Utmost Good Faith - The insurer’s duty of care

Gorham v British Telecommunications and Standard Life Insurance Co, July 2000)

It is now well established that an insurer owes a duty of utmost good faith to the assured and that this requires disclosure of all material facts relating to recoverability under the policy. However, as the only remedy for breach of duty is avoidance of the policy, utmost good faith is generally of little use to an assured who has purchased a policy which is unfit for his needs and who has then suffered a loss. The assured’s only real hope in that situation is to establish a duty of care in tort on the part of the insurer. In principle the courts are reluctant to superimpose a duty of care onto a contractual relationship, particularly where tort would give a better remedy than that available under contract. However, the Court of Appeal appears to have done just that in Gorham and Ors v British Telecommunications plc and Standard Life Assurance Co , 27 July 2000, unreported, forthcoming in Lloyd’s Rep IR. The case arose from pensions mis-selling.