state. The aim of this article is to continue the discussion of the future role, if any, of the duty of (utmost) good faith in the context of insurance contracts. More specifically, the purpose is to enquire whether the doctrine of “good faith”, now unshackled from the explicit remedy of avoidance, has the potential to facilitate development of the common law in the context of implied terms requiring “good faith”. Such a role may be thought to be particularly apposite, given that the topic of implication of “good
* Senior Lecturer, University of Exeter. I am grateful to the anonymous referee who commented on an early draft and who offered a number of very valuable prompts and insights. Naturally, all errors and omissions are mine alone.
1. Section 17 is also taken to reflect the position at common law for non-marine insurance: Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 2 Lloyd’s Rep 427; [1995] 1 AC 501.
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