REFORMING INSURANCE LAW: - Law Commission

3.4 Thirdly, the assured is under a continuing duty of utmost good faith, to disclose material
facts during the currency of the policy and to avoid making misrepresentations. 31 However, as a
result of a series of Court of Appeal decisions 32 it has become clear that the continuing duty of
utmost good faith does not extend to fraudulent claims and that the duty of disclosure applies
only where there is an express disclosure obligation under the policy which the assured has
broken in a fashion which amounts to a repudiation of the entire policy assuming that the assured
acted other than with the utmost good faith and that the insurers were induced to act in a different
fashion: in such a case, the insurers have the alternative rights to treat the policy as repudiated or
to avoid the policy ab initio. However, as there is no case in which it has been held that breach of
a notification obligation is a repudiation of the policy as a whole, 33 the assured’s continuing duty
is to all intents and purposes non-existent. The only manner in which an independent duty of
disclosure can affect an assured is where the courts regard it as appropriate to imply a term in the
policy requiring disclosure of a particular matter: such a duty was imposed with respect to
disclosure of placing and claims material in the hands of the assured’s brokers which had already
been seen by the insurers. 34 A false statement by the assured in the course of the policy and
which induces the insurers to act in a particular fashion may be actionable misrepresentation, but
this is nothing to do with utmost good faith.
3.5 Fourthly, the insurers are under a continuing duty of good faith. The duty is one
manufactured by the English courts in the past decade, and from unpromising material. As a
matter of principle, and given that avoidance ab initio is the only remedy recognised by the law
for breach of the duty of utmost good faith, it is difficult to think of any situations in which the
continuing duty could be of much use to the assured. However, the courts have held that there
are various continuing duties on insurers. Those duties were initially expressed as emanating
from the continuing duty of utmost good faith 35 or by way of implied term, 36 or both, 37 although
ultimately they have been rationalised as implied terms whose content is coloured by the fact that
a contract of insurance is one of utmost good faith. 38 The insurers’ continuing duty of utmost
good faith to date has been applied to: the obligation of a liability insurer to negotiate with the
third party claimant against the assured in good faith and to avoid conflicts of interest; 39 the
obligation of reinsurers (and, by extension, liability insurers) not to take into account irrelevant
considerations (ie, to act rationally, the standard for judicial review, as opposed to acting
reasonably, which would be an objective standard which the courts would not be able to police)
31 Black King Shipping v Massie, The Litsion Pride [1985] 2 Lloyd’s Rep 437, overruled on its precise facts by The
Star Sea [2001] Lloyd’s Rep IR 227.
32 K/S Merc-Skandia XXXXII v Certain Lloyd's Underwriters [2001] Lloyd's Rep IR 802; Agapitos v Agnew [2002]
Lloyd’s Rep IR 573.
33 The doctrine of partial repudiation was rejected by the Court of Appeal in Friends Provident Life and Pensions
Ltd v Sirius International Insurance Corp [2006] Lloyd’s Rep IR 45.
34 Dedicated Ltd v Tyser & Co Ltd [2006] EWCA Civ 54.
35 Insurance Corporation of the Channel Islands v McHugh (No.1) [1997] LRLR 94.
36 Gan v Tai Ping (Nos 2 and 3) [2001] Lloyd’s Rep IR 667; Bonner v Cox Dedicated Corporate Member Ltd [2006]
Lloyd’s Rep IR 385.
37 Eagle Star v Cresswell [2004] Lloyd’s Rep IR 437.
38 Goshawk Dedicated Ltd v Tyser & Co Ltd [2006] EWCA Civ 54.
39 Groom v Crocker [1939] 1 KB 194; K/S Merc-Skandia XXXXII v Certain Lloyd Underwriters [2001] Lloyd’s Rep
IR 802.
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