Utmost good faith

Utmost good faith

1. The insurer refuses to pay

   • if loss not covered by policy
   • insurer has no II
   • payment contrary to public policy
   • policy is void/voidable/discharged

2. Agreement has to be in good faith

3. Voidable if: insured does not comply with obligations or makes a material misrepresentation

4. After 12 Aug 2016 IA, any rule saying breach of warranty results in discharge will be abolished

5. Insurance terms called 'conditions' will offer a potential to the insurer to repudiate the contract if they are so drafter as to be conditions precedent to the insurer's liability to any claim, and then breached by the insured

   • but only if there is a casual connection between the breach of condition and the loss
   • A condition may also be used to delimit the risk. Such a condition will only subject the insurer to liability on the risk if the condition is compiled

6. LOSS OF INSURER'S RIGHT TO REPUDIATE

   • as well as possible interruption by the UTCCR, the insurer will lose its right of repudiation if:
     • it waives a breach
     • it affirms a breach
     • it becomes personally bared from asserting a breach
   • an indisputability clause may be put into life policies to make certian defences not be available to the insurer after a period of time has passed - this has similar effect

7. UTCCR may affect the operation of any contract therm that allows refusal of payment if:

   • insured is a consumer
   • the term is not one individually negotiated
   • THEN if the term is contrary to good faith it will be unfair
     • BUT a term is not unfair if it reads in plain, clear language to the main subject matter of the contract
   • A term that has not been individually negotiated shall be regarded as unfair if it causes a significant imbalance in the parties rights and obligations arising under the contract to the determinent of the consumer
     • Good faith here is not relevant to the 'utmost good faith' that is being reformed in insurance law

8. A contract may be voidable by the insurer if the insured does not comply with obligation of disclosure, comply with upmost good faith, or if makes a material misrepresentation

9. Traditionally, ANY failure by the proposer to comply with any part of the duty of utmost good faith allowed the insurer to avoid the policy and also keep the premium

10. Fraud allows avoidance. Other misrepresentations may also allow avoidance

11. Failing to disclose everything can lead to insurer recovering all previous claims.

    • Is this fair? Law commissions thought this rule over protected the insurer who would have still entered into the contract. Fails to encourage insurers to ask important questions
      • Lambert v Co-op insurance society. Husband in jail

12. Physical/Moral Hazard

    • A lot depends on judge REYNOLDS v PHOENIX INSURANCE

13. Disclosure and Representations Act 2012

    • consumer under a duty to take reasonable care not to make a misrepresentation
      • standard is objective
      • Remedies in ss4-5 and Sched 1

14. As of Aug 2016 a non consumer must disclose every material circumstance which they know or ought to know. Failing that, disclosure that gives the insurer sufficient info to make an enquiry

    • BUT, in the absence of an enquiry, no requirement for the insured to disclose anytihng that diminshes risk, the insurere knows, the insurere ought to know, the insurer presumed to know