9.1 Introduction

The duty of good faith is bilateral. The Insurance Law requires both the insured and the insurer to follow the principle of good faith when exercising rights and performing obligations.1 At the time of negotiating an insurance contract, the insured's duty of good faith is to truthfully inform the insurer of material information about the subject matter of insurance or of the insured.2 The insurer's duty of good faith is threefold. First, an insurer is required to explain to the insured the contents of the insurance contract. Second, the insurer is obliged to make a clear explanation of the clauses which exclude or limit the insurer's liabilities. Third, the insurer is forbidden to practise acts of bad faith as listed in art. 116 of the Insurance Law, such as concealing from the insured material information relevant to the insurance contract. These duties are interrelated and will be discussed in this chapter.