Certainty vs. Equity: a case for reform of the duty of utmost good faith

• Author: Naraya Lamart
• Position: Naraya Lamart is a Senior Associate at HFW in Sydney, Australia (BA/LLB, LLM (Hons))
• Pages: 59-70

(2018) 32 A&NZ Mar LJ 59

Certainty vs. Equity: a case for reform of the duty of utmost good faith?

Naraya Lamart*

I desire nothing so much as that all questions of mercantile law shall be fully settled

and ascertained; and it is of much more consequence that they should be so, than

which way the decision is. - Lord Mansfield1

Uberrimae fidei or the duty of utmost good faith is an histori c rule of marine insurance law which has permeated

numerous jurisdictions in one form or another for centuries.

The duty, originally intended to balance the interests of the insurer and the assured, has become inequitable as

the scales become increasingly weighted in the insurer’s favour and is therefore unsustainable in its current

form. The otherwise desirable objective of legal certainty shoul d not come at the expense of fairness for

assureds who pay significant premiums and who do not intend to deceive insurers.

Part I o f this paper will examine the content of the duty of utmost good faith in Australia and the United

Kingdom (UK) in light of the oft competing objectives of certainty and equity. Part II considers regimes in other

jurisdictions (including the recent reforms in the UK) to assist in weighing up some proposals for reform. This

paper will conclude with some final recommendations for reform in Australia.

Notwithstanding arguments in favour of certaint y at all costs, for reasons of both equity and certainty, r eform of

the duty of utmost good faith in Australian marine insurance law is essential, both b ecause it must keep step

with the law of other nations and allow the Australian marine insurance industry to r emain competitive, but also

to promote harmony within the law of insurance more generally in Australia.

1 Content of the Duty of Utmost Good Faith

The ratio nale behind the duty of utmost good faith was that, as global shipping developed, insurers were not

able to investigate the risk p rior to taking it on. Insurers were only able to protect their interests by placing an

obligation on the assured to disclose all fact s material to the risk prior to entering into the contract of insurance 2.

This principle was expressed by Lord Mansfield in Carter v Boehm3 when he famously stated that, due to the

speculative nature of insurance, the insured’s pre-contractual duty of disclosure was based upon the fact that

“the special facts upon which the contingent chance is to be computed, lie most commonly in the knowledge of

the insured only”4.

The principle was then codified in the Mar ine Insurance Act 1906 (UK) (UK MIA) and subsequently adopted

into Australian law. The UK MIA has now been amended, as discussed in further detail below. However, the

Australian Marine Insur ance Act 1909 (Cth) (MIA) still reflects the original drafting of the UK MIA with all its

attendant complexities. Section 23 of the MIA provides:

A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not

observed by either party, the contract may be avoided by the other party.

This seemingly straightforward legislative provision sheds little light on the complex questions which existed in

common law, including: what does utmost good faith mean? Does the duty survive throughout the life of the

policy? By whom, when and how must the duty be observed? What is the effect o f a breach?

There is a significant body of case law which seeks to pr ovide answers to these questions. Ironically, however,

many of those authorities only ser ve to demonstrate the inadequacy o f the duty in redressing any imbalance in

the relationship between insurer and assured5.

* Naraya Lamart is a Senior Associate at HFW in Sydney, Australia (BA/LLB, LLM (Hons)).

1 In Buller v Harrison 98 Eng Rep1243, 2 Cowp 565 (KB 1777).

2 John Dwight Ingram, ‘The Duty of an Applicant for Insurance to Voluntarily Disclose Facts’ (2009) 40(1) Journal of Maritime Law &

Commerce 125, 125 to 126.

3 97 Eng Rep 1162 (KB 1766).

4 Ibid, 1164.

5 Tan Chaun Bing Kendall, ‘Uberrimae Fides in Marine Insurance Contracts – Demarcating the Boundaries of an Insured’s Continuing Duty

of Utmost Good Faith’ (1999) 20 Singapore Law Review 281