IBA Master Substantive Project 2014 - Insurance Committee PDF

IBA Insurance Committee Substantive Project 2014
The Duty of Utmost Good Faith

Edited by Assunta Di Lorenzo
© Copyright 2014 International Bar Association. All rights reserved.
The materials compiled herein are collected from various sources as

shown, and do not represent the views of the International Bar
Association.
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IBA Insurance Committee Substantive Project 2014 1
Index
ABOUT THE INTERNATIONAL BAR ASSOCIATION INSURANCE COMMITTEE ..................................................... 2
NOTE FROM THE IBA INSURANCE COMMITTEE......................................................................................................3
EDITORIAL ....................................................................................................................................................................4
ARGENTINA ..................................................................................................................................................................6
AUSTRALIA ................................................................................................................................................................ 11
BELGIUM .................................................................................................................................................................... 22
BRAZIL ........................................................................................................................................................................ 26
CANADA ..................................................................................................................................................................... 32
CHINA.......................................................................................................................................................................... 46
COSTA RICA ............................................................................................................................................................... 51
DENMARK ................................................................................................................................................................... 56
FRANCE ...................................................................................................................................................................... 64
GERMANY ................................................................................................................................................................... 72
HUNGARY ................................................................................................................................................................... 77
INDIA ........................................................................................................................................................................... 81
IRELAND ..................................................................................................................................................................... 87
ITALY ........................................................................................................................................................................... 96
MALAYSIA ................................................................................................................................................................ 105
MALTA ...................................................................................................................................................................... 110
NETHERLANDS ........................................................................................................................................................ 115
NIGERIA .................................................................................................................................................................... 121
POLAND .................................................................................................................................................................... 125
SINGAPORE.............................................................................................................................................................. 131
SPAIN ........................................................................................................................................................................ 137
SWEDEN ................................................................................................................................................................... 142
SWITZERLAND ......................................................................................................................................................... 148
THAILAND ................................................................................................................................................................. 158
TURKEY .................................................................................................................................................................... 162
UNITED KINGDOM ................................................................................................................................................... 170
USA ........................................................................................................................................................................... 179
USA (CALIFORNIA) .................................................................................................................................................. 180
USA (ILLINOIS) ......................................................................................................................................................... 186
USA (MASSACHUSETTS) ........................................................................................................................................ 189
USA (NEW JERSEY) ................................................................................................................................................. 198
USA (NEW YORK) .................................................................................................................................................... 201
USA (OHIO) ............................................................................................................................................................... 205
TEMPLATE ................................................................................................................................................................ 208
About the International Bar

Association Insurance Committee
Insurance is present in every facet of commercial, industrial and private life. Lawyers practicing in many different
fields encounter insurance and its problems and can greatly benefit from the knowledge which membership of this
committee provides.
The Insurance Committee aims to provide its nearly 600 members, and the IBA Legal Practice Division as a whole,
with information about developments in insurance and reinsurance law, regulation and markets throughout the world
as well as with specialist knowledge to assist in the efficient solution of practical insurance problems. New insurance
products are also brought to the attention of members.
In addition to this publication, the Committee produces a newsletter for its members which provides updates and
commentary on developments and issues in the field.
The Committee also presents sessions at the IBA Annual Conference every year. In 2014, the Conference will be
held in Tokyo. Please see http://www.ibanet.org for more information on this and other upcoming events.
If you would like to join the Insurance Committee, or if you would like further information on the Committee’s activities,
please visit the insurance pages in the committee section of http://www.ibanet.org.
We also invite you to contact the IBA membership department on
Tel: +44 (0)20 7842 0090, Fax: +44 (0)20 7842 0091
or by email at member@int-bar.org.
Note from the IBA

Insurance Committee
Following the excellent responses we have received to our substantive project in 2013 which dealt with the legal
nature of insurance contracts (our members from 29 jurisdictions responded to the 2013 survey), we decided to
explore another topical issue of global relevance.
This year, we have conducted a survey regarding the “Duty of Utmost Good Faith”, a fundamental doctrine of
insurance law in many jurisdictions. Our members from 34 different jurisdictions have provided detailed information
and insights into the application of the principle of utmost good faith (uberrimae fidei) in their jurisdiction. This survey
offers a study of the similarities and differences in the practical applications of the principle of utmost good faith under
different legal systems.
Insurance and reinsurance are global enterprises which engage different legal and regulatory regimes. This, at times,
results in cross border disputes, often involving both common law and civil law jurisdictions. We hope that this
comparative analysis will be valuable to lawyers and other (re)insurance professionals alike.
We would like to thank those who generously contributed their time and expertise to successfully complete this
project.
A pdf copy of this report will be made available on the IBA’s website.
Best regards,
Christoph K. Graber Assunta Di Lorenzo

Chair Special Projects Officer
IBA Insurance Committee IBA Insurance Committee
christoph.graber@prager-dreifuss.com assunta.dilorenzo@mcmillan.ca
Editorial
The Duty of Utmost Good Faith
The principle of utmost good faith, expressed by the Latin maxim ‘uberrima fidei’, meaning fullest confidence,
originated from English insurance law and is regarded as a fundamental principle of insurance law in many
jurisdictions around the world, whether civil or common law. However, the doctrine does not have the same meaning
nor does it operate in the same way in each legal system in which it has been adopted. Also, in some jurisdictions,
the principle of utmost good faith is not recognized. For example, the insurance law of some civil law countries refers
instead to the civil law concept of “good faith”.
The doctrine of utmost good faith requires that those involved in negotiations for an insurance contract must disclose
all relevant information to all the other parties in the negotiation. Originally, the common law duty of utmost good faith
applied only at the pre-contractual stage. Nowadays, in many jurisdictions that have adopted the principle of utmost
good faith, it is a continuing duty that exists while the relationship between the insurer and the insured subsists and
the application of the doctrine has been extended to the exercise of contractual rights and the processing of claims. In
some of these jurisdictions, the duty of disclosure forms part of the principle of utmost good faith and thus, is
indistinguishable, whereas in other jurisdictions it is a separate duty imposed on the insured by statute.
With the above in mind, the Insurance Committee of the IBA thought it would be of interest to our members,
insurance professionals and advisors to compare across jurisdictions the nature of the parties’ obligations under the
principle of utmost of good faith, both at the pre-contractual stage and the claim stage, and the consequences where
there has been a breach. For example, a dispute involving material non-disclosed information or misrepresentation at
the pre-contractual stage with respect to an insurance policy that is settled by an insurer in one jurisdiction could
result in the same policy being set aside ab initio by the insurer in another jurisdiction.
The responses to our survey on the duty of utmost of good faith contained in this report were submitted by IBA
Insurance Committee members from 34 different jurisdictions, both common and civil law, allowing for a review
around the globe.
You will find in this report a general overview of the content of the duty of utmost good faith for the insured and/or the
insurer, as applicable, both at the pre-contractual stage and at the claim stage, including whether there is a separate
duty of disclosure on either party, whether different principles regarding utmost good faith are applied to reinsurance,
and the consequences of a breach of such duties by either party to an insurance or reinsurance contract.
It is our hope that these surveys will inform practitioners about the meaning of the duty of utmost good faith, a
fundamental principle of insurance law applicable in many jurisdictions, and the consequences of a breach of such
duty for the parties involved in an insurance contract.
A Note of Appreciation
I would like to thank my colleagues at McMillan LLP, Carol Lyons and Frank Palmay, who devoted a significant
amount of their time to this project over several months and helped greatly realizing it.
Assunta Di Lorenzo
McMillan LLP
August 2014
DISCLAIMER
This report is not intended to provide legal advice but to provide general information on legal matters. Transmission is
not intended to create and receipt does not establish an attorney-client relationship. This report is not intended to
replace legal advice and no responsibility for claims, losses or damages arising out of any use of this work or any
statement in it can be accepted by the contributors or editors. Readers should seek specific legal advice before taking
any action with respect to the matters mentioned in this report.
The content of this publication has been created by the individual contributors. The views expressed are theirs. If you
would like further information on any aspect of this report, please contact the relevant contributor with whom you
usually deal.
IBA Insurance Committee Substantive Project 2014 6 The Duty of Utmost Good Faith: Argentina
Argentina
4
MANZANO, LÓPEZ SAAVEDRA & RAMÍREZ the Insurance Companies Law that provides the
CALVO regulatory framework of the insurance activity.
Martin Manzano and Ignacio Shaw The terms “good faith” and “bad faith” are barely used
5
in the Insurance Act (Section 5, 7 and 8) and the
I - Definition of the Principle of Utmost Good Faith terms “fraud” or “malice” (equivalent to dolo and
malicia in Spanish) appears only in 10 sections out of
1. In your jurisdiction, do insurance laws 164.
6
provide for the principle of utmost good

faith (in latin, “uberrimae fidei”) and if so, The Insurance Companies Law only uses the term
what is its meaning? Provide any “good faith” in section 55 in respect of insurance
definition whether under statute or brokers, agents, intermediaries, experts and adjusters
according to case law. (altogether referred to as “auxiliaries”), to require them
to act in good faith. Insurers are not mentioned in this
In Argentine law, good faith is mandatory to all section.
contracts by operation of the Civil Code.
Despite this lack of terminology, the truth is that the
The Civil Code requires contracts to be executed, duty of good faith is fundamental in the law of
construed and complied with in accordance to what insurance law and binding on both the insured and the
the parties truly understood or were able to insurer and it transpires from most of the solutions
1
understand, acting with due care. and regulations provided by the Insurance Act and the
Willful misconduct is defined by the Civil Code as any Insurance Companies Law.
action or omission performed with fraud, deceit or an There is a duty of disclosure for the insured. Section 5
intentional assertion of what is false or distortion of of the Insurance Act says: Any false declaration or
the truth (Section 931, Civil Code). The burden of any concealment of circumstances which are known
proof of willful misconduct lies on the party alleging it. by the assured, even made with good faith, which in
There is an ongoing debate on whether or not the the opinion of an expert would have avoided the
duty to act in good faith is greater in insurance than in contract or modified its conditions, had the insurer be
other contracts. Many scholars and courts contend aware of the real state of the risk, makes the contract
that the parties to an insurance contract are bound to void.
the duty to act with the utmost good faith, which they 4. Does the principle of utmost good faith
believe to be of a superior hierarchy than the ordinary apply to all types of insurance contracts
duty to act in good faith required in other types of (life insurance, general insurance,
2
contracts. In the Touring case , the court held that the reinsurance etc.)?
standard to be applied should be that the parties to an
insurance contract should perform their obligations as Yes.
if they were their counterparties.
The Golden Rule, as many like to call it, is considered
to be the most important general principle of law.
2. Is the principle of utmost good faith (i) a
statutory principle, (ii) a common law
principle or (iii) a civil law principle? Or is
it to be found under statute and
otherwise?
4
As mentioned above is a civil law principle set forth by Law 20.091.
our Civil Code and applicable to any type of contracts. 5
The term “good faith” is used in Sections 5 and 7; “bad
3. Do insurance laws of your jurisdiction faith” is only used in section 8. Sections 5, 7 and 8 refer to
misrepresentation or concealment by the insured.
provide for both the principle of utmost
6
good faith and a separate duty of The terms “fraud” or “deceit” are mentioned in Sections 6, 8
disclosure for the insured? (both sections dealing with concealment by the insured), 48
(insured’s fraudulent breach of the duty to provide, at the
Coming now into the field of the Law of Insurance, the request of the insurer, the necessary information to verify
main laws enacted by Congress are the Insurance and adjust the loss; insured’s exaggeration of the loss;
3
Act that deals mainly with the insurance contract and insured’s use of false evidence), 70 (fraudulent production of
the loss by the insured), 72 (fraudulent breach of insured’s
duty to of salvage), 77 (fraudulent breach of insured’s duty of
refraining from changing the status of the property affected
1
Civil Code, Section 1198. by the loss), 105 (in animal insurance, insured’s fraudulent
2 mistreatment to the animal), 114 (in liability insurance,
CNCom., sala A, 05/19/99, “Touring Coop. de Seg. Ltda. c/ fraudulent production of the loss), 130 (concealment in life
Villar Segovia Luis”, 2000 D LL 25. insurance) and 152 (fraudulent production of the loss in
3 personal injuries insurance).
Law 17.418.
5. Does the duty of utmost good faith apply 8. Is the duty of utmost good faith for the
only at the pre-contractual stage or is it a insured equivalent to the duty of
continuous duty applying both pre- disclosure in your jurisdiction so that pre-
contractually and post-contractually? contractually the two are
indistinguishable?
It applies both, during the insurance contract
formation and during the execution of the contract. Yes, it may be considered equivalent.
II - Application of the Principle of Utmost Good 9. If the duty of utmost good faith operates
Faith at the Pre-Contractual Stage separately pre-contractually from the duty
of disclosure describe that operation and
6. Does the Principle of Utmost Good Faith how the two sit together. You may need
apply to both the insured and the insurer to describe the duty of disclosure to
at the pre-contractual stage? illustrate the differences.
Yes. N/A
A - For the Insured 10. What are the remedies for a pre-
contractual breach by the insured of the
7. What is the content of the duty of utmost duty of utmost good faith? Are the
good faith for the insured? remedies different from a breach of the
As mentioned above, Section 5 of the Insurance Act duty of disclosure?
states: Any false declaration or any concealment of According to Section 5 of the Insurance Act the effect
circumstances which are known by the assured, even of a material non-disclosure or a material
made with good faith, which in the opinion of an misrepresentation by an Insured, which in the opinion
expert would have avoided the contract or modified its of experts could have determined the Insurer not to
conditions, had the insurer be aware of the real state take the risk or to modify the terms of the contract if
of the risk, makes the contract void. the Insurer had been aware of the real state of the
Thus, during the formation of the contract the insured risk, is that the contract is null and void, even if the
has to provide the insurer with a true and correct material non-disclosure or material misrepresentation
declaration of the risk. Even if the insured innocently were made in good faith.
misrepresented the risk the insurer may avoid the The Insurer must avoid the contract within three
insurance contract. months of having known the material non-disclosure
The insurer cannot rescind the insurance contract at or material misrepresentation.
its sole discretion. It is necessary to produce expert If the insured acted with good faith, according to
evidence in order to prove the circumstances Section 6 of the Insurance Act, the insurer has two
mentioned in Section 5. options: (i) return the collected premium with a
Describe the insured’s pre-contractual deduction of the pertinent expenses; or (ii) with the
duty of utmost good faith by providing insured’s consent readjust the premium in accordance
7
examples of the best known cases in with the real risk.
which it has been applied. In life insurance the readjustment of the premium may
It may be said that at this stage of the contract, the be imposed to the insurer when (i) the nullity of the
duty relies more heavily on the insured. contract is prejudicial to the assured; (ii) if in
accordance with an expert opinion the contract could
The following are examples where misrepresentation be readjusted; and (iii) if the contract has been
was held to exist and therefore a breach of the duty of executed in accordance with the insurer commercial
utmost good faith: practice.
(i) when a used car was declared to be brand-new; (ii) If the insured acted with bad faith the insurer may
when the insured failed to declare a brain tumor keep the premium for the term passed and for the
8
concealed from him as a white lie; (iii) the value of term in which the non-disclosure was invoked.
insured goods is a significant circumstance that
determines the nullity of the contract; (iv) failure to
declare two theft losses occurring prior to the
purchase of the insurance.
Nevertheless, the insurer cannot void the insurance
contract at its sole discretion. It is necessary to 7
Insurance Act, Sections 5 and 6. In the case of life
produce expert evidence that must determine if had insurance, readjustment of the premium may be imposed on
the insurer be aware of the non-disclosure or the the insurer when avoidance of the contract were prejudicial
misrepresentation it would have avoided the contract to the insured, if pursuant to experts’ advice the contract
or if it would have been executed under different were readjustable and it had been executed according to the
conditions. commercial standards of the particular insurer involved.
8
The burden of proof lies on the insurer that alleges the In life insurance, the insurer may not invoke the
non-disclosure and misrepresentation. misrepresentation after three years as from the execution of
the contract, except when the insured acted with scienter
(Insurance Act, Section 130).
11. If the duty of utmost good faith operates brokers are usually involved and they have the duty to
separately from the duty of disclosure advise the insured.
does one have precedence over the
other? 15. What are the remedies for a pre-
contractual breach by the insurer of its
See above. duty of utmost good faith?
B - For the Insurer As already mentioned, if the text of the policy differed
from the proposal form, the difference will be deemed
12. What is the content of the pre-contractual
approved by the insured if the latter does not claim for
duty of utmost good faith for the insurer?
any such difference within a month of having received
Throughout the formation stage, the insurer must: the policy; provided that the insurer must have warned
the insured about this possibility by text included in
(i) sufficiently inquire about all material aspects of the the policy. If the insurer fails to warn the insured the
risk for which coverage is sought. later has the right to declare the policy null and void
Failure to do so, may reduce its chances to allege that (Section 12 of the Insurance Act).
had the information been appropriately disclosed, III - Post-Contractual Application of the Principle
coverage would have not been provided or that it of Utmost Good Faith (at the Claim Stage)
would have been provided under other conditions.
(ii) The policy, in turn, must be clearly drafted and A - For the Insured and Third Party
easy to read so that the insured be adequately Beneficiary of Cover
9
informed as to the coverage provided by the insurer. 16. What is the content of the post-
Any ambiguities will be construed against the insurer. contractual duty of utmost good faith for
If the text of the policy differed from the proposal form, the insured at the claim stage?
the difference will be deemed approved by the insured 16.1 Do third party beneficiaries of cover have
if the latter does not claim for any such difference a duty of utmost good faith?
within a month of having received the policy; provided
that the insurer must have warned the insured about Yes. They must provide to the insurer –if requested-
10
this possibility by text included in the policy. with all the information and documentation necessary
for adjusting the loss.
This is a clear example of how the law provided good
faith solutions to specific situations. 17. Describe the insured’s post-contractual
duty of utmost good faith by providing
13. Describe the insurer’s pre-contractual examples of the best known cases in
duty of utmost good faith by providing which it has been applied.
examples of the best known cases in
which it has been applied. The insured has the duty and the obligation of avoid
the alteration of the risk and if the risk is altered must
See 12 above. report it to the insurer.
14. Is it a breach of the duty of utmost good Section 37 of the Insurance Act states that “any
faith in your jurisdiction for insurers not aggravation of the risk that if would have existed at
to notify the prospective insured of the the time of execution of the contract, in the judgment
nature and extent of their duty of
of experts would have prevented the contract or would
disclosure? have modified its conditions, is a special cause for the
According to Section 4 of the Insurance Act, the insurer to rescind the contract”.
insurance contract is consensual (i.e. it is entered into It may be seen that the aggravation of the risk is
by the parties’ consent, and it enters in force from that subject to the same regime of the non-disclosure and
moment, even before the policy is issued). The misrepresentation. The insurer cannot rescind the
proposal does not bind neither the insured nor the insurance contract at its sole discretion. It is
insurer, and it may be subject to prior knowledge of necessary to produce expert evidence in order to
the general conditions. determine that if the risk would have existed the
As mentioned above if there are any differences insurer would have not executed the contract or would
between the proposal form and the terms of the have execute it under different conditions.
policy, such differences shall be considered accepted Section 38 of the Insurance Act states that the insured
by the insured if no claim is made within a month of must notify the insurer the aggravations that are due
having received the policy (Section 12, Insurance to its own acts, before they occur, and the
Act). aggravations due to third parties, immediately after
Therefore, the insured must present the proposal form knowing them.
fulfilled acting with good faith. In practice, insurance Under this section the insured is obliged to
communicate the insurer any aggravation caused by
him before they take place and those due to a third
party act, immediately after knowing them.
9
Insurance Act, Section 11.
Effects of the aggravation: the Insurance Act makes a
10 distinction taking into account whether the
Insurance Act, Section 12.
aggravation was caused by the insured or by a third If the insured fraudulently breached its duty to provide
party. the necessary information to investigate and adjust
the claim or fraudulently exaggerated the loss or
1) Aggravation caused by the insured provided false evidence of it, the insurer shall not be
(Section 39): obliged to cover the loss (Section 48).
Coverage is suspended for 7 days and within those 7 According to Section 77 of the Insurance Act the
days the insurer must notify its decision of rescinding insured must refrain from changing the status of the
the contract. property affected by the loss.
14
If the insured
The burden of proving the aggravation of the risk lies fraudulently breaches this obligation, the insurer is
on the insurer. liberated.
Nevertheless, the law gives the insurer the option of The insured is also obliged to make all the necessary
not rescinding the contract and to readjust the efforts (sue and labour) for avoiding a loss or to
premium in accordance with the real risk (Section 35). minimize the loss (Section 72). Failure to comply with
this disposition may allow the insurer to reduce the
If a loss occurred (Section 40 second paragraph) and amount of the indemnification taking into account the
the insured fraudulently failed to report the risk effect that the breach had in the amount of the
increase, the insurer shall not be obliged to cover the damage.
11
loss. Similarly, the insurer shall be released from
the obligation to indemnify the insured if the latter 18. Is the insured’s intentional concealment
12 of his/her criminal activities when
fraudulently (or recklessly) produced the loss.
completing a proposal for life policies a
2) Aggravation caused by a third party breach of the duty of utmost good faith?
(Section 40):
In principle it may be considered a breach of the duty
In this case coverage is not suspended and the of utmost good faith, but it will depend on the
insurer has one month to rescind the contract. circumstances of the case. Indeed, the main question
Considering that the rescission of the contract is for is if the Insurer would have executed the contract (in
the future, if a loss occurs during the one month the same or with different conditions) even if he was
period, the insurer will be liable for the loss aware of the concealment.
3) Effects of the rescission of the contract B - For the Insurer

(Section 41) 19. What is the content of the duty of utmost
a) If the aggravation of the risk was good faith for the insurer when dealing
communicated in due course, the with a claim?
insurer has the right to keep the The insurer must exercise due diligence while
premium for the period during which investigating the loss and must avoid unnecessary
the contract was in force. 15
delays in investigating the loss . In this sense the
b) If the aggravation of the risk was insurer have to request the proper and necessary
not communicated in due course, information to the insured and must avoid requesting
the insurer has the right to collect irrelevant information and/or documentation.
the premium for the whole contract. According to Section 56 of the Insurance Act, the
c) The right to rescind the contract insurer must accept or deny coverage within 30 days
may be lost. For example if the of having received the relevant information from the
insurer after knowing of the insured. Failure to do so implies that coverage has
16
aggravation collects a premium been accepted.
instead of rescinding, it will be 20. Does an insurer owe a duty of utmost
considered that he has waived the good faith towards third party
right to rescind. beneficiaries of cover in handling claims?
4) Good Faith after a Loss: Yes.
The insured should not provoke the loss neither 21. Describe the insurer’s post-contractual
voluntarily nor acting with gross negligence (Sections duty of utmost good faith by providing
70 and 114) and, in case of a loss (Section 46) the examples of the best known cases in
insured must promptly report it (normally, within three which it has been applied.
days from the occurrence) and in order to facilitate the
insurer investigation of the loss must provide the Insurer’s post-contractual duty of utmost good faith
insurer, at its request, with all the necessary mainly appears after the occurrence of a loss. Our
13
information to investigate and adjust the claim. Courts have repeatedly said that after the loss
14
11 Insurance Act, Section 77, first paragraph.
Insurance Act, Section 40 (a).
15
12 Insurance Act, Section 77, second paragraph.
Insurance Act, Section 70 (also Sections 114 and 152).
16
13 Insurance Act, Section 56.
Insurance Act, Sections 46, 102 and 115.
insurers must request all the necessary information 26. Can a breach by the insurer of the duty of
from the insured acting diligently and have the duty of utmost good faith result in regulatory
17
reject or accept the loss within a reasonable time sanctions against the insurer (license
suspension, banning order, etc.)?
It has also been said that once a loss occurs the
insurer must act with due diligence and good faith in In some cases, yes. For example, Section 23 of the
18
the assessment and payment of the loss and that Insurance Companies Law (that provides the
the insurer as a professional is obliged to act with due regulatory framework of the insurance activity)
diligence in case of a loss and therefore the principle establishes that insurers can only operate in those
of utmost good faith must be strictly applied in the lines of business in relation to which they have been
19
fulfillment of the insurer obligations expressly authorized by the regulator. If an insurer
issues a policy on a line of business for which it is not
22. Is there a Code of Practice for insurers in
expressly authorized by the regulator it may be
your jurisdiction and, if so, how does it sit
considered that it is acting with bad faith and subject
with the duty of utmost good faith?
to the sanctions provided by the law (warning, fine or
Insurers must mainly comply with the provisions of the license suspension).
Insurance Act. IV - Reinsurance
23. Can courts disregard a term of a contract
of insurance if it would be a breach of the 27. To what extent, if any, does your
duty of utmost good faith for the insurer jurisdiction apply different principles
to rely on the term? If so, please illustrate regarding utmost good faith to
with examples. reinsurance at both the placement/pre-
contractual stage, and at the claim stage?
The Court may declare a contract null and void if the
insurer is able to prove that the insured is in breach of Argentina has no specific statute on reinsurance. The
the duty of utmost good faith. only existing legal provisions specific to reinsurance
are four sections of the Insurance Act. These mainly
The Insurer must request the Court to declare the deal with: (i) the absence of cut-through rights of the
contract null and avoid within three months of having insured with respect of the reinsurer; (ii) the insured’s
known the material non-disclosure or material preference over other creditors as regards the
misrepresentation. insurance monies owed by reinsurers to a cedant in
24. Do courts have special powers to case of liquidation of the cedant; (iii) the set-off credits
disregard any avoidance of the and debts as between reinsurer and cedant in the
application of a policy in cases where the event that either party becomes insolvent.
insured has established that it would be a
The few reinsurance cases that have been decided by
breach of the duty of utmost good faith to
Argentine courts establish that reinsurance is a type
allow the insurer to avoid the policy?
of insurance. In the absence of express agreement in
Courts do not have special powers. They have to the reinsurance contract between the parties and
analyze the merits of the case, construe the evidence given the absence of legal provisions specific to
produced and issue a ruling on the matter under reinsurance, courts may apply to reinsurance cases,
discussion. by analogy, the rules established by the Insurance Act
for insurance matters.
25. To the extent that an insurer’s breach of
the duty of utmost good faith is under ****
statute, is it a breach of the statute for the
insurer to be in breach of its duty of
utmost good faith?
Manzano, López Saavedra & Ramírez Calvo
As already mentioned, in Argentine law, good faith is
mandatory to all contracts by operation of the Civil Palacio Alcorta
Code. Therefore, if the insurer fails to act with bad Martín Coronado 3256/60,
faith is in breach of the principle set forth by Section 2nd Floor Suite 202
1198 of the Civil Code. 1425 Buenos Aires, Argentina
Tel.: (54 11) 4802 4147

Email: mmanzano@mlsrc.com.ar
ishaw@mlsrc.com.ar
Website: www.mlsrc.com.ar
17
CNCom., Sala C, 4/11/2003, “Arbos María E. c/La
República Cía de Seguros Grales S.A.”, LL 26/04/2004).
18
CNCom., Sala C, 20/11/84, “Transportes Salami c/Capital
Cía de Seguros”, ED 116-623).
19
CNCom., Sala B, 01/03/93, “Transportadora de Productos
S.A. c/Antorcha”, Revista Jurídica del Seguro, la Empresa y
la Responsabilidad”, nros 23/24).
IBA Insurance Committee Substantive Project 2014 11 The Duty of Utmost Good Faith: Australia
Australia
CLAYTON UTZ on the insured to address the imbalance between
insurer and insured in respect of knowledge of the risk
David Gerber and Craig Hine
to be covered.
I - Definition of the Principle of Utmost Good Faith 2
According to one commentator , attempts to define
what constitutes the duty of ‘utmost good faith’ have
1. In your jurisdiction, do insurance laws used a variety of terms: ‘‘Fairness, fair conduct,
provide for the principle of utmost good reasonable standards of fair dealing, decency,
faith (in latin, “uberrimae fidei”) and if so, reasonableness, decent behaviour, a common ethical
what is its meaning? Provide any sense, a spirit of solidarity, community standards of
definition whether under statute or 3
fairness, decency, and reasonableness’’. He goes on
according to case law. to describe the duty as follows:
The term “uberrimae fidei” or “of the utmost good “What utmost good faith essentially requires
faith” is a principle which applies in the law of is that each party demonstrate an awareness
insurance in Australia. of and positive commitment to the other
Most contracts of insurance entered into in Australia party’s reasonable expectations under the
are governed by the Insurance Contracts Act 1984 contract and, more particularly, refrain from
(Cth) (Insurance Contracts Act). Under the exploiting any advantage, any position of
Insurance Contracts Act the duty of utmost good faith power, influence or discretion, whether
is implied into every contract which is subject to the conferred by the terms of the contract itself
Act. The meaning of utmost good faith is not defined or by the nature of the relationship, in order
in the Insurance Contracts Act. It is best understood to avoid the anticipated costs of performing
from the various cases in which the statutory duty has its contractual obligations, to the detriment of
been applied. the other party. Discretions expressly
conferred by the contract especially must be
Some contracts of insurance fall outside the exercised strictly within the limits and for the
Insurance Contracts Act. For instance contracts of purposes contemplated by the contract, and
reinsurance and contracts of marine insurance. not by reference to extraneous factors. The
Contracts not subject to the Insurance Contracts Act requirement however stops short of
are governed by the common law duty of utmost good disinterested altruism, and the parties owe
faith. In this regard the Australian common law is not each other no more than the level of
dissimilar to the English common law. Higher level performance which is reasonably to be
English judicial authorities are persuasive but not expected in light of the contemplated scope
binding on Australian Courts. As with the statutory and purpose of the policy, determined by
duty the meaning of the common law duty of utmost reference to all relevant considerations but in
good faith is best understood from the various cases particular, the basis upon which it is
in which the duty has been applied. promoted and sold. Viewed in this light and
at the risk of introducing another set of
The application of the English common law principle
‘‘weasel words’’ into the debate, utmost good
of utmost good faith was described in the United
faith can be seen as simply a form of
Kingdom in the 19th century in the following terms: 4
commercial morality.”
“There are some contracts in which our courts of law
and equity require what is called ‘uberrima fides’ to be
shown by the person obtaining them … Of these,
ordinary contracts of marine, fire and life insurance
are examples, and in each of them the person
otherwise?
desiring to be insured must, in setting forth the risk to
be insured against, not conceal any material fact Utmost good faith in Australia is a statutory principle
affecting the risk known to him. On the other hand, for contracts of insurance subject to the Insurance
ordinary contracts of guarantee are not amongst Contracts Act and a common law principle for
those requiring ‘uberrima fides’ … Whether the
contract be one requiring ‘uberrima fides’ or not must
depend upon its substantial character and how it
1
came to be effected.” 2
F Hawke, “Utmost Good Faith - What does it really mean?”
In Australia, the statutory duty goes well beyond this (1994) 6 ILJ 91.
historically narrow construction - which was to relate it 3
primarily to the duty of disclosure and impose the duty Hawke, op cit, at footnote 19 citing Lucke ‘‘Good Faith and
Contractual Performance’’, in Finn (ed) ‘‘Essays on
Contract’’; Reiter, ‘‘Good Faith in Contracts’’ (1983) 17 Val
UL Rev 705.
1 4
Seaton v Heath, Seaton v Burnand (1899) 1 QB 782 at p F Hawke, “Utmost Good Faith - What does it really mean?”
792 (per Romer LJ). (1994) 6 ILJ 91.
contracts of insurance not subject to the Insurance (c) that the insurer knows or in the
Contracts Act. ordinary course of the insurer’s
business as an insurer ought to
The Insurance Contracts Act implies into all contracts know; or
of insurance which are the subject of the Insurance
Contracts Act a provision regarding utmost good faith. (d) as to which compliance with the
It does so under section 13(1) as follows: duty of disclosure is waived by the
insurer.
“A contract of insurance is a contract based
on the utmost good faith and there is implied (3) Where a person:
in such a contract a provision requiring each
party to it to act towards the other party, in (a) failed to answer; or
respect of any matter arising under or in (b) gave an obviously incomplete or
relation to it, with the utmost good faith.” irrelevant answer to;
The Insurance Contracts Act does not define the duty. a question included in a proposal form
The Marine Insurance Act 1909 (Cth) (Marine about a matter, the insurer shall be
Insurance Act) says the following about the duty at deemed to have waived compliance with
section 23: the duty of disclosure in relation to the
matter.”
“Insurance is uberrimae fidei
The Insurance Contracts Act also deals more
A contract of marine insurance is a contract generally with disclosures and misrepresentations in
based upon the utmost good faith, and, if the Part IV of the Insurance Contracts Act, including
utmost good faith be not observed by either prescribing certain remedies for non-disclosure:
party, the contract may be avoided by the section 28.
other party.”
The Marine Insurance Act also articulates statutory
Similarly, the Marine Insurance Act does not define obligations of disclosure: section 24.
what constitutes utmost good faith. Rather, the
common law informs the meaning of the duty of At common law the doctrine of utmost good faith is
utmost good faith under the Marine Insurance Act. the source of the duty of disclosure at the time of
5
entry into a contract. The insured must act in
3. Do insurance laws of your jurisdiction accordance with the duty of utmost good faith during
provide for both the principle of utmost the term of the contract, but that this does not extend
good faith and a separate duty of the duty of disclosure beyond the time of entry into the
disclosure for the insured? contract: NSW Medical Defence Union Ltd v
Transport Industries Insurance Co Ltd (1985) 4
In Australia the answer to this question differs NSWLR 107.
depending on whether it is the statutory duty or the
common law duty. 4. Does the principle of utmost good faith
apply to all types of insurance contracts
Under statute, the Insurance Contracts Act provides a (life insurance, general insurance,
duty of utmost good faith between the parties to the reinsurance etc.)?
contract (and third party beneficiaries) and a separate
duty of disclosure for the insured. The duty of The principle applies to all types of insurance
disclosure is set out in section 21 of the Insurance contracts.
Contracts Act as follows:
However, it has express recognition as an implied
“The insured’s duty of disclosure term of the contract under the Insurance Contracts
Act That legislation does not apply to all contracts of
(1) Subject to this Act, an insured has a insurance. All other contracts of insurance attract the
duty to disclose to the insurer, before common law duty of utmost good faith.
the relevant contract of insurance is
entered into, every matter that is known The Insurance Contracts Act does not extend to:
to the insured, being a matter that:
 reinsurance;
(a) the insured knows to be a matter
relevant to the decision of the  health insurance;
insurer whether to accept the risk
and, if so, on what terms; or  insurance entered into by a friendly society;
(b) a reasonable person in the  marine insurance;

circumstances could be expected to
 workers compensation insurance;
know to be a matter so relevant.
(2) The duty of disclosure does not require  compulsory third party liability insurance;
the disclosure of a matter:
(a) that diminishes the risk;
5
(b) that is of common knowledge; Kelly & Ball Principles of Insurance Law, LexisNexis
Butterworths, at [5.0250].
 certain contracts entered into in the course of duty of disclosure, or both duties, rather than the duty
9
State insurance. of utmost good faith alone.
In CIC Insurance Limited v Barwon Region Water
5. Does the duty of utmost good faith apply Authority (1999) 10 ANZ Insurance Cases 61-425, an
only at the pre-contractual stage or is it a insurer argued that the failure to declare the existence
continuous duty applying both pre- of three structures in accordance with “declared
contractually and post-contractually? values” and “adjustment of premiums” clauses meant
In Australia, under the Insurance Contracts Act the that reliance by the insured on the insuring clause in
duty of utmost good faith applies both respect of those structures constituted a breach by
pre-contractually and post-contractually. the insured of its pre-contractual statutory duty of
utmost good faith. It was held that there was no such
Under the common law the post-contractual duty of breach by the insured on the basis that the failure to
utmost good faith has been applied in very few cases declare the structures was a mere oversight and there
10
and its width is uncertain. was “no want of honesty”.
II - Application of the Principle of Utmost Good Orniston JA went on to state that if he was wrong in
Faith at the Pre-Contractual Stage his view that there was a requirement for dishonesty,
there was nothing put forward to counter the following
6. Does the Principle of Utmost Good Faith finding by the primary judge:
apply to both the insured and the insurer
“Even if a failure to act with utmost good faith
at the pre-contractual stage?
need not always be attended by dishonesty, I
Each party to a contract of insurance is required to act do not consider that there is in this case any
towards the other party with the utmost good faith. failure by [the insured] to act fairly and
reasonably or any act by [the insured]
Under the Insurance Contracts Act, the duty of utmost contrary to community standards of decency
good faith applies to each party “in respect of any and fair dealing”.
11
matter arising under or in relation to” a contract of
6
insurance. This broad language makes it clear that On that basis, it was concluded that there had not
the duty applies to both the insured and the insurer at been a breach of the duty of utmost good faith.
the pre-contractual stage. However, the pre-
The pre-contractual common law duty of utmost good
contractual duty of utmost good faith implied by the
faith creates a requirement on the insured for full
Insurance Contracts Act “does not have the effect of
disclosure to the insurer and for the insured to have
imposing on an insured, in relation to the disclosure of
regard to the legitimate interests of the insurer.
a matter to the insurer, a duty other than the duty of
7
disclosure”. The Insurance Contracts Act creates the 8. Is the duty of utmost good faith for the
duty of disclosure in section 21. insured equivalent to the duty of
disclosure in your jurisdiction so that pre-
At common law, the duty is imposed on both the
contractually the two are
insured and the insurer. The trend at common law has
indistinguishable?
been for the duty of utmost good faith to be
considered in the context of the inception of a contract Under the Insurance Contracts Act, the statutory duty
8
of insurance. That may reflect the fact that the of utmost good faith, in its pre-contractual operation,
principle of utmost good faith historically manifested in is not in terms limited to the duty of disclosure.
disputes about breach of the duty of disclosure. However, in relation to disclosure, section 12 of the
Insurance Contracts Act has the effect that the duty of
A - For the Insured
utmost good faith does not impose any duty upon the
7. What is the content of the duty of utmost insured other than the duty of disclosure under
good faith for the insured? section 21.
Describe the insured’s pre-contractual At common law, the pre-contractual duty of utmost
duty of utmost good faith by providing good faith is directed primarily to the duty of
examples of the best known cases in disclosure. However, the duty goes beyond
which it has been applied. disclosure alone. It is imposed on each party to the
12
contract and informs all aspects of its operation.
In relation to contracts governed by the Insurance
Contracts Act, given that the Insurance Contracts Act
sets out a separate duty of disclosure on the insured
and provides that the implied duty of utmost good faith
9
does not extend that duty, insurers tend to rely on the P Mann, “Annotated Insurance Contracts Act”, 6th ed,
Thomson, 2014, p56 at [12.20.1].
10
CIC Insurance Limited v Barwon Region Water Authority
(1999) 10 ANZ Insurance Cases 61-425 at 74,774.
6
Insurance Contracts Act s 13(1). 11
CIC Insurance Limited v Barwon Region Water Authority
7
Insurance Contracts Act s 12. (1999) 10 ANZ Insurance Cases 61-425 at 74,775.
12
8
P Mann, “Annotated Insurance Contracts Act”, 6th ed, See for example Boulton v Houlder Bros [1904] 1 KB 784;
Thomson, 2014, p54 at [12.10.1]. Britton v The Royal Insurance Co (1866) 4 F & F 905;
Moraitis v Harvey Trinder (Qld) Pty Ltd [1969] Qd R 226;
9. If the duty of utmost good faith operates not occurred or the misrepresentation had not been
separately pre-contractually from the duty made: section 28(3).
of disclosure describe that operation and
how the two sit together. You may need The insurer remains entitled to avoid the contract if
to describe the duty of disclosure to the failure to comply with the duty of disclosure or the
illustrate the differences. misrepresentation was made fraudulently: section
28(2).
Under statute, section 12 of the Insurance Contracts
Act states (in relation to Part II of the Insurance The remedies in respect of life insurance are similar:
Contracts Act, which deals with the duty of utmost section 29. However, where there is a relevant non-
good faith): disclosure or misrepresentation that is innocent (and
does not relate to age), the insurer may only avoid
“The effect of this Part is not limited or certain contracts of life insurance (mortality based and
restricted in any way by any other law, with a residual value) within three years after the
including the subsequent provisions of this contract was entered into: section 29(3). Other
Act, but this Part does not have the effect of contracts of life insurance are subject to different
imposing on an insured, in relation to the considerations.
disclosure of a matter to the insurer, a duty
other than the duty of disclosure.” At common law, the remedy for a pre-contractual
breach of duty of utmost good faith is rescission of the
Accordingly, it has been said that the “interaction contract and refund of the premium: Banque
between the duty of utmost good faith and the duty of Financière De La Cite SA v Westgate Insurance Co
disclosure is an exception to the general principle of Limited (1991) 2 AC 249.
13
paramountcy”. In practice, this means insurers tend
11. If the duty of utmost good faith operates
to rely upon the duty of disclosure in section 21 of the
separately from the duty of disclosure
Insurance Contracts Act or both duties rather than the
duty of utmost good faith in isolation in circumstances
14 other?
of a failure to disclose.
The statutory duty of disclosure applies in the period Subject to the operation of sections 28 and 29 of the
“before the relevant contract of insurance is entered Insurance Contracts Act, the duties do not take
into” and hence relates only to pre-contractual precedence one over the other. Section 12 of the
15
disclosure. Where a policy includes a continuous Insurance Contracts Act makes it clear that the duty of
disclosure requirement which applies after the disclosure imposed by section 21 is not rendered
formation of the contract, a breach of that requirement more onerous by the operation of Part 2 of the Act
could amount to a breach of the statutory duty of (and, in particular, section 13: ‘The duty of the utmost
utmost good faith: Camellia Properties Pty Ltd v good faith’).
Wesfarmers General Insurance Ltd (2014) 18 ANZ B - For the Insurer
Insurance Cases 62-000.
At common law, the two duties do not operate duty of utmost good faith for the insurer?
separately pre-contractually.
See 13 below.
10. What are the remedies for a pre-
contractual breach by the insured of the 13. Describe the insurer’s pre-contractual
duty of utmost good faith? Are the duty of utmost good faith by providing
remedies different from a breach of the examples of the best known cases in
duty of disclosure? which it has been applied.
The Insurance Contracts Act deals expressly with the Cases in which the insurer’s pre-contractual statutory
remedies for a breach of the duty of disclosure. duty of utmost good faith has been applied suggest
Under section 28 of the Insurance Contracts Act, an that an insurer may breach the duty by leading the
insurer cannot avoid a contract of general insurance prospective insured to believe that they have cover
16
for innocent misrepresentation or innocent that is not put in place.
non-disclosure: section 28. However, the insurer In Cameron McIntosh Pty Ltd v C E Heath
may reduce its liability in respect of the claim to the Underwriting & Insurance (Aust) Pty Ltd (unreported,
amount that would place the insurer in a position in Vic Sup Ct, Ormiston J, 25 September 1991),
which the insurer would have been if the failure had Ormiston J noted that it is necessary that the insured
should be a party, either directly or through an agent,
to the negotiations for a contract of insurance at least
New South Wales Medical Defence Union Ltd v Transport because each party is required to act towards the
17
Industries Insurance Co Ltd (1985) 4 NSW LR 107; see also other with utmost good faith.
Ivamy, General Principles of Insurance Law, 3rd ed, 1975,
London, Butterworth & Co Ltd, p 251.
13
P Mann, “Annotated Insurance Contracts Act”, 6th ed, 16
Thomson, 2014, p56 at [12.20.1]. United Super Pty Ltd v Built Environs Pty Ltd (2000) 12
ANZ Ins Cas 90-113.
14
Ibid. 17
P Mann, “Annotated Insurance Contracts Act”, 5th ed,
15
See question 3 above. Thomson, 2003, p75 at [13.30.1].
The Insurance Contracts Act contains certain 15. What are the remedies for a pre-
protections for consumers which, while not expressly contractual breach by the insurer of its
stated to be or enhance the insurer’s pre-contractual duty of utmost good faith?
duty of utmost good faith, impose obligations on the
insurer which in effect are consistent with that duty. Section 13(1) of the Insurance Contracts Act makes
For example, the insurer must clearly inform the the duty of utmost good faith an implied term of any
insured in writing of: contract to which the Insurance Contracts Act applies.
An available remedy for breach by the insurer of this
 the general nature and effect of the duty of duty, therefore, is damages for breach of contract.
disclosure (section 21A) Section 14(1) of the Insurance Contracts Act provides
 any unusual provisions in the policy that a party to a contract of insurance may not rely on
(section 37) a provision of the contract, if to do so would be to fail
to act with the utmost good faith. Section 14(3)
 whether a ‘prescribed contract’ provides provides that in the case of an insurer, the court shall
insurance cover in respect of flood have regard to any notification of the provision that
(section 37C). was given to the insured. The common law pre-
contractual duty of utmost good faith on the insurer
At common law, the pre-contractual duty of utmost requires, primarily, clarity of drafting and steps to
good faith requires an insurer to draft policies which notify the insured of certain types of provision.
are easily understood and not ambiguous so that they However, detriment to the insured generally would
require interpretation and construction by a court, and flow when an insurer subsequently placed reliance
to bring unusual terms to the insured’s attention. upon a provision not clearly drafted or notified.
As an element of the duty of utmost good faith, an Therefore, assuming that the statutory duty places
insurer is arguably under a duty to draft any similar requirements upon the insurer, the remedy for
conditions precedent to liability under the contract in pre-contractual breach by the insurer of its duty of
clear and plain terms, separately from other utmost good faith may effectively, in many
provisions of the policy, and to draw attention to such circumstances, be an order to the effect that the
conditions precedent in the proposal form: Re Bradley insurer may not rely on a particular provision by the
and Essex and Suffolk Accident Indemnity Society contract.
[1911–13] All ER 444 at 453. At common law, the remedy for a pre-contractual
14. Is it a breach of the duty of utmost good breach of the duty of utmost good faith by the insurer
faith in your jurisdiction for insurers not is, as in the case of a breach by an insured, rescission
to notify the prospective insured of the of the contract and refund of the premium: Banque
nature and extent of their duty of Financière De La Cite SA v Westgate Insurance Co
disclosure? Limited (1991) 2 AC 249.
The Insurance Contracts Act creates a statutory However, in practice, there would be very few, if any,
requirement for insurers to notify the prospective circumstances in which an insured would seek to
insured of the nature and extent of their duty of rescind a contract of insurance in reliance upon a pre-
disclosure. This is separate from the statutory duty of contractual breach of the duty of utmost good faith.
utmost good faith. Subsection 22(1) states: That is particularly so in circumstances where the
insured has sought to make a claim under the
“The insurer shall, before a contract of insurance is insurance contract.
entered into, clearly inform the insured in writing of the
general nature and effect of the duty of disclosure III - Post-Contractual Application of the Principle
and, if section 21A applies to the contract, also clearly of Utmost Good Faith (at the Claim Stage)
inform the insured in writing of the general nature and
effect of section 21A.” A - For the Insured and Third Party
Beneficiary of Cover
If an insurer does not comply with subsection 22(1), it
may not exercise a right in respect of a failure to 16. What is the content of the post-
comply with the duty of disclosure unless that failure contractual duty of utmost good faith for
was fraudulent: section 22(3). the insured at the claim stage?
Accordingly, for contracts of insurance which are Dishonest conduct will constitute a breach of the duty
subject to the Insurance Contracts Act, an insurer implied under section 13(1) of the Insurance
must notify the prospective insured of the nature and Contracts Act. Hence, the deliberate insertion of a
extent of their duty of disclosure. Furthermore, it must false answer in a claim form is also a breach of
do so if the insurer is to be entitled to the remedies for utmost good faith: Gugliotti v Commercial Union
a failure by the insured to comply with the duty Assurance Co of Australia Limited (1992) 7 ANZ
(unless the failure is fraudulent). Insurance Cases ¶61-104.
The common law duty of utmost good faith does not, However, in CGU Insurance Ltd v AMP Financial
without more, require an insurer to notify a Planning Pty Ltd [2007] HCA 36 the Australian High
prospective insured of its duty of disclosure. Court held that it is not essential to prove dishonesty
in order to establish a breach of the statutory duty of
utmost good faith (albeit in the context of extends to third party beneficiaries and requires them
18
consideration of the insurer’s duty). The statutory to act towards the insurer, in respect of any matter
duty may require a party to a contract that is subject arising under or in relation to the contract of
to the Insurance Contracts Act to act consistently with insurance, with the utmost good faith. However,
commercial standards of decency and fairness, with section 13 applies in relation to a third party
due regard to the interests of the other party. beneficiary under a contract of insurance only after
the contract is entered into: section 13(4).
At common law the post-contractual duty of utmost
good faith has been applied in very few cases and its At common law, a third party beneficiary of cover may
19
width is uncertain. be bound by a duty of utmost good faith. In an obiter
opinion, Mahoney JA of the New South Wales
In Bolton v Houlder Bros & Co (1904) 1 KB 784 at p Supreme Court of Appeal said:
791, Matthew LJ observed that “it is an essential
condition of a policy of insurance that the underwriters “In my opinion, a third person involved in a
shall be treated with good faith, not merely in transaction of insurance may be bound by
reference to the inception of the risk, but in steps the principle of uberrimae fide (utmost good
20
taken to carry out the contract”. faith) and, to the extent he is, may be under
a duty to disclose facts affecting the
The post-contractual duty of utmost good faith at insurance; however, the extent of the duty
common law in England was addressed by Hirst J in imposed on the third person will depend on
Black King Shipping Corp and Wayangi (Panama SA) the circumstances of his involvement.”
22
v Massie (the “Litson Pride”) [1985] 1 Lloyd’s Rep 437
where it was said (at 518 and 519): 17. Describe the insured’s post-contractual
“I am prepared to hold that the duty not to examples of the best known cases in
make fraudulent claims and not to make which it has been applied.
claims in breach of the duty of utmost good
faith is an implied term of the policy … The deliberate insertion of a false answer in a claim
form is a breach of the duty of utmost good faith
Consequently, I hold that the underwriters implied under section 13(1) of the Insurance
are entitled to maintain the defence of Contracts Act: Gugliotti v Commercial Union
fraudulent claims and claims other than in Assurance Co of Australia Limited (1992) 7 ANZ
utmost good faith against the mortgagees, Insurance Cases ¶61-104.
since they arise out of the contract.”
In FAI General Insurance Co Ltd v Australian Hospital
While it is uncontroversial that a claim made Care Pty Ltd (1999) 10 ANZ Ins Cas 61-445, an
fraudulently would involve a breach of the post- insured under a third party liability policy elected not
contractual duty of utmost good faith, it is doubtful to give notice of known circumstances, which
whether such breach of the duty would itself sound in subsequently led to the making of a claim against it.
damages for breach of contract in England or in The insurer refused indemnity by reason of the failure
21
Australia. to notify but was unsuccessful in the proceedings at
16.1 Do third party beneficiaries of cover have first instance and on appeal. Although breach of
a duty of utmost good faith? utmost good faith was not argued, Chesterman J
expressed his opinion that perhaps in some cases
In respect of insurance contracts subject to the “the insurer may rely upon the implied obligation of
Insurance Contracts Act, third party beneficiaries of good faith contained in s 13 to resist paying where the
cover have a duty of utmost good faith by reason of insured seeks to resile from a decision not to give
changes to the Insurance Contracts Act recently notice of an occurrence.”
introduced by the Insurance Contracts Amendment
Act 2013 (Cth). In the common law case of New South Wales Medical
Defence Union Limited v Transport Industries
Pursuant to section 13(3), any reference in section 13 Insurance Co Limited (1985) 4 NSW LR 107, the
of the Insurance Contracts Act to a party to a contract insurer asserted that the insured had failed to comply
of insurance includes a reference to a third party with its obligation to act in good faith by failing to
beneficiary under the contract. The implied term under disclose the fact of claims having been made upon
section 13(1) of the Insurance Contracts Act therefore the insured by its members during the policy period.
Rogers J rejected the insurer’s argument, noting that
after the contract was formed there was no obligation
to disclose a matter simply because it would be
18 relevant to the insurer’s decision making. The case
CGU Insurance Ltd v AMP Financial Planning Pty Ltd
(2007) ANZ Insurance Cases 61-739 at 76,175 (per Gleeson did not decide that there was no post-contractual duty
CJ and Crennan J). of utmost good faith. However, it distinguished the
19 Litson Pride case (see Question 15) and found that
there had to be a “live obligation” on the part of a
Thomson, 2014, p54 at [12.10.2].
20
Bolton v Houlder Bros & Co (1904) 1 KB 784 at p 791 (per
Matthew LJ). 22
C E Heath Casualty & General Insurance Limited v Gray
21
See P Mann, “Annotated Insurance Contracts Act”, 6th ed, (1993) 32 NSW LR 25 at 36; 7 ANZ Insurance Cases 61-199
Thomson, 2014, pp54-56 at [12.10.2]. at 78, 276.
party to the contract of insurance to which the duty of obligation of utmost good faith is a
23
utmost good faith could attach. requirement of full disclosure to an insurer,
that is to say, a requirement to pay regard to
18. Is the insured’s intentional concealment
the legitimate interests of the insurer.
of his/her criminal activities when
Conversely, an insurer’s statutory obligation
to act with utmost good faith may require an
breach of the duty of utmost good faith?
insurer to act, consistently with commercial
As stated above, section 12 of the Insurance standards of decency and fairness, with due
Contracts Act ensures that the duty of utmost good regard to the interests of the insured. Such
faith does not extend an insured’s duty of disclosure an obligation may well affect the conduct of
beyond the requirements set out in section 21. an insurer in making a timely response to a
25
Accordingly, the intentional concealment by an claim for indemnity.”
insured of criminal activities when completing a In his dissenting judgment, Kirby J stated:
proposal for a life policy might only be a breach of the
duty of utmost good faith if those criminal activities “The principle is that the parties to insurance
must be disclosed in order to comply with the duty of contracts in Australia, unlike most other
disclosure. contracts known to the law, owe each other,
in equal reciprocity, an affirmative duty of the
If a prospective insured was specifically asked to utmost good faith. This is so now by s 13 of
disclose criminal activities and intentionally concealed the Act. In the context of that section,
them, the insured will have breached its statutory duty emphasis must be placed on the word
of disclosure. Whether or not the prospective insured “utmost”. The exhibition of good faith alone is
is obliged to disclose criminal activities in respect of a not sufficient. It must be good faith in its
particular contract of insurance would likely depend utmost quality.”
26
on the nature of that policy. The test is whether a
reasonable person would know it to be a matter An insurer’s duty under the Insurance Contracts Act
relevant to the decision of the insurer whether to extends to making prompts admission of liability to
24
accept the risk and, if so, on what terms. meet a sound claim for indemnity and, where
appropriate, to make payment promptly Moss v Sun
At common law, whether the prospective life insured’s Alliance Australia Ltd (1990) 6 ANZ Insurance Cases
criminal activities must be disclosed turns on the 27
60-967. However, where a matter is complex and
materiality of the activities to the proposed contract. investigation into the circumstances is difficult, it may
B - For the Insurer be reasonable for an insurer to delay making a
decision on indemnity for a longer period than usual:
19. What is the content of the duty of utmost Baulderstone Hornibrook Engineering v Gordian
good faith for the insurer when dealing Runoff (2006) 14 ANZ Insurance Cases 61-701.
with a claim?
It will also not constitute a breach of the statutory duty
Under the duty implied into the contract by section of utmost good faith where an insurer acts on
13(1) of the Insurance Contracts Act, when dealing apparent circumstances the contradiction of which lies
with a claim an insurer is required to act with due in the power of the insured: Sagacious Legal Pty Ltd v
regard to the legitimate interests of the insured and Wesfarmers General Insurance Ltd (2011) 16 ANZ
consistently with commercial standards of decency Insurance Cases 61-885.
and fairness: CGU Insurance Ltd v AMP Financial
Planning Pty Ltd [2007] HCA 36. For example, this As to the common law principle, there is little
requires an insurer to make a timely response to a guidance in the cases in relation to its content when
claim for indemnity and to avoid taking advantage of applied to the insurer dealing with a claim. It appears,
the insured’s difficulties. however, that the principle requires an insurer to
exercise discretionary powers, such as a power to
Gleeson CJ and Crennan J state the following about withhold consent to settlement in proceedings
the content of the statutory duty of utmost good faith involving a third party, with due regard to the interests
in their joint opinion in the CGU v AMP case: of the insured as well as to its own interests and
“We accept the wider view of the without regard to considerations extraneous to the
28
requirement of utmost good faith adopted by policy. The principle will have diminished relevance
the majority in the Full Court, in preference to
the view that absence of good faith is limited
to dishonesty. In particular, we accept that 25
CGU Insurance Ltd v AMP Financial Planning Pty Ltd
utmost good faith may require an insurer to
(2007) ANZ Insurance Cases 61-739 at 76,175.
act with due regard to the legitimate interests
26
of an insured, as well as to its own interests. CGU Insurance Ltd v AMP Financial Planning Pty Ltd
The classic example of an insured’s (2007) ANZ Insurance Cases 61-739 at 76,201.
27
See also Gutteridge v Commonwealth (Queensland
Supreme Court, Ambrose J, 25 June 1993, unreported,
BC9302579).
23
P Mann, “Annotated Insurance Contracts Act”, 6th ed, 28
Thomson, 2014, p54 at [12.10.2]. Distillers Bio-Chemicals (Australia) Pty Ltd v. Ajax
Insurance Co Ltd [1974] HCA 3; Re Zurich Australian
24
Insurance Contracts Act s 21. Insurance Ltd [1998] QSC 209 at [82].
where the policy expressly confers upon the insurer See also Kirby J’s dicta on the content of the duty, set
the right to act in a way which can only be inimical to out in his dissenting judgment, extracted at Question
29
the insured’s interests. 18, above. It is important to note the role of the (rather
prescriptive) policy wording in the case.
20. Does an insurer owe a duty of utmost
good faith towards third party The best known cases on the common law post-
beneficiaries of cover in handling claims? contractual duty upon the insurer are Distillers Bio-
Chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd
An insurer owes a statutory post-contractual duty of [1974] HCA 3 and Re Zurich Australian Insurance Ltd
utmost good faith towards third party beneficiaries of [1998] QSC 209.
33
cover since the recent changes to the Insurance
Contracts Act introduced by the Insurance Contracts The facts in Distillers were summarised by
30
Amendment Act 2013 (Cth). Chesterman J in Re Zurich at [43]-[44]:
There is no authority recognising the existence of “[T]he respondent issued a policy of public risk
such a duty at common law. Given that the common insurance to the appellant against whom claims were
law duty is between the parties to a contract of made for compensation. Condition 2 of the policy
insurance it is unlikely that it can be extended to non provided that the appellant should not make any
parties. admission, offer, promise or payment in connection
with any claim without the consent in writing of the
21. Describe the insurer’s post-contractual
respondent. The same condition entitled the
respondent, if it so desired, to take over and conduct
the defence or settlement of any claim in the name of
which it has been applied.
the appellant.
The best known High Court case on an insurer’s post- The appellant wished to settle some claims brought
contractual duty of utmost good faith under the against it. The respondent did not admit liability to
Insurance Contracts Act is CGU Insurance Ltd v AMP
31 indemnify the appellant pursuant to the policy but nor
Financial Planning Pty Ltd [2007] HCA 36. In this did it intimate that it would not do so. It refused to
case, the insured was faced with third party claims by take over or conduct the appellant’s defences of the
investors who had suffered loss having been advised claims. The appellant was concerned that if it settled
by financial advisers operating under the insured’s the claims it would be in breach of condition 2 and the
licence. The insured notified its professional respondent might, as a consequence, decline
indemnity insurer. The financial system regulator in indemnity. It unsuccessfully sought a declaration [in
Australia (ASIC) became involved, advising the the Supreme Court of New South Wales] that the
insured that it expected investors’ demands to be condition had no application where the insurer refused
handled in an efficient, fair and timely manner, to conduct the defence of the claims against the
irrespective of any insurance concerns. The insurer insured.”
reserved its rights and told the insured it should act as
a “prudent uninsured”. The insured then settled the A majority of the High Court upheld the appeal. The
third party claims after notifying the insurer that it reasoning of the majority did not turn upon application
would do so. After a delay of two years, the insurer of the principle of utmost good faith. However,
declined indemnity based among other things on a Stephen J said that the combination of an upper limit
32
denial that the insured was liable to the third parties. of indemnity and a right in the insuer to withhold
consent to settlement created the conditions for a
The Full Court of the Federal Court held by majority conflict of interest between insured and insurer. In
that, in the circumstances of the case, the insurer’s those circumstances, the consent of the insurer “is not
failure to make a timely decision on indemnity was a one which the insurer may arbitrarily withhold. Its
breach of its duty of utmost good faith. This decision power of restraining settlement by the insured must
was overturned by majority on appeal to the High be exercised in good faith having regard to the
Court. Two of the four majority judges (Callinan and interests of the insured as well as to its own interests
Heydon JJ) referred to notions of reciprocity and held and in the exercise of its power to withhold consent
that were it not for the conduct of the insured, the the insurer must not have regard to considerations
insurer’s conduct may well have been in breach of the extraneous to the policy of indemnity ... [T]he insurer
duty. However, they declined to make such a finding. must exercise its powers under the policy with due
The balance of the majority judges (Gleeson CJ and regard for the interests of the insured”.
34
Crennan J) did not accept that the insurer’s conduct
was in breach of its duty of utmost good faith but Re Zurich concerned a claim in negligence against an
made the statement extracted at Question 18, above. insured hospital by a former patient. Under a policy of
public liability insurance issued by the insurer, the
insured was covered for liability in negligence up to a
29
policy limit of $200,000, plus the costs of defending or
Re Zurich Australian Insurance Ltd [1998] QSC 209 at settling proceedings including costs that may be
[85]. awarded against the insured. Proceedings
30
See question 15.1 above.
31
See question 18 above.
33
32 See question 18 above.
34
Thomson, 2014, pp80-84 at [13.40.1]. At 26-27 and 29.
commenced by the former patient had been on foot 23. Can courts disregard a term of a contract
for many years when the insurer exercised its right to of insurance if it would be a breach of the
pay to the insured the full limit of its liability under the duty of utmost good faith for the insurer
policy and (i) withdrew from its conduct of the defence to rely on the term? If so, please illustrate
of the proceedings, and (ii) declined to provide with examples.
indemnity for any further defence costs that might be
incurred. Section 14 of the Insurance Contracts Act prevents a
party - whether the insured or the insurer - from
The insurer also disclaimed any liability to cover costs relying on a provision in the contract of insurance if
awarded against the isured in excess of costs already that reliance would be to fail to act with the duty of
incurred by the plaintiff to the litigation. As a matter of utmost good faith. Section 14(1) does not limit the
construction of the policy, the Supreme Court of operation of section 13: section 14(2).
Queensland (Chesterman J) held that the insurer in
fact was liable for the full amount of any subsequent There are a number of cases in which the duty of
costs order against the insured. utmost good faith has been considered in the context
of an insurer relying on a provision in breach of the
However, the insured also alleged that to decline to duty.
provide indemnity for its own legal costs incurred after
the insurer’s withdrawal would be a breach of the In Baradom Contracting Pty Ltd v GIO
principle of utmost good faith. Chesterman J did not General Ltd (unreported, NSW Sup Ct, Allen
agree. This was primarily on the basis that the J, 13 June 1996), an insurer was prevented
contractual right exercised by the insurer could only from relying on an exclusion in a broad form
ever be exercised in a manner that was inimical to the liability policy in circumstances where the
interests of the insurerd. For this reason, the post- policy was negotiated on the basis that there
contractual principle of utmost good faith, requiring would be no such exclusion, the underwriter
due regard to the interests of the insured in the did not intend the policy to contain the
exercise of contractual discretions, had limited scope exclusion, the terms of the policy were not
to condition the exercise of the particular power in communicated to the insured until after an
question. event giving rise to a claim and the premium
was grossly excessive for a policy containing
22. Is there a Code of Practice for insurers in the exclusion.
with the duty of utmost good faith? In Australian Associated Motor Insurers Ltd v
Ellis (1990) 54 SASR 61 an insurer was not
The General Insurance Code of Practice (Code) is a entitled to rely on the breach of a condition
voluntary code under which general insurers agree to which required the insured to notify the
uphold minimum standards. It was first introduced in insurer of modifications to an insured car
1994 and has recently been reviewed and updated - subsequent to policy inception. It was held
the latest version took effect on 1 July 2014. that sections 13 and 14 of the Insurance
Contracts Act required the insurer to give
The relationship between the Code and the duty of adequate warning to the insureds of the
utmost good faith is complex. The Code has a general nature and effect of the condition,
number of fairness standards. The duty of utmost otherwise the insurer could not rely on the
good faith at common law and under statute is said to condition. However, it is noted that this
include notions of fairness: CGU Insurance Ltd v AMP judgment has since been criticised in Re
Financial Planning Pty Ltd [2007] HCA 36; Re Zurich Zurich Australian Insurance Ltd (1999) 10
Australian Insurance Ltd [1998] QSC 209. ANZ Ins Cas 61-429.
There is necessarily some overlap between In Banks v NRMA Insurance Ltd (unreported,
requirements under the Code and the duty of utmost NSW Sup Ct, Brownie J, 1 September 1988)
good faith. The same conduct may fall short of the an insured was not prevented from relying on
standards required under each, but not always. It has a provision in an insurance contract which
been suggested that in appropriate circumstances, a specified a particular measure of indemnity.
court may have regard to whether an insurer had The provision provided for a measure of
acted in breach of a Code standard in assessing indemnity based on the cost of rebuilding a
whether the insurer’s conduct was in utmost good building to the same specifications. The
faith under the Insurance Contracts Act or that the building contained features which were
Code may inform the content of the statutory duty of unlikely to be replaced in the event that the
35
utmost good faith. building was completely rebuilt and had
recently been purchased for a sum which
was disproportionately low when compared
with the cost of rebuilding. It was held that
35 section 14 of the Insurance Contracts Act
I Enright, “General Insurance Code of Practice could not be used to prevent reliance on an
Independent Review 2012–2013”, Final Report, May 2013,
p102 at [9.121] (available at
express provision of the contract of
http://www.insurancecouncil.com.au/assets/report/GI%20CO insurance in these circumstances.
P%20Independent%20Review%20Final%20Report%202012
This remedy is not available at common law.
-13.pdf); P Mann, “Annotated Insurance Contracts Act”, 6th
ed, Thomson, 2014, pp 81-82 at [13.40.1].
24. Do courts have special powers to The Australian Securities & Investments Commission
disregard any avoidance of the (ASIC), which is the regulator responsible for
application of a policy in cases where the administering the Insurance Contracts Act, has a
insured has established that it would be a number of powers in relation to a failure to comply
breach of the duty of utmost good faith to with the statutory duty of utmost good faith. Under
allow the insurer to avoid the policy? section 14A of the Insurance Contracts Act, if an
insurer under a contract of insurance fails to comply
By statute in Australia avoidance of a contract is a with the duty of utmost good faith in the handling or
creature of the duty of disclosure which is distinct from settlement of a claim or potential claim under the
the duty of utmost good faith. While the insurer may contract, then ASIC may exercise certain powers it
avoid the contract of insurance from inception on the has under the Corporations Act 2001 (Cth). These
ground of a fraudulent failure to comply with the duty include powers to vary, suspend or cancel the
of disclosure or fraudulent misrepresentation, under insurer’s Australian financial services licence and to
the Insurance Contracts Act a court may disregard the make banning orders: section 14A(2).
avoidance in certain circumstances. Under section 31
of the Insurance Contracts Act, the Court may ASIC also has the power to bring representative
disregard the avoidance if it would be harsh and unfair actions against insurers on behalf of insureds and
not to do so. It can then allow the insured to recover third party beneficiaries in circumstances where:
the whole, or such part as the Court thinks just and
equitable in the circumstances, of the amount that  a number of insureds have entered into
would have been payable if the contract had not been contracts of insurance with an insurer; and
avoided: section 31(1).
 ASIC is satisfied that those insureds or any
The legislation provides some parameters within third party beneficiaries under the contract
which the Court may exercise the power conferred by have suffered damage, or are likely to suffer
section 31(1) and requires the Court to have regard to damage, because the terms of the contracts,
the need to deter fraudulent conduct in relation to or the conduct of the insurer, breaches the
36
insurance and weigh the extent of the culpability of requirements of the Insurance Contracts Act,
39
the insured against the magnitude of the loss that including the duty of utmost good faith.
would be suffered by the insured if the avoidance
37 IV - Reinsurance
were not disregarded.
Equivalent protections are not available to an insured 27. To what extent, if any, does your
under the common law. jurisdiction apply different principles
regarding utmost good faith to
reinsurance at both the placement/pre-
the duty of utmost good faith is under
insurer to be in breach of its duty of The statutory duty of utmost good faith does not apply
utmost good faith? to reinsurance because the Insurance Contracts Act
does not apply to reinsurance. Accordingly, a
In relation to the statutory duty of utmost good faith a
difference arises between principles regarding utmost
failure by a party to a contract of insurance (which
good faith for contracts of reinsurance and contracts
includes a third party beneficiary) - whether the
of insurance to which the Insurance Contracts Act
insured or the insurer - to comply with the provision
applies.
implied in the contract by section 13(1) of the
38
Insurance Contracts Act is a breach of the The common law duty of utmost good faith applies in
requirements of the Act: section 13(2). the same way to both direct insurance and
reinsurance. However, the circumstances in which
26. Can a breach by the insurer of the duty of
there may be a breach of the duty differ in practice.
utmost good faith result in regulatory
This is primarily because the sophistication and
sanctions against the insurer (license
bargaining power of each party to a contract of
reinsurance tends to be different to that of the parties
A breach of the statutory duty of utmost good faith can to a direct insurance contract.
result in regulatory sanctions but a breach of the
****
common law duty cannot. This is because the power
to impose regulatory sanctions arises under the
Insurance Contracts Act.
36
Section 31(3)(a).
37
Section 31(3)(b).
38
Namely, the provision requiring each party to act towards
the other party, in respect of any matter arising under or in
39
relation to it, with the utmost good faith. Insurance Contracts Act s 55A.
Clayton Utz
Level 15
1 Bligh Street
Sydney New South Wales 2000, Australia
Tel.: (61) 2 9353 4000

Fax: (61) 2 8220 6700
Email: dgerber@claytonutz.com
chine@claytonutz.com
Website: www.claytonutz.com
IBA Insurance Committee Substantive Project 2014 22 The Duty of Utmost Good Faith: Belgium
Belgium
LYDIAN 5. Does the duty of utmost good faith apply
only at the pre-contractual stage or is it a
Hugo Keulers and Anne Catteau continuous duty applying both pre-
I - Definition of the Principle of Utmost Good Faith contractually and post-contractually?
It is a continuous duty.
1. In your jurisdiction, do insurance laws
provide for the principle of utmost good II - Application of the Principle of Utmost Good
faith (in latin, “uberrimae fidei”) and if so, Faith at the Pre-Contractual Stage
what is its meaning? Provide any
definition whether under statute or 6. Does the Principle of Utmost Good Faith
according to case law. apply to both the insured and the insurer
There is no express provision on (utmost) good faith
in Belgian insurance laws. However, the general Yes.
principle of good faith applicable on all contracts also
A - For the Insured
applies on insurance policies.
2. Is the principle of (utmost) good faith (i) a 7. What is the content of the duty of utmost
statutory principle, (ii) a common law good faith for the insured?
principle or (iii) a civil law principle? Or is Describe the insured’s pre-contractual
it to be found under statute and duty of utmost good faith by providing
otherwise? examples of the best known cases in
The duty of good faith is one of the basic principles of
Belgian contract law. It is expressly provided for in The content will for a large part be covered by the
articles 1134, § 3 and 1135 of the Belgian Civil Code, duty to disclose (see Question 8). In general, insured
which is basically the same as the French Civil Code. will need to have a genuine interest to take out
Hence, it is a civil law principle in Belgium. insurance coverage for an unforeseeable loss (i.e. an
No difference is made between “good faith” and absence of an intention to prejudice the insurer).
“utmost good faith”. For the remainder of the Case law usually relates to violation of the specific
questionnaire we therefore base our answers on the provisions of the duty of disclosure.
principle of “good faith”.
8. Is the duty of utmost good faith for the
3. Do insurance laws of your jurisdiction insured equivalent to the duty of
provide for both the principle of utmost disclosure in your jurisdiction so that
good faith and a separate duty of pre-contractually the two are
disclosure for the insured? indistinguishable?
There is no express reference to the principle of good The duty of disclosure undoubtedly incorporates for a
faith in Belgian insurance laws. major part the principle of good faith within an
The Belgian Insurance Act provides for a duty of insurance context. The two concepts are however not
disclosure for the insured, both when the policy is identical. The duty of disclosure is expressly provided
being issued as throughout the duration of the policy. for in the Insurance Act and states specifically what
An example of this is in case of aggravation of risk must be disclosed and what not. There is numerous
during the lifespan of the insurance policy (Article 26 case law which applies those provisions. The principle
of the 25 June 1992 Non-Marine Insurance Law). of good faith is much broader and applies on all
contractual duties. It is recognized that each right can
4. Does the principle of utmost good faith be abused and must therefore be performed in good
apply to all types of insurance contracts faith. Because of the general nature of the principle, it
(life insurance, general insurance, is also harder to invoke it.
reinsurance etc.)?
However, note that a violation of the duty of
The principle of good faith applies to all types of disclosure not necessarily implies a violation of the
insurance contracts as it is a general principle of duty of good faith. Unintentional, but negligent lack of
contract law. disclosure will also be sanctioned.
9. If the duty of utmost good faith operates If an insurer is negligent by not providing a
separately pre-contractually from the questionnaire to the insured or not informing itself of
duty of disclosure describe that operation the risk, it cannot later invoke a lack of disclosure
and how the two sit together. You may which is the direct consequence of its own
need to describe the duty of disclosure to negligence. Another example would be the disclosure
illustrate the differences. of incomplete or imprecise medical information by the
insured, whereby the insurer does not take action to
When concluding an insurance policy, the insured request additional information. Also in such case the
must disclose to the insurer all known circumstances insurer would be prevented by the principle good faith
which he reasonably considers to be of influence on from invoking the incomplete disclosure if it follows
the risk assessment of the insurer. from its own negligence.
The principle of good faith could at this stage for 14. Is it a breach of the duty of utmost good
example be applied as preventing the insured of faith in your jurisdiction for insurers not
intentionally providing false or incomplete information to notify the prospective insured of the
to influence the risk assessment, or to prevent the nature and extent of their duty of
insured of taking out insurance knowing that the risk disclosure?
will certainly occur (absence of risk element).
It will be up to the insurer to request the information it
needs in order to asses the risk. If an insurer would
not request basic information it needs, it would
duty of utmost good faith? Are the
probably not be acting in good faith if it would later
remedies different from a breach of the
invoke such lack of information against the insured.
duty of disclosure?
See also Question 13. As to the statutory duty of
In general a violation of the duty of good faith would disclosure for the insured in general, there is no
result in that party being unable to exercise the right specific information obligation on the insurer imposed
which is not exercised in good faith. by the Insurance Act or by the Civil Code. This
follows from the application of the legal principle that
There are however specific remedies in the Insurance everybody is deemed to know the law.
Act for violation of the duty of disclosure or taking out
of insurance coverage with fraudulent intentions, 15. What are the remedies for a pre-
going from the possibility to terminate the policy, the contractual breach by the insurer of its
possibility to lower the coverage in case of a loss to duty of utmost good faith?
having the policy declared null and void. Besides the specific remedies available to the insured
11. If the duty of utmost good faith operates for violations of the insurer’s information duty, the
separately from the duty of disclosure general remedy would be that the insurer would be
does one have precedence over the prevented to exercise its rights because of such
other? violation.
Both have a legal basis and operate therefore on the III - Post-Contractual Application of the Principle
same level. Since the duty of disclosure to a large of Utmost Good Faith (at the Claim Stage)
degree incorporates the duty of good faith and is also
less general, it may in practice have precedence (lex A - For the Insured and Third Party
specialis derogat legi generali). In practice also for Beneficiary of Cover
insurance disputes, insurers will usually rely on the
16. What is the content of the post-
duty of disclosure as this is a better developed and
contractual duty of utmost good faith for
more mature concept for insurance contracts than the
the insured at the claim stage?
duty of good faith.
B - For the Insurer The insured will have the duty to cooperate with the
insurer for the evaluation of the damage and the
12. What is the content of the pre-contractual investigation of the loss. It will need to provide the
duty of utmost good faith for the insurer? information that insurer needs in such process. It will
also have to mitigate its damage. Certain of these
This could be seen as the insurer’s duty to fully inform duties are also expressly provided for in the Insurance
the insured on the insurance terms and the duty to Act and can be seen as an incorporation of the duty of
cooperate with the insured to obtain the necessary good faith.
information to fully understand the risk.
16.1 Do third party beneficiaries of cover have
13. Describe the insurer’s pre-contractual a duty of utmost good faith?
examples of the best known cases in Yes, just like any other party. This is specifically the
which it has been applied. case because for liability insurance third party
beneficiaries generally have a direct claims right
against the insurer pursuant to the Belgian Insurance
Act. Such direct claims right must be exercised in In the case of a car insurance which includes
good faith. coverage against theft, an insurer is not acting in
good faith if it continues to collect premiums without
17. Describe the insured’s post-contractual
verifying whether the insured has installed the
required alarm system and then refuses to pay out a
loss because of the lack of such alarm system.
An insured who does not provide the insurer with all your jurisdiction and, if so, how does it
information concerning a loss in order to avoid the sit with the duty of utmost good faith?
insurer discovering the application of a policy
exclusion, could be violating its duty of good faith. Assuralia, the Belgian sector federation of insurance
companies, has issued several Codes of Practice
An insured who does not mitigate its damage rules applicable on different situations (e.g. general,
because it is covered anyway, will not be acting in commercialization, loss adjusting, policy specific
good faith (and will also violate the specific duty on rules).
mitigation of damage). An insured who deliberately
files a claim for damages which is actually higher than These rules are not binding as such and are to be
the damages he really suffered, is acting fraudulently. considered as guidelines. However, they could
potentially be used to prove that an insurer did not act
in good faith if the insurer’s behavior is seriously
aberrant from these rules.
breach of the duty of utmost good faith? 23. Can courts disregard a term of a contract
of insurance if it would be a breach of the
This may be the case. It will likely depend on whether duty of utmost good faith for the insurer
the insured had the intention to mislead the insurer to rely on the term? If so, please illustrate
and also what the type of criminal activities are and with examples.
thus whether these have an impact on the risk
(membership of a criminal organisation vs. internet In principle yes, since it is accepted by Belgian’s
hacking or mail fraud). Supreme Court that all rights can be abused.
However, this is only very rarely applied by the lower
B - For the Insurer
courts.
19. What is the content of the duty of utmost
See Question 13.
good faith for the insurer when dealing
with a claim? 24. Do courts have special powers to
disregard any avoidance of the
The insurer will have to investigate and handle the application of a policy in cases where the
claims in a reasonable and professional manner. If an insured has established that it would be a
insurer would invoke unfounded arguments for the breach of the duty of utmost good faith to
mere sake of paying later rather than sooner, this may allow the insurer to avoid the policy?
constitute bad faith. In practice, it will probably be
difficult to prove that an insurer did not act in good The courts could decide that the insurer has wrongly
faith. refused to cover a loss because this would be a
violation of good faith. This implies that the insured
requests the court to do so and that the insured would
good faith towards third party
succeed in its burden of proof, which we consider
beneficiaries of cover in handling claims?
very difficult in such case.
Yes. There should be no difference with the insurer’s 25. To the extent that an insurer’s breach of
duties towards the insured. the duty of utmost good faith is under
21. Describe the insurer’s post-contractual statute, is it a breach of the statute for the
duty of utmost good faith by providing insurer to be in breach of its duty of
examples of the best known cases in utmost good faith?
Yes.
An insurer needs to inform its insured correctly when 26. Can a breach by the insurer of the duty of
applying a suspension of coverage. utmost good faith result in regulatory
A liability insurer needs to defend its insured against sanctions against the insurer (license
claims of third parties. When an insurer does not suspension, banning order, etc.)?
inform the insured that it will not do so because of In principle yes as insurance companies are highly
policy exclusions, it needs to inform the insured in a regulated. In practice, we consider the chance of such
clear and timely manner otherwise it may be violating sanction to be highly unlikely as a consequence of
its duty of good faith. individual cases. Sanctions are usually a result of not
following insurance legislation. Therefore the duty of back on the basic principles of contract law, including
good faith would already need to be incorporated into the principle of good faith.
a specific legal provision which was breached before
****
it would in practice lead to a sanction against the
insurer. Also, it must have been established that
acting in bad faith is a consistent and structural
default within an insurer before the Regulator or the Lydian
Ombudsman would take action.
Tour & Taxis
IV - Reinsurance Havenlaan
Avenue du Port 86c b113
27. To what extent, if any, does your 1000 Brussels, Belgium
jurisdiction apply different principles
regarding utmost good faith to Tel.: (32) 2 787 9000
reinsurance at both the placement/pre- Fax: (32) 2 787 9099
contractual stage, and at the claim stage? Email: hugo.keulers@lydian.be
anne.catteau@lydian.be
Also on reinsurance and retrocession contracts the
general principle of good faith (articles 1134, § 3 and
Website: www.lydian.be
1135 of the Belgian Civil Code) applies.
The role of the principle of good faith will however
likely be more relevant in the relationship between
insurer and reinsurer and especially between
reinsurer and retrocessionaire because these
relationships are for a major part built on trust. The
insurer has to take the interests of the reinsurer into
consideration when the loss is reinsured and typical
clauses like Follow the Fortunes and Follow the
Settlements are applicable.
In addition, reinsurance is almost not regulated in
Belgium which means that parties will need to fall
IBA Insurance Committee Substantive Project 2014 26 The Duty of Utmost Good Faith: Brazil
Brazil
VEIRANO ADVOGADOS material facts (including risks), how the contract and its
provisions operate, etc.
Felipe Bastos
I - Definition of the Principle of Utmost Good Faith statutory principle, (ii) a common law
1. In your jurisdiction, do insurance laws it to be found under statute and
provide for the principle of utmost good otherwise?
faith (in latin, “uberrimae fidei”) and if so,
what is its meaning? Provide any The principle of utmost good faith has long been a
definition whether under statute or statutory principle as far as insurance contracts are
according to case law. concerned. Prior to the enactment of the BCC, which
entered into force in 2003, the former Civil Code, which
The Brazilian Civil Code (the “BCC” or the “2002 BCC”) dates back to 1916 (the “1916 BCC”), also required the
adopts the principle of good faith as a general principle parties to an insurance contract to act according to the
in the field of contracts. Article 113 of the BCC strictest good faith. The wording of Article 1,443 of the
establishes that “legal transactions must be construed 1916 BCC was nearly the same of the current Article
in accordance with good faith and the uses of the place 765 of the BCC:
of its formation” whereas Article 422 sets forth that:
“The contracting parties must abide by the 1916 Civil Code 2002 Civil Code
principles of good faith and fair dealing in the
execution and in the performance of the Art. 1.443. The insured Art. 765. In the execution
contract.” and the insurer are and in the performance of
bound to keep the a contract, the insured
Although the provisions do not refer to utmost good
strictest good faith and and the insurer are
faith, but rather to good faith, without further
truthfulness, and so act bound to keep the
qualification, it is well established in Brazil that the
with respect to the strictest good faith and
principle of good faith when applied to contracts is
object of the contract truthfulness, with respect
understood contemporaneously in a very broad
and to the to both the object of the
spectrum. The meaning of good faith applied in Brazil,
circumstances and contract and the
especially in the area of insurance, largely meets that
declarations in circumstances and
of utmost good faith in other jurisdictions. It is generally
connection therewith. declarations concerning
understood that the principle of good faith, as provided
its object.
for in the BCC, creates a wide range of duties to the
contracting parties, such as the duty to inform the other
party of relevant facts concerning the contract in
question, and the duty to conduct oneself in a Despite the longstanding recognition of the duty of
consistent fashion throughout the relationship, and also good faith in the area of insurance law on a statutory
taking into account the interests of the other party. basis, the content of the principle of good faith has
Articles 113 and 422 apply to contracts in general, changed quite dramatically over time. Up until the 80s
which includes insurance contracts. Despite that, the and 90s, good faith was usually construed more
BCC turns to good faith again when it regulates narrowly, typically referring only to the subjective state
insurance contracts in particular. Article 765 of the of mind of the party to the contract. In simplest terms, it
BCC sets down: essentially required the party not to act dishonestly.
Good faith was the opposite of bad faith. In the
“Art. 765. In the execution and in the insurance arena, it involved not concealing known
performance of a contract, the insured and material facts from the other party if so asked. This
the insurer are bound to keep the strictest narrow concept came to be called subjective good
good faith and truthfulness, with respect to faith.
both the object of the contract and the 1
circumstances and declarations concerning its Especially from the 90s onwards , the doctrine of good
object.” faith gained much more importance in the contractual
context in Brazil. Along with the subjective character,
When framing the provision, the legislature was careful the principle of good faith was said to have also an
enough reinforce to reinforce the importance of the objective dimension, one that required a much more
principle of good faith when it specifically regulated the ethical standard of behavior from the contracting
contract of insurance. Note that when it comes to parties than the narrow subjective good faith. The
insurance, the BCC calls for the application of the
principle of good faith in the strictest sense possible,
leaving no doubt that, when it comes to such type of
1
contract, the duty of good faith must be construed very Some scholars argue that the 1916 BCC already
broadly, creating for the parties a wide range of contemplated the principle of objective good faith. Although
cooperation duties, such as the duty to disclose this is not denied by other scholars, it is quite clear that the
content of the principle expanded severely over time.
objective good faith imposes on the parties a multitude about the sale. Supposing that a loss occurs, this will
of affirmative duties, such as the duty to be transparent not exempt the insurer from paying under the policy
with the counterparty, and to pursue mutual benefits necessarily. At least not under the rationale that has
from the contractual intercourse, rather than behaving prevailed in Brazil. This is because the courts have
one-sidedly, without regard to the interests of the other developed the understanding that coverage may be
party. denied only if the insurer proves that the risk was
materially aggravated as a result of the sale of the car.
3. Do insurance laws of your jurisdiction
Therefore, the courts have inadvertently shifted the
burden of proof here from the insured to the insurer.
good faith and a separate duty of
disclosure for the insured? By way of example, innocent non-disclosure clauses,
which might be acceptable in some jurisdictions, would
In Brazil, the duty of disclosure is not separate from the hardly be enforceable in Brazil. They would conflict
principle of utmost good faith, but rather the former is a with the final part of Article 769, which creates a very
consequence of the latter. In other words, the duty of high bar for the insurer to deny coverage on the basis
disclosure in Brazilian insurance law is a duty that of breach of duty to disclose during the policy period.
derives from the principle of good faith. Despite that,
the legislature has rendered a specific treatment to the 4. Does the principle of utmost good faith
duty of disclosure, particularly as regards the formation apply to all types of insurance contracts
of insurance contracts. This is provided for in Article (life insurance, general insurance,
766 of the BCC: reinsurance etc.)?
“Art. 766. If the insured himself or his Yes, the principle of utmost good faith applies to all
representative makes inaccurate statements types of insurance contracts.
or omits circumstances that could influence
5. Does the duty of utmost good faith apply
acceptance of the application or the premium
rate, he shall lose the right to the guarantee,
continuous duty applying both pre-
in addition to being obligated to pay the
contractually and post-contractually?
premium due.”
By the same token, the head of Article 37 of the Even though the law in Brazil expressly refers to the
SUSEP Circular No. 256/2004 so determines: principle of good faith applying to the making and to
the performance of the contract, it is well established
“Art. 37. The contractual conditions must that the principle extends to the pre-contractual and
include that if the insured, its legal post-contractual stages as well.
representative, or its broker makes
II - Application of the Principle of Utmost Good
misstatements or omits circumstances that
Faith at the Pre-Contractual Stage
may affect the acceptance of the offer or the
rate of the premium, the right to compensation
will be impaired, in addition to being the 6. Does the Principle of Utmost Good Faith
insured obligated to pay the overdue apply to both the insured and the insurer
premium.” at the pre-contractual stage?
Article 769 reinforces the insured’s duty of disclosure in Yes, Article 765 of the BCC is plain and clear that the
the context of the performance of the insurance principle of good faith must operate both ways, i.e., to
contract. It sets forth that the insured and to the insurer and applies at the pre-
contractual stage. Because the principle of utmost
“Art. 769. The insured is bound to inform the good faith is largely perceived as creating the duty to
insurer, as soon as he becomes aware of all disclose specific information at the time of making and
incidents which may substantially aggravate renewing the contract, at the pre-contractual stage it is
the risk covered, under the penalty of loss of perhaps fair to say that it affects more the insured than
right to the guarantee, if its proven that he the insurer.
silenced in bad faith.
Yet, the principle of utmost good faith also plays an
§ 1. The insurer, provided that he acts in the important role in the sale of insurance. Oftentimes
fifteen days following the receipt of the notice insurance brokers are held to be longa manus – i.e.,
of aggravation of the risk without fault intermediaries – of insurance carriers. As such, they
attributable to the insured, may inform the are also charged with good faith duties of clarifying to
insured in writing of his decision to terminate the applicant or policyholder contractual conditions that
the contract. are not plain or obvious.
§ 2. The termination is enforceable thirty days By the same token, also in the name of good faith,
after the corresponding notice, being the insurers to use a plain, objective, conspicuous and
insurer required to return the balance of informal language in all contractual clauses (Articles 7
premium.” and 9 of the SUSEP Circular No. 256/2004):
The harshness of the Article 769 rule is sometimes “Art. 9 The Conditions of Contract shall be
mitigated by the Brazilian courts. For instance, in expressed in plain and objective language, so
automobile insurance, let us say that the owner of a that does not generate multiple interpretations
car covered under an automobile policy sells the and respect the vernacular, as well as
vehicle to a third party, but fails to inform the insurer
present, especially, the obligations and / or disclosure in Brazil, in the pre-contractual stage the
restrictions on the right of the insured”. duty of disclosure is the main manifestation of the
principle of utmost good faith.
The Brazilian Consumer Code (Federal Law No.
8,078/90, usually referred to as “CDC”) as well 9. If the duty of utmost good faith operates
mandates that all offers made to consumers shall bear separately pre-contractually from the duty
adequate, accurate, and plain language, and describe of disclosure describe that operation and
its features objectively and conspicuously (Articles 6, how the two sit together. You may need to
III, and 31 of the CDC). describe the duty of disclosure to illustrate
the differences.
As a result, insurance companies are not so rarely held
liable for the language of the policy, either because the In theory, the principle of utmost good faith is not
language is way too difficult for insureds to understand confined to the duty to disclose. It also manifests itself,
or because the policy language is ambiguous, for instance, in Article 771, in fine, of the BCC, which
contradictory or otherwise gives room to multiple creates for the insured the duty to take affirmative
interpretations. steps seeking to mitigate the harmful consequences of
a loss to the insurer once the loss materializes:
In another recent precedent the STJ stroke down a
clause in a property insurance that limited coverage to “Art. 771. On pain of losing the right to
“qualified theft” only, leaving simple thefts uncovered. indemnification, the insured shall inform the
The court held that the knowledge of the specific insurer of the loss, as soon as he learns of it,
meaning of “qualified theft,” which is a term of art and shall take immediate measures to
defined under the Brazilian Penal Code, cannot be diminish the consequences of the loss to the
assumed from the insured, who was a consumer and insurer.
2
thus was presumably vulnerable .
A - For the Insured contractual breach by the insured of the
7. What is the content of the duty of utmost remedies different from a breach of the
good faith for the insured? duty of disclosure?
Describe the insured’s pre-contractual
In theory, under Article 766 of the BCC, the insurer will
have the right to either terminate the contract or keep it
and charge any extra premium to insure the
heightened risk covered. If the insured is found to have
The principle of utmost good faith is largely related to breached the duty of disclosure intentionally (i.e., to
the duty of disclosure owed by the insured towards the have acted in bad faith), the insured shall lose the right
insurer not only in the formation of the contract, but to the guarantee accorded by the insurance contract,
also in its performance. When applying for insurance but will still be bound pay any overdue premium.
coverage, the insured must describe the relevant facts In practice, as indicated in the preceding answer, many
related to the scope of the insurance. courts in Brazil place on the insurer the high burden of
For example, in the application for health or life showing that the insured consciously concealed a
insurance, the insured must neither conceal nor lie material fact and sometimes that such fact had causal
about any known serious personal illness or health connection with the loss in order to uphold termination
condition when answering the health questionnaire. If of the insurance contract.
the insurer proves that the insured knew about such A classic example involves the implication of suicide in
health condition or illness beforehand, the latter will be life insurance. Article 798 of the BCC is crystal clear
found to have breached the principle of good faith. that the beneficiary in a life insurance policy has no
Note that despite usually referring to the objective right whatsoever to the insured amount if the insured
concept of the principle of good faith, the courts in commits suicide within the two (2) first years of
Brazil usually require the insurer to prove that the contract. The criterion adopted by the law was a purely
insured has acted in bad faith – in theory, a objective one. However, the courts in Brazil have
characteristic of the subjective concept of good faith – modified the law by introducing a subjective element to
in order to allow the insurer to avoid the contract. The the test. The courts currently understand that the
bar imposed on insurers is, thus, very high. insurer can only avoid paying under the contract if it
manages to show that the insured purchased the policy
8. Is the duty of utmost good faith for the with the preconceived intention to defraud the insurer
insured equivalent to the duty of by committing suicide. In real world, it is nearly
disclosure in your jurisdiction so that pre- impossible for the insurer to be discharged from such
contractually the two are burden, making insurers vulnerable to pay the insured
indistinguishable? amount to the beneficiaries in virtually all suicide
Even though the duty of utmost good faith is generally cases.
much broader than (and not confined to) the duty of
2
Cf. REsp 1,293,006/SP, 3rd Panel, DJe 06/29/2012.
11. If the duty of utmost good faith operates charge insurers with the duty of educating insureds on
separately from the duty of disclosure the nature and extent of their duty of disclosure. This
does one have precedence over the other? happens more often in sophisticated and complex
types of insurance products, annuities, in which the
As indicated earlier, the duty of disclosure is a subset extent of the duty of disclosure may be less intuitive.
of the principle of utmost good faith. Therefore, they do
not conflict. 15. What are the remedies for a pre-
B - For the Insurer duty of utmost good faith?
Typically the insurer will be bound to perform under the
insurance contract, which in most instances will
The principle of utmost good faith operates very translate into indemnifying the insured or paying the
broadly for the insurer. For instance, the principle has insured amount to the beneficiary. It is not uncommon
been invoked in several life insurance disputes where for moral damages to be available for the insured or
the underlying policy had been renewed continuously the beneficiaries if the insurer is found to have delayed
for decades. Many precedents hold that in such too much to pay proceeds under the policy.
instances, by renewing the policy consecutively for III - Post-Contractual Application of the Principle
many years, the insurer would have created on the of Utmost Good Faith (at the Claim Stage)
insured in good faith an expectation that it would keep
being renewed on similar bases indefinitely despite
A - For the Insured and Third Party
his/her ageing. As a result, the insured would be
entitled to renewal whereas the insurer would be
prevented from not renewing the policy. Therefore, in 16. What is the content of the post-contractual
such situations, insurers’ have been precluded from duty of utmost good faith for the insured
rejecting renewal and from raising the premium at the claim stage?
substantially on grounds of ageing because such acts
are held to be abusive and in breach of the principle of The insured must cooperate with the insurer in the
good faith. claims handling process by providing accurate and
timely information and documentation related to the
In a similar fact pattern, there are precedents holding loss.
that after renewing the policy for many years in a row,
the insurer cannot validly avoid the policy on grounds 16.1 Do third party beneficiaries of cover have
of preexisting illness. Such a behavior has been a duty of utmost good faith?
deemed as incompatible with the principle of good As interested parties, the duty of utmost good faith
faith. arguably is also owed to third party beneficiaries. This
Good faith has been frequently invoked in cases where is even clearer and unmistakable if the underlying
the insured paid the premium to the broker, but the insurance contract qualifies as a consumer contract.
latter failed to pass the money on to the insurer. 17. Describe the insured’s post-contractual
Absent showing of negligence and bad faith on the part duty of utmost good faith by providing
of the insured, court precedents have held that the examples of the best known cases in
insurance contract must be considered valid and which it has been applied.
binding upon the insurer in such cases.
Examples of the duty of utmost good faith in the post-
13. Describe the insurer’s pre-contractual duty contractual stage include the interaction between the
of utmost good faith by providing insurer and the insured in the loss adjustment process,
examples of the best known cases in in the renewal of the policy and in the right of
which it has been applied. subrogation of the insurer.
See above. As pointed out earlier, the insured is bound to
14. Is it a breach of the duty of utmost good cooperate with the insurer in the loss adjustment
faith in your jurisdiction for insurers not to process by providing information and documentation
notify the prospective insured of the regarding the loss in an accurate and timely fashion.
nature and extent of their duty of Also, in the context of policy renewal, the insured must
disclosure? disclose to insurer any supervening event which may
have increased the insured peril or influence the
Even though the duty of disclosure is expressly insurer in determining the premium to be charged and
contemplated in Article 766 of the BCC, in those cases whether or not to accept the application.
where the insurance relationship is held to qualify as a
3
consumer contract , the courts in Brazil sometimes In liability insurance, manifestations of the duty of
utmost good faith include the insured’s duty to inform
3
Consumer contracts are such contracts that fall within the to be consumer contracts. Oversimplifying a little the concept
concepts of the CDC. The CDC is a comprehensive body of for the purposes of this questionnaire, suffice it to say that
law which provides for public policy rules according a only insureds which happen to be large and sophisticated
heightened level of protection to the so-called consumers of companies arguably fall outside the scope of protection of the
products and services, including insurance and financial CDC.
services. The vast majority of insurance contracts are deemed
to the insurer, as promptly as possible, the 23. Can courts disregard a term of a contract
consequences of his/her acts which may result in of insurance if it would be a breach of the
liability under the policy, that is, which may implicate duty of utmost good faith for the insurer to
the insurer. The insured is also precluded from rely on the term? If so, please illustrate
acknowledging liability in a case brought against with examples.
him/her and from settling with plaintiff (i.e., the injured
third party) without the prior and express consent of the There are precedents holding void for abusive clauses
insurer. Such rules, which also derive from the stipulating waiting periods in life insurance policies, i.e.
principle of utmost good faith applicable to the insured, provisions establishing that the policy will not become
are not absolute though and must be assessed on a enforceable upon the formation of the contract, but
case-by-case basis. rather at a later point in time.
18. Is the insured’s intentional concealment of Another example involves termination of the insurance
his/her criminal activities when completing contract for cause based on default on the part of the
a proposal for life policies a breach of the policyholder. Even if the policy allows the insurer to
duty of utmost good faith? terminate the policy in such instance upon default by
the policyholder without notice to the latter, there are
If the criminal activities are current and may impact the several precedents holding that the insurer must give
risk assessment inherent to the analysis made by the prior notice of the default to the policyholder in order
insurer, then its concealment will amount to a breach of for the termination to be effective.
the duty of utmost good faith.
Also, see the answer to item 6 where we discuss
Past criminal activities which have no direct and briefly the case on “qualified theft” vs. “simple theft.”
present connection with the scope of the insurance
contract most probably will have no bearing and, thus, All such cases are grounded on the principle of good
would not qualify as a breach of the duty of utmost faith.
good faith. 24. Do courts have special powers to
B - For the Insurer disregard any avoidance of the application
of a policy in cases where the insured has
19. What is the content of the duty of utmost established that it would be a breach of
good faith for the insurer when dealing the duty of utmost good faith to allow the
with a claim? insurer to avoid the policy?
The insurer must be careful and keep the policyholder Yes. Courts in Brazil frequently scrutinize the validity of
informed about the main facts surrounding the claims exclusions under the policy vis-à-vis the principle of
handling process, including the adjusting process. In good faith. Typically, the courts determine whether the
the so-called damage insurances – as opposed to the exclusions are compatible with the insured’s
so-called personal insurance –, the insurance reasonable expectation concerning the scope of the
authorities mandate the insurer to pay proceeds under policy.
the policy within thirty (30) from the loss
communication by the insured. Such term may be
stayed whenever the insured delays in providing the
insurer with information or documentation related to the
loss requested by the latter.
utmost good faith?
good faith towards third party Yes.
beneficiaries of cover in handling claims? 26. Can a breach by the insurer of the duty of
Yes.
21. Describe the insurer’s post-contractual suspension, banning order, etc.)?
examples of the best known cases in Yes. In the administrative field, the insurer is subject to
which it has been applied. the oversight by the Superintendence of Private
Insurance (Superintendência de Seguros Privados –
See answer to the preceding items. SUSEP) and, for those contracts that qualify as
consumer ones, also by the consumer protection
authorities, usually known as “PROCONs”. It is
incumbent upon such entities to investigate misconduct
with the duty of utmost good faith?
by the insurer amounting to breach of the principle of
The National Federation of Insurance Companies good faith.
(Federação Nacional das Empresas de Seguros e de For instance, under the CNSP Resolution No 243, of
Capitalização – FENASEG) issued in 2011 a Code of 2011, as amended, insurers held by the insurance
Ethics for the industry. The Code of Ethics is binding authority to have breached or delayed unjustifiably the
upon the adhering parties. Nevertheless, the Code of performance of a given insurance contract are liable to
Ethics is a short document and only refers to the a fine in a range between BRL10,000 and BRL300,000
principle of good faith generically. (Article 29). A similar offense that implicates the
principle of good faith is the one provided for by Article
33 of said regulation. It states that the insurer which
modifies general, special or particular conditions of the

policy or any other contractual document related
thereto without the prior consent of the policyholder,
when such consent is required under the law, can be
subject to a fine which may vary between BRL20,000
and BRL800,000.
IV - Reinsurance
27. To what extent, if any, does your

Even though reinsurance contracts are made by
sophisticated parties per definition, as opposed to a
broad category of insurance contracts that involves
insurers and vulnerable consumers, under Brazilian
law the principle of utmost good faith is equally
applicable to reinsurance contracts. This is because
the courts in Brazil have established that reinsurance
contracts fall within the more general classification of
insurance contracts, which, therefore, attracts the
applicability of Article 765 of the BCC, along with
Articles 113 and 422 of the same statute, which apply
to contracts in general. The duty to inform that derives
from the principle of good faith affects the parties to a
reinsurance contract much the same way to that
applicable to insureds and insurers in every insurance
contract; it applies to both parties, albeit affecting the
ceding company slightly more than the reinsurer with
respect to the risks transferred to the latter. The ceding
company must communicate any loss to the reinsurer
as soon as reasonably practicable. The ceding
company must also keep the reinsurer informed about
any material developments in the loss adjusting
process and allow the reinsurer to take a leading role if
the reinsurance contract provides for a claims control
clause.
****
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IBA Insurance Committee Substantive Project 2014 32 The Duty of Utmost Good Faith: Canada
Canada
MCMILLAN LLP principles covering all aspects of civil law. Provincial
statutes such as the Act respecting Insurance
Assunta Di Lorenzo, Carol Lyons and Frank (Québec) and the Act respecting the Distribution of
1
Palmay Financial Products and services (Québec) amongst
Preliminary Comments others, and the regulations adopted thereunder,
complete this legal framework. The general principles
Canada is a federation with two distinct jurisdictions of of Quebec insurance law are contained in Chapter XV
political authority: the country-wide federal of the Civil Code of Québec. For the most part, the
government; the ten provincial governments and three rules governing insurance in Québec are similar to
territories. The division of powers between the federal those elsewhere in Canada. Some of the articles
and provincial governments was initially outlined in under property insurance are devoted exclusively to
the British North America Act, 1867 (now known as fire insurance.
the Constitution Act, 1867). There is no express
provision in the Constitution Act, 1867 for jurisdiction Each province and territory also has its own insurance
over insurance. The matter was somewhat settled department which regulates market conduct and the
through the courts over the years which have licensing and supervision of insurance intermediaries
interpreted the provinces’ constitutional power to such as agents, brokers and adjusters in their
regulate “property and civil rights” to include the province. In Québec, for example, the Autorité des
marketplace regulation of insurance. Accordingly, marches financiers (the “AMF”), is the regulator of
2
except for marine insurance , the regulation of Québec incorporated insurance companies and of
contracts of insurance is largely a provincial matter. extra-provincial insurance companies licensed to
conduct insurance business in the province of
All provinces and territories of Canada have used Québec.
their “property and civil rights” power to shape
insurance contract law and to license any insurers Our responses to this questionnaire focus on both the
undertaking insurance in the province or territory and common law provinces and the civil law province of
insurance intermediaries. Each province and territory Québec.
has legislation dealing with most aspects of insurance I - Definition of the Principle of Utmost Good Faith
contracts made within its boundaries. Apart from auto
insurance, which varies widely across the various
provinces and territories, the legislation regarding
insurance is broadly similar in most provinces and
territories. However, recent provincial insurance acts
contain important exceptions and differences. The
definition whether under statute or
provincial and territorial statutes deal both with the
according to case law.
form and the content of contracts and address several
classes of insurance, each of which has different common law provinces
rules. The provincial and territorial statutes include
rules regarding disclosure and misrepresentation in Yes. The principle of utmost good faith under
negotiations, entry into force, content of policies, Canadian common law provinces traces back to the
notice and proof of loss, valuation of loss, third party English contract law case, Carter v. Boehm (1766) 3
rights and termination of contracts, amongst others. Burr 1905, which established the duty of utmost good
faith (or uberrimae fidei) in insurance contracts. In
The province of Québec distinguishes itself from the that case, Lord Mansfield held that the insured
rest of Canada in that its private law is governed not applying for insurance coverage owed a duty of
by the common law provinces, but by the Civil Code utmost good faith to the insurer to disclose all facts
of Québec containing a comprehensive set of legal material to the risk. This initial articulation of the duty
was based upon the inequality of information between
the proposed insured and the insurer. The insured
must disclose all relevant information in order to
1
Our thanks to A. Max Jarvie, Mirna Kaddis and Jennifer enable the insurer to accurately assess the risk. The
Allman, students at law, for contributing to the preparation of courts have since imposed the duty on the insurer as
our responses to this questionnaire. well.
2
Some would argue that provinces have at least a Based on more recent pronouncements by Canadian
concurrent jurisdiction with the federal government (which
courts, it is a well-established principle under
has power over navigation and shipping) in the field of
marine insurance. In 1993, the federal government adopted Canadian common law provinces that an insurance
the Marine Insurance Act, a statute whose provisions are
similar to its provincial counterparts.
3
contract is one of utmost good faith. In addition to the Quebec law, insurance contracts generally are
9
express terms of the policy and any statutorily founded on this principle.
mandated conditions, there is an implied obligation in
every insurance contract that the insurer will deal with Similar to the common law provinces, this concept
4
claims from its insured in good faith. The obligation to applies to both insured and insurer. With respect to
act in good faith is separate from the insurer's the insured, the duty of utmost good faith requires that
obligation to compensate its insured for a loss the insured make representations that a “normally
covered by the policy and, as such, its breach gives provident insured would make, if they were made
rise separate and additional damages.
5 without material concealment and if the facts are
10
substantially as represented” and that “represent all
The Supreme Court of Canada in Fidler v Sun Life the facts known to him which are likely to materially
11
Assurance Company of Canada adopted the influence an insurer in the settling of the premium” .
definition articulated in 702535 Ontario Inc v Lloyd's With respect to the insurer, the duty is connected with
London Non-Marine Underwriters: its position of power relative to the insured: the insurer
12
cannot abuse its dominant position. The insurer’s
The duty of good faith also requires an insurer to deal duty of utmost good faith finds expression in the
with its insured's claim fairly. The duty to act fairly requirements of competence, diligence and an
applies both to the manner in which the insurer obligation to inform the insured.
13
investigates and assesses the claim and to the
decision whether or not to pay the claim. In making a The duty of utmost good faith is also linked in Quebec
decision whether to refuse payment of a claim from its law with the concept of mutuality, an essential
insured, an insurer must assess the merits of the principle that governs all insurance contracts.
claim in a balanced and reasonable manner. It must Mutuality is the concept by which in insurance
not deny coverage or delay payment in order to take contracts, the risks of the insured and his/her insurer
14
advantage of the insured's economic vulnerability or are combined in a proportionate manner.
to gain bargaining leverage in negotiating a
settlement. A decision by an insurer to refuse
payment should be based on a reasonable
interpretation of its obligations under the policy. This
duty of fairness, however, does not require that an
otherwise?
insurer necessarily be correct in making a decision to
dispute its obligation to pay a claim. Mere denial of a common law provinces
claim that ultimately succeeds is not, in itself, an act
of bad faith.
6 The principle of utmost good faith is a creature of
common law provinces; however, some incidents of
civil law (Quebec) common law good faith have been articulated by
Yes. In general, the Civil Code of Quebec provides for statute in the context of insurance contracts. For
the basic principle of good faith in articles 6, 7, and example, section 183 of the Ontario Insurance Act sets
1375, stating that civil rights, as well as obligations, out the insured's duty to disclose in relation to life
need to be exercised in good faith. Quebec’s insurance as follows:
insurance law operates with an augmented form of
this concept, described as the principle of utmost
7
good faith. In the case of marine insurance, article
2545 of the Civil code of Quebec expressly states that 9
See Jean-Louis Baudouin, La responsabilité civile, volume
these contracts are “based upon the utmost good II, La responsabilité professionnelle, 7e éd., Éditions Yvon
8
faith”. Moreover, the courts have determined that in Blais, 2007, p. 455-457; General Motors Acceptance
Corporation du Canada, Ltée c. AXA Assurances Inc., 2005
CanLII 23356 (QC CQ). See also Hadley Shipping Company
Limited c. Eagle Star Insurance Company of Canada (1980),
500-05-003232-73, AZ-80021306 (QC CS).
3 10
702535 Ontario Inc v Lloyd's London, Non-Marine Civil Code of Quebec, LRQ c. C-1991, art. 2409.
Underwriters (2000), 184 DLR (4th) 687 (ONCA) [702535]. 11
Civil Code of Quebec, LRQ c. C-1991, art. 2408.
4
Whiten v Pilot Insurance Co, 2002 SCC 18 at 650 [Whiten]. 12
See McKinnon c. Industrielle Alliance, assurances
5 collectives, 2010 CanLII 5622 (QC CQ).
Ibid.
13
6
2006 SCC 30 at para 63, citing 702535 at para 29. See Christiane Dubreuil, « L’assurance : un contrat de
bonne foi à l’étape de la formation et de l’exécution », (1992)
7
See Jean-Louis Baudouin, La responsabilité civile, volume 37 McGill L.J. 1087, online: MLJ
II, La responsabilité professionnelle, 7e éd., Éditions Yvon <http://lawjournal.mcgill.ca/userfiles/other/2867937-
Blais, 2007, at 455-457. See also Canadian Indemnity Dubreuil.pdf >.
Company v. Johns-Manville Company, [1990] 2 S.C.R. 549. 14
See Didier Lluelles, “Précis des assurances terrestres”,
8
See Civil Code of Quebec, LRQ c C-1991, art. 2545. 5th ed., (Montreal: Editions Thémis, 2009) at 4.
183. (1) Duty to disclose – An applicant for representations to the insurer, are expressions of the
19
insurance and a person whose life is to be principle of utmost good faith.
insured shall each disclose to the insurer in
the application, on a medical examination, if Finally, the Quebec Court of Appeal has established
any, and in any written statements or that in civil law there exists a precontractual obligation
answers furnished as evidence of to inform on the part of an insurer (through the agent
20
insurability, every fact within the person’s acting as the insurer’s mandatary).
knowledge that is material to the insurance 3. Do insurance laws of your jurisdiction
15
and is not so disclosed by the other. provide for both the principle of utmost
This statutory provision applies to the pre-contractual
disclosure for the insured?
stage of the insurance contract.
Similarly, section 18 of the Ontario Marine Insurance Common law provinces and civil law (Quebec)
Act provides that: Yes, both the common law provinces and civil law
18. A contract of marine insurance is a (Quebec) provide for the principle of utmost good faith
21
contract based upon the utmost good faith, and a separate duty of disclosure for the insured.
and if the utmost good faith is not observed For the common law provinces, please refer to the
by either party the contract may be avoided answer to Question 8 below. Although the principle of
by the other party.
16 utmost good faith in insurance contracts is
indistinguishable from the duty of disclosure, the duty
This statutory provision imposes a good faith duty in of disclosure has specifically been codified in various
the context of marine law on both the insured and the statutes of the common law provinces for particular
insurer and implies that the duty exists at both the types of insurance contracts.
pre-contractual and post-contractual phase of the
contract. Similarly, in civil law, it is important to note that
although it is possible to distinguish and describe
Further, the Ontario Insurance Act mandates a each of these principles separately, they are
standard form of automobile policy which requires conceptually related in Quebec law. The Quebec
certain statutory conditions to be printed as part of Court of Appeal has determined, for example, that the
each automobile policy in Ontario. The first such duty of utmost good faith governs the pre-contractual
22
statutory condition provides as follows: declarations made by an insured; in addition,
Quebec courts have also found the principle of utmost
1. Material Change in Risk – (1) The
good faith to be in operation when an insured notifies
insured named in this contract shall promptly 23
his/her insurer on material change in risk or in
notify the insurer or its local agent in writing his/her declarations regarding losses.
24
of any change in the risk material to the
contract and within the insured’s
17
knowledge.
This statutory condition applies to the insured in the
post-contractual phase of the insurance contract. 19
See Jawahar Lal Sharma c. La Victoria Compagnie
civil law (Quebec) d'Assurances, [1997] R.R.A. 46 (C.A.); Lemay Paquette c.
Unique cie d'assurances générales, 2004 CanLII 14063 (QC
In Quebec, the principle of utmost good faith is both a CS); Miserany c. Royal Sun Alliance, 2007 QCCQ 12212;
statutory and a civil law principle. It is made express Minville c. Assurances générales des Caisses Desjardins,
in article 2545 of the Civil Code of Quebec, which 2006 CanLII 3162 (QC SC); see also Ali c. Assurances
states that the contract of marine insurance is générales des Caisses Desjardins, 2002 CanLII 36299;
18 Gagnon v Unum Life Insurance Company of America, 2010
founded on the utmost good faith.
CanLII 4224 (QC SC).
With respect to insurance contracts generally, courts 20
have established that articles 2408, 2409, 2466, 2471 See Baril c. Industrielle compagnie d'assurance sur la vie,
1991 CanLII 3566 (QC CA).
and 2472 of the Civil Code of Quebec, all of which
concern the obligations of the insured in his/her 21
For Quebec, see Civil Code of Quebec, LRQ c C-1991,
art. 2407, 2466, 2470-2473, 2545.
22
See Jawahar Lal Sharma c. La Victoria Compagnie
d'Assurances, [1997] R.R.A. 46 (C.A.); Gagnon v Unum Life
15 Insurance Company of America, 2010 CanLII 4224 (QC SC).
RSO 1990, c I-8.
16 23
RSO 1990, c. M.2. See Lemay Paquette c. Unique cie d'assurances
générales, 2004 CanLII 14063.
17
O.A.P. 1 – Ontario Automobile Policy, Sec. 8 – Statutory 24
Conditions. See Civil Code of Quebec, LRQ c C-1991, arts. 2466 and
2470; Cyr c. Groupe la laurentienne, 1988 CanLII 1092 (QC
18
See Civil Code of Quebec, LRQ c. C-1991, art. 2545. CA).
27
4. Does the principle of utmost good faith contractual stage. This includes negotiations and of
apply to all types of insurance contracts course the prospective insured’s declaration of risk at
28
(life insurance, general insurance, the formation of the contract . During the contract,
reinsurance etc.)? the duty of utmost good faith remains applicable since
the insured has the obligation to notify his/her insurer
common law provinces and civil law (Quebec) of any change that increases the risk stipulated in the
29
Yes, both for the common law provinces and civil law policy. Finally, the duty of good faith also applies at
(Quebec) jurisdictions, the principle of utmost good the claim stage. For example, when declaring the
30
faith applies to all types of insurance contracts. Case circumstances of a claim the insured must act in the
law does not hinge the application of the principle utmost good faith. Hence, the duty of utmost good
upon the subject matter or type of insurance. Quebec faith is a continuous one that applies pre-
courts have stated that the principle of utmost good contractually, contractually and post-contractually.
faith governs all contracts of insurance between II - Application of the Principle of Utmost Good
25
insurers and insureds. Furthermore, some of the Faith at the Pre-Contractual Stage
provisions relating to the utmost good faith, such as
26
the declaration of risk, are in the “General
6. Does the Principle of Utmost Good Faith
Provisions” division of the chapter on insurance of the
Civil Code of Quebec, thus implying that all insurance apply to both the insured and the insurer
contracts are subject to the principle.
5. Does the duty of utmost good faith apply common law provinces and civil law (Quebec)
only at the pre-contractual stage or is it a Yes, utmost good faith applies to both the insured and
continuous duty applying both pre- the insurer both in common law provinces and in civil
contractually and post-contractually? law, in a reciprocal manner. For the common law
common law provinces provinces, the Ontario Court of Appeal in Ferme Gérald
Laplante & Fils Ltée v Grenville Patron Mutual Fire
As described in answer to Question 1 above, the Insurance Co stated that "[i]n an insurance contract,
insured’s common law duty of utmost good faith applies the law has long recognized, in addition to the express
at the time of applying for coverage. terms of the contract agreed to by the parties, a mutual
obligation between insurer and insured to act in utmost
The insurer's duty of good faith is present during every good faith."
31
The common law provinces clearly
stage of the claims process according to the common states that the insured’s duty to disclose all information
law. It requires the insurer to act in a timely and material to the risk exists at the pre-contractual stage.
considered manner and not to use its position of Similarly, case law has found that failure by the insurer
economic power against the insured. Case law is very to obtain material information from the insured at the
limited involving claims by insurers against insureds for time of entering into the insurance contract is bad faith
breach of their duty of good faith other than at the pre- if the insurer later denies coverage on the basis that it
contractual stage. The allegation is normally raised by was missing the information.
32
the insurer as a defence. However, theoretically, the
duty could be applied, for example, where the insured A - For the Insured
is in breach of its obligations under the insurance
contract. Note that statutory condition 1 of the Ontario
good faith for the insured?
standard form automobile policy (referred to in the
answer to Question 2 above) specifically provides for
the insured’s duty of disclosure following the formation
of the contract. 27
See François Duprat, “La négociation du contrat
civil law (Quebec) d’assurance : du plus fort au plus faible”, Développements
récents en droit des assurances (2009), EYB2009DEV1564.
Similarly, in Quebec, the duty applies continuously, 28
throughout the pre- and post-contractual stages. The See Civil Code of Quebec, LRQ c C-1991, art. 2408.
duty of utmost good faith first applies at the pre- 29
See Civil Code of Quebec, LRQ c C-1991, art. 2466;
Lemay Paquette c. Unique cie d'assurances générales, 2004
CanLII 14063.
30
See Miserany c. Royal Sun Alliance, 2007 QCCQ 12212
(CanLII).
31
[2002] OJ No. 3588 (CA) at para 72.
25
See General Motors Acceptance Corporation du Canada, 32
Ltée c. AXA Assurances Inc., 2005 CanLII 23356 (QC CQ); Sagl v. Cosburn, Griffiths & Brandham Insurance Brokers
Supra, note 12; Bolduc c. Wawanesa, 2004 CanLII 16770 Ltd. (2007), 54 C.C.L.I. (4th) 236 (Ont. S.C. J.), revd in part
(QC CQ). 72 C.C.L.I. (4th) 193, supp. reasons 77 C.C.L.I. (4th) 161
(Ont. C.A.), leave to appear to S.C.C. refused January 28,
26
See Civil Code of Quebec, LRQ c C-1991, art. 2408. 2010, at para. 62.
Describe the insured's pre-contractual obligation to declare to the insurer all the relevant
duty of utmost good faith by providing elements for the insurer to be able to evaluate the
38
examples of the best known cases in risk. Therefore, in principle, the insurer should be
which it has been applied. able to rely on the insured’s good faith and diligence
to assess the risk, without having to investigate
common law provinces 39
further. The insured has the obligation not only to
The insured has a duty to disclose all information that answer the questions asked by the representative of
is relevant to the risk, whether or not the insurer the insurer, but also to divulge, on his/her own
33
has inquired about them. The insured cannot initiative, any relevant fact that could affect the risk.
benefit from concealed knowledge; however, the This is explained by the fact that it is difficult for the
insured need not mention what the insurer already insurer to find out confidential information about the
40
knows, ought to know, or is reasonably presumed to insured, such as his/her health status, by himself.
34
know. That being said, the insurer cannot deny 41
For instance, in Deguise c. Montminy , the Court
coverage on the basis of missing information when decided that the duty of good faith implied that the
the insurer knew the information was missing. insureds had to divulge the content of a report saying
In Andrusiw, the insured suffered a stroke that that the presence of pyrrhotite in their rocks could
resulted in the loss of the use of his left hand and he cause damages.
was required to wear a foot brace and use a cane. In Mansour c. Companie mutuelle d’assurances
The insurer made monthly payments to the insured 42
Wawanesa, in the case of a car insurance contract,
based on the diagnosis that he would be unable to the policyholder needed to divulge the reasons why
return to work. The insured brought an action for total the previous insurance was cancelled, in that case
disability benefits and the insurer counterclaimed to because of a default of payment.
be reimbursed for the monthly payments. The court
held in favour of the insurer, stating that with the foot Finally, in Lamarche c. Assurances Générales des
43
brace the insured was able to use his foot in a way caisses Desjardins, the Court expressed that the
that enabled him to perform the duties of his job. As policyholder in a car insurance contract needs to
such, his disabilities did not fall within the definition of disclose any previous criminal record in a car
35
'total disability.' insurance contract, failing which the contract may be
invalid.
In Al-Asadi, the insured claimed that his motorcycle
had been stolen and brought an action against his 8. Is the duty of utmost good faith for the
insurance company for the replacement value of the insured equivalent to the duty of
motorcycle. However, there was no evidence the disclosure in your jurisdiction so that
motorcycle had actually been stolen, and pre-contractually the two are
investigations show it could not have been started indistinguishable?
without the insured's microchipped key. The insured
therefore breached his duty of good faith to the common law provinces
36
insurer by engaging in fraud. The duty of disclosure is present in the common law
civil law (Quebec) provinces and statute for certain types of policies. For
example, in Ontario the Insurance Act provides that
The applicable principles are very similar in the civil an applicant for life insurance must disclose every fact
law tradition. At the pre-contractual stage, the within their knowledge that is material, or else the
44
insured’s duty manifests itself during the initial contract is void. Similarly, the Insurance Act
declaration of risk, just as in the common law provides that where an applicant for automobile
37
provinces jurisdictions. The policyholder has the insurance gives, among other things, false particulars
of the described automobile, a claim by the insured is
33
Ferme Gérald Laplante & Fils Ltée v Grenville
38
Patron Mutual Fire Insurance Co (2002), 61 OR (3d) See Tardif c. 9111-7317 Québec inc., 2004 CanLII 19064
481 (Ont CA). (QC CQ).
34
(1766), 3 Burr 1605 (KB) footnote 53, at para 5. 39
35 5th ed., (Montreal: Editions Thémis, 2009) at 237.
Andrusiw v Aetna Life Insurance Co of Canada (2001),
289 AR 1 (Alta QB) [Andrusiw]. 40
Id.
36
Al-Asadi v Alberta Motor Assn Insurance Co (2003), 41
See 2014 CanLII 2672 (QC CS).
ABQB 289 [Al-Asadi].
42
37 See 2008 CanLII 2451 (QC CQ).
See Civil Code of Quebec, LRQ c C-1991, art. 2408;
Jawahar Lal Sharma c. La Victoria Compagnie 43
See 2002 CanLII 38440 (QC CQ).
d'Assurances, [1997] R.R.A. 46 (C.A.); Gagnon c. Unum Life
44
Insurance Company of America, 2010 CanLII 4224 (QC SC). Insurance Act, RSO 1990, c I8, s 183.
45
invalid. In other jurisdictions, specific areas of responsibility of the insurer to prove the false
51
insurance have a statutory duty to disclose (e.g. in statement by the insured.
British Columbia there is such a duty for accident and
46
sickness insurance ). The common law provinces Also, there are limits to this disclosure obligation. Like
duty of disclosure requires applicants to disclose in the common law provinces jurisdictions, the insured
material facts, but does this does not include future does not have to represent the facts that the insurer
52
47
changes to risk. The common law provinces duty of knows or is presumed to know. Also, the presence
disclosure and the duty of utmost good faith are of a questionnaire can also limit the obligation do
53
indistinguishable. divulge, but in a limitative manner.
civil law (Quebec) 10. What are the remedies for a pre-
In civil law, the duty of utmost good faith for the duty of utmost good faith? Are the
insured is not equivalent to the duty of disclosure in remedies different from a breach of the
the sense that it is possible to describe and identify duty of disclosure?
them separately. Nevertheless, they are both
dependant of the other, since the duty of disclosure is common law provinces
governed by the duty of the utmost good faith; it is For a serious breach of disclosure in the application
48
thus not easy to find one without the other. (material misrepresentation), the insurer has the right
9. If the duty of utmost good faith operates to rescind the contract.
separately pre-contractually from the In the case of insurers, see the answer to Question 7.
duty of disclosure describe that operation The insurer, for example, may be precluded from
and how the two sit together. You may arguing misrepresentation.
need to describe the duty of disclosure to
illustrate the differences. civil law (Quebec)
common law provinces The remedies in Quebec are a little more stringent.
When the insured breaches his/her duty of utmost
The duty to disclose is part of the duty of utmost good good faith, the contract can be nullified. Article 2410
faith, although see Question 8 for instances where the of the Civil code of Quebec states that “any
duty to disclose is also contained in the statute. misrepresentation or concealment of material facts by
civil law (Quebec) either the client or the insured nullifies the contract at
the instance of the insurer, even with respect to
The two concepts are interdependent, just as in the losses not connected with the risks so misrepresented
54
common law provinces jurisdictions, where or concealed”. In that sense, the remedies are not
declarations made by the insured need to be made different for a breach of the duty of utmost good faith
with the utmost good faith. This implies not only an or for a breach of the duty of disclosure.
obligation to answer the questions asked by the
insurer, but also to take the initiative to divulge any The insurer will only be able to obtain a sanction if he
information that would be relevant for the initial proves that the answer given by the insured was
55
evaluation of the risk. This obligation also exists in the inaccurate or reluctant. In that case, it will be
49
context of a renewal of contract. Hence, the insured possible for the insurer to ask for the nullity of the
56
needs to declare, for instance, the use to be made by contract. Since it is a relative nullity, it is possible for
the insured good, a previous disaster, a driver’s the insurance contract to provide for other sanctions,
57
license suspension, a drunk driving conviction, or any such as an increase in the insurance premiums.
50
serious health issues. Even though all these
declarations need to be made in good faith, it is the
51
Id.
52
Civil Code of Quebec, LRQ c C-1991, art. 2408.
45
Ibid at s 233. 53
46
Insurance Act, RSBC, 1996, c 226, s 97(1). 5th ed., (Montreal: Editions Thémis, 2009) at 237.
47 54
St. Paul Lumber Co v British Crown Assurance Corp Civil Code of Quebec, LRQ c C-1991, art. 2410.
(1923) SCR 515. 55
48
See also question 3. 5th ed., (Montreal: Editions Thémis, 2009) at 237.
49 56
See question 7. Civil Code of Quebec, LRQ c C-1991, art. 2410.
50 57
See Didier Lluelles, “Précis des assurances terrestres”, See Didier Lluelles, “Précis des assurances terrestres”,
5th ed., (Montreal: Editions Thémis, 2009) at 237. 5th ed., (Montreal: Editions Thémis, 2009) at 237.
62
In damage insurance, a possible sanction is the to inform. The insurer, along with its agents or
58
reduction of the indemnity. This sanction applies mandataries, is obliged to inform and advise a
unless the bad faith of the insured or policyholder is prospective insured regarding the types of policy and
established and unless it is established that that the coverage available to them during the pre-contractual
63
insurer would not have covered the risk if he had phase.
59
known the truth.
The insurer is also bound to abide by the terms of an
11. If the duty of utmost good faith operates insurance contract negotiated with an insured, even
separately from the duty of disclosure where a written policy associated with the contract
does one have precedence over the and furnishing evidence of its existence exculpates
other? the insurer from indemnifying the insured for certain
claims.
common law provinces
13. Describe the insurer's pre-contractual
Given that the two are indistinguishable, neither takes duty of utmost good faith by providing
precedence over the other. That being said, courts examples of the best known cases in
tend to focus more on the duty of disclosure. which it has been applied.
civil law (Quebec) common law provinces
It can happen that an insured, making a 64
In Carter v Boehm , Lord Mansfield suggested that it
representation in good faith (for instance, by thinking was a breach of good faith for the insurer to insure a
that information omitted from the representation is not ship on its voyage when the insurer privately knew it
relevant to the insurer) will still be subject to had already arrived at its destination.
60
sanctions. In that sense, it would appear, similarly to
common law jurisdictions, that the duty of disclosure In Sagl v Cosburn, Griffiths & Brandham Insurance
has precedence over the duty of utmost good faith. Brokers Ltd, the Ontario Court of Appeal held that if
the insurer failed to obtain material information at the
B - For the Insurer
time of insuring, where they should have known they
12. What is the content of the pre-contractual were missing such information, then they cannot deny
duty of utmost good faith for the insurer? coverage on the basis that the information was
65
missing.
civil law (Quebec)
Generally, Canadian case law dealing with the 66
obligation of good faith as an implied obligation in an In Fletcher v. Manitoba Public Insurance Co, the
insurance contract relies on broad statements of the Supreme Court of Canada stated that private
duty’s existence. They do not generally distinguish insurance agents and brokers should be held to a
between the different stages of the contractual stringent duty to provide both information and advice
relationship. It is often limited to contractual to their customers. Notwithstanding its origins in the
performance and not to pre-contractual negotiations. common law, the Quebec Court of Appeal
Scholars have noted that Canadian jurisprudence incorporated this finding into their decision in Baril c.
generally rejects the application of good faith in pre- Industrielle compagnie d'assurance sur la vie, saying
61
contractual negotiations. that in civil law there exists a precontractual obligation
to inform on the part of an insurer (through the agent
However, refer to Question 13 for a summary of cases 67
acting as the insurer’s mandatary). In that case, an
where the duty of good faith has been applied to an insurance agent failed to inform a prospective insured
insurer in the context of pre-contract formation.
civil law (Quebec)
62
In Quebec, the utmost good faith of the insurer See Thibault (Succession de) v Industrielle Alliance (L’),
demonstrates itself, amongst other things, in the duty Assurances et services financiers inc., 2006 CanLII 1235
(CQ CQ).
63
See Baril c. Industrielle compagnie d'assurance sur la vie,
1991 CanLII 3566 (QC CA).
58 64
Civil Code of Quebec, LRQ c C-1991, art. 2411. (1766) 3 Burr 1905.
59 65
Ibid.,; Didier Lluelles, “Précis des assurances terrestres”, Sagl v Cosburn, Griffiths & Brandham Insurance Brokers
5th ed., (Montreal: Editions Thémis, 2009) at 237. Ltd (2007) 54 CCLI (4th) 236 (Ont SCJ); supp reasons 77
60 CCLI (4th) 161 (Ont CA).
Ibid.
66
61 See Fletcher v. Manitoba Public Insurance Co., [1990] 3
F. P. Morrison and Hovsep Afarian, “Good Faith in SCR 191.
Contracts: A Continuing Evolution” in Justice T. Archibald &
67
M. Cochrane (eds.), Annual Review of Civil Litigation 2003 See Baril c. Industrielle compagnie d'assurance sur la vie,
(Toronto: Carswell, 2004), at p. 207. 1991 CanLII 3566 (QC CA).
that a life insurance policy offered to her and to which Like in the common law jurisdictions, the remedies
she had agreed but not yet paid the first premium can take the form of damages or even punitive
upon could not have immediate effect. The Court of damages in some cases. In Baril, the Court of Appeal
Appeal found this to be a failure on the part of the determined that the appropriate damage award for a
agent to fulfil the insurer’s duty to inform. breach of the duty was to provide the insured with the
benefit of the contract that they would have received if
The insurer’s general duty to inform at both the pre- the coverage had been immediately applicable.
and post contractual stage was later endorsed in
Thibeault, in the Court of Quebec, as arising from the Similarly, the Quebec Superior Court in Hadley
duty of utmost good faith informing insurance Shipping decided to award damages commensurate
68
contracts. with the benefit that would have flowed from the
agreed contract had the contested exculpatory clause
With respect to the duty to abide by negotiated terms, in the policy been absent.
in Hadley Shipping, the Quebec Superior Court
determined that an insurer who, knowing that an In addition, the Court of Quebec has found that in
insured wanted insurance against wind damage, consequence of the insurer’s duty to act with utmost
concluded an oral insurance contract with that insured good faith, an insurer may also be found liable in
that included insurance against wind damage, could negligence for damages arising from the insurer’s
70
not rely on a clause in the written policy exculpating errors or omissions.
the insurer, saying that insurance contracts are based
on utmost good faith.
69 Finally, punitive damages may be awarded. The
respected doctrinal author Jean-Louis Baudouin has
14. Is it a breach of the duty of utmost good stated that an insurer may also be liable, in extreme
faith in your jurisdiction for insurers not cases, for punitive damages under Quebec’s Charter
71
to notify the prospective insured of the of Human Rights and Freedoms, such as in the
nature and extent of their duty of case of an unjustified and totally unsustainable refusal
disclosure? to indemnify an insured where such action affects an
72
insured’s human rights under the Charter.
common law provinces and civil law (Quebec)
We conclude that like in common law jurisdictions, the
To our knowledge, this issue has not been addressed general approach for pre-contractual breaches of the
in common law or in civil law jurisdictions. duty of utmost good faith is to award damages
Furthermore, in civil law, there are no statutory equivalent to the benefits an insured could reasonably
requirements relating to this characterization of the have been expected to enjoy under the contract, but
insurer’s duty of utmost good faith. To the extent that that breaches can attract liability in negligence and in
Quebec case law addresses the insurer’s specific some cases punitive damages may also be awarded.
duties that flow from the principle of utmost good faith,
a duty to notify a prospective insured of the nature III - Post-Contractual Application of the Principle
and extent of their duty of disclosure is never of Utmost Good Faith (at the Claim Stage)
mentioned.
15. What are the remedies for a pre- A - For the Insured and Third Party
contractual breach by the insurer of its Beneficiary of Cover
duty of utmost good faith? 16. What is the content of the post-
common law provinces contractual duty of utmost good faith for
Remedies that must be provided by the insurer
following a breach can take several different forms.
Courts can award damages for breach under traditional The role of the insured is to: apply for insurance and
contractual damage principles. If the insurer has notify the insurer of material changes, pay all
behaved particularly badly and the court wants to deter premiums, and in first party claims provide notice,
and denounce future conduct, they may award punitive proof of loss and co-operate with the insurer. Specific
damages. Aggravated damages, which compensate policies may give the insured additional roles, but in
the insured, can be awarded. Judgments can also these cases there is no need for an 'obligation of good
require the insurer to pay interest and costs.
civil law (Quebec)
70
See Pauzé c. Assoc. des policiers provinciaux du Québec,
2003 CanLII 49040.
68 71
See Thibeault (Succession de) c. Industrielle Alliance (L'), See Charter of Human Rights and Freedoms, CQLR c C-
Assurances et services financiers inc., 2006 QCCQ 1235. 12.
69 72
See Hadley Shipping Company Limited c. Eagle Star See Jean-Louis Baudouin, La responsabilité civile, volume
Insurance Company of Canada (1980), 500-05-003232-73, II, La responsabilité professionnelle, 7th ed., (Cowansville:
AZ-80021306 (QC CS). Éditions Yvon Blais, 2007) at 455-457.
faith' because there is already a contractual more common that the insurer allege bad faith as a
requirement. defense to a claim brought by the insured. In one
case, the insured misled the insurer about the
civil law (Quebec) 78
defence of a claim against the insured. Another
In Quebec, the duty of utmost good faith for the case involved an insured refusing to co-operate with
79
insured at the claim stage is of a piece with the the insurer in a first party claim.
73
insured’s pre-contractual duty to disclose and is civil law (Quebec)
provided for in the Civil Code of Quebec at articles
74
2471 and 2472. The content of the duty is to inform In Minville c. Assurances générales des Caisses
the insurer, at their request, as soon as possible of all Desjardins, an insured failed to communicate to their
the circumstances surrounding a declared loss, insurer that an insured residence had been vacated,
including its probable cause, the nature and extent of instead describing it as a temporary vacancy, and the
the damage, the location of the insured property, the insurer refused to indemnify the insured when the
rights of third persons, and any concurrent vacated property burned down. The Quebec Superior
75
insurance. Court found that the insured’s failure to give a real
account of the character of the vacancy was a breach
It bears mentioning in addition that the ongoing duty of the duty of utmost good faith.
80
to disclose anything that may entail a material change
76
in risk is also part of the insured’s post-contractual In Cyr c. Groupe La Laurentienne, the Court of
77
duty of utmost good faith. Appeal found that an insured’s concealment of the
fact that they were approached by someone who
declared themselves ready to set fire to the insured
a duty of utmost good faith?
building in order to rectify their financial difficulties
common law provinces constituted a breach of the duty to proactively
81
disclose.
Yes, third party beneficiaries do have a duty to the
insurer. They must co-operate in the defence of any In Miserany c. Royal Sun Alliance, the Court of
claim against the insured. Quebec found that an insured, claiming theft of a
microwave, had breached the duty of utmost good
civil law (Quebec) faith in respect of his/her obligations under articles
In Quebec, third parties beneficiaries also have a duty 2471 and 2472 of the Civil Code of Quebec, when it
to the insurer, which is provided for in the Civil code of was determined that he had lied concerning the state
82
Quebec. The third paragraph of article 2471 permits of the microwave.
any other interested party, should the insured fail to 18. Is the insured’s intentional concealment
fulfill his/her obligation to inform under paragraph 1 of of his/her criminal activities when
article 2471 (as described above), to shoulder the completing a proposal for life policies a
insured’s obligation themselves. A third party breach of the duty of utmost good faith?
beneficiary who, as an interested party, undertakes to
fulfill the insured’s obligation to inform is bound by common law provinces
that same obligation and hence by the duty of utmost No. In Oldfield, the widow of the insured was not
good faith. barred from claiming under her husband's life
17. Describe the insured's post-contractual insurance policy even though he died during the
duty of utmost good faith by providing commission of a criminal act (he swallowed a condom
examples of the best known cases in filled with cocaine, which he intended to sell, in order
which it has been applied. to hide it from the police). Two principles of insurance
are discussed in the case. First, that the insured
common law provinces cannot benefit from their own intentional action (e.g.
It has been less common for the insurer to initiate a
claim against the insured for bad faith. Instead, it is
78
Fredrickson v Insurance Corp of British Columbia, [1985]
5 WWR 342 (BCSC); affd 28 DLR (4th) 414 (BCCA); affd 49
73
See Jawahar Lal Sharma c. La Victoria Compagnie DLR (4th) 160 (SCC).
d'Assurances, [1997] R.R.A. 46 (C.A.). 79
Andreychuk v RBC Life Insurance Co. (2008) 60 CCLI
74
See Miserany c. Royal Sun Alliance, 2007 QCCQ 12212 (4th) 237 (BCSC); affd 305 DLR (4th) 110 (BCCA).
(CanLII). 80
Mainville c. Assurances générales des Caisses
75
See Civil code of Quebec, LRQ c C-1991, art. 2471. Desjardins, 2006 CanLII 3162.
76 81
See Civil code of Quebec, LRQ c C-1991, art. 2466. Cyr c. Groupe La Laurentienne, 1998 CanLII 1092.
77 82
See Lemay Paquette c. Unique cie d'assurances See Miserany c. Royal Sun Alliance, 2007 QCCQ 12212
générales, 2004 CanLII 14063. (CanLII).
setting their house on fire). Second, that the insured of the insured's economic vulnerability or to gain
must not benefit from their own deliberate criminal bargaining leverage in negotiating a settlement. A
conduct. However, here the insured did not swallow decision by an insurer to refuse payment should be
the cocaine with the intention of ending his life so his based on a reasonable interpretation of its obligations
wife could have the insurance proceeds; his death under the policy. This duty of fairness, however, does
was accidental. The insurance claim by the wife not require that an insurer necessarily be correct in
would not form part of the insured's estate, and as making a decision to dispute its obligation to pay a
such her claim was that of an ordinary beneficiary and claim. Mere denial of a claim that ultimately succeeds is
83 88
was not tainted by the criminal activity. not, in itself, an act of bad faith.
civil law (Quebec) When dealing with bad faith claims, the insurer must
pass two tests. They must 1) fairly and fully consider
Yes. The duty of utmost good faith requires that the the interests of the insured and 2) act as a prudent
insured proactively declare all relevant information to insurer without policy limits would. When considering
his/her insurer. In life-insurance policies, some the interests of the insured, Canadian cases state that
criminal activities, such as driving while impaired, the insurer must at least give as much consideration
must be revealed to the insurer as part of both his/her 89
to the insured's interest as it does its own. However,
duty of disclosure and his/her duty of the utmost good often the courts will require the insurer to give more
84
faith. Also, the intentional concealment of a previous consideration to the interests of the insured than it
criminal record is considered to be information that is does its own.
90
relevant for the insurer to evaluate the risk, thus
85 91
breaching the duty of utmost good faith. Bullock v Trafalgar Insurance Co of Canada set out
requirements for an insurer responding to a claim. An
B - For the Insurer
insurer:
good faith for the insurer when dealing  Must be prompt in handling and assessing
with a claim? the loss
common law provinces  Must give as much consideration to the

welfare of the insured as it does its own
The duty of good faith requires an insurer to act both interests
promptly and fairly when investigating, assessing and
attempting to resolve claims made by the insured.
86
 Cannot do anything to injure the rights of the
The insurer must act with reasonable promptness insured to receive benefits under the policy
during each step of the claims process. Included in this
duty is the obligation to pay a claim in a timely manner  Must undertake an adequate investigation
when there is no reasonable basis to contest coverage and evaluation of the claim
87
or to withhold payment.  Provide the insured with correct information,
The duty of good faith also requires an insurer to deal a fair interpretation of the policy and prompt
with its insured's claim fairly. The duty to act fairly payment if the claim has merit
applies both to the manner in which the insurer
 Not treat the insured as an adversary whose
investigates and assesses the claim and to the
interest may be disregarded.
decision whether or not to pay the claim. In making a
decision whether to refuse payment of a claim from its These requirements have also been laid out as: an
insured, an insurer must assess the merits of the claim obligation to fairly and competently investigate,
in a balanced and reasonable manner. It must not deny assess the claim, defend the claim, negotiate the
coverage or delay payment in order to take advantage claim, inform the insured, be prompt, and acquire and
communicate information.
83
Oldsfield v Transamerica Life Insurance Co of Canada 88
(2000) 135 OAC 177 [Oldfield]. Palmer v Royal Insurance Co of Canada (1995), 27 CCLI
(2d) 249 (Ont Gen Div).
84
See Didier Lluelles, “Précis des assurances terrestres”, 89
5th ed., (Montreal: Editions Thémis, 2009) at 256. Shea v Manitoba Public Insurance Corp, [1991] ILR 1-
2721 at 1237 (BCSC); Comunale v Traders General Ins Co,
85
Landry c. Union-Vie, 2004 CanLII 18015 (QC SC); McDuff 328 P2d 198 (Cal Sup Ct 1958); Brown v Guarantee Ins Co,
c. Industrielle Alliance, assurances et services financiers 319 P2d 198 (Cal Ct App 1957) at 74.
inc., 2009 CanLII 530 (QC SC); Proulx c. Axa Assurance 90
Inc., 2004 CanLII 28327 (CQ CQ). Appel (Guardian ad Litem of) v Dominion of Canada
General Insurance Co (1995), 32 CCLI (2d) 92 (BCSC); affd
86
702535 at para 27. [1998] 1 WWR 592 (BCCA).
87 91
Ibid at para 28; Bullock v Trafalgar Insurance Co of Canada (1996) 64 ACWS (3d) 670 (Ont Ct Gen Div) at paras 100-
(1996), 9 OTC 245 (Ont Gen Div). 102.
civil law (Quebec) 21. Describe the insurer's post-contractual

In civil law, the insurer’s duty of utmost good faith at examples of the best known cases in
the claim stage includes an obligation to obtain any which it has been applied.
information from the insured in a reasonable amount
of time that he deems necessary for proper common law provinces
assessment of the claim. The insurer also has the
obligation of acting in good faith, transparent and Courts have examined the investigation carried out by
the insurer before it denied coverage. In McDonald,
diligent when paying the indemnity to his/her insured.
the court found that the insurance company had relied
Hence, if the insurer is not satisfied with the details too heavily on evidence that supported the denial of
97
given by the insured with respect to the loss suffered, coverage on the basis of intoxication. The insurer
92
he needs to seek additional information. The Civil must pursue evidence that would support the claim of
Code of Quebec stipulates that the insurer has a 60 the insured. In Ferguson, the insured provided the
day period following receipt of the notice of loss or the insurer with a witness who had corroborating
93
relevant information to pay the indemnity. evidence. The court held that the insurer needed to
Furthermore, the insurer is “liable for injury resulting make an effort to interview the witness and should not
98
from delay in the performance of the obligation from discount the claim without doing so. The larger the
94
the moment he begins to be in default”. potential claim, the more intensive the investigation
should be. The insurer must also be careful,
especially in arson cases, to investigate evidence that
proves the claim with as much vigor as they
beneficiaries of cover in handling claims? investigate evidence that disproves it. In Spence, the
common law provinces insurance company disregarded evidence that Mr.
Spence had moved his vehicle after colliding with a
When a third party is entitled to claim benefits under deer and claimed the damage was not the result of a
the insurance policy of another person, the insurer collision.
99
can assert they have no contract with the third party

and therefore no duty of good faith. In one British The most well-known case about the investigation
Columbia case, however, it was held that an insurer stage is Whiten. In Whiten, the insured's home burned
may owe good faith obligations to an uninsured when down and the home-owners fled in their night-clothes,
95 leaving all of their belongings inside, including their
the person is treated as if they were insured. In
Hosseini, the insurance company treated Mr. pet cats. The insurer claimed that it was a case of
Hosseini, who was uninsured, as if he was insured by arson and provided only $5000 and a few months
writing in its statement of claim that Mr. Hosseini was worth of rent. The fire department had concluded
driving "contrary to the terms and conditions of the there was no evidence of arson, as did an
96 independent insurance adjuster hired by Pilot
owner's policy."
Insurance. Pilot Insurance ignored these reports and
civil law (Quebec) continued to pursue the theory that it was arson. The
Yes. In Quebec, the obligations owed to an insured court gave the insured's a high punitive damages
with respect to the duty to obtain any information award, as the insurer had been harsh and
100
necessary for the assessment of a claim will also be unreasonable.
owed to a third party beneficiary who, as an interested While a breach of a duty of good faith in the claims
party, has taken up the burden of disclosing process is typically remedied by compensatory
information under article 2471 of the Civil Code of damages, it is not uncommon for punitive damages to
Quebec as provided for in that article. be available. Punitive damages are designed to
address the purposes of retribution, deterrence and
denunciation: Whiten v. Pilot Insurance Co., [2002] 1
S.C.R. 595, 2002 SCC 18 (S.C.C.), at para. 43. In
Whiten, the Court clearly established the relevant
92
Max-I-Mum Services Financiers Ltée c. Promutuel du Lac
au Fjord, 2005 CanLII 19397 (CQ CQ). See also Manon
Chayer c. Studio Chantal-Frank Inc. et un autre -et- Groupe 97
Desjardins Assurances générales, [1994] R.R.A. 309-313 McDonald v Insurance Corp of British Columbia (2012),
(C.S.). 8CCLI (5th) 102 (BC SC) [McDonald].
93 98
See Civil code of Quebec, LRQ c C-1991, art. 2473. Ferguson v National Life Assurance Co of Canada (1996),
36 CCLI (2d) 95 (Ont Ct Gen Div); affd 102 OAC 239 (CA)
94
See Civil code of Quebec, LRQ c C-1991, art. 1600. [Ferguson].
95 99
Insurance Corp of British Columbia v Hosseini (2006), 262 Spence v Insurance Corp of British Columbia (2005), 149
DLR (4th) 233 (BCCA) [Hosseini]. ACWS (3d) 867 (BCSC).
96 100
Ibid at para 60. Whiten v Pilot Insurance Co, 2002 SCC 18 [Whiten].
factors to consider in determining whether or not an Regulation under the Act respecting Insurance
award of punitive damages is warranted. (Québec)(the “Regulation »).
civil law (Quebec) The relationship between the provisions of the Civil
Code of Quebec and the principle of utmost good faith
In Max-I-Mum Services Financiers c. Promutuel du have been discussed elsewhere in this survey. As for
101
Lac au Fjord , the plaintiff was seeking indemnity for the Regulation, it contains only broad general
the loss of revenue to its insurer, while the latter guidelines against exaggerating the extent of
argued that the plaintiff did not suffer from any loss in protection offered and requiring specification of any
revenue. The Court decided that the insurer had an exclusions and the conditions under which medical
obligation of good faith that required it to ask the examinations are needed,
103
making no reference to
insured for additional information if necessary, which utmost good faith.
in that case was not done. As a consequence of the
insurer’s long delayed response and silence in the By contrast, insurance representatives (including
104
interim, the Court concluded that the insurer waived agents and brokers) and claims adjusters are
its right to ask for an additional delay and to its right to governed by codes of practice that either express or
ask for additional information. could be said to import a duty of utmost good faith.
102 The Code of Ethics of Damage Insurance
Also, in Pelletier c. Groupe commerce , the plaintiff Representatives and the Code of Ethics of Claims
was asking for the indemnity after the robbery of Adjusters, for example, both make reference to
his/her snowmobile. The insurer, arguing that the obligations of good faith.
105
Damage insurance
insured had made false declarations, did not want to representatives only have express obligations of good
pay. The insurer in this case did inform the insured of faith towards the insurers for whom they are
its decision not to pay until two years after the representatives, but insofar as that obligation requires
robbery. Since the insurer did not ask for additional representatives not to place the insurer in a
information or ask for a longer delay, the Court compromised position with respect to the insurer’s
concluded that the insurer did not act in the utmost own obligations, it can be said that this obligation of
good faith and ordered the payment of an indemnity good faith imports the duty of utmost good faith that
to the plaintiff. the insurers are directly obliged to fulfill. Moreover,
22. Is there a Code of Practice for insurers in the Code of Ethics of Damage Insurance
your jurisdiction and, if so, how does it Representatives also provides that representatives
sit with the duty of utmost good faith? must give their clients advice “in a meaningful and
comprehensive manner and provide necessary and
common law provinces useful information.”
106
This directive that echoes the
The Insurance Bureau of Canada (IBC) and the general duty to inform incumbent upon insurers
Canadian Life and Health Insurance Association described above, which duty arises from the principle
(CLHIA) are the industry organizations for the of utmost good faith governing all insurance
107
Property & Casualty and the Life and Health insurers contracts. Claims adjusters also have good faith
respectively. Both have codes but none address this obligations towards their insurers, but their code also
specific subject in any detail. expressly indicates obligations of good faith towards
all parties involved in a claim including the claimant.
The websites of provincial/territorial insurance
regulators also address aspects coverage and
matters important for insurance consumers but, again,
they are general or specific to certain products and do 103
See Regulation under the Act Respecting Insurance,
not specifically address the issue of utmost good faith CQLR c. A-32, r. 1, ss. 34-37.
in detail. 104
As defined by An Act Respecting the Distribution of
civil law (Quebec) Financial Products and Services, CQLR c. D-9.2, ss. 1-2.
See also Code of Ethics of the Chambre de la sécurité
Quebec insurers do not have a Code of Practice that financière, CQLR c. D-9.2, r. 3.
applies directly to them. To the extent that insurer 105
practices are codified, the rules are contained in the See Code of Ethics of Damage Insurance
Civil Code of Quebec and Chapter V of the Representatives, online:
<http://chadextra.qc.ca/files/pdf/outil/membre/code/code_rep
resentants_commente_an.pdf>; Code of Ethics of Claims
Adjusters, online:
101 <http://chadextra.qc.ca/files/pdf/outil/membre/code/code_exp
See Max-I-Mum Services Financiers Ltée c. Promutuel erts_commente_an.pdf>.
du Lac au Fjord, 2005 CanLII 19397 (CQ CQ). See also
106
Manon Chayer c. Studio Chantal-Frank Inc. et un autre -et- See Code of Ethics of Damage Insurance
Groupe Desjardins Assurances générales, [1994] R.R.A. Representatives at s. 37, online:
309-313 (C.S.). <http://chadextra.qc.ca/files/pdf/outil/membre/code/code_rep
102 resentants_commente_an.pdf>
See Pelletier c. Groupe commerce, 2001 CanLII 12458
107
(QC CQ). See question 13.
23. Can courts disregard a term of a contract common law provinces

duty of utmost good faith for the insurer An English case suggests it may be possible for an
to rely on the term? If so, please illustrate insurer to lose its right to avoid a policy if it failed to
110
with examples. act in good faith.
common law provinces civil law (Quebec)
To our knowledge, it would be unlikely for a court to In civil law, there is no case law that suggests that it
disregard a term in the contract of insurance, even if it may be possible for an insurer to lose its right to avoid
does breach the duty of good faith. a policy if it failed to act in good faith.
civil law (Quebec) 25. To the extent that an insurer's breach of

In contrast to the common law jurisdictions, Quebec statute, is it a breach of the statute for the
law is more stringent and it is possible for a Court to insurer to be in breach of its duty of
disregard a term of the contract for a breach of the utmost good faith?
duty of utmost good faith. For instance, in Hadley
108
Shipping Co. c. Eagle Insurance , a company took common law provinces
insurance for its cargo. After enduring harsh weather The duty of good faith on the part of the insurer is
conditions, including very strong wind, the cargo was mostly a common law duty.
severely damaged. The insurer refused to pay,
alleging that they were exculpated from indemnifying In Ontario Unfair or Deceptive Acts or Practices
the insured for their claim, because the policy includes “Any conduct resulting in unreasonable delay
contained an exclusion for coverage for damage in, or resistance to, the fair adjustment or settlement
111 112
arising from wind. The Court established that it was of claims”. As such it is prohibited under the Act
clear from the evidence that the intention of the and a breach by the insurer technically exposes it to
insured was to be covered in cases of bad weather the general penalty provisions of the Act.
conditions including wind, and that the insurer knew Additionally, the insurance regulator has the power to
this. Hence, even though there was a clear term issue a cease and desist order the breach of which
stipulating the exclusion of wind damages, the Court would also expose the insurer to administrative
decided that the term was to be disregarded. penalties. To our knowledge this power is rarely if
ever used and we are not aware of any Canadian
Similarly, in Groupe commerce, cie d’assurance c. case-law in this area.
109
Service d’entretien Ribo , a maintenance service
company contracted a liability insurance. After civil law (Quebec)
causing damages to windows, the maintenance As previously mentioned, the duty of utmost good
company was sued. The insurance company claimed faith of the insurer stems largely from what the courts
that, according to the terms of the contract, they did have established over the years with respect to the
not cover the goods that were under the control of the interpretation of legislative provisions. Hence, there
insured, as the windows were in that situation. Since it are few specific statutes expressly addressing the
was the intention of the maintenance company to be duty of utmost good faith for the insurers in a direct
covered when being sued, the Court decided that the manner.
utmost good faith foundation governing all insurance
contracts required that the term be disregarded. It bears mention, however, that if an insurer breaches
its duty of utmost good faith, it may also breach
24. Do courts have special powers to thereby the general provisions on good faith provided
disregard any avoidance of the for in the Civil code of Quebec.
113
In that sense, a
application of a policy in cases where the breach of the utmost good faith could in some cases
insured has established that it would be a be a breach of that statute.
allow the insurer to avoid the policy? Also, if an insurer fails to act in the utmost good faith
when paying an indemnity to its insured, where such
failure arises from the insurer not paying for a claim in
110
Drake Insurance plc v Provident Insurance plc [2003],
EWCA Civ 1834.
108 111
See Hadley Shipping Company Limited c. Eagle Star Ont.Reg. 7/00 paragrapph 1. (9)
Insurance Company of Canada (1980), 500-05-003232-73,
112
AZ-80021306 (QC CS). Section 439 of the Insurance Act of Ontario.
109 113
See Groupe commerce, cie d’assurance c. Service See Civil Code of Quebec, LRQ c C-1991, arts. 6, 7,
d’entretien Ribo, 1992 CanLII 3407 (QC CA). 1375.
a timely fashion, it may be considered to be both a utmost good faith extends to performance of the
breach of the utmost good faith and a breach of article insurance contract as well.
2473 of the Civil Code of Quebec, which stipulates
civil law
that payment of claims must be made within 60
114
days. There is no evidence that Quebec courts or legislative
26. Can a breach by the insurer of the duty of bodies apply different principles, or require different
utmost good faith result in regulatory duties, of parties to reinsurance contracts at either the
sanctions against the insurer (license placement/pre-contractual or claims stages.
suspension, banning order, etc.)? ****
To our knowledge, with the exception of the discussion
in answer to Question 25, there are no regulatory
sanctions for a breach of the duty of utmost good faith.
1000 Sherbrooke Street West
civil law (Quebec) Suite 2700
Yes. Under section 358 of An Act respecting Montréal, Québec, Canada H3A 3G4
Insurance (Québec), the AMF, the body charged with
regulating insurance companies in Quebec, may Tel.: (1) 514.987.5000
revoke the license of an insurer which, in the opinion Fax: (1) 514.987.1213
of the AMF, contravenes any act of Quebec, of Email: assunta.dilorenzo@mcmillan.ca
another province, or of the Parliament of Canada
which governs its activities, or a regulation or rule Brookfield Place
115
made under any such acts. 181 Bay Street
The Civil Code of Quebec includes an express Suite 4400
statutory duty of utmost good faith at article 2545; Toronto, Ontario, Canada M5J 2T3
breach of this duty would, in principle, empower the
AMF to revoke or suspend the license of an insurer. Tel.: (1) 416 865-7000
In addition, breaches of any of articles 2408-2409, Fax: (1) 416 865 7048
2466 & 2471-2472 of the Civil Code of Quebec will Email: carol.lyons@mcmillan.ca
also breach obligations arising under the utmost duty frank.palmay@mcmillan.ca
of good faith. To the extent that the link between the
duty of utmost good faith and these statutory Website: www.mcmillan.ca
provisions can be made, the Act in effect provides
that the Authority may revoke an insurer’s license on
grounds of breach of such duty.
IV - Reinsurance

English and American law has recognized reinsurance
contracts as being subject to the duty of utmost good
faith. It is probable that Canadian courts would follow
English court decisions and find there is such a duty for
reinsurance. They have the same duty to fully and fairly
disclose all material facts just as with direct insurance;
this duty falls on both parties, although does mainly fall
on the party applying for the insurance. The duty of
114
See question 19.
115
See An Act Respecting Insurance, CQLR c A-32, s. 358.
IBA Insurance Committee Substantive Project 2014 46 The Duty of Utmost Good Faith: China
China
JADE & FOUNTAIN 4. Does the principle of utmost good faith
Jun Yang (life insurance, general insurance,
I - Definition of the Principle of Utmost Good Faith reinsurance etc.)?
Yes, the abovementioned Article 5 is stipulated in
1. In your jurisdiction, do insurance laws Chapter I General Provisions of PRC Insurance Law,
provide for the principle of utmost good therefore, it is a general principle which could be
faith (in latin, “uberrimae fidei”) and if so, applied to all types of insurance contracts.
definition whether under statute or 5. Does the duty of utmost good faith apply
according to case law. only at the pre-contractual stage or is it a
There is no specific definition of “utmost good faith” in contractually and post-contractually?
Chinese insurance laws. However, it is generally
accepted that Article 5 of PRC Insurance Law is the It is a continuous duty which should apply both pre-
legal basis of the principle of utmost good faith, “The contractually and post-contractually. As per Article 5
parties to insurance activities shall follow the principle of PRC Insurance Law, duty of utmost good faith shall
of good faith in their exercise of rights and be applied to “exercise of rights and performance of
performance of obligations.” obligations”. Regarding the specific provisions, Article
52 of PRC Insurance Law provides: “Where the
Article 16 and 17 of PRC Insurance Law further degree of peril of the subject matter insured greatly
construe such principle by stipulating obligations of increases during the term of validity of the contract,
the insurer and the insurance applicant. As “Where the insured shall notify the insurer in a timely manner
the insurer makes any inquiry about the subject as agreed upon in the contract, and the insurer may
matter insured or about the insurant when entering increase the insurance premium or terminate the
into an insurance contract, the insurance applicant contract as agreed upon in the contract.”, this also
shall tell the truth.” “Where an insurance contract is reflects that such duty shall apply post-contractually.
entered into by using the standard clauses of the
insurer, the insurer shall provide an insurance policy II - Application of the Principle of Utmost Good
with the standard clauses attached and explain the Faith at the Pre-Contractual Stage
contents of the contract to the insurance applicant.”
2. Is the principle of utmost good faith (i) a apply to both the insured and the insurer
statutory principle, (ii) a common law at the pre-contractual stage?
it to be found under statute and As a matter of fact, there is no specific provision
otherwise? stipulating the application of Principle of Utmost Good
Faith to the insured. However, as per Article 5 of PRC
The principle of utmost good faith is a statutory Insurance Law, Principle of Utmost Good Faith shall
principle in Chinese insurance laws. Instead of apply to all “the parties to insurance activities”. On
principle of utmost good faith, there is the principle of that basis, both of the insured and the insurer should
good faith stipulated in other laws, i.e. PRC Contract obey the principle of utmost good faith at the pre-
Law. This being said Chinese insurance laws require contractual stage.
a higher level of good faith than other laws.
A - For the Insured
provide for both the principle of utmost 7. What is the content of the duty of utmost
good faith and a separate duty of good faith for the insured?
Yes. As mentioned above, Article 16 of PRC duty of utmost good faith by providing
Insurance Law provides, “Where the insurer makes examples of the best known cases in
any inquiry about the subject matter insured or about which it has been applied.
the insurant when entering into an insurance contract,
the insurance applicant shall tell the truth.” However, As mentioned above, Article 16 of PRC Insurance
Law provides, “Where the insurer makes any inquiry
such provision is deemed as a detailed article which
construes the spirit of the principle of utmost good about the subject matter insured or about the insurant
faith. when entering into an insurance contract, the
insurance applicant shall tell the truth. ….An insured
incident means an incident within the insurance
coverage as agreed upon in an insurance contract. “, raise the insurance premium, the insurer shall have
which stipulates the insured’s pre-contractual duty of the right to rescind the insurance contract.
utmost good faith while the abovementioned Article
The right to rescind an insurance contract as
52 stipulates the insured’s post-contractual duty of
utmost good faith. prescribed in the preceding paragraph shall be
annulled after the lapse of 30 days or more from the
To sum up, the insured should disclose all the day when the insurer knows the cause of rescission.
information that can possibly affect the insurer’s After the lapse of two years or more from the day
decision regarding the conclusion of the insurance when an insurance contract is entered into, the
contract. The insured should also disclose all the insurer may not rescind the contract; where an
information regarding the change of degree of peril of insured incident occurs, the insurer shall be liable for
the subject matter insured. paying indemnity or insurance money.
Case: Mr Li had purchased a health insurance for Where the insurance applicant intentionally fails to
himself in which he checked the answer “no” to the perform the obligation of telling the truth, the insurer
inquiry regarding whether he had suffered any heart shall not be liable for paying indemnity or insurance
attack. After that, he claimed insurance money for his money for an insured incident which occurs before the
stay in hospital to cure his heart attack. However, contract is rescinded, and shall not refund the
after investigation, Mr. Li was found to had been insurance premium.
through several heart attacks before he entered into
the insurance contract. The court finally rejected Mr. Where the insurance applicant fails to perform the
obligation of telling the truth for gross negligence,
Li’s claim as he didn’t disclose his medical history of
heart attacks, which information will definitely which materially affects the occurrence of an insured
influence the insurer’s decision regarding the incident, the insurer shall not be liable for paying
insurance fee or even whether to accept the indemnity or insurance money for an insured incident
which occurs before the contract is rescinded, but
insurance application.
shall refund the insurance premium. “
insured equivalent to the duty of 11. If the duty of utmost good faith operates
disclosure in your jurisdiction so that separately from the duty of disclosure
pre-contractually the two are does one have precedence over the
indistinguishable? other?
In Chinese judiciary practice, the insured’s duty of The duty of utmost good faith is a general principle
disclosure is merely limited to the insurer’s inquiry stipulated in PRC Insurance Law, which functions as
when entering into an insurance contract whilst the a declaration of the spirit of insurance law rather than
duty of utmost good faith is throughout the insurance a specific provision that could be directly applied to
contract. However, pre-contractually, these two duties cases. On the contrary, the duty of disclosure is a
are indistinguishable. specific provision that could be applied directly to
cases. In other words, the duty of disclosure has
9. If the duty of utmost good faith operates precedence over the duty of utmost good faith but its
separately pre-contractually from the interpretation shall be subject to the principle of
duty of disclosure describe that operation utmost good faith.
and how the two sit together. You may
need to describe the duty of disclosure to B - For the Insurer
illustrate the differences. 12. What is the content of the pre-contractual
Not Given.
10. What are the remedies for a pre- Article 17 of PRC Insurance Law provides, “Where an
contractual breach by the insured of the insurance contract is entered into by using the
duty of utmost good faith? Are the standard clauses of the insurer, the insurer shall
remedies different from a breach of the provide an insurance policy with the standard clauses
duty of disclosure? attached and explain the contents of the contract to
the insurance applicant.
As duty of utmost good faith is stipulated as a
principle in PRC Insurance Law, there is no specific For those clauses exempting the insurer from liability
remedy for a pre-contractual breach by the insured. in the insurance contract, the insurer shall sufficiently
warn the insurance applicant of those clauses in the
Regarding the remedies for breach of the duty of insurance application form, the insurance policy or
disclosure, as per paragraphs of Article 16 provides: any other insurance certificate, and expressly explain
“Where the insurance applicant fails to perform the the contents of those clauses to the insurance
obligation of telling the truth as prescribed in the applicant in writing or verbally. If the insurer fails to
preceding paragraph intentionally or for gross make a warning or express explanation thereof, those
negligence, which is enough to affect the insurer’s clauses shall not be effective.”
decision on whether to underwrite the insurance or
This being said, the insurer should explain the content 16. What is the content of the post-
of the contract, especially the content against the contractual duty of utmost good faith for
insured/ insurance applicant, otherwise the insurer the insured at the claim stage?
may bear the unfavorable result.
As per Article 21 of PRC Insurance Law: “After
13. Describe the insurer’s pre-contractual knowing the occurrence of an insured incident, the
duty of utmost good faith by providing insurance applicant, insured or beneficiary shall notify
examples of the best known cases in the insurer in a timely manner. Where the insurance
which it has been applied. applicant, insurant or beneficiary fails to do so
intentionally or for gross negligence, which makes it
Mrs. Han purchased a life insurance e-policy online difficult to determine the nature, cause, degree of
for his husband, a farmer. However, after Mrs. Han damage, etc. of the insured incident, the insurer shall
claimed insurance money after his husband died in a not be liable for paying the indemnity or insurance
car accident, the insurer raised the argument that the money for the undeterminable part, unless the insurer
policy can only be purchased for vehicle drivers rather has known or should have known the incident in a
than farmers, should Mrs. Han disclose his husband’s timely manner through any other channel.”
occupation when entering into the contract, it would
not accept the insurance application. Finally, the court Moreover, Paragraph 3, Article 27 of PRC Insurance
upheld Mrs. Han’s claim as the court is of the view Law provides, “Where, after the occurrence of an
that the insurance company shall not avoid its insured incident, the insurance applicant, insurant or
obligation of explaining materials to the insurance beneficiary fabricates the cause of incident or
applicant by promoting on-line insurance policy, the exaggerates the degree of damage by forging or
insurer shall still check with the insurance applicant re altering the relevant certificates or materials or any
certain important issues even though the policy is other evidence, the insurer shall not be liable for
purchased online. On that basis, the court found the paying indemnity or insurance money for the false
insurer breach its duty of utmost good faith. part.”
14. Is it a breach of the duty of utmost good On that basis, The insured should inform the insurer
faith in your jurisdiction for insurers not in a timely manner about the incident without
to notify the prospective insured of the exaggerating or fabricating relevant information.
disclosure? In addition, Paragraph 1, Article 22 of PRC Insurance
Law provides, “After an insured incident occurs, the
No. It is not clearly stipulated that the insurers are insurance applicant, insured or beneficiary claiming
obligated to notify the prospective insured of the indemnity or insurance money against the insurer
nature and extent of the duty of disclosure. However, under the insurance contract shall provide the insurer
the scope of the information with respect to the with available certificates and materials related to the
insured’s duty of disclosure is only limited to the determination of the nature, cause, degree of
insurers’ inquiry. The insured are not obligated to damage, etc. of the incident.”
provide other information.
Therefore, when claiming for the insurance money,
15. What are the remedies for a pre- the insured was obligated to submit all the relevant
contractual breach by the insurer of its certificates or materials related to the insured incident.
duty of utmost good faith?
As mentioned above, “For those clauses exempting a duty of utmost good faith?
the insurer from liability in the insurance contract, the
insurer shall sufficiently warn the insurance applicant Yes, according to abovementioned Articles, the
of those clauses in the insurance application form, the beneficiaries is not only obligated to provide all the
insurance policy or any other insurance certificate, materials concerned, but also is prohibited from
and expressly explain the contents of those clauses to exaggerating or fabricating relevant information.
the insurance applicant in writing or verbally. If the 17. Describe the insured’s post-contractual
insurer fails to make a warning or express explanation duty of utmost good faith by providing
thereof, those clauses shall not be effective.” examples of the best known cases in
Therefore, “liability exempting clauses” would be which it has been applied.
considered invalid should the insure breach its duty of
utmost good faith by failing to sufficiently explain such Teng Fa construction company in China Pacific
clauses. Insurance Co.,Ltd entered into an insurance contract
in which a hoisting crane owned by Teng Fa
III - Post-Contractual Application of the Principle construction company is insured as a tool for
of Utmost Good Faith (at the Claim Stage) construction, but the company changed its usual
function and used it as a tool for bungee jumping
A - For the Insured and Third Party without notice to the insurer. Thereafter an accident
Beneficiary of Cover happened, the company filed claim to the insurer for
insurance money. The court upheld the insurer’s
argument as the risk of the insured subject increased perform the obligation of paying indemnity or
appreciably during the term of the contract, which insurance money as agreed upon therein.”
information shall be notified to the insurer in a timely
manner by the insured. However, the insured failed to
perform its obligation which shall be deemed as a
breach of its duty of utmost good faith as prescribed
in Article 52 of PRC Insurance Law : “Where the Yes, the abovementioned Articles which stipulate the
degree of peril of the subject matter insured greatly duty of utmost good faith for the insurer are all
increases during the term of validity of the contract, applicable to third party beneficiaries.
the insured shall notify the insurer in a timely manner
as agreed upon in the contract, and the insurer may 21. Describe the post-contractual duty of
increase the insurance premium or terminate the utmost good faith by providing examples
contract as agreed upon in the contract.” of the best known cases in which it has
been applied.
of his/her criminal activities when In a case heard by a Beijing Court, the insurance
completing a proposal for life policies a company was sued by Mr. Du for the payment of
breach of the duty of utmost good faith? insurance money. Mr. Du and Chinese Life Insurance
Company entered into a contract in which Mr. Du’ life
Yes, as per Article 45 of PRC Insurance Law, “Where and health were insured. After that, Mr. Du was
the insured is injured, disabled or dead for his or her injured in an accident which was then ascertained by
intentional commission of a crime or resistance to any the insurance company. However, the insurance
legally taken criminal compulsory measure, the company withheld the payment of the insurance
insurer shall not be liable for paying insurance money. money for the reason that a small part of the payment
If the insurer has paid the insurance premium for two has not been justified. Finally, the court not only
full years or more, the insurer shall refund the cash justified the small part but also ordered the insurance
value of the insurance policy as agreed upon in the company to bear late payment interest of the
contract.” insurance money. The court was of the opinion that
B - For the Insurer the insurance company breached its duty of utmost
good faith for withholding the payment.
good faith for the insurer when dealing 22. Is there a Code of Practice for insurers in
with a claim? your jurisdiction and, if so, how does it
sit with the duty of utmost good faith?
Although the insured is obligated to provide all
relevant materials related to the insured incident, as Yes, there is a regulation issued by PRC Insurance
an expertise who posses more professional Regulatory Commission named as Code of Conduct
knowledge of insurance, the insurer is also obligated of Insurance Practitioners. However, it is just a
to assist the insured in performing its obligation. As regulation with certain principles to function as the
per Paragraph 2, Article 22 of PRC Insurance Law, “If guideline for insurance practice. Without any direct
the insurer deems that the relevant certificates and reference to the duty of utmost good faith, such code
materials are incomplete according to the contract, it construe the spirit by stipulating several provisions.
shall notify, in a timely manner and at one time, the For instance, Article 14 provides, “He (NB: the
insurance applicant, insured or beneficiary of all insurer) shall, in an easily understandable manner,
certificates and materials to be supplemented.” provide information about insurance products, and
shall not mislead the clients in any form.” Article 17
In addition, the insurer shall indemnify the insured in a provides, “He shall objectively, impartially and timely
timely manner should the claim is justified. According settle the claims, and shall not delay in or grudge the
to Paragraph 1, Article 23 of PRC Insurance Law, claims settlement.”
“After receiving an insured’s or beneficiary’s claim for
paying indemnity or insurance money, the insurer 23. Can courts disregard a term of a contract
shall assess the claim in a timely manner. If the of insurance if it would be a breach of the
circumstances are complex, the insurer shall duty of utmost good faith for the insurer
to rely on the term? If so, please illustrate
complete the assessment within 30 days, unless it is
otherwise agreed upon in the insurance contract. The with examples.
insurer shall notify the insured or beneficiary of the Yes, Article 17 of PRC Insurance Law provides, “For
assessment result. For a claim which falls within the those clauses exempting the insurer from liability in
insurance coverage, the insurer shall perform the the insurance contract, the insurer shall sufficiently
obligation of paying indemnity or insurance money warn the insurance applicant of those clauses in the
within 10 days after reaching an agreement on insurance application form, the insurance policy or
payment of indemnity or insurance money with the any other insurance certificate, and expressly explain
insurant or beneficiary. If the insurance contract the contents of those clauses to the insurance
provides otherwise for the time limit for payment of applicant in writing or verbally. If the insurer fails to
indemnity or insurance money, the insurer shall
make a warning or express explanation thereof, those 25. To the extent that an insurer’s breach of
clauses shall not be effective.” the duty of utmost good faith is under
On that basis, courts can disregard the term should insurer to be in breach of its duty of
such term has not been fully explained to the insured. utmost good faith?
There is a high-profile case which was heard by a Yes, a breach of the statute will be found should the
court in Jiangsu Province. Mr. Duan, applied a vehicle insurer breaches its duty of utmost good faith under
driving insurance, based on which he claimed for such statute.
damages after an occurrence of a car accident.
However, the insurance company said it could only 26. Can a breach by the insurer of the duty of
bear 80% of the loss as there is a 20% deductible utmost good faith result in regulatory
franchise prescribed in the insurance contract should sanctions against the insurer (license
the car accident is fully attributable to the insured. Mr. suspension, banning order, etc.)?
Duan raised the argument that such clause has never
been explained to him when entering into the Yes, should the insurer breaches the duty of utmost
insurance contract. Finally, the court disregarded the good faith, it will be penalized for a certain amount. If
term prescribed in the insurance contract and upheld the circumstance is serious, it shall be penalized with
Mr. Duan’s claim as the insurance company breached respect to its business operation.
the duty of utmost good faith. As per Article 162 of PRC Insurance Law, “Where an
24. Do courts have special powers to insurance company commits any of the conduct
disregard any avoidance of the prescribed in Article 116 of this Law, the competent
application of a policy in cases where the insurance regulatory body shall order it to make
insured has established that it would be a correction and impose a fine of 50,000 yuan up to
breach of the duty of utmost good faith to 300,000 yuan upon it; and, if the circumstances are
allow the insurer to avoid the policy? serious, restrict its scope of business, order it to stop
accepting new business or revoke its business
Basically, the insurer will be entitled to rescind an operation permit.” For reference, the part concerned
insurance contract should the insured fail to perform in Article 116 provides, “In their insurance business
its duty of utmost good faith. However, the insurance operation, insurance companies and their staff shall
contract is a contract area where needs the be prohibited from: ‘... hiding any important
cooperation of the insured and the insurer. Hence, information about an insurance contract from an
under certain circumstances, the insurer will be insurance applicant; ... refusing to legally perform the
prohibited to revoke the insurance contract should it obligation of paying indemnity or insurance money
also breaches its duty of utmost good faith. As per under the insurance contract; ...’ “
Article 16 of PRC Insurance Law, “Where the
insurance applicant fails to perform the obligation of IV - Reinsurance
telling the truth as prescribed in the preceding
paragraph intentionally or for gross negligence, which 27. To what extent, if any, does your
is enough to affect the insurer’s decision on whether jurisdiction apply different principles
to underwrite the insurance or raise the insurance regarding utmost good faith to
premium, the insurer shall have the right to rescind reinsurance at both the placement/pre-
the insurance contract. contractual stage, and at the claim stage?
The right to rescind an insurance contract as No, the duty of utmost good faith is equally applied in
prescribed in the preceding paragraph shall be reinsurance contracts with an identical content as that
annulled after the lapse of 30 days or more from the of insurance contract.
day when the insurer knows the cause of rescission. ****
After the lapse of two years or more from the day
when an insurance contract is entered into, the
insurer may not rescind the contract; where an
insured incident occurs, the insurer shall be liable for Jade & Fountain
paying indemnity or insurance money.
31/F Tower B, Far East International Plaza
... Where the insurer knowing the truth which the 317 Xian Xia Road,
insurance applicant fails to tell enters into an Shanghai 200051
insurance contract with the insurance applicant, the China
insurer shall not rescind the contract and, if an
insured incident occurs, shall be liable for paying Tel.: 86-21-62351488
indemnity or insurance money....” Fax: 86-21-62351477
Email: jun.yang@jadefountain.com
Website: www.jadefountain.com
IBA Insurance Committee Substantive Project 2014 51 The Duty of Utmost Good Faith: Costa Rica
Costa Rica
BLP  The insurer is relieved of any obligation to
Neftali Garro pay a claim if the insured causes the loss
willfully or through grossly negligent conduct.
I - Definition of the Principle of Utmost Good Faith Insurance Contracts Law, art. 46.
1. In your jurisdiction, do insurance laws  The insurer is relieved of any obligation to

provide for the principle of utmost good pay a claim if the insured willfully or in a
faith (in latin, “uberrimae fidei”) and if so, grossly negligent manner makes inexact or
what is its meaning? Provide any fraudulent statements that could have
definition whether under statute or excluded, limited or reduced said obligation if
according to case law. such statement had been made truthfully.
Insurance Contracts Law, art. 47.
In Costa Rica there is no general statutory provision
containing the principle of utmost good faith.  The insurer cannot exercise a right of
However, the Supreme Court has held in reference to subrogation against the spouse or other
insurance contracts that “in these relationships a close relatives of the insured, except if there
principle of good faith governs, since, as the lower has been willful or grossly negligent conduct.
court notes, they are sustained on the basis of trust Insurance Contracts Law, art. 49.
that, in the context of the agreement, causes the
 If the insured risk increases during the life of
insured to expect and trust the insurer’s coverage in
the contract, the insured is required to
the event that the agreed upon conditional event
disclose such increase to the insurer. If the
(unforeseen) occurs, whereas the latter has the
insured does not disclose such increase
expectation that the insured will not incur conducts
willfully or through gross negligence, the
that affect the interest of the arrangement or the truth
insurer will be relieved of its obligation to pay
of what occurred.” (Emphasis added.) Supreme
st a claim. Insurance Contracts Law, art. 55.
Court, 1 Chamber, Judgment No. 756-F-2007 of
9:35 on 19 October 2007.  Insurers are permitted to cancel insurance
Similarly, another court held that “it is said that the contracts entered into by the insured in bad
insurance contract is a convention of utmost good faith with the purpose of obtaining an undue
faith, in the sense that there is at its base a benefit. Insurance Contracts Law, art. 61.
relationship of trust between the parties taken to the  Insurers are relieved of any obligation for
extreme (the first party refraining from incurring in damages caused by willful or grossly
willful, negligent or imprudent actions, that affect the negligent conduct of the insured. Insurance
interest of the arrangement).” (Emphasis added.) Contracts Law, art. 76.b).i).
th
Administrative Claims Court, 4 Section, Judgment

th
No. 41 of 16:00 hrs. on April 27 , 2012. Insurers cannot insure liability risks relating
to willful or grossly negligent conduct of the
Although there is no general statutory provision
insured. Insurance Contracts Law, art. 83.
containing the principle of utmost good faith,
insurance laws do contain various specific provisions  Insurers may not dispute health insurance
derived from the principle of utmost good faith, for coverage due to untrue or incomplete
example: statements at the time of issuance of the
policy if two years have passed since the
 The insurance law contains a notice-
policy was issued, except if the insured
prejudice rule regarding insurance loss
acted in bad faith (in which case the insurer
notices, such that the insured does not lose
can dispute coverage at any time).
the right to coverage for giving notice late,
except where the insured’s conduct has
been willful or grossly negligent. Insurance  The beneficiary of a life insurance policy that
Contracts Law, art. 42. causes the insured’s death by willful or
grossly negligent conduct is not entitled to
 The insured is required to mitigate the
claim insurance proceeds. Insurance
effects of a loss through reasonable means.
Contracts Law, art. 100.
If the insured fails to meet this obligation
through willful or grossly negligent conduct,
the insured is relieved of any obligation to
pay the loss. Insurance Contracts Law,
art. 44.
2. Is the principle of utmost good faith (i) a 8. Is the duty of utmost good faith for the
statutory principle, (ii) a common law insured equivalent to the duty of
principle or (iii) a civil law principle? Or is disclosure in your jurisdiction so that
it to be found under statute and pre-contractually the two are
otherwise? indistinguishable?
The principle of utmost good faith is a statutory Yes, at the pre-contractual stage the duty of utmost
principle and a civil law principle recognized by good faith is equivalent to the duty of disclosure.
courts. Costa Rica is not a common law jurisdiction.
3. Do insurance laws of your jurisdiction separately pre-contractually from the
provide for both the principle of utmost duty of disclosure describe that operation
good faith and a separate duty of and how the two sit together. You may
disclosure for the insured? need to describe the duty of disclosure to
illustrate the differences.
Yes. See answer to question 1. above.
N/A.
4. Does the principle of utmost good faith
apply to all types of insurance contracts 10. What are the remedies for a pre-
(life insurance, general insurance, contractual breach by the insured of the
reinsurance etc.)? duty of utmost good faith? Are the
Yes. See answer to question 1. above. duty of disclosure?
As described above, the insurer is relieved of any
obligation to pay a claim if the insured willfully or in a
grossly negligent manner makes inexact or fraudulent
statements that could have excluded, limited or
It applies both at the pre-contractual stage and post- reduced said obligation if such statement had been
contractual stage. made truthfully. Insurance Contracts Law, art. 47.
II - Application of the Principle of Utmost Good 11. If the duty of utmost good faith operates
Faith at the Pre-Contractual Stage separately from the duty of disclosure
6. Does the Principle of Utmost Good Faith other?
apply to both the insured and the insurer N/A
B - For the Insurer
Yes, it applies to both. However, for practical reasons
and given the manner in which insurance contracts 12. What is the content of the pre-contractual
are concluded (through form contracts pre-designed duty of utmost good faith for the insurer?
by the insurer), the duty of good faith at the pre- The insurer is obligated to present timely and truthful
contractual stage falls mainly with the insured in terms information to the insured regarding the insurance
of adequately declaring the risk that is to be insured. contract that is being negotiated. This duty is made
A - For the Insured effective through various legal (statutory) and
administrative provisions requiring certain information
7. What is the content of the duty of utmost about the insurance contract to be specifically
good faith for the insured? disclosed and explained to the insured, including:
 Information on the product, including
associated risks, benefits, obligations and
costs.
At the pre-contractual stage, the most common  Clear explanation of the coverage and
example of the duty of utmost good faith relates to exclusions of the contract.
declaring the risk at the contract’s inception. Altough  Coverage term.
there is no case law given that the Insurance
Contracts Law was enacted only recently (2011), the  Procedure for payment of premiums and
insurer is relieved of any obligation to pay a claim if making claims in the event of a loss.
the insured willfully or in a grossly negligent manner
makes inexact or fraudulent statements that could  Termination of the contract.
have excluded, limited or reduced said obligation if
 Cancellation, penalties, term and procedure
such statement had been made truthfully. Insurance
for cancellation.
 Explanation of the right to receive timely  The insured is required to mitigate the
response to any claims or requests. effects of a loss through reasonable means.
If the insured fails to meet this obligation
 Companies that form part of the network of through willful or grossly negligent conduct,
services auxiliary to the insurer (for example, the insured is relieved of any obligation to
doctors, auto repair shops, funeral homes, pay the loss. Insurance Contracts Law,
etc.). art. 44.
13. Describe the insurer’s pre-contractual
 The insurer is relieved of any obligation to
pay a claim if the insured causes the loss
willfully or through grossly negligent conduct.
The Insurance Contracts Law is recent (it was
enacted in 2011). Therefore, there have been no  The insurer is relieved of any obligation to
cases involving the insurer’s pre-contractual duty of pay a claim if the insured willfully or in a
utmos good faith recently. In general, the duty at the grossly negligent manner makes inexact or
pre-contractual stage has been referred mainly to the fraudulent statements that could have
items referred to in item 12 above. excluded, limited or reduced said obligation if
such statement had been made truthfully.
14. Is it a breach of the duty of utmost good Insurance Contracts Law, art. 47.
faith in your jurisdiction for insurers not
to notify the prospective insured of the  Insurers are relieved of any obligation for
nature and extent of their duty of damages caused by willful or grossly
disclosure? negligent conduct of the insured. Insurance
Contracts Law, art. 76.b).i).
No, it is not. The duty of disclosure is a statutory
provision and a such insureds cannot claim ignorance 16.1 Do third party beneficiaries of cover have
of the law. a duty of utmost good faith?
15. What are the remedies for a pre- Yes, the duty covers beneficiaries as well. For
contractual breach by the insurer of its example, the beneficiary of a life insurance policy that
duty of utmost good faith? causes the insured’s death by willful or grossly
The breach of the duty of disclosure in providing the negligent conduct is not entitled to claim insurance
insurer the information referred to in item 12 above proceeds. Insurance Contracts Law, art. 100.
can lead to the imposition of a fine by the Insurance 17. Describe the insured’s post-contractual
Superintendent and, in extreme cases, to the revoking duty of utmost good faith by providing
of the insurer’s license to operate. Furthermore, if the examples of the best known cases in
duty of disclosing the required pre-contract which it has been applied.
information to the consumer is not met in the context
of an insured covered under a group policy, any See answer to item 16 above. In any event, the
applicable exclusions in the contract will become Insurance Contracts Law is very recent (2011) and
unenforceable. Insurance Contracts Law, art. 12. there are no court cases based on that law.
III - Post-Contractual Application of the Principle 18. Is the insured’s intentional concealment
of Utmost Good Faith (at the Claim Stage) of his/her criminal activities when
A - For the Insured and Third Party breach of the duty of utmost good faith?
Beneficiary of Cover Yes. In general (not only applicable to life insurance),
16. What is the content of the post- insurers are permitted to cancel insurance contracts
contractual duty of utmost good faith for entered into by the insured in bad faith with the
the insured at the claim stage? purpose of obtaining an undue benefit. Insurance
The content of the post-contractual duty of utmost
good faith at the claim stage is mainly as follows: B - For the Insurer
 The insurance law contains a notice-
prejudice rule regarding insurance loss
with a claim?
notices, such that the insured does not lose
the right to coverage for giving notice late, The duty comprises the following elements:
except where the insured’s conduct has
been willful or grossly negligent. Insurance  Insurers are permitted to request only those
Contracts Law, art. 42. items specifically provided for in the
insurance contract as necessary to process  The right to fair and non-discriminatory

a claim. treatment.
 Insurers are required to provide timely  In the event of doubt as to the interpretation
response to all requests made by the of the principles of the insurance laws, the
insured, defined as response within 30 days interpretation most favorable to the insured
of the insured’s request. shall prevail.
 In denying coverage of a loss, the insurer is  The right to swift service, through reasoned
required to provide specific motivation for decisions issued in writing, in connection
such loss, referencing the legal and/or with claims, complaints and requests of the
contractual principles on which the denial of insurance consumer, within 30 days.
coverage is based.
 The right to the protection of the insured’s
 Insurers are required to report to the personal data.
Insurance Superintendent the appointment
of beneficiaries of life insurance policies in 23. Can courts disregard a term of a contract
order that such beneficiaries are able to of insurance if it would be a breach of the
verify with the Superintendent in the event duty of utmost good faith for the insurer
that a close relative (possible insured) to rely on the term? If so, please illustrate
passes. with examples.
Yes. Although we have not found specific instances
20. Does an insurer owe a duty of utmost of a contract term being disregarded, there are court
good faith towards third party cases that have established that the duty of utmost
beneficiaries of cover in handling claims? good faith applies both to the insured and the insurer.
Yes, the duty is the same whether the insurer is Therefore, if such a situation arose, in our opinion a
dealing with an insured or a third party beneficiary. court could disregard such terms in a contract.
However, the insured would have to claim that the
21. Describe the insurer’s post-contractual contract terms are null based on the theory of
duty of utmost good faith by providing contracts of adhesion.
which it has been applied. 24. Do courts have special powers to
See answer to item 19 above. Although there are no application of a policy in cases where the
cases given that the Insurance Contracts Law is very insured has established that it would be a
recent (2011), at the administrative level the breach of the duty of utmost good faith to
Insurance Superintendent regularly enforces the duty allow the insurer to avoid the policy?
of good faith in dealing with complaints filed by
insureds against insurers. Yes. Courts have sufficient powers in this regard.
22. Is there a Code of Practice for insurers in 25. To the extent that an insurer’s breach of
your jurisdiction and, if so, how does it the duty of utmost good faith is under
sit with the duty of utmost good faith? statute, is it a breach of the statute for the
There is no Code of Practice for insurers. However, utmost good faith?
the Insurance Superintendent has issued
administrative regulations containing the “Insurance Yes.
Consumers’ Bill of Rights”, which comprises a defined 26. Can a breach by the insurer of the duty of
list of statutory and regulatory rights that are utmost good faith result in regulatory
equivalent to a Code of Practice. Superintendent sanctions against the insurer (license
Ruling SGS-DES-A-031-2014. These rights are listed suspension, banning order, etc.)?
as follows:
Yes. Insurers are required to enter into insurance
 The right to the protection of their legitimate contracts in accordance with statutory requirements.
economic interests. Failing to do so can result in the imposition of fines
and/or cancellation of the license to operate.
 The right to choose freely among insurers, Insurance Market Law, art. 25.
intermediaries (brokers, agents), products
and auxiliary services.
 The right to obtain adequate and truthful
information, prior to and after entering the
contract.
IV - Reinsurance
27. To what extent, if any, does your BLP

regarding utmost good faith to BLP Building, 4th floor
reinsurance at both the placement/pre- Via Lindora Business Center
contractual stage, and at the claim stage? Radial Santa Ana – Belen, Km 3
Santa Ana, San Jose. Costa Rica
There are no specific rules regarding reinsurance in
this matter. As a general rule, reinsurance contracts Tel: (506) 2205 3939
are governed by the same rules as insurance Email: ngarro@blplegal.com
contracts, where applicable.
**** Website: www.blplegal.com
IBA Insurance Committee Substantive Project 2014 56 The Duty of Utmost Good Faith: Denmark
Denmark
BECH-BRUUN consequences of the insured’s misrepresentation
when the insurer is acting in good faith according to
Anne Buhl Bjelke
the rules stipulated in sections 8-10 of the Insurance
I - Definition of the Principle of Utmost Good Faith Contracts Act. Furthermore, the insurer is required by
statute to provide certain pre-contractual information
1. In your jurisdiction, do insurance laws as regards the insurance product and the rights of the
5
provide for the principle of utmost good insured.
faith (in latin, “uberrimae fidei”) and if so, The general rules of Danish contract law also apply
what is its meaning? Provide any when the insurer and the insured enters into an
definition whether under statute or insurance contract. These rules provide for the parties
according to case law. acting in good faith when contracting and – to some
The duty of utmost good faith has historically been extent – preserving the interests of the other
recognized under Danish insurance law. contracting party.
In general, the duty of good faith may be defined as 2. Is the principle of utmost good faith (i) a
an implied obligation to disclose relevant facts and statutory principle, (ii) a common law
ensure that no critical information is withheld from the principle or (iii) a civil law principle? Or is
parties to the contract. Under Danish law, the it to be found under statute and
assessment of good faith is made on the basis of the otherwise?
qualifications and the background of each individual The duty of utmost good faith used to be a principle
1
insurer and insured. The duty of utmost good faith developed through case law, however, cf. question 1,
was made less strict on the part of the insured due to the principle of utmost good faith on the part of the
the codification of the rules into the Danish Insurance insured were codified and made less strict by way of
2
Contracts Act (in Danish forsikringsaftaleloven) in introducing the rules into to the Insurance Contracts
.
1930 Act.
There is no statutory definition, but the obligation for The rules pertaining to the duty of good faith are
the insured is contained in Sections 4-7 of the Danish stipulated in sections 4-10 of the Insurance Contracts
3
Insurance Contracts Act . Section 4-7 are stipulating Act. Section 5 provides for:
the legal effects if the insured misrepresents facts and
implying that the insured is subject to a duty of good 5.
faith when contracting with the insurer. (1) If it is presumed that the policyholder had
neither actual nor constructive notice of the
The duty of good faith as presupposed for in sections misrepresentation made by him when taking
4-7 of the Insurance Contracts Act applies exclusively out the insurance, the company is liable as if
to the insured. the misrepresentation had not been made.
The insurer is not subject to a specific duty of utmost (2) In respect of general insurance, the
good faith. The insurer is obliged to act according to company may terminate the insurance at
rules on good business practice laid down by statute.
4 one week's notice – if the policyholder
6
The rules on good business practice include a general resides in Greenland, at one month's notice.
obligation for the insurer to act with loyalty towards its In addition, section 7 states:
customers. These rules are supervised and enforced
by the Danish Financial Supervisory Authority. In 7. The policyholder's failure to disclose
respect of the insured’s obligations as described information does not affect the liability of the
above the insurer may only invoke the legal company unless the policyholder should
have realised that the non-disclosure was
material to the company, and that his
conduct may be attributed to him as gross
1
Henning Jønsson & Lisbeth Kjærgaard, Dansk
negligence. In such case he is deemed to
Forsikringsret (Danish Insurance Law), 9th Ed., 2012, Jurist-
og Økonomforbundets forlag, p. 198.
2
Forsikringsret (Danish Insurance Law), 9th Ed., 2012, Jurist- 5
og Økonomforbundets forlag, p. 167. Section 34e of the Danish Insurance Contracts Act and
Section 5 of Executive Order No. 928 of 28 June 2013 on
3
Consolidated Act no. 999 of 5 October 2006. Good Business Practice for Financial Undertakings.
4 6
Statutory order no. 928 of 28 June 2013. Our unofficial translation.
have made misrepresentations, cf. section 6 There are, however, several exceptions, for example
7
of this Act. in relation to non-life insurance, where the duty of
good faith applies both pre-contractually and post-
The duty of the insurer is stipulated in the general contractually. According to the general interpretation
rules on good business practice for financial of Sections 7 and 46 in the Danish Insurance
8
undertakings as well as the general rules of good Contracts Act, these provisions relate to types of non-
faith in Danish contract law. life insurance where the insured is to inform the
3. Do insurance laws of your jurisdiction insurer of facts material to the risk coming to his
provide for both the principle of utmost knowledge during the policy period when such facts
good faith and a separate duty of existed at the time of contracting and should have
disclosure for the insured? been disclosed to the insurer, had the insured been
11
aware of such.
Section 7 of the Danish Insurance Contracts Act
stipulates a duty of disclosure on the insured in II - Application of the Principle of Utmost Good
addition to the obligation to act in good faith. Faith at the Pre-Contractual Stage
However, when taking out insurance, case law has
laid down that the insured is in principle only obliged 6. Does the Principle of Utmost Good Faith
to reply in good faith to questions posed by the apply to both the insured and the insurer
insurer. The reasoning behind this case law is that if at the pre-contractual stage?
the insurer did not inquire about the subject, the fact
not disclosed is in general not deemed material to the The duty of good faith stipulated in sections 4-7 of the
insurer. This is mainly the case if the insurance Insurance Contracts Act applies to the insured at the
contract is concluded using a questionnaire prepared pre-contractual stage.
9
by the insurer as the insurance application. Further, the insurer’s obligations to act in good faith,
4. Does the principle of utmost good faith as stated under question 1, applies pre-contractually.
apply to all types of insurance contracts A – For the Insured
(life insurance, general insurance,
reinsurance etc.)? 7. What is the content of the duty of utmost
In principle, the duty of good faith applies to all types
of insurance contracts. Sections 4-10 of the Insurance Insurance contracts are usually concluded by the
Contracts Act, regulating misrepresentation at the prospective insured sending an insurance application
time of contract and providing for the principle of good to the insurer. The application is usually a template
faith, are contained in Part 1 of the Insurance questionnaire prepared by the insurer and filled out by
Contracts Act, which covers provisions governing all the prospective insured. If the insurer decides to take
types of direct insurance. on the risk, it will issue a policy on the basis of the
application and forward the policy documents to the
Section 1(2) of the Insurance Contracts Act stipulates insured along with the relevant terms and conditions.
that reinsurance is not covered by the Act. However,
the general rules of contract law and the principles of The insurance application usually includes the
good faith apply to reinsurance contracts under information necessary to make an accurate
Danish law. assessment by the insurer. The duty of good faith is,
as stated under question 1 and 3, complied with
5. Does the duty of utmost good faith apply under Danish law, when the prospective insured
only at the pre-contractual stage or is it a replies in good faith to the questions posed by the
continuous duty applying both pre- insurer and discloses all material and relevant facts
contractually and post-contractually? when requested by the insurer.
Under Danish law, the duty of good faith applies when Describe the insured's pre-contractual
taking out the insurance and until the insurance policy duty of utmost good faith by providing
is received by the policyholder (when the insurance examples of the best known cases in
10
contract has been concluded). which it has been applied.
The insured’s pre-contractual duty of good faith is
addressed in various cases decided under Danish
7
Our unofficial translation.
8
Statutory order no. 928 of 28 June 2013.
9 og Økonomforbundets forlag, p. 169 and Ivan Sørensen,
Henning Jønsson & Lisbeth Kjærgaard, Dansk Forsikringsret (Insurance Law), 5th Ed., 2010, Jurist- og
Forsikringsret (Danish Insurance Law), 9th Ed., 2012, Jurist- Økonomforbundets Forlag, p. 66.
11
10 Ivan Sørensen, Forsikringsret (Insurance Law), 5th Ed.,
Henning Jønsson & Lisbeth Kjærgaard, Dansk 2010, Jurist- og Økonomforbundets Forlag, p. 68.
law. The following cases were decided by the Danish insurance, the insured failed to disclose that
Supreme Court. he suffered from post-surgery pain for two
weeks after a herniated disc operation on 1
UfR 2000.1567 H, The Danish Weekly Law
November 1983. As a result of a traffic
Reports
accident in 1993, the insured suffered from
In this specific decision, the insured, when severe backache. On the basis of the
taking out a general insurance on a vessel, medical records, the insurer stated that the
failed to disclose the full details of insured had failed to disclose relevant facts
accidents/losses during the last five years in when taking out the insurance, and that the
relation to the vessel. The insured claimed insurer was not bound by the insurance
that he failed to disclose the said details, contract.
which were presumed to be material to the
company, as he had poor English skills. The Insurance Complaints Board stated that
Furthermore, he claimed that the the insured had failed to disclose that he
representative of the company selling the suffered from post-surgery pain two weeks
vessel to the insured was liable as that after a herniated disc operation in 1983.
representative filled out the insurance However, based on the fact that the insured
application on behalf of the insured. only suffered from post-surgery for a period
of two weeks, the Insurance Complaints
The Supreme Court stated that the insured Board assumed that the insured considered
was obliged to ensure acquaintance with the the post-surgery pain as after-effects from
contents of the insurance application before the surgery and that the misrepresentation
signing such application. Thus, the insured was not fraudulent or in bad faith.
had failed to comply with the duty of good
faith when taking out the insurance. The Insurance Complaints Board concluded
that the insurer was liable as if
UfR 1962.1 H, The Danish Weekly Law
misrepresentation had not been made.
Reports
The insured took out a life insurance and 8. Is the duty of utmost good faith for the
disclosed that he had previously suffered insured equivalent to the duty of
from a leg injury and that he had no disclosure in your jurisdiction so that
permanent physical disability from the injury. pre-contractually the two are
The insured passed away one year after the indistinguishable?
life insurance was taken out with the insurer.
The post-mortem examination revealed that Under Danish law, the insured is in principle subject
the cause of death was cancer in the leg to the duty of good faith and the duty of disclosure
which according to the insured had no when taking out insurance, cf. Question 3 above. The
permanent physical disability. Furthermore, duty of disclosure applies in addition to the duty of
during the trial and the production of good faith, for example, if the insured, prior to
evidence, it was revealed that the insured entering into an insurance contract and after the
was registered at the Copenhagen University insurance application is sent by the insured, realises
Hospital but the insured was discharged – at that the insurance application lacks the information
his own request – as the insured feared that necessary for the insurer to make an accurate
he suffered from a severe illness. assessment of the risk the insurer will be
14
undertaking.
The Supreme Court decided that the
insured, when taking out the insurance, had
separately pre-contractually from the
fraudulently failed to disclose a fact which
duty of disclosure describe that operation
was presumed to be material to the insurer,
and the company was not bound by the
contract with the insured.
The following case was decided by the Danish
12
Insurance Complaints Board . As stated in question 3 and 8, the insured is in
principle subject to the duty of disclosure when taking
13
39.210 (1996) out insurance.
In this specific decision, when taking out the
13
12 og Økonomforbundets forlag, p. 200.
The Danish Insurance Complaints Board was established
14
in 1975 is a private complaints board authorised by the Ivan Sørensen, Forsikringsret (Insurance Law), 5th Ed.,
Danish Minister for Business and Growth. 2010, Jurist- og Økonomforbundets Forlag, p. 64.
The duty of disclosure is described in section 7 of the major extent, the compensation will be
Insurance Contracts Act. The section stipulates that reduced proportionately.
the insured’s failure to disclose information does not, (3) Notwithstanding subsections (1) and (2)
in principle, affect the liability of the insurer, unless the hereof, consumer insurances and life,
insured should have realised that the non-disclosure accident and health insurances and other
was material to the insurer, and that the insured's personal insurances may provide that the
conduct may be attributed to gross negligence. In company shall be liable, in full or in part, if
such case, the insured is deemed to have made warranted by particular circumstances. In the
misrepresentations according to section 6 of the determination thereof, particular regard must
Insurance Contracts Act. be had as to whether the fact
misrepresented is presumed to have
affected the occurrence of the insurance
contractual breach by the insured of the event or the extent of the loss, to the
duty of utmost good faith? Are the negligence shown by the policyholder and to
remedies different from a breach of the the time elapsed from the misrepresentation
duty of disclosure?
was made until the insurance event
The remedies for pre-contractual breach by the occurred.
insured of the duty of good faith and the duty of (4) In respect of marine and other transport
disclosure are regulated in sections 4-7 of the insurance and fidelity guarantee insurance,
Insurance Contracts Act. the rule of subsection (2) hereof is replaced
by a rule providing that the company is liable
The rules under section 4-7 state: only in so far as it is substantiated that the
4. If, when taking out the insurance, the fact misrepresented has not affected the
policyholder has fraudulently misrepresented occurrence of the insurance event or the
17
or failed to disclose a fact which is presumed extent of the loss.
to be material to the company, the company 7. The policyholder's failure to disclose
is not bound by the contract. The same information does not affect the liability of the
applies if the policyholder's conduct has company unless the policyholder should
otherwise been so that it would be contrary have realised that the non-disclosure was
to the requirement of good faith to enforce material to the company, and that his
15
the contract. conduct may be attributed to him as gross
5. negligence. In such case he is deemed to
(1) If it is presumed that the policyholder had have made misrepresentations, cf. section 6
18
neither actual nor constructive notice of the of this Act.
misrepresentation made by him when taking 11. If the duty of utmost good faith operates
out the insurance, the company is liable as if separately from the duty of disclosure
the misrepresentation had not been made. does one have precedence over the
(2) In respect of general insurance, the other?
company may terminate the insurance at
one week's notice – if the policyholder As stated above under question 3 and 8, the insured
resides in Greenland, at one month's is in principle not subject to a separate duty of
16
notice. disclosure if an insurance application is filled out
when taking out the insurance. Against this
6. background, the duty of good faith is in principle
(1) If the policyholder has misrepresented considered to have precedence over the duty of
facts without the matter falling within section disclosure due to the fact that most insurance
4 or 5, the company is exempt from liability if companies provide the template questionnaire for the
it would presumably not have accepted the insurance applications when contracting with the
insurance if the true facts had been insured.
disclosed.
(2) If it is presumed that the company would B - For the Insurer
have accepted the insurance, but on other 12. What is the content of the pre-contractual
terms, the company is liable in so far as it duty of utmost good faith for the insurer?
would have undertaken liability against the
agreed premium. If the company would have The insurer is required to comply with the Danish
limited its net retention by reinsurance to any rules on good business practice. These are contained
15 17
Our unofficial translation. Our unofficial translation.
16 18
Our unofficial translation. Our unofficial translation.
in Executive Order No. 928 of 28 June 2013 and The Insurance Complaints Board decided
prescribe that the insurer shall act loyally in respect of that the insured was entitled to claim
the insured and provide essential information on the reimbursement of the part of the insurance
insurance product sold. Further, when advising premium constituting the difference.
prospective insureds, the advice of the insurer shall
14. Is it a breach of the duty of utmost good
take into due consideration the interests of the
19 faith in your jurisdiction for insurers not
customer.
to notify the prospective insured of the
Additionally, the Sections 9 and 10(1) and (3) of the nature and extent of their duty of
Danish Insurance Contracts Act stipulate that the disclosure?
insurer may not rely on misrepresentation if the
insurance company had actual or constructive notice It is generally not a breach of the duty of the good
of the true facts when effecting the insurance, or if the faith for the insurer to not notify the prospective
fact about which the insurer remained unaware was insured of the nature and extent of their duty of
immaterial to it or later ceased to be material. disclosure. However, the insurer has certain specific
Furthermore, the insurer may not rely on insurance obligations to provide pre-contractual information to
contracts violating mandatory provisions of Insurance the insured.
Contracts Act, and the insurer may not rely on 15. What are the remedies for a pre-
misrepresentation if the insurer has described a fact contractual breach by the insurer of its
in a policy without having obtained relevant duty of utmost good faith?
information on the fact from the insured or others and
has made a reservation of exemption from liability, in In this situation the insured can chose to either
whole or in part, if the description should prove to be rescind the contract or sustain it with the modifications
incorrect. provided by the incorrect statements made by the
insurer. In a Danish case from 1997:
13. Describe the insurer's pre-contractual
duty of utmost good faith by providing The Danish Weekly Law Reports, UfR
examples of the best known cases in 1997.1706 H
which it has been applied. Through an insurance intermediary an
insurer had issued a policy that covered
The insurer’s pre-contractual duty of good faith has travel insurance for both commercial and
been addressed in several cases: private travel, although the insurer did not
The Danish Weekly Law Reports, UfR intend for the insurance to also cover the
1931.1079 V private travels of the management of the
The insurer disclosed to the insured that a insured. The Supreme Court ruled that the
particular insurance was cheaper with that insured could rely on the representations by
company than the insurer where the insured the insurer and that the insurer had to cover
had at the time placed his insurances. a claim made in relation to a private trip of
one of the managers.
This turned out to be incorrect. As such the
III - Post-Contractual Application of the Principle
insured was not bound by the insurance
of Utmost Good Faith (at the Claim Stage)
contract.
The following case was decided by the Insurance A - For the Insured and Third Party
Complaints Board: Beneficiary of Cover
20
20.498 (1988) 16. What is the content of the post-
The insurer, when concluding a property contractual duty of utmost good faith for
insurance contract with the insured, the insured at the claim stage?
registered in the insurance policy that the
property amounted to 102 square metres. According to section 22 of the Insurance Contracts
The insurance contract was concluded in Act, the insured is – at the claims stage – obliged to
1967. In 1987, the insured learned that the disclose all relevant information available to the
property in fact amounted to approximately insured on matters that may be material to the
89 square metres. assessment of the insurance event.
Third party beneficiaries of cover are also subject to
19 section 22 of the Insurance Contracts Act at the claim
Sections 5 and 7 of the Order. stage.
20
17. Describe the insured's post-contractual insurance payment has already been accepted or
duty of utmost good faith by providing refused.
which it has been applied. 20. Does an insurer owe a duty of utmost
In case of the occurrence of an insurance event, the beneficiaries of cover in handling claims?
insured is to notify the insurer without undue delay.
The insured’s post-contractual duty of good faith When handling claims made by third party
extends to the insured ensuring that information beneficiaries, the insurer is subject to the same rules
provided the insurer is not false or otherwise as mentioned in the answer to question 19 above.
inaccurate. The following case was decided by the 21. Describe the insurer's post-contractual
Danish Supreme Court. duty of utmost good faith by providing
The Danish Weekly Law Reports, UfR examples of the best known cases in
1960.514 H which it has been applied.
A farm owner suffered a loss of grain during The insurer's post-contractual duty of good faith is
a blazing heat. The farm owner fraudulently addressed in a case decided by the Danish Supreme
disclosed that the total loss amounted to Court:
DKK 12,055, whereas the actual amount
was DKK 2,008. The Supreme Court The Danish Weekly Law Reports, UfR
21
decided that the insurer was obliged to only 2001.352 H
pay the farm owner an amount of DKK The insured, a Norwegian citizen, was
2,008. involved in an accident in Canada in May
1993. The insurer was informed about some
18. Is the insured’s intentional concealment of the permanent injuries in June 1993,
of his/her criminal activities when which included amputation of a foot and an
completing a proposal for life policies a arm lesion. The permanent injuries and the
breach of the duty of utmost good faith? degree of disability were established at
The concealment of previous criminal activities does 30 %. The insured was transported back to
not in themselves constitute a breach of the duty of Norway in December 1993. The insurer
good faith for the insured. In a Danish Supreme Court informed the insured in March 1994 that he
decision from 1952: was covered by the insurance. In February
1996, a medical specialist declaration
The Danish Weekly Law Reports, UfR ascertained that the injuries constituted 80 %
1952.278 H disability. The insurer paid the insurance
An insured under a life insurance policy had money in April 1996 – two and a half years
concealed an incident that occurred while after the degree of disability was initially
the insured was a part of the Danish established.
volunteer force with the German army during
the Second World War. The insured had The Supreme Court decided that the insurer
suffered a gunshot wound and used had failed to notify the insured of the right to
painkillers. The Supreme Court found that receive payment from June 1993 with regard
the misrepresentation was not by reason of a to the 30 % degree of disability according to
fraudulent intent on the insured, and that the section 24(1) of the Insurance Contracts
22
insurer had not proved that it would not have Act.
entered into the insurance contract had the 22. Is there a Code of Practice for insurers in
insured provided accurate information. your jurisdiction and, if so, how does it
Against this background, the insurer was sit with the duty of utmost good faith?
obliged to pay the insurance money.
Insurance companies are required to comply with the
B - For the Insurer general rules on good business practice for financial
19. What is the content of the duty of utmost undertakings as laid down in Executive Order No. 928
with a claim?
The insurer is subject to the duty of good faith 21
Ivan Sørensen, Forsikringsret (Insurance Law), 5th Ed.,
according to the rules stipulated in, for example, 2010, Jurist- og Økonomforbundets Forlag, p. 381.
sections 24(1), second sentence, and 25 of the 22
Insurance Contracts Act. The rules stipulate that the Section 24(1) stipulates that the insurance moneys
insurer must, within three months of being notified of are payable upon demand two weeks after the insurer
the insurance event, notify the insured of his right to has been able to obtain the information required to
demand payment unless the insured's claim for assess the insurance event and determine the
amount of the insurance moneys.
of 28 June 2013 on Good Business Practice for Please see the answers to question 23 above.
Financial Undertakings, which is issued on a statutory
25. To the extent that an insurer's breach of
legal basis.
23. Can courts disregard a term of a contract statute, is it a breach of the statute for the
of insurance if it would be a breach of the insurer to be in breach of its duty of
duty of utmost good faith for the insurer utmost good faith?
with examples. The rules on good faith in respect of the insurer are
contained the previously mentioned Executive Order
The insurer may not rely on misrepresentation if the on Good Business Practice for Financial
25
insurer had actual or constructive notice of the true Undertakings. An insurer’s breach of the duties
facts when effecting the insurance, or if the fact about prescribed in the Order is a violation of Section 43 of
26
which the insurer was unaware was immaterial to it or the Danish Financial Business Act , which forms the
later ceased to be material. statutory basis for the Executive Order.
Further, according to section 36(1) of the Danish As stated in the answer to question 1, the insurer is
23
Contracts Act (aftaleloven), Danish courts may not subject to a specific duty of utmost good faith.
disregard a term of a (-n insurance) contract if it would However, the insurer is subject to the duty of good
be considered unreasonable to rely on the term. faith according to the rules mentioned in the answer
to question 1 above.
The legal position is addressed in a case decided by
the Danish Insurance Complaints Board. 26. Can a breach by the insurer of the duty of
24 utmost good faith result in regulatory
21.875 (årstal) sanctions against the insurer (license
The insured, when taking out a home and suspension, banning order, etc.)?
personal protection insurance, consulted the
insurer with the intention of clarifying Yes, a breach of the duty of good faith by the insurer
whether it had any significance to the may result in regulatory sanctions being imposed on
provisions of cover that the insured lived in a the insurer. According to the rules on good business
27
basement. The insurer replied that it would practice laid down by the Executive Order , sanctions
be taken into consideration when the are imposed by the Danish Financial Supervisory
insurance was taken out. The insurance Authority and consist of reprimands, decisions and
contract was sent to the insured, and it failed orders. The Danish Financial Supervisory Authority
to contain information concerning the fact may involve a correction of the insurer’s way of
that the insured lived in a basement. conducting business. In extreme cases of violation of
Subsequently, the insured was subjected to the rules on good business practice the Danish
a housebreaking. The insurer, after Financial Supervisory Authority may suspend the
assessing the claim, refused to recognise licence of an insurer.
insurance coverage for the insured based on
IV - Reinsurance
the fact that the insured had fraudulently
misrepresented a fact which was presumed
to be material to the insurer. 27. To what extent, if any, does your
The Insurance Complaints Board decided regarding utmost good faith to
that the insurer had relied on reinsurance at both the placement/pre-
misrepresentation in a situation where the contractual stage, and at the claim stage?
insurer had actual and constructive notice of
the true facts when effecting the insurance. A duty of utmost good faith is neither applied to
Against this background, the insurer was reinsurance at the placement/pre-contractual stage,
obliged to pay the insurance money. nor at the claim stage. The significance of the
application of the general rules of contract law, when
24. Do courts have special powers to parties take out reinsurance, is that the contracting
disregard any avoidance of the parties are subject to the general principles of good
application of a policy in cases where the faith contained in the general rules of contract law.
25
Executive Order no. 928 of 28 June 2013 on good
23 business practice for financial undertakings.
Consolidated Act no. 781 of 26 September 1996.
26
24 Danish Consolidated Act No. 928 of 2 July 2013.
Preben Lyngsø, Forsikringsaftaleloven med kommentarer
27
(The Annotated Danish Insurance Contracts Act), 4th Ed., Executive Order no. 928 of 28 June 2013 on good
1992, Jurist- og Økonomforbundets Forlag, p. 74. business practice for financial undertakings.
****
BECH-BRUUN
Langelinie Allé 35
2100 Copenhagen, Denmark
Tel.: (45) 722 70000

Fax: (45) 722 70027
Email: abb@bechbruun.com
Website: www.bechbruun.com
IBA Insurance Committee Substantive Project 2014 64 The Duty of Utmost Good Faith: France
France
BOPS 3. Do insurance laws of your jurisdiction
Alexis Valencon good faith and a separate duty of
I - Definition of the Principle of Utmost Good Faith disclosure for the insured?
French insurance laws indeed provide for a separate
1. In your jurisdiction, do insurance laws duty of disclosure for the insured (see below).
faith (in latin, “uberrimae fidei”) and if so, Such a duty is an example of how the principle of
what is its meaning? Provide any good faith is implemented into specific statutory
definition whether under statute or provisions.
according to case law. 4. Does the principle of utmost good faith
French insurance laws do not provide for a specific apply to all types of insurance contracts
principle of utmost good faith. (life insurance, general insurance,
reinsurance etc.)?
Article 1134 of the French Civil Code provides that all
contracts “must be performed in good faith”. These As mentioned above, the principle of good faith is
provisions are therefore applicable to all insurance implemented into provisions that apply to all types of
and reinsurance contracts. insurance and reinsurance contracts (life insurance,
general insurance, reinsurance, etc.).
However, the principle of good faith is reflected in
insurance-related statutory provisions that define the Some statutory provisions are common to all
obligations of both the insured and the insurer. French insurance contracts; other ones are specific to a type
insurance laws outline, in each situation, the of insurance contracts (e.g. life insurance).
obligations of the parties. 5. Does the duty of utmost good faith apply
That being said, it must be pointed out that some only at the pre-contractual stage or is it a
French legal scholars consider that the loyalty continuous duty applying both pre-
required between parties to an insurance contract is contractually and post-contractually?
such that it qualifies as “utmost good faith”, with The principle of good faith is a continuous duty which
1
reference to Common Law insurance contracts. is implemented into provisions that apply both pre-
A Councillor of the French Supreme Court, the Cour contractually (e.g. reporting the risks) and post-
de cassation, also stated that “the duty of loyalty, contractually (e.g. reporting the claim).
which is the cornestone of all contracts, is even more II - Application of the Principle of Utmost Good
essential for insurance contracts, both pre- Faith at the Pre-Contractual Stage
contractually and post-contractually, when the
2
coverage is triggered”.
it to be found under statute and The principle of good faith applies to both the insured
otherwise? and the insurer at the pre-contractual stage.
A - For the Insured
As stated above, French insurance laws do not
provide for a specific principle of utmost good faith. 7. What is the content of the duty of utmost
The obligations of the insurer and the insured are
mainly set out in the French Insurance Code and the Describe the insured’s pre-contractual
French Civil Code, as interpreted by the courts. duty of utmost good faith by providing
At the pre-contractual stage, the principle of good
faith is implemented for the insured through an
obligation to declare truthfully the risks covered.
1
Picard M. et Besson A., Traité général des assurances To this end, Article L. 113-2 of the French Insurance
terrestres, t. I, LGDJ, 1938, No. 110, p. 214. Code provides that “the insured shall be obligated to
2
Sargos P., L’obligation de loyauté de l’assureur et de […] truthfully answer the questions raised by the
l’assuré, RGDA, 1 octobre 1997, n°1997-4, p. 968. insurer, in particular, in the loss reporting form
whereby the insurer questions him at the time of 10. What are the remedies for a pre-
executing the contract on circumstances that enable contractual breach by the insured of the
the insurer to assess the risks that it covers”. duty of utmost good faith? Are the
It must be underlined that the duty to declare truthfully duty of disclosure?
the risks covered is continuous: indeed, “the insured
shall be obligated to […] declare during the contract In case the insured breached its duty to declare
the new circumstances that have the effect of either truthfully the risks covered, the remedies will
increasing the risk or of creating new risks and which depend on whether the insured acted in good or bad
on this account render the answers, notably, in the faith.
form referred to [above], made to the insurer either
untrue or lapsed. The insured must declare such As a preliminary remark, it has to be underlined that
circumstances to the insurer by registered letter within independently from the bad or good faith of the
two weeks or a fortnight from the moment he/she is insured, the remedies set out below are only available
aware thereof”. when (i) the declaration of the risks was untruthful and
(ii) as a consequence, the insurer’s assessment of the
It results from these provisions that the obligation to risks is distorted. Accordingly, the Cour de cassation
declare truthfully the risks covered is limited in two considered that no remedy was available for the
respects: (i) the insured must only declare the risks insurer if it did not raise any questions to the insured
3
he/she/it is aware of; and (ii) the insured must only regarding the facts that were not declared.
declare the circumstances that enable the insurer to
form a view of the risks covered by the insurance This being said:
contract. When the insured acted in bad faith, Article
In addition, French law no longer provides for a 113-8 of the French Insurance Code
mandatory spontaneous declaration of the risks – provides that “apart from the ordinary causes
which, however, remains possible. Indeed, the of nullity [...], the insurance contract shall be
mandatory declaration is now limited to the questions null and void in the event of reluctance or
raised by the insurer, in general in a questionnaire intentional false statement of the insured,
(loss reporting form) for underwriting purposes. when such omission or fraudulent
misrepresentation changes the subject of the
In this regard, Article L. 112-3 of the French Insurance risk or decreases the insurer’s assessment
Code provides that “when, before the execution of the thereof, even if the risk that the insured
contract, the insurer may raise questions to the concealed or distorted has had no impact on
insured in writing, in particular, by means of the loss the loss. The insurer shall then be entitled to
reporting form or by any other means, it may not the premiums paid. It shall be entitled to
complain that a question expressed in general terms payment of all due premiums by way of
procured only a vague reply”. damages [except for life insurance
contracts]”.
insured equivalent to the duty of According to the Cour de cassation, the
disclosure in your jurisdiction so that reluctance or intentional false statement of
pre-contractually the two are the insured necessarily implies a breach of
4
indistinguishable? the duty of good faith. Hence, the
declaration of the risks covered must be
At the pre-contractual stage, the duty of declaration of done with “loyalty and sincerity by the person
the risks (i.e., the duty of disclosure) is the who takes out the insurance policy,
transposition of the duty of good faith owed to the according to the duty of good faith which
insurer by the insured. As a consequence, the duty of 5
applies in contractual matters”. This is why
good faith and the duty of disclosure are two sides of the Cour de cassation invites the lower
the same coin and therefore indistinguishable at that courts to assess if the insurer demonstrates
stage. that the reluctance or intentional false
9. If the duty of utmost good faith operates statement was done “in bad faith, for the
separately pre-contractually from the purpose of causing the damage consisting in
duty of disclosure describe that operation the obligation for the insurer to cover the
N.A. (see above). 3
Cour de cassation, 2nd civil chamber, 15 February 2007,
Appeal on a point of law No. 05-20.865.
4
Cour de cassation, 1st civil chamber, 14 November 1995,
5
Cour de cassation, 1st civil chamber, 28 March 2000,
risk, by distorting the insurer’s assessment of independently from insurance issues, he

6 7
the risk covered”. must hold a seaworthiness certificate.
On the contrary, if the insured’s bad faith has The content of the duty to advise depends
not been proved, Article 113-9 of the French however on the type of insurance contract.
Insurance Code provides that “omission or For instance, in matters of life insurance
misrepresentation by the insured shall not contracts, the duty to advise is quite specific
entail the nullity of the insurance contract. and strengthened by regulatory provisions: in
some cases, indeed, the insurer must ask
If this is recorded prior to any loss, the the prospective insured about his knowledge
insurer shall be entitled either to continue the and experience in the financial field. The
contract in consideration of an increase in insurer must also specify the needs
premium accepted by the insured or to
expressed by the prospective insured, as
terminate the contract ten days after notice well as the reasons for drawing the advice
sent to the insured by registered letter by provided relating to a specific contract. When
returning the part of the premium paid for the the prospective insured does not provide any
period not covered by the insurance.
information in this regard, the insurer must
In the event that the recording took place warn him prior to the conclusion of the
only after the loss has occurred, the contract (Article 132-27-1 of the French
compensation shall be reduced in proportion Insurance Code).
to the rate of the premiums paid in relation to
the rate of premiums that would be owed if
 The duty to inform is difficult to summarize
the risks had been truthfully and exhaustively since its extent depends also very much on
declared”. the type of insurance contract. Indeed, in
matters of information to the insured, French
In both cases, the burden of proof of the untruthful insurance laws are very specific to each kind
declaration of the risks – be it done in good or bad of risk covered.
faith – and its influence on the assessment of the
risks rests with the insurer. For example, life insurance contracts must
contain clauses that aim, for the security of
11. If the duty of utmost good faith operates the parties and the clarity of the contract, at
separately from the duty of disclosure defining the purpose of the contract and the
does one have precedence over the respective obligations of the parties (Article
other? L. 132-5 of the French Insurance Code). In
addition, prior to the conclusion of the
N.A. (see above) contract, the insurer must provide the
B - For the Insurer prospective insured with an information note
that sets out the conditions required for the
12. What is the content of the pre-contractual insured to exercise its right of renunciation,
duty of utmost good faith for the insurer? as well as the essential provisions of the
At the pre-contractual stage, the duty of good faith for contract (Article 132-5-2 of the French
the insurer lies on its duty to inform and to advise. Insurance Code). Life insurance policies
must specify also the costs incurred and
13. Describe the insurer’s pre-contractual inform the insured about the regulation
duty of utmost good faith by providing applicable to beneficiary clauses, etc.
which it has been applied. Almost all types of insurance contracts
contain, like life insurance contracts, some
 The duty to advise, i.e. to provide the specific clauses that aim at drawing the
prospective insured with personalized insured’s attention on particular items (e.g.
advice, mainly emerges from case law. Such loan insurance, health insurance, motor
a duty is limited to the framework of the insurance, etc.).
insurance contract. Said differently, the
Some provisions of the French Insurance
insurer has no duty to advise the prospective
Code, related to the insurer’s duty to inform,
insured regarding circumstances that are
are however common to all insurance
external to the insurance contract. For
contracts. For example, Article L. 112-2 of
example, an insurer is not obliged to remind
the French Insurance Code states that “the
a ship owner that, for regulatory reasons and
insurer must provide an information note on
6
Cour de cassation, 2nd civil chamber, 13 January 2012, 7
Cour de cassation, 1st civil chamber, 2 July 2002, Appeal
Appeal on a point of law No. 11-11.114. on a point of law No. 99-14.765.
the prices and covers prior to the conclusion loss occurred; the timeframe within
of the contract. Prior to the conclusion of the which the indemnity has to be paid [...].
contract, the insurer shall provide the insured Insurance policies must remind the
with a copy of the draft contract and its applicable time limit periods related to
attachments or a booklet on the contract that legal actions arising from an insurance
provides a precise description of the covers contract”. In this regard, the Cour de
and exclusions as well as the insured’s cassation recently stated that the insurer
obligations. must mention in the insurance contract
all the grounds of interruption of the time
The documents handed over to the limit periods, even the civil “ordinary”
policyholder shall specify the governing law grounds that are not specific to
of the contract where the French law does 8
insurance contracts. Otherwise, the
not apply, the procedures for investigating limitation period is not enforceable
claims that he may make under the contract, against the insured.
including in particular, if necessary, the
authority in charge of such investigation,
without prejudice to his right to bring a legal Finally, it must be pointed out that the content of the
action, and the address of the head office duty to inform might also differ in function of the
and, if necessary, the address of the branch quality of the insured, that is, whether the insured is a
office offering the coverage. consumer or not. Since the enactment of Law
No.2014-344, consumers are defined as “natural
Prior to the conclusion of the contract persons who act for a purpose that is outside their
comprising the covers for liability, the insurer profession” (Preliminary Article of the French
shall provide the insured with an information Consumer Code).
note [...] describing the functioning, for the
duration of the contract, of the covers As an example, the French Consumer Code provides
triggered by the event causing liability, that that prior to the conclusion of the contract, the
of the covers triggered by claim as well as professional (i.e. the insurer) must provide the
the consequences of the succession of consumer (i.e. the insured) with readable and
contracts with different modes of trigger”. comprehensive information relating notably to the
essential characteristics of the service and its price
Another good example of the insurer’s duty (Article L. 111-1 of the French Consumer Code). The
to inform is the written formalism that burden of proof of the compliance with these
insurers must comply with in order to make provisions rests with the insurer (Article L. 111-4 of
certain clauses effective. the French Consumer Code).
For instance: 14. Is it a breach of the duty of utmost good
 Article L. 113-15 of the French to notify the prospective insured of the
Insurance Code provides that “the nature and extent of their duty of
duration of the contract must be stated disclosure?
in very clear print in the policy”;
Article R. 112-1 of the French Insurance Code
provides that “insurance policies [...] must specify [...]
 Article L. 112-4 of the French Insurance
the obligations of the insured, at the pre-contractual
Code requires that “the policy clauses
stage and, possibly, in the course of the contract,
that stipulate nullities, forfeitures or
related to the declaration of the risks and the
exclusions shall be valid only if they
declaration of other insurance policies covering the
appear in very clear print”;
same risks”.
 Article R. 112-1 of the French Insurance 15. What are the remedies for a pre-
Code provides that “insurance policies contractual breach by the insurer of its
[...] must specify: the duration of the duty of utmost good faith?
contract; the conditions of the tacit The remedies for a pre-contractual breach by the
renewal of the contract if it is stipulated; insurer of its statutory obligations depends on the
the cases and conditions of renewal or specific rule that the insurer did not comply with.
termination of the contract or of its
effects; the obligations of the insured, at
the pre-contractual stage and, possibly,
in the course of the contract, related to
the declaration of the risks and the
declaration of other insurance policies
covering the same risks; the conditions 8
Cour de cassation, 2nd civil chamber, 18 April 2013, Appeal
and procedure to file a claim in case a on a point of law No. 12-19.519.
For example: When provided for in a contract clause, forfeiture due

to lateness of report of loss […] may be invoked
 As mentioned above, when the insurer did against the insured only if the insurer proves that it
not mention all the grounds of interruption of entailed a loss by reason of the late report of loss. In
the two year limitation period in the contract, addition, it may not be invoked in all events where the
the remedy is that the two year limitation is late report of loss is the result of an accidental case or
not enforceable against the insured; an act of God”. These provisions are not applicable to
life insurance.
 When an exclusion clause does not appear
in very clear print, it is null and void; The assessment of the awareness of a loss that might
trigger the insurance cover depends on the type of
 In any case, the insurer may be held liable to insurance contract (civil liability insurance, property
the insured and/or the third party beneficiary insurance, etc.), therefore case law is really casuistic
on the grounds of civil liability (contractual or in this matter.
tort liability), when the non-compliance with
its statutory provisions caused a damage. It remains that, Article L. 113-2 being mandatory, the
insured cannot be compelled, under the threat of
III - Post-Contractual Application of the Principle forfeiture to be invoked, to declare a fact that is not
of Utmost Good Faith (at the Claim Stage) likely to trigger the insurance cover. In addition, Article
L. 113-2 does not specify the way for the insured to
A - For the Insured and Third Party inform the insurer, so the insurance contract cannot
Beneficiary of Cover impose the means to do so.
16. What is the content of the post- As stated above, insurance contracts may also
contractual duty of utmost good faith for stipulate other obligations resting on the insured, such
the insured at the claim stage? as the obligation to communicate the documents
At the claim stage, French mandatory insurance laws useful for the insurer to assess the implementation of
only provide for an obligation to inform the insurer of the cover, or the obligation for the insured to take all
any loss that may trigger the insurance cover, within a necessary measures to avoid the aggravation of the
certain timeframe in order to avoid forfeiture. loss. In principle, such clauses are valid. The insured
may be held liable if he does not comply with them. In
However, insurance contracts may stipulate other this regard, it is important to remind that pursuant to
obligations resting on the insured, such as the Article L. 113-11 of the French Insurance Code, «
obligation to communicate all supporting documents shall be null and void all clauses providing that the
useful for the insurer to assess the implementation of insured shall forfeit his rights for simple lateness in
the cover, or the obligation for the insured to take all reporting the loss to the authorities or submitting
necessary measures to avoid the aggravation of the documents, without prejudice to the rights for the
loss. insurer to claim a compensation in proportion to the
damage that it has caused to him ».
a duty of utmost good faith? Finally, it is to be noted that any deliberate false
statement regarding the occurrence of a loss may
Third party beneficiaries do not have a duty of utmost
lead to forfeiture and even to criminal prosecution if
good faith since they are not a party to the insurance
the deliberate false statement qualifies as insurance
contract.
fraud.
With regards to the obligation to inform the insurer of
As stated above, at the precontractual stage, the
any loss that may trigger the insurance cover, Article
insurer has a legitimate interest and right to be
L. 113-2 of the French Insurance Code provides that
informed of the « qualities » of the risks covered.
“the insured shall be obligated to inform the insurer as
soon as he is aware thereof and no later than the time As a reminder, Article L. 113-2 of the French
set in the contract of any loss that may involve the Insurance Code provides that “the insured shall be
insurer’s cover. Said time may not be less than five obligated to […] truthfully answer the questions raised
working days. by the insurer, in particular, in the loss reporting form
whereby the insurer questions him at the time of
Said minimum time shall be reduced to two working
executing the contract on circumstances that enable
days in the event of theft and to twenty four hours in
the insurer to assess the risks that it covers”. The
the event of livestock mortality.
declaration is now limited to the questions raised by
The above times may be extended by mutual the insurer, in general in a questionnaire for
agreement of the contracting parties. underwriting purposes.
With regards to the intentional concealment of the where the law makes them run as a matter
insured’s criminal activities, the Cour de cassation of right.
stated that a false statement, which was intended to
A creditor to whom his debtor in delay has
conceal the usual exercise of activities that exposed
the insured to abnormal risks, was done intentionally caused, by his bad faith, a loss independent
and distorted the assessment of the risks covered by of that delay may obtain damages distinct
the insurer (in the present case, the life insurance from the interest on arrears of the debt”.
contract had been underwritten by a “company In other words, the remedy for a delay in the payment
manager” that was in fact registered as a member of of the indemnity due by the insurer is to award
9
an organized-crime group ). interests at the statutory rate. But if it can be proved
B - For the Insurer that the insurer was acting in bad faith, for example in
an abusive or dilatory way, the insured may obtain
19. What is the content of the duty of utmost damages distinct from the above-cited awarding
good faith for the insurer when dealing interests to compensate a loss that is independent of
with a claim? that delay.
At the claim stage, the main obligation of the insurer In matters of life insurance, another illustration of the
is to implement the insurance cover. With regards to duty of good faith is the obligation for the insurer:
life insurance, the insurer has the obligation to search
for the beneficiaries of the contract.  to get information, at least once a year, on
the possible death of the insured (Article
20. Does an insurer owe a duty of utmost 132-9-3 of the French Insurance Code);
beneficiaries of cover in handling claims?  when the insurer is informed of the death of
the insured, to search for the beneficiary of
Yes, an insurer owes the exact same duties towards the contract and, if the research is
third party beneficiaries of cover in handling claims. successful, to inform him/her of the
21. Describe the insurer’s post-contractual stipulation for his/her personal benefit
duty of utmost good faith by providing (Article L. 132-8 of the French Insurance
examples of the best known cases in Code).
which it has been applied The Prudential Supervisory Authority (in French:
Article L. 113-5 of the French Insurance Code Autorité de Contrôle Prudentiel et de Résolution –
provides that “upon occurrence of the risk or the ACPR), which is the public body in charge of
maturity of the contract, the insurer must perform the supervising the banking and the insurance areas,
service defined in the contract within the agreed time recently sanctioned an insurer with a fine amounting
and it may not be committed beyond said time”. to 10 million euros for its delays in searching for
insurance life beneficiaries after the death of the
In other words, the parties are free to stipulate the insured (Decision 2013-03 bis, 7 April 2014).
time when the insurer will have to implement the
insurance cover – except in some cases like natural 22. Is there a Code of Practice for insurers in
disasters insurance where the time limits are imposed your jurisdiction and, if so, how does it
by law. sit with the duty of utmost good faith?
Failure for the insurer to comply with the agreed time  The French Federation of Insurance
limits triggers the application of Article 1153 of the Companies (in French: Fédération Française
French Civil Code, which provides that: des Sociétés d’Assurance – FFSA) took the
initiative to conclude several Agreements
“In obligations which are restricted to the that aim at regulating the relationships
payment of a certain sum, the damages among insurers. However, these
resulting from delay in performance shall Agreements only bind on the insurers and
consist only in awarding interests at the cannot be enforced against the insureds. In
statutory rate […] Those damages are due addition, none of these Agreements actually
without the creditor having to prove any loss. deals with matters related to the duty of good
They are due only from the day of a demand faith, since such a duty is already reflected in
for payment or of another equivalent act mandatory statutory provisions of the French
such as a letter missive where a sufficient Insurance Code.
requisition results from it, except in the case
 In addition, the ACPR published some
recommendations related to life insurance
business practices. For instance, one
recommendation contains a list of the
9 st st
questions that should be asked to the
Cour de cassation, 1 civil chamber, 1 December insured in the questionnaire to ensure that
1993, Appeal on a point of law No. 91-17.201.
the insurer complied with its duty to advise. ensure that insurers comply with the
These recommendations are however not European/statutory/regulatory/codes of practice
binding on anyone. provisions, and that the means and processes used to
this end are appropriate.
of insurance if it would be a breach of the The ACPR has broad powers to sanction insurers that
duty of utmost good faith for the insurer do not comply with their obligations:
with examples.  administrative police measures (warning,
summons);
The statutory provisions of the French Insurance
Code cited in the present study are all mandatory (“of  disciplinary measures according to the
public policy”). This means that both insurers and seriousness of any failure to comply;
insureds must comply with these provisions without
any possibility to disregard them in the name of  other measures such as the publication of
contractual freedom. the penalties imposed.
As a consequence, courts must disregard a term of a IV - Reinsurance

contract of insurance if it contravenes any statutory
provision of French insurance laws. For example, an 27. To what extent, if any, does your
insurance contract cannot provide that the insured jurisdiction apply different principles
has only 10 hours to report a loss because such regarding utmost good faith to
clause would not be compliant with Article L. 113-2 of reinsurance at both the placement/pre-
the French Insurance Code (see above). contractual stage, and at the claim stage?
24. Do courts have special powers to The statutory insurance laws cited above are not
disregard any avoidance of the applicable to reinsurance contracts (Article L. 111-1 of
application of a policy in cases where the the French Insurance Code).
insured has established that it would be a Under French law, reinsurance contracts qualify as
breach of the duty of utmost good faith to contracts within the meaning of Article 1134 of the
allow the insurer to avoid the policy? French Civil Code. As such, reinsurance contracts
In principle, courts have no leeway or special powers « must be performed in good faith ».
to disregard any avoidance of the application of a A French legal author summarizes as follows how the
policy, since French law is a codified legal system: duty of utmost good faith is applied in matters of
either the conditions are met to avoid the contract – reinsurance:
e.g. the insured acted in bad faith and committed a
false declaration of the risks that decreased the « The reinsurance contract is a contract where the
assessment of the risks covered by the insured-, or good faith plays a key role (contract of utmost good
10
said conditions are not met and courts cannot avoid faith ). Reinsurance implies indeed that the reinsurer
the contract with no ground to do so. has full confidence in the ceding company policy
regarding the acceptance and tarification of the risks,
25. To the extent that an insurer’s breach of as well as the settlement of the claims. Reinsurance
the duty of utmost good faith is under implies a full transparency of the classes of insurance
statute, is it a breach of the statute for the underwritten, of the risks covered, of the contractual
insurer to be in breach of its duty of and financial terms agreed. The necessity of good
utmost good faith? faith results from the fact that the reinsurer remains
As stated above, under French law, the principle of out of the relationship existing between the ceding
good faith is reflected in statutory provisions that company and its insured, whereas said relationship is
define, in each case, the obligations of the the cause of the reinsurer’s commitments. As for the
insurer/insured. Not complying with one of these ceding company, it must be certain of the capacity of
provisions qualifies indeed as a breach of the statute. the reinsurer to carry its financial commitments.
26. Can a breach by the insurer of the duty of Both at the pre-contractual stage and during the
utmost good faith result in regulatory course of the treaty, the ceding company must refrain
sanctions against the insurer (license from statements that would be likely to mislead the
suspension, banning order, etc.)? reinsurer on the extent of its commitments. It results
from the principle of good faith in matters of
Among its functions, the ACPR has the mission to reinsurance that the ceding company must declare
protect the insurers’ clients, in particular by controlling exactly and completely the risks covered by the
the business practices of the insurers and by reinsurance. On the contrary, the reinsurer has the
analyzing the claims received from clients.
In this regard, Article L. 612-1 of the French Monetary
and Financial Code provides that the ACPR must 10
In English in the original version.
duty to inform the ceding company of all the

circumstances that are likely to influence the
acceptation of the risks covered by the reinsurance,
and that the insurer does not know for legitimate
11
reasons ».
****
SCP Bouckaert Ormen Passemard Sportes
47 rue Dumont d'UrvilleSuite 2700

75116 Paris, France
Tel.: (33) 1 7037 3900

Fax: (33) 1 7037 3901
Email: alexis.valencon@bopslaw.com
Website: www.bopslaw.com
11
Dubuisson, B., La loi applicable au contrat de
réassurance, Mélanges Roger O. Dalcq, Larcier,
1994.
IBA Insurance Committee Substantive Project 2014 72 The Duty of Utmost Good Faith: Germany
Germany
OPPENHOFF & PARTNER The intensification of the principle, the duty of utmost
good faith, however, is not codified but still relevant in
Peter Etzbach
German (insurance) law. The application of the
I - Definition of the Principle of Utmost Good Faith principle of utmost good faith stems from case law
developed on the basis of precedents.
1. In your jurisdiction, do insurance laws 3. Do insurance laws of your jurisdiction
provide for the principle of utmost good provide for both the principle of utmost
faith (in latin, “uberrimae fidei”) and if so, good faith and a separate duty of
what is its meaning? Provide any disclosure for the insured?
according to case law. The insured’s duty of disclosure which is contained in
Sec. 19 German Insurance Contract Act
The principle of utmost good faith (“Grundsatz von (Versicherungsvertragsgesetz – VVG) is the product
Treu und Glauben”) is applicable in German of the principle of utmost good faith. In contrast to the
insurance contract law and it is generally general clause of Sec. 242 BGB, Sec. 19 VVG
acknowledged that the insurance relationship is provides a detailed set of rules with regard to the
governed to a special degree by such principle. insured’s duty and the legal consequences if not
Both, insurers as well as the insured are subject to adhered to. However, besides the statutory rules in
the principle and in some respect also an aggrieved the VVG, the principle of utmost good faith
party is confronted with the principle. The reason for nevertheless still is applicable where positive rules do
the strong emphasis of the principle of utmost good not exist.
faith within the insurance relationship is that either 4. Does the principle of utmost good faith
party is dependent on support of the other party apply to all types of insurance contracts
because of its inferiority: The insured only has (life insurance, general insurance,
knowledge of basic circumstances relevant for the reinsurance etc.)?
conclusion of the contract as well as claim settlement.
The insured has superior knowledge on actuarial Generally, the principle does apply to all types of
practice, business, vast expertise and resources with insurance. In particular, insurance contracts with
special knowledge it can make use of. consumers are always subject to the principle (if
statutory law does not provide for certain rules).
A common definition of the principle of utmost faith
does not exist. However, a general comprehension of Having said this, the parties to an insurance
the principle is that it obliges a person to consider the agreement can waive the application of the principle
interests of third parties worth being protected and to of utmost good faith between them within certain
an honest and loyal conduct in legal relations. limits.
Requirement for the application of the principle is that 5. Does the duty of utmost good faith apply
a special relationship between the parties exists. The only at the pre-contractual stage or is it a
parties’ interests will be weighed against the continuous duty applying both pre-
background of accepted standards. contractually and post-contractually?
Also, the principle can have various functions: During the pre-contractual stage, statutory law (i.e.
concretisation, supplementation, limit or control and Sec. 19 VVG) is primarily applicable. However, as
correction. stated above, also the principle of utmost good faith
applies. But also during the term of the insurance
2. Is the principle of utmost good faith (i) a agreement, the principle is applicable. First and
statutory principle, (ii) a common law foremost, the rules regarding the increase of risk in
principle or (iii) a civil law principle? Or is Secs. 23 et seqq. VVG apply which also constitute the
it to be found under statute and written emanation of the principle of utmost good
otherwise? faith. Additionally, the insured is obliged to adjust
The principle of (ordinary) good faith is provided for in objectively incorrect information if apparent to him and
Sec. 242 German Civil Code (Bürgerliches to give voluntary disclosure truthfully.
Gesetzbuch – BGB), thus is a statutory principle However, the principle also applies to the insurer,
which, though, results from a civil law principle, in whose pre-contractual duties are codified in its duties
particular Roman law which was codified in the late to inform and advise the insured, Secs. 6, 7 VVG, and
th
19 century. However, as it is a legal concept without the duty to clarify any ambiguities. Whether or not the
a definition case law has developed various case insurer is subject to a duty to secrecy is debated.
groups and defined the principle more precisely.
Thus, besides the ordinary good faith pursuant to 8. Is the duty of utmost good faith for the
Sec. 242 BGB, the principle of utmost good faith is a insured equivalent to the duty of
constant duty to both insurer and insured throughout disclosure in your jurisdiction so that
the contractual relationship and irrespective of pre-contractually the two are
whether or not an actual insurance contract is indistinguishable?
concluded.
In general, the duties are identical. However, the duty
II - Application of the Principle of Utmost Good of utmost good faith supplements the statutory duty to
Faith at the Pre-Contractual Stage disclose where the latter is not conclusive, e.g. the
duty to correct previously misstated information.
6. Does the Principle of Utmost Good Faith 9. If the duty of utmost good faith operates
apply to both the insured and the insurer separately pre-contractually from the
at the pre-contractual stage? duty of disclosure describe that operation
As pointed out above, the duty applies to both the and how the two sit together. You may
insured and the insurer. However, the main scope of need to describe the duty of disclosure to
the principle has been codified with respect to the illustrate the differences.
insurer’s duty to inform and to advise and the As stated above, the duty of utmost good faith
insured’s duty to disclose. supplements the duty to disclose.
A - For the Insured 10. What are the remedies for a pre-
7. What is the content of the duty of utmost contractual breach by the insured of the
good faith for the insured? duty of utmost good faith? Are the
Describe the insured’s pre-contractual duty of disclosure?
examples of the best known cases in The remedies for a breach of the duty to disclose are
which it has been applied. comprehensively regulated. They range from the
insurer’s right to withdraw from the contract (if the
The insured’s duties are codified in Sec. 19 VVG. breach was grossly negligent or intentional), the right
Pursuant to this rule, the insured shall disclose to the to terminate the contract by giving one month’s notice
insurer before making his contractual acceptance the (if the breach was not intentional or grossly negligent),
risk factors known to him which are relevant to the and the right to increase the premium (if the insurance
insurer’s decision to conclude the contract with the contract would have been concluded irrespective of
agreed content and which the insurer has requested the misstated or omitted information but on different
in writing. If, after receiving the policyholder’s conditions, even if the breach was grossly negligent).
contractual acceptance and before accepting the
contract, the insurer asks such questions as are The remedies for a breach of the duty of utmost good
referred to in the first sentence, the policyholder shall faith are not provided for in statutory rules. The
also be under the duty of disclosure as regards these injured party’s rights differ from case to case:
questions. If the contract is concluded by a person Estoppel on the basis of venire contra factum
representing the policyholder, both the proprium to the reversal of the burden of proof or the
representative’s knowledge and fraudulent conduct as insurer’s right to refusal of performance. Alternatively,
well as the insured’s knowledge and fraudulent the insured’s claim may be forfeited.
conduct shall be taken into account in the application 11. If the duty of utmost good faith operates
of the above. The insured may only invoke the duty of separately from the duty of disclosure
disclosure not having been breached intentionally or does one have precedence over the
with gross negligence if neither the representative nor other?
the insured has incurred responsibility for intent or
gross negligence. Generally, written statutory law, i.e. the duty of
disclosure and its remedies, has precedence over the
In personal insurance the examples are legion. They principle of utmost good faith.
contain for example the duty to disclose serious heart
diseases, HIV infections, habitual hashish consume. B - For the Insurer
Not to be disclosed are, e.g., common illnesses
(bronchitis etc.).
General insurance also provides many examples, e.g.
the duty to disclose the insured’s prior conviction for The insurer’s duty comprises in particular the duty to
arson. inform and to advise, see Secs. 6, 7 VVG. In addition
to this, the principle of utmost good faith obliges the
The duty also contains the disclosure of indicating insurer to clarify any ambiguities.
circumstances if the insurer has requested them in
writing.
13. Describe the insurer’s pre-contractual 15. What are the remedies for a pre-
duty of utmost good faith by providing contractual breach by the insurer of its
examples of the best known cases in duty of utmost good faith?
Statutory remedies for the breach of information and
The statutory manifestation of the pre-contractual duty advice are claims for damages.
relates to information and advice: The insurer must
ask the insured about his wishes and needs and, also Additionally, the period in which the insured has the
bearing in mind an appropriate relation between the right of withdrawal from the insurance contract
time and effort spent in providing this advice and the (generally 14 days, life insurance: 30 days) starts only
insurance premiums to be paid by the insured, the upon proper information of the insured. If such
insurer shall advise the insured and state reasons for information has not been given completely or
each of the pieces of advice in respect of a particular correctly, the period does not start, thus giving the
insurance if the difficulty in assessing the insurance insured an extended time period in which he or she
being offered or the insured himself and his situation can withdraw.
gives occasion thereto. The insurer shall document Non-written remedies include estoppel on the basis of
this, taking into account the complexity of the contract venire contra factum proprium and the reversal of the
of insurance being offered. Furthermore, the insurer burden of proof, but also ultimately the insurer’s right
shall inform the insured in writing of his terms of to refusal of performance.
contract, including the general terms and conditions of
insurance, as well as the information set out in a III - Post-Contractual Application of the Principle
statutory ordinance, in good time before the of Utmost Good Faith (at the Claim Stage)
policyholder submits his contractual acceptance. This
information shall be provided clearly and A - For the Insured and Third Party
comprehensibly in keeping with the means of Beneficiary of Cover
communication employed. If, upon the request of the
insured, the contract is concluded by telephone or
using another means of communication which does
not permit the information to be provided in writing
prior to the insured’s contractual acceptance, that Firstly, the insured has the obligation to notify the
information must be provided without undue delay insurer of an insured event without undue delay.
after the contract is made; this shall also apply if the Statutory law provides for a duty of disclosure in so
insured explicitly waives the right to information by a far that the insurer can demand from the insured that
separate written declaration prior to submitting his all information is provided which is relevant for the
contractual acceptance. assessment of the claim or the scope of the insurer’s
obligation to perform. This also comprises facts and
Additionally, if a clause in the general terms and
circumstances which are to the detriment of the
conditions of insurance is ambiguous the duty of
insured and may lead to the insurer being exempt
utmost good faith obliges the insurer to clarify this
from payment under the insurance contract, e.g.
clause. The insurer may also be obliged to advise the
because the insured has intentionally caused a
insured if the latter apparently lacks knowledge which
damage to the insured property.
can easily be remedied. Last but not least the insurer
is obliged to inform truthfully also in respect of Additionally, the insured has the statutory duty to
information given besides the statutory information mitigate any damage he/she suffered.
obligation, e.g. unrealistically high earnings promised
by a life insurer. 16.1 Do third party beneficiaries of cover have
faith in your jurisdiction for insurers not The same applies to third party beneficiaries.
to notify the prospective insured of the 17. Describe the insured’s post-contractual
nature and extent of their duty of duty of utmost good faith by providing
disclosure? examples of the best known cases in
The notification obligation is provided for in Sec. 19 which it has been applied.
para. 5 VVG. The remedies of the insurer in case of a The content of the information which has to be
breach of the insured’s duty of disclosure are only provided depends primarily on the questions asked by
available if the insurer has informed the insured of the insurer.
such remedies comprehensively including the
preconditions for each remedy. However, if an insured However, the duty of utmost good faith means that
fraudulently breaches his or her duty to disclose, he also unasked circumstances have to be disclosed if
or she cannot rely on the insurer’s omission to notify. evidently relevant for the insurer’s elucidation
interests, e.g. the availability of witnesses or the use
of the insured property by a third party. Apparently,
only information known to the insured can be subject
to the duty to disclose even though the insured may of the insured and/or third party beneficiaries.
have the obligation to enquire. Additionally, the German regulator has issued
guidelines regarding complaints handling which are
based on guidelines proposed by the European
regulator. Such guidelines, though, do specifically not
relate to claims and claims handling.
Besides the code of conduct and the guidelines,
If the criminal activities are directly related to the German law does not provide for an additional Code
questions whether or not the insurer would conclude of Practice which is generally applicable.
the life insurance contract, e.g. potential danger of
deadly accident during the criminal activities, this 23. Can courts disregard a term of a contract
would constitute a breach of the duty of utmost good of insurance if it would be a breach of the
faith. duty of utmost good faith for the insurer
B - For the Insurer with examples.
Terms and conditions in an insurance contract which
deviate from the statutory principles stated above to
with a claim?
the detriment of the insured are void and must be
The insurer has to assess any claim in good faith. disregarded by courts, see Sec. 32 VVG.
This means that the insurer has to request from the For example, if terms and conditions of insurance
insured promptly the information it requires for the provide for an undifferentiated termination right of the
assessment and shall not unduly delay the insurer in the event an insured does not or not
assessment. properly comply with his/her duty to disclose the
Statutory law provides that the insurer has to pay the courts have to disregard the termination based on this
insured sum upon due date. The due date is the point clause.
in time the insurer has finalized his assessment of the 24. Do courts have special powers to
claim and the claim amount. disregard any avoidance of the
20. Does an insurer owe a duty of utmost application of a policy in cases where the
good faith towards third party insured has established that it would be a
beneficiaries of cover in handling claims? breach of the duty of utmost good faith to
The same duty as vis-à-vis the insured applies to any
third party beneficiaries of cover: due assessment of If the avoidance of a policy by an insurer does not
the claim and timely payment of any benefits. comply with the statutory provisions (which, as stated
above, are product of the duty of utmost good faith)
21. Describe the insurer’s post-contractual the court must disregard such avoidance and apply
duty of utmost good faith by providing the provisions of the insurance contract.
which it has been applied. 25. To the extent that an insurer’s breach of
As stated above, the insurer’s post-contractual duty is statute, is it a breach of the statute for the
statutory law. insurer to be in breach of its duty of
Besides that, the duty of utmost good faith obliges the utmost good faith?
insurer to reject predated checks if it does not accept Yes.
this as payment, to offset premium payments in a way
favorable to the insured and reject premium payments 26. Can a breach by the insurer of the duty of
which it cannot allocate to an insurance contract. The utmost good faith result in regulatory
insurer further is obliged to request for clarification if sanctions against the insurer (license
the insured apparently has erroneously misstated suspension, banning order, etc.)?
information in a claim form. Additional information A continuous and repeated breach by the insurer of
obligations during claims handling do not exist in its duty of utmost good faith in the form it has been
general. However, if an expert opinion leads to a adopted in statutory provisions may constitute a
gravely disadvantageous decision the insurer has to violation of the interests of the insured and a breach
grant access to the expert opinion. of statutory law. The German regulator
22. Is there a Code of Practice for insurers in (Bundesanstalt für Finanzdienstleistungsaufsicht –
your jurisdiction and, if so, how does it BaFin) will demand from the insurer to remedy such
sit with the duty of utmost good faith? deficiency which is relevant in prudential supervision.
In case the insurer does not adhere to such order,
The German insurance industry has adopted a Code additional measures of BaFin may apply. In such
of Conduct with respect to data protection. However, event, BaFin is authorized to issue any order vis-à-vis
this code only relates to the handling of personal data
the insurer and/or the insurer’s management which is the reinsured in respect of the portfolio of risks which
appropriate and necessary to remedy the situation. shall be reinsured. During the term of the contract it is
in the hands of the reinsured to handle the claims,
IV - Reinsurance
while the reinsurer is expected to accept the claim
handling as long as it was done properly. The duty to
27. To what extent, if any, does your follow the settlements, which is acknowledged in the
jurisdiction apply different principles reinsurance law, is an offspring of this obligation.
regarding utmost good faith to Hence, the reinsurer has to handle its affairs always
reinsurance at both the placement/pre- with a view to the interest of the reinsurer in utmost
contractual stage, and at the claim stage? good faith.
The German Insurance Contract Act does not apply to ****
reinsurance agreements, so that their substantive
terms are governed by the general laws on contracts,
in particular commercial contracts. These sets of rules
again do not provide for any particular provisions on Oppenhoff & Partner
reinsurance, but state that the customs and practices
of the particular commercial activity shall be taken into Rechtsanwälte Steuerberater
account, which in Germany are largely consistent with Konrad-Adenauer-Ufer 23
international reinsurance practices. Hence, the 50668 Cologne, Germany
general duty of good faith applies.
Tel.: (49) 221 2091 0
In the context of reinsurance the principle of utmost Fax: (49) 221 2091 333
good faith is not only generally accepted to apply to Email: peter.etzbach@oppenhoff.eu
reinsurance contracts, but it is an important
foundation of the relationship between the parties. www.oppenhoff.eu
Pre-contractually, the reinsurer relies to a large extent
on the assessments made and information granted by
IBA Insurance Committee Substantive Project 2014 77 The Duty of Utmost Good Faith: Hungary
Hungary
HOGAN LOVELLS As indicated above, the principle of utmost good faith
is not recognised under Hungarian law and only the
Christopher Noblet
statutory principles mentioned above are applicable.
I - Definition of the Principle of Utmost Good Faith 3. Do insurance laws of your jurisdiction
1. In your jurisdiction, do insurance laws good faith and a separate duty of
provide for the principle of utmost good disclosure for the insured?
what is its meaning? Provide any While the principle of utmost good faith is not
definition whether under statute or recognised under Hungarian law, the Hungarian Civil
according to case law. Code sets out a duty of disclosure and notification
of changes as a general contract law principle and
Hungarian law does not recognise the principle of an insurance law specific provision on the duty of
utmost good faith. However, Act V of 2013 on the reporting the occurrence of an insurance event,
Hungarian Civil Code (hereinafter: the “Hungarian which is an obligation of the insured.
Civil Code”) sets out certain general principles
applicable to civil law relationships in general and to According to Section 6:452 (1)-(3) of the Hungarian
contractual relationships, including insurance Civil Code, at the time of conclusion of an insurance
contracts. contract, the insured is obliged to disclose to the
insurance company all circumstances of which the
Section 1:3 of the Hungarian Civil Code sets out the insured party is aware or should be aware and which
principle of good faith and fair dealing, which is a are important in terms of providing the insurance
general principle applicable to all civil law coverage. The insured is obliged to satisfy the
relationships including insurance contracts. The disclosure duty by truthfully filling out the
parties to a contract (including an insurance contract) questionnaire furnished by the insurance company.
and third parties (e.g. beneficiaries) that are linked to
a contract are obliged to observe the above principle The insured must notify the insurance company in
prior to and following the conclusion of a contract writing of any changes in material conditions affecting
throughout the existence of the legal relationship. the insurance contract. In the event of any breach of
According to the Hungarian Civil Code, the the obligation of disclosure and notification of
requirement of good faith and fair dealing is changes, the obligation of the insurance company will
considered as breached where a party’s exercise of not take effect, unless the contracting party is able to
rights is contradictory to his previous actions which prove that the insurance company was aware of the
the other party had reason to rely on. However, the concealed or undisclosed circumstance when the
above is only an example and the above principle can contract was concluded or that such circumstance
be applied to any unfair business practice and to any had no influence on the occurrence of the insurance
bad faith acts and omissions. event.
Section 6:62 of the Hungarian Civil Code sets out the The insured is also obliged to act in accordance with
principle of the duty to cooperate and the duty of reporting the occurrence of an insurance
communicate information, which is a principle event. According to Section 6:453 of the Hungarian
applicable in contract law and thus applies to Civil Code, the insurance company’s obligation will
insurance contracts. The duty to cooperate and not take effect if (i) the insured fails to report to the
communicate information obliges the parties to insurance company the occurrence of an insurance
cooperate during preliminary negotiations, at the time event within the timeframe specified in the contract; or
of the conclusion and termination, and throughout the (ii) fails to provide the information necessary; or (iii)
term of the contract and to communicate information fails to facilitate verification of the information
to each other on circumstances relevant to the provided and, as a consequence of the above, the
contract. If the contract is concluded, the party who circumstances which are relevant from the aspect of
breaches the duty to cooperate and communicate the obligation of the insurance company become
information is liable for damages and for losses undetectable.
caused by the breach of the above duty to the other 4. Does the principle of utmost good faith
party. apply to all types of insurance contracts
2. Is the principle of utmost good faith (i) a (life insurance, general insurance,
statutory principle, (ii) a common law reinsurance etc.)?
N/A
otherwise?
5. Does the duty of utmost good faith apply If the insured breaches the principle of duty to
only at the pre-contractual stage or is it a cooperate and communicate information at a pre-
continuous duty applying both pre- contractual stage and the contract is not concluded,
contractually and post-contractually? the insured will be liable for damages and losses in
accordance with the general provisions of tortious
As indicated above, the principle of utmost good faith liability. If the contract is concluded and the insured
is not recognised under Hungarian law. The duty of breached the principle of duty of disclosure and
disclosure and notification of changes, the duty to notification of changes during the pre-contractual
cooperate and communicate information and the stage, the insured’s liability for such breach will be
principle of good faith and fair dealing are applicable based on the liability for damages and losses caused
to all contractual stages. By nature, the duty of by a breach of contract.
reporting the occurrence of an insurance event is only
applicable during the term of the insurance. A breach of the general requirement of good faith and
fair dealing may trigger both tortious liability and
liability for a breach of contract depending on whether
the breach of the above requirement occurred within a
contractual relationship.
apply to both the insured and the insurer In the event of any breach of the obligation of
at the pre-contractual stage? disclosure and notification of changes, the obligation
of the insurance company will not take effect, unless
N/A the contracting party is able to prove that the
A - For the Insured insurance company was aware of the concealed or
undisclosed circumstance when the contract was
7. What is the content of the duty of utmost concluded or that such circumstance had no influence
good faith for the insured? on the occurrence of the insurance event.
N/A 11. If the duty of utmost good faith operates
other?
which it has been applied. N/A
N/A B - For the Insurer
8. Is the duty of utmost good faith for the 12. What is the content of the pre-contractual
insured equivalent to the duty of duty of utmost good faith for the insurer?
disclosure in your jurisdiction so that
pre-contractually the two are N/A
indistinguishable? 13. Describe the insurer’s pre-contractual
N/A duty of utmost good faith by providing
9. If the duty of utmost good faith operates which it has been applied.
duty of disclosure describe that operation N/A
and how the two sit together. You may 14. Is it a breach of the duty of utmost good
need to describe the duty of disclosure to faith in your jurisdiction for insurers not
illustrate the differences. to notify the prospective insured of the
N/A nature and extent of their duty of
disclosure?
contractual breach by the insured of the N/A
duty of utmost good faith? Are the 15. What are the remedies for a pre-
remedies different from a breach of the contractual breach by the insurer of its
duty of disclosure? duty of utmost good faith?
As indicated above, the principle of utmost good faith As indicated above, the principle of utmost good faith
is not recognised under Hungarian law. is not recognised under Hungarian law.
Nevertheless, according to the Hungarian Civil Code, Nevertheless, according to the Hungarian Civil Code,
the following remedies are available in the case of a the following remedies are available in the case of a
breach of the duty to cooperate and communicate breach of the duty to cooperate and communicate
information. information.
If the insurer breaches the principle of duty to 22. Is there a Code of Practice for insurers in
cooperate and communicate information at a pre- your jurisdiction and, if so, how does it
contractual stage and the contract is not concluded, sit with the duty of utmost good faith?
the insurer will be liable for damages and losses in
accordance with the general provisions of tortious There is no specific Code of Practice for insurers
liability. If the contract is concluded and the insurer under Hungarian law. Nevertheless, the Hungarian
breached the principle of duty of disclosure and Financial Supervisory Authority, as the legal
notification of changes during the pre-contractual predecessor of the National Bank of Hungary as the
stage, the insurer’s liability for such breach will be regulatory authority currently competent to supervise
based on the liability for damages and losses caused financial services in Hungary, issued several opinions
by a breach of contract. in the Hungarian insurance sector, which still serve as
guidelines for insurance companies providing
A breach of the general requirement of good faith and insurance services in Hungary.
fair dealing may trigger both tortious liability and
liability for a breach of contract depending on whether
the breach of the above requirement occurred within a
duty of utmost good faith for the insurer
contractual relationship.
III - Post-Contractual Application of the Principle with examples.
As indicated above, the principle of utmost good faith
is not recognised under Hungarian law.
Beneficiary of Cover Nevertheless, if a term of an insurance contract is in
breach of the principle of good faith and fair dealing,
such term can be considered as null and void. In
addition, terms of insurance contracts entered into
with consumers may not deviate from the provisions
N/A of the Hungarian Civil Code to the detriment of the
insured, the beneficiary or the consumer entering into
16.1 Do third party beneficiaries of cover have the contract in relation to, amongst others, the
a duty of utmost good faith? disclosure and information obligations described
N/A above, since such terms would qualify as null and
void. Otherwise, parties are free to define their
17. Describe the insured’s post-contractual contractual terms.
examples of the best known cases in 24. Do courts have special powers to
which it has been applied. disregard any avoidance of the
application of a policy in cases where the
N/A insured has established that it would be a
completing a proposal for life policies a N/A
N/A the duty of utmost good faith is under
B - For the Insurer
19. What is the content of the duty of utmost utmost good faith?
N/A
with a claim?
N/A
20. Does an insurer owe a duty of utmost sanctions against the insurer (license
good faith towards third party suspension, banning order, etc.)?
As indicated above, the principle of utmost good faith
N/A is not recognised under Hungarian law.
21. Describe the insurer’s post-contractual Nevertheless, if an insurer breaches the duty of
duty of utmost good faith by providing disclosure or other related obligations, the National
examples of the best known cases in Bank of Hungary as the competent authority may
which it has been applied. impose several types of sanctions on the insurer as
set out in Act LX of 2003 on Insurers and Insurance
N/A Activity, which include, amongst others, warnings,
fines and the suspension or withdrawal of

authorisation for operation. The maximum amount of
a fine is the higher of HUF 2,000,000,000 (approx. Hogan Lovells International LLP
EUR 6,500,000) and 200 % of the insurer’s annual
statutory supervisory fee that the insurer is obliged to Partos & Noblet
pay to the National Bank of Hungary. Gerbeaud House
Vörösmarty tér 7/8
IV - Reinsurance
Budapest 1051, Hungary
27. To what extent, if any, does your Tel.: (36) 1 505 4480
jurisdiction apply different principles Fax: (36) 1 505 4485
regarding utmost good faith to Email: christopher.noblet@hoganlovells.co.hu
contractual stage, and at the claim stage? Website: www.hoganlovells.de
The principle of utmost good faith is not a recognised
concept under Hungarian reinsurance law. With the
exception of consumer protection related provisions,
the general principles and provisions set out above
are mutatis mutandis applicable to reinsurance
contracts.
****
IBA Insurance Committee Substantive Project 2014 81 The Duty of Utmost Good Faith: India
India
JURIS CORP insured has a duty to disclose, similarly, it is
the duty of the insurers and their agents to
H Jayesh and Apurva Kanvinde disclose all material facts within their
I. - Definition of the Principle of Utmost Good knowledge, since obligation of good faith
Faith applies to them equally with the assured.
The duty of good faith is of a continuing
1. In your jurisdiction, do insurance laws nature. After the completion of the contract,
provide for the principle of utmost good no material alteration can be made in its
faith (in latin, “uberrimae fidei”) and if so, terms except by mutual consent. The
what is its meaning? Provide any materiality of a fact is judged by the
definition whether under statute or circumstances existing at the time when the
according to case law. contract is concluded.”
Yes, insurance laws in India do provide for the 2. Is the principle of utmost good faith (i) a
principle of utmost good faith. statutory principle, (ii) a common law
Insurance is primarily governed by the Insurance Act it to be found under statute and
1938, the Insurance Regulatory and Development otherwise?
Authority Act, 1999, Marine Insurance Act, 1963 and
the Indian Contract Act 1872. The principle of utmost good faith is both a common
law principle and a statutory principle. The principle
There is no definition per se of the principle of utmost has evolved through common law and it has been
good faith under statutes governing insurance subsequently recognised in India by way of statutes
contracts or under case laws. However the said as well as case laws. The Insurance Act, 1938,
principle has been statutorily recognised. Marine Insurance Act, 1963, the Indian Contract Act,
1872, etc. recognise the principle of utmost good
The Insurance Act, 1938 provides that an insurer can
faith.
call in question a life insurance policy if the insured
had not disclosed material matters or suppressed 3. Do insurance laws of your jurisdiction
facts which were material to be disclosed and were provide for both the principle of utmost
fraudulently made by the insured and that the insured good faith and a separate duty of
knew at the time of making it that the statement was disclosure for the insured?
false or that it suppressed facts which were material
to be disclosed .
1 Yes, the insurance laws of our jurisdiction do provide
for both the principle of utmost good faith and a
4
Further the Marine Insurance Act, 1963 provides that separate duty of disclosure for the insured . It is a
a contract of marine insurance is a contract based common law principle that the duty of disclosure
upon the utmost good faith, and if the utmost good ceases to exist upon the inception of the contract
faith be not observed by either party, the contract may (unless otherwise contractually agreed to between
2
be avoided by the other party . parties). However the duty of utmost good faith in the
performance of the terms of contract continues after
What would amount to good faith has been explained
the inception of the contract until the contract is in
by way of case laws in India. The Supreme Court of
3 existence.
India has laid down the following :
“It is a fundamental principle of insurance
law that utmost good faith must be observed
by the contracting parties. Good faith forbids
reinsurance etc.)?
either party from concealing (non-disclosure)
what he privately knows, to draw the other Yes, it is a common law principle that the duty of
into a bargain, from his ignorance of that fact utmost good faith applies to all types of insurance
and his believing the contrary. Just as the contracts such as marine, fire, life, general insurance
etc. It has been held by the Supreme Court of India
that it is a fundamental principle of insurance law that
utmost good faith must be observed by the
1
Section 45 of the Insurance Act, 1938
2
Section 19 of the Marine Insurance Act, 1963
3 4
Life Insurance Corporation of India v. Ajit Gangadhar Section 19 and 20 of the Marine Insurance Act, 1963 and
Shanbag AIR 1997 Kant 157 Section 19 of the Indian Contract Act, 1872.
5
contracting parties . Further, in an English case, To illustrate better, an insured would be required to
6
London v/s Mansel, Jessel M R said that “Whether it disclose all material facts and refrain from
is life, or fire or marine insurance, good faith is misrepresenting facts to the insurer at the pre-
required in all cases, and though there may be certain contractual stage. On the other hand the
circumstances from the peculiar nature of marine insurer/insurance agent would be required to disclose
insurance which requires to be disclosed and which requisite information in respect of insurance products
10
do not apply to other contracts of insurance, that is offered to the insured and ensure that any
rather, in my opinion, an illustration of the application advertisement with respect to insurance products
11
of the principle than a distinction in principles”. offered by him, are not deceptive or misleading etc.
5. Does the duty of utmost good faith apply 7. What is the content of the duty of utmost
only at the pre-contractual stage or is it a good faith for the insured?
contractually and post-contractually? Describe the insured’s pre-contractual
The duty of utmost good faith applies both at the pre- examples of the best known cases in
contractual stage and the post-contractual stage but which it has been applied.
the nature and extent of the duty may vary.
At the pre-contractual stage, the insured is required to
Parties to the contract are required to observe the (i) disclose all material facts known to him (ii) refrain
principle of utmost good faith in performance of the from suppressing facts knowing them to be true and
contract. Further, the duty of good faith is of a material to be disclosed and (ii) refrain from
continuing nature and no material alteration can be misrepresenting facts knowing them to be false at the
12
made to the terms of the contract without the mutual time of making it to the insurer . What would
7
consent of the parties. constitute as “material” would depend on the facts
and circumstances of each case. The Supreme Court
II. - Application of the Principle of Utmost Good
of India has discussed the term “material” facts in
insurance contracts in Mithoolal v. Life Insurance
13
Corporation of India. In this case the insured had
A - For the Insured entered into a life insurance policy with the insurer
6. Does the Principle of Utmost Good Faith and fraudulently suppressed the fact that he had
apply to both the insured and the insurer certain serious ailments such as anaemia, shortness
at the pre-contractual stage? of breath etc. The Supreme Court held that the same
was essential to be disclosed. While deciding on the
Yes, the principle of utmost good faith applies to both said case, the Supreme Court pointed out that “in
the insured and the insurer at the pre-contractual order to call in question an insurance policy by the
stage. If the principle of utmost good faith is not insurer three conditions must be satisfied: (a) the
observed by either party, the contract may be statement of the assured must be of a material fact or
8
avoided/set aside by the other party . must have suppressed facts which it was material to
disclose; (b) the suppression must be fraudulently
Good faith forbids either party from concealing (non-
made by the policy holder, and (c) the policy holder
disclosure) what he privately knows, to draw the other
must have known at the time of making the statement
into a bargain, from his ignorance of that fact and his
that it was false for that he suppressed facts which it
believing the contrary. Just as the insured has a duty
was material to disclose”.
to disclose. Similarly, it is the duty of the insurers and
14
their agents to disclose all material facts within their Further, in P. Sarojam v. LIC of India , it was held
knowledge, since obligation of good faith applies to that, “A person seeking insurance is bound to disclose
9
them equally with the assured . all material facts relating to the risk involved. False
answers to the questions in the proposal form given
by the assured relating to the state of health vitiate
the contract of insurance.”
5
The United India Insurance Co. Ltd. vs. M.K.J. Corporation
AIR 1997 SC 408 10
Insurance Regulatory and Development Authority
6
[1879] 11 ch D 363 at 367 (Licensing of Insurance Agents) Regulations, 2000
11
7
Hanil Era Textiles Ltd. v Oriental Insurance Co. Ltd. (2001) Regulation 6 of the Insurance Regulatory and
1 SCC 269 Development Authority (Insurance Advertisements and
Disclosure) Regulations, 2000
8
Section 19 of the Marine Insurance Act, 1963 and Section 12
19 of the Indian Contract Act, 1872. Section 45 of the Insurance Act, 1938
13
9
The United India Insurance Co. Ltd. vs. M.K.J. Corporation 1962 AIR 814
AIR 1997 SC 408 14
AIR 1986 Ker 201, 203
15
The English case, Carter v. Boehm , has been The remedies for breach of the duty of utmost good
heavily relied upon by the courts in India. This lays faith are no different from a breach of the duty of
down the extent of the insured’s pre-contractual duty disclosure.
of utmost good faith. “It may be presumed that the
underwriter knows nothing about the subject matter in 11. If the duty of utmost good faith operates
question, it is the duty of the insured to disclose all separately from the duty of disclosure
material circumstances which may greater the risk does one have precedence over the
other?
involved”.
8. Is the duty of utmost good faith for the The duty of utmost good faith and the duty of
insured equivalent to the duty of disclosure both are important facets of an insurance
disclosure in your jurisdiction so that contract. However, depending on the facts and
pre-contractually the two are circumstances of each case the duty of good faith
indistinguishable? may have precedence over the duty of disclosures.
To illustrate, an insurance contract cannot be set
No, the duty of utmost good faith for the insured is not aside by an insurer on the grounds that there was a
equivalent to the duty of disclosure, although the latter failure to observe the duty of disclosure merely by
is an indispensable facet of the former. While entering making out some inaccuracy or falsity in the respect
into an insurance contract, the insured is also of some of the recitals or items in the proposal for
required to refrain from misrepresenting facts etc. to insurance and the insurer must prove that material
16
the insurer . facts have been suppressed with the full knowledge of
18
the assured.
separately pre-contractually from the Therefore, if the insured is able to prove that certain
duty of disclosure describe that operation facts not material to the insurance policy were not
and how the two sit together. You may disclosed but there was no intention on his part to
need to describe the duty of disclosure to conceal the same or they were not known to the
illustrate the differences. insured at the time of entering into the contract, the
court may not entitle the insurer to set aside the
Parties to an insurance contract are required to 19
contract . In other words non disclosure is not
observe the duty of utmost good faith and the duty of necessarily fatal while breach of duty of good faith is.
disclosure while entering into such a contract. To
illustrate how the two operate separately, the duty of B - For the Insurer
disclosure would cast an obligation on an insured
obtaining a life insurance policy to refrain from
concealing material facts with respect to his serious
illness, etc. from the insurer. However, the duty of The various regulations framed under the Insurance
utmost good faith would cast an obligation on the Regulatory and Development Authority Act, 1999 set
insured to refrain from misrepresenting the out the duties cast on an insurer while dealing with
seriousness of his illness to the insurer. the insured at the pre-contractual stage. Some of
Therefore, both the duties are independent of each these are listed below:
other and co-exist together. Failure to observe either (i) The insurer is required to provide all
of the duties may entitle the insurer to set aside the material information in respect of a
contract. proposed cover to the insurer to enable
10. What are the remedies for a pre- the insured to decide on the best cover
contractual breach by the insured of the that would be in his or her interest and
duty of utmost good faith? Are the where the insured depends upon the
remedies different from a breach of the advice of the insurer, the insurer must
duty of disclosure? advise the prospect
20
dispassionately; and
A breach by the insured of the duty of utmost good
faith allows the insurer to avoid/set aside the contract. (ii) The insurer must ensure that any
advertisement with respect to an
The insured cannot claim benefit of a contract, where
the insured enters into a contract with the insurer as a
17
result of fraudulent concealment of material facts.
18
Life Insurance Corporation Of ... vs Parvathavardhini
Ammal AIR 1965 Mad 357
15 19
(1766) 3 Burr 1905 Section 45 of the Insurance Act, 1938
16 20
Mithoolal Nayak v/s. LIC, AIR 1962 SC 814 Regulation 3(2) and 3(3) of the Insurance Regulatory and
Development Authority (Protection of Policyholders’
17
Mithoolal Nayak v/s. LIC, AIR 1962 SC 814 Interests) Regulations, 2002
insurance product must not contain III. - Post-Contractual Application of the Principle
21
deceptive information. of Utmost Good Faith (at the Claim Stage)
duty of utmost good faith by providing A - For the Insured and Third Party
examples of the best known cases in Beneficiary of Cover
which it has been applied. 16. What is the content of the post-
The insurer is bound to (i) disclose all facts (including
all risks involved) essential to enable the insured to
take an informed decision prior to entering into the 16.1 Do third party beneficiaries of cover have
contract and (ii) refrain from misrepresenting the a duty of utmost good faith?
conditions of the insurance policy to enable the
insured to enter into such a contract. In Carter v The duty of utmost good faith commences before a
22
Boehm , the leading English case law on this point policy is made and it continues so long as the parties
and heavily relied upon by courts in India has are in a contractual or continuing relationship with
24
explained the extent of the insurer’s pre-contractual each other. The insured shall be bound to observe
duty of utmost good faith. It was held that “The policy the duty of utmost good faith at the claim stage as
would be equally void against the underwriter, if he well as long as the relationship continues. Therefore,
concealed; as if he insured a ship on her voyage, the insured is required to make claims honestly
which he privately knew to be arrived: and an action without exaggeration or carelessness.
would lie to recover the premium.Good faith forbids There is no contractual relation between the
either party, by concealing what he privately knows, to 25
insurance company and the third party. The duty of
draw the other into a bargain from his ignorance of utmost good faith binds the parties to the contract and
the fact, and his believing the contrary. since a third party beneficiary is not a party to a
14. Is it a breach of the duty of utmost good contract, strictly speaking there is no duty cast on a
faith in your jurisdiction for insurers not third party.
to notify the prospective insured of the 17. Describe the insured’s post-contractual
nature and extent of their duty of duty of utmost good faith by providing
disclosure? examples of the best known cases in
Yes, it is a breach of duty of utmost good faith by which it has been applied.
insurers for not notifying the insured of the nature and It is a common law principle that the duty of disclosure
extent of their duty of disclosure. ceases once the insurance contract has been entered
Regulation 8 (i) (f) of the Insurance Regulatory and into, unless the contract provides otherwise. The
26
Development Authority (Licensing of Insurance famous case Agapitos v Agnew (The Aegeon) has
Agents) Regulations, 2000 requires every insurance explained the post-contractual duty of utmost good
agent to explain to the prospect the nature and extent faith for the insured. The said case lays down that
of the information required in the proposal form. “the post-contractual operation of the duty of good
faith by the insured does not require a duty of
The insurer must act fairly and honourably to the disclosure but a duty not to make misrepresentations.
insured, explaining properly the implication of the In other words, where a policy requires the assured to
declaration to be signed by the insured and the range make post-contractual notifications, the duty is not
and amplitude of the questions required to be one of disclosure (ie the same as pre-contractual
23
answered . disclosure) but a lesser duty not to misrepresent”.
15. What are the remedies for a pre- Indian courts will follow a similar approach.
duty of utmost good faith? 18. Is the when completing a proposal
insured’s intentional concealment of
The insured may seek for damages or claim specific his/her criminal activities for life policies
performance of the contract in case of pre-contractual a breach of the duty of utmost good
breach by the insurer of its duty of utmost good faith. faith?
21 24
Regulation 6 of the Insurance Regulatory and The United India Insurance Co. Ltd. vs. M.K.J.
Development Authority (Insurance Advertisements and Corporation AIR 1997 SC 408
Disclosure) Regulations, 2000 25
National Insurance Co. Ltd. vs. Laxmi Narain Dhut AIR
22
(1766) 3 Burr 1905 2007 SC 1563
23 26
LIC v/s Shakunthalabai, AIR 1975 AP 68 [2002] EWCA Civ 247
31
Any failure on the part of the insured to disclose and the third party. Therefore strictly speaking the
material facts to the insurer at the time of entering into insurer does not owe a duty of utmost good faith
the insurance contract would entitle the insurer to call towards third party beneficiaries. However since a
27
in question the contract . The policy cannot be third party is protected by such a contract, while
avoided on the ground of mis-statements or untrue handling a claim, the insurer will have to ensure that
32
answers unless the insurers establish (a) that the he processes the claim without any delay.
statements were inaccurate or false; (b) that such
statements were on material factors or that material
facts were suppressed and not disclosed, and (c) that
the assured knew at the time of making those
statements that they were false to his knowledge or
knew that these facts were material to disclose and The insurer cannot make any alterations in the
28
deliberately suppressed . Therefore depending on contract without the consent of the insured and is
the facts and circumstances of each case, in the required to disclose any change in the risk factors etc.
event the disclosure of criminal activities would be a to the insured pursuant to the execution of the
material factor and the insurer intentionally concealed contract. In United India Insurance Co Ltd. v. M.K.J.
the fact, it would amount to a breach of the duty of 33
Corporation the Supreme Court of India has laid
utmost good faith. down the principle relating to the post-contractual duty
B - For the Insurer of utmost good faith which states as follows:
19. What is the content of the duty of utmost “The duty of good faith is of a continuing
good faith for the insurer when dealing nature. After the completion of the contract,
with a claim? no material alteration can be made in its
terms except by mutual consent. The
The insurer’s duty of utmost good faith continues until materiality of a fact is judged by the
the contract is in existence. circumstances existing at the time when the
contract is concluded”.
While dealing with a claim of insurance an insurer
cannot avoid or repudiate an insurance policy on the 22. Is there a Code of Practice for insurers in
ground of non-disclosure of facts which had no your jurisdiction and, if so, how does it
29
bearing on the risk taken by the insurer. sit with the duty of utmost good faith?
Further, the Insurance Regulatory and Development Yes, the Insurance Regulatory and Development
Authority (Protection of Policyholders’ Interests) Authority prescribe and regulate the code of conduct
Regulations, 2002 provides that the insurer, upon for insurers in India.
receiving a claim, is required to process the claim
without delay. Any queries or requirement of (1) The Insurance Regulatory and Development
additional documents, to the extent possible, all at Authority (Licensing of Insurance Agents)
once and not in a piece-meal manner, within the Regulations, 2000, (2) Insurance Regulatory and
period stipulated in the regulations. In the event there Development Authority (Insurance Brokers)
is a delay on the part of the insurer in processing a Regulations, 2002 and (3) Insurance Surveyors and
claim, the insurer is required to pay interest on the Loss Assessors (Licensing, Professional
claim amount as per the provisions of the Requirements and Code of Conduct) Regulations,
regulations.
30 2000 lay down the code of conduct in the practice of
insurance.
good faith towards third party For example the Code of Conduct for insurance
beneficiaries of cover in handling claims? agents under the Insurance Regulatory and
Development Authority (Licensing of Insurance
The duty of utmost good faith is required to be Agents) Regulations, 2000 stipulates that every
observed by parties to a contract. There is no insurance agent is required to disseminate the
contractual relation between the insurance company requisite information in respect of insurance products
offered for sale by his insurer. The Code of conduct
laid down for insurance brokers etc. is also similar to
27
28 31
New India Assurance Co. Ltd. v. T. S. Raghava Reddi National Insurance Co. Ltd. vs. Laxmi Narain Dhut AIR
29 2007 SC 1563.
National Insurance Co. V. Rais Abbas Naqvi 1996 (2)
32
CPR 108. Regulation 8 of the Insurance Regulatory and
30 Development Authority (Protection of Policyholders’
Regulation 8 and 9 of the Insurance Regulatory and Interests) Regulations, 2002.
Development Authority (Protection of Policyholders’
33
Interests) Regulations, 2002. (1996) 6 SCC 428.
the code of conduct laid down for insurance agents. 26. Can a breach by the insurer of the duty of
These regulations are in line with the common law utmost good faith result in regulatory
principle of the duty of utmost good faith. sanctions against the insurer (license
suspension, banning order, etc.
of insurance if it would be a breach of the Yes. A breach by the insurance agent or any director
duty of utmost good faith for the insurer or partner of an insurance company of the duty of
to rely on the term? If so, please illustrate utmost good faith entitles the insurance authorities to
with examples. cancel the license issued by them to such insurance
37
agent.
Yes, courts can disregard a term of the contract of
insurance if it would be a breach of the duty of utmost IV. - Reinsurance
good faith for the insurer to rely on the term. All
insurance contracts are required to observe the 27. To what extent, if any, does your
principle of utmost good faith and if a term in the jurisdiction apply different principles
insurance contract breaches the same, the court has regarding utmost good faith to
the power to disregard the term despite being reinsurance at both the placement/pre-
contractually agreed. A contract which defeats the contractual stage, and at the claim stage?
34
purpose of law is void.
The insurance regulations governing re-insurance
In Jai Pal Singh v. Deputy General Manager, United contracts in India do not categorically stipualte the
35
India Insurance Co. Ltd. and Ors. , the rejection of an application of the principle of utmost good faith to re-
insurance claim on an unjust and unreasonable insurance contracts. However it is a common law
condition was quashed. The courts held that “the principle for reinsurance, that both the reinsurer and
condition was liable to be ignored as being one sided the reinsured owe to the other the duty of utmost
and irrational and directed the insurance Company to good faith which applies both before the contract is
settle the claim of the petitioner in accordance with entered into and continues until the contract is in
law ignoring the alleged condition in the insurance force. Utmost faith has to be observed at all times by
policy as expeditiously as possible”. the parties to the reinsurance contract also and the
24. Do courts have special powers to insurer has a duty to disclose material facts to the
38
disregard any avoidance of the reinsurers.
application of a policy in cases where the ****
Juris Corp
Yes, the courts are required to apply the principles of
natural justice while deciding upon a dispute. If the 1104A Raheja Chambers
balance of convenience lies in favour of the insured Free Press Journal Marg Nariman Point
and he can establish that while avoiding the policy, Mumbai 400 021, India
the insurer has breached the duty of utmost good
faith, then the court may disregard the avoidance of Tel.: (91) 22 2204 3574
the application of a policy and direct the insurer to Fax: (91) 22 2204 3579
grant the claim. This would depend on a case to case Email: h_jayesh@jclex.com
basis. apurva.kavinde@jclex.com
the duty of utmost good faith is under Website: www.jclex.com
utmost good faith?
Yes, an insurer’s breach of the duty of utmost good
faith would amount to a breach of the statute. The
various statutes dealing with insurance laws stipulate
penalties for submitting false documents or making
36
false statements etc.
34
Section 23 of the Indian Contract Act, 1872 37
S. 42(4) (g) and S. 42(5) of the Insurance Act, 1938
35
2007 7 AWC7738All 38
London General Insurance Co. vs. General Marine
36 Underwriters Association (1921) 1 KB 104
IBA Insurance Committee Substantive Project 2014 87 The Duty of Utmost Good Faith: Ireland
Ireland
3
MATHESON In the case Keating v New Ireland Assurance Plc .
Egan J clarified the scope of uberrimae fidei by
Darren Maher And Gràinne Webb
holding that non-disclosure can only be relevant to
some material fact of which a proposer had
WILLIAM FRY knowledge at the relevant time.
John Larkin and Niall Campbell In both Aro Road and Land Vehicles Ltd v Insurance
4 5
Corporation of Ireland Ltd and Kelleher v Irish Life ,
I - Definition of the Principle of Utmost Good the Supreme Court has substituted the judgment of
Faith: the “reasonable man” for the judgment of the
“reasonable and prudent insurer” with regard to what
1. In your jurisdiction, do insurance laws should be disclosed.
it to be found under statute or otherwise?
The principle of utmost good faith is set out in statute.
The principle of utmost good faith is set out in statute
Section 17 of the Marine Insurance Act 1906 provides
in section 17 of the Marine Insurance Act 1906 which
that “a contract of marine insurance is a contract
provides that “a contract of marine insurance is a
based upon the utmost good faith, and, if the utmost
contract based upon the utmost good faith, and, if the
good faith be not observed by either party, the
utmost good faith be not observed by either party, the
contract may be avoided by the other party.” Despite
contract may be avoided by the other party.” Although
referring specifically to marine insurance the principle
the Act relates specifically to marine insurance this
is regarded as applying to all insurance contracts. The
section, together which section 18(1) which sets out
principle of utmost good faith has also been further
the duty of disclosure, are generally regarded as
expanded and developed by the Courts in Ireland as
applicable to all forms of insurance.
an accepted common law principle.
Case law has established that the principle of utmost
good faith imposes a duty to disclose all material
facts. According to McMahon J in Manor Park
1 good faith and a separate duty of
Homebuilders Ltd v AIG Europe (Ireland) Ltd “the
uberrimae fidei principle applies with the greatest
force to situations where the relevant facts are The duty of disclosure and the principle of utmost
peculiarly within the knowledge of the insured and are good faith are separately enshrined in Statute under
not easily available to the underwriter”. However, it section 18(1) and section 17 of the Marine Insurance
has also been established that such a duty does not Act 1906 respectively. The duty to disclose material
negate the insurer’s duty to carry out “normal inquiries facts is a more extensive duty than the obligation to
or investigations”. act with the utmost good faith, because it has been
held that an insured might honestly believe he was in
The importance of the principle of utmost good faith
full compliance with the duty of utmost good faith
was also enunciated by Kenny J in the Supreme 6
while still failing to discharge the duty of disclosure .
Court in the case Chariot Inns Ltd v Assicuraziono
2 The burden of proving non-disclosure rests with the
General Spa where he held “a contract of insurance
insurer. The duty to disclose has also been
requires the highest standard of accuracy, good faith,
interpreted as requiring the insurer to ask a
candour and disclosure by the insured when making a
comprehensive range of questions which covers all
proposal for insurance to an insurance company”. It
was also held by Kenny J in this case that the
standard of materiality is “objective, not subjective”.
3
Keating v New Ireland Assurance Plc [1990] 2 IR 383.
4
Arro Road & Land Vehicles v Insurance Corporation of
1 Ireland Limited [1986] IR 403
Manor Park Homebuilders Ltd v AIG Europe (Ireland) Ltd
5
[2009] 1 ILRM 190. Kelleher v Irish Life Assurance co. Ltd, Unreported,
2 Supreme Court, 8 February 1993.
Chariot Inns Ltd v Assicuraziono General Spa [1981] IR
6
199 at 226. McGillivray on Insurance Law (10th ed) parag 17-37.
7 12
material information relating to the proposal . Any legally is the negotiation of a fresh contract” . This
failure on behalf of the insurer to ask specific, relevant echos the sentiment of the Law Reform Commission
questions cannot later be relied upon by the insurer to as expressed in its consultation paper published in
13
repudiate the claim. As such, it can be said from case December 2011. The Law Reform Commission
law that insurers are obliged to play an active role in considered whether or not there is a post-contractual
the disclosure process. This sentiment is also duty of utmost good faith in the context of claims
expressed by Buckley who notes that the “scope of processing. The LRC was of the view that a duty of
the duty of disclosure may be limited by the express good faith on the part of the insurer has been
8 14
questions asked” .Furthermore, it has been noted that conceded in Carter v Boehm and is supported by
the insurer “should not use the duty of the utmost the principle of mutuality in Section 17 of the Marine
good faith as a crutch or an excuse not to carry out Insurance Act 1906. However, the perspective of the
his own investigations which form part and parcel of LRC is that there is a fundamental difference between
9
the profession” . the circumstances in which an insured’s and an
insurer’s possible duties might arise. The LRC’s view
that while the duty on the part of an insured arises,
primarily at least, pre-contractually, the duty which
arises for an insurer occurs mainly at the post-
reinsurance etc.)?
contractual stage in relation to the processing of
Case law has established that the duty applies to all claims. As a result, the view of the LRC is that this
classes of insurance contract, regardless of whether post-contractual duty of good faith on the part of an
the contract is for fire, life, marine insurance or insurer is more likely to be recognised, if at all, in a
reinsurance. binding authority as the subject of implied contractual
term which would result in different remedies in the
5. Does the duty of utmost good faith apply event of a breach. The LRC caveats this prospect by
only at the pre-contractual stage or is it a stating that a shift in the perception of the nature of an
continuous duty applying both pre- insurance contract is likely to be necessary before
contractually and post-contractually? greater duties on an insurer are established in case
A great deal of uncertainty has surrounded the issue law.
of a post-contractual duty of good faith. However, II - Application of the Principle of Utmost Good
according to the decision of Murphy J. in Fagan v Faith at the Pre-Contractual Stage
10
General Accident “the duty to exercise the utmost
good faith…continues throughout the relationship up 6. Does the Principle of Utmost Good Faith
to and including the making of a claim on foot of a apply to both the insured and the insurer
policy”. Similar sentiment was also expressed by at the pre-contractual stage?
Hoffman L.J. in the English case Orakpo v Barclays
Insurance Services, which held “in principle insurance The principle of utmost good faith is a mutual one at
is a contract of good faith. I don’t see why the duty of the pre-contractual stage. The mutuality of the duty is
good faith on the part of the assured should expire established in section 17 of the Marine Insurance Act
when the contract has been made. The reasons for 1906. Although the duty applies to both the insurer
11
requiring good faith continue to exist” . and the insured, it has been noted the scope of the
insurer’s duty in this regard has received far less
According to Professor Henry Ellis however “at judicial scrutiny than the duty as applicable to the
common law the duty of disclosure exists throughout 15
insured . As far back as the landmark case of Carter
the pre-contractual negotiation stage. Once an 16
v Boehm it has been held, per Lord Mansfield, that
insurance contract is concluded, the duty to disclose the uberrimae fidei obligation in insurance contracts is
is suspended; it revives again at renewal; which a mutual one. More recently in the case of Manor
17
Park Homebuilders Ltd v AIG Europe (Ireland) Ltd
7 12
Arro Road & Land Vehicles v Insurance Corporation of Ellis, “Disclosure and Good Faith in Insurance Contracts”
Ireland Limited [1986] IR 403 per McCarthy J. (1990) 8 Irish Law Times 45.
8
Buckley, Insurance Law (2nd ed) at parag 3-59. 13
LRC CP 65-2011
9 14
MacDonald Eggers, Picken and Foss, Good Faith and (1766) 3 BURR 1905
Insurance Contracts (2nd edn) (London: LLP, 2004),
15
para.12.21. Ahern, “The formation of insurance contracts and the duty
10 of insurers” (2009) 4 Commercial Law Practitioner 84.
Fagan v General Accident Unreported, High Court,
16
February 19, 1993. Carter v Boehm (1766) 1 Wm. B1. 593, 97 E.R. 1162.
11 17
Orakpo v Barclays Insurance Services [1995] L.R.L.R. Manor Park Homebuilders Ltd v AIG Europe (Ireland) Ltd
443. [2009] 1 ILRM 190.
Mahon J found that the insurance company fatal medical condition prior to obtaining life
concerned was in breach of its duty of uberrimae fidei assurance cover. Given this circumstance McCarthy J
for failing to carry out proper investigations, inform held that “one cannot disclose what one does not
itself of the facts and failing to deal fairly with the know”.
insured.
The duty of uberrimae fidei may also be limited in
A - For the Insured: instances where the proposer is not questioned by the
insurer about a particular matter which is later relied
upon by the insurer in repudiating the contract as was
good faith? Describe the insured’s pre- held in Aro Road and Land Vehicles Ltd v Insurance
contractual duty of utmost good faith by 23
Corporation of Ireland . In contrast, a stricter
providing examples of the best known approach was taken by Kenny J in Chariot Inns v
cases in which it has been applied. 24
Assicurazioni General Spa where he held that “the
The principle of utmost good faith is understood to correct answering of any questions asked is not the
mean an obligation on both parties, the proposer and entire obligation of the person seeking insurance: he
the insurer, to disclose all material facts relating to the is bound, in addition, to disclose to the insurance
risk prior to concluding the contract. The landmark company every matter which is material to the risk
18 against which he is seeking indemnity”.
case establishing this principle is Carter v Boehm.
However, more recent case law has attempted to More recently in Coleman v New Ireland Clarke J
25
update and fine tune this principle. In reality it requires reiterated that a proposer for an insurance policy must
the proposer to answer the questions on his proposal make full disclosure of material facts while adding that
form to the best of his knowledge. Whether a non- any material non-disclosure or inaccurate answer to a
disclosure will be viewed as material or not is decided question on the proposal form is to be “judged by
by the objective yardstick of the “reasonable and reference to the knowledge of the proposer and
19
prudent insurer” . whether answers given were to the best of the
In the judgment of Manor Park Homebuilders Ltd v proposer’s ability and truthful”.
20
AIG Europe (Ireland) Ltd McMahon J. held that “the The recent Law Reform Commission Consultation
principle of uberrimae fidei, which applies to all Paper on Insurance Contracts expressly recommends
insurance contracts, imposes a heavy onus of
that although the pre-contractual duty of disclosure
disclosure on the insured”. He further asserted that should be retained, its application should be limited to
“the uberrimae fidei principle applies with the greatest facts or circumstances of which the proposer has
force to situations where the relevant facts are actual knowledge.
26
peculiarly within the knowledge of the insured and are
not easily available to the underwriter.” 8. Is the duty of utmost good faith for the
insured equivalent to the duty of
In Irish law, in cases involving health insurance and disclosure in your jurisdiction so that
similar types of insurance, a distinction has been pre-contractually the two are
drawn between cases where the proposer honestly indistinguishable?
believes that a medical condition or symptom will
have no long-lasting or serious consequences, and According to the recent Law Reform Commission
situations where the proposer is completely ignorant Consultation Paper the utmost good faith principle
of the existence of any medical condition. The and the duty of disclosure, are in most instances
decision in Curran v Norwich Union Life Insurance linked together. However there are cases, such as
21 27
Society suggests that once an individual Curran v Norwich Union Life Insurance Society , in
experiences symptoms and consults a medical which it has been held that non-disclosure may occur
practitioner a duty of disclosure is triggered. In even in the absence of mala fides on behalf of the
contrast, in Keating v New Ireland Assurance proposer.
22
Company the court found in favour of the insured’s
estate as he had not known of the existence of his
23
Arro Road & Land Vehicles v Insurance Corporation of
Ireland Limited [1986] IR 403 per McCarthy J.
18
Carter v Boehm (1766) 1 Wm. B1. 593, 97 E.R. 1162. 24
Chariot Inns Ltd v Assicuraziono General Spa [1981] IR
19
Kelleher v Irish Life Assurance co. Ltd, Unreported, 199.
Supreme Court, 8 February 1993. 25
Coleman v New Ireland [2009] IEHC 273.
20
Manor Park Homebuilders Ltd v AIG Europe (Ireland) Ltd 26
[2009] 1 ILRM 190. Law Reform Commission Consultation Paper entitled
“Insurance Contracts” first published, December 2011 (LRC
21
Curran v Norwich Union Life Insurance Society [1987] CP 65 – 2011)
IEHC 5. 27
Curran v Norwich Union Life Insurance Society [1987]
22
Keating v New Ireland Assurance Plc [1990] 2 IR 383. IEHC 5.
9. If the duty of utmost good faith operates policy void for failure on the insured’s behalf to
separately pre-contractually from the disclose material facts.
and how the two sit together. You may 11. If the duty of utmost good faith operates
need to describe the duty of disclosure to separately from the duty of disclosure
illustrate the differences. However the does one have precedence over the
majority of case law inclines towards other?
placing an emphasis on the duty of Although the two principles are generally interlinked in
disclosure as a means of protecting the Irish insurance law, according to Dockery the duty to
insurer and separates the duty from the disclose is a more extensive duty than the obligation
wider implications of the mutual duty of on both parties to act with the utmost good faith. As
utmost good faith. can be seen earlier in the case of Curran v Norwich
32
None of the reported decisions in Ireland on the duty Union Life Insurance Society a situation of non-
of disclosure involve consideration of the duty disclosure may arise even if the insured has complied
continuing beyond the formation of the insurance fully with his duty of utmost good faith. However, in
contract. However, it would seem that the duty arises the Law Reform Commission Consultation Paper the
whenever the insurer is required to decide whether two duties are described as “complementary to one
they will accept the risk in question or the terms on another in most cases”.
which they will do so. Such a decision has to be B - For the Insurer:
made on a proposal for renewal of an existing policy
and in respect of a material change in an existing 12. What is the content of the pre-contractual
insurance contact of such a kind “as to substantially duty of utmost good faith for the insurer?
alter the nature of the bargain as affecting both As has been noted earlier the obligation of uberrimae
28
sides” . fidei is a mutual one. However, the duty of the insurer
In practice it is generally accepted that there is no in this regard has received far less judicial scrutiny
duty of disclosure at any other time. However, the than the proposer’s parallel duty. In the case Banque
duty of utmost good faith from which the duty of Financiere de la Cite S.A. v Westgate Insurance Co.
33
disclosure stems is a continuing duty in other Ltd it was held that the insurer was obliged to
respects. Unless the contract of insurance stipulates disclose to the insured facts known to the insurer at
otherwise, the insured’s common law and equitable the time of entering into the contract which would
duty to make full and accurate disclosure of all reduce the insured risk.
material facts only applies up to moment when a More recently in Manor Park Homebuilders Ltd v AIG
29
binding contract of insurance is concluded . 34
Europe (Ireland) Ltd McMahon J held that “the
10. What are the remedies for a pre- insured’s duty is balanced by a reciprocal duty on the
contractual breach by the insured of the insurer to make its own reasonable inquiries, to carry
duty of utmost good faith? Are the out all prudent investigations and to act at all times in
remedies different from a breach of the a professional manner. In fact the onus to do this,
duty of disclosure? because of its experience and expertise, lies primarily
on the insurer”. McMahon J further stated that “where
An insurer who successfully invokes a pre-contractual the insurer has full access to the property to be
breach by the insured of the duty of utmost good faith insured, as in this case, so that it can easily measure
will generally be able to have the contract declared the risk for itself, it cannot refrain from such
void ab initio. The burden of proof rests with the reasonable inquiries as a prudent insurer would make
insurer who must establish on the balance of to assess the risk and calculate the premium and
probabilities that there has been a breach of the hope to profit from the insured’s lack of skill or his
principle of utmost good faith and the duty of non- honest mistake”.
30
disclosure . For example, in Molloy v Financial
31
Services Ombudsman the High Court upheld the
earlier decision of the FSO declaring an insurance
28
Lisham –v- Northern Maritime (1875) L.R. 10. Cp 179 @ 32
181 per Bramwell Curran v Norwich Union Life Insurance Society [1987]
IEHC 5.
29
Harrington –v- Pearly Life Assurance Co (1914) 30 T.L.R. 33
613 C88 Banque Financiere de la Cite S.A. v Westgate Insurance
Co. Ltd [1991] 2 A.C. 249.
30
Joel v Law Union Insurance Co [1980] 2 KB 34
31
(Unreported, High Court, Macmenam; 15 April, 2011) [2009] 1 ILRM 190.
13. Describe the insurer’s pre-contractual The explanation must include, where relevant, that a
duty of utmost good faith by providing policy may be cancelled;
which it is applied. (a) that a policy may be cancelled;
The mutuality of the principle was first enunciated by (b) that claims may not be paid;
Lord Mansfield CJ in the seminal case of Carter v (c) the difficulty the consumer may
35
Boehm . Also in the case Banque Keyser Ullman v encounter in trying to purchase
36
Skandia it was held that the insurer owed a duty of insurance elsewhere; and
good faith to the insured to inform him that his broker
had been dishonest. According to some (d) in the case of property insurance, that
commentators the scope of this duty has been the failure to have property insurance in
expanded following the decision of Manor Park place could lead to a breach of the
Homebuilders Ltd v AIG Europe (Ireland) Ltd ,
37 terms and conditions attaching to any
referred to above. It is clear that in order to discharge loan on that property.
this duty an insurer must act prudently to investigate The principle of utmost good faith with respect to
any aspect of a risk which could be ascertained by it insurance contracts imposes a bilateral duty of
through the course of carrying out reasonable disclosure on insurers as well as on the insured. In
38
enquiries and investigations . practice, the duty tends to bear more heavily on the
14. Is it a breach of the duty of utmost good insured but the insurer does have a duty to disclose to
faith in your jurisdiction for insurers not the insured material facts within the insurers
to notify the prospective insured of the knowledge of which the insurer knows the insured to
nature and extent of their duty of be ignorant. In Banque Keyser Ullman v Skandia it
disclosure? was held that the insurer owed a duty of good faith to
the insured to disclose to him that his broker had
A failure to act with utmost good faith is not limited to been dishonest.
situations involving dishonesty, although a lack of
honesty would certainly constitute a breach of the The duty of the insured must extend at least to
duty. The duty of utmost good faith requires insurers disclosing all material facts known to them, being
to act in accordance with commercial standards of material either to the nature of the risk sought to be
decency and fairness and to conduct itself covered or to the recoverability of a claim under the
reasonably, transparently and with candour. Over the policy, that a prudent insurer would take into account
last two decades increasing regulation and increased in deciding whether or not to place the risk for which
expectations of ethical corporate behaviour has they seek cover with that insurer.
required higher standards of conduct on the part of 15. What are the remedies for a pre-
insurers. contractual breach by the insurer of its
One illustration of this is the Consumer Protection duty of utmost good faith?
Code 2012, which was issued by the Central Bank of In principle an insured could claim damages from an
Ireland and which contains specific disclosure insurer arising out of loss suffered by the insured as a
requirements which must be adhered to by insurers. result of the insurer’s breach of its obligation of
Clause 4.35 states that a regulated entity must “utmost good faith”. In the aforementioned case of
explain to a consumer, at the proposal stage, the Manor Park Homebuilders Ltd v AIG Europe (Ireland)
consequences for the consumer of a failure to make 39
Ltd McMahon J held that the insurance company in
full disclosure of relevant facts including: question was in breach of its duty of uberrimae fidei in
(a) the consumers medical details or failing to educate itself fully as to the facts and also in
history; and failing to deal fairy with the insured. The defendant
insurance company was ordered to pay the insured
(b) previous insurance claims made by the €1,015,000 on foot of the policy.
consumer for the type of insurance
sought
35
Carter v Boehm (1766) 1 Wm. B1. 593, 97 E.R. 1162.
36
Banque Keyser Ullman v Skandia (UK) Insurance Co. Ltd
and Others [1991] 2 AC 249.
37
[2009] 1 ILRM 190.
38 39
Ahern, “The formation of insurance contracts and the duty Manor Park Homebuilders Ltd v AIG Europe (Ireland) Ltd
of insurers” (2009) 4 Commercial Law Practitioner 84. [2009] 1 ILRM 190.
III - Post-Contractual Application of the Principle of disclosure arises whenever the insurer is required
of Utmost Good Faith (at the Claim Stage) to consider whether to accept the risk or the terms on
which the risk will be accepted.
Such consideration on the part of the insurer occurs
on the proposal of new insurance, on renewal of an
16. What is the content of the post- existing policy or where there is a material change in
contractual duty of utmost good faith for an existing insurance contract so “as to substantially
the insured at the claim stage? alter the nature of the bargain as affecting both
41
sides.”
The law on the continuing duty of utmost good faith
remains unclear, however, there is authority for the Depending on the terms of the contract, it is generally
view that an insured’s duty of utmost good faith accepted that there is no duty to notify a change in
operates post-contractually, including at the claims risk during the duration of the contract. Where there is
stage. The continuing nature of the duty of utmost an extension or modification of the contract affecting
good faith was accepted by Murphy J. in Michael the risk, there is a limited duty of disclosure on the
Fagan v General Accident Fire and Life Assurance part of the insured as regards the change in risk.
40
Corporation plc. : Only facts material to the change, however, are
42
required to be disclosed.
“…the duty to exercise the utmost good faith
continues throughout the relationship up to There are a number of English cases, of persuasive
and including the making of a claim on foot authority in Ireland, which demonstrate how the law
of the policy.” on the continuing duty of utmost good faith remains
43
unclear. In The Star Sea , Lord Hobhouse confirmed
The duty of utmost good faith requires the insured to that “utmost good faith is a principle of fair dealing
make full disclosure of the circumstances of the loss which does not come to an end when the contract has
relevant to the claim, in addition to a general duty not been made.” In La Banque Financiere v Westgate
to act fraudulently or dishonestly in making a claim. 44
Insurance, it was suggested that the continuing duty
The presence of fraud in a claim may defeat the entire of utmost good faith was confined to the making of a
claim and terminate the contract. claim under a policy. In New Hampshire Insurance
45
16.1 Do third party beneficiaries of cover have Co. v MGN Ltd ., the trial judge stated that:
a duty of utmost good faith? “the obligation of good faith…does
The law relating to third party beneficiaries and the not….apply so as to trigger positive
duty of utmost good faith is not well established under obligations of disclosure of matters affecting
Irish law. In accordance with the common law doctrine the risk during the currency of the cover
of privity of contract, a contract cannot generally be except in relation to some requirement,
enforced in favour of or against a person who is not a event or situation provided for in the policy to
party to the contract. This is subject to certain which the duty of good faith attaches.”
exceptions, for example under Section 76(1) of the 46
In K/s Merc-Skandia , Longmore L.J. confined the
Road Traffic Act 1961 and Section 62 of the Civil existence of the duty of utmost good faith to certain
Liability Act 1961. In circumstances where a third specified situations. As regards the insured, he
party beneficiary supports another party’s fraudulent confined the duty to situations where the contract
claim, there are conflicting judgments as to whether itself required information to be disclosed.
that third party’s own genuine claim will be upheld or
forfeited. There is an argument to be made, therefore,
that a third party beneficiary is also required to act
with utmost good faith.
examples of the best known cases in 41.
Lishman v Northern Maritime (1875) L.R. 10 Cp 179 at
which it has been applied. 181
It is generally accepted in practice that the duty of 42.
Lishman v Northern Maritime (1875) L.R. 10 Cp 179 at
utmost good faith, from which the duty of disclosure 182
flows, is a continuing duty. Although there are few 43.
Irish decisions which have examined the continuing [2003] 1 AC 469 at [48]
duty of disclosure on the part of an insured beyond 44.
[1990] 1 All E.R. 947
the formation of the contract, it appears that the duty
45.
[1997] Lloyd’s Rep. I.R. 24
46.
K/s Merc-Skandia v Certain Lloyd’s Underwriters, Ocean
Marine Insurance Co. Ltd and Others [2000] Lloyd’s Rep.
40.
[1999] I.C.L.Y. 635. I.R. 694
18. Is the insured’s intentional concealment exists. The beneficiary must also be able to
of his/her criminal activities when demonstrate that he is entitled to the benefit of the
completing a proposal for life policies a policy by proving “more than a reasonable
47
breach of the duty of utmost good faith? expectation” that he is to benefit .
48
Under the general duty of utmost good faith, the In the UK Court of Appeal decision in Gorham v BT
insured has an overriding duty to disclose all material it was held that an insurance company owed a duty of
facts to the insurer. It is possible for the insured to care to the dependents of an insured and the
breach the duty by omission or concealment in intended beneficiaries of the policy. This case
49
relation to a material fact. followed the decision in White v Jones and is likely
to be of persuasive authority in Ireland. It follows,
A material fact is one which would influence the therefore, that where an insurer is found to owe a duty
judgement of a prudent underwriter in deciding: of care to the intended beneficiaries of an insurance
(i) whether to underwrite the contract; or policy, it is arguable that the insurer’s duty of utmost
good faith also extends to such parties.
(ii) the terms (such as the premium) on which it
might do so. 21. Describe the insurer’s post-contractual
Almost all insurance proposal forms contain questions examples of the best known cases in
relating to the moral hazard of the proposer and this which it has been applied.
typically includes enquiring as to whether the insured
has any previous convictions. In the absence of The duty of utmost good faith, a bilateral duty
legislative provision to the contrary, it would seem that imposed on both the insurer and the insured, is
every conviction material to the risk within the generally accepted to be a continuing duty under Irish
timeframe specified on the proposal form must be law. An insurer has a duty to disclose to the insured
disclosed, in addition to convictions material to the information within the insurer’s knowledge and of
“moral hazard”, even in circumstances where they which he knows the insured to be ignorant. The
occurred outside the timeframe. bilateral nature of this duty was reiterated in Banque
Financiere de la Cite SA v Westgate Insurance Co
B - For the Insurer (The Gemstones Case) .
50
19. What is the content of the duty of utmost 51

In Banque Keyser Ullman v Skandia, it was held that
good faith for the insurer when dealing the insurer owed a duty of good faith to the insured to
with a claim? disclose to him the fact that his broker had been
The duty of utmost good faith imposes a bilateral duty dishonest. The Court held that the duty extends to
on both the insurer and the insured. disclosing at least all material facts known to the
insurer which are material either to the nature of the
In practice, the insurer has a duty to disclose to the risk sought to be covered or to the recoverability of a
insured material facts within the insurer’s knowledge claim under the policy that a prudent insurer would
of which he knows the insured to be ignorant. When consider when deciding whether or not to cover the
an insurer is dealing with a claim, it is implied that the risk. The Court held that the duty of utmost good faith
insurer will conduct a reasonable investigation into the imposes reciprocal duties on both the insured and the
insured’s claim. An insurer cannot attempt to avoid a insurer to abstain from bad faith and to disclose all
claim by alleging that they were misled by the insured, material circumstances.
if the relevant fact was common knowledge or they
were aware of it from other sources. An issue which must also be borne in mind by
insurers when drafting insurance policies issued to
20. Does an insurer owe a duty of utmost consumers is the effect of the Unfair Terms in
good faith towards third party Consumer Contracts Regulations 1994. A consumer
beneficiaries of cover in handling claims? (i.e a natural person acting for purposes outside those
of his business) can claim that a contractual term is
There is little Irish case law on this matter. In relation
to third party insurance claims under Irish law, in
accordance with the common law doctrine of privity of
contract, a contract cannot generally be enforced in 47.
favour of or against a person who is not a party to the Re Irish Board Mills Ltd (in Receivership) [1980] ILRM
216
contract. There is no Irish equivalent of the UK
48.
Contracts (Rights of Third Parties) Act 1999. Gorham & Others v BT and Standard Life Assurance Co.
[2001] Lloyd’s Rep. I.R. 531
There are certain exceptions to this under Section
49.
76(1) of the Road Traffic Act 1961 and Section 62 of [1995] 2 A.C. 207
the Civil Liability Act 1961. Under the law of trust a 50.
[1991] 2 AC 249)
beneficiary can, in certain circumstances, directly
enforce the rights of the trust against an insurer. The 51.
Banque Keyser Ullman SA v Skandia (UK) Insurance Co.
beneficiary has the burden of proving that a trust Ltd [1987] 2 All E.R. 923
invalid where it has not been individually negotiated case of non-disclosure of a material fact the remedy
and where it is unfair. An unfair clause is one which of avoidance of the policy is available. Pursuant to the
“contrary to the requirement of good faith causes a Marine Insurance Act 1906, avoidance of the policy is
significant imbalance in the parties’ rights and the remedy for non-disclosure (Section 18) or material
obligations under the contract to the detriment of the misrepresentation (Section 20) by the insured. The
consumer”. Core terms, such as those that define the policy is voidable by the insurer from inception.
scope of the cover, will not be subject to this However, the Irish courts have not permitted insurers
restriction. to avoid a policy for material misrepresentation where
an incorrect answer is given by an honest proposer.
An insurer is not entitled to opt to decline cover of the
your jurisdiction and, if so, how does it
claim in lieu of avoidance, unless the policy in
question contains an innocent non-disclosure clause
There are various codes and guidance which with this effect.
(re)insurers in Ireland must comply with when selling The Law Reform Commission in Ireland has
insurance policies to consumers. Member companies recommended that avoidance of an insurance policy
of the Insurance Ireland (previously the Irish should no longer be the main remedy and that in
Insurance Federation) subscribe to voluntary codes of cases of non-disclosure and misrepresentation, the
conduct, applicable to consumer insurances, both life principal remedy should be one of damages in
and non-life. While the codes have no legal effect, proportion to the failure by the insured.
they represent best industry practice and compliance
with their provisions is strongly encouraged by the Regulation 6 of the European Communities (Unfair
insurance industry bodies. For example, provisions of Terms in Consumer Contracts) Regulations 1995
the code of conduct for non-life insurance prohibit an provides that an unfair contractual term is not binding
insurer from avoiding liability to indemnify on certain on a consumer. A contractual term is regarded as
grounds, including non-disclosure of a fact which the “unfair” if, “contrary to the requirement of good faith, it
insured could not reasonably be expected to have causes a significant imbalance in the parties’ rights
known. and obligations under the contract to the detriment of
the consumer.” In making an assessment of good
The Central Bank of Ireland has also issued various faith, a number of factors are taken into consideration,
codes and guidance including the Corporate including the strength of the bargaining positions of
Governance Code for Credit Institutions and the parties and the extent to which the seller has dealt
Insurance Undertakings and the Consumer Protection fairly and equitably with the consumer.
Code (“CPC”).
Notwithstanding the presence of an unfair term,
Compliance with the CPC is mandatory for all Regulation 6 provides that the contract shall continue
regulated financial services providers, including to bind the parties, if it is capable of continuing in
insurance companies. Chapter 2 of the CPC outlines existence without the unfair term.
the general principles applicable to insurers in all
dealings with customers and within the context of its 24. Do courts have special powers to
authorisation. disregard any avoidance of the
These include the requirement for an insurer to: insured has established that it would be a
(i) act honestly, fairly and professionally in the breach of the duty of utmost good faith to
best interests of its customers and the allow the insurer to avoid the policy?
integrity of the market; An insurer may be prohibited from seeking to avoid an
(ii) act with due skill, care and diligence; and insurance contract in certain circumstances. For
example, provisions of the code of conduct on non-life
(iii) make full disclosure of all relevant material insurance issued by Insurance Ireland prohibit an
information, including all charges, in a way insurer from avoiding liability to indemnify on certain
that seeks to inform the customer. grounds. These include (i) non-disclosure of a fact
Therefore, although the CPC does not expressly which the insured could not reasonably be expected
provide for a duty of utmost good faith, it is implied to have known, (ii) on grounds of misrepresentation
through the general principles outlined in Chapter 2 save where that misrepresentation is deliberate or
and through the letter and spirit of negligent, and (iii) on grounds of breach of warranty
where the circumstances of the breach are
23. Can courts disregard a term of a contract unconnected with the loss.
with examples.
In the case of a breach of the duty of utmost good
faith, the remedy is to declare the contract void. In the
25. To the extent that an insurer’s breach of ****

utmost good faith?
Matheson Ormsby Prentice
The doctrine of utmost good faith is expressly set out
under Section 17 of the Marine Insurance Act 1906 as
a duty to be observed by either party: 70 Sir John Rogerson's Quay
Dublin 2, Ireland
“A contract of marine insurance is a contract
based upon the utmost good faith, and, if the Tel.: (353) 1 232 2000
utmost good faith be not observed by either Fax: (353) 1 232 3333
party, the contract may be avoided by the Email: darren.maher@matheson.com
other party.” grainne.webb@matheson.com
The remedy of avoidance of the policy is therefore Website: www.matheson.com
available where the insurer does not adhere to the
duty of utmost good faith.
A breach of the duty of utmost good faith will not in
itself attract a regulatory sanction. However, where an
insurer fails to comply with a requirement of the
Consumer Protection Code, including a failure to act
honestly, fairly and professionally in the best interests William Fry
of its customers, this may result in the Central Bank of
Ireland imposing an administrative sanction on the Fitzwilton House
insurer for a contravention of the Code, pursuant to Wilton Place
Part IIIC of the Central Bank Act 1942. Dublin 2, Ireland
IV - Reinsurance Tel.: (353) 1 639 5000
Fax: (353) 1 639 5333
27. To what extent, if any, does your Email: john.larkin@williamfry.ie
jurisdiction apply different principles niall.campbell@williamfry.ie
reinsurance at both the placement/pre- Website: www.williamfry.ie
The principle of utmost good faith applies equally to
reinsurance in the same way as it applies to
insurance, at both the placement / pre-contractual
stage and at the claim stage.
IBA Insurance Committee Substantive Project 2014 96 The Duty of Utmost Good Faith: Italy
Italy
MACCHI DI CELLERE GANGEMI The same principle of good faith applies at a pre-
contractual stage, in the negotiations preliminary to
Ernesto Pucci
the execution of a contract, pursuant to art. 1337 of
I - Definition of the Principle of Utmost Good Faith the CC.
The application of these principles, jointly considered
1. In your jurisdiction, do insurance laws among them, has an impact similar to the one that the
provide for the principle of utmost good uberrima fides principle would have if existent under
faith (in latin, “uberrimae fidei”) and if so, Italian law.
definition whether under statute or The above being said, in replying to this
according to case law. questionnaire, I will refer to the above general
principles instead of the uberrima fides principle,
In the Italian jurisdiction, insurance laws do not without mentioning yet again that the latter does not
provide for the “uberrimae fidei” or “uberrima fides” exist under the Italian law.
principle. This principle may apply only to reinsurance
agreements as these are often regulated by 2. Is the principle of utmost good faith (i) a
customary uses and/or foreign laws providing for such statutory principle, (ii) a common law
a principle. principle or (iii) a civil law principle? Or is
However, it is worth noting that a number of civil law otherwise?
principles, particularly the fairness, diligence and
good faith principles, apply to the insurance law, thus The abovementioned duties of fairness, diligence and
imposing certain duties on the involved parties. In good faith are civil law principles. With specific
general terms, the debtor and the creditor shall reference to reinsurance agreements, the uberrima
behave pursuant to the duty of fairness as provided fides principle may be considered as a common law
3
by art. 1175 of the Italian Civil Code (“CC”); under art. principle applicable under the Italian law .
1176 CC, the debtor shall fulfil its obligation with the 3. Do insurance laws of your jurisdiction
ordinary care and due diligence and, in the case of a provide for both the principle of utmost
professional (as the insurer), the diligence shall be good faith and a separate duty of
evaluated with reference to the nature of the activity disclosure for the insured?
carried out (i.e.: qualified diligence and care). Under
the duty of good faith (art. 1375 of the CC), according Yes insurance laws provide for separate duties of
1
to a definition of good faith given by the Scholars , in fairness, diligence, good faith and disclosure (with the
executing the contract each party shall: specification given under point 7 below), at a pre-
contractual stage, for both the insurer and the
 tolerate the non-fulfilment of the other party insured.
or its delay in the execution if they have a
modest impact on the contractual balance; 4. Does the principle of utmost good faith
 take action, within the limit of an acceptable (life insurance, general insurance,
sacrifice, to inform the counterpart on all reinsurance etc.)?
relevant circumstances of the deal;
See above under point 1.
 take action, within the limit of an acceptable
sacrifice, to ensure the counterpart obtains a
useful contract;
 abstain from the execution of agreed contractually and post-contractually?
obligations when this may cause a prejudice In insurance contracts the abovementioned civil law
to the other party. principles are continuous duties that apply at both pre
Accordingly, each party shall act in a manner to and post-contractual stage. For further details please
safeguard the interest of the other party, regardless of refer to the following.
2
specific contractual or legal obligations .
1
Bianca, Il contratto, Milan, 1987, 472 ff.
2 3
Supreme Court, 5 January 1999 no. 12310. Please refer to the answer given under question 27 below.
II - Application of the Principle of Utmost Good  omitted that the insured vehicle was highly
Faith at the Pre-Contractual Stage damaged upon the execution of the
6
insurance contract ;
apply to both the insured and the insurer  declared that he never suffered thefts in the
7
at the pre-contractual stage? premises where the goods were kept or that
he had suffered only one theft whilst actually
8
As mentioned, under Italian law, the abovementioned having suffered two ;
duties of fairness, diligence and good faith apply to
both the prospective insured and the insurer.  declared that the commercial activity
covered by the insurance was only opened
A - For the Insured 9
seasonally and not during all the year .
7. What is the content of the duty of utmost On the contrary the declaration of the prospective
good faith for the insured? insured, who declared that he had not suffered thefts
Describe the insured’s pre-contractual in the previous two years, was not considered
duty of utmost good faith by providing relevant when, based on the ascertainment of
examples of the best known cases in objective facts, the insurer would have executed the
which it has been applied. insurance contract under the same conditions even
being aware of the lie of the insured (i.e.: no causal
Pursuant to the general principle provided by art. link between the lie of the prospective insured and the
10
1337 of the CC, in the negotiations preliminary to the consent of the insurer to execute the agreement) .
execution of an agreement and up to its execution,
the prospective policyholder shall comply with the In life insurance policies, the omissions of the
general principle of good faith. Furthermore he shall prospective insured were considered relevant under
comply with the duties imposed by articles 1892 and art. 1892 of the CC, when the same omitted to
11
1893 of the CC with reference to insurance contracts. declare serious and prior diseases , or when two
Namely, he has to inform the insurer, fairly and brothers and his parents died from cardiovascular
12 13
without omissions, of any factual or law circumstance disease , or a prior surgery , or the fact that the
which may affect the likelihood of a risk or the extent insured was addicted to alcoholism and had followed
14
of its consequences. In other words the future a detoxification program .
policyholder shall provide the insurer with a fair 8. Is the duty of utmost good faith for the
description of the risk (usually by filling in a insured equivalent to the duty of
questionnaire provided by the insurer). disclosure in your jurisdiction so that
Unfair declarations or omissions that affect the risk pre-contractually the two are
may be considered relevant, thus allowing the insurer indistinguishable?
to claim the nullity of the insurance contract or to Please refer to point 7 above.
4
withdraw from the same . In other words there should
be a causal link between the declaration or omission 9. If the duty of utmost good faith operates
of the prospective insured and the will of the insurer to separately pre-contractually from the
execute the insurance contract or to execute the duty of disclosure describe that operation
same under certain conditions. and how the two sit together. You may
In this respect, it is relevant under art. 1893 of the CC, illustrate the differences.
the omission of the prospective insured of a credit
insurance policy, who being aware of the insolvency
of the debtor (or provided that he should have been
aware of this pursuant to a duty of diligence) did not
5
disclose the debtor’s insolvency to the insurer . 6
Tribunal of Rome, 4 April 1996, parties Micocci c/ Toro.
In an insurance policy against theft, the insurer was 7
Court of Appeal of Turin, 31 October 1975, parties Petruso
declared to have validly claimed the nullity of the c/ Nordstern.
agreement, when the prospective insured: 8
Supreme Court, 17 December 1975, no. 4148.
9
Tribunal of Milan, 27 November 2000.
10
Supreme Court, 25 May 1994 no. 5115.
11
Supreme Court, 9 May 1977 no. 1779;
12
4 Supreme Court, 5 July 1973 no. 1881.
For further details, please refer to the answer provided to
13
question 10 below. Tribunal of Rome, 8 July 1963.
5 14
Supreme Court, 9 February 1987 no. 1373. Court of Appeal of Milan, 12 February 1965.
The duty of disclosure, as mentioned under points 7 fairness, diligence and/or good faith by the insured,
and 10, operates separately and as a specification of however the insurer having suffered a damage, may
the general principles of fairness, diligence and good be able to claim for damages the prospective
faith as mentioned under point 1 above. policyholder/ insured.
10. What are the remedies for a pre- 11. If the duty of utmost good faith operates
contractual breach by the insured of the separately from the duty of disclosure
duty of utmost good faith? Are the does one have precedence over the
remedies different from a breach of the other?
duty of disclosure?
The duty of disclosure as mentioned under point 1
The remedies in case of breach of the duty of above operates separately and as a specification of
disclosure by the insured are provided by the CC, as the general principles of fairness, diligence and good
follows. faith, however under Italian law it is not possible to
identify any rule which allows one duty to precede
 Under article 1892 of the CC, the insurer has over the others in terms of application.
the right to claim the nullity of the insurance
contracts within 3 months from the date he B - For the Insurer
becomes aware of the unfair declarations or 12. What is the content of the pre-contractual
omissions made by the policyholder with duty of utmost good faith for the insurer?
fraud or gross negligence, if (being aware of
the latter) the insurer would not have As mentioned the general principles of trueness,
executed the insurance contract or would diligence and good faith apply under the Italian law,
have executed the same under different thus imposing the insurer (and the insurance
conditions. Should the insurer not claim for intermediaries) duties that are similar to those that
the nullity of the insurance contract, the would have applied if the principle of utmost good
same will remain valid and enforceable. In faith existed. Regarding the prospective insured the
case the insurer claims for nullity he has the general principle provided by art. 1337 of the CC
right to keep the insurance premium paid by apply, therefore in the negotiations preliminary to the
the policyholder. Moreover, if the accident execution of an agreement and up to its execution,
occurs before the expiration of the the insurer (and the insurance intermediaries) shall
abovementioned 3 months term, the insurer comply with the general principle of good faith.
is not obliged to indemnify the insured. The
insurance contract, however, remains valid Furthermore the duty of fairness provided by art. 1175
for those persons and goods that are not of the CC (the debtor and the creditor shall behave
compromised by the unfair declarations or pursuant to the duty of fairness) and by art. 183 of the
omissions. PIC applies. In this respect, the insurer/intermediary
shall behave, within the limit of a substantial sacrifice
 Similar rules apply if the policyholder acted of its interests, in such a way to avoid that the
without fraud or gross negligence, in such a execution of the insurance contract causes a damage
case the insurer has the right to withdraw or that the same is useless for the other party, thus
from the contract only within 3 months from safeguarding the utilitas that the counterpart shall
the date he was informed of the unfair obtain from the contract. In this respect, the insurer
declarations or omissions. Moreover, if the has the obligation to collect the information necessary
accident occurs before the expiration of the to evaluate the insurance contract needed by the
15
abovementioned 3 month-term, the insurer prospective insured (so called adequacy duty ).
has the obligation to pay the insured but the Other general principles applicable to insurers (and
amount is reduced proportionally by the insurance intermediaries) are the following.
difference between the agreed premium and
the premium that would have been agreed (i) the duty of diligence provided by art. 1176 of
had the insurer been fairly informed (art. the CC (in fulfilling the obligation, the debtor
1893 of the CC). The general rule, however shall act with the diligence required by the
does not apply to the maritime insurance nature of the activity carried out if the
coverage of goods, as provided by article obligation concerns the exercise of a
524 of the Navigation Code (“NC”), under professional activity) and by art. 183 of the
which the insurer shall indemnify the insured PIC. In other words the diligence required
even when the master or the crew of the ship from the insurer can be qualified as the
acted with fraud. This is because the master exacta diligentia dell’homo eiusdem generis
and the crew are considered third parties et condicionis. As a consequence in the
and not auxiliaries of the insured party and
their acts are “risks posed by shipping”.
There are no other specific remedies set by the 15
insurance law in case of breach of the duty of For the adequacy rule please refer below.
negotiations preliminary to the execution of the duty of transparency and with the
19
the contract, the insurer/intermediary shall provisions of art. 1337 of the CC .
behave vis-à-vis the prospective insured just
like any other diligent insurer/intermediary (iii) The duty of information as provided by art.
would have behaved in the same 183, par. 1, letter b) of the PIC (for insurers)
circumstances. In this respect, the following and by art. 120 of the PIC (for
examples shall be considered: a) the insurer intermediaries). The contents of the duty of
may be considered as having violated the information of the intermediaries may differ
duty of diligence if its conduct was negligent, from that of the insurers because of their
thus meaning that it’s behaviour is different different relationship with the prospective
from the one that would have taken any insured parties. In general terms the insured
other ideal and zealous insurer in the shall receive at least the following: a) the
16
average that complies with the rules ; b) in information related to the relationship
a matter concerning the riskiness of an existing between the insurer and the
investment proposed to a client, the bank’s intermediary (agent, broker, exclusive or
conduct (i.e. intermediary) was deemed non-exclusive contract, etc.) only in case he
inappropriate as a result of its malicious and negotiates with an intermediary; b)
reticent behaviour evaluated under the information on the main elements of the
profile of the ordinary professional diligence agreement (costs, risks covered, risks not
pursuant to art. 1176 of the CC .
17 covered, etc.); c) information on the
existence of possible conflict of interest. To
(ii) The duty of transparency and prevention of ensure the compliance with such duty, the
conflict of interests, as provided by art. 183, prospective insureds shall receive written
20
par. 1, letter a) of the PIC. In this respect, the informative notes , drafted in accordance
insurer/intermediary shall behave in such a with certain templates provided by Ivass. In
way so as to ensure that the prospective general terms, pursuant to the
insured is aware of its role (insurer, broker, abovementioned general principles and to
agent, etc.) and all the terms and conditions art. 49 of Ivass Regulation no. 5/2006 on
of the insurance contract that he proposes. insurance intermediation, the intermediaries
In this respect the transparency duty shall provide the prospective insured parties
consists in the drafting of the insurance with all information that will allow the
contract in a manner which will allow the prospective insured to make conscious
prospective insured to easily understand its decisions. Further specific information duties
content and consequently make his are provided with reference to particular
conscious decisions. Furthermore, art. 183, insurance contracts (Ivass Regulation no.
par. 1, letter c) of the PIC obliges the 35/2010, Consob Regulation no.
insurers and the intermediaries to organize 16190/2007, as amended from time to time,
themselves in a manner to identify and avoid on financial intermediaries and Consob
(where possible) any conflict of interests Regulation 11971/2009, as amended from
and, when the latter occurs, to ensure full time to time, on issuers) and in general, in
transparency vis-à-vis the prospective case of distance selling of insurance policies
insured by disclosing to the same the (art. 121 and 191 of the PIC and art. 67-bis
18
possible negative consequences . In this and ff. of the Consumer Code, Ivass
respect an example may be the case in Regulation no. 34/2010).
which the insurance intermediary should
have informed the client that the insurance (iv) Duty of adequacy as provided by art. 120,
contract did not cover the illness from which 183, par. 2 of the PIC, art. 52 of Ivass
the client was suffering, thus complying with Regulation no. 5/2006 on insurance
intermediation. In this respect the insurer,
19
Decision of the Banking and Financial Arbitrator of Rome,
17 February 2012.
16
Supreme Court, 30 October 2001, no. 13533. 20
Ex multis the Tribunal of Rome (25 May 2005), with
17 reference to the sale of financial products, has stated that
Tribunal of Naples, 25 February 2008.
the financial intermediary has always the specific duty to
18
By way of example, a possible conflict of interest could be inform the client on the specific characteristics and risks of
the proposal of an insurance policy linked to funds, by the the investment, both upon execution and during the course
insurer to the prospective insured, where the insurer has of the contract. Moreover, this duty has to be calibrated to
made substantial investments or the sale by the bank of the skill of the client and cannot be considered as duly
financial products of which the bank has undertaken the risk accomplished by the financial intermediary, if the latter has
of placement (Court of Venice, 22 November 2002). delivered to the investor a generic informative note.
also in compliance with the abovementioned cases are mentioned from time to time under point 12
duty of fairness, shall follow a number of above.
rules as follows: know your customer rule,
21 14. Is it a breach of the duty of utmost good
suitability rule and the best execution rule.
In this respect the insurer shall collect from
the prospective insured, any and all
information required to evaluate the
disclosure?
insurance product which is the most suitable
for the prospective insured and, in general, In referring to the abovementioned duties of the
behave, within the limit of a substantial insurers (please refer to point 12 above), yes the
sacrifice of its interests, so that the insured default of the insurer to notify the prospective insured
purchases only the most adequate insurance on the nature and extent of their duty of disclosure, is
product. a breach sanctioned by law (art. 184 of the PIC). As
Furthermore, according to articles 117 ff. of the PIC for any violation of the duties by the insurer, and with
the amounts paid to the intermediaries and those the aim to protect the insureds, Ivass (the Italian
belonging to insurers or required to compensate Supervisory Authority) may sanction the insurer, by
damages shall be paid in a segregate account. suspending it, on a precautionary basis, from the sale
Intermediaries may however be exonerated from such of the insurance product (for a maximum of 90 days)
obligation if they provide a bank guarantee. To protect or by imposing a definitive ban to sell the insurance
the consumer/insured party on such bank account product.
lawsuits, seizures or pledges by creditors, except 15. What are the remedies for a pre-
those of insured parties or insurers, are not admitted. contractual breach by the insurer of its
Moreover, premium payments made by policyholders duty of utmost good faith?
acting in good faith to the insurance intermediary or to
its co-workers, are considered as having been made In referring to the violation of the abovementioned
directly to the insurer. general principles and duties of the insurer (please
refer to point 12 above), the only remedy of the
Lastly, with reference to the protection of insured is the right to claim for damages (consisting in
customers/insured parties, art. 119 of the PIC sets the lower advantage or the higher economic liability
forth the joint responsibility of insurers for losses 23
originated by the unfair conduct of the insurer) . In
caused by certain insurance intermediaries (those this respect, please note that the violation is only
directly employed by the insurers, so called relevant when the insurance contract would have
“produttori”, banks and financial intermediaries acting been different if the insurer would have acted in
as insurance intermediaries and their co-workers), compliance with its duties (e.g.: this will not be the
even if such losses are caused by criminal offences case if the insurer has duly informed the prospective
committed by the latter. insured in accordance with all applicable rules, but not
13. Describe the insurer’s pre-contractual in writing). In particular, at the pre-contractual stage if
duty of utmost good faith by providing the accident has not occurred, the damage will be
examples of the best known cases in equal to the costs borne by the insured for the
which it has been applied. negotiations and the execution of the insurance
contract; on the contrary if the accident has already
The decisions rendered on insurance matters at a occurred, the damage will be equal to the
pre-contractual stage are not so many. In this respect, indemnification that the insured would have obtained,
22
please also note that only recently the PIC has if the insurer will have duly behaved.
converted into written rules the abovementioned
general principles, as they were prior applied by the Moreover, the insured party may claim the nullity of
Courts also based on the abovementioned Consob the insurance contract executed only if the insurance
Regulation on financial intermediaries and on issuers, policy is sold by distance and in case of serious
especially with reference to financial products (to violations of the duties (art. 67-septiesdecies, par. 4 of
which such duties apply in the substance). Some the Consumer Code), or further in case of violation of
21 23
The Supreme Court (27 September 2010, no. 12973) has Supreme Court, 19 December 2007 no. 26724 and 29
stated that a broker charged by a producer of water pipes, September 2005, no. 19024. These judgments refer to the
has not fulfilled the suitability rule when, selling a more violation of the duties of financial intermediaries, to whom
convenient civil liability insurance policy (if compared to the the abovementioned duties also apply in substance. Before
prior one) did not ensure that this new policy was covering such decisions, the Italian Courts sanctioned the violation of
the claims occurred, and unknown at the time of execution of the duties with the nullity of the contract executed (ex multis,
the new policy, under the old insurance policy. Tribunal of Florence 19 April 2005, Tribunal of Venice 22
November 2004) or with the right of the consumer (insured)
22
The PIC was issued by Legislative Decree 7 September to claim the nullity of the contract executed (Tribunal of
2005, no. 209. Rome 25 May 2005, Tribunal of Monza 27 July 2004).
art. 1418 of the CC (e.g.: the insured purchased the (ii) in case of increase of the insurance risk, he
insurance contract by deeming it was another kind of shall immediately notify the insurer on the
insurance contract, so called insurance aliud pro alio). circumstances which imply an increase of
A violation of the duties will be considered “serious” the risk that, if known at the time of
only when it substantially affects the execution of the execution, would have caused the insurer
insurance contract. not to cover the risk or to cover the same
against the payment of a higher premium
In any case, the burden of proof is always on the 26
(art. 1897 of the CC) ;
insured.
(iii) with limited reference to non-life insurance,
the insured has to notify the insurer, or the
agent authorized by the same, within 3 days
from the date the accident occurred (or from
A - For the Insured and Third Party the date the insured became aware of it); in
Beneficiary of Cover maritime insurance, the insured shall notify
16. What is the content of the post- the surveyor (when provided by the
contractual duty of utmost good faith for insurance contract) and the insurer;
the insured at the claim stage? moreover the insurer shall be notified when
the ship is declared unfit for navigation,
First of all, please note that as above mentioned regardless if the goods have suffered any
pursuant to art. 1175, 1176 and 1375 of the CC, the damage (art. 533 of the NC);
contract has to be executed with fairness, ordinary
care and due diligence and in accordance with the (iv) with limited reference to non-life insurance,
good faith principle. the insured shall prove the damage covered
by the insurance contract. In this respect the
The above being said, the policyholder/insured has to latter shall act in good faith and not request a
27
fulfil its obligation in compliance with the above damage higher than the one suffered ;
principles and namely:
(v) with limited reference to non-life insurance,
(i) pay the insurance premium (the payment is the insured shall do everything in his power
due upon execution, even if it may be paid in to avoid or minimize the damage pursuant to
more than one instalment). Under article art. 1914 of the CC. Should this be the case
1901 of the CC (applicable only to non-life and unless the insurer proves that the
insurance contracts), if the policyholder does expenses were improvidently borne by the
not pay the premium or the first instalment of insured, these are charged to the insurer in
the same, the insurance will remain proportion to the insured value if compared
suspended up to 24.00 hours of the date in to the value of the good at the time of the
which the payment is made. The same rule accident, even if the amount of such
applies in case of default of payment of the expenses, added to the damage, exceeds
next premium, or portion of it. Furthermore, the amount of the insurance, regardless if
the insurance contract is terminated by law, the purpose is achieved or not. In this
within six months starting from the date on respect, however, pursuant to art. 1915 of
which the premium was due, unless the the CC, please note that if the insured does
insurer claims for its payment. To this end not do what is in his power to avoid or
please note that the default of payment is minimize the damage, the insurer shall have
considered a breach of the principle of good
faith and allows the insurer to request the
24
termination of the insurance contract .
Furthermore, in a non-life insurance contract 26
Should this be the case, the insurer has the right to
whose premium is subject to adjustment (so withdraw from the contract within 1 month from the date he
called “assicurazione con la clausola di has been notified. The withdrawal will be immediately
regolazione del premio”), the insured has to effective if the increase would have resulted in the insurer
notify, on a regular basis, the adjustable not executing the insurance contract, or effective within the
elements. The breach of such duty by the following 15 days if the insurer would have required the
insured can legitimate the termination of the payment of a higher premium. The insurer also has the right
to keep the premium paid by the policyholder/insured related
insurance contract by the insurer based on
to the period covered by the insurance at the time of the
the application of the principles of good faith withdrawal.
25
and of the relevance of the breach ;
27
In this respect the Court of Appeal of Bologna has
identified a hypothesis of “exaggeration with fraud”, when the
insured behaves consciously and exaggerates the amount of
24 the damage in order to obtain a higher indemnification.
Tribunal of Enna, 25 July 2012. However, the burden to prove the exaggeration is on the
25 insurer.
Supreme Court, 19 December 2013, no. 28472.
the right to refuse the payment of the B - For the Insurer

indemnity (if the insured acted with fraud) or
to reduce the indemnity on the basis of the
prejudice suffered (if the insured acted with
with a claim?
negligence);
(vi) if the insurance contract is executed on As mentioned above under point 1, art. 1176 and
behalf of a third party (assicurazione per 1375 of the CC apply, therefore the contract has to be
conto altrui), or on behalf whom it may executed with fairness, ordinary care, diligence and in
concern (assicurazione per conto di chi accordance with the good faith principles. As
spetta), pursuant to art. 1891 of the CC, the mentioned, provided that the insurer is a professional
policyholder shall fulfil all obligations pursuant to art. 1176, par. 2 of the CC, its diligence
provided by the insurance contract, except shall be evaluated with reference to the nature of the
those reserved to the insured. In this activity carried out (also called qualified diligence and
respect, the policyholder shall inform the care).
insured of the existence of the insurance With specific reference to the insurer, and in general
contract, of its terms and conditions, terms, once the accident occurred and received the
including any limitation applicable to the claim by the insured, the insurer shall:
payment on the indemnification. In case the
above duties are not fulfilled, the insurer  in non-life insurances, indemnify the insured
cannot oppose to the insured the exceptions upon the occurrence of an accident covered
28
based on the insurance contract . by the insurance contract;
(vii) In general terms, to carry out what is  in life insurances, pay a capital or constitute
necessary to allow the debtor (insurer) to an annuity upon occurrence of an event
fulfil its obligation (e.g. payment of the related to the human life;
29
indemnification) .
 carry out the activities provided by the
16.1 Do third party beneficiaries of cover have insurance contract (by way of example in the
a duty of utmost good faith? case of legal assistance or long term care
The obligation of a third party to fulfil the coverage).
abovementioned principles (which as mentioned may In this respect, based on the provisions of art. 1176
have a similar impact if compared to the principle of and 1375 of the CC, once notified by the insured, the
utmost good faith), may be found under art. 148, par. insurer cannot sit and wait for the insured to provide
3, of the PIC, which applies to insurance against all the elements required to evaluate the damage in
motor vehicles civil liability. In this respect, the third respect of the coverage but shall, on the contrary,
party who suffered the damage (beneficiary of the carry out any activity necessary to evaluate the
indemnification) is banned from refusing the medical 30
damage .
examinations necessary to evaluate the damage.
Further, the insurer shall comply with the provisions of
17. Describe the insured’s post-contractual the insurance contract, which usually provide the
duty of utmost good faith by providing obligation to reach an agreement with the insured on
examples of the best known cases in the amount of the indemnification and, if the
which it has been applied. agreement is not reached and the insurance
Please refer to point 16 above. agreement provides so, to make a recourse to an
arbitration panel. Even in this case the insurer shall
18. Is the insured’s intentional concealment act in accordance with the above mentioned
of his/her criminal activities when principles and cooperate with the arbitration panel in
completing a proposal for life policies a order to allow it to carry out any activity necessary to
breach of the duty of utmost good faith? evaluate the damage.
Yes, the insured’s intentional concealment of his/her Moreover, in the negotiations following the claim’s
criminal activities is a breach of the general principles request, the insurer has the duty to protect the
of fairness, diligence and good faith resulting at least legitimate interest of the insured and cannot have him
in the consequences provided by art. 1892 CC believing that he would make the payment, where on
(please refer to point 7 and 10 above). the contrary he is looking to achieve the expiration of
the statute of limitation period. In this respect, the
insurer shall behave in compliance with the general
principle of fairness and objective good faith, that
28
Supreme Court, 9 April 2009, no. 8670.
29 30
Art. 1206 of the CC. Ex multis, Tribunal of Rome, 10 March 1997.
requires a prompt notice indicating the reasons for the There is no code of practice providing the above
refusal to pay the indemnification, in default of which duties.
the insured who may not be aware of the statute of
23. Can Courts disregard a term of a contract
limitation would remain in a status of prolonged
31 of insurance if it would be a breach of the
uncertainty up to the expiration of the above period .
Lastly, under art. 1917 of the CC, the insurer is to rely on the term? If so, please illustrate
obliged to keep harmless the insured on what he has with examples.
to pay to the damaged third party based on and within
the limit provided in the policy, including interests and Please refer to points 19 and 20 above.
revaluation. Such a limitation can be disregarded if 24. Do courts have special powers to
the insurer’s behavior is not in compliance with the disregard any avoidance of the
32
good faith principle . application of a policy in cases where the
20. Does an insurer owe a duty of utmost insured has established that it would be a
good faith towards third party breach of the duty of utmost good faith to
beneficiaries of cover in handling claims? allow the insurer to avoid the policy?
The insurer has certainly a duty of good faith towards No, the Italian Courts do not have special powers to
a third party beneficiary of the insurance cover. In this disregard the application of a policy in cases where
respect, in a matter concerning insurance against the insured has established that it would be a breach
motor vehicles’ civil liability, the Court of Florence
33 of the duties of trueness, diligence and/or good faith
stated that, when the insurer’s behaviour is manifestly to allow the insurer to avoid the policy.
dilatory in settling the claim, the limit of the 25. To the extent that an insurer’s breach of
indemnification, as set forth by the insurance policy the duty of utmost good faith is under
and due by the insurer to the damaged third party, statute, is it a breach of the statute for the
can be disregarded, in terms of interests and insurer to be in breach of its duty of
revaluation (pursuant to art. 1224 of the CC and utmost good faith?
based on the delay in fulfilling a payment obligation).
The breach of the abovementioned general principles
In another case, however, in a life insurance matter in and duties by the insurer is a breach of the law.
34
favor of a third party beneficiary, the Supreme Court
stated that the insurer does not have the obligation to 26. Can a breach by the insurer of the duty of
notify the third party beneficiary on his right - based utmost good faith result in regulatory
on the insurance policy - to obtain the payment of the sanctions against the insurer (license
capital and interest/annuity and such a behavior is not suspension, banning order, etc.)?
in conflict with the duties of fairness and good faith. In Yes, the breach by the insurer or by the intermediary
other words the fact that such third party is not aware results in regulatory sanctions, consisting in fines,
of the existence of the life insurance policy which calls to order, censures and radiations, depending on
indicates him as a beneficiary, is only considered as a the seriousness of the violation. In general terms, in
factual impediment and is not suitable to suspend the case of breach of the duties provided by art. 183 and
1 year delay of the statute of limitation, that starts 191 of the PIC (as detailed under point 12 above), the
from the date of occurrence of the accident (death of PIC provides fines ranging from € 2.000 to € 20.000;
the policyholder) and from which the right of the third in case of default in providing the policyholder with the
beneficiary originates. informative note (as per art. 185 of the PIC) the fine
21. Describe the insurer’s post-contractual ranges from € 2.500 to € 25.000.
duty of utmost good faith by providing With reference to insurance against motor vehicles’
examples of the best known cases in civil liability, other fines, ranging from € 1.000 to €
which it has been applied. 10.000 apply in case of violation of specific provisions
Please refer to point 19 above. on transparency and from € 300 to € 30.000 in case
of delays in tendering to the insured the offer of
22. Is there a Code of Practice for insurers in indemnification and paying it.
31
Tribunal of Florence, 26 March 2007.
32
Supreme Court, 25 May 2004, no. 10036.
33
Supreme Court, 19 July 2005, no. 15213.
34
Supreme Court, 18 June 1998, no. 6062.
IV - Reinsurance art. 1175 and 1375 of the CC, however the evaluation
of a possible breach shall be done having regard to
27. To what extent, if any, does your the principle of uberrima fides which – as in the pre-
jurisdiction apply different principles contractual stage - replaces the duty of due diligence
regarding utmost good faith to and good faith provided by the abovementioned
reinsurance at both the placement/pre- provisions. In other words the content of the uberrima
contractual stage, and at the claim stage? fides principle is the criteria to be used to evaluate the
behaviour and the possible breach of the parties.
The reinsurance industry, because of its own nature,
focuses on the international market and as such is Therefore, in general terms both the parties shall
governed by international customary uses, and laws comply with the duty of uberrima fides and namely:
of foreign countries, including the principle of
uberrima fides (which expresses a particular duty of  the cedent/insurer shall: (i) tender the
qualified diligence and fairness, implying the declaration of risk; (ii) pay the reinsurer and
obligation of a party to take care and look after the manage the insurance business; (iii) notify
interests of the counterpart as if they were its the reinsurer on a possible increase (or
interests). decrease) of the risk, on the execution of
other reinsurance treaties (thus allowing the
In general terms, the compliance with such principle is reinsurer to follow the fortune) and, if any, on
required by both the cedent/insurer (who tenders the the occurrence of the event; (iv) shall do
declaration of risk, needs significant freedom in everything in his power to avoid or minimize
managing the relationships with the direct insurance the damage;
policyholders) and the reinsurer (who pays the
cedent/insurer on the basis of the declaration made  the reinsurer shall follow the activity and the
by the latter and renounces to any intervention on the fortune, pay as may be paid thereon, thus
activity of the cedent/insurer vis-à-vis the direct covering the losses of the cedent/insurer.
insurance policyholders and in principle follows the ****
fortune of the cedent/insurer). In this respect, the
execution of a reinsurance treaty creates a particular
situation where the cedent/insurer, that usually cedes
to the reinsurer a portion of the risks covered by the
insurance contracts executed with the policyholders, Macchi di Cellere Gangemi
maintains its right of business management without
transferring its legal position within the direct Via G. Cuboni 12 – 00197, Italy
insurance relationship vis-à-vis the policyholder.
Tel.: (39) 06 362141
As mentioned this is the only hypothesis in which the Fax: (39) 06 3222159
uberrima fides principle applies to contracts governed Email: e.pucci@macchi-gangemi.com
by the Italian law, even if the same does not refer to
35
it . Website: www.macchi-gangemi.com
At a placement/pre-contractual stage, the parties of a
reinsurance treaty will therefore comply with the
uberrima fides principle which acts as a social rule
chosen by the parties and overlaps the good faith
principle provided by art. 1337 of the CC. The
cedent/insurer shall certainly comply with such
principle in the evaluation of its portfolio which is
contained in the declaration of risk. In case of breach
of this duty the provisions of art. 1892 and 1893
abovementioned shall apply by analogy, thus implying
the right of the reinsurer to, inter alia, claim the nullity
of the reinsurance treaty in case of fraud or gross
36
negligence or withdrawal from it .
Pending the reinsurance treaty, in principle the parties
shall behave in accordance with the abovementioned
35
According to the Scholars, the application of the uberrima
fides principle is allowed under art. 1374 of the CC being the
same a customary use.
36
Please refer to par. 7 above.
IBA Insurance Committee Substantive Project 2014 105 The Duty of Utmost Good Faith: Malaysia
Malaysia
SHOOK LIN & BOK therefore a pre-contractual duty imposed by
the common law.”
Michael Anthony
(iii) Not applicable.
I - Definition of the Principle of Utmost Good Faith
1. In your jurisdiction, do insurance laws provide for both the principle of utmost
provide for the principle of utmost good good faith and a separate duty of
faith (in Latin, “uberrimae fidei”) and if disclosure for the insured?
so, what is its meaning? Provide any
The Malaysian insurance laws provide for both the
principle of utmost good faith at common law and
according to case law. under statute (see s. 17 MIA 1906 and Leong
The duty to act with utmost good faith has been KumWhay (supra)) and a separate duty of disclosure
expounded in Carter v Boehm (1766) 3 Barr 1905 (S. 129 Financial Services Act 2013).
and Rozanes v Bowen (1928) 32 Ll L Rep 98, and 4. Does the principle of utmost good faith
was cited with approval and adopted in the Malaysian apply to all types of insurance contracts
case of National Insurance Co Ltd v S Joseph (life insurance, general insurance,
[1973] 2 MLJ 195, wherein Yong J (as he then was) reinsurance etc.)?
stated as follows:
Yes, the principle has been applied in the following
“I am of the opinion that a contract of cases involving different species of insurance
insurance is a contract of utmost good faith. contracts, e.g Leong KumWhay (supra) (life
Any suppression or non-disclosure of insurance), National Insurance Co Ltd v S Joseph
material facts by the proposer will entitle the [1973] 2 MLJ 195 (motor car insurance) and Abu
insurance company to avoid the contract. A Bakar v Oriental Fire & General Insurance Co Ltd
fact is material if it would influence the [1974] 1 MLJ 149 (fire insurance).
judgment of a prudent or reasonable insurer
in fixing the premium or in determining Halsbury’s Laws of Malaysia 2011 Reissue
whether he will or will not take the risk.” (Insurance) further states as follows:
It is noteworthy that the UK Marine Insurance Act “The principle of utmost good faith – It is
1906 (‘MIA 1906’) is applicable in Malaysia by virtue a principle of universal application to all
of section 3 of the Civil Law Act 1956. Section 17 insurance contracts that the utmost good
of the MIA 1906, in particular, confirms that contracts faith (uberrimae fidei) must be observed by
of marine insurance are premised on the duty to act either party to an insurance contract.”
with utmost good faith.
2. Is the principle of utmost good faith (i) a only at the pre-contractual stage or is it a
statutory principle, (ii) a common law continuous duty applying both pre-
principle or (iii) a civil law principle? Or is contractually and post-contractually?
otherwise? The duty to act in utmost good faith is a continuous
duty, as is apparent from the decision of the
(i) Please refer to Answer No. 1 above. Malaysian Court of Appeal in Cheong Heng Loong
Goldsmiths (KL) Sdn Bhd & Anor v Capital
(ii) The Court of Appeal’s decision in Leong Insurance Bhd and Another Appeal [2004] 1 MLJ
KumWhay v QBE Insurance (M) Sdn Bhd 353, wherein the court cited with approval the
&Ors [2006] 1 MLJ 710 confirmed that the principle enunciated in Whiten v Pilot Insurance
principle of utmost good faith is a settled th
Company [2002] DLR (4 ) 257, that the duty of an
principle at common law: insurer to act in utmost good faith extends even to
“It is settled beyond dispute that a contract of handling of claims made by the insured:
insurance is one that imposes a mutual duty “I note that in upholding the award of punitive
on the parties to it to act uberrimae fides damages in Whiten, the court observed that
towards each other……..But the duty to a contract between an insurer and its insured
make full disclosure of all material facts is was one of utmost good faith because,
not an implied term of a contract of although the insurer is not a fiduciary, it
insurance. There is in fact no contract at the holds a position of power over an insured
point at which the duty arises; the parties since the insured is in a vulnerable position
being still at the stage of negotiations. It is and is entirely dependent on the insurer
when a loss occurs. For that reason, in every c. In National Insurance v Joseph (supra),
contract of insurance, an insurer has an the insured, in responding to the questions
implied obligation to deal with the claims of on the policy forms indicated that no
its insured’s in good faith. It was held that a company had cancelled his policy of
breach of the implied duty of good faith insurance and he has never met with any
meets the requirement of an independent motor vehicle accident. This was
actionable wrong.” (emphasis added) subsequently found out to be untrue. It was
held that the two untrue statements made
entitled the insurer to hold the contract of
insurance void.
6. Does the Principle of Utmost Good Faith 8. Is the duty of utmost good faith for the
apply to both the insured and the insurer insured equivalent to the duty of
at the pre-contractual stage? disclosure in your jurisdiction so that
pre-contractually the two are
Section 129 of Financial Services Act 2013 indistinguishable?
provides that:
In Malaysia, whilst theoretically the duty of pre-
i. (Schedule 9 para 4) an insured has a contractual disclosure is a subset of the duty to act
pre-contractual duty to disclose a matter with utmost good faith on the insured, at common law
that: and under the statute (s. 129 FSA 2013) the insured’s
 He knows to be relevant to the pre-contractual duty of disclosure appears to be the
insurer on whether to accept the predominant manifestation of the duty to act with
risk or not; or utmost good faith by the insured.
 A reasonable person in the
circumstances could be expected to
know to be relevant.
ii. (Schedule 9 para 11) as for the need to describe the duty of disclosure to
insured, it is obligated : illustrate the differences.
 not make misleading statements; Pre-contractually, the duty of disclosure operates in a
way that is virtually indistinguishable from the duty of
 not to conceal a material fact; and utmost good faith. (see schedule 9, para 4 (4) of the
 not to use sales brochures not FSA 2013 and Leong KumWhay (supra) at para
authorised by a licensed insurer (19))
At common law, it is trite that the insured has a pre- 10. What are the remedies for a pre-
contractual duty of disclosure (see National contractual breach by the insured of the
Insurance v S Joseph). duty of utmost good faith? Are the
A - For the Insured duty of disclosure?
7. What is the content of the duty of utmost The remedy for pre-contractual breach by the insured
good faith for the insured? of the duty of utmost good faith and duty of disclosure
is identical – it would entitle the innocent party to
avoid the contract. (see Asia Insurance Co Ltd v Tat
Hong Plant Leasing Pte Ltd [1992] 4 CLJ (Rep)
324)
a. In the case of Teh Say Cheng v North
British and Mercantile Insurance
Company Ltd [1921] FMSLR 248, it was
other?
held that the insured is under a duty to
disclose his financial position to the insurer See Answer to Question No. 9 above.
b. In Leong Chee Yeong v China Insurance B - For the Insurer
Co and Leong Chee Yeong v The Eastern
United Assurance Corpn Ltd [1952] 1 MLJ 12. What is the content of the pre-contractual
246, it was held that there is a positive duty duty of utmost good faith for the insurer?
on the insured to inform the insurer of his Generally, the insurer would be under a duty to
change of occupation. disclose to the insured all facts known to him that are
material, either as to the nature of the risk or
recoverability of a claim under a policy. This is the
position enunciated in the cases of Britton v Royal This point has not been tested in the Malaysian
Insurance (supra) and Carter v Boehm (supra). courts.
13. Describe the insurer’s pre-contractual 17. Describe the insured’s post-contractual
duty of utmost good faith by providing duty of utmost good faith by providing
examples of the best known cases in examples of the best known cases in
which it has been applied. which it has been applied.
In Tan Jing Jeong v Allianz Life Insurance In Pacific & Orient Insurance Co Bhd v
Malaysia Bhd & Anor [2012] 7 MLJ 179, it was held Vigneswaran a/l Rajarethinam & Ors [2014] 8 MLJ
that the insurer had a positive duty to inform the 423, the insured had lodged a police report stating
insured that 55% of the insured’s investment would be that an accident took place thereby allowing second
rd
used to pay administrative charges. The insurer, it and third defendant to make a 3 party claim against
was held, had failed to disclose a material fact the Plaintiff (insurer). It was subsequently revealed
thereby breaching its duty to act in utmost good faith. that the said claim was a false claim. The High Court
held that:
faith in your jurisdiction for insurers not “the insured has breached the duty to
to notify the prospective insured of the exercise utmost good faith in his contract
nature and extent of their duty of with the plaintiff and by committing an
disclosure? unlawful act of involving himself in the
fabrication of a false claim upon the plaintiff,
This point has yet to be tested in the Malaysian he and the other defendants should not be
courts. allowed to benefit from his/their dishonest
15. What are the remedies for a pre- and illegal act.”
contractual breach by the insurer of its 18. Is the insured’s intentional concealment
duty of utmost good faith? of his/her criminal activities when
By virtue of the Tan Jing Jeong case (supra), the completing a proposal for life policies a
insurer’sfailure to disclose amounted to a breach of the duty of utmost good faith?
misrepresentation which entitled the plaintiff (insured) In Malaysia, the principle stated in the case of
to avoid the contract and claim the premiums he Schoolman v Hall [1951] 1 Lloyd’s Rep 139, is
advanced on the policy as damages. applicable. It was held there that non-disclosure of a
III - Post-Contractual Application of the Principle previous conviction amounted to a non-disclosure of a
of Utmost Good Faith (at the Claim Stage) material fact and was tantamount to a breach of
utmost good faith.
A - For the Insured and Third Party However, this principle was distinguished in the case
Beneficiary of Cover of New India Assurance Co v Pang Piang Chong
16. What is the content of the post- [1971] 2 MLJ 34, where Syed Othman J (as he then
contractual duty of utmost good faith for was) held as follows:
the insured at the claim stage? “The purpose of insurance in this case is to
The post-contractual duty imposed on the insured, at cover the insured in the event of an accident.
the claim stage, is a duty not to put in a fraudulent The primary concern of an insurer before he
claim. This was confirmed in the Britton case insures a proposed insured is therefore to
(supra). determine whether he is a bad risk. I do not
think it should be the concern of the prudent
“It gives the go-bye to the origin of the fire, insurer as to whether or not the proposed
and it amounts to this –that the assured took insured has committed an offence for non-
advantage of the fire to make a fraudulent compliance of statutory requirements which
claim. The law upon such a case is in are not pertinent to show that he is a bad
accordance with justice and also sound risk….the real test….. is whether the
policy. The law is, that a person who has proposed insured is a bad risk. I am unable
made such a fraudulent claim could not be to see that by the conviction for the five
permitted to recover at all. The contract of offences the [insured] is a bad risk.”
insurance is one of perfect good faith on
both sides, and it is most important that such Based on the New India case (supra), it can be
good faith should be maintained.” (emphasis concluded that the key consideration is whether or not
added) the criminal activity was a material fact. The courts
will hold that there is a breach of the duty of utmost
16.1 Do third party beneficiaries of cover have good faith should the criminal activity be a material
a duty of utmost good faith? fact.
B - For the Insurer This point has not been tested in the Malaysian
courts.
good faith for the insurer when dealing 24. Do courts have special powers to
with a claim? disregard any avoidance of the
The case of Leong KumWhay (supra), has insured has established that it would be a
confirmed the position that an insurer is expected to breach of the duty of utmost good faith to
exercise utmost good faith in considering the allow the insurer to avoid the policy?
insured’s claim. The following principle (found in
Maschke Estate v Gleeson (1986) 54 OR (2d) 753) It was held in Carter v Boehm (which has been
was cited by his Lordship Gopal Sri Ram JCA (as he applied in Malaysia) that an insurer in seeking to
then was) with approval: avoid a contract could potentially be guilty of a breach
of the duty of utmost good faith. In such
“…..the duty to act promptly and in good faith circumstances, the court may exercise its inherent
arises the day the insurer receives the claim. powers to disregard the said avoidance.
To find otherwise is to fail to understand the
realities of the market place.” 25. To the extent that an insurer’s breach of
It would therefore appear that the insurer must deal statute, is it a breach of the statute for the
with an insured’s claim promptly upon receipt of the insurer to be in breach of its duty of
same. utmost good faith?
20. Does an insurer owe a duty of utmost Yes (see section 17 Marine Insurance Act 1906).
beneficiaries of cover in handling claims? 26. Can a breach by the insurer of the duty of
Whilst the point has not been specifically tested in the sanctions against the insurer (license
rd
Malaysian courts, 3 Party beneficiaries are suspension, banning order, etc.)?
customarily assigned all the rights and benefits of the
insured. As such, the insurer’s duty to handle the In Malaysia, insurers are regulated by the Central
insured’s claim in good faith would typically extend to Bank of Malaysia (Bank Negara). Bank Negara has
rd
3 Party beneficiaries as well, subject to the terms of extensive powers under the Financial Services Act
the policy. 2013 to enforce regulatory sanctions against an
insurer, acting on complaints by the insured or on its
own initiative.
examples of the best known cases in IV - Reinsurance
In Whiten v Pilot insurance Co [2002] DLR (4 )
th 27. To what extent, if any, does your
257(cited with approval in Leung KumWhay jurisdiction apply different principles
(supra)), the insured’s property was destroyed by fire. regarding utmost good faith to
The insurer asserted that there was arson perpetrated
by the insured and rejected the claim. The insurer, it
was held, had in fact failed to take into account A reinsurance contract would attract the same duty of
various reports which proved that there had been, in utmost good faith as is applicable to a contract of
fact, no arson. The court granted punitive damages in insurance in all respects. This was established in the
favour of the insured. case of China Traders’ Insurance Co v Royal
22. Is there a Code of Practice for insurers in Exchange Assurance Corp [1898] 2 QB 187, where
your jurisdiction and, if so, how does it his Lordship Vaughan Williams LJ held as follows:
sit with the duty of utmost good faith? “A reinsurer is himself an assured who takes
There is no such Code of Practice available, although upon himself the duty, not only before but
there are informal understandings amongst Malaysian after the contract comes into operation, to
insurers on, for example, the wording of tariff rates for act with the greatest good faith.”
motor insurance policies or the enforcement of certain ****
clauses in medical and health insurance policies
which are uniform, industry wide.
with examples.
Shook Lin & Bok
Ambank 55 Jalan Raja ChulanMinato-ku

50200 Kuala Lumpur
Wilayah Persekutuan Kuala Lumpur, Malaysia
Tel.: (60) 3 2031 1788

Email: michaela@shooklin.com.my
Website: www.shooklin.com.my
Shook Lin  Bok

IBA Insurance Committee Substantive Project 2014 110 The Duty of Utmost Good Faith: Malta
Malta
GANADO ADVOCATES Yes.
Matthew Bianchi 5. Does the duty of utmost good faith apply
I - Definition of the Principle of Utmost Good Faith continuous duty applying both pre-
provide for the principle of utmost good The Maltese courts have held that since the contract
faith (in Latin, “uberrimae fidei”) and if of insurance is one of utmost good faith, both parties
so, what is its meaning? Provide any to the contract of insurance are to enter into,
definition whether under statute or conclude, and perform the contract with utmost good
3
according to case law. faith. The utmost good faith principle applies during
the negotiations between the proposer and the insurer
The principle of utmost good faith in insurance until the policy is issued, but also during the execution
contracts is not provided for by written law, but it is 4
of the contract of insurance policy. This does not
accepted customary law. There is no definition of the mean that both parties are equally bound by the duty
principle of utmost good faith in jurisprudence, but the of utmost good faith at all stages of the contract of
Maltese Courts refer to and apply English common insurance, as shall be illustrated further below.
law on utmost good faith.
2. Is the principle of utmost good faith (i) a Faith at the Pre-Contractual Stage
principle or (iii) a civil law principle? Or is 6. Does the Principle of Utmost Good Faith
it to be found under statute and apply to both the insured and the insurer
otherwise? at the pre-contractual stage?
The principle of utmost good faith was introduced by Yes.
the Maltese courts with the application of English
common law in relation to contracts of insurance. The A - For the Insured
principle of utmost good faith is not expressly
provided for in written law, although certain duties
emanating from this principle have been.
The duty of utmost good faith is now also statutorily In the case of the insured, the duty of utmost good
provided for in other areas not relating to insurance faith is frequently applied by the Maltese courts as the
contracts such as the Trusts and Trustees Act in duty of disclosure of material facts and the duty not to
1
relation to the trustee’s duties and the Civil Code in make misrepresentations. This duty also extends in
relation to the fiduciary’s duties.
2 relation to facts which are material to a third party
5
which will benefit from cover under the contract.
provide for both the principle of utmost Describe the insured’s pre-contractual
good faith and a separate duty of duty of utmost good faith by providing
disclosure for the insured? examples of the best known cases in
Yes. The insured’s duty of disclosure at the pre-
contractual stage is seen as an obligation arising from There are various cases in relation to third party
the fact that the contract of insurance is one of motor vehicle insurance where insurers or their
uberrimae fidei (utmost good faith). agents bring claims in court to avoid an insurance
policy on the basis that the insured failed to disclose
reinsurance etc.)?
3
Carmel Bajada et v Middle Sea Insurance Company
Limited (Court of Appeal, 5 October 2001).
1 4
Article 21 of the Trusts and Trustees Act, Chapter 331 of Adriano Cassar Galea noe vs Paul Cuschieri (Court of
the Laws of Malta. Appeal, 31 July 1996).
2 5
Article 1124A of the Civil Code, Chapter 16 of the Laws of Middlesea Insurance plc v Emanuel Ciantar et (First Hall
Malta. Civil Court, 17 February 2014).
in the proposal form that he has pending criminal return of any claims paid) and the insured may
6
proceedings. request the return of the premium paid. The Maltese
Courts traditionally either declare the contract of
A further example is Baron et v Thos.C.Smith insurance null and void ab initio (as if the contract was
Insurance Services Ltd noe where the insured had never entered into), or allow the rescission of the
failed to disclose to the insurance agent when contract (the contract is annulled, but it is
submitting the proposal form that he had made a acknowledged that the contract was entered into by
claim four years earlier with another insurer in relation the parties), and thus the parties will be restored to
7
to the same insured property, motorboat. the position they were previously in before entering
8
8. Is the duty of utmost good faith for the into the contract.
insured equivalent to the duty of 11. If the duty of utmost good faith operates
disclosure in your jurisdiction so that separately from the duty of disclosure
pre-contractually the two are does one have precedence over the
indistinguishable? other?
No. The two are distinguishable in that the duty of Please see Questions 9 to 10. The principle of utmost
disclosure stems from the principle of utmost of good good faith is an over-arching principle which applies
faith. There are other obligations that stem from this to the negotiation and performance of the insurance
principle such as the insured’s duty to read and contract. It is the source of the duty of disclosure, and
understand the terms of the insurance policy. in this sense, the duty of utmost good faith can be
Indeed, the Maltese courts do not always distinguish said to have ‘precedence’ over the duty of disclosure.
between the principle of utmost good faith and the B - For the Insurer
duty of disclosure, but it is clear from the judgments
delivered that the duty of disclosure stems from the 12. What is the content of the pre-contractual
principle of utmost good faith. duty of utmost good faith for the insurer?
9. If the duty of utmost good faith operates In the case of the insurer, the principle of utmost good
separately pre-contractually from the faith requires, according to the Maltese courts, that
duty of disclosure describe that operation the insurer has an obligation:
need to describe the duty of disclosure to  to inform the prospective policyholder of the
illustrate the differences. limitations and restrictions which the
insurance policy (to be issued) has; but also
The principle of utmost good faith does not operate
separately from the duty of disclosure. Maltese  to assess the proposal form submitted by the
jurisprudence has repeatedly held that the duty of prospective insured with due prudence,
disclosure is a natural consequent of the rule that diligence, and attention.
parties to a contract of insurance should enter into it
and execute it in utmost good faith. In this sense the
duty of disclosure does not apply unless the insured is
not bound to enter into the contract of insurance with
utmost good faith.
A particularly clear example of the breach of the duty
of utmost good faith is Camilleri et v Harold Bartoli
contractual breach by the insured of the 9
noe. In the case, the insurer had accepted to cover
against theft for over 40 boxes filled with car seat
covers which were stored in a warehouse owned by
duty of disclosure?
the insured for a maximum value of approximatley
The remedy for a breach of the duty of disclosure is 186,000 Euro. Unidentified third parties broke into the
the avoidance of the insurance policy, and therefore, insured’s warehouse and robbed him of the goods
the insurer may refuse to pay the claim lodged by the stored. The insured proceeded to make a claim under
insured or a third party beneficiary (or request the the policy. The insurer claimed that the insured had
made misrepresentations in the proposal forms since
it was clear that the insured’s warehouse could not
have contained 40 boxes. From the evidence
6
Middlesea Insurance plc v Anthony Borg (First Hall, Civil
Court, 18 May 2012); Montaldo Insurance Agency Limited
noe v Christian Bugeja (First Hall Civil Court, 29 July 2013);
8
Middlesea Insurance Plc v Emanuel Ciantar et (First Hall Mario Mizzi noe et v Mario Grech noe (First Hall Civil
Civil Court, 17 February 2014). Court, 3 October 2003).
7 9
Paul Baron et v Thos.C.Smith Insurance Services Ltd noe Bertu Camilleri et v Harold Bartoli noe (First Hall Civil
(First Hall Civil Court, 8 October 2004). Courts, 9 October 2003).
presented in court it turned out that one of the No. The third party is not a party to the contract of
insurer’s employees had actually visited the insured’s insurance, and thus, has no obligations in relation
warehouse to collect the premium money, and he thereto. The third party is still bound to use good faith
then remarked in court, that it was clear to him at the when lodging a claim to the extent that the law or the
time that there were only 20 boxes stored in the terms of the insurance policy allows him to do so.
insured’s warehouse. The First Hall Civil Court held
that the insurer, through its employee, acted against
the principle of utmost good faith when it went down
to the insured’s warehouse and failed to verify the
quantity of the insured property and only claimed that
11
it resulted to it that there was a difference after the In Grech et v Rausi Insurance Agency Limited the
claim was lodged. insureds had obtained cover through the insurance
14. Is it a breach of the duty of utmost good agency in relation to a motorboat. The motorboat had
faith in your jurisdiction for insurers not caught fire, an event which was insured in terms of
to notify the prospective insured of the the insurance policy. However, the insurance policy
nature and extent of their duty of required that the motorboat was equipped with three
disclosure? fire extinguishers of a particular quality. In support of
their claim, the insureds had presented a falsified
No. According to Maltese jurisprudence, the duty of receipt of the sale of the fire extinguishers. The First
disclosure is always implied when entering into a Hall Civil Court found that the insureds had breached
contract of insurance. Some cases have also held the principle of utmost good faith and also the express
that the prospective insured is bound to disclose a terms of the insurance policy which required that all
material or substantial fact even if there was nothing claims lodged are not fraudulent.
indicated to that effect in the proposal form or if the
insurer/intermediary did not specifically ask for that
10 of his/her criminal activities when
fact.
15. What are the remedies for a pre- breach of the duty of utmost good faith?
duty of utmost good faith? In the provisions specifically relating to Life Insurance
Contracts in the Civil Code there is no provision for a
The remedy given by the Maltese courts in such duty on the insured to disclose a record of his or her
12
cases is to restrict the insurer’s right to avoid the criminal activities. Having said that, the Maltese
contract of insurance (rescission) and to order its Courts have repeatedly held that it is for the presiding
performance by paying the claim to the insured. judge to determine whether a particular fact was
material for the insurer when assessing whether and
to what extent it would insure the insured, therefore,
we are inclined to take the view that it is material that
the insured is conducting criminal activities and failure
A - For the Insured and Third Party to disclose that fact is a breach of the duty of
Beneficiary of Cover disclosure.
16. What is the content of the post- B - For the Insurer
the insured at the claim stage? 19. What is the content of the duty of utmost
For the insured, the principle of utmost good faith with a claim?
requires, according to the Maltese courts, that the
insured has an obligation: For the insurer, the principle of utmost good faith
requires, according to the Maltese courts, that the
 to interpret the terms of the insurance policy insurer has an obligation:
in good faith; and
 to interpret the terms of the insurance policy
 not to make any misrepresentations or false in good faith; and
statements in the claim.
 to assess and pay the claim in good faith.
11
Charles Grech et v Rausi Insurance Agency Limited (First
10 Hall Civil Court, 31 January 2007).
Charles Degiorgio noe v Austin Agius et (Commercial
12
Court, 25 June 1962); Joseph Muscat v Joseph Gasan et Article 1712A et sequitur of the Civil Code, Chapter 16 of
noe (Court of Appeal, 6 October 1999). the Laws of Malta.
20. Does an insurer owe a duty of utmost an unfair term in accordance with the Consumer
17
good faith towards third party Affairs Act. The Maltese courts usually interpret the
beneficiaries of cover in handling claims? terms in accordance with rules on interpretation of
contracts in such a way that the insurer cannot rely on
No. Maltese jurisprudence have held that between an a bad faith interpretation of the terms of the insurance
injured party (who was not party to the insurance policy. The case referred to in Question 23 is an
contract) and an insurer a contractual relationship is example.
13
created, and therefore, the general principle that
14
contracts are to be carried out in good faith applies. 24. Do courts have special powers to
21. Describe the insurer’s post-contractual application of a policy in cases where the
duty of utmost good faith by providing insured has established that it would be a
examples of the best known cases in breach of the duty of utmost good faith to
which it has been applied. allow the insurer to avoid the policy?
In Bajada et v Middle Sea Insurance Company No.
15
Limited, the Court of Appeal threw out an argument
brought by the insurer that the insured was not 25. To the extent that an insurer’s breach of
covered under the terms of the insurance policy since the duty of utmost good faith is under
the insured’s property was on a hill and thus it was statute, is it a breach of the statute for the
geographically impossible for there to be a ‘flood’ in insurer to be in breach of its duty of
terms of the policy. The Court of Appeal held that it utmost good faith?
would be a breach of the principle of utmost good
faith to allow the insurer to rely on such an The principle of utmost good faith is not expressly
interpretation of the terms of the insurance policy. provided for in Maltese legislative acts, and unless the
duties which emanate from that principle are
22. Is there a Code of Practice for insurers in expressly provided for at law (such as the duty of
your jurisdiction and, if so, how does it disclosure in relation to third party motor vehicle
18
sit with the duty of utmost good faith? insurance ) there is no breach of a duty at law.
There is no general Code of Practice for insurers in 26. Can a breach by the insurer of the duty of
Malta, but the Malta Insurance Association regularly utmost good faith result in regulatory
updates a ‘Handbook of Best Practice for Third Party sanctions against the insurer (license
16
Motor Liability Claims’. This Handbook contains suspension, banning order, etc.)?
non-binding guidelines which derive from
jurisprudence and market practice specifically in We are not aware of any instances where the Malta
relation to third party motor vehicle insurance. The Financial Services Authority imposed any
Handbook complements the insurer’s duty of utmost administrative fines or other regulatory sanctions
good faith especially in relation to the handling of where the insurer was found to be in breach of the
claims and ineffectual policy restrictions. principle of utmost good faith. As a matter of law, the
MFSA’s Consumer Complaints Manager has the
23. Can courts disregard a term of a contract power to investigate complaints from private
of insurance if it would be a breach of the consumers arising out of or in connection with any
duty of utmost good faith for the insurer financial services transaction (including insurance
to rely on the term? If so, please illustrate contracts), and to ‘refer such cases as may be
with examples. necessary or appropriate to the Supervisory Council
19
for its consideration’. These complaints frequently
The term of the insurance policy may be disregarded relate to handling and payment of claims. Unless the
if it is illegal or against public policy, or if it is deemed breach by the insurer is systematic and repeated and
is detrimental to its policyholders, we do not envisage
that any regulatory sanctions will be taken against the
13 insurer.
Joseph Micallef noe v Carmelo Cassar (Court of Appeal,
27 April 1953); Joseph Mallia v Joseph Falzon et (Court of
Appeal, 31 July 1996); Carmelo Camilleri et v John Preca et
noe (Court of Appeal, 5 October 1998).
14
Article 993 of the Civil Code, Chapter 16 of the Laws of
Malta.
15 17
Carmel Bajada et v Middle Sea Insurance Company Chapter 378 of the Laws of Malta.
Limited (Court of Appeal, 5 October 2001).
18
16 Motor Vehicles Insurance (Third-Party Risks) Ordinance,
MIA, Handbook of BestPractice for Third Party Motor Chapter 104 of the Laws of Malta.
Liability Claims (Version 5)
19
<http://www.maltainsurance.org/view/public/information/best- Article 20 (2) of the Malta Financial Services Authority Act,
practice---version-5> last accessed 14 July 2014. Chapter 330 of the Laws of Malta.
IV - Reinsurance

GANADO Advocates
regarding utmost good faith to 171, Old Bakery Street
reinsurance at both the placement/pre- Valletta VLT1455, Malta
Tel.: (+356) 2123 5406/7/8
Reinsurance disputes seldom feature before the Fax: (+356) 2122 5908
Maltese courts. However, it is likely that when
applying the principle of utmost good faith the Maltese Email: mbianchi@ganadoadvocates.com
courts would take into consideration the fact that both lawfirm@ganadoadvocates.com
the reinsurer and the insurer are well-versed in the Website: www.ganadoadvocates.com
business of insurance.
****
IBA Insurance Committee Substantive Project 2014 115 The Duty of Utmost Good Faith: Netherlands
Netherlands
HOUTHOFF BURUMA (a) The principle of legitimate
expectations (in Dutch:
Hans Londonck Sluijk and Jantien Dekkers
vertrouwensbeginsel) and more
I - Definition of the Principle of Utmost Good Faith specifically, the principle of good
faith (in Dutch: goede trouw). This
1. In your jurisdiction, do insurance laws principle of good faith has been
provide for the principle of utmost good provided for in article 3:11 of the
faith (in latin, “uberrimae fidei”) and if so, Dutch Civil Code (“DCC”) and
what is its meaning? Provide any entails that both parties may rely on
definition whether under statute or the other parties’ good faith.
according to case law. (b) The principles of reasonableness
The principle of utmost good faith is recognized as a and fairness (redelijkheid en
general principle of Dutch insurance law, as billijkheid). This principle is stated in
1
evidenced in the legislative history , under case law
2 article 3:12, 6:2 and 6:248 DCC and
6
3
and in the literature . The principle has (greatly) can also be found in case law. It
influenced the codification of Dutch insurance law, but entails that both parties should act
the principle itself is not mentioned in statutory according to the criteria of
insurance provisions. reasonableness and fairness, the
substance of which is to be
Although it has no precise definition, the meaning of determined by a judge on the basis
the principle of utmost good faith under Dutch law of general principles of law, Dutch
could be described as follows: given the nature of an juridical views and the public and
insurance contract (as a ‘contractus uberrimae fidei’), personal interests of the case at
7
the parties to that contract can rely on a high degree hand. It has been established in
4
of mutual confidence. Dutch case law that both parties are
already in a legal relationship with
each other at the time of concluding
statutory principle, (ii) a common law 8
of the insurance agreement. It is in
this pre-contractual relationship that
the principle of reasonableness and
otherwise?
fairness most clearly contains
Under Dutch law, the principle of utmost good faith (or elements of the principle of utmost
5
“uberrimae fidei”) is a civil law principle, that has not good faith.
been codified separately in a statutory provision.
It should be emphasized that the
However, two Dutch statutory principles do contain
principle of reasonableness and fairness
elements of the principle of utmost good faith:
is more influential than the principle of
legitimate expectations. Whereas the
principle of reasonableness and fairness
can come into play in each contractual
1 relationship, the principle of legitimate
Cf. Parl. Gesch. Boek 7, Titel 17, p. 10 (TM).
expectations does not, since this
2
HR 18 december 1981, NJ 1982, 570 m.nt. BW (Mr. Gielen principle is fully codified in the relevant
q.q./Magna Insurance), concl. A-G; HR 8 juni 1962, NJ 1962, statutory provisions to which it applies.
366 m.nt. HB (Tilkema’s duim).
3
T.J. Dorhout Mees, Schadeverzekeringsrecht (vierde druk),
Zwolle: Tjeenk Willink 1967, nr. 48; J.H. Wansink, ‘De
verzekeringsovereenkomst in titel 7.17 BW: een nieuwe
wettelijke regeling, een nieuw geluid?’, in: J.H. Wansink et
al., Het nieuwe verzekeringsrecht: een eerste verkenning
6
van 7.17 BW, Deventer: Tjeenk Willink 2000, p. 13-17; E.M. See, for instance, the case law mentioned in the response
van Orsouw, ‘Het nieuwe verzekeringsrecht: nu is het er dan to question 23.
toch echt’, Bb 2006/6. 7
Cf. J.G.C. Kamphuisen, ‘De verzekeringsovereenkomst,
4
Cf. Van Orsouw, supra 2. contractsvrijheid en art. 6:248 BW’, in: N. van Tiggele-van
5 der Velde & J.H. Wansink (eds.), Contractsvrijheid in het
Please note that, as a civil law jurisdiction, all Dutch law is verzekeringsrecht, Deventer: Kluwer 2010, p. 103-120.
civil law. A distinction between common law and statutory
8
principles is not known. HR 15-02-1991, NJ 1991, 493 (verzwegen leukemie).
3. Do insurance laws of your jurisdiction A - For the Insured

good faith and a separate duty of 7. What is the content of the duty of utmost
disclosure for the insured? good faith for the insured?
The operation of the principle of utmost good faith has
largely been codified in Dutch insurance law
provisions, but the principle as such is not explicitly
provided for. Dutch insurance law does provide for a
duty of disclosure for the insured in article 7:928(1) The duty of utmost good faith for the insured entails
DCC. that the (prospective) insured is under a pre-
4. Does the principle of utmost good faith contractual obligation to disclose any information to
apply to all types of insurance contracts the insurer that he knows or ought to know is relevant
(life insurance, general insurance, for the decision of the insurer to conclude the
reinsurance etc.)? insurance. This pre-contractual duty has been
codified in article 7:928 paragraph 1 DCC. The
As a general principal of Dutch insurance law, the principle of utmost good faith can be found in this
principle of utmost good faith applies to all types of obligation in two ways:
insurance contracts.
 Article 7:928(1) DCC states that the duty of
5. Does the duty of utmost good faith apply disclosure is limited to circumstances which
only at the pre-contractual stage or is it a the prospective insured is aware of or ought
continuous duty applying both pre- to be aware. What the prospective insured
contractually and post-contractually? ought to be aware of, is to be determined
The principal of utmost good faith applies to both the within the boundaries of reasonableness and
pre-contractual and the post-contractual stage.
9 fairness (i.e. the duty of utmost good
10
Please see the responses to the questions in faith). An example can be found in case
paragraphs II and III. law: according to the Supreme Court, the
personal circumstances of the (prospective)
It should be noted in advance, however, that the insured should taken into account in
operation of the principle of utmost good faith has determining what can reasonably be
11
been so influential in the codification of Dutch expected from the insured.
insurance laws, that the principle’s role outside of the
statutory provisions is (very) limited. In the answers to  Article 7:928(1) furthermore states that the
the following questions, the content of the principle of duty of disclosure is limited to circumstances
utmost good faith will be explained largely by referring of which the prospective insured knows or
to the operation of the Dutch statutory insurance law ought to know that the insurer’s decision
provisions in which the principle has been codified. In whether or not to enter into the insurance
so far as the principle has a role outside of the agreement depends or may depend. What
statutory principles, it will be found and referred to the prospective insured ought to know, is to
within the context of the principle of reasonableness be determined by the principles of
and fairness. reasonableness and fairness (i.e. the duty of
utmost good faith). An example can be found
II - Application of the Principle of Utmost Good in case law: if the insurer has a policy of
Faith at the Pre-Contractual Stage acceptance that differs from the policy that a
reasonable acting insurer would pursue, this
6. Does the Principle of Utmost Good Faith different policy is only relevant to the extent
apply to both the insured and the insurer the insured knows or ought to know that
12
at the pre-contractual stage? policy.
As a general principle of Dutch insurance laws, the 8. Is the duty of utmost good faith for the
principle of utmost good faith applies to both the insured equivalent to the duty of
insured and the insurer. disclosure in your jurisdiction so that
indistinguishable?
10
9 Cf. Kamerstukken I 2004/05, 19 529, nr. B, p. 7 (MvA).
J.M. Berger-Bos, ‘Verzekering: contractus uberrimae fidei
of niet?’ in: R. Savatier, Verzekeringen van vriendschap: 11
HR 3 november 1978, NJ 1980, 500.
rechtsgeleerde opstellen aangeboden aan prof. mr. T.J.
12
Dorhout Mees, Deventer: Kluwer 1974, p. 109-117. HR 19 mei 1978, NJ 1978, 607 (Hotel Wilhelmina).
The two are indistinguishable in the sense that the 11. If the duty of utmost good faith operates
principle has been codified within the statutory separately from the duty of disclosure
provision that provides for the duty of disclosure. does one have precedence over the
However, it cannot be ruled out that, as a general other?
principle of law, the principle of utmost good faith may
(within the context of the principle of reasonableness It is hard to say that the duty of disclosure has
and fairness) also have other implications for the precedence over the duty of utmost good faith. As
insured under insurance law. said, since the implications of the duty of utmost good
faith has (already) been codified in the duty of
9. If the duty of utmost good faith operates disclosure in the statutory provision. For example,
separately pre-contractually from the article 7:928(6) DCC states that, when the insurance
duty of disclosure describe that operation agreement has been concluded on the basis of a
and how the two sit together. You may questionnaire formulated by the insurer, the insurer
need to describe the duty of disclosure to cannot appeal to the fact that the insured has not
illustrate the differences. provided relevant information if the questionnaire did
not (specifically) ask for that information, unless the
Although the duty of utmost good faith and the duty of insured does so with the intent to mislead to insurer.
disclosure are distinguishable in theory, they largely Therefore, the statutory provision rules out the duty of
coincide in practice. There is not an abundance of utmost good faith in these instances, unless the
case law in which the duty of utmost good faith is insurer can prove that an insured acted with the wilful
separately or even explicitly referred to. However, it is intent to mislead.
clear that the duty of utmost good faith (in the context
of the principle of reasonableness and fairness) may However, if an appeal to a statutory provision (such
have a role in narrowing down the circumstances in as the duty of disclosure) would - in special
which an insured is under an obligation to disclose circumstances - result in a party acting unacceptably
information to the insurer, as evidenced by the case- contrary to the principle of reasonableness and
law examples provided above. fairness (which may be influenced by the principle of
utmost good faith) then the principle of utmost good
faith could in theory take precedence over the duty of
disclosure.
remedies different from a breach of the B - For the Insurer
duty of disclosure?
If the insured has breached the duty of disclosure, duty of utmost good faith for the insurer?
several remedies are available for the insurer. Firstly,
the insurer has the right to terminate the insurance As an effect of the duty of utmost good faith, the
agreement (1) if the insured has mislead him with insurer has a duty to disclose all information which is
wilful intent or (2) if the insurer would not have or could be relevant for the insured’s decision to enter
13
entered into the insurance agreement would he been into an insurance agreement.
aware of the actual state of affairs (article 9:729(2) In addition, if the insurer makes use of a
DCC). Secondly, in the same circumstances, the questionnaire, he may not (after concluding the
insurer may refuse payment under the insurance agreement based on the questionnaire) invoke the
contract (article 7:928(4 and 5) DCC). Thirdly, the fact that the insured has provided insufficient or
insurer is allowed to reduce the payable insurance inadequate answers to the questions, unless the
benefit in proportion to the amount that the insured insured acted with the intent to mislead the insurer.
coverage would have been decreased if he had been The insurer therefore also has a pre-contractual duty
aware of the actual state of affairs. Where the insurer, to examine the questionnaire and further investigate if
if he would have been aware of the actual state of answers are missing, inadequate or conflict with the
affairs, would have stipulated other conditions, the answers to other questions.
insurer is allowed to pay out (or refuse to pay out) the
insurance benefit as if these conditions would have 13. Describe the insurer’s pre-contractual
been included in the insurance agreement (article duty of utmost good faith by providing
7:928(3) DCC). examples of the best known cases in
The remedies for a breach of the duty of utmost good
faith are not explicitly mentioned in Dutch statutory
provisions. The remedy for salvaging a situation in
which a party has acted unacceptably contrary to the
principle of reasonableness and fairness is at the
discretion of the court.
13
See M.L. Hendrikse, Ph.H.J.G. van Huizen & J.G.J.
Rinkes, Verzekeringsrecht praktisch belicht, Deventer:
Kluwer 2011, p. 162-163.
The following examples can be found in case law: become aware or ought to have become
aware of this risk.
 HR 21 januari 1966, NJ 1966, 183
(Booy/Wisman): the insurer has a duty to It should be emphasized that the above-mentioned
take care that he is aware of all the facts that elements are also laid down in statutory provisions.
are relevant for his decision to enter into an The role of the duty of utmost good faith is therefore
insurance agreement. This means that the limited.
insurer has a pre-contractual duty to 16.1 Do third party beneficiaries of cover have
examine the questionnaire and to further a duty of utmost good faith?
14
investigate if an answer is missing.
Although this is not fully clear whether a third party
 Hof Amsterdam 17 september 2013, NJF beneficiary of cover is usually assumed to have the
2014/101: generally, a credit insurer has same duty of utmost good faith as the insured in the
more access to information than the event the third party wishes to rely on an insurance
prospective insured, which implies that the agreement for coverage.
insurer has a duty to further investigate the
payment history of the secured object. 17. Describe the insured’s post-contractual
14. Is it a breach of the duty of utmost good examples of the best known cases in
faith in your jurisdiction for insurers not which it has been applied.
nature and extent of their duty of The Supreme Court ruled that if the insured has
disclosure? mislead the insurer with wilful intent, for instance by
making a false claim, it is allowed that the insurer
The duty of utmost good faith entails a pre-contractual decides not to pay under the insurance agreement.
16
obligation to warn the prospective insured. Among This rule is codified in article 7:941(5) DCC. Hence,
other things, this obligation entails a duty to notify the upon the insured rests a post-contractual duty to file
prospective insured of the nature and extent of their claims correctly and truly, a duty that follows from the
15
duty of disclosure. duty of utmost good faith.
15. What are the remedies for a pre- 18. Is the insured’s intentional concealment
contractual breach by the insurer of its of his/her criminal activities when
duty of utmost good faith? completing a proposal for life policies a
The remedies for a breach of the duty of utmost good breach of the duty of utmost good faith?
faith are not explicitly mentioned in Dutch statutory Article 7:928(5) states that the prospective insured is
provisions. only obliged to inform the insurer about facts of his
III - Post-Contractual Application of the Principle criminal past if these facts have occurred within eight
of Utmost Good Faith (at the Claim Stage) years prior to the conclusion of the insurance
agreement and as far as the insurer has explicitly
asked a question about that past in clear wording.
This provision could be considered a reflection of the
principle of legitimate expectations (i.e. the principle
16. What is the content of the post- of utmost good faith, see the response to question 2).
contractual duty of utmost good faith for In that sense, a breach of this provision includes a
the insured at the claim stage? breach of the duty of utmost good faith. However, the
role of the principle of utmost good faith in this matter
It follows from the duty of utmost good faith that: is not explicitly mentioned in case law or literature.
 The insured should not mislead the insurer, B - For the Insurer
for instance by making up the occurrence of
an insured event. 19. What is the content of the duty of utmost
 The insured should notify the materialization with a claim?
of a risk to the insurer as soon as he has
The insurer needs to handle a claim with due care.
Furthermore, the duty of utmost good faith implies
17
that claims should be dealt with speedily.
14
See, inter alia, Rb. Noord-Holland 30 januari 2013,
ECLI:NL:RBNHO:2013:BZ2272.
15 16
Cf. M.L. Hendrikse, Ph.H.J.G. van Huizen & J.G.J. HR 3 december 2004, NJ 2005, 160; Hof Arnhem 11
Rinkes, Verzekeringsrecht praktisch belicht, Deventer: maart 2008, ECLI:NL:GHARN:2008:BD1296.
Kluwer 2011, p. 162; Hof ‘s-Gravenhage 6 maart 2012, RAV
17
2012/69. See Van Orsouw, supra 2.
20. Does an insurer owe a duty of utmost circumstances, invoking this term was not in
good faith towards third party accordance with the principles of
beneficiaries of cover in handling claims? reasonableness and fairness (i.e. the duty of
utmost good faith). The beneficiaries made it
The duty of utmost good faith applies to the plausible that they had sent a letter to the
relationship with third party beneficiaries as well. insurer within the set time frame, even
Therefore, the same applies towards them. though the insurer did not receive that letter.
duty of utmost good faith by providing  HR 12 januari 1996, NJ 1996, 683
examples of the best known cases in (Kroymans/Sun Alliance): a insurance
which it has been applied. agreement included the provision that any
insurance benefit was not payable if the
In this context, we are not familiar with relevant case- insured failed to lodge a claim within six
law. months after the insured event. Since the
insurer failed to notify the insured of this
provision, the Supreme Court ruled that –
according to the principles of
reasonableness and fairness – the provision
There is a Code of Practice for insurers in the was not applicable in the given case.
Netherlands, established by the Federation of Dutch 24. Do courts have special powers to
Insurers (Verbond van verzekeraars) in 2012. disregard any avoidance of the
However, the Code only states that ‘the process of application of a policy in cases where the
dealing with claims should be sufficiently clear to the insured has established that it would be a
insured’ (principle 7). Hence, the Code does not breach of the duty of utmost good faith to
contain any standard to the way claims should be allow the insurer to avoid the policy?
dealt with or other aspects of the duty of utmost good
faith. Under Dutch law, the insurer cannot avoid the
application of the policy as such. Instead, the insurer
is allowed to stipulate the loss of an entitlement to an
insurance benefit if certain events occur (to be
determined in the policy). Under Dutch insurance law,
to rely on the term? If so, please illustrate the insurer may only invoke such rights if the breach
with examples.
of the obligation has infringed upon his reasonable
Yes, a term of a insurance agreement can be interests. However, the insurer is always entitled to
disregarded by the court if this term is, under the avoid payment under the policy if the insured acted
given circumstances, unacceptably contrary to the with the intent to mislead him.
standards of reasonableness and fairness (article As said, the principles of reasonableness and fairness
6:248(2) DCC). Furthermore, a more stringent rule can override the application of statutory provisions or
applies to general provisions (i.e. insurer’s standard contractual terms. The duty of utmost good faith may
terms). Such provisions are voidable, if these are give substance to this principle and thereby influence
unreasonably burdensome for the insured (article the decision of the court to allow avoidance of
6:233(a) DCC). Both statutory provisions can be used payment. For instance, the Supreme Court has ruled
to remedy a (grave) breach of the duty of utmost good that – in short – the principles of reasonableness and
faith. fairness determine whether the insurer is harmed in
18 19
The following examples can be found in case law: his reasonable interests. Furthermore, the principles
of reasonableness and fairness could imply that,
 HR 20 april 1990, NJ 1990, 526 given the circumstance, no loss of entitlement can be
20
(OTOS/Jonkman): a buildings insurance stipulated.
agreement included the provision that any
insurance benefit was not payable if the
diseased’s beneficiaries failed to notify the
insurer within 60 days of the fact that the
insured building was left empty. The
Supreme Court ruled that, in the given
19
18 HR 17 februari 2006, NJ 2006, 378.
Further examples can be found in J.H. Wansink, ‘De
20
dwingendrechtelijke beperking van contractsvrijheid in titel See, for instance, HR 1 november 2013, RvdW
7.17 BW’, in: N. van Tiggele-van der Velde & J.H. Wansink, 2013/1312; Hof Amsterdam, 14 januari 2014, RAV 2014/51;
Contractsvrijheid in het verzekeringsrecht, Deventer: Kluwer Hof Amsterdam 20 oktober 2009, RAV 2010/74; Rb.
2010, p. 109-111. Rotterdam 28 augustus 2013, ECLI:NL:RBROT:2013:8087.

statute, is it a breach of the statute for the Houthoff Buruma
utmost good faith? Gustav Mahlerplein 50
As mentioned in the response to question 2, an 1082 MA Amsterdam, The Netherlands
insurer’s breach of the duty of utmost good faith can
be seen as conduct contrary to the principle of Tel.: (31) 2 0605 6000
reasonableness and fairness. Though the latter Fax: (31) 2 0605 6700
principle is stated in article 6:248(2) DCC, such Email: h.londonck@houthoff.com
conduct does not result in (liability for) a breach of j.dekkers@houthoff.com
statute. Article 6:248(2) DCC can only result in the
non-applicability of a contractual term or claim. Website: www.houthoff.com
Whether the insurer is liable, should in fact be

decided according to the rules which determine
liability arising from a wrongful act. According to
article 6:162(2) DCC, a wrongful act may also exist if
a person’s conduct is in violation of the due care
required by society.
A breach of the duty of utmost good faith cannot
result in regulatory sanctions as such, since this duty
is not laid down in Dutch regulatory law. However, if
an insurer acts contrary to specific, codified elements
of the duty of utmost good faith, this can have
regulatory consequences. For instance: an insurer
who fails to inform the insured correctly and
completely about the insurance, can face a fine or
even a license suspension (article 4:20 in conjunction
with articles 1:80 and 1:104 Dutch Financial
Supervision Act (Wft)).
IV - Reinsurance

The principle of utmost good faith – as a general
principle of law – applies to reinsurance in the same
21
way as it applies to regular insurance. It could be
argued however, that its role is more prominent, since
regular insurance law provisions do not apply to
reinsurance contracts. Therefore, the general
principles of law could be more influential on what
parties may reasonably expect from one another in
the specific case at hand. However, there is no
specific case law or literature on this subject.
****
21
Cf. Kamerstukken II 1985/86, 19 529, nr. 3, p. 7 (MvT).
IBA Insurance Committee Substantive Project 2014 121 The Duty of Utmost Good Faith: Nigeria
Nigeria
DELAW CHAMBERS it appears that the principle extend to post contractual
stage.
Kamar Raji
I - Definition of the Principle of Utmost Good Faith Faith at the Pre-Contractual Stage
1. In your jurisdiction, do insurance laws 6. Does the Principle of Utmost Good Faith
provide for the principle of utmost good apply to both the insured and the insurer
faith (in latin, “uberrimae fidei”) and if so, at the pre-contractual stage?
definition whether under statute or Yes, the duty is applicable to both insurer and the
according to case law. insured at pre-contractual stage.
The Insurance Act, 2003, which is a general law on A - For the Insured
insurance, does not make any specific provision for
the principle of utmost good faith. However, S.19 of
the Marine Insurance Act, 1961 states, inter alia, that
“a contract of marine insurance is a contract based The content of duty of utmost good faith is limited to
upon the utmost good faith, and, if the utmost gppd the specific questions asked in the proposal form in
faith is not observed by either party, the contract may general and life insurance saves for the marine
be avoided by the other party”. insurance where it is not commonly used. Other
2. Is the principle of utmost good faith (i) a information deemed material, though not part of the
statutory principle, (ii) a common law proposal form, is expected to be volunteered.
principle or (iii) a civil law principle? Or is Describe the insured’s pre-contractual
it to be found under statute and duty of utmost good faith by providing
otherwise? examples of the best known cases in
In general term, the principle of utmost good faith is a
common law principle. It is the specific reference to it The duty of the insured is to disclose only material
under the Marine Insurance Act, 1961 that has, facts within his knowledge; an insured is not bound to
somehow, elevated it to statutory principle, at least, facts unknown to him. A previous insurance of the
as far as the referenced Act it concerned. same type is a material fact to be disclosed and so is
3. Do insurance laws of your jurisdiction a previous refusal of insurance of the same type.
provide for both the principle of utmost Examples of cases where the principle had been
good faith and a separate duty of applied:
(a) issuing a policy despite the
There are specific provisions for duty of disclosure in insured’s failure to answer a
almost all the relevant enactments while the co- question on the proposal form
terminus principle of utmost good faith is derived from means that the insurer does not
the express provision on the principle of disclosure. regard the fact as material and
4. Does the principle of utmost good faith would be deemed to have waived
apply to all types of insurance contracts his rights to insist on full disclosure
(life insurance, general insurance, of fact. See: Adeyeye v. Liberty
reinsurance etc.)? Assurance Co. Ltd (unreported suit
No. HOD/15/81 of 13/3/83.
Yes. It applies to all types of insurance in Nigeria.
(b) Fraudulent collusion by the
5. Does the duty of utmost good faith apply insured’s representatives with the
only at the pre-contractual stage or is it a insurer’s agent in misappropriating
continuous duty applying both pre- premiums will deprive the insured of
contractually and post-contractually? his claim under the policy. See:
Bamidele & Anor. v. Nigerian
From the perspective of Nigerian law, it appears General Insurance Co. Ltd (1973) 3
(though not yet specifically tested) that the principle U.I.L.R. 418.
applies at pre-contractual stage having regard to the
fact that the duty to disclose material facts which
embeds the principle of utmost good faith, is
applicable at contracting stage. In practice, however,
8. Is the duty of utmost good faith for the as material and would be deemed
insured equivalent to the duty of to have waived its right to insist on
disclosure in your jurisdiction so that full disclosure.
indistinguishable? (b) Non-objection to over insurance
especially when the assessment of
Yes. premium paid was done on the
recommendation of the insurer.
Held, the insured’s claim pursuant
to extensive damage to the his car
was not fraudulent and he had not
breached the duty of utmost good
faith since a contract of insurance is
valid based on agreed valuation of
In Nigeria, the duty is inseparable. premium. See: Ado v. Nigerian
Insurance Company Ltd. (1980) 4-6
10. What are the remedies for a pre- C.C.H.C.J. 27.
duty of utmost good faith? Are the 14. Is it a breach of the duty of utmost good
remedies different from a breach of the faith in your jurisdiction for insurers not
duty of disclosure? to notify the prospective insured of the
As earlier stated, the duty of care has its root in the disclosure?
duty of disclosure; as such both terms are used
interchangeably. On the issue of remedies applicable, Yes, it is.
the only remedy for breach of the duty of good faith, in 15. What are the remedies for a pre-
so far as non-disclosure is involved, is avoidance of contractual breach by the insurer of its
the contract ab initio by the injured party and the duty of utmost good faith?
award of damages is not applicable.
The contract is void ab initio and the insurer must
refund the insured the premium paid without any
further claim for damages.
other? III - Post-Contractual Application of the Principle
Not applicable. See the response in question 10
above.
B - For the Insurer Beneficiary of Cover
12. What is the content of the pre-contractual 16. What is the content of the post-
duty of utmost good faith for the insurer? contractual duty of utmost good faith for
The duty falling on the insurer extends to the
disclosure of all facts known to him which are material (a) To state clearly and truthfully, in the
either to the nature of risk sought to be covered or the claim form, the circumstance that
recoverability of a claim under the policy which a led to the claim.
prudent insured would take into account in deciding
whether or not to place the risk for which he seeks (b) Not to exaggerate the claim.
cover with that insurer. (c) Not to collude with a third party with
13. Describe the insurer’s pre-contractual the aim of defrauding the insurer.
duty of utmost good faith by providing (d) In cases of motor vehicle insurance,
examples of the best known cases in not to admit liability without Police
which it has been applied. Report.
Where proposal forms are used i.e. in relation to the (e) To promptly inform the insurer
applicable law (s. 54 (1) of the Insurance Act, 2003), about the incident leading to the
the onus of asking facts considered material lies firmly claim.
with the insurer. This thus abolishes a residual duty
on the insured to disclose. 16.1 Do third party beneficiaries of cover have
Examples of known cases:
No. The mere fact that there is no privity of contract
(a) Issuing of a policy in spite of the between the insurer and the third party makes the
incomplete application means that requirement of utmost good faith between them far
the insurer did not regard the fact fetched.
17. Describe the insured’s post-contractual 21. Describe the insurer’s post-contractual
duty of utmost good faith by providing duty of utmost good faith by providing
examples of the best known cases in examples of the best-known cases in
which it has been applied. which it has been applied.
(a) It was held in Martins v. National (a) Recommendation of risk
Employers’ Mutual that the improvement measures to the
conditions requiring the giving of insured.
notice of loss are not intended to
enable insurers to escape liability, (b) Equitable and prompt settlement of
but rather to give them a claim to only genuine beneficiaries.
reasonable opportunity of 22. Is there a Code of Practice for insurers in
investigating the claim under the your jurisdiction and, if so, how does it
most favourable circumstances. sit with the duty of utmost good faith?
See: (1969) N.C.L.R 46 at p. 56.
Yes, there is a Code of Practice which essentially
(b) In Onuh v. United Nigeria emphasises good corporate governance, integrity and
Insurance, it was held that for there professionalism among the insurance companies and
to be a compliance with the their employees. The bye product of these three
warranty requiring the insured to identified ethos is the principle of utmost good faith.
keep a complete book of account
and stock sheets, and to produce 23. Can courts disregard a term of a contract
them in the event of a claim, the of insurance if it would be a breach of the
details must be sufficient to enable duty of utmost good faith for the insurer
the insurer to ascertain the to rely on the term? If so, please illustrate
character and amount of loss and to with examples.
check exaggeration and falsity. And Yes. A breach of the principle renders insurance
if the insured fails to comply with contract void ab initio.
the requirement as a whole, he
cannot recover in respect of those By a condition in a third party policy, the insured was
items, the details of which were not required to give notice to the insurer of any
supplied. See: (1975) N.C.L.R 413 proceeding, which may result in a claim. A third party
at p. 420. was injured by the negligent driving of the insured,
whereupon the former wrote two letters to the insured
18. Is the insured’s intentional concealment wherein he demanded damages and stated his
of his/her criminal activities when intention to institute a suit respectively. Each of the
completing a proposal for life policies a letters was copied to the insurer. In a third party suit
breach of the duty of utmost good faith? against the insurer to satisfy the judgment of the court
Yes. obtained against the insured, the defendant insurer
asserted that the insured had breached a condition in
B - For the Insurer the policy by not having notified it of the proceeding
19. What is the content of the duty of utmost as stipulated in the policy. The court held that the
good faith for the insurer when dealing whole essence of the notice is not to enable the
with a claim? insurer escape liability but to afford it the opportunity
of investigating the claim and detect falsehood.
The insurer is enjoined to settle the claim of the Therefore, the letters of the third party addressed to
insured promptly when there is no material or the insurer constitutes sufficient notice of the action. It
fraudulent breach of the policy of insurance by the is not essential that the notice be given by the insured
insured. himself.
20. Does an insurer owe a duty of utmost 24. Do courts have special powers to
good faith towards third party disregard any avoidance of the
beneficiaries of cover in handling claims? application of a policy in cases where the
In general, insurers are obliged to deal with the breach of the duty of utmost good faith to
consumers/beneficiaries of insurance products with allow the insurer to avoid the policy?
utmost good faith i.e. to settle the claim promptly and
fairly in the absence of material breach or fraud by the Yes.
insured. This principle also extends to the third party,
especially in mandatory insurance products (e.g.
Third Party Motor Vehicle Insurance).
utmost good faith?
Yes, As far as Nigeria is concerned, the principle is a IV - Reinsurance

common law derivation and not statutory save for the
provision in the Marine Insurance Act, earlier stated. 27. To what extent, if any, does your
26. Can a breach by the insurer of the duty of jurisdiction apply different principles
utmost good faith result in regulatory regarding utmost good faith to
sanctions against the insurer (license reinsurance at both the placement/pre-
suspension, banning order, etc.)? contractual stage, and at the claim stage?
No. The regulatory authority (National Insurance There is no different application; the principle is the
Commission) employs a robust persuasive approach same.
(including informal ADR) to ensure compliance, upon ****
the complaint of the insured, in the absence of prior
litigation on the same matter.
The regulator only wields the big stick if there is a Delaw Chambers
consistent pattern of failure on the part of the insurer
to settle claims or where it involves a disaster of 2nd Floor
national attention (like plane crash) and the insurer 15 King George V Road
fails to compensate as at when due. The regulator Onikan, Lagos, Nigeria
interest, in this wise, would be the maintenance of
sanity in the market and for the improvement of the Tel.: (234) 1 740 1580
image of the industry. Email: kraji@delawchambers.com
Website: www.delawchambers.com
IBA Insurance Committee Substantive Project 2014 125 The Duty of Utmost Good Faith: Poland
Poland
HOGAN LOVELLS (WARSZAWA) LLP practices (Journal of Laws of 2007, No. 171, item
1206).
Anna Tarasiuk-Flodrowska and Kamila Mróz
I - Definition of the Principle of Utmost Good Faith provide for both the principle of utmost
1. In your jurisdiction, do insurance laws disclosure for the insured?
faith (in latin, “uberrimae fidei”) and if so, The principle of utmost good faith is recognized in the
what is its meaning? Provide any legal doctrine and a duty of disclosure makes an
definition whether under statute or important part of it. The duty to provide the insurer
according to case law. with information is regulated under Article 815 § 1
[notification obligation], stating that: “The policyholder
The exact principle of utmost good faith has not been is obliged to provide to the insurer all the
expressed directly in the Polish insurance law. circumstances known to it about which the insurer has
However, the insurance contract is also referred to as enquired in the offer form or in other letters before
a contract of the supreme confidence (contractus contract execution. If the policyholder executes the
uberrimae fides), which requires from the parties to contract through a representative, this obligation also
insurance contract special diligence and loyalty in rests on the representative and also covers the
performance of their obligations. The principle of circumstances known to the representative” together
supreme confidence especially emphasizes trust, 1
with Article 815 § 2 stating that “if the insurance
which connects the parties to the contract, which is contract is executed on another person’s account, the
mainly expressed in the obligations of the policyholder obligations set forth in the preceding paragraphs rest
to disclose all facts and information of potential on the policyholder and the insured unless the insured
particular importance for the insurer. The obligation of did not know about the contract having been executed
good faith is not limited to declaration of risk before on his account”.
conclusion of the insurance contract as described in
the preceding sentence. It is recognized as the mutual Pursuant to Article 815 § 3, “the insurer is not liable
obligation of the policyholder and the insurer under for the effects of circumstances about which, in
which those two parties cooperate and endeavour to violation of the preceding paragraphs [of Article 815 of
prevent the occurrence of the insurance event or to Civil Code], he was not informed. If the preceding
minimize its effects. paragraphs are breached due to willful misconduct, in
case of doubt it is assumed that an event provided for
Other principles (general clauses) are applicable to in the contract and its consequences result from the
insurance contracts e.g. the principle of good faith, circumstances referred to in the preceding sentence”.
principles of community life or the socioeconomic But the above principle does not apply, according to
purpose of a right. Those indirectly constitute the Article 815 § 1, “if the insurer executes the insurance
principle of utmost good faith in the insurance contract despite receiving no reply to particular
relationship and will be discussed under the enquiries, the omitted circumstances are deemed
subsequent points of the questionnaire. insignificant”.
2. Is the principle of utmost good faith (i) a 4. Does the principle of utmost good faith
statutory principle, (ii) a common law apply to all types of insurance contracts
principle or (iii) a civil law principle? Or is (life insurance, general insurance,
it to be found under statute and reinsurance etc.)?
otherwise?
As already observed above, the principle of good faith
Good faith, as a general clause that applies to the is a general clause and applies to all type of civil law
whole of civil law is expressed in Article 7 of the Act contracts.
dated 23 April 1964 – Civil Code (unified text: Journal
of laws of 2014, item 121) (“Civil Code”). Other 5. Does the duty of utmost good faith apply
similar clauses that apply to the insurance contracts only at the pre-contractual stage or is it a
are rather statutory. Sometimes, they constitute a part continuous duty applying both pre-
of the so-called soft-law, which does not constitute contractually and post-contractually?
legal provisions but provides for further protection for As it was mentioned above before the conclusion of
the consumers (they are protected against failures to insurance contract the policyholder is obliged to
comply with a code of practice to which the company provide the insurer with information on any
voluntarily joined and informs that is bound by its circumstances known to him, for which the insurer
provisions under Article 5 section 2 point 4 of the Act asked for in the offer form or prior to the contract’s
dated 23 August 2007 on counteracting unfair market conclusion in other letters. This is so called an
obligation to declare a risk provided in Article 815 of policyholder and the representative (if the contract is
the Civil Code. concluded by him) is obliged to provide to insurance
company only such circumstances, which he asked
Furthermore in post-contractual stage during the for before concluding the insurance contract. The
duration of insurance contract policyholder and system is more favorable for insured, because the
insured are obliged to promptly report any changes of burden of determination the substantial circumstances
circumstances for which insurer asked before the is bound on the insurance company, which as a
conclusion of insurance contract the insuring party professional should know what is substantial in a
shall be obliged to notify the insurer on these changes particular insurance. The insurance company suffers
immediately after having received information of such the consequences of imprecise questions. The
changes. This is so called obligation to notify a risk. system of declaration of risk in insurances concluded
Unlike the declaration of risk specify in Article 815 § 1 under the Civil Code provisions has binding character.
of the Civil Code obligation to notify a risk occurs only This means that, except for answers to specific
when such obligation has been imposed in insurance questions, the insurance company has no right to
contract or in the general terms and conditions of demand from other party providing unspecified
insurance. This obligation shall not apply to life information about other known circumstances, which
insurances. could impact the risk assessment.
II - Application of the Principle of Utmost Good 8. Is the duty of utmost good faith for the
Faith at the Pre-Contractual Stage insured equivalent to the duty of
6. Does the Principle of Utmost Good Faith pre-contractually the two are
apply to both the insured and the insurer indistinguishable?
Good faith is a general contractual rule, according to
One of the most characteristic features of insurance which both parties should obey the good faith rule and
contract is the duty of good faith. Insurance contract is fair trade rule. The parties cannot exclude these rules.
a contract of the supreme confidence (contractus Polish law (regarding insurances) provides the duty of
uberrimae fides). Good faith refers to keeping the good faith in Article 815 of Civil Code, which applies
confidence between parties of a contract. The the duty of risk declaration in a period before
supreme confidence, which applies to an insurance concluding the insurance contract. Pursuant to Article
contract, consists in policyholder’s duty of performing 815 § 1 of the Civil Code “The insurance taker shall
insurance contract’s obligations, especially in an be obliged to inform the insurer about all the facts
appropriate declaration of risk at the pre-contractual known to it about which the insurer asked in the form
stage. The base of insured good faith is provided in of the offer or in other letters before the conclusion of
Article 815 of Civil Code. As regards the supreme the contract.” As it was mentioned, Polish system
confidence of insurance company it is caused by the provides risk declaration by answer for questions
fact, that only the policyholder has full information system. Despite existence of the policyholder’s duty
regarding the possible risk. The insurance company of good faith and supreme confidence, it cannot be
when concluding the insurance contract performs in identified with the duty of disclosure, which is in force
confidence to this information. The supreme in a system of spontaneous risk declaration in
confidence rule comes from uneven distribution of common law. In Polish law there is no policyholder’s
contract risk between parties which refers to uneven obligation to disclosure the facts, which were not
access to information used for concluding and covered by insurer’s questions.
performing the insurance contract assessment. This
does not mean that the good faith in the insurance 9. If the duty of utmost good faith operates
contract obliges only one party. The good faith should separately pre-contractually from the
be interpreted in accordance with general requirement duty of disclosure describe that operation
of keeping good faith when concluding and and how the two sit together. You may
performing contract obligations, which are mentioned need to describe the duty of disclosure to
in the general part of Civil Code. illustrate the differences.
A - For the Insured Duty of disclosure, which is in force in a system of

spontaneous risk declaration, concerns all facts
7. What is the content of the duty of utmost substantial for insurer in order to establish the risk
good faith for the insured? and the insurance premium. Pursuant to Article 815 §
Describe the insured’s pre-contractual 1 of the Civil Code, except answers for specific
duty of utmost good faith by providing questions, the policyholder has no duty to disclose to
examples of the best known cases in insurer the information about all other circumstances
which it has been applied. known, which could impact the risk assessment.
As it was mentioned, the Polish law provides the Please note, that the duty of disclosure is provided by
answer for questions system (questionnaires). Article 304 Paragraph 1 of the Act dated 18
Pursuant to Article 815 of Civil Code, the insured, the September 2001 Maritime Code (Journal of laws of
2001 no. 138, item. 1545 as amended), according to insurance activity (Journal of Laws of 2013, item 950
which, while concluding marine insurance, the insured as amended) (“Insurance Activity Act”). Pursuant to
is obliged to provide to the insurer all circumstances, Article 21 section 1 of the Insurance Activity Act
which are known or should be known by him, and insurance company may demand that the insured or a
could impact the danger assessment and insurer’s person, on behalf of whom an insurance contract is to
decision about conclusion and terms of the insurance. be concluded, undergoes medical examinations or
diagnostic examinations with a minimal risk, with the
exclusion of genetic examinations, in order to assess
the insurance risk, determine the right to a benefit and
the amount of this benefit. The costs of the
examinations are covered by the insurance company.
duty of disclosure?
The Insured shall not be obliged to inform the insurer duty of utmost good faith by providing
of all circumstances known to them, and only those examples of the best known cases in
for which the insured was asked before the which it has been applied.
conclusion of the insurance contract. If the
policyholder does not answer all the queries of the The main duty of insurer at pre-contractual stage is to
insurer, this does not mean an automatic avoidance provide application for insurance with detailed
of liability of the insurer. The negative consequences questions. It was also mentioned, that the insurance
of incorrectly or not precisely formulated questions or company suffers the consequences of lack of
absence of a specific question are imposed the appropriate question or imprecise question. But it is
insurer. also worth of noticing, that the insurance company
does not suffer the consequences when the
The provision of 815 § 3 as amended by the Act of 13 policyholder conceals some information nor provides
April 2007, amends penalties for inaccurate false information. In the judgment of Supreme Court
information as to the circumstances which asked the of 28 March 2000 (II CKN 895/98), the Supreme
insurer, given by the policyholder and the persons Court said that receiving by the insurance company
required to supply information according to Article 815 false information provided from the policyholder, do
§ 1 and 2, 1 of the Civil Code. The Insurer shall not be not spoil the policyholder’s duty to provide true
held liable only if the circumstances that have been information.
brought to his attention in violation of § 1 and 2, 1 by
the policyholder (representative of the insured), 14. Is it a breach of the duty of utmost good
resulted in the occurrence of the accident. This faith in your jurisdiction for insurers not
regulation does not have to apply to a situation in to notify the prospective insured of the
which the insured or the policyholder did not provide nature and extent of their duty of
information unintentionally and in case that there is no disclosure?
direct causal link between violation of the above
obligation and the accident. The obligation to provide information is a rule
connected with the insurer’s duty of performing risk
11. If the duty of utmost good faith operates assessment regarding accepting the risk. However,
separately from the duty of disclosure the insurer can avoid asking questions as part of risk
does one have precedence over the assessment and according to Article 815 § 1
other? sentence 3 “If the insurer has concluded the contract
of insurance in spite of a lack of the answer to
N/A particular questions, the omitted facts shall be
B - For the Insurer considered inessential.” In the light of this, the insurer
would take responsibility of accepting particular
12. What is the content of the pre-contractual insurance risk, if he had not excluded it before. In fact,
duty of utmost good faith for the insurer? group insurance contracts (contracts for a third party
Notwithstanding the above, the provision of Article account), where simplified risk assessment occurs,
815 of the Civil Code relates generally to information are very common in Polish market.
provided to the insurer primarily in the application for 15. What are the remedies for a pre-
conclusion of the insurance contract. From this point contractual breach by the insurer of its
of view, the main duty of the insurer in presented duty of utmost good faith?
circumstances is to provide application for insurance
with detailed questions, after having analyzed any As above.
potential insurance risks. The insurer also suffers
consequences of lack of appropriate question or
imprecise question.
Informational duties of insured and collecting
information by the insurance company are connected
also with regulations in Act of 22 May 2003 on
III - Post-Contractual Application of the Principle to Article 827 of Civil Code, the insurer is released
of Utmost Good Faith (at the Claim Stage) from liability if the policyholder causes damage
intentionally. In the event of gross negligence,
A - For the Insured and Third Party compensation is not due unless the contract or the
Beneficiary of Cover general terms and conditions of insurance provide
otherwise or the payment of compensation in the
16. What is the content of the post- given circumstances is in line with the equitable
contractual duty of utmost good faith for principle. Additionally, unless otherwise agreed, the
the insured at the claim stage? insurer is not also liable for any damage caused
Pursuant to Article 818 § 1 of the Civil Code intentionally by a person with whom the policyholder
insurance contract or general terms and conditions of lives in a common household.
insurance may provide that the insured shall have a 18. Is the insured’s intentional concealment
duty to notify the insurer of an accident within a of his/her criminal activities when
specified time limit. Duty to inform the insurer about completing a proposal for life policies a
the accident must arise from the general conditions of breach of the duty of utmost good faith?
insurance or insurance contract. General terms and
conditions of insurance or insurance contract should If the insurer had asked such information and the
indicate the date on which the insured is obliged to insurance taker or insured concealed the information,
notify the insurer of the accident. This term should be it is considered as breach of the principle of good
specified. faith.
On the basis of Article 818 § 3 of the Civil Code B - For the Insurer
consequence of violation of the duties set out in 19. What is the content of the duty of utmost
Article 818 § 1 by intentional fault or gross negligence good faith for the insurer when dealing
of the insured, the insurer may reduce the insurance with a claim?
benefit appropriately, if the violation contributed to the
increase in the damage or made it impossible for the On the basis of Article 817 of the Civil Code, the
insurer to establish the circumstances and insurer is obliged to pay the benefit within a period of
consequences of the accident. The circumstances of 30 days from day of receipt of notification of an
the lack of notification of the accident or the delay in accident.
notification may not be a condition for refusal to pay
benefits by the insurer. On the basis of Article 16 section 1 of the Insurance
Activity Act, insurer is obliged after receiving the
The consequences of the failure to notify the insurer notification about the insurance event of the insured,
of an accident shall not come into being if the insurer, within 7 days of receipt of this notification, to inform
within a time limit set for notification, has received the policyholder or the insured, if they are not the
information on the circumstances which it has not persons making the notification, to take action
been informed of. concerning the determination of the factual state of
the event, legitimacy of the reported claims and the
amount of the benefit, and also to inform the notifying
person what documents are needed to establish the
All mentioned duties concern both the policyholder, liability of the insurance company or the amount of
beneficiaries and the insured. benefit, if it is necessary for the further conduct of the
proceedings.
duty of utmost good faith by providing On the basis of Article 16 section 2 of the Insurance
examples of the best known cases in Activity Act, if in term specified in the contract or in the
which it has been applied. provisions of law the insurer does not pay the benefit,
the insured shall notify the notifying person in writing
One of such duties has been stipulated in Article 818 of the reasons for the inability to satisfy the claims in
of Civil Code, according to which that insurance whole or in part, and shall pay the undisputed portion
contract or general terms and conditions of insurance of the benefit.
may provide the insured’s duty to inform the insurer
about the accident in a specific term. In the event of 20. Does an insurer owe a duty of utmost
breach of the obligation, due to willful misconduct or good faith towards third party
gross negligence, the insurer may accordingly reduce beneficiaries of cover in handling claims?
the performance, if the breach contributes to an The insurer is obliged to make available to third party
increase in the damage or prevents the insurer from beneficiaries the relevant information and documents,
establishing the circumstances and consequences of which had an influence on the determination of the
the event. insurer’s liability and the amount of compensation or
Moreover, the policyholder is obliged to keep the due benefit, if they filed a claim.
diligence and do not cause the insurance event
(accident). According to property insurance, pursuant
Moreover, the insurer is obliged to provide to insurance contract on behalf of the third party)
beneficiary the results of the insured’s examinations, extends the applicability of the provisions on unfair
if they impacted full or part refusal of compensation. contract terms also to insured – a person not party to
The insurer is also obliged, at the request of the the insurance contract – if the insurance is not directly
insured, beneficiaries or entitled from insurance related to the economic or professional activity of the
contract or the injured, to provide access to insured natural person, respectively, within the scope
possessed information related to the accident or as to where the agreement relates to the rights and
event being the basis for determination of his/her obligations of the insured. However, the regulations
responsibility and for determining the circumstances on unfair contract terms (abusive clauses) do not
of accidents and fortuitous events, and also the include provisions specifying the main performance of
amount of compensation or benefit. the parties, including the price or remuneration, if they
have been formulated in an unambiguous manner.
Also, it is worth of noticing that all provisions
ambiguously formulated in the insurance contract The terms of the contract are controlled in many ways
shall be interpreted in favour of the policyholders, but as to courts, they can be questioned by either
insured and beneficiaries. common courts (individual control e.g. based on
Article 189 of the Code of Civil Procedure) or more
frequently and – as it seems – with more severe
consequences by a special court – Court of
examples of the best known cases in Competition and Consumer Protection (“SOKiK”,
established for the pursuit of abstract control i.e.
N/A unrelated to any particular situation of anyone bound
by the terms, where it is sufficient for the terms to
22. Is there a Code of Practice for insurers in exist in the circuit in the agreements being offered).
your jurisdiction and, if so, how does it 3
sit with the duty of utmost good faith? As to examples, Article 385 of the Civil Code
establishes a presumption of abusiveness of certain
In Poland, there is no separate Code of regulations terms. These are 23 enumerative examples (the grey
for insurance law, like e.g. the Insurance Code in list). However, in the Polish jurisdiction, there is also
France. Furthermore, in our system of statutory law, functioning publicly available Register of unfair
such a Code or Practice or Ethics would rather be of a contract terms. Every clause established by SOKiK as
soft-law nature. Basic regulations regarding abusive is listed in this Register. As to our best
insurance, where the rights and obligations of the knowledge, a similar Register is also functioning in
insurer are set forth, are included under the Civil Spain. In the Polish jurisdiction, an entry to the
Code, Insurance Activity Act and the Act of 22 May Register has an extended effectiveness, which extent
2003 on Compulsory Insurance, the Insurance is controversial, but may mean that any professional
Guarantee Fund and Polish Motor Insurers Bureau. acting in the Polish market must not use the
There are also many other Acts and Regulations. prohibited terms listed in the Register (the black list).
23. Can courts disregard a term of a contract It seems that with respect to insurance, the most
of insurance if it would be a breach of the common and also the most interesting are the
duty of utmost good faith for the insurer clauses: of the presumption of delivery, pre-existing
to rely on the term? If so, please illustrate conditions, refund of insurance premiums and
with examples. liquidation fees.
There is a legal basis in the Polish jurisdiction to 24. Do courts have special powers to
1
disregard a term of a contract, namely Article 385 of disregard any avoidance of the
the Civil Code, which regards the abusive (prohibited) application of a policy in cases where the
clauses. The provisions of the agreement concluded insured has established that it would be a
with the consumer not agreed individually with breach of the duty of utmost good faith to
him/her do not bind him/her, if they shape his/her allow the insurer to avoid the policy?
rights and obligations in a manner contrary to good
morals, grossly affecting his/her interests (unfair Courts in Poland are not equipped in any
contract terms). In case of the insurance contract the competences to change the nature of invalid or
abovementioned protection is extended beyond the ineffective agreements, but they can declare their
consumers. Pursuant to Article 805 § 4 of the Civil invalidity or ineffectiveness.
1 3
Code, Articles 385 -385 of the Civil Code shall 25. To the extent that an insurer’s breach of
accordingly apply if the policyholder is a natural the duty of utmost good faith is under
person concluding a contract directly related to his/her statute, is it a breach of the statute for the
economic or professional activity – policyholders who insurer to be in breach of its duty of
are natural persons, however who are not consumers, utmost good faith?
but professionals. Additionally, Article 808 § 5 of the
Civil Code regulating the insurance contract to N/A.
someone else’s account (or in other words the
26. Can a breach by the insurer of the duty of IV - Reinsurance

sanctions against the insurer (license 27. To what extent, if any, does your
suspension, banning order, etc.)? jurisdiction apply different principles
As there is no duty of utmost good faith as such, there
are no sanctions foreseen for its breach. However,
the general regulatory sanctions imposed by the
Polish Financial Supervision Authority (“KNF”) As a rule, there are no specific provisions within the
include: (1) the obliging recommendations and scope of utmost good faith in respect to reinsurance.
decisions, (2) imposing on the members of the Board However, it may be worth to mention the draft
of the insurance company or commercial proxies Guidelines on good practices in the field of
financial fines to an amount corresponding to three reinsurance / retrocession issued by KNF in 2013.
times the average monthly salary of the last 12 Also, it may be noteworthy to observe that there is
months, (3) suspending the members of the Board one restriction from KNF founded in generally binding
with their activities until the motion for their dismissal law - under Article 186d of the Act of Insurance
would be examined at the next meeting of the unit Activity, namely that KNF may not allow to transfer
responsible for their dismissal (such a suspension reinsurance portfolio, if interests of policyholders,
equals to the exclusion from decision-making on insured, beneficiaries or persons entitled under
behalf of the insurance company), (4) summoning the insurance contracts subject to reinsurance are not
competent unit of the insurance company or any other duly protected.
authorized party with a request for dismissal of a
member of the Board or revoking of the commercial ****
proxy, (5) summoning to convene the general meeting
by the insurance company or putting certain issues on
the agenda of the general meeting, (6) summoning
the insurance company to terminate the contract
under which the insurance company commissioned Hogan Lovells (Warszawa) LLP
performing of certain insurance activities to another
entity, (7) ordering the sale of shares of the insurance ul. Nowogrodzka 50
company with the prescribed term and if the shares Warsaw 00695, Poland
are not sold within the time-limit, KNF may impose a
financial fine on the shareholder to the amount of PLN Tel.: (48) 2 2529 2900
10 million, establish a compulsory administration or Fax: (48) 2 2529 2901
withdraw the licence to conduct insurance activity, (8) Email: anna.tarasiuk@hoganlovells.com
imposing financial fines on insurance companies up to kamila.mroz@hoganlovells.com
0.5 percent of gross written premiums received by
insurance in the previous year (or when the insurance
company did not conduct the activity in the previous Website: www.hoganlovells.de
year or had a collection of written premiums below
PLN 20 million – up to PLN 100,000. Those sanctions
are basically imposed when KNF considers the
insurance company to act in violation of the law,
statutes, the insurance contracts it concludes or its
business plan or did not provide the required
information.
IBA Insurance Committee Substantive Project 2014 131 The Duty of Utmost Good Faith: Singapore
Singapore
RAJAH & TANN ASIA For non-marine insurance, the principle of good faith
4
is a common law principle.
Simon Goh
Preliminary Comments provide for both the principle of utmost
In the absence of Singapore case authorities, we good faith and a separate duty of
have referred to English case authorities which are disclosure for the insured?
persuasive before Singapore courts. For marine insurance, the principle of good faith and
I - Definition of the Principle of Utmost Good Faith the insured’s duty of pre-contractual disclosure are
separately provided for in section 17 and sections 18
5
1. In your jurisdiction, do insurance laws to 20 of the MIA respectively. It has been suggested
provide for the principle of utmost good that the insured’s duty of pre-contractual duty of
faith (in latin, “uberrimae fidei”) and if so, disclosure as set out in sections 18 to 20 of the MIA
what is its meaning? Provide any are merely aspects of the overriding duty of good faith
6
definition whether under statute or as set out in section 17.
according to case law. For non-marine insurance, the insured’s duty of
For marine insurance, section 17 of the Marine disclosure is part of the insured’s duty to act in good
7
Insurance Act (Cap. 387) (“MIA”) provides that: “A faith.
contract of marine insurance is a contract based upon 4. Does the principle of utmost good faith
the utmost good faith, and, if the utmost good faith is apply to all types of insurance contracts
not observed by either party, the contract may be (life insurance, general insurance,
avoided by the other party.” reinsurance etc.)?
Whilst there is no equivalent provision for non-marine Yes, the principle of good faith applies to all types of
insurance in the Insurance Act (Cap. 142) (“IA”), the insurance contracts. Please see response to Question
principle of good faith is nonetheless applicable to all 1 above.
1
types of insurance under common law.
The meaning of good faith is not defined in the MIA. It only at the pre-contractual stage or is it a
has been said that good faith denotes a measure of continuous duty applying both pre-
2
honesty and fairness. However, the substance of the contractually and post-contractually?
obligation imposed by the principle of good faith
depends on the context and can vary according to the The duty of good faith is a continuous duty that
3 applies both pre-contractually and post-contractually.
stages of the contract life.
2. Is the principle of utmost good faith (i) a II - Application of the Principle of Utmost Good
statutory principle, (ii) a common law Faith at the Pre-Contractual Stage
it to be found under statute and 6. Does the Principle of Utmost Good Faith
otherwise? apply to both the insured and the insurer
For marine insurance, the principle of good faith is a
statutory principle under section 17 of the MIA. Yes, the principle of good faith applies to both the
insured and the insurer at the pre-contractual stage.
1
Peter Eggers et al, Good Faith and Insurance Contracts
(Lloyd’s List, 2010), at [1.29]; John Birds et al, MacGillivray 4
on Insurance Law (Sweet&Maxwell, 2012), at [17-002]. (Lloyd’s List, 2010), at [4.12].
2 5
Halsbury’s Laws of Singapore, Vol. 13(2) (LexisNexis, See Appendix below.
2013), at [155.019]; Peter Eggers et al, Good Faith and
6
Insurance Contracts (Lloyd’s List, 2010), at [1.29] and [1.30]. Jonathan Gilman et al, Arnould Law of Marine Insurance
3 and Average (Sweet&Maxwell, 2013), at p593.
7
(Lloyd’s List, 2010), at [1.13]; The Star Sea [2001] UKHL 1, Halsbury’s Laws of Singapore, Vol. 13(2) (LexisNexis,
at [7]. 2013), at [155.019]
A - For the Insured The insured renewed the policy year on year, on each
occasion signing a similar form. The insured’s parents
moved win with the insured, bringing with them their
possessions including jewelry and silver. On the
Describe the insured’s pre-contractual advice of his father, the insured increased his cover
duty of utmost good faith by providing by about £4,000. The insured’s flat was subsequently
examples of the best known cases in burgled and it transpired that the full replacement cost
which it has been applied. of the items burgled was in excess of £30,000.
8 The insurer tried to avoid the policy on the ground of,
Whilst sections 17 to 20 of the MIA technically only
apply to marine insurance, the principles as set out inter alia, misrepresentation. The Court of Appeal held
therein are also recognised to be of general that in the insurance context, unlike other contracts, a
9
application in the non-marine insurance context. statement of belief does not carry with it an implied
representation that the maker of the statement had
Accordingly, a non-exhaustive list of the content of the reasonable grounds for holding the or belief and such
insured’s pre-contractual duty of good faith would be: a statement need only be honestly made. The court
(a) A duty to disclose all material facts; went on to hold that the insured had acted honestly
and and the insurer’s defence on the grounds of
misrepresentation failed.
(b) A duty not to misrepresent material
facts to the insurer so as to induce 8. Is the duty of utmost good faith for the
the insurer to enter into the contract insured equivalent to the duty of
of insurance. disclosure in your jurisdiction so that
An example of the insured’s duty to disclose all indistinguishable?
material facts would be the Singapore Court of
Appeal’s case of Tat Hong Plant Leasing Pte Ltd v The insured’s duty of disclosure is part of the
10
Asia Insurance Co Ltd . In that case, the insured had insured’s duty to act in good faith. Please see answer
leased a crane to a third party on its standard form to Question 3 above.
agreement. However, the insured and the third party 9. If the duty of utmost good faith operates
executed a side letter which amended the terms of separately pre-contractually from the
the standard form agreement. The insured thereafter duty of disclosure describe that operation
insured the crane with the insurer, with whom the and how the two sit together. You may
insured had a long-standing insurance relationship. need to describe the duty of disclosure to
Accordingly, the insurer did not require the insured to illustrate the differences.
fill out any proposal form but merely requested for
particulars of the machinery. The insurer thus had no NA. Please see answer to Question 8 above.
knowledge of the terms of the side letter. 10. What are the remedies for a pre-
The court held that as the insured had failed to make contractual breach by the insured of the
full disclosure of the side letter varying the terms of its duty of utmost good faith? Are the
standard form agreement, the insurer was entitled to remedies different from a breach of the
avoid the contract of insurance. duty of disclosure?
12
An example of the insured’s duty not to misrepresent For marine insurance, sections 18 and 20 of the MIA
material facts will be the English Court of Appeal case (which are merely aspects of the general duty of good
11 13
of Economides v Commercial Assurance Co Plc. In faith as set out in section 17) expressly provide that
that case, the insured had filled out a proposal form an insured’s breach of the disclosure obligations as
that the cost of replacing the contents of his flat was set out therein entitles the insurer to avoid the
£12,000 and that the statement was true and contract of insurance.
complete to the best of his knowledge and belief. The For non-marine insurance, the insured’s breach of its
insurer thereafter issued a household contents policy. analogous obligations under common law also entitles
the insurer to avoid the contract of insurance.
Whilst an insured’s breach of its non-disclosure
8
See Appendix below.
obligation simpliciter does not give the insurer a right
9
Jonathan Gilman et al, Arnould Law of Marine Insurance
and Average (Sweet&Maxwell, 2013), at p583; Pan Atlantic
Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 2
Lloyd’s Law Rep. 427, at p432. 12
See Appendix below.
10
[1993] SGCA 33. 13
Jonathan Gilman et al, Arnould Law of Marine Insurance
11
[1998] QB 587. and Average (Sweet&Maxwell, 2013), at p593.
14
to damages, the insurer may be able to recover An example of the insurer’s duty not to misrepresent
damages for a misrepresentation if made fraudulently, material facts will be the English case of Duffell v
19
negligently or otherwise under the Misrepresentation Wilson . In that case, the insurer, in insuring the
15
Act (Cap. 390). insured against being conscripted into the militia until
a specified expiry date, represented that the statute
which regulated such conscription would cease to
have effect on the expiry date. In fact, the operation of
the statute extended to three months after the expiry
other?
date and insured was conscripted after the expiry
NA. Please see answer to Question 8 above. date. The court held that the insured was entitled to
avoid the contract of insurance and was entitled to the
B - For the Insurer return of the premium paid.
12. What is the content of the pre-contractual 14. Is it a breach of the duty of utmost good
duty of utmost good faith for the insurer? faith in your jurisdiction for insurers not
The same duty of good faith binds both the insured to notify the prospective insured of the
and the insurer. Notably, in the marine insurance nature and extent of their duty of
16
context, section 17 of the MIA applies equally to disclosure?
17
both the insured and the insurer. No. The duty of good faith does not go so far as to
Accordingly, a non-exhaustive list of the insurer’s pre- require that the insurer explains to the insured what
contractual duty of good faith would be analogous to the insured’s obligations under the contract of
20
that of the insured and is as follows: insurance are. This should apply mutatis mutandis
to the insured’s pre-contractual duty of disclosure.
(a) A duty to disclose all material facts;
and 15. What are the remedies for a pre-
(b) A duty not to misrepresent material duty of utmost good faith?
facts to the insured.
The remedies for an insured for an insurer’s breach of
13. Describe the insurer’s pre-contractual its duty of good faith mirror those as set out in the
duty of utmost good faith by providing answers to Question 10 above.
which it has been applied. The insurer’s breach of its obligations of disclosure
21
under section 17 of the MIA or under common law,
as the case may be, entitles the insured to avoid the
22
contract and seek a return of the premiums paid as
Response
money had and received.
An example of the insurer’s duty to disclose all
Whilst an insurer’s breach of its non-disclosure
material facts was given by Lord Mansfield in the
18 obligation simpliciter does not give the insurer a right
seminal case of Carter v Boehm . In that case, Lord
to damages, the insured may be able to recover
Mansfield suggested that it would be a breach of good
damages for a misrepresentation if made fraudulently,
faith for an insurer to insure a ship on her voyage,
negligently or otherwise under the Misrepresentation
which the insurer privately knew to have arrived at its
Act (Cap. 390).
intended destination.

14
John Birds et al, MacGillivray on Insurance Law
(Sweet&Maxwell, 2012), at [17-030]. 16. What is the content of the post-
15
Peter Eggers et al, Good Faith and Insurance Contracts contractual duty of utmost good faith for
(Lloyd’s List, 2010), at [16.97] to [16.111]. the insured at the claim stage?
16
See Appendix below.
17
However, the MIA does not expressly set out the specific 19
[1908] 1 KB 545.
duties of disclosure for the insurer like it did for the insured at
sections 18 to 20. Nonetheless, the MIA is only intended to 20
be a partial codification of the common law. Accordingly, it is (Lloyd’s List, 2010), at [12.37].
open for the court to hold that the insurer owes common law
21
duties that are analogous to that expressly provided in See Appendix below.
sections 18 to 20 of the MIA. 22
John Birds et al, MacGillivray on Insurance Law
18
(1766) 3 Burr 1905. (Sweet&Maxwell, 2012), at [17-093].
16.1 Do third party beneficiaries of cover have B - For the Insurer

The insured’s duty of good faith in presenting a claim good faith for the insurer when dealing
is no wider than a duty not to present a fraudulent with a claim?
23
claim.
It has been said that as the insured’s duty requires
A third party (such as a loss payee or a beneficiary) him to abstain from fraud in the presentation of his
does not owe any duty of good faith to the insurer, claim (please see answer to Question 16 above), and
save in so far that there may be a “duty” not to cause as the duty is mutual, the insurer should not be
loss to the insurer under general law (e.g. under the regarded as in breach of his duty of good faith, unless
24
tort of deceit). he has been fraudulent in his treatment of the claim or
27
of the contract as a whole.
duty of utmost good faith by providing 20. Does an insurer owe a duty of utmost
examples of the best known cases in good faith towards third party
which it has been applied. beneficiaries of cover in handling claims?
An example of the insured’s duty as set out in the The insurer does not owe a duty of good faith to any
answer to Question 16 above is the Singapore High third party, except an assignee of the entire contract,
Court case of Sumpiles Investment Pte Ltd v AXA even though that third party may be entitled to enforce
25
Insurance Singapore Pte Ltd . In that case, the boom terms of the insurance contract pursuant to the
28
of a floating crane barge fell causing considerable Contract (Rights of Third Parties) Act (Cap. 53B).
damage. The insured sought to recover the cost of
repairs from the insurer under a marine insurance
policy. The insurer alleged, inter alia, that the insured duty of utmost good faith by providing
had breached its duty of good faith because it had
caused or pressurised the crew into making false
statements to the surveyor investigating the casualty. The nature of an insurer’s duty of good faith in relation
The court held that the insured’s duty of good faith to claims was discussed in the English High Court
under section 17 of the MIA only required that the case of Insurance Corporation of the Channel Islands
29
Ltd v McHugh . In that case, the insured alleged that
insured should not: (i) present a fraudulent claim; or
(ii) make use of fraudulent devices in presenting a the insurer was engaged in an unlawful conspiracy so
claim or during the course of the insurer’s as to defeat or reduce the insured’s rights and/or
investigation into the claim. On the facts, the court delay payment under the relevant policies. The
insured relied upon, inter alia, breaches of the duty of
held that the insurer had failed to show that the
insured had acted fraudulently. However, the good faith as the unlawful means for the purposes of
insured’s claim was dismissed on other grounds the claim in unlawful conspiracy.
18. Is the insured’s intentional concealment The court rejected the insured’s submission that the
of his/her criminal activities when duty of good faith requires that the insurers act
completing a proposal for life policies a conscientiously, fairly and reasonably when dealing
breach of the duty of utmost good faith? with claims and observed that “[c]ourts have shown
reluctance to apply the doctrine of good faith in a
The insured’s duty of good faith requires that the claims context other than in cases of deliberate
insured disclose his/her criminal activities insofar that falsehood”.
such activities are material to the insurer’s
acceptance of risk under the life policy and/or suggest
26 your jurisdiction and, if so, how does it
a moral hazard.
The General Insurance Association of Singapore’s
General Insurance Code of Practice (the “Code of
Practice”) sets out a recommended claims handling
procedure. Aside from setting timelines for the
23 insurer’s response to a claim, the insurer is also
The Star Sea [2001] UKHL 1, cited with approval in
Sumpiles Investments Pte Ltd v AXA Insurance Singapore
Pte Ltd [2006] SGHC 65, at [30].
24 27
Peter Eggers et al, Good Faith and Insurance Contracts Peter Eggers et al, Good Faith and Insurance Contracts
(Lloyd’s List, 2010), at [13.03]. (Lloyd’s List, 2010), at [12.47].
25 28
[2006] SGHC 65. Peter Eggers et al, Good Faith and Insurance Contracts
26 (Lloyd’s List, 2010), at [13.03].
Brotherton v Aseguradora Colseguros SA [2003] EWCA
29
Civ 705. [1997] 1 LRLR 94.
required to provide the insured with sufficient Yes. Section 17 of the MIA gives the innocent party
guidance as to how to make a claim under the the right to avoid the contract of insurance in the
relevant policy. event that the other party is in breach of its duty of
good faith.
However, the Code of Practice is non-binding code
and in any case there is little or no overlap between 26. Can a breach by the insurer of the duty of
the guidelines as set out therein and the general duty utmost good faith result in regulatory
of good faith in claims handling as discussed in the sanctions against the insurer (license
answers to Questions 19 to 21 above. suspension, banning order, etc.)?
23. Can courts disregard a term of a contract Technically, there are no regulatory sanctions against
of insurance if it would be a breach of the the insurer for breach of its duty of good faith.
to rely on the term? If so, please illustrate However, section 12 of the IA gives the Monetary
with examples. Authority of Singapore (“MAS”) wide powers to cancel
the licence of an insurer or impose such further
It is unlikely the courts can disregard a term of the conditions as it deems fit, inter alia, in the event that:
contract of insurance even if it would be a breach of (i) the insurer is carrying on its business in a manner
the duty of good faith for the insurer to rely on the said likely to be detrimental to the interests of its policy
term. The remedy for a breach of good faith is owners; or (ii) it is in the public interest to cancel the
rescission, which cannot be effected partially to avoid licence.
only a part of the contract or to carry out any form of
30 IV - Reinsurance
contractual reconstruction.
24. Do courts have special powers to 27. To what extent, if any, does your
disregard any avoidance of the jurisdiction apply different principles
application of a policy in cases where the regarding utmost good faith to
insured has established that it would be a reinsurance at both the placement/pre-
breach of the duty of utmost good faith to contractual stage, and at the claim stage?
The principles as applied in the insurance context are
This issue has not come up for consideration in the 32
also generally applicable in the reinsurance context.
Singapore courts. However, it has been suggested in
English case authorities that it may be possible that ****
an insurer may lose its right to avoid a policy if it failed Appendix
to act in good faith. (Sections 17 to 21 of the Marine Insurance Act
For example in the English Court of Appeal case of (Cap. 387))
31
Drake Insurance plc v Provident Insurance plc , the Insurance is uberrimae fidei
insured had failed to misdescribed an earlier accident
as a “fault” accident when it had in fact been a “no 17. A contract of marine insurance is a contract
fault” accident. The court held that the insurer was not based upon the utmost good faith, and, if the utmost
entitled to avoid the policy as the policy could not good faith is not observed by either party, the contract
have been made on terms other than the terms on may be avoided by the other party.
which it was in fact made.
Disclosure by assured
However, the court went on to state in orbiter dicta
18.—(1) Subject to this section, the assured must
that if the insurer knew or turned a blind eye to the
disclose to the insurer, before the contract is
fact that the earlier accident was a “no fault” accident
concluded, every material circumstance which is
at the time that it purported to avoid the policy, the
known to the assured, and the assured is deemed to
insurer would not be acting in good faith and may
know every circumstance which, in the ordinary
thereby lose any right to avoid the policy.
course of business, ought to be known by him; and if
25. To the extent that an insurer’s breach of the assured fails to make such disclosure, the insurer
the duty of utmost good faith is under may avoid the contract.
(2) Every circumstance is material which would
influence the judgment of a prudent insurer in fixing
utmost good faith?
32
See Chapter 6 of PT O’Neill et al, The Law of
30 Reinsurance in England and Bermuda (Sweet & Maxwell,
De Molestina v Ponton [2002] 1 All ER (Comm) 587.
2010) where insurance cases are cited when discussing the
31
[2003] EWCA Civ 1834. duty of good faith in the reinsurance context.
the premium or determining whether he will take the (2) A representation is material which would influence
risk. the judgment of a prudent insurer in fixing the
premium or determining whether he will take the risk.
(3) In the absence of inquiry, the following
circumstances need not be disclosed: (3) A representation may be either a representation
as to a matter of fact, or as to a matter of expectation
(a) any circumstance which diminishes the risk; or belief.
(b) any circumstance which is known or (4) A representation as to a matter of fact is true, if it
presumed to be known to the insurer. The insurer be substantially correct, that is to say, if the difference
is presumed to know matters of common between what is represented and what is actually
notoriety or knowledge, and matters which an correct would not be considered material by a prudent
insurer in the ordinary course of his business, as insurer.
such, ought to know;
(5) A representation as to a matter of expectation or
(c) any circumstance as to which information is belief is true if it be made in good faith.
waived by the insurer;
(6) A representation may be withdrawn or corrected
(d) any circumstance which it is superfluous to before the contract is concluded.
disclose by reason of any express or implied
warranty. (7) Whether a particular representation be material or
not is, in each case, a question of fact.
(4) Whether any particular circumstance, which is not
disclosed, be material or not is, in each case, a When contract deemed to be concluded
question of fact.
21. A contract of marine insurance is deemed to be
(5) The term “circumstances” includes any concluded when the proposal of the assured is
communication made to, or information received by, accepted by the insurer, whether the policy be then
the assured. issued or not; and, for the purpose of showing when
the proposal was accepted, reference may be made
Disclosure by agent effecting insurance to the slip or covering note or other customary
19. Subject to section 18 as to circumstances which memorandum of the contract.
need not be disclosed, where an insurance is effected ****
for the assured by an agent, the agent must disclose
to the insurer —
(a) every material circumstance which is known
to himself, and an agent to insure is deemed to RAJAH & TANN LLP
know every circumstance which in the ordinary
course of business ought to be known by, or to 9 Battery Road #25-01
have been communicated to, him; and Straits Trading Building
Singapore 049910
(b) every material circumstance which the Singapore
assured is bound to disclose, unless it comes to
his knowledge too late to communicate it to the Tel.: +65 6232 0645
agent. Fax: +65 6428 2124
Email: simon.goh@rajahtann.com
Representations pending negotiation of contract
Website: www.rajahtann.com
20.—(1) Every material representation made by the
assured or his agent to the insurer during the
negotiations for the contract, and before the contract
is concluded, must be true; and if it is untrue, the
insurer may avoid the contract.
IBA Insurance Committee Substantive Project 2014 137 The Duty of Utmost Good Faith: Spain
Spain
L.C. RODRIGO ABOGADOS peculiarities. The policyholder/insured do not have to
volunteer information but solely they have to answer
Jorge Angell
truthfully the questions posed by the insurer.
I - Definition of the Principle of Utmost Good Faith 4. Does the principle of utmost good faith
1. In your jurisdiction, do insurance laws (life insurance, general insurance,
provide for the principle of utmost good reinsurance etc.)?
what is its meaning? Provide any Yes.
definition whether under statute or 5. Does the duty of utmost good faith apply
according to case law. only at the pre-contractual stage or is it a
Good faith is a fundamental principle of Spanish law continuous duty applying both pre-
which pervades the whole legal system. The principle contractually and post-contractually?
is recognized in several provisions of the Civil Code. It is a continuous duty from the pre-contractual stage
Section 7.1 provides that rights must be exercised in through the underwriting and the making and handling
accordance with good faith. In the specific matter of of claims.
contracts, section 1258 provides that the parties are
bound by the terms of the contract and by all the II - Application of the Principle of Utmost Good
consequences that according to the nature of the Faith at the Pre-Contractual Stage
contract should be in agreement with good faith,
usage and the law. 6. Does the Principle of Utmost Good Faith
Uberrima bona fidei is the highest standard of good
faith which is predicated of certain contracts, one of
which is insurance. It is defined by case law as Yes, to both but there is a special emphasis on the
follows: “The principle of good faith should be taken insured.
into account, not only to supplement or complete the
covenants of the parties but also to regulate the A - For the Insured
effects that during the life of the contract may and 7. What is the content of the duty of utmost
should be produced by certain events and by the good faith for the insured?
reaction of the parties to them... it is the most
important principle ... and it is contradicted or Describe the insured’s pre-contractual
breached whenever one of the parties, with the duty of utmost good faith by providing
intention of obtaining a benefit not derived from the examples of the best known cases in
straight application and purpose of the agreement, which it has been applied.
pretends ignorance about facts he is perfectly aware
The policyholder/insured must answer truthfully the
of, conceals the truth from the party that could not
questions posed by the insurer such that the insurer
know it, performs an equivocal action to benefit from
will be able to have a fair understanding and view of
its doubtful meaning ...” (Decision of the Supreme
the risk (section 10 of the Insurance Contract Act,
Court of 29 January 1965, RJ 1965\262).
ICA).
Examples: there are many, but D&O insurance offers
many cases of questionnaires and information that did
not reflect the real entity of the risk.
otherwise? 8. Is the duty of utmost good faith for the
As said above, the principle is codified.
3. Do insurance laws of your jurisdiction pre-contractually the two are
provide for both the principle of utmost indistinguishable?
Well, it is not exactly equivalent. The duty of
disclosure is subject to the principle of good faith or in
The insurance laws do not specifically provide for the other words the duty of disclosure must be complied
principle of utmost good faith since it is embedded in with in good faith. In fact they are complementary and
the general civil law principles which apply to all indivisible.
contracts. There is a separate duty of disclosure for
the policyholder/insured subject to certain
9. If the duty of utmost good faith operates 13. Describe the insurer’s pre-contractual
separately pre-contractually from the duty of utmost good faith by providing
duty of disclosure describe that operation examples of the best known cases in
and how the two sit together. You may which it has been applied.
illustrate the differences. For example, questions included in the questionnaire
cannot be too vague or general.
Please see our answer to Question 8.
10. What are the remedies for a pre- faith in your jurisdiction for insurers not
contractual breach by the insured of the to notify the prospective insured of the
duty of utmost good faith? Are the nature and extent of their duty of
remedies different from a breach of the disclosure?
duty of disclosure?
It could be, namely in consumers risks. The
The remedies are substantially the same as follows: questionnaire usually incorporates a number of
Under section 10 of ICA, in the event of “inaccuracies” warnings.
(misrepresentations) or “reservations” (concealment
or non-disclosure) by the policyholder of all relevant
information as requested by the insurer in the
questionnaire/proposal form, the insurer can either
rescind the policy in one month time since the The general statutory remedies: damages.
moment he finds out provided the loss has not
occurred. In this event, the insurer may keep the III - Post-Contractual Application of the Principle
premium for the period in course, save that he acted of Utmost Good Faith (at the Claim Stage)
in bad faith or with gross negligence. If the loss
occurs before the rescission is notified or if the A - For the Insured and Third Party
misrepresentation or non-disclosure is discovered Beneficiary of Cover
after the loss takes place, the insurer will no longer be
entitled to rescind the contract but solely to reduce the
indemnity in the same proportion to that existing
between the premium actually collected and the
premium that would have been collected had the real The insured has the duty to act honestly when making
risk been disclosed to him. However, if the a claim.
policyholder acted in bad faith or with gross
negligence with the aim to deceive the insurer, then The insured has the duty to provide all sorts of
the insurer would be released from his obligation to information on the circumstances and consequences
indemnify (which is to be proved by the insurer), the of the loss. The breach of this duty due to bad faith or
insurer will be released from his obligation to gross negligence on the part of the insured would
indemnify. release the insurer from its obligation to indemnify
(section 16 of ICA).
In addition, it should be borne in mind that according
to section 4 of ICA the insurance contract shall be The foregoing provision is connected with the general
void if upon its conclusion there is no risk or the loss duty of salvage in all casualty insurances, which is to
has already occurred. be understood as the duty to diminish or minimise the
loss (section 17 of ICA). The consequences of the
11. If the duty of utmost good faith operates breach of this duty can go from the reduction of the
separately from the duty of disclosure indemnity depending on the importance of the
does one have precedence over the damages sustained by the breach and the degree of
other? fault of the insured, to the release of the insurer if the
breach is due to the manifest intent of damaging or
They are two faces of the same coin.
deceiving the insurer.
B - For the Insurer
As a general rule, section 19 of ICA excludes from
12. What is the content of the pre-contractual cover losses caused by the insured acting in bad
duty of utmost good faith for the insurer? faith. This is also the first standard exclusion in all
insurance policies. Case law has ruled that the
Actually, the main weight lies on the fraud/bad faith exclusion in an insurance policy
policyholder/insured. But the insurer is also subject to cannot be raised against an injured third party. In
the principle of good faith. For example, the insurer such a case, the insurance company is left to recover
cannot keep the premium paid by the insured in the the losses from the insured. It appears that this
event of rescission of the contract if he acted in bad approach will change following a future major
faith. overhaul of ICA.
16.1 Do third party beneficiaries of cover have (i.e., the buyer of cover) must answer truthfully the
a duty of utmost good faith? questions posed by the insurer prior to the conclusion
of the contract. The policyholder will be relieved from
As stated above (see answer 1), good faith is a said duty if the insurer does not submit a
fundamental principle of Spanish law which pervades questionnaire or, submitting it, there are
the whole legal system. Furthermore, as a general circumstances that may be relevant for the evaluation
rule, the Spanish procedural laws require the parties of the risk but are not covered in the questionnaire.
to any proceedings to abide by the rules of good faith.
Consequently, third party beneficiaries are also It follows that the policyholder is not under the
subject to the principle of good faith. proactive duty to disclose all material facts that may
have a bearing on the evaluation of the risk, but only
those he or she is asked about by the insurer. Under
this system knowledge of sensitive and even
prejudicial information to the insurer is not necessarily
subject to disclosure to the extent the relevant
According to the 2013 Report on Fraud in Spanish questions are not asked in the questionnaire.
Insurance 2013, elaborated by ICEA (Investigación Furthermore if the loss has occurred, the insurer will
Cooperativa entre Entidades Aseguradoras y Fondos be only released from his obligation to indemnify if he
de Pensiones), an association for the study and proves that the policyholder acted in bad faith or with
research of insurance-related topics and issues, the gross negligence. Otherwise he will have to indemnify
annual attempts of fraud were in the amount of 573 on a reduced basis. Clearly, this rule is intended for
million euros, but insurance companies only paid 161 the protection of the insureds. See our answer to
million, so they have saved 412 million, which is Question 10, for further information on remedies for
71.9% of the suspicious amount claimed. The breach of declaration of risk.
statistical data are obtained from cases where the B - For the Insurer
author’s bad faith and his or her attempt to deceive
the insurer have been proved. 19. What is the content of the duty of utmost
Most of the attempts of fraud took place in motor with a claim?
insurance and the most frequent cases were:
simulated or false theft; claims where there is no loss; The insurer must handle the claim in a professional,
intentional losses reported as accidental; transfer of business-like manner. It should not delay the
liability (e.g. from the driver to the passenger). adjustment and payment of the claim without sound
and justified reasons. The consequences of an
In the framework of life insurance, the most frequent unjustified delay in settling the claim may be very
cases were: undeclared preexisting illnesses; onerous for the insurer.
withholding of information related to the
circumstances of death; and, intentional death 20. Does an insurer owe a duty of utmost
declared as accidental. good faith towards third party
Apart from the insured’s post-contractual duty of good
faith when making a claim, during the course of the Yes.
contract, the policyholder/insurer have the duty to
communicate to the insurer, as soon as possible, all
circumstances that aggravate the risk and which have
such nature that had them been known to him the
insurer would not have covered the risk or would have
done so under more onerous conditions (section 11 of It is usually applied in the context of adjustment and
ICA). If the loss occurs before the aggravation is settlement of claims. Bad faith denials of insurance
notified, the insurer is released from any and all claims or frivolous litigation by the insurer against the
obligations under the policy if the policyholder acted in insured’s claims can have serious consequences.
bad faith. In any other event, the indemnity shall be
reduced in the same proportion to that existing In the first case, failure to pay or the negligent delay in
between the premium actually collected and the paying will result in the insurer paying a special
premium that would have been collected had the real interest which is punitive in nature since it is unrelated
risk been disclosed to him (section 12 of ICA). to the actual market cost of money. The amount will
be calculated at the annual legal interest rate
18. Is the insured’s intentional concealment increased by 50 percent for each of the first two years
of his/her criminal activities when payment is in arrears and at no less than 20% per
completing a proposal for life policies a cent thereafter. To be released from the punitive
breach of the duty of utmost good faith? interest, the insurer must prove that there were
Yes, provided the terms envisaged in section 10 of justified causes that prevented it from settling the
ICA are met. According to section 10, the policyholder insured’s claim earlier. Case law has set out very
stringent requirements which are very difficult to meet.
In the second case, there is a decision where the 25. To the extent that an insurer’s breach of
Supreme Court required the insurer to pay the claim the duty of utmost good faith is under
exceeding the policy limit. Indeed, the Decision of the statute, is it a breach of the statute for the
Supreme Court of May 2, 1988 (RJ 1998\3463) found insurer to be in breach of its duty of
that the insurer had unfairly hindered and delayed utmost good faith?
litigation and thus payment of the indemnity, while
damages to the property had aggravated. Yes.
Consequently, the insurer was ordered to pay the full 26. Can a breach by the insurer of the duty of
indemnity beyond the limits of the policy. utmost good faith result in regulatory
It should be noted that these are contractual actions,
not tort actions.
22. Is there a Code of Practice for insurers in Yes. The breach of the duty of utmost good faith may
your jurisdiction and, if so, how does it constitute an administrative infraction which can be
sit with the duty of utmost good faith? classified as very serious, serious and slight
depending on whether the breach is reiterated or not
There is no general Code of Practice. Some (sections 40.3.ñ, 40.4.h and 40.5.b of the
insurance companies have their own Code. UNESPA Consolidated Text of the Law for the Regulation and
(the Spanish insurer and reinsurer association) has Supervision of Private Insurances 2004, as
developed guides of good practices for different types amended).
of policies (i.e. health, third party motor insurance,
casualty) in order to ensure appropriate Sanctions
understanding by consumers of insurance policies (a) Very serious infractions can entail
(e.g. the coverage and exclusions of the contract, its any one of the following sanctions:
prices, understanding of the importance of
appropriately filling out the questionnaires), amongst  Revocation of the
other issues. Insurance companies may voluntary administrative license;
adhere to these guides as they are not mandatory.
 Suspension of the
23. Can courts disregard a term of a contract administrative license to
of insurance if it would be a breach of the operate in one or more
duty of utmost good faith for the insurer lines for a a period not
to rely on the term? If so, please illustrate exceeding 10 years nor
with examples. less than 5 years;
Yes. For example:  Public advertising of the
(a) As the conditions of the insurance infraction;
must be written in a clear and  Fine for 1% of its capital
precise way, the insurer cannot (or between € 150,000 and
challenge the interpretation of the 300,000 if 1% of capital is
contract where doubts have arisen less than € 150,000).
as a consequence of its own failure
to write the contract in precise and (b) Serious infractions can entail any
clear terms; and, one of the following sanctions:
(b) Clauses that limit or restrict the  Suspension of the
rights of the insureds must be administrative license to
highlighted and written in bold operate in one or more
letters, and accepted explicitly by lines for up to 5 years,
the policyholder or insured (section
3 of ICA). Otherwise, the clause  Public advertising of the
may be null and void or simply infraction;
inapplicable.
 Fine between € 30,000
24. Do courts have special powers to and 150,000.
application of a policy in cases where the In both types of infractions (very serious and serious)
insured has established that it would be a the public advertising of the infraction is compatible
breach of the duty of utmost good faith to with any of the sanctions imposed.
allow the insurer to avoid the policy? (c) Slight infractions
Yes, they do.  Fine for up to € 30,000, or
private reprimand.
IV - Reinsurance
27. To what extent, if any, does your L.C. Rodrigo Abogados

regarding utmost good faith to C/ Lagasca, 88
reinsurance at both the placement/pre- 4ª Planta
contractual stage, and at the claim stage? 28001 Madrid
Spain
In essence they are the same. However, the
emphasis is greater in treaty reinsurance, for Tel.: (34) 9 1435 5412
example. Fax: (34) 9 157 667 169 157 807 41
**** Email: jangell@rodrigoabogados.com
Website: www.rodrigoabogados.com
IBA Insurance Committee Substantive Project 2014 142 The Duty of Utmost Good Faith: Sweden
Sweden
MANNHEIMER SWARTLING 3. Do insurance laws of your jurisdiction
Anette Ivri Nordin and Jon Lindgren good faith and a separate duty of
I - Definition of the Principle of Utmost Good Faith disclosure for the insured?
N/A (please see Section 1 above).
provide for the principle of utmost good 4. Does the principle of utmost good faith
faith (in latin, “uberrimae fidei”) and if so, apply to all types of insurance contracts
what is its meaning? Provide any (life insurance, general insurance,
definition whether under statute or reinsurance etc.)?
N/A. However, the ICA applies to most insurance
No, there is no direct equivalent to the principle under contracts, with the exception of reinsurance contracts.
Swedish law. Nevertheless, general references to The provisions on the insured’s duty of disclosure and
uberrimae fidei or utmost good faith are made in the duty for the insurer to provide information differ
Swedish insurance law literature and imply an depending on whether the relevant insurance is a
extended duty of loyalty between the parties. consumer insurance (Sw. konsumentförsäkring), a
Although expressed as being mutually applicable to business insurance (Sw. företagsförsäkring) or a
the parties, uberrimae fidei is mainly referred to in personal insurance (Sw. personförsäkring) as defined
1 in the ICA (personal insurance will below be referred
connection with the policyholder’s/insured’s 2
obligations/duties towards the insurer which are to as “life insurance”).
mainly manifested in the insured’s pre-contractual and General contract law applies to reinsurance contracts,
post-contractual duties of disclosure stipulated in the although some provisions of the ICA may be
Swedish Insurance Contracts Act ((Sw. analogically applied to such contracts (please see
försäkringsavtalslagen), the “ICA”). However, the
Section 27 below).
insurer’s obligation to provide information under the
ICA may also be regarded as an expression of the 5. Does the duty of utmost good faith apply
parties’ extended duty to act loyal towards each other. only at the pre-contractual stage or is it a
In addition to the ICA, general contractual principles contractually and post-contractually?
apply to a contractual party’s unethical behaviour,
such as actions in conflict with good faith etc. N/A. However both insured’s duty of disclosure and
the insurer’s duty to provide information apply both
Thus, although there is no direct equivalent to the pre-contractually and post-contractually (see Sections
principle of utmost good faith under Swedish law, the
6, 7, 12, 16 and 19 below).
questions below will be answered with reference to
the ICA and to general contractual law. II - Application of the Principle of Utmost Good
At times references are made to utmost good faith in
insurance and reinsurance terms and conditions, due
to the international nature of many insurance
contracts. When such a condition provides no
definition of utmost good faith, an interpretation would at the pre-contractual stage?
be dependent upon e.g. foreign law. The duty of disclosure under the ICA applies to the
2. Is the principle of utmost good faith (i) a policyholder (in relation to consumer insurance,
statutory principle, (ii) a common law business insurance and life insurance) and the
3
principle or (iii) a civil law principle? Or is insured (in relation to life insurance) but not to the
otherwise?
N/A (please see Section 1 above). 2
Please note that the ICA contains further provisions on
disclosure and the duty to provide information in relation to
group insurance that will not be accounted for in this
questionnaire.
3
Please note that insured refers only to the insured in this
context and not to both insured and policyholder (see
footnote 1 above). Under the ICA, an insured in conjunction
1
Below the term insured refers to both policyholder and with life insurance is a person whose life or health the
insured, unless otherwise specified. insurance shall apply to.
insurer. Nonetheless, under the ICA, the insurer has a information about his health condition. When later
duty to provide the insured with information about the claiming insurance indemnification, the insurer
insurance and its coverage during the pre-contractual contested the claim arguing that it would have issued
stage. the insurance on different terms and conditions had
the insured provided correct information. The Göta
A - For the Insured
Court of Appeal held that if the insurer had received
7. What is the content of the duty of utmost correct information about the insured’s state of health,
good faith for the insured? the disease which actually had affected the insured
and thus formed the basis of the claim for
Describe the insured’s pre-contractual compensation, would have been excluded from the
duty of utmost good faith by providing insurance coverage. The insured’s claim was
examples of the best known cases in therefore dismissed.
The Supreme Court case NJA 1949 s 786 concerned
Under the ICA, a potential policyholder seeking a business insurance policyholder’s failure to provide
consumer insurance has a duty to disclose the insurer with information of material significance for
information, upon request of the insurer, which may the insurer’s risk assessment. The policyholder had
be material to the insurer’s decision to issue the insured two barges but had not disclosed to the
insurance. The duty includes providing true and insurer that the insured barges in fact consisted of
complete answers to the insurer’s questions. The parts from a wrecked barge, why the insured barges’
aforesaid is also applicable to life insurance, but the seaworthiness could be questioned. The barges sank
4
duty of disclosure also applies to the insured. and the insured claimed indemnification under the
A prospective business insurance policyholder shall, insurance. The Supreme Court stated that it could be
in addition to the aforesaid, provide information which assumed that the insurer would not have issued any
is of material significance for the insurer’s risk insurance, or, at least, that the insurance would have
assessment notwithstanding the absence of inquiry by been issued on different terms and conditions had the
the insurer. policyholder disclosed the information about the
barges’ seaworthiness. Moreover, that the
A Swedish Supreme Court ruling that is often referred policyholder should have realized that the withheld
to in Swedish legal literature is NJA 1940 s. 280 II, information was relevant to the insurer’s risk
where the policyholder had, upon request of the assessment and that it was negligent not to provide
insurer, incorrectly stated that there were four the insurer with this information. The insurer was
mechanically driven machines in the insured building. therefore released from its liability to indemnify the
However, there were in fact five machines in the insured.
building. The building was later destroyed in a fire and
the insured claimed compensation. The insurer 8. Is the duty of utmost good faith for the
contested the claim, stating that the policyholder had insured equivalent to the duty of
not provided the insurer with correct information and disclosure in your jurisdiction so that
that the insurer would not have issued insurance if the pre-contractually the two are
policyholder had provided correct information indistinguishable?
(because, as it may be understood, the risk of fire N/A (see Sections 1 and 7 above).
increased with the number of mechanically driven
machines). The Supreme Court held that the insurer 9. If the duty of utmost good faith operates
would not have issued the insurance had the separately pre-contractually from the
policyholder provided correct information. Thus, the duty of disclosure describe that operation
insurer was released from its liability to indemnify the and how the two sit together. You may
5 need to describe the duty of disclosure to
insured.
In a case from the Göta Court of Appeal, RH 1995:3,
that concerned an insured’s duty of disclosure when N/A (see Sections 1 and 7 above).
entering into a life insurance contract, the insured 10. What are the remedies for a pre-
had, upon request of the insurer, provided incorrect contractual breach by the insured of the
4 duty of disclosure?
Please note that insured refers only to the insured in this
context and not to both insured and policyholder (see The remedies for a breach of the duty of disclosure
footnote 1 above). differ depending on whether the insurance is a
5
It should be noted that this case concerned business
consumer insurance, a life insurance or a business
insurance. If the case would have concerned consumer insurance.
insurance, it is likely that the outcome would have been If a policyholder of a consumer insurance has
different (please see Section 10 below where the remedies
for breach of the duty of disclosure are further explored).
intentionally or negligently disregarded the duty of
disclosure, the insurance indemnification may be the provisions of the Swedish Contracts Act (Sw.
reduced in respect of each insured in accordance with avtalslagen), and the insurer shall be released from
what is reasonable taking into account: the liability for insured events which occur thereafter.
significance which the fact would have had for the
insurer’s risk assessment, whether such disregard
was intentional or negligent, and other circumstances.
If a policyholder or an insured of a life insurance has other?
intentionally or negligently provided incorrect or
incomplete information of significance for assessment N/A (see Sections 1 and 7 above).
of the risk, and any negligence was not insignificant, B - For the Insurer
the insurer shall be released from liability for all
insured events where the insurer can show that it 12. What is the content of the pre-contractual
would not have issued the insurance had the duty of duty of utmost good faith for the insurer?
disclosure been fulfilled. Where the insurer can show Under the ICA, an insurer shall, prior to the issuance
that the insurance would have been issued for a of a consumer insurance policy or a life insurance
higher premium or would have otherwise been issued policy, provide information which facilitates the
on other terms and conditions than those contracted insured’s assessment of the need for, and choice of,
to, its liability shall be limited to the amount reflected insurance. The information shall reproduce, in a
by the premium (pro rata) and other terms and simple manner, the primary content of the applicable
conditions agreed to. The insurer’s liability may also insurance terms and conditions of which the insured
be adjusted if the insurer has not acquired needs to be aware in order to assess the cost and
reinsurance which otherwise would have been scope of the insurance policy. Important limitations of
acquired. However, the aforesaid described in this the insurance coverage shall be emphasised
paragraph shall not apply to the extent that it would separately.
lead to an unreasonable result in respect of the
policyholder or his successor in interest. The insurer’s duty to provide information also applies
to business insurance. However, the duty does not
What is described in relation to life insurance in the apply if the potential policyholder of a business
paragraph above, applies also to the policyholder of a insurance may be deemed to have no need of the
business insurance. However, the exception for information.
unreasonable results does not apply to business
insurance. Moreover, insurance terms and conditions 13. Describe the insurer’s pre-contractual
may in certain situations stipulated in the ICA, provide duty of utmost good faith by providing
that the insurer shall be liable only to the extent that it examples of the best known cases in
is shown that the incorrectly described circumstance which it has been applied.
was insignificant in respect of the occurrence of the
To the best of our knowledge, there are no relevant
insured event or scope of the damage.
Swedish court cases concerning this issue. However,
The insurer’s liability in relation to the aforementioned the Swedish National Board for Consumer Disputes
types of insurance, shall not be limited pursuant to the (Sw. Allmänna reklamationsnämden), a governmental
above if the insurer knew or should have known, at board that issues non-binding recommendations in
the time that the duty of disclosure was disregarded, consumer related disputes, has in a matter (2006-
that the information provided was incorrect or 3407) held that an insurer, in connection with the
6
incomplete. The aforesaid applies also where the issuance of a travel insurance, had not clearly
incorrect or incomplete information lacked emphasised an important limitation of the insurance
significance or subsequently ceased to be of coverage, whereby, with reference to general
significance to the contents of the agreement. principle of contract law, the limitation was
disregarded (see Section 15 below regarding the
If a policyholder has acted fraudulently or contrary to insurer’s duty to provide information).
good faith in conjunction with fulfillment of the duty of
disclosure, the insurance contract (regardless 14. Is it a breach of the duty of utmost good
whether it concerns a consumer insurance, life faith in your jurisdiction for insurers not
insurance or business insurance) is void pursuant to to notify the prospective insured of the
disclosure?
N/A (see Section 1, 6 and 12 above).
6
In conjunction with a death insured by a life insurance
policy, the insurer may claim that the duty of disclosure has 15. What are the remedies for a pre-
been neglected only if the death has occurred within five contractual breach by the insurer of its
years from the time at which the information was provided or duty of utmost good faith?
where the insurance company has provided notice of
assertion of limitation of the insurer’s liability within the same Under the ICA, if an insurer of a consumer insurance
time. policy or a life insurance policy has failed to
separately emphasise important limitations of the reported to the insurer within a certain period of time,
coverage – either before or after execution of the not less than six months from the date on which the
contract – such limitations may not be relied upon by claimant acquired knowledge of its claim, the claimant
7
the insurer. Moreover, if an insurer fails to comply with may lose its right to indemnification.
the duty to provide information, the insurer may be
sanctioned and/or required to disclose the information
in accordance with the Swedish Marketing Act (Sw. a duty of utmost good faith?
Marknadsföringslagen); this also applies to business As mentioned in Section 16 above, a third party
insurance. beneficiary seeking insurance indemnification must
Please note that all types of insurance contracts may not provide incorrect information or keep significant
also be challenged with reference to general information secret or concealed during the claim
principles under Swedish contract law. stage – otherwise the indemnification may be
reduced.
of Utmost Good Faith (at the Claim Stage) 17. Describe the insured’s post-contractual
A - For the Insured and Third Party which it has been applied.
To the best of our knowledge, there is no relevant
Swedish case-law concerning this issue.
the insured at the claim stage? 18. Is the insured’s intentional concealment
Under the ICA, the insured of a consumer insurance completing a proposal for life policies a
has a duty to comply with any terms and conditions of breach of the duty of utmost good faith?
the insurance policy regarding the obligation to report
insured events to the insurer within a specific time. Under the ICA, an insured completing a proposal for a
Also, the insured shall comply with terms and life insurance policy shall, upon request of the insurer,
conditions or instructions from the insurer pursuant disclose information which may be of significance as
thereto regarding the obligation to participate in the to whether the policy shall be issued. This entails that
investigation of the insured event or the investigation if the insured is asked by the insurer whether he/she
of the insurer’s liability. Failure to comply with the is or has been engaged in criminal activities and such
abovementioned obligations may entail that the information is deemed relevant for the insurer’s risk
indemnification that would otherwise have been paid assessment, a concealment of such activities would
to the insured may be reduced in accordance with be a breach against the duty of disclosure under the
what is reasonable under the circumstances if such ICA, which would allow the insurer to cancel the
failure has caused loss to the insurer. Under third policy or amend it, either by charging a higher
party liability insurance, the compensation to the premium or change the terms and conditions of the
injured third party may not be reduced by the insurer policy. However, the insured has no obligation to
even if the insured has acted in breach of the inform about his/her criminal activities if he/she has
abovementioned obligations. Instead, the insurer has not been asked to disclose such information by the
a right to recourse against the insured a reasonable insurer.
amount of which the insurer has paid to the injured
B - For the Insurer
third party.
Further, under the ICA, if an insured or a third party
seeking indemnification from an insurer following an
with a claim?
insured event, intentionally or recklessly incorrectly
provides or keeps secret or conceals information of N/A. However, under the ICA, an insurer has duties
significance for the assessment of the right to when dealing with a claim that may be regarded as an
insurance indemnification, the indemnification which expression of the parties’ extended duty to act loyal
otherwise would have been paid to him may be towards each other.
reduced in accordance with what is reasonable under
the circumstances. Under the ICA, an insurer that has been advised of an
insured event under a consumer insurance policy
The above also applies to life insurance, with the shall, without delay, take the measures necessary to
exception for what is stated in relation to liability settle the claim. Settlement of claims shall take place
insurance. quickly and in observance of the legitimate interests
What is stated above regarding consumer insurance
also applies to business insurance. However, please
note that the ICA stipulates that if a claimant fails to
7
comply with a term of a contract of a business It may be noted that from 1 January 2015, this period of
insurance stipulating that an insured event must be time will be extended to one year.
of the insured and other affected parties. After an between the insured and the insurer. In addition, the
insured event has been reported, the insurer shall industry organisation for insurers, Insurance Sweden
inform the claimant about which information the (Sw. Svensk Försäkring), has issued a
insurer needs to settle the claim. Generally, insurance recommendation concerning pre-contractual
indemnification shall be paid within a month after the information. Both the SFSA regulation and the
claimant has provided the insurer with all the Insurance Sweden recommendation should be
information required to settle the claim. If payment is considered part of what constitute good insurance
not made in a timely manner, the insurer shall pay standard.
penalty interest.
The above applies also to business insurance unless of insurance if it would be a breach of the
the contracting parties agree otherwise. duty of utmost good faith for the insurer
Under the ICA, an insurer which has been notified of with examples.
an insured event under a life insurance policy shall,
without delay, take the necessary measures to pay Yes, a court can disregard a term of an insurance
insurance indemnification. The payment shall be contract in line with what is set out in Section 15
made quickly and in observance of the interests of the above. This entails that if an insured has e.g.
party entitled to compensation. breached an important security provision under a
consumer or life insurance in a way that would make
an insurance claim invalid, but the court finds that the
insurer did not emphasise this specific security
provision in connection with the issuance of the
The duty described under Section 19 applies also to insurance contract (leaving the insured unaware of
third party beneficiaries of cover. the security provision), a court may disregard the
security provision and rule in favour of the claimant,
21. Describe the insurer’s post-contractual despite the wording of the contract.
examples of the best known cases in 24. Do courts have special powers to
which it has been applied. disregard any avoidance of the
To the best of our knowledge, there are no relevant insured has established that it would be a
Swedish court cases concerning this issue. However, breach of the duty of utmost good faith to
the Swedish Financial Supervisory Authority (the allow the insurer to avoid the policy?
“SFSA”) has in a matter (reference number 7445-99-
301), where the insurer was issued a remark, pointed Only to the extent set out in Section 23 above.
out that active claims handling is part of what 25. To the extent that an insurer’s breach of
constitutes good insurance standard (see Section 22 the duty of utmost good faith is under
below). statute, is it a breach of the statute for the
22. Is there a Code of Practice for insurers in insurer to be in breach of its duty of
your jurisdiction and, if so, how does it utmost good faith?
N/A (see Section 1 above).
Under the Swedish Insurance Business Act (Sw. 26. Can a breach by the insurer of the duty of
försäkringsrörelselagen), Swedish insurers are utmost good faith result in regulatory
obliged to conduct their business in accordance with sanctions against the insurer (license
good insurance standard. Good insurance standard suspension, banning order, etc.)?
covers all aspects of the insurer’s business, including
the duty to provide pre-contractual and contractual If an insurer is deemed to be in breach of good
information as well as post-contractual claims insurance standard, as described in Section 22
handling. The content of good insurance standard can above, the SFSA may issue a remark or warning
be found in inter alia regulations issued by the SFSA combined with regulatory fines. In extreme cases, the
and also in supervisory decisions by the SFSA (see SFSA may revoke the insurer’s licence to conduct
Section 21 above). Few regulations and supervisory insurance business.
decisions deal with the insurers’ duty to inform and/or
IV - Reinsurance
handle claims, since these rules are quite clearly set
out in the ICA. Nonetheless, SFSA regulation FFFS
2011:39, “Regulations and general guidelines 27. To what extent, if any, does your
regarding information about insurance and jurisdiction apply different principles
occupational pensions”, stipulates e.g. how insurers regarding utmost good faith to
should inform the insured how complaints can be reinsurance at both the placement/pre-
brought forward to the insurer and where the insured contractual stage, and at the claim stage?
should turn in case there is a dispute over cover
Under Swedish law there is no specific legislation of our knowledge there is no case-law from Swedish
concerning reinsurance contracts and issues courts where such analogical application has been
regarding reinsurance contracts are thus governed by used. However, in a an arbitration case from 1998
general Swedish contract law. When it comes to that was made partially public through challenge
incorrect pre-contractual information, a contract can proceedings in the Swedish Supreme Court, the
be deemed invalid pursuant to general Swedish arbitral tribunal used analogical application of the ICA
contract law, if a party to a contract has been induced when settling a dispute over a reinsurance contract
to enter into the agreement through fraudulent (Svenska Kreditförsäkrings AB v. Munich Re, Swiss
deception by the other party. A contract can also be Re and other reinsurers - Swedish Supreme Court
deemed invalid if the circumstances in which the case T 2270/00).
contract arose were such that, having knowledge of
****
such circumstances, it would be inequitable to enforce
the contract.
Even if the ICA is not directly applicable to
reinsurance contracts, when circumstances are Mannheimer Swartling
similar to those applicable to direct insurance and
there is no other legal hindrance (such as the explicit Norrlandsgatan 21
wording of the contract), the provisions of the ICA Box 1711
could arguably be analogically applied to the relevant 111 87 Stockholm, Sweden
reinsurance contract. When it comes to errors in pre-
contractual information, a reinsurer would typically be Tel.: (46) 8 595 060 00
in the same situation as an insurer. In both cases, the Fax: (46) 8 595 060 01
party that will assume the risk under the contract will Email: aiv@msa.se
typically have a legitimate interest of being correctly jonl@msa.se
informed about the risk before entering into the
contract. Therefore, the principle set out in the ICA on Website: www.mannheimerswartling.se
the insured’s duty of disclosure, which is set out in
Section 7 above, would most likely be analogically
applicable to a reinsured. The same will most likely
apply at the claim stage. Please note that to the best
IBA Insurance Committee Substantive Project 2014 148 The Duty of Utmost Good Faith: Switzerland
Switzerland
BÄR & KARRER Further, the general statutory civil law principle of
good faith, stating that “every person must act in good
Peter Hsu, Daniel Flühmann and Bernhard Stehle faith in the exercise of his or her rights and in the
I - Definition of the Principle of Utmost Good Faith performance of his or her obligations” (art. 2 of the
Swiss Civil Code [“CC”]) applies to insurance
4
1. In your jurisdiction, do insurance laws contracts as well. The principle of good faith can be a
provide for the principle of utmost good basis for deriving, through contract interpretation,
faith (in latin, “uberrimae fidei”) and if so, implied covenants such as, e.g., duties to inform or
what is its meaning? Provide any advise the other party to a contract of certain facts, in
definition whether under statute or cases where such duties are not otherwise applicable
according to case law. based on the law or the contract itself, but where the
other party could in good faith rely on their
5
Direct Insurance Contracts application.
At its most stringent, the principle of utmost good faith In light of the above, our answers to the questions
imposes on the parties to a contract a duty to disclose below will address the parties’ Information Duties
1
any and all material facts on their own motion. Such under Swiss statutory law rather than the duty of
general, comprehensive principle of utmost good faith utmost good faith in the narrow sense (which has not
is not provided for in Swiss law on direct insurance been implemented in Swiss law).
2
contracts.
Reinsurance Contracts
However, the Swiss Federal Act on Insurance
Contracts (“ICA”) imposes certain duties of Reinsurance contracts are, in contrast to direct
information and disclosure (“Information Duties”) on insurance contracts, not governed by the specific
the parties to an insurance contract, which are, to a legislation of the ICA (cf. art. 101 para. 1 no. 1 ICA).
certain extent, similar to the duties deriving from the Rather, reinsurance contracts are subject to the
principle of utmost good faith (for details cf. questions general contract law rules of the Swiss Code of
7 and 12 below): Obligations (“CO”) (cf. art. 101 para. 2 ICA) and to the
general principle of good faith as embodied in art. 2
For example, “before concluding the insurance 6
CC. However, the CO does neither impose any
contract, the insurer is obliged to inform the insured duties similar to the duties deriving from the principle
about its identity and the essential elements of the of utmost good faith on the parties, nor does it
insurance contract in a comprehensible way […]” specifically address reinsurance contracts. Moreover,
(“Duty to Inform”; art. 3 para. 1 ICA). In return, the many provisions of the CO are of a non-mandatory
3
offeror (i.e., in the meaning of the ICA, the insured ) nature only (dispositives Recht). The parties may
must, “based on a questionnaire or other written therefore contractually modify or waive such
questions, […] disclose to the insurer in writing all provisions of statutory law. Consequently, the parties
facts which are important for the assessment of the to a reinsurance contract can in general freely agree
risk and which are known or must be known to the upon their duties as well as upon possible remedies in
offeror when concluding the contract” (“Duty to case of a breach of such duties.
Disclose”; art. 4 para. 1 ICA).
It is largely undisputed among Swiss scholars that
even in the case where the parties did not specifically
negotiate or agree on them, certain disclosure duties
7
apply in the context of reinsurance contracts.
1
SCHEIDER, Uberrima Fides, Berlin 2004, p. 80 et seq.; U.
NEF, in: Honsell/Vogt/Schnyder (eds.), Basler Kommentar
zum schweizerischen Privatrecht, Bundesgesetz über den 4
BSK VVG-NEBEL, art. 100 no. 8; GRABER/LANG/KUNSZT, p.
Versicherungsvertrag (VVG), Basel/Zurich 2000, art. 4
280.
no. 60 et seq. (citation: BSK VVG-AUTHOR); BUTLER/MERKIN,
Reinsurance Law, Volume I, London 1986 to 2001, A.6.1-01. 5
HONSELL, in: Honsell/Vogt/Geiser (eds.), Basler
2 Kommentar Zivilgesetzbuch I, 4th edition, Zurich/St. Gallen
GRABER/LANG/KUNSZT, Switzerland, in: Insurance &
2010, art. 2 no. 16 et seq.
Reinsurance Jurisdictional comparisons, European Lawyer
Reference, 2012, p. 280; BSK VVG-U. NEF, art. 4 no. 23. 6
BSK VVG-NEBEL, art. 101 no. 34; GERATHEWOHL,
3
Please note that the statutory duties mentioned apply to Reinsurance Principles and Practice Volume I, Karlsruhe
the policyholder rather than to the insured/beneficiary of an 1980, p. 449.
insurance contract. However, for the sake of consistency 7
BSK VVG-NEBEL, art. 101, no. 35; GRABER, Reinsurance in
with the questions we will refer to the insured instead of the Switzerland – The legal framework, in: International
policyholder (where not mentioned otherwise). Reinsurance Review 04/05, 2005, p. 21.
However, the legal basis and scope of such duties Reinsurance Contracts
remains unclear.
For reinsurance contracts, the statutory Duty to
Although certain authors consider the principle of Disclose of the ICA does not apply directly because
utmost good faith as such to be applicable on reinsurance contracts are exempted from the scope of
8
reinsurance contracts, there is no definition of such application of the ICA (art. 101 para. 1 no. 1 ICA). It is
principle, neither in Swiss statutory law nor based on controversial among Swiss legal scholars whether the
case law of Swiss courts. Duty to Disclose applies by analogy, whether a similar
duty deriving from the principle of good faith applies
or whether the principle of utmost good faith is
applicable by virtue of general international
reinsurance practice. However, we would expect that
such concepts would each apply exclusively.
otherwise?
Direct Insurance Contracts apply to all types of insurance contracts
As outlined above, for direct insurance contracts, (life insurance, general insurance,
Swiss law does not provide for a principle of utmost reinsurance etc.)?
good faith per se, but rather imposes Information Direct Insurance Contracts
Duties on the parties to an insurance contract. These
Information Duties qualify as statutory law principles In general, direct insurance contracts (including life
9 13
under the ICA. insurance contracts ) are, to the extent the ICA is
applicable, governed by the statutory Information
Reinsurance Contracts Duties of the ICA. Certain types of insurance
The source of a duty of utmost good faith / duty to contracts are subject to specific legislation such as
disclose for reinsurance contracts is unclear. Swiss e.g. the compulsory accident insurance, the social
legal authors take different views, considering the health insurance or the occupational pension
14
duty to disclose a civil law principle derived from the insurance scheme. While the Information Duties
10 15
broader statutory principle of good faith or basing apply by analogy to compulsory accident insurance,
such principle on an analogous application of the they do not extent to the compulsory social health
statutory Duty to Disclose provided for in art. 4 of the insurance and occupational pension insurance
11 schemes in general, but only to the respective
ICA . Other authors consider such duty to stem from 16
international principles governing reinsurance voluntary (additional) insurance schemes.
12
contracts. Reinsurance Contracts
3. Do insurance laws of your jurisdiction Reinsurance contracts are exempted from the
scope of the ICA (art. 101 para. 1 no. 1 ICA). Whether
or not the principle of utmost good faith applies is
controversial amongst scholars. However, it appears
Direct Insurance Contracts to be undisputed that there are similar pre-contractual
duties to disclose certain information which apply
A general principle of utmost good faith does not exist between the insurer and the reinsurer.
17
for direct insurance contracts. However, direct

insurance contracts are governed by the Duty to
Disclose (based on a questionnaire or other written
questions) pursuant to art. 4 ICA.
8 13
BSK VVG-NEBEL, art. 101 no. 31 et seqq.; MORSCHER, Please note that pursuant to the draft bill of the
Switzerland, in: Getting the Deal Through Insurance & Swiss Federal Financial Services Act published by the
Reinsurance 2014, p. 123; LÖRTSCHER, Rückversicherung in Federal Council on 27 June 2014 (“Draft FFSA”), life
der Rechts- und Schadenpraxis, in: Schweizerische insurance policies that can be surrendered will be governed
Gesellschaft für Haftpflicht- und Versicherungsrecht – by the FFSA, which will impose additional duties on the
Festschrift zum fünfzigjährigen Bestehen, Fuhrer (ed.), 2010, insurer (cf. art. 3 lit. b no. 6, 6 et seqq. and 60 Draft FFSA).
p. 374. However, the Draft FFSA is still subject to consultation in
9 Swiss parliament and enactment by the Federal Council.
Cf. art. 3 et seqq. ICA.
14
10 BSK VVG-NEBEL, art. 101 no. 53 et seqq.
MORSCHER, p. 123.
15
11 BSK VVG-NEBEL, art. 101 no. 53.
Cf. in particular art. 4 para. 1 ICA; BSK VVG-NEBEL, Art.
16
101 no. 35; GRABER, p. 21; GRABER/LANG/KUNSZT, p. 281. BSK VVG-NEBEL, art. 101 no. 55 et seqq.
12 17
BSK VVG-NEBEL, art. 101 no. 31; LÖRTSCHER, p. 371. GRABER, p. 21.
5. Does the duty of utmost good faith apply insured cannot be expected to understand relatively
only at the pre-contractual stage or is it a unknown medical terminology such as “Lumbago” for
21
continuous duty applying both pre- aches in the lower back.
The insured has to answer the questions raised by
22
The Information Duties as described above (cf. the insurer completely and truthfully. The insured
question 1) apply at the pre-contractual stage only. has to provide the answers to the insurer in writing
However, with regard to the insured, the ICA contains (art. 4 para. 1 ICA).
further obligations concerning the providing of
information which only become relevant at a post- The relevant point in time with regard to the Duty to
contractual stage.
18 Disclose is the conclusion of the contract and not e.g.
the date of the application of the prospective insured
23
II - Application of the Principle of Utmost Good or the date of the completion of the questionnaire.
Faith at the Pre-Contractual Stage As the contract is regularly concluded after the
declaration of risks by the prospective insured, the
6. Does the Principle of Utmost Good Faith prospective insured has an additional duty to update
apply to both the insured and the insurer its disclosure until conclusion of the contract in case
24
at the pre-contractual stage? the risk factors change or new risk factors arise.
Under art. 3 and 4 of the ICA, both the insurer and the Describe the insured’s pre-contractual
insured are bound by specific pre-contractual duty of utmost good faith by providing
Information Duties aiming to balance the respective examples of the best known cases in
19 which it has been applied.
information deficits.
A - For the Insured The most illustrative cases with regard to the
insured’s Duty to Disclose deal with the scope and the
7. What is the content of the duty of utmost interpretation of the questions asked by the insurer
good faith for the insured? and the expected level of detail of the insured’s
Based on its Duty to Disclose, the insured has to answers to such questions:
disclose to the insurer upon written request all  An insured who was in hospital for three
significant facts which are relevant for the assessment days after a suicide attempt may not negate
of the risk to be insured that the insured is or must be the question whether he has been in hospital
aware of at the point in time of conclusion of the for therapy without violating its Duty to
contract (art. 4 para. 1 ICA). Significant risk factors Disclose (SCD 110 II 499, 503).
are risk factors that may influence the insurer’s
decision to conclude the contract at all or to conclude  Regular persons can be expected to recall
it based on the agreed terms (art. 4 para. 2 ICA). the consultation of a medical doctor which
In case a representative concludes the insurance has occurred in the previous four or five
contract for the insured, the Duty to Disclose extends years. Related facts must therefore be
to the knowledge of the represented person as well as disclosed in response to the respective
to the knowledge of the representative (art. 5 para. 1 question. Omission of such facts,
ICA). If a contract is entered into for the account of a deliberately or negligently, constitutes a
third party, the significant risk factors known by this violation of the insured’s Duty to Disclose
third party have to be disclosed by the policy holder (SCD 109 II 60, 64).
as well, unless the contract is concluded without the  Upon request whether the insured has filed
knowledge of this third party or a timely transmission an application for life insurance with another
of the third party’s information to the policy holder is insurance company, the insured must, if
not possible (art. 5 para. 2 ICA).
It has to be noted that the insured’s Duty to Disclose
only encompasses facts for which the insurer has 21
Swiss Federal Supreme Court Decision (“SCD”) 101 II
asked in writing and in a sufficiently clear and 339, 343.
20
unambiguous manner. For example, the Swiss 22
Federal Supreme Court (“SFSC”) has decided that an SÜSSKIND, Die vorvertragliche Informationspflicht des
Versicherers gemäss Art. 3 des revidierten
Versicherungsvertragsgesetzes, in: HAVE – Haftung und
Versicherung 2006, p. 16.
18 23
Cf. art. 28 et seqq., 28 and 39 ICA. Cf. the wording of art. 4 and 6 ICA; NEF/VON ZEDTWITZ, in:
Honsell/Vogt/Schnyder/Grolimund (eds.), Basler Kommentar
19
FUHRER, Schweizerisches Privatversicherungsrecht, Versicherungsvertragsgesetz Nachführband, Basel/Zurich
Zurich/Basel/Geneva 2011, no. 6.3 et seqq. 2012, art. 4 ad no. 7 (citation: Addendum BSK VVG-
20 AUTHOR); FUHRER, no. 6.117 et seqq.
BSK VVG-NEF, art. 4 no. 44 et seqq.; FUHRER, no. 6.134
24
et seq. FUHRER, no. 6.117 et seqq.; SCD 4A_488/2007, E. 2.1.
applicable, disclose all its applications for life It is controversial in Swiss legal literature whether the
26
insurances and not just one of several insured must be notified within these four weeks or
applications, otherwise the insured violates whether it is sufficient for the insurer to issue the
27
its Duty to Disclose. (SCD 108 II 143, 146 et notification within the four-week period . The SFSC
28
seq.). has, under the former version of art. 6 oldICA , in two
instances relied on the date of issuance of the notice
 If another insurer has rejected an application 29
of termination. However, in a recent decision, the
for insurance, the insured must disclose SFSC indicated that the termination notice has to be
such rejection upon reasonable request, served to the insured within the four-week prescription
irrespective of whether such rejection has period.
30
In any case, the termination becomes
been communicated to the insured in writing effective only once the notice has been served on the
or by phone only (SCD 120 II 266, 269 et insured (art. 6 para. 1 last sentence ICA).
seq.).
In general, the termination has effect for the future
8. Is the duty of utmost good faith for the 31
only. However, if an insured event has already
insured equivalent to the duty of occurred, the insurer is exempted from its obligation
disclosure in your jurisdiction so that to indemnify the insured if i) the insurer made use of
pre-contractually the two are its right of termination pursuant to art. 6 para. 1 ICA
indistinguishable? and ii) the omitted or incorrect disclosure of the
There is no duty of utmost good faith as such in Swiss significant risk factor has influenced the occurrence or
32
law on insurance contracts (cf. question 3 above). extent of the damages in question. If the insurer has
However, the statutory Duty to Disclose is to a certain already indemnified the insured for such damages, he
albeit limited extent comparable to the duty of utmost is entitled to restitution (art. 6 para. 3 ICA).
good faith (cf. questions 1 and 7 above). The insurer may not terminate an insurance contract
9. If the duty of utmost good faith operates upon a violation of the insured’s Duty to Disclose if
separately pre-contractually from the (art. 8 ICA):
duty of disclosure describe that operation i) the non-disclosed or incorrectly notified
and how the two sit together. You may fact had ceased to exist before the
need to describe the duty of disclosure to insured event occurred;
ii) the insurer provoked the violation of the
N/A. Please see the answer to question 8 above. obligation to disclose;
10. What are the remedies for a pre- iii) the insurer knew or must have known
contractual breach by the insured of the the non-disclosed fact;
remedies different from a breach of the iv) the insurer correctly knew or must have
duty of disclosure? known the incorrectly disclosed fact,
If an insured did not comply with its Duty to Disclose, v) the insurer waived the right to terminate
the insurer is entitled to terminate the insurance the contract; or
contract (art. 6 para. 1 ICA). In such a case, the
insurer must issue the termination notice in writing.
The right of termination expires four weeks after the
insurer becomes aware of the insured’s violation of its
Duty to Disclose (art. 6 para. 2 ICA). 26
Addendum BSK VVG-NEF/VON ZEDTWITZ, art. 6 ad no. 16;
FUHRER, no. 6.149; GAUCH, Das Kündigungsrecht des
As an exception to this, the insurer may only
Versicherers bei verletzter Anzeigepflicht des Antragstellers
terminate a personal insurance contract on the basis – Ein Kurzkommentar zu den am 1. Januar 2006 in
of an incorrect indication of the insured’s age if the Kraftgetretenen Änderungen der Art. 6 und 8 VVG, in: ZBJV
real age at the time of conclusion of the contract is not 142/2006, p. 367.
within the limit of admission set up by the insurer (art. 27
75 para. 1 ICA). Otherwise, the insurer can only POUGET-HÄNSELER, Anzeigepflichtverletzung:
Auswirkungen der Revision auf die Praxis, in: HAVE –
reduce its performance at the ratio between the
Haftung und Versicherung 2006, p. 29.
stipulated premium and the tariff rate for the real age
25 28
at entry (art. 75 para. 2 no. 1 ICA). Cf. Official Compilation of Federal Legislation (“AS”), AS
24 719.
29
SCD 5C.5/2005, no. 3.3 et seq.; SCD 129 III 713, 714.
30
SCD 4A_112/2013, no. 2.
31
POUGET-HÄNSELER, p. 29; GAUCH, p. 367.
25 32
BSK VVG-FUHRER, art. 75 no. 7 et seqq. FUHRER, no. 6.153 et seqq.
vi) the person who had the duty to disclose or his agent to advise the prospective insured in case
33
did not answer one of the questions the insured evidently needs such advice.
asked and the insurer nevertheless
concluded the contract, unless based on Further, not only the insurer, but also an insurance
other information of the person the intermediary, as the case may be, has a duty to
question must have been considered as inform the insured. An insurance intermediary must
to be answered in a certain way that inform the insured at least about (art. 45 of the Swiss
Federal Act on Insurance Supervision [“ISA”]):
amounts to an incorrect or non-
disclosure of a significant risk factor i) its identity and address;
which the person knew or must have
known. ii) whether the insurance coverage offered
by the intermediary in a particular line of
The remedy in case of the insured’s violation of the insurance is provided only by one or by
Duty to Disclose is unilaterally mandatory. several insurers, and which insurers are
Modifications to the detriment of the insured are involved;
therefore not possible (art. 98 para. 1 ICA).
iii) its contractual relationship with the
11. If the duty of utmost good faith operates insurers on whose behalf they act and
separately from the duty of disclosure the name of these insurers;
other? iv) the person who can be held liable for
negligence, mistakes or incorrect
N/A. Please see questions 8 and 9 above. information in connection with the
B - For the Insurer intermediary’s activity; and
12. What is the content of the pre-contractual v) the processing of personal data, in
duty of utmost good faith for the insurer? particular the purpose, scope and
recipients of data, as well as the storage
Based on its Duty to Inform, the insurer must inform of data.
the insured in writing prior to the conclusion of the
insurance contract in a comprehensive way (e.g. in The referred information must be delivered to the
non-technical language) about the essential elements insured upon first contact on a durable and accessible
of the insurance contract, such as (art. 3 para. 1 ICA): medium (art. 45 para. 2 ISA).
i) the insurer’s identity;
ii) the insured risks; examples of the best known cases in
iii) the insurance coverage;
The current version of art. 3 and art. 3a ICA have
iv) the premiums due and the other been in force since January 2007 only. Consequently,
obligations of the insured; the insurer’s Duty to Inform as described above does
v) the term and termination of the not apply to contracts concluded before 1 January
insurance contract; 2007. No Supreme Court decisions are yet available
34
on these provisions. Under the former art. 3 oldICA ,
vi) the methods, principles and bases for the insurer only had to provide the insured with an
calculating and distributing surplus excerpt of its general conditions of insurance as
profits; opposed to the Information Duties described under
vii) the surrender and transformation question 12 above. The respective case law is
values; and therefore outdated.
viii) the handling of personal data, including

purpose and type of data collections as
well as data recipients and data storage.
Further, the information regarding the personal data
and the general conditions of insurance must be in
possession of the insured at the time of conclusion of
the contract (art. 3 para. 2 ICA).
In addition to the statutory Duty to Inform the insured,
the SFSC acknowledges a limited duty of the insurer 33
SCD 5C.267/2007; MAURER, Schweizerisches
Privatversicherungsrecht, Zurich 1995, p. 258 et seq.;
FUHRER, no. 6.40 et seqq.
34
Cf. AS 24 719.
14. Is it a breach of the duty of utmost good of the insurer’s breach, but in any case no later than a
faith in your jurisdiction for insurers not year after the breach of the Duty to Inform (art. 3a
to notify the prospective insured of the para. 2 ICA). Similar to the termination right of the
nature and extent of their duty of insurer in case of a violation of the insured’s Duty to
disclosure? Disclose, it is unclear whether the notice of
termination has to be issued within the four weeks
Based on art. 3 para. 1 lit. c ICA, the insurer must prescription period or whether the notice has to be
inform the insured about its duty to pay the premium served to the insurer within such period.
37
and about the insured’s further duties under the
insurance contracts. This includes the insured’s duty Until the termination notice is served to the insurer,
to notify the insurer of any aggravation of risks and the insurance contract remains in force and the
the duty to immediately inform the insurer in case of insured is obliged to pay the insurance premium.
35
occurrence of an insured event. However, under the
current legislation in the ICA, there is no obligation to The insurer’s Duty to Inform (art. 3 ICA) as well as the
notify the prospective insured of the consequences of right to terminate the contract in case of breach of
any pre-contractual omission of information, such Duty to Inform (art. 3a ICA) are unilaterally
misrepresentation or similar. Consequently, the mandatory law (art. 98 para. 1 ICA). These provisions
insurer’s omission to inform the prospective insured cannot be contractually modified to the detriment of
38
about its Duty to Disclose does not constitute a the insured.
breach of the insurers Duty to Inform the insured. This If the insurer breaches its ancillary duty to advise the
applies for the actual Duty to Disclose as well as for insured, the insured may not avoid the contract, but is
the duty to update such information until conclusion of 39
entitled to damages.
the contract.
If an insurance intermediary violates its information
Such an obligation to inform the insured about its duty towards the insured (see question 12 in fine), the
Duty to Disclose was included in the draft bill of the insured may potentially claim damages, but cannot
36 40
total revision of the Insurance Contract Act, which avoid the contract.
has been rejected by the Swiss parliament in 2013
with the instruction to the Federal Council to prepare III - Post-Contractual Application of the Principle
a partial revision on certain defined issues. Whether of Utmost Good Faith (at the Claim Stage)
an obligation of the insurer to notify the insured of the
consequences of any misrepresentation will form part A - For the Insured and Third Party
of this partial revision is unknown at this stage, since Beneficiary of Cover
it is not listed as an issue which the Federal Council
was instructed to address in the partial revision. A
draft for the partial revision is not yet available.
In any case, under the current legislation it is not a
At the post-contractual stage, the insured’s Duty to
breach of the insurers Duty to Inform not to notify the 41
Disclose does no longer apply. Nevertheless, beside
prospective insured of the nature and extent of its
the obligation to pay the premium, the insured has
Duty to Disclose.
certain further obligations regarding the adjustment of
15. What are the remedies for a pre- the information imbalance between the insurer and
contractual breach by the insurer of its the insured/beneficiary as is the case in connection
duty of utmost good faith? with the aggravation of risk (art. 28 et seqq. ICA),
the occurrence of an insured event (art. 38 ICA) or
If the insurer violated its Duty to Inform, the insured is the justification of the insurance claims made
entitled to terminate the insurance contract by written under the contract (art. 39 ICA).
notice (art. 3a para. 1 ICA). The termination right
expires four weeks after the insured becomes aware
35
Addendum BSK VVG-KUHN/GEIGER-STEINER, art. 3 no. 11
et seq. 37
Cf. question 10 above.
36
Cf. art. 22 para. 1 of the draft bill on the total revision of 38
the ICA, Federal Gazette (“BBl”) 2011 7819, p. 7825; SÜSSKIND, p. 25.
dispatch to the draft bill on the total revision to the ICA, BBl 39
MAURER, p. 259.
2011 7705, p. 7746; VON ZEDTWITZ, Die vorvertragliche
Anzeigepflicht, in: HAVE – Haftung und Versicherung 2011, 40
DU PASQUIER/MENOUD, in: Stupp/Hsu (eds.), Basler
p. 429; HEISS, Informationspflicht des Kommentar Versicherungsaufsichtsgesetz, Zurich 2013, art.
Versicherungsnehmers, in: Internationales Forum zum 45 no. 53 et seqq. (citation: BSK VAG-AUTHOR); FUHRER, no.
Privatversicherungsrecht 2008, p. 60; HASENBÖHLER, 6.65.
Anzeigepflicht des Versicherungsnehmers und die Folgen
41
von deren Verletzung, in: ZSR 2007 I, p. 357. BSK VVG-U. NEF, art. 4 no. 7.
Aggravation of risk i) the aggravation neither influenced the

occurrence nor the extent of the insured
Regarding the aggravation of risk, the respective
event (art. 32 no. 1 ICA);
notification to the insurer and the insurer’s
remedies, the law distinguishes between the ii) the aggravation was undertaken with the
aggravation of risk caused by acts of the insured (art. intention to protect the insurer’s interest
28 ICA) and aggravation of risk without acts of the (art. 32 no. 2 ICA);
insured (art. 30 ICA). The consequences of such
aggravation of risk in both cases depend on whether iii) the aggravation was caused due to an
or not the insured has notified the insurer of the act of humanity (art. 32 no. 3 ICA); or
aggravation of risk. However, while the insured is iv) the insurer expressly or tacitly
under an obligation to notify the insurer in case of an renounced the right to terminate the
aggravation of risk not caused by the insured (in such contract (art. 32 no. 4 ICA).
a case, the insurer may basically not terminate the
contract; see below), such an obligation does not Nevertheless, unless otherwise agreed (art. 28 para.
exist if the insured has caused the aggravation of risk 2 ICA), the insured has no duty to notify the insurer
48
(in such a case, the insurer may terminate the of such aggravation of risk.
42
contract). If the aggravation of risk was not caused by the
Prerequisite for the application of the rules on the insured, the insured is under a duty to notify the
aggravation of risk is the substantial aggravation of insurer in writing of such aggravation within due
49 50
a significant risk factor after conclusion of the time, after it came to his knowledge. In such a
43
contract. An aggravation of risk is deemed to be case, the insurer is, unless contractually otherwise
substantial, if it i) had influenced the insurer’s decision agreed upon, bound by the insurance contract and its
to conclude the contract at all or on the basis of the terms, despite of the aggravated risk (art. 30 para. 2
terms agreed (material substantiality) and if ii) the ICA). If the insurer terminates the contract based on a
scope of this specific risk has been determined by the contractually stipulated right to terminate in case of an
parties at the conclusion of the contract (formal aggravation of risk, the termination becomes effective
substantiality) (art. 28 para. 2 ICA).
44 14 days after notification of the insured (art. 30 para.
3 ICA).
In case of an aggravation of risk caused by acts of
the insured, i.e. if the insured has set an adequate If the insured breaches its duty to notify the insurer,
cause for such aggravation, the insurer is no longer the remedies are the same as in case of an
bound by the contract (art. 28 para. 1 ICA) and aggravation of risk caused by the insured himself (art.
51
therefore basically has the right, during an indefinite 30 para. 1 ICA). In addition, the insured may
period, to terminate the contract by notice to the become liable for damages based on its violation of
52
45
insured. In contrast to the termination in case of the the duty to notify the insurer.
violation of the pre-contractual Duty to Disclose, this The articles regarding the aggravation of risk are
46
notice is not subject to any formal requirements. unilaterally mandatory law (art. 98 para. 1 ICA).
Since this comes with an immense legal uncertainty Consequently, the prerequisites may only be
for the insured, he may notify the insurer in writing of heightened and the remedies allayed for the benefit of
the aggravation of the risk, with the consequence that the insured.
53
the insurer’s right to terminate the contract expires 14
days after receipt of such notification (art. 32 no. 4 Notification in case of the occurrence of an insured
47
ICA). event
In addition, the consequences of an aggravation of The beneficiary of an insurance has a statutory duty
risk do not apply if: to notify the insurer in case of the occurrence of an
insured event, as soon as he has learned about the
48
BSK VVG-FUHRER, art. 28 no. 20; FUHRER, no. 13.88.
42 49
FUHRER, no. 13.85. BSK VVG-FUHRER, preliminary remarks to art. 28-32 no.
86.
43
FUHRER, no. 13.63 et seqq. 50
FUHRER, no. 13.95 et seqq.
44
FUHRER, no. 13.72 et seqq; BSK VVG-FUHRER, 51
preliminary remarks to art. 28-32 no. 45 et seqq. FUHRER, no. 13.98.
45 52
BSK VVG-FUHRER, art. 28 no. 22 et seqq. BSK VVG-FUHRER, preliminary remarks to art. 28-32 no.
89 et seqq.
46
BSK VVG-FUHRER, art. 28 no. 24. 53
BSK VVG-FUHRER, preliminary remarks to art. 28-32 no.
47
BSK VVG-FUHRER, art. 28 no. 28. 108 et seqq.
event and about the resulting insurance claims (art. 16.1 Do third party beneficiaries of cover have
38 ICA). Unless otherwise agreed upon, the notice a duty of utmost good faith?
need not be made in writing (art. 38 para. 1 ICA). If
such a notification of claims is by fault of the The duty to notify the insurer in case of an
59
beneficiary not made within due time, the insurer may aggravation of risk applies to the insured only. A
deduct the amount from the indemnification by which third party beneficiary is neither under an obligation to
the indemnification would have been reduced in case notify any aggravation of risk, nor is the insured
of a notice on time (art. 38 para. 2 ICA). If the accountable for the knowledge of the third party
60
beneficiary omitted the immediate notification with the beneficiary.
intention to prevent the insurer from establishing the In contrast, as outlined above, the duty to report the
circumstances of the insured event on time, the occurrence of an insured event and the justification of
insurer is no longer bound by the contract (art. 38 a claim lies with the beneficiary of the insurance
para. 3 ICA). In such a case, the insurer need not rather than with the insured.
indemnify the insured for the damages of the event in
question and has the right to terminate the contract 17. Describe the insured’s post-contractual
with effect for the future.
54 duty of utmost good faith by providing
The parties can contractually alter the provisions of which it has been applied.
55
art. 38 ICA. However, by virtue of art. 45 para. 1
ICA, restrictions to the detriment of the beneficiary are Aggravation of risk
valid only in case the beneficiary has violated its duty
56  A change of profession may constitute an
to notify the insurer by fault.
aggravation of the risk related to an accident
Justification of the insurance claim insurance in case the accident risk related to
the new profession has to be classified as
Upon request of the insurer, the beneficiary is obliged substantially higher than the risk related to
to provide any information known to him, which may the former profession. For example, the
help the insurer to establish the circumstances under SFSC held in its decision SCD 122 III 458
which the insured event occurred (e.g. place, time that the occupational change from an
and course of the insured event) or the consequences assistant nurse to a prostitute qualifies as an
of such event (e.g. affected items and persons and aggravation of risk pursuant to art 28 ICA,
medical reports) (art. 39 para. 1 ICA). As long as the which allows the insurer to terminate the
beneficiary does not provide such information to the insurance contract.
insurer, the insurance claim does not become due
57
(art. 41 para. 1 ICA). If the beneficiary notifies the Notification in case of the occurrence of an insured
insurer incorrectly or conceals facts which would event
exclude or reduce the insurer’s obligation to indemnify
the insured, or if a notification pursuant to art. 39 ICA  If the insured informs the insurer about a
was, for the purpose of deception, given too late or insured event only after the damages have
not at all, the insurer is not bound by the contract vis- been repaired and the description of the
à-vis the beneficiary (art. 40 ICA). circumstances of the accident appears to be
unreliable, the insurer need not indemnify
This duty to substantiate the initial notification the insured based on the insured’s violation
following the occurrence of an insured event should of his duty to notify the insurer in case of an
enable the insurer to regulate the damages. Further, insured event, especially because the
this information may also be helpful in order to reveal notification only after the damages have
a potential violation of the insured’s pre-contractual been repaired make a verification of the
Duty to Disclose. However, the beneficiary must only accident impossible (Decision of the
answer questions, which are connected to the cantonal court of Nidwalden of 13 October
regulation of the damages. He is not obliged to 1993).
answer questions that only aim at revealing a breach
of the pre-contractual Duty to Disclose.
58 Justification of the insurance claim
 Art. 39 para. 1 ICA only obliges the insured
to provide information regarding the insured
event. Questions of the insurer in respect of
a potential violation of the insured’s Duty to
54
BSK VVG-J. NEF, art. 38 no. 25.
55
BSK VVG-J. NEF, art. 38 no. 17; cf. art. 98 et seq. ICA.
56 59
BSK VVG-J. NEF, art. 38 no. 17. BSK VVG-FUHRER, preliminary remarks to art. 28-32 no.
86.
57
BSK VVG-J. NEF, art. 39 no. 15 et seq. 60
BSK VVG-FUHRER, preliminary remarks to art. 28-32 no.
58
FUHRER, no. 11.55 et seqq. 83.
Disclose pursuant to art. 4 ICA need not be If a term of the contract were e.g. opposed to the
answered by the insured (SCD 129 III 510, insurer’s mandatory Duty to Inform, such a term
512 et seq.). would be void and therefore would have to be
61
disregarded by the courts.
of his/her criminal activities when 24. Do courts have special powers to
completing a proposal for life policies a disregard any avoidance of the
breach of the duty of utmost good faith? application of a policy in cases where the
Under Swiss insurance law, there is no exception breach of the duty of utmost good faith to
from the Duty to Disclose regarding criminal activities. allow the insurer to avoid the policy?
Therefore, if a current or former criminal activity forms
a significant risk factor and if the insurer has asked a We are not aware of any decision of Swiss courts on
question that objectively triggered the Duty to this issue. However, we expect that a court might
Disclose regarding such criminal activity, the disregard an avoidance in accordance with art. 2 CC,
concealment of this activity would constitute a breach if such avoidance runs contrary to the principle of
of the insured’s Duty to Disclose. good faith or is otherwise abusive.
B - For the Insurer 25. To the extent that an insurer’s breach of
19. What is the content of the duty of utmost statute, is it a breach of the statute for the
good faith for the insurer when dealing insurer to be in breach of its duty of
with a claim? utmost good faith?
At a post-contractual stage, there are no specific If and to the extent the Duty to Disclose as contained
information duties for the insurer. However, when in the ICA is breached, such breach constitutes a
dealing with a claim, the insurer is bound by the breach of the statute (i.e. the ICA).
general principle of good faith pursuant to art. 2 CC.
20. Does an insurer owe a duty of utmost utmost good faith result in regulatory
good faith towards third party sanctions against the insurer (license
beneficiaries of cover in handling claims? suspension, banning order, etc.)?
No, we do not see such duty to be applicable between The Swiss Federal Act on Insurance Supervision
the insurer and the beneficiary. does not directly address the insurer’s breach of its
21. Describe the insurer’s post-contractual Duty to Inform the insured. However, the Swiss
duty of utmost good faith by providing Financial Market Supervisory Authority FINMA may
examples of the best known cases in intervene in case of systematic violation of the Duty to
62
which it has been applied. Inform based on art. 46 para. 1 lit. f ISA.
Consequences of such systematic misconduct are
We are not aware of any cases in this regard. determined according to art. 24 et seqq. of the
22. Is there a Code of Practice for insurers in Federal Act on the Swiss Financial Market
63
your jurisdiction and, if so, how does it Supervisory Authority (“FINMASA”). The available
sit with the duty of utmost good faith? sanctions comprise, depending on the severity of the
violation, a reprimand (art. 32 FINMASA), specific
No, there is no insurers’ code of practice in orders to restore compliance with the law (art. 31
Switzerland. FINMASA), prohibition against individuals from
practicing their profession (art. 33 FINMASA) and
There are general insurance conditions templates
ultimately, in severe cases, the revocation of the
published by the Swiss Insurance Association (SVV),
insurer license (art. 37 FINMASA).
which contain provisions typically included into
general insurance conditions that modify the duties Further, an insurer, as well as the persons
described above. For example, they provide for a duty responsible for the management, supervision, control
to notify the insurer in case of an aggravation of risk and the conduct of the business must enjoy a good
caused by the insured himself or the right of the reputation and provide assurance for the proper
insurer to terminate the insurance contract also in
case of an aggravation of risk not caused by the
insured. However, these exemplary conditions are not
binding on insurers and therefore merely provide 61
Addendum BSK VVG-KUHN/GEIGER-STEINER, art. 3a no.
guidance regarding the general practice. 13.
23. Can courts disregard a term of a contract 62
BSK VAG-DU PASQUIER/MENOUD, art. 46 no. 45;
of insurance if it would be a breach of the SÜSSKIND, p. 25.
duty of utmost good faith for the insurer 63
to rely on the term? If so, please illustrate BSK VAG-DU PASQUIER/MENOUD, art. 46 no. 72; cf. art. 2
para. 1 FINMASA.
with examples.
conduct of business (art. 14 para. 1 ISA). This

provision has to be complied with on an ongoing
64
basis. Therefore, if FINMA considers e.g. the Bär & Karrer
assurance of proper business conduct to no longer be
given after a severe or repeated breach of the Duty to Brandschenkestrasse 90
Inform, it can impose sanctions on an insurer or the CH-8027 Zurich
concerned persons as outlined above (e.g. revocation
of the license / prohibition against an individual from Tel.: (41) 5 8261 5000
practicing its profession). Fax: (41) 5 8261 5001
IV - Reinsurance Email: peter.hsu@baerkarrer
daniel.fluehmann@baerkarrer.ch
bernhard.stehle@baerkarrer.ch
Website: www.baerkarrer.ch
As stated above, reinsurance contracts are not
governed by specific legislation and are therefore
primarily characterized by the parties’ contractual
agreement. To the extent the parties did not agree on
specific duties and remedies, the question arises
whether the ICA should be applied by way of analogy
or whether a duty of utmost good faith can be applied
as a term implied in the nature of reinsurance
contracts or as a duty based on international
principles of reinsurance. Swiss case law is silent on
such matters as in general, reinsurance disputes are
settled via negotiations between the insurer and the
reinsurer or by arbitration proceedings rather than by
proceedings in front of state court judges.
Consequently, the legal sources on such issues are
65
scarce.
Amongst scholars, it seems to be undisputed that the
relationship between insurer and reinsurer is
governed by specific duties to disclose the relevant
information. In contrast to the Duty to Disclose of the
insured in a regular direct insurance contract, the
prevailing view seems to be that the insurer, party to a
reinsurance contract as cedent, has to disclose the
66
relevant risk factors on its own motion.
Regarding the post-contractual duty to notify an
aggravation of risk to the reinsurer, an analogous
application of the right to terminate the contract in
case of an aggravation of the risk is not regarded as
67
applicable. However, the duty to notify the reinsurer
of an aggravation of risk seems to be generally
68
accepted among Swiss legal authors.
****
64
BSK VAG-DU PASQUIER/MENOUD, art. 46 no. 7.
65
FUHRER, no. 18.36; GRABER, p. 21 et seq.
66
BSK VVG-NEBEL, art. 101, no. 35; LÖRTSCHER, p. 374;
FUHRER, no. 18.30.
67
BSK VVG-NEBEL, art. 101, no. 35.
68
BSK VGG-NEBEL, art. 101, no. 35; FUHRER, no. 18.30.
IBA Insurance Committee Substantive Project 2014 158 The Duty of Utmost Good Faith: Thailand
Thailand
TILLEKE & GIBBINS The two principles of good faith and duty of disclosure
are indistinguishable, as the latter concept is
Michael Turnbull, Aaron Le Marquer, Ittirote
subsumed by the former principle, as appears in
Klinbon and Rom Phastanapichai
Section 865 of the Thai Civil and Commercial Code,
I - Definition of the Principle of Utmost Good Faith which reads: “If at the time of making the contract, the
assured or in case of insurance on life, the person
1. In your jurisdiction, do insurance laws upon whose life or death the payment of the sum
provide for the principle of utmost good payable depends, knowingly omits to disclose facts
faith (in latin, “uberrimae fidei”) and if so, which would have induced the insurer to raise the
what is its meaning? Provide any premium or to refuse to enter into the contract or
definition whether under statute or knowingly makes false statements in regard to such
according to case law. facts, the contract is voidable. If such right of
avoidance is not exercised within one month from the
The principle of utmost good faith is not specifically time when the insurer has knowledge of the ground of
defined in the Thai Civil and Commercial Code, which avoidance or within five years from the date of the
governs contracts, including insurance. However, contract, such right is extinguished.”
there are general provisions that regulate how the law
should be applied, which is simply put in terms of 4. Does the principle of utmost good faith
such having to be conducted in “good faith”, Section 5 apply to all types of insurance contracts
of the Civil and Commercial Code, “Every person (life insurance, general insurance,
must, in the exercise of his rights and in the reinsurance etc.)?
performance of his obligations, act in good faith”; and Insurance contracts are considered under Thai Civil
further pursuant Section 6, “Every person is and commercial code. The areas of General
presumed to be acting in good faith.” Insurance; Insurance against Loss, including Special
All contracts in Thailand are therefore subject to a Rules for Insurance on Carriage and Guarantee
general duty of good faith, and there is no higher Insurance; and Insurance on Life come within the
standard applicable to insurance contracts general principles of good faith, as stated under
Section 368 of the Thai Civil and Commercial Code,
2. Is the principle of utmost good faith (i) a which reads: “contracts shall be interpreted according
statutory principle, (ii) a common law to the requirements of good faith, ordinary usage
principle or (iii) a civil law principle? Or is being taken into consideration.” No distinction is made
it to be found under statute and between life, non-life, or reinsurance contracts.
otherwise?
The general principle of “good faith” is a civil law only at the pre-contractual stage or is it a
principle, which lays the foundation for the continuous duty applying both pre-
interpretation of the law through the Thai Civil and contractually and post-contractually?
Commercial Code, as mentioned in Section 5.
Given its being phrased in general terms, the duty of
The Non-Life Insurance Act 1992 (as amended 2008), conducting business in good faith is continuous from
which governs insurance contracts in Thailand, does the pre-contractual stage to the post-contractual
not impose any higher or different standard, and the stage. However, as described above, the Civil and
principle set out in the Civil and Commercial Code Commercial Code imposes an express duty of
therefore applies. disclosure at the pre-contractual stage.
The Consumer Case Procedure Act 2008, which II - Application of the Principle of Utmost Good
governs all consumer contracts including insurance Faith at the Pre-Contractual Stage
contracts, also provides that business operators shall
act in good faith in performing their obligations; 6. Does the Principle of Utmost Good Faith
however, again this does not impose any higher apply to both the insured and the insurer
standard of care than that set out in the Civil and at the pre-contractual stage?
Commercial Code. Under Section 6 of the Thai Civil and Commercial
3. Do insurance laws of your jurisdiction Code, every individual is presumed to be acting in
provide for both the principle of utmost good faith; thus, the duty is therefore on both the
good faith and a separate duty of insured and the insurer.
A - For the Insured B - For the Insurer

7. What is the content of the duty of utmost 12. What is the content of the pre-contractual
good faith for the insured? duty of utmost good faith for the insurer?
Describe the insured's pre-contractual The Thai Civil Law does not specifically refer to pre-
duty of utmost good faith by providing contractual situations for insurers; however, Section 6
examples of the best known cases in of the Civil and Commercial Code is interpreted to
which it has been applied. presume that insurers will carry out their pre-
contractual obligations in good faith.
An example of the concept of good faith is found in
the Thai Supreme Court judgment No.1218/2519 13. Describe the insurer's pre-contractual
wherein the proposer on a life policy failed to disclose duty of utmost good faith by providing
a pre-existing medical condition of hypertension examples of the best known cases in
contrary to the principle of good faith rendering the which it has been applied.
policy voidable at the insurer’s option.
There is no case law to hand that outlines the pre-
8. Is the duty of utmost good faith for the contractual duty of good faith of insurers; however,
insured equivalent to the duty of there are numerous issues developing involving Thai
disclosure in your jurisdiction so that bank assurance. For example, in order for an
pre-contractually the two are individual to take a housing loan from a bank, they
indistinguishable? also have to purchase a homeowner’s insurance as
well as a life insurance. The premium is calculated for
As the duty of good faith under Section 5 of the Thai them by the bank. There is no transparency in arriving
Civil and Commercial Code is a provisional duty that at the figure and there have been times that when a
must be applied to all Sections, the concept of good loss occurs, the bank has refused to compensate for
faith does not differ from the duty of disclosure. This is the full amount. As a result of this the Office of
because in carrying out disclosure under Section 865, Insurance Commission is developing regulations that
it must be done so according to Section 5, which is in would specify the duty of good faith for insurers in the
good faith. pre-contractual stage and apart from the post
9. If the duty of utmost good faith operates contractual obligation.
separately pre-contractually from the 14. Is it a breach of the duty of utmost good
duty of disclosure describe that operation faith in your jurisdiction for insurers not
and how the two sit together. You may to notify the prospective insured of the
need to describe the duty of disclosure to nature and extent of their duty of
illustrate the differences. disclosure?
The two principles in Thai law are not distinct, as There is no specific duty for insurers to notify the
when an individual commits to disclosure, he is under prospective insureds of their disclosure obligations;
a duty, under Section 5 of the Thai Civil and however, there are usually standard terms on the
Commercial Code, to carry out his obligations in good insurance disclosure forms that highlight the extent of
faith. the disclosure.
10. What are the remedies for a pre- 15. What are the remedies for a pre-
contractual breach by the insured of the contractual breach by the insurer of its
duty of utmost good faith? Are the duty of utmost good faith?
duty of disclosure? The insured would be entitled to claim for damages
against the insurer under Section 420 of CCC due to
According to Section 865 of the Thai Civil and its breach of duty of utmost of good faith.
Commercial Code, if the insured omits to disclose
facts or intentionally makes a false statement, the III - Post-Contractual Application of the Principle
contract is voidable. As such, the insurer is not of Utmost Good Faith (at the Claim Stage)
obligated to pay the compensation to the insured.
However, as described above, the insurer must A - For the Insured and Third Party
exercise its right of avoidance within the specified Beneficiary of Cover
time period, or such right will be lost.
11. If the duty of utmost good faith operates contractual duty of utmost good faith for
separately from the duty of disclosure the insured at the claim stage?
other? 16.1 Do third party beneficiaries of cover have
The two concepts are indistinguishable; therefore,
neither one has precedence over the other. The duty of good faith for the insured in the post-
contractual stage depends on the nature of the
contract. However, as Section 6 of the Thai Civil and unless the cause of death was suicide or the death
Commercial Code presumes that every person is was caused by the beneficiary.
acting in good faith, that includes third party
beneficiaries as well.
17. Describe the insured's post-contractual sit with the duty of utmost good faith?
examples of the best known cases in There is no general Code of Practice for insurers, as
which it has been applied. they are specific to the type of insurance the insurer
provides, such as the Life and Non-Life Insurance
According to the Thai Supreme Court Judgment No. Acts of 1992, the provisions of which will be read in
68/2516, if the insured commits to disclosure, light of Section 5 of the Thai Civil and Commercial
whereby the facts he provided changes, he is code as that is the general foundation of all civil
obligated to inform the insurer of those changes. The matters.
duty of good faith continues operating during the post
contractual stage.
18. Is the insured’s intentional concealment duty of utmost good faith for the insurer
of his/her criminal activities when to rely on the term? If so, please illustrate
completing a proposal for life policies a with examples.
In the past, the courts have disregarded a term of a
As Section 5 of the Thai Civil and Commercial Code contract if they find that it puts the insured at a
stresses the need to act in good faith, if the insured disadvantaged. An example of such is found in the
were to intentionally conceal his criminal activities, it Thai Supreme Court Judgment No. 400/2532, where
would appear that the insured is acting in bad faith. the insurer had included a compromise agreement
To be more specific the terms and conditions in the within the contract, which would have otherwise
contract would have to be examined in order to see discharged the insurer of further liability. However, the
the impact of the breach; however, Section 879 of the judged found for the insured.
Thai Civil and Commercial Code which applies to non
24. Do courts have special powers to
life insurance contracts only provides that if the
insured or the beneficiary had been intentionally
acting in bad faith or acting with gross negligence, the
insurer is relinquished from the liabilities specified in
the contract.
B - For the Insurer
The courts do have the power to disregard the
19. What is the content of the duty of utmost application of a policy and allow custom to dictate, as
good faith for the insurer when dealing stated under Section 4 of the Thai Civil and
with a claim? Commercial Code. However it should be noted that :
nd
Section 4 of Para 2 of CCC, it will only apply when
By acting in good faith, under Section 877 of the Thai there is no any specific provision of law to be
Civil and Commercial Code, the insurer is bound to applicable to the case and as such the case would be
compensate for the actual amount of loss; the insured decided according to the local custom. If the Court
property that was damaged; or to cover all reasonable found that there is any avoidance of the application of
costs that will keep the property from being damaged. policy on the breach of the duty of utmost faith made
20. Does an insurer owe a duty of utmost by the insurer, the Court would likely consider that
good faith towards third party such avoidance is against the public order or good
beneficiaries of cover in handling claims? moral, and this would be void as prescribed under
Section 150 of CCC.
The extent of the duty that the insurer would owe
depends on the nature of the contract. However, there 25. To the extent that an insurer's breach of
are a set of ethical regulations that an insurer should the duty of utmost good faith is under
go by, which is laid out by the Office of Insurance statute, is it a breach of the statute for the
Commission (OIC) in the Code of Ethics of the OIC insurer to be in breach of its duty of
2012. utmost good faith?
21. Describe the insurer's post-contractual According to Section 12 of the Consumer Case
duty of utmost good faith by providing Procedure Act 2008, a breach of good faith is a
examples of the best known cases in statutory breach.
which it has been applied. 26. Can a breach by the insurer of the duty of
Specifically, under Section 895 of the Thai Civil and utmost good faith result in regulatory
Commercial Code, the insurer is bound to pay sanctions against the insurer (license
following a death of a person under all circumstances, suspension, banning order, etc.)?
Sanctions may be brought on insurers by the Office of ****

Insurance Commission under the Casualty Insurance
Act 2008. For example, a license may be revoked
under Section 59 of the Act.
In addition, a breach of good faith by the insurer can TILLEKE & GIBBINS INTERNATIONAL LTD
lead to awards of punitive damages pursuant to Supalai Grand Tower, 26th Floor,
Section 42 of the Consumer Case Procedure Act 1011 Rama 3 Road,
2008. Chongnonsi, Yannawa,
IV - Reinsurance Bangkok 10120, Thailand
D: +66 2653 5808

T: +66 2653 5555
F: +66 2653 5678
Email: michael.t@tilleke.com
aaron.l@tilleke.com
The same principle of good faith prevails over ittirote.k@tilleke.com
reinsurance at all stages, as generalized under
Section 5 of the Thai Civil and Commercial Code. Website: www.tilleke.com
There are no specific laws governing reinsurance in
Thailand, and the same general principles of good
faith described above apply equally to reinsurance
contracts (with the exception of the references to the
Consumer Case Procedure Act, which is not generally
viewed as applicable to reinsurance contracts).
IBA Insurance Committee Substantive Project 2014 162 The Duty of Utmost Good Faith: Turkey
Turkey
MEHMET GÜN & PARTNERS Although there is no statutory principle of utmost good
faith for the insured, the duty of disclosure for the
Pelin Baysal and Alisya Danisman
insured is provided separately under the Turkish
3
I - Definition of the Principle of Utmost Good Faith Commercial Code (“TCC”).
1. In your jurisdiction, do insurance laws apply to all types of insurance contracts
provide for the principle of utmost good (life insurance, general insurance,
faith (in latin, “uberrimae fidei”) and if so, reinsurance etc.)?
definition whether under statute or Yes, the principle of utmost good faith applies to all
according to case law. types of insurance contracts without making a
1 distinction.
Article 2 and 3 of the Turkish Civil Code regulates the
principle of good faith which prevails in all contracts 5. Does the duty of utmost good faith apply
including insurance. From the insured perspective, only at the pre-contractual stage or is it a
application of this principle is mostly related to the continuous duty applying both pre-
disclosure duty whereas it is related to the insurer’s contractually and post-contractually?
duty of informing the insured about the technical It is a continuous duty applying to the pre-contractual
aspects of the policy as well as its rights and and post-contractual stages, as well as during the
obligations. term of the contract.
Although there is no specific definition of the principle II - Application of the Principle of Utmost Good
of good faith, the Court of Appeals and the Insurance Faith at the Pre-Contractual Stage
Arbitration Board relied on such principle in their
2
various decisions .
it to be found under statute and Under Turkish law, duty of disclosure is mainly
otherwise? imposed on policy holder considering the fact that
parties to an insurance contract are the policy holder
It is a civil law principle provided under Article 2 and 3 and the insurer. Insured and the policy holder may be
of the Turkish Civil Code. The courts also use the different parties or they may be identical. Indeed, if
same principle during the interpretation of the the policy holder and the insured are different parties,
ambiguous provisions of the insurance contracts. the duty of disclosure shall be mainly evaluated in
terms of the policy holder.
provide for both the principle of utmost Since insurance and reinsurance contracts are
good faith and a separate duty of contracts of utmost good faith, one of the statutory
disclosure for the insured? duties of the policyholder is the duty of disclosure and
not to misrepresent facts known or reasonably
expected to be known to him before the conclusion of
the contract.On the pre-contractual stage, according
to the TCC, the policy holder has a duty of disclosure
1
Numbered 4721 and accepted on November 22, 2001. of all the relevant information inquired by the insurer;
2 whereas, the insurer is under the obligation of
Insurance Arbitration Board Decision dated
informing the policy holder of all the information
17.07.2012, numbered K-2012/803 states that the
related to the insurance contract. In addition, as per
duty of utmost good faith requires both parties of the 4
the Regulation on Informing in Insurance Contracts ,
insurance agreement to give all information to the
the insurer has the duty to provide information to the
other party, whether required or not, that can play a
policy holder and to those that will be party to the
role in the parties accepting the agreement. Similarly,
insurance agreement. This obligation starts at the pre-
in its decision no. E. 2013/7847 K. 2013/13676 dated
28.06.2013, the 11th Chamber of the Court of Appeal
emphasized that the principle of utmost good faith
requires the insurer to duly inform the policy holder of 3
Numbered 6102 and accepted on January 13, 2011.
essential components of the insurance contract as
4
well as the scope of cover, deductibles and Published in the Official Gazette dated 28.10.2007 and
exceptions. numbered 26684.
contractual phase and continues during the term of that the policy holder gives to the questions asked in
the insurance contract. the application form.
Apart from the above, Article 32(2) of the Insurance The Insurance Arbitration Board has stated in the
5
Code also provides for a duty of good faith in terms decision dated 15.05.2012, numbered K-2012/551,
of insurance and reinsurance companies, that the insured not explaining his medical history in
intermediaries and insurance experts. Accordingly, the application form does not comply with the
the listed companies and people shall “avoid acts that principle of good faith. In the mentioned decision, the
could endanger the rights and benefits of the insured, insured’s arguments to the affect that if the insurer
carry out business pursuant to the legislation and the had requested the insured’s medical history from the
management plan and act according to the hospital, they could have obtained it did not prove
requirements of insurance and principles of good useful. The Board has underlined the fact that the law
faith.” has not given a research duty to the insurer; it has
given a duty of disclosure to the policy holder/insured.
A - For the Insured
Regarding the duty of disclosure, the decision of the
7. What is the content of the duty of utmost 6
Court of Appeal dated 05.07.2004 , has determined
that the policy holder not notifying the insurer of the
Describe the insured’s pre-contractual insured’s illness, has acted against the principle of
duty of utmost good faith by providing good faith.
The decision of the Court of Appeal dated
which it has been applied. 7
08.06.2004 is about a fire insurance, where the
The policy holder’s pre-contractual duty of utmost policy holder has declared the immovable subject to
good faith is provided under Article 1435 of the TCC the insurance as a domicile, instead it was a
as the obligation to give information. Accordingly, at warehouse. The Court of Appeal has stated that as
the conclusion of the insurance contract, the policy per Article 1435 of the TCC, the policy holder has the
holder shall notify the insurer of all the important obligation to notify the actual situation and that if the
aspects that they know or need to know. If the issues insurer had known that the subject of the insurance
that are not notified to the insurer, as well as those contract were a warehouse, they might have chosen
that are notified imperfectly or wrongly, are of a nature not to provide fire insurance or might have stipulated
that would require the contract not to be made or to the contract under different terms (i.e. with a higher
be made under different conditions, are deemed as premium).
important issues. There is also a legal presumption A similar precedent is the decision of the Court of
that the issues demanded by the insurer in written or 8
Appeal dated 03.03.2005 , where the subject of the
oral form are important issues, unless the contrary is automobile insurance was declared as an automobile
proved. for personal use, yet it was used in a rent a car
In case the insurer has given a list of questions to the service. The Court of Appeal has stated that there is a
policy holder, the policy holder cannot be held breach of the policy holder’s duty of disclosure.
responsible with respect to the issues outside the 8. Is the duty of utmost good faith for the
scope of the questions provided. The only exception insured equivalent to the duty of
to this rule is when the policy holder has concealed disclosure in your jurisdiction so that
issues in bad faith. pre-contractually the two are
As per Article 1412 of the TCC, regarding the indistinguishable?
provisions related to the knowledge and behavior of The duty of good faith is a general principle that is
the policy holder, the knowledge and behavior of the applicable to all kinds of contracts. The reflection of
insured (provided that the insured is informed of the this general principle in the field of insurance law is
insurance), the representative, if there is any, and of the duty of disclosure. Pre-contractually, this duty of
the beneficiary in life insurances, shall be also taken disclosure and the duty of utmost good faith are
into account. almost the same.
The judgments of the Insurance Arbitration Board
emphasize the fact that insurance contracts are
agreements based on the principle of utmost good
faith. The establishment of these contracts is based
on the declarations of the policy holder, since the
risks that will be covered by the insurance as well as
the pricing of the premium depend on the answers
6
Merits number 2003/13469, Decision number 2004/7482
7
Merits number 2003/12696, Decision number 2004/6552.
5 8
Numbered 5684 and accepted on June 3, 2007. Merits number 2004/15177, Decision number 2005/2007.
9. If the duty of utmost good faith operates 11. If the duty of utmost good faith operates
separately pre-contractually from the separately from the duty of disclosure
duty of disclosure describe that operation does one have precedence over the
and how the two sit together. You may other?
illustrate the differences. N/A
B - For the Insurer
N/A
10. What are the remedies for a pre- 12. What is the content of the pre-contractual
contractual breach by the insured of the duty of utmost good faith for the insurer?
duty of utmost good faith? Are the The pre-contractual duty of utmost good faith for the
remedies different from a breach of the insurer is the duty of disclosure prescribed under
duty of disclosure? Article 1423 of the TCC. Before the conclusion of the
Since the duty of utmost good faith has not been insurance contract, the insurer or its agent shall
explicitly and specifically regulated under insurance inform the policy holder in written form, of all
laws, the below mentioned statutory remedies are information related to the insurance contract, the
valid for the pre-contractual breach of the duty of rights of the policy holder, the provisions to which the
disclosure by the policy holder. policy holder shall pay special attention, and the
duties of notification connected to the developments.
According to Article 1439 of the TCC, if an issue that This duty of disclosure shall be made in due time,
is important for the insurer has not been notified or providing the policy holder a sufficient review period.
has been falsely notified, the insurer can, within 10
days as of this breach, revoke the insurance contract Article 5 of the Regulation on Informing in Insurance
or can demand premium difference. If the policy Contracts regulates the general principles of the
holder does not accept the premium difference that is insurer’s duty to provide information. Accordingly, the
requested, it will be deemed that the insurer has insurer shall carry out the obligation of informing
revoked the contract. towards the policy holder and towards those that want
to be party to the insurance contract, both in oral and
Article 1441 of the TCC provides that, if the insurer written form. As principle, information shall be
revokes the insurance contract and the policy holder provided in written form. However, in some cases
has willfully breached their duty of disclosure, the such as sales through telemarketing or via the
insurer becomes entitled to the premiums belonging internet the obligation of written information can be
to the period during which the risk was on the insurer. disregarded. The scope of the insurer’s obligation is
quite wide as during the negotiation, execution and
On the other hand, the insurer cannot revoke the continuation of the contract, the insurer shall, within
insurance contract, if the insurer has (i) renounced the the principles of good faith, help the policy holder in
use of the right of revocation either explicitly or technical matters related to the insurance, provide the
implicitly; (ii) caused the breach leading to revocation; policy holder with all sorts of necessary information
(iii) executed the contract even though the policy about the details of the insurance transactions, the
holder has left some of the questions unanswered. insurance coverage and the functioning of the
It should be noted that if the issue that has not been insurance. The insurer shall also avoid all behavior
notified or has been notified falsely is known by the that might misguide the policy holder.
insurer, the insurer cannot revoke the contract by Moreover, Article 32 of the Insurance Code provides
claiming that the insured has breached the duty of that insurance companies and intermediaries shall not
disclosure. In this case, the burden of proof (that this prepare their brochures, prospectus, other
issue was known by the insurer) is on the policy documents, announcement and advertising in a way
holder. to cause a perception beyond the scope of the rights
In this regard, there is a special provision about and interests that they would provide to the insured.
compulsory liability insurances. As per Article 1484 of The duty of utmost good faith for the insurer is also
the TCC, even if the insurer is released wholly or provided under Article 32(2) in a general way,
partially of his obligations towards the policy holder, including both the pre- and post-contractual duties.
his obligation towards the injured party continues to Accordingly, the insurer shall “avoid acts that could
the amount of the compulsory insurance. In other endanger the rights and benefits of the insured, carry
words, even if the insurer used the right of revocation out business pursuant to the legislation and the
explained above and the insurance contract is management plan and act according to the
revoked (therefore the insurer no longer has a requirements of insurance and principles of good
contractual obligation towards the policy holder), the faith.”
insurer’s obligations towards third parties, who have
suffered loss, continue until the insurance amount.
13. Describe the insurer’s pre-contractual the developments) and the policy holder has not
duty of utmost good faith by providing objected within 14 days of the conclusion of the
examples of the best known cases in contract, the contract is deemed to be made with the
which it has been applied. conditions written in the policy. In this case the insurer
shall prove that they have provided the necessary
According to the decision of the Court of Appeal dated disclosure.
9
28.06.2013 , due to the insurance contract being an
utmost good faith agreement, the insurer has the Moreover, Article 7 of the Regulation on Informing in
obligation to give information about the essential Insurance Contracts states that if there is a breach of
components of the insurance agreement, the scope of the insurer’s duty of providing information and this has
the insurance coverage, deductibles and exceptions. affected the decision of the policy holder, the policy
holder can terminate the insurance agreement and
The Insurance Arbitration Board’s decision dated can also request the compensation of the damage
17.07.2012, numbered K-2012/803 has stated that if they have suffered. The breach of the duty of
the insurer stipulates an insurance agreement and is providing information according to Article 7 includes
collecting premiums from the policy holder, despite the insurer’s failure to duly carry out this duty of
knowing that the risk will never take place, or is using informing, the insurer providing misleading
ambiguous expressions in the policy on purpose, this information, not delivering the Disclosure Form or
constitutes a breach of the insurer’s duty of utmost preparing the Disclosure Form with false statements.
good faith. These cover both pre- and post-contractual phases
14. Is it a breach of the duty of utmost good (during the negotiation, execution and continuation of
faith in your jurisdiction for insurers not the contract).
to notify the prospective insured of the III - Post-Contractual Application of the Principle
nature and extent of their duty of of Utmost Good Faith (at the Claim Stage)
disclosure?
Yes. Notifying the policy holder of the duty of A - For the Insured and Third Party
disclosure is part of the duty of utmost good faith of Beneficiary of Cover
the insurer. This is evident in Article 5 of the
Regulation on Informing in Insurance Contracts,
where it has been underlined the insurer shall provide
the insured with all sorts of necessary information
about the details of the insurance transactions and The content of the post-contractual duty of utmost
the functioning of the insurance. The duty of good faith for the insured can be examined under two
disclosure is an essential component of insurance; categories: (i) the duty of utmost good faith during the
thus, notifying the policy holder of this duty is deemed term of the contract; (ii) the duty of utmost good faith
as a part of the insurer’s duty of utmost good faith. when the risk has occured.
Article 10 of the Regulation on the Determination, In respect of the policy holder’s duty of utmost good
Notification, Record of Insurance Malpractices and faith during the term of the contract; the TCC provides
the Procedure and Principles of Fighting with these for the duty of immediate notification of the increase
10
Malpractices , also provides for this duty. of the risk and provides that the insured and the policy
Accordingly, insurance and reinsurance companies holder must refrain from acts that would increase the
shall inform the policy holder, insured/beneficiary and amount of insurance indemnity by way of increasing
right holders about the consequences of giving false the risk or current conditions. When the increase has
information on issues that would affect the insurance been learned subsequently, the policy holder must
indemnity. notify the insurer within 10 days of learning at the
15. What are the remedies for a pre- latest.
contractual breach by the insurer of its The insurer has the right to terminate the policy or
duty of utmost good faith? request premium difference within one month of
As per Article 1423(2) of the TCC, if the insurer has becoming aware of the increase in the risk. When the
not duly informed the policy holder as per the same non-disclosure was willful, the insurer will keep the
article (regarding all information related to the paid premium. When payment of the premium
insurance contract, the rights of the policy holder, the difference has not been accepted within 10 days, the
provisions to which the policy holder shall pay special policy will be deemed terminated.
attention, and the duties of notification connected to When the increase has been learned of after the
occurrence of the risk, the insurance indemnity will be
reduced according to the gravity of negligence in the
9
Merits number 2013/7847, Decision number 2013/13676 failure to disclose, provided that the non-disclosure is
of such gravity that it may affect the amount of the
10
Published in the Official Gazette dated 30.04.2011 and insurance indemnity or the occurrence of the risk.
numbered 27920. When the policy holder was intentional in its non-
disclosure, the insurer has the right to terminate the utmost good faith and this principle applies both to the
policy, provided that there is a connection between insurer and the policy holder. In order for the insurer
the increase in the risk and the occurrence of the to make a correct calculation of the premium, in other
insured event. In such case, the insurer will not pay words, to be able to calculate the risk, they should
any indemnity and not return the paid premium. When wholly and correctly know the real aspects related to
there is no connection, however, the insurer must pay the contract. […] This article has been provided as a
the indemnity, taking into consideration the proportion general provision, within the framework of the
of the paid premium and the premium that should explanations given above. […] Since the aim is that
have been paid. the insurer has full access to the reality, there is no
difference between the knowledge of the beneficiary
When the risk has occurred before the right of and of the representative and that of the insured.”
termination has taken effect or within the period for
use of the right of termination, insurance indemnity 17. Describe the insured’s post-contractual
must be paid taking into consideration the ratio duty of utmost good faith by providing
between the paid premium and the premium which examples of the best known cases in
should have been paid, provided that there is a link which it has been applied.
between the increase and the occurrence of the risk.
There are numerous Court of Appeal decisions and
The policy holder also has a duty of disclosure at the Insurance Arbitration Board judgments which
occurrence of the risk that relates to the disclosure of emphasize that when the risk takes place, the policy
the facts affecting the occurrence of the loss. holder has the obligation to give truthful notice to the
insurer. If the policy holder notifies an issue that is
In the case of liability insurances, the TCC provides outside the scope of the insurance coverage against
that the policy holder has a duty to immediately notify the principle of good faith, as if it is within the
the insurer upon learning of the occurrence of the risk, coverage, the burden of proof shifts from the insurer
and in the case of property insurance, the to the policy holder. In this case it will be the policy
policyholder must notify the insurer without delay. As holder that has to prove that the risk that has taken
regards third-party liability policies, the TCC place is within the insurance coverage.
introduced a new duty on the insured to also notify
events that may give rise to his or her liability within Another example regarding the duty of taking
10 days of learning. When the notification of precautions in order to prevent or minimize the
occurrence of the risk has not been made or the damage can be given as the Court of Appeal decision
11
policyholder was late in his or her notification, a dated 22.09.2005 . In the event subject to the
reduction will be made in the indemnity according to mentioned decision, damage has occured on the
the degree of negligence in the failure to disclose, grain elevators due to the storm and heavy rain. The
provided that the failure caused an increase in the Court of Appeal has stated that the policy holder not
insurance indemnity. intervening in any way, not checking the elevators
and not taking precautions that would prevent the
A general duty of the policy holder with respect to the leakage and minimize the risk constituted a violation
prevention and mitigation of loss has been provided of the policy holder’s obligations.
under Article 1448 of the TCC. Such provision
imposes a duty on the policy holder to take measures 18. Is the insured’s intentional concealment
not only upon occurrence of the risk but also in cases of his/her criminal activities when
where the likelihood of occurrence is high. It is also completing a proposal for life policies a
explicitly provided that the policy holder shall to the breach of the duty of utmost good faith?
extent possible take measures for the protection of
the insurers’ rights of recourse to third parties. Since criminal activities can be perceived as an
“important issue” that needs to be notified pursuant to
16.1 Do third party beneficiaries of cover have Article 1435 of the TCC (about the fact that at the
a duty of utmost good faith? conclusion of the insurance contract, the policy holder
shall notify the insurer of all the important aspects that
Yes, the duty of utmost good faith extends to the they know or need to know), the intentional
insured, as well as to the third party beneficiaries. concealment of this constitutes a breach of the duty of
Article 1412 of the TCC provides a special paragraph utmost good faith.
in this regard. According to this article, regarding the
provisions related to the knowledge and behavior of
the policy holder, the knowledge and behavior of the
insured (provided that the insured is informed of the
insurance), the representative, if there is any, and of
the beneficiary in life insurances, shall be also taken
into account. In other words, third party beneficiaries
of cover also have a duty of utmost good faith.
The Preamble of Article 1412 of the TCC states that
11
“Insurance contracts are based on the principle of Merits number 2004/10967, Decision number 2005/8530
B - For the Insurer The TCC with Article 1448 also extends liability of the
insurer to pay for reasonable costs for measures
taken by the policy holder for prevention or mitigation
of the loss. The insurer shall make an advance
with a claim?
payment in relation to all these costs by request of the
Besides the general principle set in Article 32(2) of the policy holder. These provisions as to the insurer’s
Insurance Code (see Question 1 for details), the most duty of paying reasonable expenses and making an
important aspect of the post-contractual duty of advance payment as required are also semi-
utmost good faith for the insurer is related to the mandatory which cannot be contracted out or
insurance indemnity payment. Pursuant to Article otherwise.
32(3) of the Insurance Code, insurance companies In respect of liability insurances, within five days of
shall not postpone the payment of the insurance the notification of an incident requiring insured’s
indemnity, against the rules of good faith. liability or a claim raised against the insured , the
With respect to the determination of the maturity date insurer is obliged to notify the insured about whether
for the payment of the indemnity, Article 1427 of the they will carry out the necessary legal transactions
TCC provides that the insurer’s obligation to pay the related to the claims of the injured party and whether
insurance indemnity shall fall due as soon as the they will undertake to help with the defense. If the
insurer has completed its investigation upon receipt of insurer does not make such notification, it would have
the documents related to the risk and in any event to pay the insurance indemnity.
within forty five days from the date of the policy 20. Does an insurer owe a duty of utmost
holder’s notification of the risk (as stated above, the good faith towards third party
policy holder is obliged to notify the insurer without beneficiaries of cover in handling claims?
any delay upon becoming aware of the occurrence of
the risk). If the investigation was delayed because of With regard to liability insurances, the TCC provides
a reason not attributable to the insurer’s fault, the that third parties are entitled to direct their claims to
period of 45 days shall not begin to run. Since the the third party liability insurer of the person liable for
application of these provisions in the TCC is very the loss. In this case, insurer’s duty of utmost good
recent, there is lack of court precedents as to which faith will be applicable against the injured third party.
circumstances would qualify as “circumstances not In compulsory liability insurances, as per Article 1484
attributable to the insurer’s fault” is not yet clear. of the TCC, even if the insurer is released wholly or
partially of his obligations towards the insured, his
It should be noted that when the payment falls due in obligation towards the injured party continues to the
accordance with the above stated provisions, the amount of the compulsory insurance. In other words,
insurer shall automatically go into default without any even if the insurance contract has been revoked, the
further notification required (this is of course provided insurer’s obligations towards third parties, who have
that and to the extent insurers are ultimately found suffered from damage, continue until the insurance
liable). The TCC provides that these provisions are amount.
semi-mandatory which cannot be amended contrary
to the interests of the insured and/or the policy holder. 21. Describe the insurer’s post-contractual
There is also a provision in the new TCC to the affect examples of the best known cases in
that if the insurer’s investigation was not finalised which it has been applied.
within three months from the date of notification of the
12
occurrence of the risk, the insured is entitled to ask for The Court of Appeal decisions dated 08.11.1982 ,
13 14
an advance payment corresponding to at least fifty 30.11.1979 and 16.04.2003 focus on the insurer’s
percent of the amount of the loss, to be determined by duty of not delaying the insurance indemnity payment.
mutual agreement or by a pre-expertise to be These decisions state that if the insurer stalls the
promptly conducted upon application to the court. insured by not paying the indemnity, therefore forcing
the insured to file a lawsuit in order to obtain the
Lastly, Article 1426 of the TCC requires the insurer to payment, the insurer can no longer object to the case
pay reasonable expenses made by the insured or the based on prescription, since such a defense would be
policy holder for the purpose of determination of the in bad faith. The Insurance Arbitration Board’s
extent of the risk or the insurance indemnity, even if decision dated 17.07.2012, numbered K-2012/803
these expenses have not proven useful. The has underlined that the duty of utmost good faith of
Preamble of the TCC discusses the scope of the
“reasonable expenses” where it stated that the tests
for “good faith” would apply for the determination of
the scope in a concrete case. In other words, if the
expenses are made with good faith by the 12
Merits number 1982/4597, Decision number1982/4475
insured/policy holder and provided that they are
13
reasonable, then there will be no room for the insurer Merits number 1979/3501, Decision number 1979/5473
to deny payment in respect thereof. 14
Merits number 2004/1820, Decision number 2004/4014
the insurer is the payment of the insurance indemnity this issue must also be evaluated in respect of the
in a short time period. standard term contracts regulated under the Turkish
Code of Obligations. Pursuant to Article 21 of the
Turkish Code of Obligations, the standard terms are
valid, only if the drafting party explicitly informs the
other party of the existence of these terms and
The Insurance Ethical Principles of the Insurance provides the other party the opportunity to become
Association of Turkey can be regarded as a code of aware of the content and the other party accepts
practice for insurers. Integrity (honesty) and these terms. Otherwise, those standard terms will be
transparency are listed amongst the general deemed unwritten; thus, shall have no legal effect.
principles. Transparency is defined as the insurance, The same rule applies to terms that are unusual for a
reinsurance and pension companies adhering to contract type or transaction. When certain terms of
simplicity and lucidity in informing their clients and the contract are deemed unwritten, the rest of the
upholding the maximum possible level of contract continues to be valid. Accordingly, the insurer
transparency in their activities. Moreover, informing would not be able to rely on the terms of the
clients is an essential part of the part on the relations insurance contract, about which they have not fulfilled
with customers. This principle provides that the their duty of disclosure. Such terms that the policy
companies shall provide timely and accurate holder are not informed of would be deemed unwritten
information concerning their products and services and would therefore be disregarded by the courts.
and avoid any misleading or inadequate information. Lastly, it should also be mentioned that the new
They shall also recommend the most suitable Consumer Act entered into force as of May 28, 2014
products that meet customer needs and provide has put an end to controversy as to whether
information to the customers on the advantages and insurance contracts are deemed as consumer
disadvantages of these products in comparison with contracts. Namely, it is explicitly stated in the new
other products. All of these are closely related to, in Consumer Act that the insurance contracts -in
fact constitute an integral part of, the duty of utmost addition to the insurance contract provisions of the
good faith. TCC (and certain provisions of the Insurance Act)-
23. Can courts disregard a term of a contract would be subject to the Consumer Act to the extent
of insurance if it would be a breach of the the policy is obtained for other than commercial or
duty of utmost good faith for the insurer professional purposes (i.e. where the policy holder
to rely on the term? If so, please illustrate can be deemed as a “consumer” which is defined as a
with examples. natural or legal person who receives, uses or benefits
from services or goods not with a commercial or
First of all it must be stated that the insurance professional purpose). Accordingly, in parallel with the
provisions of the TCC are mainly classified as i) above referred principles in the Code of Obligations in
mandatory provisions and ii) semi-mandatory respect of standard terms, the Consumer Act provides
provisions. Accordingly, it is not possible for that the unlawful terms in the consumer contracts
contracting otherwise of the mandatory provisions, which are included to the contracts solely by one of
whereas semi-mandatory provisions are the ones the parties without being negotiated with the counter
which cannot be amended contrary to the interest of party and contrary to the principle of honesty, which
the policy holder and/or the insured in an insurance creates a disadvantageous position for the consumer
contract. In other words, a contractual provision in respect of its rights and obligations under the
contrary to a mandatory provision of the TCC would contract would be definitely invalid.
be rendered invalid and accordingly be disregarded
by the courts. Similarly, contractual provisions 24. Do courts have special powers to
amending the semi-mandatory provisions in the TCC disregard any avoidance of the
in a way contrary to the interest of the insured and/or application of a policy in cases where the
policy holder (for example which aggrevates an insured has established that it would be a
obligation of the policy holder or the insured) would be breach of the duty of utmost good faith to
rendered invalid either. The courts instead would allow the insurer to avoid the policy?
apply the standard version of such provision which is The Court of Appeal, in its various decisions rendered
in favour of the insured and/or the policy holder. at the time of previous Commercial Code disregarded
In this respect, almost all of the provisions referred the avoidance of the application of the policy in
above in respect of duty of disclosure of the insurer certain cases. In the said decisions, the court
and the policy holder and acordingly their duty of evaluated that the insurer would breach its duty of the
utmost good faith are either of a semi-mandatory or a utmost good faith, if the insurer, after the occurrence
mandatory nature. Therefore, the courts would of the risk, revokes the insurance contract based on
disregard any contractual term to be established the policy holder’s failure on its disclosure duty.
contrary to these provisions. Indeed the Court of Appeal prevented the insurer to
revoke the insurance contract after the risk occurred.
On the other hand, as insurance contracts are The main rationale behind these decisions was that
accepted as contracts bearing many standart terms,
such a revoke would be contrary to the good faith IV - Reinsurance

principle. Additionally, there are also some high court
15
decisions where it is stated that the insurer can no 27. To what extent, if any, does your
longer avoid the application of the insurance by jurisdiction apply different principles
claiming prescription; if the insurer itself caused the regarding utmost good faith to
prescription period to pass with its acts against good reinsurance at both the placement/pre-
faith. contractual stage, and at the claim stage?
25. To the extent that an insurer’s breach of There is no enactment on reinsurance contracts (save
the duty of utmost good faith is under for regulatory provisions) under Turkish law. This
statute, is it a breach of the statute for the means that principles of contract law would apply to
insurer to be in breach of its duty of reinsurance contracts in addition to insurance contract
utmost good faith? law provisions in the TCC where relevant by analogy.
Yes, it is a breach of the statute. There is however no authority on the extent and way
of application of insurance law to reinsurance issues.
utmost good faith result in regulatory ****
Article 35(27) of the Insurance Code provides a Mehmet Gün & Partners
16
judicial fine no less than 300 days in case of the
breach of the general principle of utmost good faith Kore Sehitleri Cad 17
set under Article 32(2) or the violation of the duty of Zincirlikuyu
utmost good faith as per Article 32(3) by delaying the Istanbul 34394, Turkey
insurance indemnity payment.
Tel.: (90) 2 1254 0000
Moreover, the license of the insurance companies Fax: (90) 2 122 742 095
that have breached the duty of utmost good faith Email: Pelin.Baysal@gun.av.tr
might also be canceled. According to Article 7 of the Alisya.Danisman@gun.av.tr
Insurance Code, if it is understood that the rights and
benefits of the parties related to the insurance Website: www.gun.av.tr
contract are in danger due to practices violating the
insurance legislation, the license of the insurance
company can be suspended by the Treasury.
15
Decision dated 30.11.1979 with merits number
1979/3501, decision number 1979/5473.
16
Between TRY 6,000 and TRY 30,000.
IBA Insurance Committee Substantive Project 2014 170 The Duty of Utmost Good Faith: United Kingdom
United Kingdom
HOGAN LOVELLS INTERNATIONAL LLP insurance (e.g. marine, non-marine, life, aviation and
reinsurance).
Nick Atkins and Dan Screene
S17 MIA 1906 states that:
Preliminary Comments
“A contract of marine insurance is a contract
It is important to note that a fundamental revision of based upon the utmost good faith, and, if the
English insurance contract law, including the utmost good faith be not observed by either
parameters of the duty of utmost good faith, is party, the contract may be avoided by the
currently under consideration, and an Insurance Bill other party.”
was introduced to Parliament in July 2014. The
principle of utmost good faith is therefore in a state of S18 goes on to create the duty of disclosure:
flux. A brief note setting out the main provisions of the
Bill and its potential impact is included by way of “...the assured must disclose to the insurer,
separate appendix to these answers. before the contract is concluded, every
material circumstance which is known to the
I - Definition of the Principle of Utmost Good Faith assured, and the assured is deemed to know
every circumstance which, in the ordinary
1. In your jurisdiction, do insurance laws course of business, ought to be known by
provide for the principle of utmost good him. If the assured fails to make such
faith (in latin, “uberrimae fidei”) and if so, disclosure, the insurer may avoid the
what is its meaning? Provide any contract...”
The question as to whether any particular
circumstance is material or not is, in each case, a
Insurance contracts under English law are considered question of fact. The test for materiality has both an
contracts of ‘utmost good faith’. Accordingly, a objective limb (whether the “prudent underwriter”
business buying insurance owes a duty to the insurer would have taken the circumstance into account) and
both to disclose all material facts and to refrain from a subjective limb (whether the actual underwriter was
1 induced by the non-disclosure to write the risk on the
making any material misrepresentations .
agreed terms).
The reasoning which underpins this doctrine is that an
insurance contract, unlike most other commercial S20 of the MIA 1906 adds a further requirement that
contracts, is essentially a contract of speculation for every material representation made by the assured or
one party, the insurer. Historically, the assured was his agent to the insurer during the negotiations for the
in possession of all the information material to the risk contract, and before the contract is concluded, must
to be covered by the insurance. To be able to assess be true. If a representation is not true the insurer may
the risk properly, including the pricing of the avoid the contract.
insurance, the insurer relies upon the disclosure of all Although issues of misrepresentation by the insured
facts that will impact the likelihood of a loss occurring are often very closely related to issues of non-
and the extent of that loss. disclosure (as misrepresentations can be viewed as
The principle of utmost good faith first arose through positive but incorrect disclosures), the provisions of
common law in the mid eighteenth century (as the Misrepresentation Act 1967 (“MA 1967”) can
2
expressed by Lord Mansfield in Carter v Boehm ) and make things more complicated especially given that “
is partially codified through sections 17-20 of the in practice the line between misrepresentation and
3
Marine Insurance Act 1906 (“MIA 1906”). Despite its non-disclosure is often imperceptible” .
name, the courts have held that the application of the Frequently the distinction between misrepresentation
MIA 1906 is not restricted to marine insurance and non-disclosure is irrelevant since in either case
contracts alone but is relevant to all forms of the insurer is seeking to avoid the contract and the
remedy is the same. However, in some instances it
may matter.
Under s2(2) MA 1967 a court may refuse the remedy
1
The Consumer Insurance (Disclosure and
of avoidance when to do so would be
Representations) Act 2012, addressed further at Question 4 disproportionate. Instead, the court can declare a
below, has moderated the duty of utmost good faith for
consumers and the remedies available for insurers in the
event of breach. 3
Pan Atlantic Insurance Company Limited v Pine Top
2
Carter v Boehm (1766) 3 Burr 1905 Insurance Company Limited [1995] 1 A.C. 501
6
contact valid and award damages in lieu of rescission. applies to all types of insurance contracts. This,
The relationship between an insurer’s right to avoid a however, does not necessarily mean that the scope
contract for misrepresentation (as enshrined in and application of the duty are identical in every type
7
section 20 of the MIA 1906) and the lesser remedy of of insurance. The duty will depend upon the
damages under s2(2) MA 1967 is relatively circumstances of each case. By way of example, the
unexplored. That said, the likely approach of the courts have tended to lessen the burden of disclosure
courts was anticipated by Steyn J in Highlands v on assureds in contexts where an insurer has greater
4
Continental when he said “Where a contract of independent knowledge of the material facts.
reinsurance has been validly avoided on the grounds
of material misrepresentation, it is difficult to conceive It is also important to note that in the commercial
of circumstances in which it would be equitable within insurance context (i.e. the non-consumer context) the
the meaning of section 2(2) [of the Misrepresentation parties are free to agree to contract out of the duty of
Act 1967] to grant relief from such avoidance. utmost good faith so that a material non-disclosure at
Avoidance is the appropriate remedy for material the pre-contractual stage does not lead to avoidance.
misrepresentation in relation to marine and non- It is obviously quite rare for insurers to agree to do
marine contracts of insurance.” this.
Finally, it is important to note that the duty of utmost In the context of consumer insurance, the Consumer
good faith goes further than the statutory definition Insurance (Disclosure and Representations) Act 2012
under MIA 1906. More broadly it can be seen as a has modified the duty of utmost good faith for
duty supporting the implication of contractual terms in consumer insurance contracts with effect from 6 April
the insurance context when required to achieve the 2013. The objective of the legislation was to protect
goal of fair dealing between the parties.
5 consumers by diluting the duty of utmost good faith
and restricting the remedies available to insurers
2. Is the principle of utmost good faith (i) a upon there being a non-disclosure or
statutory principle, (ii) a common law misrepresentation. The duty now on consumers is to
principle or (iii) a civil law principle? Or is take reasonable care not to make a misrepresentation
it to be found under statute and during pre-contractual negotiations. Insurance
otherwise? renewals are also covered by this duty.
As set out in question 1 above, the law relating to As set out in the Appendix, there is a draft insurance
insurance contracts derives from the common law and contracts bill currently being debated which would
was partially codified under the MIA 1906. Further alter the existing duty of utmost good faith in
case law has developed and continues to delineate commercial insurance contracts as well.
the full extent of the duty as also set out above.
3. Do insurance laws of your jurisdiction only at the pre-contractual stage or is it a
provide for both the principle of utmost continuous duty applying both pre-
good faith and a separate duty of contractually and post-contractually?
The duty of utmost good faith applies both at the pre-
Under English law, the assured is under a duty to contractual stage and during the performance of the
disclose to its insurer all material facts which are (a) contract.
known or deemed to be known by the assured (b) not
known nor deemed to be known by the insurer when At common law, there is no general duty to disclose
entering into an insurance contract. This duty of material facts which occur during the period of
disclosure is part of the duty of utmost good faith, as insurance, although of course the duty will arise again
described in response to Question 1. upon renewal.
4. Does the principle of utmost good faith However, in the leading case of Manifest Shipping Co
8
apply to all types of insurance contracts Ltd v Uni Polaris Shipping Co Ltd (The Star Sea),
(life insurance, general insurance, Lord Hobhouse confirmed that “utmost good faith is a
reinsurance etc.)? principle of fair dealing which does not come to an
end when the contract has been made”, although he
It has been established beyond doubt that the duty of did say that the “content of the obligation to observe
utmost good faith, including the duty of disclosure,
6
See originally Lindenau v Desborough (1828) 8 B. & C. 586
and for a more recent example Godfrey v Britannic
Assurance co [1963] 2 Lloyds Rep 5151 at 528
4 7
Highlands Insurance Co v Continental Insurance Co [1987] London Assurance v Mansel (1879) 11 Ch. D. 363 at 367
Lloyd’s Rep 109 8
Manifest Shipping Co Ltd v Uni Polaris Shipping Co Ltd
5
Goshawk v Tyser [2006] a All E.R. (Comm) 501 at 514 (The Star Sea) [2001] UKHL 1
good faith has a different application and content in 9. If the duty of utmost good faith operates
different situations”. separately pre-contractually from the
The content of the duty at the post-contractual stage and how the two sit together. You may
is explained further below. need to describe the duty of disclosure to
II - Application of the Principle of Utmost Good illustrate the differences.
N/A.
6. Does the Principle of Utmost Good Faith The duty of disclosure operates as a part of the duty
apply to both the insured and the insurer of utmost good faith. The duty of disclosure is set out
at the pre-contractual stage? in s18 MIA 1906 as described above in answer to
Question 1.
Yes, the duty is mutual.
However, in practice, the duty is significantly more contractual breach by the insured of the
onerous for the insured than for the insurer. This is duty of utmost good faith? Are the
because the information relevant to the assessment remedies different from a breach of the
of a risk has most commonly been in the knowledge duty of disclosure?
of the insured. Furthermore, matters involving the
insurer’s duty of disclosure are rarely litigated The remedy for a pre-contractual breach of the duty of
because the remedy available to the insured for non- utmost good faith by the insured, including non-
disclosure, avoidance of the insurance contract, is disclosure of a material fact, is that the insurer can
rarely of benefit to the insured. avoid the contract ab initio.
A - For the Insured Where the insurer elects to avoid the policy, he has
no further liability to meet claims made by the insured,
7. What is the content of the duty of utmost but must return to the insured the premium which he
good faith for the insured? has paid. Avoidance ab initio should return the
Describe the insured’s pre-contractual contracting parties to the position they would have
duty of utmost good faith by providing been in should the contract never have come into
examples of the best known cases in existence.
which it has been applied. The contract can be avoided either before or after a
At the pre-contractual stage the principle of utmost loss has occurred. The contract cannot therefore be
good faith creates duties owed by the assured (and said to be automatically avoided by non-disclosure; it
by his agent effecting the insurance) to disclose all remains in force until avoided by the insurer.
material facts and to refrain from making untrue As the assured’s duty of disclosure is part of the duty
statements when negotiating the insurance as of utmost good faith, there is no difference in remedy.
explained above.
The law is partly codified in ss. 18-20 of the MIA separately from the duty of disclosure
1906, which apply to all classes of insurance. does one have precedence over the
These sections are not, however, exhaustive of the other?
concept of utmost good faith and its duty of N/A. See above.
disclosure, both of which are refined and further
explained by common law. B - For the Insurer
Leading cases on the duty of disclosure, 12. What is the content of the pre-contractual
misrepresentation and materiality include Pan Atlantic duty of utmost good faith for the insurer?
Insurance Company Limited v Pine Top Insurance The duty of disclosure is mutual.
Company Limited [1995] 1 A.C. 501.
Failure to disclose material facts by the insurer prior
to the conclusion of the insurance contract entitles the
assured to avoid the contract, although instances are
likely to be rare. As stated above, the duty of utmost
good faith is in practice much more onerous on the
indistinguishable?
insured than the insurer.
The duty of disclosure arises out of and as part of the
duty of utmost good faith, which applies to contracts
of insurance.
13. Describe the insurer’s pre-contractual A - For the Insured and Third Party
duty of utmost good faith by providing Beneficiary of Cover
which it has been applied. 16. What is the content of the post-
In Banque Keyser Ullmann SA v Skandia (UK) the insured at the claim stage?
9
Insurance Co Ltd the Court of Appeal held that,
Following formation of the contract, the content and
“…the duty falling upon the insurer must at effect of the duty is flexible and varies according to
least extend to disclosing all facts known to the circumstances of each individual case.
him which are material either to the nature of
the risk sought to be covered or the Both parties are required to act in good faith towards
recoverability of a claim under the policy each other in the performance of the contract,
which a prudent insured would take into although there are few instances in which the court
account in deciding whether or not to place has been asked to consider the nature of the duty
the risk for which he seeks cover with that (and even fewer cases where the duty has been held
insurer.” to have been breached by the insured - see Question
17 below)
10
The House of Lords subsequently approved the
above statement of the insurer’s duty, also stating that In effect, the duty goes little further than the insured
the duty does not extend to giving the insured the having to act in good faith (by refraining from
benefit of the insurer’s market experience. This dishonesty) in the presentation of a claim.
market experience may include, for instance, that the 16.1 Do third party beneficiaries of cover have
same risk could be covered for a lower premium a duty of utmost good faith?
either by another insurer or by the same insurer under
a different type of insurance contract.
11 Third parties
14. Is it a breach of the duty of utmost good As a general rule of English law, and in the absence
faith in your jurisdiction for insurers not of insolvency, the doctrine of privity of contract
to notify the prospective insured of the prevents a third party from enforcing a term of a
nature and extent of their duty of contract, even if the contract benefits that third party.
disclosure? The Contracts (Rights of Third Parties) Act 1999 (the
No. “1999 Act”) has qualified this doctrine to some extent
by providing that a third party can bring an action
There is regulatory guidance however in the under a contract made for the third party’s benefit if:
Insurance: Conduct of Business Rules (“ICOBs”) that
insurers should explain to their potential insurerds at (i) the contract expressly provides for this;
the pre-contractual stage the duty to disclose all or
material facts and the consequences of not doing so. (ii) the contract confers a benefit on the
In the consumer context, the guidelines go on to say third party.
that insurers should explain to consumers their
responsibility to take reasonable care not to make Under s3(2) of the 1999 Act, claims brought by third
misrepresentations. parties are subject to all defences that arise in
connection with the contract and would have been
15. What are the remedies for a pre- available to the insurer as a defence to a claim by the
contractual breach by the insurer of its named assured. These defences would include
duty of utmost good faith? avoidance for breach of duty of utmost good faith by
The remedy for breach by the insurer of its duty of the assured.
utmost good faith is avoidance of the contract ab In practice, the 1999 Act is often specifically excluded
initio. by agreement in insurance policies.
In practice, this is rarely an attractive option for the Loss payee
assured.
Insurance policies on mortgaged property often
III - Post-Contractual Application of the Principle contain “loss payable” clauses. The policy may
of Utmost Good Faith (at the Claim Stage) stipulate that the money from any or all claims be paid
to a third party –i.e. a person other than the insured(s)
named on the policy (the “loss payee”).
9
Banque Keyser Ullmann SA v Skandia (UK) Insurance Co The loss payee does not have a duty of utmost good
Ltd [1990] 1 Q.B. 665 at 772 faith. However, unless the point is specifically catered
10
for in the policy, the loss payee is not able to enforce
Ibid. at 268 the policy since, for the reason specified above, they
11
Ibid. at 772 are not privy to the policy. Moreover, a loss payee is
always subject to any defences that the insurer has The exact nature of this continuing duty of utmost
as against the insured (including where the insured good faith is one of the most debated issues in
has breached its own continuing duty of utmost good English insurance law.
faith).
The most important application of s. 17 MIA 1906 for
Assignment the insured will be either where an express term of
the insurance to supply information is breached or
Rights under insurance policies are also capable of where the insured makes a fraudulent claim (although
assignment to third parties. If there is an assignment the interaction between fraud, the duty of utmost good
of the entire contract of insurance to a third party, the faith and avoidance under s. 17 of MIA 1906 is
assignee becomes an insured under the contract and complicated by the separate common law principle
the assignor drops out – this is in effect a novation that an assured who makes a fraudulent claim forfeits
where one insured has been substituted for another. the benefits of his policy).
The former third party – the new insured- will have a
duty of utmost good faith. One example of the insured’s post-contractual duty of
utmost good faith is when a term of the insurance
The proceeds of an insurance policy i.e. the right to requires the insured to provide the insurer with
recover following a successful claim, is also a right information in particular circumstances.
12
It is said
capable of assignment (a legal assignment or that in such instances each party in question must act
equitable assignment). An assignment of the in good faith with regards to the interests of the other
proceeds does not give rise to a new contract of party.
insurance between insurer and assignee. The
assignor remains the insured under the policy and the What is not in doubt is that the basic duty to disclose
insured retains his title to sue the insurer for breach of material facts is cast upon the proposer or insured
contract. only before the contract or a renewal is concluded.
With both legal and equitable assignment, the In common law, there is no general duty to disclose
assignment is made “subject to equities”. material facts which occur during the period of
insurance, although of course the duty will arise again
A legal assignee is able to sue the insurer in its own 13
upon renewal. Manifest Shipping Co Ltd v Uni
name whereas an equitable assignee can only sue Polaris Shipping Co Ltd (The Star Sea) confirmed the
the insurer in the name of or through the assignor. basic common law principle and stated that, in
Whilst the assignee is permitted, directly or indirectly, regards to the duty in sections 18 to 20 MIA 1906: “[i]t
to sue the insurer, the insurer retains against the is not necessary to disclose facts occurring, or
assignee all rights that it had against the assignor at discovered, since the original risk was accepted
the date of assignment. material to the acceptance and rating of that risk.
Most significantly, any defence available to the insurer Logic would suggest that such new information might
against the original assured will also prevail against be valuable to the underwriter … But it need not be
the assignee. This includes rights to terminate claims disclosed.”
in case of fraud and to avoid the contract for material The post-contractual duty therefore fluctuates
misrepresentation and non-disclosure. Such a claim according to the stage of the contract. At the claims
or defence is good against the assignee, even though stage, the parties have in effect contrary interests and
the assignee took the insurance in good faith and so the duty can be said to be nothing more than a
without knowledge of the facts giving rise to the claim duty to refrain from acting fraudulently as described in
or defence. The assignee’s rights are derivative and The Star Sea and The Mercandian Continent. By way
therefore it can be in no better position than the of an example from these cases, Lord Scott stated in
assignor. The Star Sea “ I would limit the duty owed by an
Where the assignment is of the proceeds, the insured in relation to a claim to a duty of honesty”.
assignor remains a party to the contract and the 18. Is the insured’s intentional concealment
assignee takes subject not only to defences arising of his/her criminal activities when
before assignment but also to defences arising after completing a proposal for life policies a
assignment; for example, any failure by the assignor breach of the duty of utmost good faith?
to comply with a condition precedent in relation to the
making of a claim, could jeopardise the claim such Case law on this point suggests that, in summary, any
that the assignee may receive significantly diminished conviction relevant to the insurance sought will be
benefit or no benefit at all. regarded as material unless it is both trivial and old.
An irrelevant conviction that is not directly related to
12
which it has been applied. The Mercandian Continent [2001] 2 Lloyd’s Rep 563 at
571-572
13
Pim v Reid (1843) 6 M&G 1
the risk may also be disclosable when it is serious. As or would have done so only on
to what exactly constitutes “serious” it is unclear different terms.
however, case law would seem to suggest a
conviction is serious where it has been punished by
imprisonment or a substantial fine.
However, regardless of the above, an applicant for
insurance is never bound to disclose a conviction See the answers to Question 16 and Question 19
which has become spent under the terms of the above.
Rehabilitation of Offenders Act 1974. A conviction will 21. Describe the insurer’s post-contractual
become spent after a specific period according to the duty of utmost good faith by providing
seriousness of the crime and the sanction imposed. examples of the best known cases in
Most importantly, a conviction resulting in a sentence which it has been applied.
of two and a half years’ imprisonment or more can
never become spent. For all other convictions periods An example of the insurer’s post-contractual duty of
range from 10 years for custodial sentences of utmost good faith is when a liability insurer exercises
between six months and two and a half years done to his right to conduct his insured’s defence to a claim
six months for absolute discharges. made by a third party as was the case in The
14
Mercandian Continent.
Whilst there may be a lack of complete clarity on this
issue in the case law, the general direction the courts In this instance it was ruled that post-contract,
have headed is to require the disclosure of most “interests of the insured and the insurers may not be
(unspent) convictions. Erring on the side of caution the same but they will be required to act in good faith
and disclosing any unspent conviction would seem to towards each other”.
be the best way forward for those seeking insurance This same case goes on to give another example that
cover. could demonstrate the insurer’s duty of utmost good
B - For the Insurer faith in saying that:
19. What is the content of the duty of utmost “If for example the limit of indemnity includes
good faith for the insurer when dealing sums awarded by way of damages, interest
with a claim? and costs, insurers may be tempted to run
up costs and exceed the policy limit to the
In the post-contractual stage, the duty of utmost good detriment of the insured. The insured’s
faith for the insurer is much the same as for the protection lies in the duty which the law
insured, although the scenarios in which it may arise imposes on the insurer to exercise his power
15
are different. to conduct the defence in good faith.”
In essence, the duty is restricted to an expectation 22. Is there a Code of Practice for insurers in
that the insurer acts in good faith with regards to the your jurisdiction and, if so, how does it
interests of the other party. sit with the duty of utmost good faith?
In the consumer insurance context, the government There is no Code of Practice for insurers of universal
has introduced regulatory protection for individual application; there are a number of discrete codes in
consumers. Under the claims handling guidelines of relation to specific classes of business (for example,
the Insurance: Conduct of Business Rules (“ICOBs”) the Association of British Insurers (“ABI”) Code on
an insurer must not unreasonably reject a claim. An “Support for Customers with Road Traffic Injuries” or
insurer’s rejection of a claim is deemed to be the ABI Code on Long Term Protection Insurance).
unreasonable if it is for: Insurance companies (including Lloyd’s entities) are
(a) non-disclosure of a material fact which the subject to “dual regulation” and are heavily regulated.
policyholder could not reasonably be This means that they are authorised and prudentially
expected to have disclosed; regulated and supervised by the Prudential
(b) non-negligent misrepresentation of a Regulation Authority (PRA) and separately authorised
material fact; and regulated for conduct purposes by the Financial
Conduct Authority (FCA). The PRA and FCA have a
(c) for policies entered into after 5 April 2013, for statutory duty to co-operate together and co-ordinate
misrepresentation unless: their activities.
(i) the consumer did not take
reasonable care not to make the
misrepresentation; and
14
The Mercandian Continent [2001] 2 Lloyd’s Rep 563 at
(ii) the insurer shows that without the
571-572
misrepresentation he would not
15
have entered into the contract at all Ibid.
In addition to an extensive set of detailed rules, FCA The questoin was first brought before the courts and a
and PRA-authorised firms are required to conduct clear view expressed in Strive Shipping Corp v
16
their affairs in accordance with the 11 Principles for Hellenic Mutual War Risks Association. The issue
Businesses. These Principles, in particular, require a arose again in Brotherton v Aseguradora Colseguros
17
firm to: SA (No 2).
 Conduct its business with integrity and with In both these cases the insureds had failed to
due skill, care and diligence. disclose to their insurers that, at the time of taking out
the insurance, they were under investigation for
 Take reasonable care to organise and alleged fraudulent activity. Subsequently, all the
control its affairs responsibly and effectively, allegations were proven to be false. Nevertheless, it
with adequate risk management systems. was held that the investigations were material. The
insureds argued that in exercising the remedy of
 Maintain adequate financial resources. avoidance in this situation the insurers were in breach
 Pay due regard to the interests of customers of their duty of utmost good faith. In Strive Shipping,
and treat them fairly. the court’s view was that the right of avoidance could
18
be refused where it would be unconscionable, but
 Deal with the regulators in an open and co- the argument was rejected by the Court of Appeal in
operative way. Brotherton. It was held that the intelligence possessed
by the insured and not disclosed to the insurer was, at
The penalties for breach of the regulations range from the time of insuring, material, thereby allowing the
public censure, to fines, to suspension of, to complete insurer to avoid.
withdrawal of, PRA/FCA authorisation.
The Court of Appeal took a different view in Drake
23. Can courts disregard a term of a contract 19
Insurance plc v Provident Insurance plc. The case
of insurance if it would be a breach of the concerned a pre-contractual non-disclosure that
duty of utmost good faith for the insurer actually benefited the insurer. Whilst accepting that
to rely on the term? If so, please illustrate there was no binding authority on the point and
with examples. making clear its caution, the court said that in its
N/A opinion an insurer seeking to avoid the contract could
not blindly rely upon the remedy of avoidance under
At the pre-contractual stage (and at renewal) in s. 17 MIA 1906 but must show a good objective
commercial insurance and reinsurance contracts, the reason for doing so. On the facts, it was decided that
parties can expressly agree to contract out of the duty the insurer was acting in bad faith by seeking to
of utmost good faith (although, insurers are obviously avoid. It has to be pointed out that the reasoning is by
rarely keen to do so as avoidance is such an no means clear and is in direct conflict with decision
20
attractive remedy). in Brotherton.
During the performance of the contract, the duty of 25. To the extent that an insurer’s breach of
utmost good faith is little more than a duty not to act in the duty of utmost good faith is under
a dishonest manner. statute, is it a breach of the statute for the
24. Do courts have special powers to insurer to be in breach of its duty of
disregard any avoidance of the utmost good faith?
application of a policy in cases where the Breach of the duty of good faith by the insurer would a
insured has established that it would be a breach of s17 MIA 1906.
A right to avoid or rescind is not traditionally limited by
any requirement of acting in good faith. The argument
on the other hand turns on the fact that, recent case-
law has developed a continuing duty of good faith on 16
Strive Shipping Corp v Hellenic Mutual War Risks
both parties and there is no reason to deny the role of Association [2002] EWHC 203 (Comm)
a doctrine of unconscionability in this situation.
17
Brotherton v Aseguradora Colseguros SA (No 2) [2003]
Recent case law shows a difference of opinion on this EWCA Civ 705
and it is unclear as to whether the courts can
18
disregard an avoidance if avoiding the contract in Strive Shipping Corp v Hellenic Mutual War Risks
question would constitute a breach of the duty of Association [2002] EWHC 203 (Comm)
utmost good faith. 19
Drake Insurance plc v Provident Insurance plc [2003]
EWCA Civ 1834
20
See especially Brotherton v Aseguradora Colseguros SA
(No 2) [2003] Lloyd’s Rep IR 758 at paras 29 to 34
26. Can a breach by the insurer of the duty of APPENDIX

sanctions against the insurer (license THE INSURANCE BILL
suspension, banning order, etc.)? On 17 June 2014 the Law Commission published a
There are no regulations that specifically and directly draft Insurance Contracts Bill thus launching a fresh
impose or support the insurer’s duty of good faith and, round of consultation to see if the bill had enough
as described above, the insurer’s duty of good faith is backing to be fast-tracked into law. One month later
relatively narrow. Accordingly, breach of the insurer’s on 17 July 2014 the bill was introduced to the House
duty of good faith is not likely to attract regulatory of Lords as the Insurance Bill.
intervention. Having said that, insurers are subject to This bill is part of a review of insurance contract law
the FCA conduct principle requiring them to “treat being undertaken by the Law Commission in
customers fairly”. So, it is certainly possible that any conjunction with the Scottish Law Commission. The
insurer breaching their duty of good faith to the project began in 2006 and led to the implementation
policyholder could be susceptible to regulatory action of the Consumer Insurance (Disclosure and
by the FCA if such breach also amounted to a failure Representations) Act 2012 and the subsequent
to treat the policyholder fairly. review of insurance contract law relating to
Additionally, in relation to consumer insurance only, commercial insurance as demonstrated by this new
aggrieved policyholders may pursue remedies bill.
through the Financial Ombudsman Service. This bill qualifies for an accelerated passage into law
Consumer Insurance is subject to the jurisdiction of under a procedure introduced in 2006 for Law
the Financial Ombudsman Service, an informal, Commission Bills and if the bill successfully passes
quasi-judicial process which is not required to strictly through both Houses it may be enacted before next
adhere to the application of law and regulation but year’s General Election (7 May 2015).
which is entitled to render decisions based on what is
fair and reasonable in the circumstances. The main provisions of the draft bill are set out below.
IV - Reinsurance Clause 3 – The Duty of Fair Presentation

This clause, according to the Law Commission’s
27. To what extent, if any, does your explanatory notes, is central to the proposed reforms.
jurisdiction apply different principles It requires the insured to make to the insurer, a “fair
regarding utmost good faith to representation of the risk” before the contract is
reinsurance at both the placement/pre- entered into.
This duty will be made up of three elements.
In English law there is no distinction made between
insurance and reinsurance as to the duty of utmost  Firstly, the insured is required to disclose
good faith. The above answers given in relation to “every material circumstance” which they
insurance apply equally to and should be regarded as “know or ought to know”. This replaces the
referring also to contracts of reinsurance. disclosure duty in the Marine Insurance Act
1906.
The duty of good faith applies to reinsurance
contracts because a reinsurance is in the nature of a  Secondly, if the first leg is not strictly
contract of insurance and because the reinsurer has satisfied, there will be no breach if the
available to him the same defences to liability as are insured gives enough information to put a
available to the reinsured in his capacity of primary prudent insurer on notice that it should make
21
insurer. The duties of the reinsured to the reinsurer further enquiries which would reveal material
ought to be measured by the same standard as circumstances which the insured know or
22
expected of the original insured. The duty is ought to know.
therefore based upon the same rules as those
applying to original insurance, but its application takes  Thirdly, this clause creates a duty not to
account of features peculiar to reinsurance contracts, make misrepresentations. As with the
particularly reinsurance treaties. existing law, where a material representation
concerns a matter of fact it must be
**** “substantially correct”. Where it concerns a
matter of expectation or belief it must be
made “in good faith”.
Clause 8 – Remedies for Breach
21
China Traders’ Insurance Co v Royal Exchange This clause sets out the circumstances in which an
Assurance Corp [1898] 2 Q.B. 187
insurer will be entitled to a remedy for an insured’s
22
Equitable Life Assurance Society v General Accident breach of the duty of fair presentation. As with the
Assurance Corp (1904) 12 S.L.T. 348 at 349 current law position the insurer will need to show that
the breach induced them into the contract, however The clause also gives the insurer a further remedy;
unlike in contracts of consumer insurance, a breach the ability to treat the contract as if it had been
does not have to be deliberate or reckless in order to terminated at the time of the “fraudulent act” once the
be actionable. An innocent breach may also be insurer has given notice of this intention to the
actionable but different remedies will apply. insured.
The extent of the remedies available is set out in Clause 13 – Good Faith
Schedule 1 of the Bill.
This clause removes avoidance as a remedy for
(a) If the breach of the duty of fair presentation breach of the duty of utmost good faith as it will be
is deliberate or reckless then the insurer may replaced by the duty of fair presentation
avoid the contract and refuse all claims and
Clause 14 and 15 – Contracting Out
need not return any of the premiums paid.
(b) If the breach is neither deliberate nor Clause 14 makes it clear that in consumer insurance
reckless and the insurer would not have contracts, insurers are prevented from contracting out
entered into the contract if aware of all of the of any of the provisions in the bill to the detriment of
information then the insurer may avoid the the consumer. A policy term that puts the consumer in
contract and repay all premiums paid. a worse position than under the draft bill will be
rendered void.
(c) If the breach is neither deliberate nor
reckless and the insurer would have entered Clause 15 relates however to non-consumer
into the contract but on different terms then insurance and allows parties to contract out of terms
the payment may be reduced in proportion to of the draft bill. There is only one exception to this
the difference between the premiums paid rule: the prohibition on “basis of contract” provisions.
and the premiums that would have been A copy of the Insurance Bill as introduced into the
payable. House of Lords and the current status of the Bill is
Clause 9 – Warranties and Representations available on the English Parliament website at
http://services.parliament.uk/bills/2014-
This clause abolishes “basis of the contract” clauses 15/insurance.html.
in non-consumer insurance as they were abolished in
****
consumer insurance by the Consumer Insurance
(Disclosure and Representations) Act 2012.
Clause 10 – Breach of Warranty
Hogan Lovells International LLP
Under current law, an insurer’s liability is completely
discharged from the point of breach of a warranty. Atlantic House
This is repealed by this clause 10 and instead the Holborn Viaduct
breach of a warranty suspends an insurer’s liability London EC1A 2FG, United Kingdom
from the time of the breach until the time that the
breach is remedied. Tel.: (44) 2 072 962 000
Clause 11 – Remedies for Fraudulent Claims Fax: (44) 2 072 962 001
Email: nick.atkins@hoganlovells.com
This clause codifies the current common law position. dan.screene@hoganlovells.com
Where the insured commits a fraud against the
insurer, the insurer is not liable to pay the insurance Website: www.hoganlovells.de
claim to which the fraud relates.
IBA Insurance Committee Substantive Project 2014 179 The Duty of Utmost Good Faith: USA
USA
JENNER & BLOCK LLP
David M. Kroeger, Sabrina Guenther, Daniel
Johnson and Ravi Shankar
I - Definition of the Principle of Utmost Good Faith Jenner & Block LLP
353 N. Clark Street
Chicago, IL 60654-3456
faith (in latin, “uberrimae fidei”) and if so, Tel.: 312 222-9350
what is its meaning? Provide any Fax: 312 527-0484
definition whether under statute or Email: dkroeger@jenner.com
according to case law. sguenther@jenner.com
djohnson@jenner.com
In general, insurance laws within the United States
rshankar@jenner.com
recognize the principle of utmost good faith only in
limited circumstances: (i) marine insurance (which Website: www.jenner.com
generally is governed by United States federal law),
where the doctrine has been applied in the context of
a policyholder’s responsibility to disclose material
facts to an insurer in connection with the purchase of
an insurance policy, and (ii) reinsurance relationships,
where the doctrine generally follows English common
law and applies to both a cedent and a reinsurer. A
small number of states have held that the principle of
utmost good faith also may apply in insurance
relationships other than marine insurance, again in
the context of a policyholder’s responsibility to
disclose material facts to an insurer in connection with
the purchase of an insurance policy.
****
IBA Insurance Committee Substantive Project 2014 180 The Duty of Utmost Good Faith: USA (California)
USA (California)
EDWARDS WILDMAN PALMER LLP Unfair Practices Act specifically sets forth various
types of bad faith conduct which are prohibited.
Barry Leigh Weissman
I - Definition of the Principle of Utmost Good Faith statutory principle, (ii) a common law
1. In your jurisdiction, do insurance laws it to be found under statute and
provide for the principle of utmost good otherwise?
what is its meaning? Provide any See discussion in Question #1. The principle of
definition whether under statute or utmost good faith is a statutory and common law
according to case law. principle under California law. The principle of
ordinary good faith is found in California’s statutory
Under California law, the principle of utmost good law and common law, as well.
faith, or “uberrimae fidei,” applies in the reinsurance
and maritime context only. In the context of 3. Do insurance laws of your jurisdiction
reinsurance contracts, Cal. Ins. Code § 622 states provide for both the principle of utmost
that “[w]here an insurer obtains reinsurance, he must good faith and a separate duty of
communicate all the representations of the original disclosure for the insured?
insured, and also all the knowledge and information In maritime law and reinsurance contracts, the
he possesses, whether previously or subsequently principle of utmost good faith is essentially a standard
acquired, which are material to the risk.” Cal. Ins. that governs disclosure. Although the principle of
Code § 622; see also Hampshire Ins. Co. v. utmost good faith is largely a standard that governs
Philadelphia Re Ins. Corp., No. C-88-378, Slip Op. at disclosure, in the context of general insurance, the
18 (N.D.Cal. March 1990). The principle of uberrimae principle of ordinary good faith applies to both the
fidei is also codified in California’s maritime law at performance and the enforcement of the contract.
Cal. Ins. Code § 1900(b), which provides that an Good faith is defined as honesty in fact in the conduct
applicant for marine insurance has an affirmative duty or transaction concerned. Cal. Com. Code
to state all material facts which are known to him, and §1201(19). It can apply to action as well as inaction,
to communicate every material fact within his such as an insurer’s duty not to unreasonably
knowledge that is not known or presumed by the withhold payments due under a policy of insurance.
insurer. A marine insurance policy can be voided by
the insurer for any material concealment, omission, or Cal. Ins. Code § 332 creates a separate duty of
misrepresentation, whether that concealment or disclosure in general insurance contracts by requiring
omission is innocently or fraudulently made. Reliance that each party to an insurance contract communicate
Ins. Co. v. McGrath, Inc. 671 F. Supp. 2d 669, 676 to the other, in good faith, all material facts within its
(N.D. Cal. 1987) knowledge.
California has also addressed the principle of ordinary 4. Does the principle of utmost good faith
good faith in insurance contracts through both apply to all types of insurance contracts
legislation and case law. California courts have (life insurance, general insurance,
consistently recognized that the common law reinsurance etc.)?
obligation of good faith and fair dealing is inherent in
every insurance contract. Freeman v. Allstate Life As discussed in Question #1 above, under California
Insurance Co., 253 F.3d 533 (9th Cir. 2001); Crisci v. law, utmost good faith applies in the reinsurance and
Security Ins. Co. of New Haven, Connecticut, 58 Cal. maritime context only. California has also addressed
R. 13 (1967) (discussing an insurer’s breach of the the principle of ordinary good faith in insurance
implied covenant of good faith and fair dealing). The contracts through both legislation and common law.
courts recognize in every insurance contract an 5. Does the duty of utmost good faith apply
implied promise that neither party will do anything to only at the pre-contractual stage or is it a
injure the right of the other party to receive the full continuous duty applying both pre-
benefits of the contract. Egan v. Mutual of Ohama contractually and post-contractually?
Ins. Co., 620 P.2d 141 (Cal. 1979).
In maritime law and reinsurance contracts, the duty of
In 1959, California adopted its Unfair Claims Practices utmost good faith applies both pre-contractually and
Act, Cal. Ins. Code §§ 790 et seq. As discussed post-contractually. The duty of ordinary good faith
further below, the statutory scheme, created by the applies pre-contractually and post-contractually, as
California Insurance Code §§ 332 and 662, codifies well.
the reciprocal duties of ordinary good faith. The
II - Application of the Principle of Utmost Good In the context of a reinsurance contract, under the
Faith at the Pre-Contractual Stage principle of uberrimae fidei, an insured is required to
communicate all the representations of the original
6. Does the Principle of Utmost Good Faith insured, as well as all of the knowledge and
apply to both the insured and the insurer information he possesses, whether previously or
at the pre-contractual stage? subsequently acquired, that are material to the risk to
the reinsurer. Cal. Ins. Code § 622.
The insured and insurer both owe certain pre-
contractual duties of utmost and ordinary good faith. 8. Is the duty of utmost good faith for the
Insurance Code § 1900, for example, requires each insured equivalent to the duty of
party to a marine insurance contract to disclose all the disclosure in your jurisdiction so that
information each has regarding the risk, creating a pre-contractually the two are
pre-contractual duty to avoid non-disclosure and indistinguishable?
misrepresentation of information, regardless of Under California law, the doctrine of uberrimae fidei
whether made innocently or with fraudulent intent, encompasses an insured’s duty to disclose all
with the purpose to prevent fraud, and to encourage material facts. Cigna Property. & Cas. Ins. v. Polaris
good faith. Pictures, 159 F.3d 412 (9th Cir. 1998). However, the
With respect to an insurer’s duty of ordinary good doctrine of uberrimae fidei is separate and distinct
faith, California law obligates the insurer to refrain from the statutory right of an insurer to rescind an
from doing anything to injure the rights of the insured insurance policy if the insured conceals or
to receive the benefits of the insurance contract. misrepresents a material fact. See Cal. Ins. Code §
Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 573 1904.
(1973), citing Comunale v. Traders & General Ins. 9. If the duty of utmost good faith operates
Co., 50 Cal.2d 654, 658 (1958). Regarding the separately pre-contractually from the
insured, the covenant of good faith and fair dealing duty of disclosure describe that operation
implied in every contract of insurance requires an and how the two sit together. You may
insured to answer honestly all questions on an need to describe the duty of disclosure to
application for insurance. Freeman v. Allstate Life illustrate the differences.
Insurance Co., 253 F.3d 533 (9th Cir. 2001). If the
insured learns of a change in circumstance before the In maritime law and reinsurance contracts, the
policy is issued, the insured has a duty to inform the principle of utmost good faith is essentially a standard
insurer of the change. Id. Failure to do so will that governs disclosure. Under the principle of
provide the insurer with grounds to void the policy. Id. ordinary good faith, the obligations of the insured and
the insurer extend beyond disclosure. As discussed
A - For the Insured
in Question #3 above, the principle of ordinary good
7. What is the content of the duty of utmost faith applies to both the performance and the
good faith for the insured? enforcement of the contract. It can apply to action as
well as inaction, such as an insurer’s duty to refrain
Describe the insured’s pre-contractual from unreasonably withholding payments due under a
duty of utmost good faith by providing policy of insurance.
which it has been applied. 10. What are the remedies for a pre-
The applicant for maritime insurance is under a duty duty of utmost good faith? Are the
“to reveal every fact within his knowledge that is remedies different from a breach of the
material to the risk.” Cigna Property. & Cas. Ins. v. duty of disclosure?
Polaris Pictures 159 F.3d 412, 420 (9th Cir. 1998). In
New Hampshire Ins. Co. v. C’est Moi, Inc., 519 F.3d Insurers can recover from insureds only in contract,
937 (9th Cir. 2007), the insured violated the doctine of and not in tort, in a reverse bad faith action arising
uberrimae fidei when he responded incorrectly to a from the insured’s pre-contractual breach of its duty of
question on the insurance application. good faith. Slaney v. Ranger Ins. Co., 115 Cal. App.
4th 306 (2004). Material misrepresentation or
In Ashoff v. Essentia Ins. Co., (Not Reported) concealment of facts on an insurance policy
Cal.Rptr.3d, 2013 WL 1912788 (Cal.App. 4 Dist., application are grounds for rescission, and actual
2013), the court concluded that the doctrine of intent to deceive need not be shown. Imperial
uberrimae fidei and California Insurance Code § 1900 Casualty & Indem. Co. v. Sogomonian, 198 Cal. App.
required the insured, who had purchased a marine 3d 169 (1988); see also Cal. Ins. Code § 1904
insurance policy, “to communicate all material (concealment in a maritime insurance contract gives
information in his possession regarding the risk and the insurer the right to rescind the contract).
the whole truth in relation to all matters relating to the
claim.”
11. If the duty of utmost good faith operates brochure were not in conflict with, nor misleading with
separately from the duty of disclosure regard to, the terms of the policy.
other? In Dias v. Nationwide Life Ins. Co., 700 F. Supp. 2d
1204, 1208 (E.D. Cal. 2010), the parties’ dispute
An insurer’s right to rescind an insurance policy under arose from a variable life insurance policy with death
Cal. Ins. Code §§ 331, 662 or § 1900 does not require benefits. The insureds took the position that, at the
any intentional misrepresentation by the insured. time they applied for the policy, the insurer’s agent
Negligent or inadvertent misrepresentation can be the advised them that the policy was a good retirement
basis of a rescission claim. See, e.g., Mitchell v. investment and that after a minimal number of annual
United Nat’l Ins. Co., 25 Cal.Rptr. 3d 627, 633-34 (Ct. payments, the policy would pay for itself. When the
App. 2d Dist. 2005). Under California law, the duty of insured continued to receive premium notices, the
disclosure does not appear to have precedence over insured asserted a claim for bad faith against the
the duty of utmost good faith. insurer. The court found that the insurer could be
held liable for its agent’s misrepresentations regarding
B - For the Insurer
the premium payments.
12. What is the content of the pre-contractual 14. Is it a breach of the duty of utmost good
duty of utmost good faith for the insurer? faith in your jurisdiction for insurers not
Under California Law, the duty of ordinary good faith to notify the prospective insured of the
and fair dealing obligates the insurer to refrain from nature and extent of their duty of
taking any action that impairs the right of the insured disclosure?
to receive the benefits of the insurance contract. The Under California law, the doctrine of uberrimae fidei
implied covenant of good faith has three basic tenets. does not appear to impose an obligation on an insurer
First, neither party may take any action that injures to notify a prospective insured of the nature and
the right of the other to receive the benefits of the extent of their duty of disclosure.
agreement. Gruenberg v. Aetna Ins. Co., 9 Cal.3d
566, 573 (1973), citing Comunale v. Traders & 15. What are the remedies for a pre-
General Ins. Co., 50 Cal.2d 654, 658 (1958). Second, contractual breach by the insurer of its
an insurer cannot “put its own interests before those duty of utmost good faith?
of the insured.” Miller v. Elite Ins. Co., 100 Cal.App.3d
739, 758 (1980). Finally, an insurance carrier must Cal. Ins. Code § 331 states that “[c]oncealment,
“give at least as much” consideration to the interests whether intentional or unintentional, entitles the
of the insured as it does to its own interests. Egan v. injured party to rescind insurance.” The California
Mutual of Omaha, 24 Cal.3d 809, 819 (1979). The Supreme Court announced in Crisci v. Security Ins.
insurer has a duty to protect the insured’s interests as Co., 426 P.2d 173 (Cal. 1967) that tort damages
if those interests were its own. Mariscal v. Old would also be available in bad faith cases brought by
Republic Life Ins. Co., 42 Cal.App.4th 1617, 1623 an insured. Where the insured seeks tort remedies
(1966). Importantly, however, an insurer has no duty for an alleged breach of the implied covenant of good
to disregard its own interests when they conflict with faith and fair dealing, such remedies include
the insured’s interests. Henry v. Associated Indem. emotional distress, damages, future policy benefits,
Corp., 217 Cal. App. 3d 1405, 1418-1419 (1990). punitive damages, and attorneys’ fees. Hangarter v.
Provident Life & Accident Ins. Co., 373 F.3d 998,
13. Describe the insurer’s pre-contractual 1013 (9th Cir. 2004). Under California law, punitive
duty of utmost good faith by providing damages are unavailable to an insured suing only in
examples of the best known cases in contract for a breach of implied covenant of good faith
which it has been applied. and fair dealing. Frazier v. Metro. Life Ins. Co., 169
Cal. App. 3d 90, 105-107 (1985).
Under California Insurance Code § 790.03, an insurer
may not make any statement “misrepresenting the An important exception to the foregoing arises in the
terms of any policy issued or to be issued or the context of reinsurance. Under California law, a
benefits or advantages promised thereby.” In reinsurer does not owe a fiduciary duty to its cedent,
Hackethal v. Nat’l Casualty Co., 234 Cal. Rptr. 853 and may not be liable for bad faith or extracontractual
(Cal. App. 2d Dist. 1987), the insured purchased an liability. Cal. Joint Powers Ins. Auth. v. Munich
income reimbursement insurance policy and later Reinsurance Am., Inc., No. cv-08-956, 2008 WL
sought coverage for loss of earned income in 1885754 (C.D. Cal. 2008). California courts do not
connection with a hearing before the medical quality permit recovery in tort in the reinsurance context.
assurance board. After the insurer denied coverage Thus, claims against reinsurers for breach of the
for the claim, the insured took the position that the covenant of good faith and fair dealing are
insurer had acted in bad faith because, prior to unsustainable. In Stonewall Ins. Co. v. Argonaut Ins.
issuing the policy, the insured had been provided with Co., 75 F.Supp.2d 893 (N.D.Ill. 1999), the court,
a brochure that misrepresented the terms of the analyzing California law, found that “a reinsurer’s
policy. The court determined that the insurer did not breach of the duty of good faith ultimately may
act in bad faith because the representations in the seriously affect the reinsured’s ability to provide
coverage to its other original insureds. . . . In Ram v. Infinity Select Ins., 807 F. Supp. 2d 843
Nonetheless, this court does not believe that (N.D. Cal. 2011), the insured sought coverage under
recognizing the ripple effects of such a breach an automobile insurance policy for the theft of his
warrants a finding of public interest comparable to automobile. During the course of the insurer’s
when an original insurer does the same against its investigation of the claim, the insured was evasive
original insured.” The court held that there is no and provided false information to the insurer. The
fiduciary obligation owed by a reinsurer to its cedent, insurer thereafter denied coverage for the theft claim.
and that a cedent cannot recover tort damages for the The court found that because the insured deprived
reinsurer’s breach of good faith. the insurer of the opportunity to fully investigate the
claim, the policy was void.
of Utmost Good Faith (at the Claim Stage) 18. Is the insured’s intentional concealment
A - For the Insured and Third Party completing a proposal for life policies a
Beneficiary of Cover breach of the duty of utmost good faith?
16. What is the content of the post- Cal. Ins. Code § 331 states: “Concealment, whether
contractual duty of utmost good faith for intentional or unintentional, entitles the injured party to
the insured at the claim stage? rescind insurance.” Additionally, § 332 of the Cal. Ins.
Code states: “Each party to a contract of insurance
Under California law, insureds owe a reciprocal duty shall communicate to the other, in good faith, all facts
of good faith to their insurers. Commercial Union within his knowledge which are or which he believes
Assurance Companies v. Safeway Stores, Inc. 26 Cal to be material to the contract and as to which he
3.d 912 (1980). One aspect of the “post-contractual” makes no warranty, and which the other has not the
duty involves the insured’s obligation to provide notice means of ascertaining.” Consequently, when an
of a claim to the insurer within a reasonable time. applicant for life insurance is asked for material
Untimely notice of a claim can defeat an insured’s information about his past criminal activities and does
right to recovery of a claim. Safeco Ins. Co. v. Park, not provide the specific information requested, the
10 Cal. App. 4th 992 (2009). insurer is entitled to void the policy. With respect to
An insured also owes a duty to cooperate in an materiality, the law is unsettled as to whether a
insurer’s investigation of a claim at the post- misstatement is “material” only where the insurer was
contractual stage. Blake v. Aetna Life Ins. Co., 99 prejudiced by actually relying on it, or whether the test
Cal. App. 3d 901, 918-921 (1979). Under California is a more objective one, based on an assessment of
law, failure to cooperate with an insurer’s investigation the type of information a reasonable insurer would
of a claim, or with an insurer’s defense of a third-party have needed to evaluate the claim before it.
claim, violates the insured’s duty of good faith. Compare Royal Indem. Co. v. Kaiser Aluminum &
Chemical Corp., 516 F.2d 1067 (9th Cir. Cal. 1975)
16.1 Do third party beneficiaries of cover have (insurer must show actual reliance) with Thompson v.
a duty of utmost good faith? Occidental Life Ins. Co. of California, 513 P.2d 353,
360 (Cal. 1973) (“materiality is determined solely by
Under California law, the doctrine of uberrimae fidei
the probable and reasonable effect which truthful
does not appear to impose any obligations on third-
answers would have had upon the insurer”); and
party beneficiaries of insurance coverage. See Jones
Mitchell v. United Nat. Ins. Co., 127 Cal.App.4th 457
v. Aetna Casualty & Surety Co., 26 Cal. App. 4th
(2005) (“the materiality of the statement will be
1717, 1722 (1994) (implied covenant of good faith
determined by the objective standard of its effect
and fair dealing applies only to parties to the
upon a reasonable insurer”).
insurance contract).
B - For the Insurer
duty of utmost good faith by providing 19. What is the content of the duty of utmost
examples of the best known cases in good faith for the insurer when dealing
which it has been applied. with a claim?
In California Casualty Gen. Ins. Co. v. Superior Court The insurer owes a duty to exercise good faith and
173 Cal.App.3d 274, 283 (1985), the court ruled that reasonable discretion in evaluating a claim made
the insured’s undue delay in submitting information against the insured and in negotiating a settlement of
necessary to process her claim, which contributed to that claim within the policy limits if such a settlement
the insurer’s failure to pay the claim, could reduce the is possible. In Gruenberg v. Aetna Ins. Co., 510 P.2d
insured’s recovery for damages resulting from the 1032 (Cal. 1973), the California Supreme Court stated
insurer’s non-payment. The court found that that:
responsibility and liability for damages were to be
allocated between the insurer and the insured in In the case before us we consider the duty of
proportion to the amount of bad faith attributable to an insurer to act in good faith in handling the
each party. claim of an insured, namely a duty not to
withhold unreasonably payments due under
a policy […] That responsibility is not the have known the claimant was interested in settlement,
requirement mandated by the terms of the the insurer was not liable for bad faith failure to settle.
policy itself – to defend, settle or pay. It is the
In Maynard v. State Farm Mut. Auto. Ins. Co., 499 F.
obligation, deemed to be imposed by the
law, under which the insurer must act fairly Supp. 2d 1154 (C.D. Cal. 2007), the insured took the
and in good faith in discharging its position that the insurer acted in bad faith in
contractual responsibilities. investigating and evaluating his claim for
underinsured motorist coverage. The insured
Gruenberg, 510 P.2d at 1037. Insurance companies contended that the insurer ignored the evidence in its
have a duty to settle third-party liability claims within claim file, instead focusing only on evidence
policy limits in those situations where there is a supporting its denial of the claim. The insurer took
substantial likelihood of recovery in excess of the the position that the facts known to it at the time it
limits. See, e.g., Kransco v. American Empire Surplus rejected the insured’s settlement offer demonstrated
Lines Ins. Co., 23 Cal.4th 390, 97 Cal.Rptr.2d 151, 2 that the parties had a genuine dispute over the claim,
P.3d 1 (2000). and therefore that its handling of the claim was
proper. The court found that although the insurer’s
actions may not have been the best model of claims
handling, the insurer had a reasonable and legitimate
basis for questioning the insured’s claim and therefore
California courts have refused to permit third-party did not act in bad faith as a matter of law.
claimants to sue insurers directly for breach of the 22. Is there a Code of Practice for insurers in
implied covenant of good faith and fair dealing, which your jurisdiction and, if so, how does it
is solely for the benefit of the insured. Murphy v. sit with the duty of utmost good faith?
Allstate Ins. Co., 553 P.2d 584 (Cal. 1976). However,
Cal. Civ. Code § 1559 expressly entitles third parties Although California does not have a “Code of
to enforce a contract made for their benefit at any Practice” specifically applicable to insurers, it provides
time prior to its rescission. Thus, the third party must a comprehensive statutory scheme for the regulation
show that the policy was procured expressly for its of all phases of the insurance business. Cal. Ins.
benefit in order to enforce the implied covenant of Code Division 1, §§ 100 to 1879.8 form the general
good faith and fair dealing against the insurer as a rules governing insurance. In addition to the general
third-party beneficiary. Ascherman v. Gen. insurance law, Cal. Ins. Code § 790 to § 790.15,
Reinsurance Corp. 183 Cal. App. 3d 307 (1986). enacted by the California Unfair Claims Practices Act,
There is no private cause of action for third-parties sets forth specific regulations that proscribe unfair
under the California Unfair Practices Act. Moradi- competition and unfair or deceptive acts or practices
Shalal v. Fireman’s Fund Ins. Cos., 46 Cal. 3d 287 in the business of insurance. For example, Cal. Ins.
(1988). Code § 790.03(h) prohibits knowingly committing
misrepresentations of “pertinent facts or insurance
policy provisions relating to any coverages at issue.”
Cal. Ins. Code § 790.03(b) bars an insurer from
making any assertion or representation concerning
the business of insurance which is untrue, deceptive
In Reid v. Mercury Ins. Co., 220 Cal. App. 4th 262 or misleading. Cal. Ins. Code § 790.03(h) prohibits a
(Cal. App. 2d Dist. 2013), the parties’ insurance number of unfair claim settlement practices.
coverage dispute arose from an automobile collision 23. Can courts disregard a term of a contract
which caused injury to the claimant and others. of insurance if it would be a breach of the
Thereafter, the claimant filed suit against the insured, duty of utmost good faith for the insurer
without first responding to the insurer’s prior request to rely on the term? If so, please illustrate
for medical records or making a settlement demand. with examples.
The insurer offered its policy limits to settle the case
three months after it received the medical records, but California courts have not addressed this scenario.
the claimant refused the offer and filed a bad faith suit However, some California courts have ruled that even
against the insurer as the insured’s assignee in which if there is no coverage, the manner in which the claim
it contended that the insurer’s delay and failure to is handled may expose the insurer to a bad faith
settle the claim constituted bad faith. The court found claim. In Judah v. State Farm Fire & Casualty Co.,
that under California law, an insurer does not owe a 227 Cal. App. 3d 1133, 266 Cal. Rptr. 455 (1990), the
duty to initiate settlement discussions or offer its California appellate court addressed somewhat
policy limits immediately after the insured’s liability in egregious conduct in determining whether the insurer
excess of policy limits has become clear. could be held liable for bad faith damages in the
Accordingly, the court determined that because the absence of coverage. Although depublished (268 Cal.
claimant had made no settlement offer, and because Rptr. 541, 281 Cal. Rptr. 766), this opinion has been
there was no evidence that the insurer knew or should referenced by other courts following California’s lead
on this issue.
24. Do courts have special powers to desist order from the Commissioner, the
disregard any avoidance of the Commissioner may, after hearing, suspend or revoke
application of a policy in cases where the the license or certificate of that person for a period not
insured has established that it would be a exceeding one year. Cal. Ins. Code § 790.05.
allow the insurer to avoid the policy? IV - Reinsurance
Under California law, the implied covenant of good 27. To what extent, if any, does your
faith and fair dealing requires that the insurer act jurisdiction apply different principles
reasonably when handling its insureds’ claims. This regarding utmost good faith to
means that the insurer must not unnecessarily reinsurance at both the placement/pre-
withhold or delay payments owed to its insured. contractual stage, and at the claim stage?
Waller v. Truck Ins. Exch., Inc. 11 Cal. 4th 1, 36
(1995). These principles would appear to support the As discussed above, California has codified the
contention that where an insurer seeks to avoid doctrine of utmost good faith for reinsurance contracts
application of a policy, a court may “disregard,” or in Cal. Ins. Code § 622, which provides, in relevant
reject, the insurer’s attempt to avoid coverage. part: “[w]here an insurer obtains reinsurance, he must
communicate all the representations of the original
25. To the extent that an insurer’s breach of insured, and also all the knowledge and information
the duty of utmost good faith is under he possesses, whether previously or subsequently
statute, is it a breach of the statute for the acquired, which are material to the risk.” As
insurer to be in breach of its duty of discussed in Question #15 above, California courts
utmost good faith? treat reinsurance differently insofar as recovery in tort
A breach of the insurer’s duty of utmost good faith or is not permitted in the reinsurance context. Thus,
duty of ordinary good faith will, in most cases, claims against reinsurers for breach of the covenant
constitute a violation of California’s statutory laws of good faith and fair dealing are unsustainable, and a
concerning insurer conduct. Private parties may bring reinsurer may not be held liable for bad faith or
a lawsuit for a violation of Cal. Ins. Code §§ 331, 332 extracontractual liability. Cal. Joint Powers Ins. Auth.
or 1900. However, California courts have banned a v. Munich Reinsurance Am., Inc., No. cv-08-956,
private cause of action for violations of the California 2008 WL 1885754 (C.D. Cal. 2008).
Unfair Practices Act. Moradi-Shalal v. Fireman’s Fund ****
Ins. Cos., 46 Cal. 3d 287 (1988). Such violations are
enforceable only by the California Insurance
Commissioner. Nonetheless, insureds and third
parties may use violations of the Unfair Practices Act Edwards Wildman Palmer LLP
as evidence of bad faith in appropriate circumstances.
Jordan v. Allstate Ins. Co., 148 Cal. App. 4th 1062 1901 Avenue of the Stars, Suite 1700
(2007). 90067 Los Angeles, California
26. Can a breach by the insurer of the duty of Tel.: (1) 310.860.8704
utmost good faith result in regulatory Fax: (1) 855.572.1959
sanctions against the insurer (license Email: bweissman@edwardswildman.com
The California Unfair Practices Act authorizes the Website: www.edwardswildman.com
California Insurance Commissioner to levy a variety of
administrative sanctions to enforce the provisions of
the Act. See Cal. Ins. Code § 790.034. These
sanctions include fines not to exceed ($10,000) for
each act, license suspension, or license revocation.
In addition, in the case of a violation of cease and
IBA Insurance Committee Substantive Project 2014 186 The Duty of Utmost Good Faith: USA (Illinois)
USA (Illinois)
JENNER & BLOCK LLP 5. Does the duty of utmost good faith apply
David M. Kroeger and Ravi Shankar continuous duty applying both pre-
I - Definition of the Principle of Utmost Good Faith contractually and post-contractually?
In the reinsurance context, an Illinois appellate court
1. In your jurisdiction, do insurance laws has applied the principle of utmost good faith “post-
provide for the principle of utmost good contractually.” Illinois courts have not yet formally
faith (in latin, “uberrimae fidei”) and if so, considered whether the principle applies “pre-
what is its meaning? Provide any contractually,” but likely would follow English common
definition whether under statute or law in this regard.
The Illinois Supreme Court (the highest court in the Faith at the Pre-Contractual Stage
state of Illinois) has not expressly considered this
issue. However, an Illinois appellate court has held 6. Does the Principle of Utmost Good Faith
that the principle does not apply to insurance apply to both the insured and the insurer
relationships between an insured and an insurer. at the pre-contractual stage?
Preferred Risk Mutual Insurance Co. v. Hites, 259
N.E.2d 815 (Ill. Ct. App. 1970). Another Illinois No, under Illinois law, the principle applies to neither
appellate court has held that the principle applies in the insured nor the insurer in the context of an
the reinsurance context, defining it (for purposes of insurance relationship.
that case) to require a reinsurer to indemnify a cedent
A - For the Insured
for losses that are “even arguably within the scope of
the coverage of the reinsured, and not to refuse to 7. What is the content of the duty of utmost
pay merely because there may be another reasonable good faith for the insured?
interpretation of the parties’ obligations under which
the reinsurer could avoid payment.” Amerisure Describe the insured’s pre-contractual
Mutual Insurance Co. v. Global Reinsurance Corp. of duty of utmost good faith by providing
America, 927 N.E.2d 740, 749 (Ill. Ct. App. 2010) examples of the best known cases in
(internal quotations omitted). which it has been applied.
2. Is the principle of utmost good faith (i) a Not applicable (see response to Question 6).
statutory principle, (ii) a common law 8. Is the duty of utmost good faith for the
principle or (iii) a civil law principle? Or is insured equivalent to the duty of
it to be found under statute and disclosure in your jurisdiction so that
otherwise? pre-contractually the two are
To the extent recognized by Illinois courts, the indistinguishable?
principle of utmost good faith is a common law Not applicable (see response to Question 6).
principle that, generally speaking, traces its origin to
English common law. 9. If the duty of utmost good faith operates
3. Do insurance laws of your jurisdiction duty of disclosure describe that operation
provide for both the principle of utmost and how the two sit together. You may
good faith and a separate duty of need to describe the duty of disclosure to
disclosure for the insured? illustrate the differences.
No. Not applicable (see response to Question 6).
4. Does the principle of utmost good faith 10. What are the remedies for a pre-
apply to all types of insurance contracts contractual breach by the insured of the
(life insurance, general insurance, duty of utmost good faith? Are the
reinsurance etc.)? remedies different from a breach of the
Under Illinois law, the principle of utmost good faith duty of disclosure?
applies in the reinsurance context only. Illinois courts Not applicable (see response to Question 6).
have not applied the principle to insurance
relationships.
11. If the duty of utmost good faith operates Not applicable (see response to Question 6).
does one have precedence over the 20. Does an insurer owe a duty of utmost
other? good faith towards third party
Not applicable (see response to Question 6).
B - For the Insurer
12. What is the content of the pre-contractual duty of utmost good faith by providing
duty of utmost good faith for the insurer? examples of the best known cases in
duty of utmost good faith by providing 22. Is there a Code of Practice for insurers in
examples of the best known cases in your jurisdiction and, if so, how does it
which it has been applied. sit with the duty of utmost good faith?
Not applicable (see response to Question 6). Not applicable (see response to Question 6).
14. Is it a breach of the duty of utmost good 23. Can courts disregard a term of a contract
faith in your jurisdiction for insurers not of insurance if it would be a breach of the
to notify the prospective insured of the duty of utmost good faith for the insurer
nature and extent of their duty of to rely on the term? If so, please illustrate
disclosure? with examples.
Not applicable (see response to Question 6). Not applicable (see response to Question 6).
15. What are the remedies for a pre- 24. Do courts have special powers to
contractual breach by the insurer of its disregard any avoidance of the
duty of utmost good faith? application of a policy in cases where the
Not applicable (see response to Question 6). breach of the duty of utmost good faith to
III - Post-Contractual Application of the Principle allow the insurer to avoid the policy?
A - For the Insured and Third Party 25. To the extent that an insurer’s breach of
Beneficiary of Cover the duty of utmost good faith is under
16. What is the content of the post- insurer to be in breach of its duty of
contractual duty of utmost good faith for utmost good faith?
16.1 Do third party beneficiaries of cover have utmost good faith result in regulatory
a duty of utmost good faith? sanctions against the insurer (license
No. suspension, banning order, etc.)?
17. Describe the insured’s post-contractual Not applicable (see response to Question 6).
duty of utmost good faith by providing IV - Reinsurance
which it has been applied. 27. To what extent, if any, does your
Not applicable (see response to Question 6). jurisdiction apply different principles
18. Is the insured’s intentional concealment reinsurance at both the placement/pre-
of his/her criminal activities when contractual stage, and at the claim stage?
breach of the duty of utmost good faith? Although Illinois courts have not applied the principle
of utmost good faith to insurance relationships, an
Not applicable (see response to Question 6). Illinois court has recognized that the principle of
B - For the Insurer utmost good applies to the post-contractual handling
of a claim by a reinsurer, and has held, under that
19. What is the content of the duty of utmost principle and for purposes of that dispute, that a
good faith for the insurer when dealing reinsurer is obligated to indemnity a cedent for losses
with a claim? that are “even arguably within the scope of the
coverage of the reinsured, and not to refuse to pay

merely because there may be another reasonable
interpretation of the parties’ obligations under which
the reinsurer could avoid payment.” Amerisure Jenner & Block LLP
Mutual Insurance Co. v. Global Reinsurance Corp. of 353 N. Clark Street
America, 927 N.E.2d 740, 749 (Ill. Ct. App. 2010) Chicago, IL 60654-3456
(internal quotations omitted); accord Guarantee Trust
Life Insurance v. Insurers Administrative Corp., No. Tel.: 312 222-9350
09-5129, 2010 WL 3834026, at *3 (N.D. Ill. Sept. 24, Fax: 312 527-0484
2010). Illinois courts have not yet specifically Email: dkroeger@jenner.com
addressed whether the principle of utmost good faith rshankar@jenner.com
applies to reinsurance relationships at the Website: www.jenner.com
placement/pre-contractual stage and, if so, the
meaning of that principle in that context; however,
Illinois courts likely would follow English common law
in this regard.
****
IBA Insurance Committee Substantive Project 2014 189 The Duty of Utmost Good Faith: USA (Massachusetts)
USA (Massachusetts)
EDWARDS WILDMAN PALMER LLP competition and unfair and deceptive practices in the
business of insurance, Mass. Gen. Laws c. 176D,
Alan J. Levin and Laura E. Bange
applies to all entities in the “business of insurance.”
I - Definition of the Principle of Utmost Good Faith M.G.L. c. 176D, §1(a). The statute expressly
prohibits misrepresentations and false advertising in
1. In your jurisdiction, do insurance laws connection with the benefits, advantages, conditions,
provide for the principle of utmost good or terms of “any insurance policy.” M.G.L. c. 176D,
faith (in latin, “uberrimae fidei”) and if so, §3(1). It further prohibits a number of unfair claim
what is its meaning? Provide any settlement practices. M.G.L. c. 176D, §3(9).
definition whether under statute or 3. Do insurance laws of your jurisdiction
according to case law. provide for both the principle of utmost
Massachusetts insurance laws apply the principle of good faith and a separate duty of
uberrimae fidei, or “utmost good faith,” in limited disclosure for the insured?
circumstances. Uberrimae fidei requires an insured Under Massachusetts law, the doctrine of uberrimae
“to disclose to the insurer all known circumstances fidei encompasses an insured’s duty to disclose all
that materially affect the insurer’s risk, the default of material facts. Compagnie de Reassurance d’lle de
which . . . renders the insurance contract voidable by Fr. v. New England Reinsurance Corp., 944 F. Supp.
the insurer.” Commercial Union Ins. Co. v. Pesante, 986, 994 (D. Mass. 1996). Massachusetts does not
459 F.3d 34, 37-38 (1st Cir. 2006). As discussed recognize an independent “duty of disclosure” on the
below, Massachusetts insurance laws also impose a part of the insured. However, Massachusetts
duty of ordinary good faith, as distinguished from statutory law provides that if an insured makes a
“utmost” good faith, on insurers and insureds in both material misrepresentation or omission in the
the pre-contractual and post-contractual context. The negotiation of a policy of insurance with the intent to
duty of ordinary good faith is separate and distinct deceive, or if the material misrepresentation or
from the principle of uberrimae fidei. omission increases the risk of loss, the policy is void.
2. Is the principle of utmost good faith (i) a See M.G.L. c. 175 § 186 (“No oral or written
statutory principle, (ii) a common law misrepresentation or warranty made in the negotiation
principle or (iii) a civil law principle? Or is of a policy of insurance by the insured or in his behalf
it to be found under statute and shall be deemed material or defeat or avoid the policy
otherwise? or prevent its attaching unless such misrepresentation
or warranty is made with actual intent to deceive, or
The principle of uberrimae fidei is a common law unless the matter misrepresented or made a warranty
principle. It traces its roots to Great Britain and the increased the risk of loss.”)
evolution of marine insurance in the business of
overseas trade. St. Paul Fire & Marine Ins. Co. v. For purposes of M.G.L. c. 175, § 186, a fact is
Halifax Trawlers, Inc., 495 F. Supp. 2d 232, 237 (D. regarded as “material” if “the knowledge or ignorance
Mass. 2007). The principle was first imported into of [it] would naturally influence the judgment of the
American jurisprudence by the United States underwriter in making the contract at all, or in
Supreme Court in M’Lanahan v. Universal Ins. Co., 26 estimating the degree and character of the risk, or in
U.S. 170, 184 (1828). See Compagnie de fixing the rate of the premium.” Employers’ Liab.
Reassurance d’lle de Fr. v. New England Assur. Corp. v. Vella, 366 Mass. 651, 655 (1975).
Reinsurance Corp., 944 F. Supp. 986, 992 (D. Mass. The statute is declaratory of long-standing common
1996). The doctrine of uberrimae fidei derives from law principles defining the sort of false
the belief that in an insurance relationship, the insured representations that can serve to avoid an insurance
is in a superior position to know the risks associated policy. Barnstable County Ins. Co. v. Gale, 425 Mass.
with an insurance contract and, thus, should be 126, 128 (1997), citing Pahigian v. Manufacturers’ Life
required to disclose those risks to the insurer. St. Ins. Co., 349 Mass. 78, 85 (1965).
Paul Fire & Marine Ins. Co., 495 F. Supp. 2d at 238. 4. Does the principle of utmost good faith
Massachusetts common law and statutory law apply to all types of insurance contracts
provides for a duty of ordinary good faith owed by (life insurance, general insurance,
both insurers and insureds. Under Massachusetts reinsurance etc.)?
common law, a covenant of good faith and fair dealing No. Although the doctrine of uberrimae fidei originally
is implicit in every insurance contract. Thaler v. applied to all insurance contracts, Massachusetts
American Ins. Co., 34 Mass. App. Ct. 639, 642 courts apply the doctrine only in limited circumstances
(1993). Furthermore, as discussed below, the today. The doctrine was initially grounded in the
Massachusetts statute concerning unfair methods of supposition that in any insurance relationship, the
insured is in a far better position than the insurer to be A - For the Insured
aware of the risks associated with a contract of
insurance, and should therefore be obliged to reveal
such risks to the insurer. See Compagnie de
Reassurance d’lle de Fr., 944 F. Supp. at 993. Describe the insured’s pre-contractual
However, over time, Massachusetts courts duty of utmost good faith by providing
recognized that while this assumption may have been examples of the best known cases in
accurate in the area of marine insurance (from which which it has been applied.
the doctrine of uberrimae fidei originated), where the
insurer has no practical ability to inspect an insured Under the doctrine of uberrimae fidei, an insured is
vessel located in a foreign port or at sea, the required to “disclose to the insurer all known
assumption does not necessarily hold true for other circumstances that materially affect the insurer’s risk,
types of primary insurance, such as fire or life the default of which . . . renders the insurance
insurance. Id. In the latter cases, because it is contract voidable by the insurer.” Commercial Union
feasible for the insurer to inspect the insured property Ins. Co. v. Pesante, 459 F.3d at 37-38 (1st Cir. 2006).
or examine the insured individual before issuing a Although strict, the doctrine does not require
policy, insurers do not need the protection that disclosure of peripheral, non-risk matters. Reliance
uberrimae fidei provides. Today, Massachusetts law Nat’l Ins. Co. (Europe), Ltd. v. Hanover, 246 F. Supp.
recognizes the doctrine of uberrimae fidei only in the 2d 126, 136 (D. Mass. 2003). Rather, only material
context of two types of insurance contracts: (1) facts must be disclosed. To be material, the fact must
maritime insurance contracts; and (2) reinsurance be something which would have controlled the
contracts. Id. underwriter’s decision to accept the risk. Id. The
insured’s failure to disclose a material risk entitles the
5. Does the duty of utmost good faith apply underwriter to void the policy ab initio. Id.
continuous duty applying both pre- In Reliance Nat’l Ins. Co. (Europe), Ltd. v. Hanover,
contractually and post-contractually? 246 F. Supp. 2d 126 (D. Mass. 2003), an insured
sought coverage under a marine insurance policy
As discussed below, the doctrine of uberrimae fidei after his yacht caught fire, burned and sank. At the
applies at both the pre-contractual and post- time the insured completed his application for the
contractual stage in the context of contracts for marine policy, the insured failed to disclose defects in
marine insurance and reinsurance. In addition, the vessel’s mast and engine of which he was
Massachusetts common law and statutory law impose previously aware. Id. at 137. The insurer took the
obligations on insureds and insurers in connection position that the insured’s failure to disclose these
with their duty of ordinary good faith at both the pre- defects rendered the marine policy void ab initio
contractual and post-contractual stage. because the insurer would not have issued the policy
II - Application of the Principle of Utmost Good had the defects been fully disclosed. Id. at 134. The
Faith at the Pre-Contractual Stage court agreed with the insurer, finding that the marine
policy was void due to the insured’s failure to disclose
the alleged defects, which were material. Id. at 137.
apply to both the insured and the insurer In St. Paul Fire and Marine Ins. Co. v. Marine MGA,
at the pre-contractual stage? Inc., 495 F. Supp. 2d 232 (D. Mass. 2007), an insured
sought coverage under a marine policy after his
In the context of contracts for marine insurance and commercial fishing vessel sank. At the time the
reinsurance, the doctrine of uberrimae fidei applies to insured completed his application for the marine
insureds at the pre-contractual stage. The insured’s policy, he did not disclose that the vessel had
duty of utmost good faith is discussed in Questions 7 previously lost buoyancy, causing the engine room to
through 11 below. As discussed in Question 12 become submerged. Id. at 235. The insurer took the
below, there is limited case law in Massachusetts position that the insured’s failure to disclose this
which suggests that an insurer may also owe a duty incident rendered the marine policy void ab initio
of utmost good faith at the pre-contractual stage. See under the doctrine of uberrimae fidei. The insured
Compagnie De Reassurance d’Ile De Fr. v. New Eng.
argued that his failure to disclose the prior incident
Reinsurance Corp., 57 F.3d at 88-89 (1st Cir. 1995), was due to an ambiguity in the application, and was
citing Contractors Realty Co., Inc. v. Insurance Co. of not committed with any intent to deceive. Id. at 234.
N. Am., 469 F. Supp. 1287, 1294 (S.D.N.Y. 1979) The court ruled in favor of the insurer, finding that
(noting the “reciprocal duty on the part of the insurer because the insurer would have been unlikely to issue
to deal fairly, to give the assured fair notice of his the policy had the incident been disclosed during the
obligations, and to furnish openhandedly the benefits application process, the policy was void ab initio. Id.
of a policy”). As discussed in Questions 12 and 15 at 241.
below, Massachusetts statutory law also imposes
several pre-contractual obligations in connection with
an insurer’s duty of ordinary good faith. See M.G.L. c.
175, § 181; M.G.L. c. 176D, §3.
8. Is the duty of utmost good faith for the 10. What are the remedies for a pre-
insured equivalent to the duty of contractual breach by the insured of the
disclosure in your jurisdiction so that duty of utmost good faith? Are the
pre-contractually the two are remedies different from a breach of the
indistinguishable? duty of disclosure?
Under Massachusetts law, the doctrine of uberrimae The remedy available to an insurer for a pre-
fidei encompasses an insured’s duty to disclose all contractual breach of the duty of utmost good faith by
material facts. Compagnie de Reassurance d’lle de the insured is identical to the remedy that is available
Fr. v. New England Reinsurance Corp., 944 F. Supp. to an insurer under M.G.L. c. 175, § 186 in
986, 994 (D. Mass. 1996). However, the doctrine of circumstances where the insured makes a material
uberrimae fidei is separate and distinct from the misrepresentation or omission in the negotiation of a
statutory right of an insurer to void an insurance policy policy of insurance with the intent to deceive, or a
if the policyholder makes a material misrepresentation material misrepresentation or omission that increases
or omission with the intent to deceive or that the risk of loss. In both cases, the insurer may void
increases the risk of loss. The distinction between the policy ab initio. TIG Ins. Co. v. Blacker, 54 Mass.
these two principles is discussed in Questions 9 App. Ct. 683, 686 (2002) (M.G.L. c. 175, § 186 sets
through 11 below. forth the right of an insurer to rescind a policy based
upon a misrepresentation in the insured’s application
9. If the duty of utmost good faith operates for insurance); cf. Reliance Nat’l Ins. Co. v. Hanover,
246 F. Supp. 2d at 136 (D. Mass. 2003) (insured’s
duty of disclosure describe that operation failure to meet the uberrimae fidei standard entitles
and how the two sit together. You may the insurer to void the policy ab initio).
illustrate the differences. 11. If the duty of utmost good faith operates
Mass. Gen. Laws c. 175, § 186, which governs the does one have precedence over the
rescission of insurance policies, provides that an other?
insurer may only void an insurance contract if, in the
negotiation of the policy, the insured made a material In cases involving marine insurance contracts,
misrepresentation or omission with the intent to Massachusetts courts apply state law unless (i) an
deceive, or a material misrepresentation or omission established maritime rule controls the issue; and (ii)
that increased the risk of loss. In contrast, rescission the rule materially differs from state law. St. Paul Fire
of a policy under the doctrine of uberrimae fidei does and Marine Ins. Co., 495 F. Supp. 2d at 237 (D.
not require a misrepresentation on the part of the Mass. 2007). As discussed in Question 9 above, an
insured. St. Paul Fire and Marine Ins. Co., 495 F. insurer’s right to rescind an insurance policy under
Supp. 2d at 240 (D. Mass. 2007). Rather, the M.G.L. c. 175, § 186 requires a misrepresentation by
doctrine operates irrespective of whether the insured the insured, but an insurer’s ability to rescind a policy
omitted the information on the basis of neglect, under the doctrine of uberrimae fidei does not. For
ignorance or malice. Accordingly, under this reason, the rule of uberrimae fidei “materially
Massachusetts law, an insured may be found to have differs” from Massachusetts state law, and courts in
violated the doctrine of uberrimae fidei even if the Massachusetts apply the doctrine of uberrimae fidei to
insured’s conduct does not warrant rescission of the marine insurance contracts.
insurance policy under M.G.L. c. 175, § 186.
B - For the Insurer
For example, in St. Paul Fire and Marine, discussed
in Question 7 above, the insured failed to disclose in
his policy application a prior incident during which his
commercial fishing vessel had been submerged. St. There is limited case law in Massachusetts which
Paul Fire and Marine Ins. Co., 495 F. Supp. 2d 232. suggests that an insurer may owe a duty of utmost
The insured took the position that his failure to good faith at the pre-contractual stage. In Compagnie
disclose the prior incident was due to an ambiguity in de Reassurance d’lle de Fr. v. New England
the application, and was not committed intentionally. Reinsurance Corp., 944 F. Supp. 986, 1003 (D. Mass.
Id. at 234. The court found that no 1996), the Massachusetts federal district court held
“misrepresentation” had occurred, and that therefore that the duty of uberrimae fidei “is a reciprocal one.”
the insurer could not rescind the policy under M.G.L. Compagnie de Reassurance d’lle de Fr. v. New
c. 175, § 186. Id. at 240. However, the court also England Reinsurance Corp., 944 F. Supp. at 1003 (D.
found that because the doctrine of uberrimae fidei Mass. 1996), citing Compagnie De Reassurance d’Ile
does not require a misrepresentation and operates De Fr. v. New Eng. Reinsurance Corp., 57 F.3d 56,
even where the insured’s omission is due to neglect 88-89 (1st Cir. 1995). In Compagnie De Reassurance
or ignorance, the insurance policy was nonetheless d’Ile De Fr. v. New Eng. Reinsurance Corp., 57 F.3d
void ab initio. Id. at 241. 56 (1st Cir. 1995), the federal intermediate appellate
court cited a decision by a New York federal district
court, in which the New York court found that an
insurer has a “reciprocal duty . . . to deal fairly, to give In Foisy v. Royal Maccabees Life Ins. Co., 241 F.
the assured fair notice of his obligations, and to Supp. 2d 65 (2002), the parties’ dispute arose from a
furnish openhandedly the benefits of a policy.” life insurance annuity contract. The insured took the
Compagnie De Reassurance d’Ile De Fr. v. New Eng. position that based on her understanding of the
Reinsurance Corp., 57 F.3d at 88-89 (1st Cir. 1995), policy, she was entitled to monthly payments until her
citing Contractors Realty Co., Inc. v. Insurance Co. of death. Id. at 67. When the insurer refused to make
N. Am., 469 F. Supp. 1287, 1294 (S.D.N.Y. 1979). any further payments under the policy, the insured
alleged that the insurer had purposefully made
Massachusetts statutory law also imposes several misrepresentations as to the insurance contract’s
pre-contractual obligations on an insurer in coverage. Id. Rejecting the insured’s argument, the
connection with the insurer’s duty of ordinary good court found that the insurer had made no such
faith. M.G.L. c. 175, § 181 requires an insurer to misrepresentations, and the contract was merely
refrain from making any written or oral statements ambiguous. Id. at 68-69. The court further
“misrepresenting the terms of any policy of insurance determined that the fact that the contract was
. . . or the benefits or privileges promised thereunder.” ambiguous did not indicate that the insurer had
Further, M.G.L. c. 176D, §3(2) prohibits an insurer purposely “misrepresented” any benefit in violation of
from making any assertion or representation its statutory obligations. Id. at 69.
concerning the business of insurance which is untrue,
deceptive or misleading. Finally, M.G.L. c. 176D, 14. Is it a breach of the duty of utmost good
§3(7) requires an insurer to refrain from unfairly faith in your jurisdiction for insurers not
discriminating between “individuals of the same class to notify the prospective insured of the
and of essentially the same hazard” in the amount of nature and extent of their duty of
premium, amount of policy benefits, any of the terms disclosure?
or conditions of an insurance policy, or in any other
manner. Prior to the issuance of an insurance policy, many
insurers require an insured to complete a detailed
13. Describe the insurer’s pre-contractual policy application. However, under Massachusetts
duty of utmost good faith by providing law, the doctrine of uberrimae fidei does not impose
examples of the best known cases in on an insurer the obligation to notify a prospective
which it has been applied. insured of the nature and extent of their duty of
disclosure.
The case of Telles v. Commissioner of Ins., 410
Mass. 560 (1991) involved a challenge to regulations 15. What are the remedies for a pre-
promulgated by the Massachusetts Commissioner of contractual breach by the insurer of its
Insurance. The regulations prohibited a life insurer duty of utmost good faith?
from considering gender-based mortality differences
in the underwriting of life insurance, but resulted in Massachusetts law does not recognize a private
higher life insurance premiums for women than men. cause of action for an insurer’s violation of M.G.L. c.
Id. at 561. The court found that the regulations were 176D, §3(2), (7) or (11). Grande v. PFL Ins. Co.,
in direct conflict with M.G.L. c. 176D, §3(7), which 2000 Mass. App. Div. 261, 264 (Mass. App. Div.
prohibits insurers from treating individuals differently 2000). With the exception of M.G.L. c. 176D, §3(9),
only if they are in the same class of risks. Id. at 563. which addresses an insurer’s post-contractual
The commissioner conceded that women are of a obligations, all provisions of M.G.L. c. 176D are
different risk classification than men, given their enforceable only by the Massachusetts Commissioner
differences in life expectancy. Id. at 564. The court of Insurance. Foisy v. Royal Maccabees Life Ins. Co.,
determined that because the regulations conflicted 241 F. Supp. 2d 65, 68-69 (D. Mass. 2002), citing
with M.G.L. c. 176D, §3(7), the regulations were void. Thorpe v. Mut. of Omaha Ins. Co., 984 F.2d 541, 544
n.1 (1st Cir. 1993). If an insurer violates a cease and
In Slingsby v. Metropolitan Ins. Co., 2001 Mass. App. desist order issued by the Commissioner of Insurance
Div. 49 (2001), the insured purchased a life insurance relating to a violation of M.G.L. c. 176D, the insurer
policy that permitted the insured to borrow money up will be ordered to pay to the Commonwealth of
to the value of the policy. The insured alleged that Massachusetts a sum up to ten thousand dollars for
when he borrowed $6,000 from the policy for his each violation, and may be subject to suspension or
daughter’s education, the insurer acted improperly revocation of its license. M.G.L. c. 176D, § 10. In
when it failed to advise him that the amount of the addition, the Commissioner may order that restitution
loan would reduce the amount of his death benefit. be made by an insurer to any claimant who has
Id. at 51. The court rejected the insured’s argument suffered actual economic damage as a result of an
on the grounds that the policy specifically stated that insurer’s unfair or deceptive act or practice. M.G.L. c.
both the value of the policy and the death benefit 176D, § 7.
would be reduced by the amount of any loan. Id. The
court further found that “a party who receives a policy Although there is no private cause of action under
is bound by its terms.” Id. M.G.L. c. 176D, §3, an insured may nonetheless
recover actual damages and attorneys’ fees in
circumstances where an insurer has engaged in
unfair or deceptive acts or practices within the insurer’s agent so that application indicated that
meaning of M.G.L. c. 93A, §2. United States ex rel. insured was in good health and had never been
Metric Elec., Inc. v. Enviroserve, Inc., 301 F. Supp. 2d hospitalized, the fact that the application was
56, 71 (D. Mass. 2003). Further, where the insurer’s subsequently signed by insured’s father precluded his
conduct is “wilful” or “knowing,” the insurer may be recovery as beneficiary of life policy issued in reliance
liable for multiple damages under M.G.L. c. 93A, § 2. on application).
Rhodes v. AIG Domestic Claims, Inc., 461 Mass. 486,
499 (2012).
III - Post-Contractual Application of the Principle examples of the best known cases in
of Utmost Good Faith (at the Claim Stage) which it has been applied.
In Mello v. Hingham Mut. Fire Ins. Co., 421 Mass. 333
(1995), the insured sought coverage under a
homeowner’s insurance policy for a fire loss at his
16. What is the content of the post- residence. Pursuant to its investigation of the claim,
contractual duty of utmost good faith for the insurer requested that the insured submit to an
the insured at the claim stage? examination under oath. Id. at 335. The insured
refused to submit to any such examination, and the
Once coverage has commenced under a marine insurer denied coverage for the fire loss. Id. The
insurance policy, the doctrine of uberrimae fidei court found that the insured’s refusal to submit to the
imposes a continuing obligation on the vessel owner insurer’s reasonable request for an examination under
to ensure that the vessel will not, through either bad oath constituted a material breach of the insurance
faith or neglect, knowingly be permitted to sail in an policy. Id. at 337. The court therefore determined
unseaworthy condition. Reliance Nat’l Ins. Co. that the insurer’s denial of the claim was proper. Id.
(Europe), Ltd. v. Hanover, 246 F. Supp. 2d 126, 136 at 341.
(D. Mass. 2003), citing Windsor Mount Joy Mut. Ins.
Co. v. Giragosian, 57 F.3d 50, 54-55 (1st Cir. 1995). In Rymsha v. Trust Ins. Co., 51 Mass. App. Ct. 414
The warranty of seaworthiness is an absolute and (2001), the insured filed a claim under a homeowner’s
non-delegable duty owed by a ship owner to the insurance policy for items allegedly stolen from her
insurer, and encompasses the integrity of the vessel’s rental car. During the insurer’s investigation of the
physical structure as well as its equipment and claim, it requested that the insured provide it with
working procedures. Reliance Nat’l Ins. Co. (Europe), documents concerning her business income, any
Ltd. v. Hanover, 246 F. Supp. 2d at 136 (D. Mass. available documentation of the stolen items, and any
2003), citing Underwriters at Lloyd’s v. Labarca, 260 documents from her businesses that indicated a
F.3d 3, 7 (1st Cir. 2001). history of insurance claims. Id. at 415. The insured
substantially failed to comply with the requests. Id. at
Under Massachusetts common law, an insured also 416. The court held that the insured was required to
owes a duty to cooperate in an insurer’s investigation respond to the insurer’s reasonable requests to
of a claim at the post-contractual stage. See Miles v. produce documents pertinent to her claimed loss as a
Great N. Ins. Co., 656 F. Supp. 2d 218, 222 (D. Mass. condition precedent to the insurer’s liability. Id. at
2009) (“[w]hen an insurer investigates a claim of loss, 417. The court therefore determined that the insurer’s
the insured has a duty to cooperate by submitting to denial of the insured’s claim was proper. Id. at 419.
an examination under oath and producing documents
relevant to the claimed loss”); see also Mello v. Miles v. Great N. Ins. Co., 656 F. Supp. 2d 218, 222
Hingham Mut. Fire Ins. Co., 421 Mass. 333, 341 n.6 (D. Mass. 2009) involved a claim under a fire
(1995) (insureds have a general obligation to insurance policy in connection with a fire at the
cooperate with the insurer in the investigation and insureds’ residence. In conducting its investigation of
verification of a claim). the claim, the insurer requested that the insureds
provide certain pertinent documents, including tax
16.1 Do third party beneficiaries of cover have returns, highway toll receipts and alarm system
a duty of utmost good faith? records. Id. at 220-221. The insureds failed to
Under Massachusetts law, the doctrine of uberrimae produce the requested documents in a timely manner,
fidei does not impose any obligations on third-party and the insurer denied the claim. Id. at 221. The
beneficiaries of insurance coverage. However, there court found that if the insureds’ failure to produce
is limited case law in Massachusetts which suggests documents prevented the insurer from completing its
that a third-party beneficiary may owe a duty of investigation, denial of the claim by the insurer would
ordinary good faith, at least in the context of a life be proper. Id. at 223.
insurance policy. See Lucia v. John Hancock Mut.
Life Ins. Co., 28 Mass. App. Dec. 166 (1964) (where
parents of insured infant answered truthfully questions
concerning insured’s physical condition and medical
history, and answers were falsely recorded by
18. Is the insured’s intentional concealment must deal fairly, give the assured fair notice of his
of his/her criminal activities when obligations, and furnish openhandedly the benefits of
completing a proposal for life policies a a policy. Id.
Under Massachusetts common law, the duty of
Because the doctrine of uberrimae fidei does not ordinary good faith also imposes two obligations on all
apply to life insurance policies under Massachusetts insurers at the post-contractual stage: (1) to attempt
law, an insured’s intentional concealment of his or her to settle claims without regard to the policy limit, and
criminal activities when completing an application for (2) to exercise common prudence to discover the
life insurance would not constitute a breach of the facts as to liability and damages upon which an
duty of utmost good faith. However, such conduct by intelligent decision may be based. Hartford Casualty
the insured may warrant rescission of the policy under Ins. Co. v. New Hampshire Ins. Co., 417 Mass. 115,
Massachusetts statutory law if the requirements of 119 (1994). In this regard, an insurer’s duty of
M.G.L. c. 175, § 186 are satisfied. See Quintiliani v. ordinary good faith requires that it keep the insured
John Hancock Mut. Life Ins. Co. 340 Mass 93, 94 informed of facts material to his exposure, including
(1959) (applying M.G.L. c. 175, § 186 to information relating to coverage and settlement
representations made by insured in application for life negotiations. Peckham v. Continental Casualty Ins.
insurance policy). Co., 895 F.2d 830, 840 (1st Cir. 1990).
Under M.G.L. c. 175, § 186, an insurer may rescind Massachusetts statutory law also imposes a number
an insurance policy if an insured makes a material of obligations in connection with an insurer’s duty to
misrepresentation or omission in the negotiation of act in ordinary good faith with respect to claims
the policy with an actual intent to deceive, or if the handling. Under M.G.L. c. 176D, §3(9), an insurer
material misrepresentation or omission increases the must: (a) refrain from misrepresenting pertinent facts
risk of loss. M.G.L. c. 175 § 186. If an insured or insurance policy provisions relating to coverages at
intentionally concealed his or her criminal activities issue; (b) acknowledge and act reasonably promptly
when completing an application for life insurance, the in response to communications concerning claims; (c)
insured would likely be found to have had “an actual adopt and implement reasonable standards for the
intent to deceive.” However, even where the insured prompt investigation of claims; (d) conduct a
has an “actual intent to deceive,” the policy is voidable reasonable investigation based upon all available
for misrepresentation only if the fact misrepresented information before refusing to pay a claim; (e) affirm
is material. Employers’ Liability Assurance Corp. v. or deny coverage of claims within a reasonable time
Vella, 366 Mass. 651, 655 (1975). A fact is “material” after proof of loss statements have been completed;
if “the knowledge or ignorance of [it] would naturally (f) effectuate prompt, fair and equitable settlements of
influence the judgment of the underwriter in making claims in which liability has become reasonably clear;
the contract at all, or in estimating the degree and (g) refrain from compelling insureds to institute
character of the risk, or in fixing the rate of the litigation to recover amounts due under an insurance
premium.” Id. Certain criminal activities, such as policy by offering substantially less than the amounts
those involving the use of alcohol or controlled ultimately recovered in actions brought by such
substances, may affect the judgment of an insureds; (h) refrain from attempting to settle a claim
underwriter in connection with the issuance of a life for less than the amount to which a reasonable man
insurance policy. If the criminal activities concealed would have believed he was entitled by reference to
by the insured are “material,” the insured’s written or printed advertising material accompanying
misrepresentation would warrant rescission of the or made part of an application; (i) refrain from
policy under M.G.L. c. 175 § 186. attempting to settle claims on the basis of an
application which was altered without notice to, or
B - For the Insurer
knowledge or consent of the insured; (j) refrain from
19. What is the content of the duty of utmost making claims payments to insured or beneficiaries
good faith for the insurer when dealing not accompanied by a statement setting forth the
with a claim? coverage under which payments are being made; (k)
refrain from appealing arbitration awards in favor of
There is limited case law in Massachusetts which insureds or claimants for the purpose of compelling
suggests that the doctrine of uberrimae fidei applies them to accept settlements of compromises less than
to insurers at the post-contractual stage in the context the amount awarded in arbitration; (l) refrain from
of contracts for marine insurance and reinsurance. delaying the investigation or payment of claims by
See Compagnie De Reassurance d’Ile De Fr. v. New requiring that an insured or claimant submit
Eng. Reinsurance Corp., 57 F.3d 56, 88-89 (1st Cir. duplicative information; (m) refrain from failing to
1995) (reinsurers owe a “reciprocal duty utmost good settle claims promptly where liability has become
faith”), citing Contractors Realty Co., Inc. v. Insurance reasonably clear under one portion of the insurance
Co. of N. Am., 469 F. Supp. 1287, 1294 (S.D.N.Y. policy in order to influence settlements under other
1979) (discussing a marine insurer’s reciprocal duty portions of the insurance policy coverage; and (n)
under the doctrine of uberrimae fidei). The case law promptly provide a reasonable explanation for denial
suggests that when dealing with a claim, an insurer
of a claim or for the offer of a compromise settlement. injury action against a transportation company and a
M.G.L. c. 176D, §3(9). rehabilitation center. The tort plaintiff made a policy-
limits settlement demand upon the transportation
company’s insurer, but the insurer declined to offer
the amount demanded because it disagreed as to the
beneficiaries of cover in handling claims? extent of the insured’s liability. Id. at 658. The tort
Under Massachusetts law, the doctrine of uberrimae plaintiff thereafter initiated litigation against the
fidei does not impose on insurers a duty of utmost insurer, alleging that the insurer failed to make a fair
good faith with respect third-party beneficiaries of and reasonable settlement offer in violation of M.G.L.
insurance coverage. However, Massachusetts c. 93A and c. 176D. Id. Rejecting the plaintiff’s
statutory law recognizes a duty of ordinary good faith argument, the court found that because the degree of
owed to third party beneficiaries whose rights are the insured’s fault was subject to a good faith
affected by an insurer’s unfair claims settlement disagreement, the insurer did not violate the duties
practices. See M.G.L. c. 93A §9(1) (providing a imposed under M.G.L. c. 93A and c. 176D.
cause of action for “any person whose rights are In Gore v. Arbella Mut. Ins. Co., 77 Mass. App. Ct.
affected by another person violating the provisions of 518 (2010), the plaintiff suffered injuries as a result of
[G. L. c. 176D, § 3(9)]”). Insurers owe a duty to a motor vehicle accident with the insured, and
respond promptly to settlement demands by claimants thereafter made a policy-limits settlement demand. At
and to effectuate prompt settlement. See, e.g., Clegg the time it received the plaintiff’s demand, the insurer
v. Butler, 424 Mass. 413, 418-19 (1997) (recognizing
had concluded that the insured was at fault for the
that insurers owe third-party claimants a duty of fair accident, and that the plaintiff’s damages exceeded
dealing with respect to insurer’s settlement practices); the policy limits. Id. However, the insurer did not
Van Dyke v. St. Paul Fire & Marine Ins. Co., 388 communicate the demand letter to the insured and
Mass. 671, 675 (1983) (direct claim permitted by failed to respond to the settlement demand. Id. at
patient against physician’s malpractice insurer under 520. The plaintiff then filed suit against the insurer in
M.G.L. c. 93A, § 9 and c. 176D, §3(9) in connection connection with the insurer’s allegedly unreasonable
with insurer’s alleged unfair settlement practices); failure to settle. Id. at 522. Ruling in favor of the
Gore v. Arbella Mut. Ins. Co., 77 Mass. App. Ct. 518,
plaintiff, the court found that the insurer’s dilatory
527 (2010) (recognizing claimant’s right to recover response to the settlement demand and failure to
against tortfeasor’s insurer for insurer’s failure to notify the insured of the settlement offer violated the
promptly respond to claimant’s settlement demand duties imposed under M.G.L. c. 93A and c. 176D.
where insured’s liability was reasonably clear).
21. Describe the insurer’s post-contractual your jurisdiction and, if so, how does it
duty of utmost good faith by providing sit with the duty of utmost good faith?
which it has been applied. Although Massachusetts does not have a “Code of
Practice” specifically applicable to insurers, it provides
In Commercial Union Ins. Co. v. Seven Provinces Ins.
a comprehensive statutory scheme for the regulation
Co., 9 F. Supp. 2d 49 (D. Mass. 1998), the plaintiff of all phases of the insurance business. M.G.L. c.
insurer ceded a portion of its insured’s coverage 175, § 1 et seq. forms the general insurance law. In
under several policies to the defendant reinsurer addition to the general insurance law, M.G.L. c. 176D
under a reinsurance agreement. The insured was sets forth specific regulations that proscribe unfair
later faced with third-party lawsuits and regulatory competition and unfair or deceptive acts or practices
claims for millions of dollars in environmental cleanup in the business of insurance. For example, M.G.L. c.
costs. Id. at 51. The insurer paid the insured $2.2 176D, §3(1) prohibits misrepresentations and false
million and billed the defendant reinsurer on its advertising in connection with the benefits,
reinsurance agreement. Id. When the reinsurer failed advantages, conditions, or terms of “any insurance
to pay for several years, the reinsured filed a lawsuit policy.” M.G.L. c. 176D, §3(2) bars an insurer from
against the reinsurer alleging that it had acted in bad making any assertion or representation concerning
faith. Id. at 63. The reinsured argued that the
the business of insurance which is untrue, deceptive
reinsurer made numerous requests for information or misleading. M.G.L. c. 176D, §3(9) prohibits a
from the reinsured in an attempt to evade payment of number of unfair claim settlement practices. Finally,
its reinsurance obligations. Id. at 65. The court M.G.L. c. 176D, §3(7) requires insurers to refrain from
agreed, and found that the reinsurer’s continued unfairly discriminating between individuals of the
refusal to honor its obligations, combined with its same class and of essentially the same hazard in the
constantly shifting and meritless objections to amount of premium, amount of policy benefits, any of
payment, constituted an egregious breach of its duty the terms or conditions of an insurance policy, or in
of utmost good faith and a violation of M.G.L. c. 93A, any other manner.
§ 11.
In Bobick v. United States Fid. & Guar. Co., 439
Mass. 652 (2003), an injured party brought a personal
23. Can courts disregard a term of a contract it employed dilatory tactics and failed to promptly
of insurance if it would be a breach of the issue a payment on its reinsurance agreement. The
duty of utmost good faith for the insurer court found that the reinsurer’s continued refusal to
to rely on the term? If so, please illustrate honor its obligations, combined with its constantly
with examples. shifting and meritless objections to payment,
constituted an egregious breach of its duty of utmost
There is some case law in Massachusetts which good faith. Id. at 70. In so finding, the court found
suggests that a court may disregard a term of an that the reinsurer’s conduct constituted a violation of
insurance contract if the insurer’s reliance on the term M.G.L. c. 93A, § 11. Id.
would violate its duty of ordinary good faith. In Van
Dyke v. St. Paul Fire & Marine Ins. Co. 388 Mass. 671 26. Can a breach by the insurer of the duty of
(1983), the plaintiff brought a bad faith action against utmost good faith result in regulatory
his physician’s insurer alleging that the insurer failed sanctions against the insurer (license
to make a prompt and reasonable settlement of the suspension, banning order, etc.)?
plaintiff’s claim against the insured. The insurer took
the position that it had no right to settle the claim Massachusetts law does not impose regulatory
absent the insured physician’s consent because the sanctions in connection with an insurer’s breach of
policy provided that the insurer “shall make no the duty of utmost good faith. However,
settlement of a claim or suit covered by [the policy] Massachusetts law provides for several regulatory
without the written consent of the Insured.” Id. at 673. sanctions in connection with an insurer’s breach of its
Although the court ultimately determined that the duty of ordinary good faith under the Massachusetts
insurer’s conduct did not violate M.G.L. c. 176D, §3, it insurance statutes. The Massachusetts
found that the obligations of an insurer under M.G.L. Commissioner of Insurance may issue an order
c. 176D, § 3 may mean that an insurer may not requiring an insurer to cease and desist from
necessarily rely on language in an insurance policy engaging in an unlawful act or practice. M.G.L. c.
precluding it from settling claims without the insured’s 176D, § 6. If an insurer violates a cease and desist
consent. Id. at 676 n.6. order, the Commissioner may order suspension or
revocation of the insurer’s license. M.G.L. c. 176D, §
24. Do courts have special powers to 10. The Commissioner may also order that the
disregard any avoidance of the insurer pay a sum up to ten thousand dollars for each
application of a policy in cases where the violation. Id.
breach of the duty of utmost good faith to IV - Reinsurance
Under Massachusetts law, an insurer must “furnish jurisdiction apply different principles
openhandedly the benefits of a policy” and effect regarding utmost good faith to
prompt, fair and equitable settlements of claims in reinsurance at both the placement/pre-
which liability has become reasonably clear. contractual stage, and at the claim stage?
Compagnie De Reassurance d’Ile De Fr. v. New Eng.
Reinsurance Corp., 57 F.3d at 88-89 (1st Cir. 1995), Massachusetts courts apply the doctrine of uberrimae
citing Contractors Realty Co., Inc. v. Insurance Co. of fidei only in the context of reinsurance and marine
N. Am., 469 F. Supp. 1287, 1294 (S.D.N.Y. 1979); insurance. The application of uberrimae fidei in the
M.G.L. c. 176D, §3(9)(f). These principles would reinsurance context does not differ materially from its
appear to support the contention that where an application in the context of marine insurance. In both
insurer seeks to avoid application of a policy, a court contexts, the insured must “disclose to the insurer all
may “disregard,” or reject, the insurer’s attempt to known circumstances that materially affect the
avoid coverage. insurer’s risk, the default of which . . . renders the
insurance contract voidable by the insurer.”
25. To the extent that an insurer’s breach of Commercial Union Ins. Co. v. Pesante, 459 F.3d at
the duty of utmost good faith is under 37-38 (1st Cir. 2006). The insurer, on the other hand,
statute, is it a breach of the statute for the owes a duty to “deal fairly, to give the assured fair
insurer to be in breach of its duty of notice of his obligations, and to furnish openhandedly
utmost good faith? the benefits of a policy.” Compagnie De Reassurance
In Massachusetts, uberrimae fidei is a common law D’Ile De Fr. v. New Eng. Reinsurance Corp., 57 F.3d
principle rather than a statutory rule. However, at at 88-89 (1st Cir. 1995), citing Contractors Realty Co.,
Inc. v. Insurance Co. of N. Am., 469 F. Supp. 1287,
least one Massachusetts court has found that an
insurer’s breach of its duty of utmost good faith also 1294 (S.D.N.Y. 1979).
constitutes a violation of the Massachusetts ****
Consumer Protection statute, M.G.L. c. 93A. In
Commercial Union Ins. Co. v. Seven Provinces Ins.
Co., 9 F. Supp. 2d 49 (D. Mass. 1998), the reinsured
alleged that the reinsurer had acted in bad faith when
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IBA Insurance Committee Substantive Project 2014 198 The Duty of Utmost Good Faith: USA (New Jersey)
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JENNER & BLOCK LLP 2. Is the principle of utmost good faith (i) a
David M. Kroeger and Sabrina Guenther principle or (iii) a civil law principle? Or is
I - Definition of the Principle of Utmost Good Faith it to be found under statute and
otherwise?
1. In your jurisdiction, do insurance laws The principle of utmost good faith is a common law
provide for the principle of utmost good principle. See Bowler v. Fidelity Cas. Co. of N.Y., 53
faith (in latin, “uberrimae fidei”) and if so, N.J. 313, 327 (1969). However, New Jersey statutes
what is its meaning? Provide any similarly bar knowingly misrepresenting or concealing
definition whether under statute or material information for the purpose of obtaining an
according to case law. insurance policy. N.J. Stat. §§ 17:33A:4.a(4); 17B:24-
Yes, New Jersey courts recognize insurance policies 1.d, -3d.
as contracts of utmost good faith. Rashabov v. 3. Do insurance laws of your jurisdiction
Alfuso, 2010 WL 3932899, at *3 (N.J. Super. Ct. App. provide for both the principle of utmost
Div. Sept. 15, 2010); Progressive Cas. Ins. Co. v. good faith and a separate duty of
Hanna, 719 A.2d 683, 686-87 (N.J. Super. Ct. App. disclosure for the insured?
Div. 1998). Under the utmost good faith doctrine in
New Jersey, insurance carriers must deal fairly with No New Jersey case was found that explicitly
the insured, and the insured also must deal fairly with addresses this point.
the insurance carrier. Rashabov, 2010 WL 3932899, 4. Does the principle of utmost good faith
at *3; Progressive, 719 A.2d at 687. apply to all types of insurance contracts
Most cases applying the doctrine of utmost good faith (life insurance, general insurance,
have dealt with an insurance applicant’s failure to reinsurance etc.)?
disclose allegedly material facts to the prospective Yes. New Jersey courts have applied the doctrine to
insurer. In New Jersey, insurance applicants must the following types of policies. In addition, we did not
not misrepresent or conceal material information in find any cases refusing to apply the doctrine to any
response to an insurer’s specific requests in an specific type of insurance policy.
application. Rashabov, 2010 WL 3932899, at *3;
Progressive, 719 A.2d at 688-89. If an insurance  Commercial automobile liability policies.
applicant’s misrepresentation is knowing and the Progressive Cas. Ins. Co. v. Hanna, 719
insurer reasonably relied on it, the insurer may A.2d 683 (N.J. Super. Ct. App. Div. 1998).
rescind the policy. Rashabov, 2010 WL 3932899, at
*3, 5. A misrepresentation or concealment in an  Personal injury policies. Rashabov v. Alfuso,
insurance application is material if a reasonable 2010 WL 3932899, at *3 (N.J. Super. Ct.
insurer would have considered the misrepresented or App. Div. Sept. 15, 2010).
concealed fact relevant to its concerns and important
in determining its course of action. Rashabov, 2010  Professional liability policies. First Am. Title
WL 3932899, at *5. Put another way, a material Ins. Co. v. Lawson, 798 A.2d 661, 669 (N.J.
misrepresentation naturally and reasonably influences Super. Ct. App. Div. 2002), rev’d on other
the judgment of the insurer in agreeing to the policy, grounds, 177 N.J. 125 (2003).
in assessing the risk, or in pricing the policy. See  Title insurance. Weir v. City Title Ins. Co.,
Mass. Mut. Life Ins. Co. v. Manzo, 122 N.J. 104, 155 308 A.2d 357 (N.J. Super. Ct. App. Div.
(1991). 1973).
In addition to the above, New Jersey courts have
 Disability insurance. Johnson v.
discussed generally that insurers owe a duty of
Metropolitan Ins. Co., 240 A.2d 434 (N.J.
utmost good faith to their insureds because insurance
Super. Ct. App. Div. 1968), rev’d on other
policies are contracts of adhesion that insurers must
grounds, 53 N.J. 423 (1969).
honor as fiduciaries. See Griggs v. Bertram, 88 N.J.
347, 366 (1982). However, New Jersey courts do not  Life insurance. Gallagher v. New England
appear to treat this duty separately from an insurer’s Mut. Life Ins. Co. of Boston, 19 N.J. 14
implied duty of good faith and fair dealing under an (1955).
insurance policy. E.g., id. at 366-67; Bowler v.
Fidelity Cas. Co. of N.Y., 53 N.J. 313, 327 (1969).  Comprehensive crime insurance. In re Tri-
State Armored Servs., Inc., 332 B.R. 690
(D.N.J. Bankr. 2005).
5. Does the duty of utmost good faith apply 10. What are the remedies for a pre-
only at the pre-contractual stage or is it a contractual breach by the insured of the
continuous duty applying both pre- duty of utmost good faith? Are the
contractually and post-contractually? remedies different from a breach of the
duty of disclosure?
New Jersey courts have discussed generally that
insurers owe a duty of utmost good faith to their If an insurance applicant knowingly misrepresents or
insureds because insurance policies are contracts of conceals information material to an insurance
adhesion that insurers must honor as fiduciaries. See application, the insurer may rescind the policy.
Griggs v. Bertram, 88 N.J. 347, 366 (1982). However, Rashabov v. Alfuso, 2010 WL 3932899, at *3 (N.J.
New Jersey courts do not appear to treat this duty Super. Ct. App. Div. Sept. 15, 2010).
separately from an insurer’s implied duty of good faith
and fair dealing under an insurance policy. E.g., id. at
366-67; Bowler v. Fidelity Cas. Co. of N.Y., 53 N.J.
313, 327 (1969).
other?
Faith at the Pre-Contractual Stage Not applicable; New Jersey does not recognize a
separate duty of disclosure.
6. Does the Principle of Utmost Good Faith B - For the Insurer
at the pre-contractual stage? 12. What is the content of the pre-contractual
No New Jersey case was found that explicitly
addresses this point. However, as set forth above, No New Jersey case was found that explicitly
New Jersey courts have discussed generally that addresses this point. However, as set forth above,
insurers owe a duty of utmost good faith to their New Jersey courts have discussed generally that
insureds because insurance policies are contracts of insurers owe a duty of utmost good faith to their
adhesion that insurers must honor as fiduciaries. insureds because insurance policies are contracts of
adhesion that insurers must honor as fiduciaries.
A - For the Insured
7. What is the content of the duty of utmost duty of utmost good faith by providing
good faith for the insured? examples of the best known cases in
duty of utmost good faith by providing See response to Question 12.
which it has been applied. 14. Is it a breach of the duty of utmost good
Most cases applying the doctrine of utmost good faith to notify the prospective insured of the
have dealt with an insurance applicants failure to nature and extent of their duty of
disclose allegedly material facts to the prospective disclosure?
insurer.
See response to Question 12.
insured equivalent to the duty of 15. What are the remedies for a pre-
disclosure in your jurisdiction so that contractual breach by the insurer of its
pre-contractually the two are duty of utmost good faith?
indistinguishable? See response to Question 12.
New Jersey does not recognize a separate duty of III - Post-Contractual Application of the Principle
disclosure. of Utmost Good Faith (at the Claim Stage)
separately pre-contractually from the A - For the Insured and Third Party
duty of disclosure describe that operation Beneficiary of Cover
and how the two sit together. You may 16. What is the content of the post-
need to describe the duty of disclosure to contractual duty of utmost good faith for
illustrate the differences. the insured at the claim stage?
Not applicable; New Jersey does not recognize a No New Jersey case was found that explicitly
separate duty of disclosure. addresses this point.
16.1 Do third party beneficiaries of cover have 24. Do courts have special powers to
a duty of utmost good faith? disregard any avoidance of the
No New Jersey case was found that explicitly insured has established that it would be a
addresses this point. breach of the duty of utmost good faith to
17. Describe the insured’s post-contractual allow the insurer to avoid the policy?
which it has been applied. 25. To the extent that an insurer’s breach of
No New Jersey case was found that explicitly statute, is it a breach of the statute for the
addresses this point. insurer to be in breach of its duty of
18. Is the insured’s intentional concealment utmost good faith?
breach of the duty of utmost good faith? 26. Can a breach by the insurer of the duty of
No New Jersey case was found that explicitly sanctions against the insurer (license
addresses this point. suspension, banning order, etc.)?
B - For the Insurer
19. What is the content of the duty of utmost IV - Reinsurance
with a claim?
New Jersey courts have discussed generally that jurisdiction apply different principles
insurers owe a duty of utmost good faith to their regarding utmost good faith to
insureds because insurance policies are contracts of reinsurance at both the placement/pre-
adhesion that insurers must honor as fiduciaries. See contractual stage, and at the claim stage?
Griggs v. Bertram, 88 N.J. 347, 366 (1982). However,
New Jersey courts do not appear to treat this duty No New Jersey court appears to have held definitively
separately from an insurer’s implied duty of good faith that a duty of utmost good faith applies between a
and fair dealing under an insurance policy. E.g., id. at ceding insurer and its reinsurer. Nonetheless, at least
366-67; Bowler v. Fidelity Cas. Co. of N.Y., 53 N.J. one federal court in New Jersey has suggested that
313, 327 (1969). the same standards of good faith apply under New
Jersey law as under New York law, which does
20. Does an insurer owe a duty of utmost require utmost good faith in reinsurance contracts.
good faith towards third party Suter v. Gen. Accident Ins. Co. of Am., 2006 WL
beneficiaries of cover in handling claims? 2000881, at *22-23, *23 n.29 (D.N.J. July 17, 2006),
vacated pursuant to settlement, 2007 WL 2781935
See response to Question 19. (D.N.J. May 24, 2007); see also Employers
21. Describe the insurer’s post-contractual Reinsurance Corp. v. Admiral Ins. Co., 1990 WL
duty of utmost good faith by providing 169756 (D.N.J. Oct. 30, 1990) (vacating arbitration
examples of the best known cases in award where parties failed to submit the issue
which it has been applied. regarding whether the ceding insurer’s nondisclosure
violated its duty of utmost good faith).
****
See response to Question 19. Jenner & Block LLP
23. Can courts disregard a term of a contract 353 N. Clark Street
of insurance if it would be a breach of the Chicago, IL 60654-3456
Tel.: 312 222-9350
Fax: 312 527-0484
with examples.
Email: dkroeger@jenner.com
See response to Question 19. sguenther@jenner.com
Website: www.jenner.com
IBA Insurance Committee Substantive Project 2014 201 The Duty of Utmost Good Faith: USA (New York)
USA (New York)

KRAMER LEVIN NAFTALIS & FRANKEL LLP also applies to information arising during the term of
the reinsurance contract (such as information
Daniel A. Rabinowitz
regarding incurrence of a loss) which the ceding
I - Definition of the Principle of Utmost Good Faith company is obligated to share with the reinsurer. In
this sense, the duty is both ”pre-” and “post-”
1. In your jurisdiction, do insurance laws contractual.
provide for the principle of utmost good II - Application of the Principle of Utmost Good
faith (in latin, “uberrimae fidei”) and if so, Faith at the Pre-Contractual Stage
definition whether under statute or 6. Does the Principle of Utmost Good Faith
according to case law. apply to both the insured and the insurer
New York’s highest court, the Court of Appeals, has at the pre-contractual stage?
held that “utmost good faith” is the “core duty New York cases indicate that the duty applies to both
accompanying reinsurance contracts” encompassing the ceding insurer and the reinsurer at all relevant
the “basic obligation of a reinsured to disclose all times. However, in the case of the duty borne by the
1
‘material facts’ regarding the original risk of loss.” reinsurer, the scope and meaning of such obligation
2. Is the principle of utmost good faith (i) a are not as clear.
A federal District Court, in a case governed by New
York law, explained that the duty is reciprocal and that
the duty of utmost good faith borne by the reinsurer is
otherwise?
to pay losses “that are even arguably within the scope
2
The principle of utmost good faith is a common law of the coverage reinsured.” (However, in this case
principle under New York law. the court ultimately found for the reinsurer, reasoning
that the duty of utmost good faith could not be
3. Do insurance laws of your jurisdiction invoked by the ceding company to “create coverage
provide for both the principle of utmost where none exists.”
3
The ceding company had
good faith and a separate duty of asserted certain business interruption claims arising
disclosure for the insured? from the 1994 Northridge earthquake. The reinsurer
New York law does not recognize a “duty of argued that the reinsurance contract should be
disclosure” as distinct from the principle of utmost interpreted to exclude such claims insofar as the
good faith. The principle of utmost good faith is contract did not cover the underlying policies’
largely a standard that governs disclosure, so a “duty “extended period of indemnity” endorsements. The
of disclosure” may be regarded as subsumed within ceding company contended that the reinsurer should
the principle. be barred from asserting such a defense because of
its duty of utmost good faith. The court rejected this
4. Does the principle of utmost good faith argument and concluded that utmost good faith does
apply to all types of insurance contracts not act as a waiver of a reinsurer’s defense that the
4
(life insurance, general insurance, reinsurance contract does not provide coverage. )
reinsurance etc.)?
In other cases, the obligation of a reinsurer to pay
Under New York law, utmost good faith applies in the claims that are arguably within the scope of coverage
reinsurance context only. It generally does not apply is considered part of the doctrine of “follow the
5
to any primary insurance. fortunes” or “follow the settlement” and not
necessarily included within the concept of utmost
good faith.
2
The duty of utmost good faith governs a ceding United Fire & Casualty Co. et al. v. Arkwright Mut. Ins. Co.,
company’s disclosures to the reinsurer in connection 53 F. Supp. 2d 632 (S.D.N.Y., 1999) at 642.
with entering into a reinsurance contract. The duty 3
Id.
4
Id. at 642-43.
5
1 Granite State Ins. Co. v. ACE American Reins. Co., 46
In the Matter of the Liquidation of Union Indemnity Ins. Co. A.D.3d 436 (NY Sup. Ct., Appel. Div., 1st Dept.; 2007) at
of NY, 674 N.E. 2d 313 (Ct. of Appls., 1996), 319. 439.
A - For the Insured court permitted the reinsurer to void the reinsurance
binder altogether.
good faith for the insured? There is no distinct duty of disclosure. See response
to item 3.
duty of utmost good faith by providing 11. If the duty of utmost good faith operates
examples of the best known cases in separately from the duty of disclosure
which it has been applied. does one have precedence over the
other?
A ceding company has an obligation to disclose to
potential reinsurers all material facts relating to the Not applicable. See response to item 3.
original risk of loss. In the Union Indemnity case
B - For the Insurer
(cited in footnote 1), a ceding company did not
disclose its own insolvency to a prospective reinsurer. 12. What is the content of the pre-contractual
The court held that this omission influenced the duty of utmost good faith for the insurer?
reinsurer’s underwriting decision and therefore
violated the ceding company’s duty of utmost good In the case of the duty of utmost good faith borne by
6
faith. In a federal case construing New York law, a the reinsurer, the scope and meaning of this duty are
ceding company failed to disclose to its reinsurer that not clearly articulated in New York law. See response
the ceding company was not retaining any of the risks to item 6.
in a particular portfolio of marine policies being 13. Describe the insurer’s pre-contractual
reinsured and thus that the ceded portion of the duty of utmost good faith by providing
policies represented 100% of the risks. The court examples of the best known cases in
found this to constitute a material omission and a which it has been applied.
7
breach of utmost good faith.
See response to item 6.
insured equivalent to the duty of 14. Is it a breach of the duty of utmost good
disclosure in your jurisdiction so that faith in your jurisdiction for insurers not
pre-contractually the two are to notify the prospective insured of the
indistinguishable? nature and extent of their duty of
disclosure?
See response to item 3.
The New York cases defining the duty of utmost good
9. If the duty of utmost good faith operates faith do not hinge on whether or not the reinsurer
separately pre-contractually from the notified the ceding company of the duty itself. In none
duty of disclosure describe that operation of these cases did the ceding company allege that
and how the two sit together. You may this failure constituted a breach of the duty, and this
need to describe the duty of disclosure to issue is not specifically addressed in New York
illustrate the differences. reported cases.
Not applicable. See response to item 3. 15. What are the remedies for a pre-
10. What are the remedies for a pre- contractual breach by the insurer of its
contractual breach by the insured of the duty of utmost good faith?
duty of utmost good faith? Are the Because New York cases do not develop the specific
remedies different from a breach of the contours of the reinsurer’s utmost good faith duty, or
duty of disclosure? remedies for breach thereof, there is no specific
A reinsurance contract can be rescinded or voided ab guidance on this question. In cases that equate the
initio where the reinsurer has been induced to enter duty of utmost good faith with the “follow the fortunes”
into it as a result of the ceding company’s breach of obligation, a reinsurer may not deny coverage where
the duty of utmost good faith. See response to item the asserted loss is arguably within the scope of the
9
7. In Union Indemnity, the court permitted the reinsurance contract.
reinsurer to interpose a defense of fraud and to assert
8
the remedy of rescission , whereas in Reliance, the
6
Union Indemnity at 320.
7
Reliance Ins. Co. et al. v. Certain Member Companies,
Institute of London Underwriters, 886 F. Supp. 1147
(S.D.N.Y., 1995) at 1153.
8 9
Union Indemnity at 320. See ACE at 439.
III - Post-Contractual Application of the Principle the contract did not repeat the condition concerning
of Utmost Good Faith (at the Claim Stage) the recommendations. The warehouse was destroyed
by fire during the renewal term, and the ceding
A - For the Insured and Third Party company sought coverage from the reinsurer. The
Beneficiary of Cover reinsurer denied coverage, alleging breach of the duty
of utmost good faith. The court found for the reinsurer,
16. What is the content of the post- citing the reinsured’s post-contractual duty to furnish
contractual duty of utmost good faith for information that it believes, or reasonably ought to
the insured at the claim stage? believe, is material to the reinsurer. The reinsurer
13
As in the “pre-” contractual stage, a ceding insurer bears no duty of inquiry concerning such facts.
must disclose all material facts in order to obligate the 18. Is the insured’s intentional concealment
reinsurer to cover a loss. One aspect of the “post-” of his/her criminal activities when
contractual duty involves the timeliness of notice to completing a proposal for life policies a
the reinsurer following an insurer’s incurrence of a breach of the duty of utmost good faith?
loss for which the insurer claims indemnity. Where
the ceding insurer provides late notice to the As discussed supra, the New York doctrine of utmost
reinsurer, the reinsurer need not necessarily show good faith applies only to reinsurance and generally
prejudice in denying the claim. Late notice alone may not to primary insurance. Applications by individuals
void coverage because of the ceding company’s for life policies are not governed by the duty. Whether
10 an insurer could void a life policy based on the
overriding duty of utmost good faith.
insured’s concealment of criminal activity would
16.1 Do third party beneficiaries of cover have depend on other provisions of New York law including
a duty of utmost good faith? Section 3203 of the New York Insurance Law.
The New York cases do not specifically the duty of B - For the Insurer
utmost good faith imposed on “third Party
beneficiaries of cover.” 19. What is the content of the duty of utmost
17. Describe the insured’s post-contractual with a claim?
examples of the best known cases in As discussed supra, New York law does not provide
which it has been applied. detailed guidance on the scope of the reinsurer’s duty
of utmost good faith. In the few cases that do refer to
In Clearwater, cited in item 16, the ceding company this reciprocal duty, the courts hold that a reinsurer
argued that because its late notice to the reinsurer did must provide coverage where a claim is arguably
not result in prejudice to the reinsurer, the ceding within the scope of covered losses under the
company’s claim should not be denied. The court 14
reinsurance agreement. It should be noted that the
disagreed, holding that the reinsurer is not required to reinsurer’s duty of utmost good faith does not form the
show prejudice and that late notice alone (where basis for a tort claim by a cedent alleging bad faith by
caused by gross negligence) could be sufficient to 15
the reinsurer in handling a claim. The cedent in such
void coverage as a breach of the cedent’s duty of a case is limited to its remedies under the reinsurance
11
utmost good faith. contract.
Another case held that, under the duty of utmost good 20. Does an insurer owe a duty of utmost
faith, once the reinsurer puts the ceding company on good faith towards third party
notice that a particular fact is material, the reinsurer is beneficiaries of cover in handling claims?
not required to (i) subsequently inquire about the
specific fact or (ii) indicate, when renewing the The New York cases do not specifically the duty of
coverage six months later, that it still regards the fact utmost good faith imposed on insurers toward “third
12 party beneficiaries of cover.”
as material. The ceding insurer ceded a policy
covering physical loss to a warehouse, and the
reinsurer conditioned its agreement on the
implementation of fire-safety measures, to be
recommended by an engineer. The recommendations 13
The court did acknowledge that a reinsurer’s indication as
were made but never implemented. The renewal of to what it considers material could become “stale” at some
future point, but that such a conclusion could not “be
reached a mere six months after [the reinsurer] had
expressed unwillingness to enter the contract without the
10
Granite State Ins. Co. v. Clearwater Insurance Co., 2014 assurance that all recommendations would be complied
U.S. Dist. LEXIS 44573 (S.D.N.Y., 2014), at 62-64. with.” Id. at 283.
11 14
Id. at 62. Arkwright at 641.
12 15
Allendale Mut. Ins. Co. v. Excess Ins. Co. Ltd., 992 F. Folksamerica Reins. Co. v. Republic Ins. Co., 2004 U.S.
Supp. 278 (S.D.N.Y. 1998), at 282-283. Dist. LEXIS 7547 (S.D.N.Y, 2004), 24-26.
21. Describe the insurer’s post-contractual 25. To the extent that an insurer’s breach of
duty of utmost good faith by providing the duty of utmost good faith is under
examples of the best known cases in statute, is it a breach of the statute for the
which it has been applied. insurer to be in breach of its duty of
utmost good faith?
In Arkwright, as discussed in more detail above, the
court held that a reinsurer must indemnify its cedent Not applicable. There is no statutory provision for
for losses that are “even arguably within the scope of utmost good faith under New York law.
the coverage reinsured” and not “refuse to pay merely
because there may be another reasonable
interpretation of the [contract] under which the
16 sanctions against the insurer (license
reinsurer could avoid payment.”
your jurisdiction and, if so, how does it We are not aware of any reported case under New
sit with the duty of utmost good faith? York law where an insurer was penalized on the
grounds of a violation of its duty of good faith against
There is no prescribed “Code of Practice” for insurers a reinsurer, or vice versa.
in New York.
IV - Reinsurance
of insurance if it would be a breach of the 27. To what extent, if any, does your
duty of utmost good faith for the insurer jurisdiction apply different principles
to rely on the term? If so, please illustrate regarding utmost good faith to
with examples. reinsurance at both the placement/pre-
A reinsurer’s duty of utmost good faith requires it to
pay even where the loss is only arguably within the As discussed above, the duty of utmost good faith
17
scope of coverage. The reinsurer does not breach applies both “pre-” and “post-”contractually.
its duty by “relying” on some provision of the contract.
The holding in Arkwright supports the principle that a ****
reinsurer may assert a particular interpretation of a
contract without any limitation that it is somehow
barred from doing so because of the duty of good Kramer Levin Naftalis & Frankel LLP
faith. Therefore, we believe that, in New York, a
reinsurer cannot breach its duty of utmost good faith
1177 Avenue of the Americas
merely by “relying” on a contract provision, and a
New York
court cannot set aside a contract provision merely
because it can be interpreted in a manner favorable to NY 10036
the reinsurer.
Tel.: (1) 2 127 159 100
24. Do courts have special powers to Fax: (1) 2 127 158 000
disregard any avoidance of the Email: DRabinowitz@chadbourne.com
insured has established that it would be a Website: www.kramerlevin.com
The holding in Arkwright – that a reinsurer must pay
claims that are arguably within the scope of coverage
– would appear to support the contention that where a
reinsurer seeks to “avoid application” of its coverage,
a court may “disregard” this avoidance. (In other
words, the court will enforce the contract.) However,
there is no guidance on the scope of this principle, nor
is this doctrine particularly characterized as a
“special” judicial power or remedy.
16
Arkwright at 642.
17
Id.
IBA Insurance Committee Substantive Project 2014 205 The Duty of Utmost Good Faith: USA (Ohio)
USA (Ohio)
JENNER & BLOCK LLP Yes. In Owens-Corning, the court rejected the
insured’s argument that the doctrine of utmost good
David M. Kroeger and Sabrina Guenther
faith was limited to marine insurances. 660 N.E.2d at
I - Definition of the Principle of Utmost Good Faith 826 (collecting cases).
1. In your jurisdiction, do insurance laws only at the pre-contractual stage or is it a
provide for the principle of utmost good continuous duty applying both pre-
faith (in latin, “uberrimae fidei”) and if so, contractually and post-contractually?
definition whether under statute or No Ohio case was found that explicitly addresses this
according to case law. point.
Yes, Ohio courts have held that applicants for II - Application of the Principle of Utmost Good
insurance policies owe the insurer a duty of utmost Faith at the Pre-Contractual Stage
good faith. Crnic v. Am. Republic Ins. Co., 2007 WL
2949576, *2 n.2 (Ohio App. Ct. Oct. 11, 2007) (citing 6. Does the Principle of Utmost Good Faith
Buemi v. Mutual of Omaha Ins. Co., 524 N.E.2d 183 apply to both the insured and the insurer
(Ohio App. Ct. 1987)); see also Owens-Corning at the pre-contractual stage?
Fiberglas Corp. v. Am. Centennial Ins. Co., 660
N.E.2d 823, 825 (Ohio Ct. Com. Pl. 1995) (collecting No Ohio case was found that explicitly addresses this
cases). The duty requires an insured to disclose all point.
material facts known to it that may affect the risk to be A - For the Insured
assumed by the insurer. Owens-Corning, 660 N.E.2d
at 827. But this duty to disclose “is limited to present, 7. What is the content of the duty of utmost
material information, and does not extend to good faith for the insured?
speculations.” Id. at 828. A fact is material if the Describe the insured’s pre-contractual
insurer specifically requested the fact from the insured duty of utmost good faith by providing
or if it would have affected the insurer’s decision to examples of the best known cases in
accept the policy at the agreed premium. Sherwin- which it has been applied.
Williams Co. v. Certain Underwriters at Lloyd’s
London, 813 F. Supp. 576, 588 (N.D. Ohio 1993). Under Ohio law, the duty of utmost good faith requires
an insured to disclose all material facts known to it
2. Is the principle of utmost good faith (i) a that may affect the risk to be assumed by the insurer.
statutory principle, (ii) a common law Owens-Corning, 660 N.E.2d at 827. But this duty to
principle or (iii) a civil law principle? Or is disclose “is limited to present, material information,
it to be found under statute and and does not extend to speculations.” Id. at 828. A
otherwise? fact is material if the insurer specifically requested the
The principle of utmost good faith is a common law fact from the insured or if it would have affected the
principle. See Owens-Corning, 660 N.E.2d at 825; insurer’s decision to accept the policy at the agreed
Harris v. Columbia Cnty. Mut. Ins. Co., 1849 WL 92, premium. Sherwin-Williams, 813 F. Supp. at 588.
at *4 (Ohio Dec. 1849). However, Ohio statutes
 Buemi v. Mutual of Omaha Ins. Co., 524
similarly bar knowingly misrepresenting or concealing
N.E.2d 183 (Ohio App. Ct. 1987). Court
material information for the purpose of obtaining
affirmed trial court’s grant of summary
health or accident insurance. Ohio Rev. Code §
judgment to insurer because insured’s false
3923.14.
answers to application for health insurance
3. Do insurance laws of your jurisdiction voided policy ab initio.
good faith and a separate duty of  Prudential Ins. Co. of Am. v. Carr, 199
disclosure for the insured? N.E.2d 412, 415 (Ohio Ct. Com. Pl. 1964).
Court held that insurer was not liable for
No. claim under hospital expense policy when
insured had omitted previous medical
treatment from his application for insurance.
(life insurance, general insurance,  Owens-Corning Fiberglas Corp. v. Am.
reinsurance etc.)? Centennial Ins. Co., 660 N.E.2d 823, 825
(Ohio Ct. Com. Pl. 1995). Court held that
the doctrine of utmost good faith applied to
insured’s negotiations for asbestos-related No Ohio case was found that explicitly addresses this
coverage. The court rejected the insured’s point.
arguments that the doctrine of utmost good
faith applies only to marine insurance, or that
it applies only where the insurer had to rely
solely on the representations of the insured
in evaluating the subject of the insurance. No Ohio case was found that explicitly addresses this
8. Is the duty of utmost good faith for the point.
insured equivalent to the duty of III - Post-Contractual Application of the Principle
disclosure in your jurisdiction so that of Utmost Good Faith (at the Claim Stage)
indistinguishable? A - For the Insured and Third Party
There is no separate duty of disclosure; Ohio law Beneficiary of Cover
views the duty of utmost good faith as a duty of 16. What is the content of the post-
disclosure. contractual duty of utmost good faith for
9. If the duty of utmost good faith operates the insured at the claim stage?
separately pre-contractually from the No Ohio case was found that explicitly addresses this
duty of disclosure describe that operation point.
need to describe the duty of disclosure to 16.1 Do third party beneficiaries of cover have
illustrate the differences. a duty of utmost good faith?
Not applicable. No Ohio case was found that explicitly addresses this
point.
contractual breach by the insured of the 17. Describe the insured’s post-contractual
duty of utmost good faith? Are the duty of utmost good faith by providing
remedies different from a breach of the examples of the best known cases in
duty of disclosure? which it has been applied.
The insurance contract can potentially be voided for a No Ohio case was found that explicitly addresses this
breach of the duty of utmost good faith by a point.
policyholder. There is no separate duty of disclosure;
Ohio law views the duty of utmost good faith as a duty
of disclosure.
11. If the duty of utmost good faith operates breach of the duty of utmost good faith?
No Ohio case was found that explicitly addresses this
point.
other?
B - For the Insurer
Not applicable.
B - For the Insurer
12. What is the content of the pre-contractual with a claim?
No Ohio case was found that explicitly addresses this point.
point.
13. Describe the insurer’s pre-contractual good faith towards third party
duty of utmost good faith by providing beneficiaries of cover in handling claims?
point.
point.
14. Is it a breach of the duty of utmost good examples of the best known cases in
faith in your jurisdiction for insurers not which it has been applied.
point.
disclosure?
22. Is there a Code of Practice for insurers in No Ohio case was found that explicitly addresses this
your jurisdiction and, if so, how does it point.
IV - Reinsurance
point. 27. To what extent, if any, does your
23. Can courts disregard a term of a contract jurisdiction apply different principles
of insurance if it would be a breach of the regarding utmost good faith to
duty of utmost good faith for the insurer reinsurance at both the placement/pre-
to rely on the term? If so, please illustrate contractual stage, and at the claim stage?
with examples. No Ohio case was found that explicitly addresses this
No Ohio case was found that explicitly addresses this point.
point.
24. Do courts have special powers to ****
breach of the duty of utmost good faith to Jenner & Block LLP
353 N. Clark Street
No Ohio case was found that explicitly addresses this Chicago, IL 60654-3456
point.
Tel.: 312 222-9350
25. To the extent that an insurer’s breach of Fax: 312 527-0484
the duty of utmost good faith is under Email: dkroeger@jenner.com
statute, is it a breach of the statute for the sguenther@jenner.com
utmost good faith? Website: www.jenner.com
point.
IBA Insurance Committee Substantive Project 2014 208 Template
Template
This template, accompanied by explanations of the purpose of each question, was sent to contributors to the project
in June 2014. Responses were received in during the summer of 2014, followed by an editing process that was
carried out in close cooperation with the contributors and concluded in August with the publication of this report.
Comparative Survey on the Duty of Utmost Good Faith - Questionnaire

I - Definition of the Principle of Utmost Good Faith
1. In your jurisdiction, do insurance laws provide for the principle of utmost good faith (in latin,
“uberrimae fidei”) and if so, what is its meaning? Provide any definition whether under statute or
2. Is the principle of utmost good faith (i) a statutory principle, (ii) a common law principle or (iii) a civil
law principle? Or is it to be found under statute and otherwise?
3. Do insurance laws of your jurisdiction provide for both the principle of utmost good faith and a
separate duty of disclosure for the insured?
4. Does the principle of utmost good faith apply to all types of insurance contracts (life insurance,
general insurance, reinsurance etc.)?
5. Does the duty of utmost good faith apply only at the pre-contractual stage or is it a continuous duty
applying both pre-contractually and post-contractually?
II - Application of the Principle of Utmost Good Faith at the Pre-Contractual Stage
6. Does the Principle of Utmost Good Faith apply to both the insured and the insurer at the pre-
contractual stage?
A - For the Insured
7. What is the content of the duty of utmost good faith for the insured?
Describe the insured’s pre-contractual duty of utmost good faith by providing examples of the best
known cases in which it has been applied.
8. Is the duty of utmost good faith for the insured equivalent to the duty of disclosure in your
jurisdiction so that pre-contractually the two are indistinguishable?
9. If the duty of utmost good faith operates separately pre-contractually from the duty of disclosure
describe that operation and how the two sit together. You may need to describe the duty of
disclosure to illustrate the differences.
10. What are the remedies for a pre-contractual breach by the insured of the duty of utmost good faith?
Are the remedies different from a breach of the duty of disclosure?
11. If the duty of utmost good faith operates separately from the duty of disclosure does one have
precedence over the other?
B - For the Insurer
12. What is the content of the pre-contractual duty of utmost good faith for the insurer?
13. Describe the insurer’s pre-contractual duty of utmost good faith by providing examples of the best
14. Is it a breach of the duty of utmost good faith in your jurisdiction for insurers not to notify the
prospective insured of the nature and extent of their duty of disclosure?
15. What are the remedies for a pre-contractual breach by the insurer of its duty of utmost good faith?
IBA Insurance Committee Substantive Project 2014 209 Template
III - Post-Contractual Application of the Principle of Utmost Good Faith (at the Claim Stage)
A - For the Insured and Third Party Beneficiary of Cover
16. What is the content of the post-contractual duty of utmost good faith for the insured at the claim
stage?
16.1 Do third party beneficiaries of cover have a duty of utmost good faith?
17. Describe the insured’s post-contractual duty of utmost good faith by providing examples of the best
18. Is the insured’s intentional concealment of his/her criminal activities when completing a proposal for
life policies a breach of the duty of utmost good faith?
B - For the Insurer
19. What is the content of the duty of utmost good faith for the insurer when dealing with a claim?
20. Does an insurer owe a duty of utmost good faith towards third party beneficiaries of cover in
handling claims?
21. Describe the insurer’s post-contractual duty of utmost good faith by providing examples of the best
22. Is there a Code of Practice for insurers in your jurisdiction and, if so, how does it sit with the duty of
utmost good faith?
23. Can courts disregard a term of a contract of insurance if it would be a breach of the duty of utmost
good faith for the insurer to rely on the term? If so, please illustrate with examples.
24. Do courts have special powers to disregard any avoidance of the application of a policy in cases
where the insured has established that it would be a breach of the duty of utmost good faith to allow
the insurer to avoid the policy?
25. To the extent that an insurer’s breach of the duty of utmost good faith is under statute, is it a breach
of the statute for the insurer to be in breach of its duty of utmost good faith?
26. Can a breach by the insurer of the duty of utmost good faith result in regulatory sanctions against
the insurer (license suspension, banning order, etc.)?
IV - Reinsurance
27. To what extent, if any, does your jurisdiction apply different principles regarding utmost good faith
to reinsurance at both the placement/pre-contractual stage, and at the claim stage?
****

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IBA Insurance Committee Substantive Project 2014

The Duty of Utmost Good Faith

© Copyright 2014 International Bar Association. All rights reserved.

The materials compiled herein are collected from various sources as

International Bar Association

About the International Bar

We also invite you to contact the IBA membership department on

Note from the IBA

Christoph K. Graber Assunta Di Lorenzo

provide for the principle of utmost good

3) Effects of the rescission of the contract B - For the Insurer

Tel.: (54 11) 4802 4147

(b) a reasonable person in the  marine insurance;

Tel.: (61) 2 9353 4000

modifies general, special or particular conditions of the

27. To what extent, if any, does your

common law provinces  Must give as much consideration to the

civil law (Quebec) 21. Describe the insurer's post-contractual

can assert they have no contract with the third party

23. Can courts disregard a term of a contract common law provinces

common law provinces civil law (Quebec)

civil law (Quebec) 25. To the extent that an insurer's breach of

27. To what extent, if any, does your

1. In your jurisdiction, do insurance laws  The insurer is relieved of any obligation to

insurance contract as necessary to process  The right to fair and non-discriminatory

27. To what extent, if any, does your BLP

Tel.: (45) 722 70000

risk, by distorting the insurer’s assessment of independently from insurance issues, he

For example: When provided for in a contract clause, forfeiture due

As a consequence, courts must disregard a term of a IV - Reinsurance

duty to inform the ceding company of all the

SCP Bouckaert Ormen Passemard Sportes

47 rue Dumont d'UrvilleSuite 2700

Tel.: (33) 1 7037 3900

fines and the suspension or withdrawal of

19. What is the content of the duty of utmost 51

25. To the extent that an insurer’s breach of ****

the right to refuse the payment of the B - For the Insurer

Shook Lin & Bok

Ambank 55 Jalan Raja ChulanMinato-ku

Tel.: (60) 3 2031 1788

Shook Lin  Bok

27. To what extent, if any, does your

3. Do insurance laws of your jurisdiction A - For the Insured

25. To the extent that an insurer’s breach of

Whether the insurer is liable, should in fact be

27. To what extent, if any, does your

Yes, As far as Nigeria is concerned, the principle is a IV - Reinsurance

A - For the Insured Duty of disclosure, which is in force in a system of

26. Can a breach by the insurer of the duty of IV - Reinsurance

A - For the Insured and Third Party

16.1 Do third party beneficiaries of cover have B - For the Insurer

27. To what extent, if any, does your L.C. Rodrigo Abogados

for direct insurance contracts. However, direct

viii) the handling of personal data, including

Aggravation of risk i) the aggravation neither influenced the

conduct of business (art. 14 para. 1 ISA). This

A - For the Insured B - For the Insurer

Sanctions may be brought on insurers by the Office of ****