Lloyd's Maritime and Commercial Law Quarterly
Remedies for the failure to observe the utmost good faith
Peter MacDonald Eggers *
The remedies for failure to observe the duty of utmost good faith in respect of insurance contracts are inflexible and one-sided. In this paper, it is proposed that: (1) avoidance be the applicable remedy for pre-contractual and post-contractual breaches of the duty of utmost good faith, subject to the exercise of a judicial discretion; (2) there be no independent remedy of forfeiture in the event of the presentation of a fraudulent claim; and (3) damages be available as a remedy for any breach of the duty of utmost good faith.
Three recent decisions of the appellate courts in England and Wales have led to a legal soul-searching for the appropriate remedy for a breach of the duty of utmost good faith in respect of insurance contracts.1
The particular focus has been on the duty, insofar as it exists, after the contract of insurance is made. This quest for a soul has re-raised the apparently perennial concern that the remedy of avoidance, often regarded against a background of a minor breach of the duty, might be seen as too harsh and unmerciful. This concern has led to perceptive analyses of the duty and remedies for its breach, but without the desirable outcome of a clear ratio
which declares for all the common law of England and Wales. A regrettable state of affairs, considering the obvious shortcomings of the available remedies. Simply stated, the remedies fail to accord with intuitive notions of justice in that they are one-sided in favouring the party who wishes to escape the bargain (often the insurer) and can operate disproportionately so as harshly to punish those who are guilty of no more than an oversight.
The purpose of this paper is to identify the juridical basis of the duty and thence the remedies appropriate to redress justly a failure to observe the duty of utmost good faith. The conclusions will seek to satisfy the countervailing policy concerns underlying the
* Barrister, 7 King’s Bench Walk. The following abbreviations are used in the footnotes:
2 Arnould:
M.J.Mustill & J.Gilman (eds), Arnould’s Law of Marine Insurance and Average,
16th edn (1981), vol. 2.
3 Arnould:
J.Gilman (ed.), Arnould’s Law of Marine Insurance and Average,
16th edn, vol. 3 (1997). Chitty:
H.Beale (ed.), Chitty on Contracts,
28th edn (1999). Clarke: M.A.Clarke, The Law of Insurance Contracts,
4th edn (2002). Finn: P.Finn, “Equitable Doctrine and Discretion in Remedies”, ch. 17 of W.R.Cornish, R.Nolan, J.O’Sullivan and G.Virgo, Restitution—Past, Present and Future
(1898). MacGillivray: N.Legh-Jones (ed.), MacGilliv
ray on Insurance Law, 10th edn (2003). M.G.L.: R.Meagher, W.Gummow & J.Lehane, Equity Doctrines and Remedies,
3rd edn (1992).
1. Manifest Shipping Co. Ltd
v. Uni-Polaris Shipping Co. Ltd (The Star Sea)
[2001] UKHL 1; [2001] 2 W.L.R. 170; The Mercandian Continent
[2001] EWCA Civ 1275; [2001] 2 Lloyd’s Rep. 563; Agapitos
v. Agnew (The Aegeon)
[2002] EWCA Civ 247; [2002] 2 Lloyd’s Rep. 42. It is significant that each of these decisions has referred to and commended the aspirations expressed in an engaging article written by Professor Howard N. Bennett: “Mapping the doctrine of utmost good faith in insurance contract law” [1999] LMCLQ 165.
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