Good Faith and Insurance Contracts
The loss of the insurer’s right to exercise a remedy or to rely upon a breach of warranty
Where one party to an insurance contract is guilty of material non-disclosure or misrepresentation, in breach of the duty of good faith, the insurance is not automatically avoided and the other remedies now specified by the Consumer Insurance (Disclosure and Representations) Act 2012 and the Insurance Act 2015 are not automatically applied. The remedies available to the insurer for the assured’s unfair presentation of the risk, if available to the insurer, depend on the insurer making an election to exercise such remedies. If the insurance contract is procured by the assured’s deliberate or reckless breach of duty or if the insurer would not have entered into the insurance contract at all on any terms, but for the assured’s breach of duty, the contract is, in effect, rendered voidable.1 The innocent party2 may elect to avoid the insurance contract ab initio or to affirm it. Other than in cases of fraud or deliberate or reckless breaches of duty, the premium should be returned or at least tendered in order to put the parties back into their pre-contractual position.3 Except in cases of misrepresentation or fraudulent claims (which are considered elsewhere) or where the contract of insurance validly provides otherwise, avoidance, the right to re-write the terms of the insurance or the right to pay a proportionately reduced claim are the principal remedies available to the insurer; damages are not currently a remedy available to the insurer, although some of the remedies are compensatory in part.4. By contrast, an assured who suffers loss by reason of the insurer’s failure to pay an insurance claim within a reasonable time, that assured can claim damages for the breach of the implied term introduced by section 13A of the Insurance Act 2015.
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