Utmost Good Faith - Damages for breach of the duty of utmost good faith

(Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd [1990])

It was established by the Court of Appeal in Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd [1990] QB 665 that the duty of utmost good faith, in the same way as common law misrepresentation, exists independently of contract and its breach does not confer contractual remedies upon the innocent party. The House of Lords in Pan Atlantic endorsed that view. Accordingly, where there is non-disclosure by the assured, the only remedy open to the insurers is avoidance of the policy. The position is slightly different as regards misrepresentation, for both common law and statute have fashioned alternative remedies other than avoidance in particular circumstances. Thus: (a) a fraudulent misrepresentation can give rise to liability for damages in the tort of deceit; (b) a negligent misrepresentation can give rise to damages in the tort of negligence; and (c) a negligent misrepresentation may allow the innocent party to claim damages under the Misrepresentation Act 1967, s 2(1). However, matters become more complex where the breach of duty is by the assured’s brokers and not by the assured personally, for the question then arises whether the brokers can be liable in damages and, if so, whether the assured faces joint liability. The availability of damages in these various situations was considered by Mr Justice Aikens in HIH, although his comments were in strict terms unnecessary given that HIH had succeeded in its primary claim that, on proof of misrepresentation or non-disclosure, it would have the right to avoid the contracts of and for insurance, so that it could not have suffered any loss which required to be compensated by way of damages.