Continuing duty of utmost good faith in insurance contracts: still alive?
Does the duty of utmost good faith have a post-contractual dimension in insurance contracts; and, if so, what exactly is the scope of this duty? The answer to this question has been debated severely both among academics and practitioners for the best part of the last two decades. Judges contributed to the debate enormously by making observations on matters which do not necessarily form subject matter of the cases before them. All these factors have created a fruitful environment for academic research in this area at the expense of certainty in law. Fortunately, at the beginning of the new millennium judgments delivered by higher courts have thrown some light on the current state of law in this area. The main objective of this article is to analyse the development and current state of the post-contractual duty of utmost good faith in insurance contracts in the light of recent judicial developments. It is also intended to draw some tentative conclusions about the future of this concept
Having been considered in a number of earlier cases, 1
it was not until the judgment of Lord Mansfield in Carter
that the principle of good faith was introduced into the common law in a systematic manner. Although the case before him concerned an insurance policy, his Lordship declared that this principle was applicable to ‘‘all contracts and dealings’’. 3
According to his Lordship, inducing a person to enter into a contract, either by making false representations or by withholding information which may be relevant to that person in deciding whether to entertain the bargain, would be obvious breaches of principle of good faith. 4
However, such a wide principle of good faith, as proposed by Lord Mansfield, has never been given the backing of common law. Even though making false presentations to induce the other party to enter into the contract has
* Lecturer in Law, Member of the Institute of International Shipping and Trade Law; University of Wales, Swansea.
(1690) 2 Vern. 206; De Costa
(1723) 2 P Wms 170.
2. (1766) 3 Burr. 1905.
4. Exactly from where Lord Mansfield borrowed this idea is not clear. However, it is probably safe to assume that Continental legal systems, which were strongly influenced by moral concepts on canon law and general precepts based on Roman Law, had played an inspirational role. For more information on the theoretical origins and development of this concept in English law see J. Gordley, The Philosophical Origins of Modern Contract Doctrines
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