Good Faith and Insurance Contracts

Peter MacDonald Eggers and Sir Simon Picken

Document

Page 549

CHAPTER 16 Remedies

Introduction

16.01 The reality of obligations that are imposed by the general law is signified by the powers that are exercisable by the court or the parties in the event that such obligations are ignored or violated. These powers are exercised through the remedies that have been made available by the development of the general law to give force to the rights that are the corollary of these obligations. In a simple world, one would be permitted to indulge in the fancy that where a legal right has been infringed, the court would remedy the wrong in such manner as it thought appropriate. However, the need for control over the jurisdiction of the court and the development of the English legal system have cast away such notions; we are left with the legacy of seeking to adjust the principles on which remedies traditionally are granted or exercised to the obligation which falls for consideration, namely the duty of the utmost good faith. The position under the general law, because of its perceived failings, has been amended by statute, namely by the Consumer Insurance (Disclosure and Representations) Act 2012 and the Insurance Act 2015. Before considering these statutory reforms, the position under the general law will be considered. 16.02 As has been seen, the requirement to observe good faith in all insurance dealings is a product of the law merchant, which became absorbed into the common law.1 In many ways, the obligations imposed by virtue of the principle uberrima fides are mirrored in the general law of misrepresentation. These general obligations and the remedies for their breach may be acknowledged by the common law and/or by the principles of equity. In considering the remedies available for breaches of the duty of the utmost good faith, we are faced with obligations that exist as a matter of common law, perhaps with some influence of equity,2 whilst the remedies that might be available are both legal and equitable remedies. 16.03 In understanding the remedies available to the victim of bad faith in respect of an insurance contract, one must be fully aware of the development of the common law and equity and the effect of procedural consolidation of the Supreme Court of Judicature Acts 1873–1875.3 16.04 Common law and equity have their own history4 and their own motives. The common law was administered in the King’s name by his person, subsequently by the

Page 550

King-in-Council and eventually by those deputised to entertain suits and complaints on behalf of the King. The courts that were established to administer the common law were the Exchequer Chamber, the Court of King’s Bench and the Court of Common Pleas (as it became known). The law evolved by these courts was the common law, recorded as early as the 12th and 13th centuries under the editorship of Sir Ranulf de Glanvill5 and Sir Henry de Bracton,6 in more depth.7 Originally, the common law as defined by these courts took account of a flexible notion of justice or fairness to alleviate the harshness of the strict application of the law.8 By the end of the 13th century, the Chancery evolved as an independent court. The Chancery was the ministry or department of State administered on behalf of the King by the Chancellor, to whom petitions were presented by the aggrieved. During the 14th century, the common law courts ceased to pay regard to notions of flexible justice and discarded their discretion in favour of the certainty provided by the fixed rules of the common law. In this way, the common law became a champion of certainty, but in so doing applied its rules without concern for the harsh injustice that might result. Accordingly, the courts of Chancery became a resort to which the victims of the common law could call to alleviate the “pain of justice”. The Chancery exercised a discretionary jurisdiction to service the idea of flexible justice and responded to the disappointed litigants before the common law courts. The inevitable conflict that arose from this state of affairs was resolved by James I as a result of the Earl of Oxford’s Case,9 where Chancery’s attempts to upset the decisions of the common law courts were vindicated.10 16.05 On the one hand, therefore, there existed the rigid rules of the common law and, on the other hand, the flexible and just relief provided by the court of Chancery (also known as the “court of conscience”). This is the crudest summary of the relationship between the law and equity, but the purpose of this brief exposition is to set the course of the common law and equity in sharp relief to demonstrate that we are concerned with two systems of justice applied in accordance with different philosophies, methodologies and procedures. It should not be assumed however that the common law was completely devoid of compassion or at least reasonableness, as the common law was the haven of the reasonable man. Indeed, as has been noted, Lord Mansfield attempted to provide legal remedies to equitable concepts.11 As Lord Mansfield said, he “never liked the common law so much as when it was like equity”.12 However, these attempts were undone by later Chief Justices.13

Page 551

16.06 The common law’s refusal to help equity has never been reciprocated, as equity’s raison d’être is to relieve the scolding of the common law. Equity has developed three jurisdictions, one of which is exclusively to administer purely equitable rights and titles (such as those pertaining to trusts), a concurrent jurisdiction, concerning rights recognised both by the common law and equity, and an auxiliary jurisdiction that assisted a litigant to establish, secure or enforce his rights in the common law courts. 16.07 The importance of this difference between law and equity was highlighted by Maitland’s view of the relationship between the two systems:14

“We ought not to think of common law and equity as of two rival systems. Equity was not a self-sufficient system, at every point it presupposed the existence of common law. Common law was a self-sufficient system. I mean this: that if the legislature had passed a short Act saying ‘Equity is hereby abolished’, we might have got on fairly well; in some respects our law would have been barbarous, unjust, absurd, but still the great elementary rights, the right to immunity from violence, the right to one’s good name, the rights of ownership and of possession would have been decently protected and contract would have been enforced. On the other hand, had the legislature said, ‘Common law is hereby abolished’, this decree if obeyed would have meant anarchy. At every point equity presupposed the existence of common law.”

The rest of this document is only available to i-law.com online subscribers.

If you are already a subscriber, click Log In button.