LXGA 6324:MARINE INSURANCE: LAW AND

PRACTICE
MARINE INSURANCE ASSIGNMENT

NAME: NUR JANNAH ABD HALIM

MATRIX NUMBER: LGA150042
LECTURER: DR GAN CHING CHUAN

The duty of the Insurer under the doctrine of Uberrimae-Fidei or Utmost

Good Faith
By: LGA150042

The maxim caveat emptor or let the buyer beware mostly governed contracts
agreement. However, insurance is governed by the doctrine of utmost good faith. This is both at
common law and by reason of s. 17 of the Marine Insurance Ordinance, which applies both to
marine and non-marine insurance policies. The consequence is that the general contractual duty
accepted by parties to avoid misrepresentation is extended and reinforced by the additional
obligation to disclose all material facts that would make the insurers to underwrite the risk. This
was first laid down in Carter v. Boehm,1 by Lord Mansfield C.J. and his formulation of the
disclosure duty is partially codified in the Marine Insurance Act 1906 (the Act).2
At every stage of the insurance process, the duty of good faith is owed and a breach of
that duty is also a breach of a contractual duty. The duty of utmost good faith arises due to the
special nature of the relationship, which the duty places each party in a position of vulnerability
to the other at different times during the period set in the contract. 3 In the case of Fredrikson v.
I.C.B.C.,4 Chief Justice Esson has expressed the view that while an insurer is not in a fiduciary
relationship with its insured, certain of the fundamental elements which give rise to fiduciary
duty are present in the relationship of insurer and insured. 5

Accordingly, the insurer is

obligated to exercise its power having regard to the interests of its insured, and in a manner
entailing, in some sense, an obligation of good faith.6
The duty of utmost good faith is mutual. In other words, it applies to both insurers and
the assured, however most of the cases are examples of the insurer wanting to depend or rely on
the doctrine to avoid paying cover. This was considered in the Australian case of CGU Insurance
v AMP Financial Planning7. In this case, the insurers were claimed by the assured that the former
1

(1766) 97 Eng. Rep. 1162, 1165

See Marine Insurance Act, 1906, 6 Edw. 7, c. 41, 17-20 (Eng.).
3
Craig Brown et al., Insurance Law in Canada, Looseleaf Edit., (Scarborough, Ont.: Carswell, 1999-), at p. 10-22;
Insurance Corp. of British Columbia v. Hosseini (2006), 49 B.C.L.R. (4th) 250 (S.C.), at p. 273
4
Fredrikson v. I.C.B.C. (1990), 44 B.C.L.R. (2d) 303 (S.C.)
5
Ibid at p 336-337
6
Ibid
7
[2007] H.C.A. 36
2

was in breach of good faith because they had not made an appropriate decision on whether or not
to decide or agree to extended cover. In the English decisions, there have never been a situation
where an insurer has been held in breach of utmost good faith. The remedy for a breach in the
duty of utmost of good faith is avoidance of the contract or policy where it would only become
relevant if an assured wish to avoid the policy completely. This remedy is prescribed by the
Marine Insurance Act 1906 under section 20(1) of the Act.8
While section 17 of the Act recognizes a mutual duty of good faith, the remaining
sections deal specifically with the duties of the assured towards the insurer. The duties placed on
the assured by sections 18 and 20 of the Act are those of disclosure and representation. Section
18(1) of the Act states that the assured must disclose to the insurer, before the contract is
concluded, every material circumstance which is known to the assured This section deals
particularly on the duty of disclosure of an assured towards the insurer. For representation, it is
deal under Section 20(1) of the Act which states that 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. Therefore, if an assured gives insufficient information to
the insurer that can be constituted as non-disclosure, and in a situation where the information is
given, and it is incorrect, that can be constituted as misrepresentation. Both types of situation
breach the duty of utmost good faith. Under, section 18(1) of the Act, the assured is deemed to
know that every circumstance which, in the ordinary course of business, ought to be known by
him. However, it would be obviously unreasonable and impractical if the assured were required
to disclose all and any information that he might hold or come across. In the case of Ionides and
Another v Pender9 Blackburn J recognized the practical aspect of disclosure by saying that We
agree that it would be too much to put on the assured the duty of disclosing everything which
might influence the mind of an underwriter.
Insurance is a contract upon speculation.10 This is stated in the case of Carter v
Boehm, where it noted that a pre-contractual duty of good faith was created to respond to the
apparent non-balance relationship between the negotiating parties. The potential assured is in the
place where he might have known matters which will affect the nature, scope and probability of
8

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. If it be untrue the insurer may avoid the contract.
9
(1874) LR 9 QB 531
10
Carter v Boehm, above n 1, at 1909.

the risk to be transferred. However, the insurer is basically ignorant of such matters and therefore
he must depend on the assureds disclosures in deciding whether to accept the risk and on what
premium. This susceptibility demands a requirement for positive disclosures by the potential
assured. As a consequence of that, merely an absence of misrepresentation is insufficient; an
assured must offer all past or present facts within his or her personal knowledge, which
materially can change the relevant risk.11
It does not matter that the insurer did not specifically ask the information, although
specific questions may alter or waive the duty.12 Furthermore, the materiality of non-disclosures
and misrepresentations is seen from the view of a prudent insurer, not the (reasonable) insured. 13
Therefore, breach of the duty of utmost of good faith can occurred innocently. 14 In other words,
the duty of utmost good faith requires much more than honesty, and possibly more than the
reasonableness as well. As a result of this, it permits an insurer to avoid policies where a
misrepresentation or nondisclosure brought its entry into the policy or influenced its terms. 15 The
duty of utmost good faith also answers to information disparities when an assured claim against
the policy, but applies less harshly. It is an important obligation of honesty, and the duty is only
breached where the assured party dishonestly ignores or misrepresents material information.
Breach of the duty of utmost good faith by the assured will allow the insurer to deny the claim. 16
The information imbalance is reduced at the claims stage because the insurers can examine
particular losses more carefully than specific risks. Because of this, it is not needed to impose
such a heavy duty when an assured makes a claim. It is enough that wrongful recovery in cases
of fraud is prevented.
While it is obvious and well accepted that the assured owes the duty of utmost good faith
obligations towards the insurer, the duty of utmost good faith applies to the insurer with less
certainty. The most important question here is whether this apparent mutual duty, which so
strictly applies in relation to the assured, can be used to protect a vulnerable assured as the
balance of power in the relationship changes. The pre-contractual duty of utmost good faith for
11

State Insurance General Manager v McHale [1992] 2 NZLR 399 at 409 and 411 per Richardson and Hardie Boys JJ
State Insurance General Manager v Peake [1991] 2 NZLR 287 at 291
13
Ibid
14
Carter v Boehm, above n 1 at 1909
15
The decisive effect test has been rejected in England: Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd
[1995] 1 AC 501
16
Vermeulen v SIMU Mutual Insurance Association (1987) 4 ANZ Insurance Cases 60-812 (HC) at 74,987
12

the insurer actually reflects or mirrors that of the duty of the utmost good faith of the assured.
Before entering the insurance policy, an insurer must disclose all known material facts with
respect to the relevant risk or recoverability of a claim to an assured. This is to make sure that a
prudent insured can consider or decide carefully before deciding to enter into a contract with the
particular insurer. The assured may avoid the policy and have its premium returned where
material non-disclosures brought its entry into the contract. 17 In the case of Fussell v Broadbase
Christchurch Limited, where Associate Judge Osborne refused to strike out a claim that the
insurer breached its duty of utmost good faith by underwriting policies which excluded liabilities
related to the assureds business.18 Thus, it can be said that by including certain terms or
exclusions in the contract, it could breach the duty of utmost good faith.
The duty of good faith may also limit insurers abilities to exercise their legal rights. This
is suggested by an English authority in the case of Drake Insurance Plc v Provident Insurance
Plc.19 In this case, an insurer (Provident) sought to avoid an insurance contract for nondisclosure. The Court of Appeal in this case held that for lack of encouragement, the policy could
not be avoided.20 Pill LJ stated that the insurer had breached its duty of good faith when he failed
to enquire about the nondisclosure when it was discovered after the contract had been entered
into, and to allow the policyholder to respond. Therefore because of the breach, the insurer could
not have avoided the policy.21 In a situation where there are third-party insurance policies, the
insurer usually controls the payment negotiations or proceedings taken against the assured. Both
the insurer and the policy-holder might be interested in reducing the sum payable. However,
there might be a conflict of interest between the parties involved. For example, in a settling case,
it might hurt the assureds reputation. Because of this possible conflict of interest, the English
decision has restricted the insurers discretion in handling negotiations and proceedings in a
situation involving third party insurance policies.22 In the case of Groom v Crocker23 the two
insurers in this case had agreed to split the liability equally between them for two arrangements.
In order for the arrangement to be worked, one of the insurer had instructed its solicitor to
declare the assured had been negligent while in reality the assured had not been negligent at all.
17
18
19
20
21
22
23

Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665 at 772
Fussell v Broadbase Christchurch Ltd HC Christchurch CIV-2009-409-834,
Drake Insurance Plc v Provident Insurance Plc [2004] QB 60
Ibid at p.63-65
Ibid
D A Constable Syndicate 386 v Auckland District Law Society [2010] 3 NZLR 23
Groom v Crocker [1939] 1 KB 194

In this case, the Court held that the said insurer was not allowed to do so. The Insurers may select
a suitable strategy in a dispute resolution, but this is only in what they are bona fide or in a good
faith consider to be the mutual interests of themselves and the assured. The insurers cannot be
influenced by external factors or opportunities and in this case, the insurers action was
unjustified in point of law as it is assuredly repellent to the sense of business decency.24 The
decision in the case of Groom v Crocker is in line with the concept of duty of utmost good faith
is being less than fiduciary. The insurers can still pursue their own interests, however they should
also consider the interests and reasonable expectations of the assured.
If we see the duty of good faith for the insurer in other common law jurisdiction such as
in the Australia, we can see that the position in the Australia is not much more different such as
one in the English Law. In Australia, the duty of the utmost good faith is governed by The
Insurance Contracts Act 1984 (Cth) (ICA). The ICA states that both parties to an insurance
contract must act towards each other with the utmost good faith. However, as The ICA does not
define the utmost good faith, the common law shapes its content.
Section 13 of the ICA provides obligations upon both parties to an insurance contract. 25
The duty was given thorough consideration in the case of CGU Insurance Ltd v AMP Financial
Planning Ltd. In this case, Gleeson CJ and Crennan J stated broadly that s 13 of the ICA requires
insurers to act consistently with commercial standards of decency and fairness, with due regard
to the interests of the insured.26 Both parties need to show positive action as it would usually
require more than passivity actions.27 Lastly, under section 13 of the ICA, dishonesty would not
be only the common requirement of a breach of the duty of utmost good faith; 28 it is enough that
capriciousness and unreasonableness29 In the case of Moss v Sun Alliance,30 in March 1987, the
plaintiffs building was destroyed by fire. However, until February 1988, the insurer did not
admit liability and made no payments before the trial in 1990. Although, there was no ulterior
purpose on the part of the insurer, it is clear that the insurer had breached the insurers obligation
to pay valid claims reasonably promptly.31 Under the case of CGU v AMP, the insurers must
24
25
26
27
28
29
30
31

Ibid at p 203-204
CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] 235 CLR 1
Ibid
Ibid
Ibid at n 25
Ibid
Moss v Sun Alliance Australia Ltd (1990) 55 SASR 145
Ibid at p 154

decide in a timely manner so that both parties know where they stand and may seek advice. 32 As
such, the insurers cannot reject a claim based on an unjustified and uncalled-for suspicion as to
its validity.33 However, the insurer can deny a claim in good faith and put the assured to provide
proof where the claim is seemed suspicious. 34 In the case of Gutteridge v Commonwealth35 the
case imposed a higher standard, stating that section 13 of the ICA could be breached even in a
situation where an insurer acted honestly although in a blundering or careless fashion, or was
negligent. This duty is heavily similar to the assureds pre-contractual obligations. However,
after the case of CGU v AMP stated that section 13 of the ICA may be breached through
dishonesty, unfairness, unreasonableness and capriciousness. In other words, it suggests that
there is more blameworthy conduct is needed to breach section 13 of the ICA, and it provides
greater certainty and clarity for the limitations of good faith conduct.
Another jurisdiction that we can look in assessing the insurers duty of good faith is in
Canada law. However, the insurers post-formation duty in Canada is one of good faith not the
concept of utmost good faith. This does not however affect its meaning, when compared with
Australian authorities. In the case of Ontario Inc v Non-Marine Underwriters Members of
Lloyds London,36 the two main obligations of insurers are to act promptly and fairly,
throughout the investigation, assessment and resolution of claims.37 Insurers have known to
breach the fairness requirement by using insufficient evidence to deny claims made by the
assured.38 In McDonald v Insurance Corporation of British Columbia,39 the insurer in this case
decided that the assured had breached its policy in dependence on evidence which naturally
required further investigation.40 The insurers may deny claims made by the assured on reasonable
legal and factual bases,41 and need not have a very hardcore evidence; however the insurers must

32

CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] 235 CLR 1
Gutteridge v Commonwealth (unreported, Supreme Court of Queensland, 25/6/93
34
CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] 235 CLR 1
35
Above at n 33
36
702535 Ontario Inc v Non-Marine Underwriters Members of Lloyd's London (2000), 184 DLR (4th) 687 (ONCA),
approved by the Supreme Court of Canada in Fidler v Sun Life Assurance Co of Canada (2006) SCC 30
37
Ibid
38
Asselstine v Manufacturers Life Insurance Co [2005] BCCA 292 and Kogan v Chubb Insurance Co of Canada
(2001) 27 CCLI (3d) 16 (Ont SCJ) where insurers have acted in bad faith by disregarding pertinent information and
placing undue emphasis on unreliable and incomplete evidence
39
McDonald v Insurance Corp of British Columbia (2012) BCSC 283
40
Ibid
41
Veno v United General Insurance Corporation [2008] NBCA 39
33

also exercise reasonable diligence, fairness, appropriate skill and thoroughness in investigating
and assessing claims.42
In a situation where an insurer neglects evidence which in favour in accepting the claim
made by the assured, the duty of good faith is also breached. In the case of Wilson v
Saskatchewan Government Insurance,43 the insurer has failed to interview the assured and did
not review other medical opinion. The insurer then terminated the health and disability benefit.
In this case, the insurer relied heavily and completely on only one consultants opinion, despite
other obvious evidence to the opposite. This is clear that the insurer had breached the
requirements of fairness, objectivity and evenhandedness in investigating and evaluating
claims.44
Finally, in the case of Whiten v Pilot Insurance, an insurer had breached the duty of good
faith by maintaining a weak defense and manipulating the witnesses. In this case, the assureds
house burned down, and as a result of that, she lost all of her possessions and several pets. The
assureds husband had then suffered frostbite and was temporarily wheelchair-bound. However,
despites of notwithstanding these facts and the opposite views of several investigators, the
insurer decided the fire was deliberately lit by the assured and they terminated the assureds
living expenses without notice. The insurers lawyers then convinced an expert witness to change
his views, and he then gave misleading information to the experts. In the course of litigation, the
insurer had admitted it had no grounds to suspect arson. This was a clear breach of good faith by
the insurer.
The duty of utmost good faith by the insurer could be then conceptualized in two view.
The first view is that the duty should require broad and flexible requirements of reasonableness
and fairness. This is the principle law in the Australia and Canada as we can see above, and the
duty of utmost good faith has not required an unreasonably high standard of conduct from the
insurers in those jurisdictions. A similar duty has been advocated by The Law Commission for
England and Wales and the Scottish Law Commission 45 and this view is also supported by obiter
statements in another jurisdiction that is the New Zealand. In the case of State Insurance Ltd v
42
43
44
45

McDonald v Insurance Corp of British Columbia, above n 39

Wilson v Saskatchewan Government Insurance [2010] SKQB 211
Ibid
Law Commission for England and Wales and Scottish Law Commission Issues Paper 6: Damages for late payment
and the insurer's duty of good faith (2010)

Cedenco Foods Ltd, Salmon J in the High Court preferred a wide duty requiring fairness,
reasonableness, decency and fair dealing.46 In the Court of Appeal, although the main judgment
did not take into account of the dutys content, but Thomas J assumed it would require insurers
to act conscientiously, fairly and reasonably.47 This standard mirrors the spirit of the concept of
utmost good faith and could include a broad range of blameworthy conduct. It would also have
useful common to the duties of liability insurers.48
The second view is that the duty of utmost good faith should only require honesty. This
view has been advanced by the insurers in the case of Cedenco Foods and in Pegasus Group Ltd
v QBE Insurance (International) Ltd.49 In this case, it is stated that the duty of utmost good faith
for the insurer has the similarity in both parties post-formation obligations. However, as the duty
of utmost good faith is only communicated through specific, independent obligations, these
duties therefore need not have the same content. However, the insurer in this case agreed that
sufficient capriciousness or unreasonableness could possibly amount to dishonesty.50 Although
Winkelmann J did not say anything on this point, this concern was rightly made. The main
difference between the two conceptions of good faith would be the threshold for conduct to be
acceptable, with honesty covering a lower standard than the concept of reasonableness or
fairness on the part of the insurer in the duty of utmost good faith.

46
47
48
49
50

Cedenco Foods Ltd v State Insurance Ltd (1997) 6 NZBLC 102,220 (HC) at 102,234
State Insurance Ltd v Cedenco Foods Ltd, above at n 46 (CA)
Ibid
Pegasus Group Ltd v QBE Insurance (International) Ltd HC Auckland CIV-2006-404-6941
Ibid

CONCLUSION
The mutual duty of utmost good faith was developed to ease the operation of insurance
and even the playing field between the parties at times of susceptibility. The concept is better
described than defined,51 however, the insurers should owe duties of fairness and
reasonableness towards the assured especially during the claims process. As the purpose of
insurance is to provide security and peace of mind for the assured, it can be argued that those
obligations should become enforceable. This could protect the interests of the assured and
prevent abuses of the insurers power towards the assured. The Malaysian law has mostly
followed the English law jurisdiction in the subject of marine insurance. It is not wrong for us to
look at the Australia and the Canada position with regards to this matter. Although the duty of the
insurer in the principle of utmost good faith has not really been clarified, we can see that the duty
of an insurer in the duty of utmost good faith towards the assured need them to act honestly,
reasonableness and fairness. This is to protect the assureds vulnerability in the contract
agreement and at the same time curbing the abuse of power by the insurer in a contract
agreement.

51

Callan O'Neill "A pot of gold? The unfinished story of utmost good faith and the Insurance Contracts Act" (2008)
19 ILJ 245 at 14.

References
Statutes
1) Insurance Contracts Act 1984 (Cth).
2) Marine Insurance Act 1906
Cases
1) 702535 Ontario Inc v Non-Marine Underwriters Members of Lloyd's London (2000), 184
DLR (4th) 687 (ONCA),
2) Asselstine v Manufacturers Life Insurance Co [2005] BCCA 292
3) Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665 at 772
4) Carter v Boehm. (1766) 97 Eng. Rep. 1162, 1165
5) Cedenco Foods Ltd v State Insurance Ltd (1997) 6 NZBLC 102,220 (HC) at 102,234
6) CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] 235 CLR 1
7) D A Constable Syndicate 386 v Auckland District Law Society [2010] 3 NZLR 23
8) Drake Insurance Plc v Provident Insurance Plc [2004] QB 60
9) Fidler v Sun Life Assurance Co of Canada (2006) SCC 30
10) Fredrikson v. I.C.B.C. (1990), 44 B.C.L.R. (2d) 303 (S.C.)
11) Fussell v Broadbase Christchurch Ltd HC Christchurch CIV-2009-409-834,
12) Groom v Crocker [1939] 1 KB 194
13) Gutteridge v Commonwealth (unreported, Supreme Court of Queensland, 25/6/93
14) Insurance Corp. of British Columbia v. Hosseini (2006), 49 B.C.L.R. (4th) 250 (S.C.),
15) Kogan v Chubb Insurance Co of Canada (2001) 27 CCLI (3d) 16 (Ont SCJ)
16) McDonald v Insurance Corp of British Columbia (2012) BCSC 283
17) Moss v Sun Alliance Australia Ltd (1990) 55 SASR 145

18) Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501
19) Pegasus Group Ltd v QBE Insurance (International) Ltd HC Auckland CIV-2006-4046941
20) State Insurance General Manager v Peake [1991] 2 NZLR 287 at 291
21) State Insurance General Manager v McHale [1992] 2 NZLR 399
22) Veno v United General Insurance Corporation [2008] NBCA 39
23) Vermeulen v SIMU Mutual Insurance Association (1987) 4 ANZ Insurance Cases 60-812
(HC)
24) Wilson v Saskatchewan Government Insurance [2010] SKQB 211
25) Law Commission for England and Wales and Scottish Law Commission Issues Paper 6:
Damages for late payment and the insurer's duty of good faith (2010)
Books/Journals
1) Callan O'Neill "A pot of gold? The unfinished story of utmost good faith and the
Insurance Contracts Act" (2008) 19 ILJ
2) Christopher Butcher "Good faith in insurance law: a redundant concept?" (2008) 5 JBL
3) Craig Brown Insurance Law in Canada (7th Student ed, Carswell, Toronto, 2010).
4) John Birds Birds' Modern Insurance Law (8th ed, Sweet & Maxwell, London, 2010).
5) Neil Campbell "A Sceptical View of Good Faith in Insurance Law" in Duncan Webb and
David Rowe (eds) Insurance Law: Practice, Policy & Principles, (The Centre for
Commercial & Corporate Law, Christchurch, 2004)
6) Richard Aikens "The post-contract duty of good faith in insurance contracts: Is there a
problem that needs a solution?" (2010) 5 JBL
7) Ron Ashton "Keeping the faith - Good faith in insurance and the emergence of general
contractual good faith" (2011) 22 ILJ 10