A Comparative Analysis of the Insurance Act 2015

The principle of good faith is found in every contractual relationship. The principle of good faith or uberrima fides calls for open, fair and honest performance of a contract. It imposes a duty on the parties to the contract in that regard. Such duty is expressed in terms of the contract, including risk, claims, obligation and remedies that require direct contractual force and explicit consent of the parties. By inculcating such terms, the contract reinforces the duty of good faith. This essay will conduct a comparative analysis between Insurance Act 2015 (UK) and Insurance Contracts Act 1984 (Cth) with respect to the nature of duty to utmost good faith and draw some reformatory conclusion to that effect.

Comparative analysis with regard to the duty

The duty of utmost good faith has been retained by legislation such as the UK Insurance Act 2015. It provides for retaining the principle as an interpretative principle, as intended by Section 14, read with common law to continue treating insurance contracts as contracts of good faith. MacDonald and Picken observe that there may not be a meaningful development of the principle as it has been restricted by the Act 2015 if the duty of good faith falls outside the scope as provided by the Act, such as its Part 2 that provides for fair representation. Australian provides more emphasis on the principle of utmost good faith. The Insurance Contracts Act 1984, Part II highlights this observation. Section 12 itself reads as ‘This Part not to be read down’ signifying the importance of the principle. It states that no other law could limit the effect of this principle. However, this is not the scenario in the UK. It provides for abolishing any law that permits the ground of utmost good faith as a cause to avoid a contract of insurance.

Provisions under the Act 2015 could be stated to present the ambiguity associated with the principle of good faith. They also could be stated that there are other legal principles that could clearly tackle aspects of utmost good faith. For example, Eggers and Picken observe that utmost good principle required open and fair performance of contract This means there must not be any misrepresentation or fraud. If there are provisions governing misrepresentation or fraud, for example, the Insurance Act 2015, 2 provides for fair representation or the Consumer Insurance (Disclosure and Representations) and the Act 2012, s2 provides for disclosure and representations before contract or variation, there is no need for continued use of good faith principle. This does not aligned with the Australian context. This could be seen in Act 1984, s 14A which states that ASIC, irrespective of provisions in other laws such as Chapter 7 of the Corporations Act 2001, could may exercise its applicable powers in case of insurer’s breach of duty of utmost good faith that does not comply with a financial services law. The importance of the principle is reflected in Section 13 that explicitly states that the insurance contract is based on utmost good faith. Any party breaching this duty breaches the Act 1984. Section 14 reinforces the validation of this principle by stating that parties rely on provisions only in utmost good faith and nothing else.

1. Peter MacDonald Eggers and Simon Picken, Good Faith and Insurance Contracts (Taylor & Francis, 4th ed, 2017) ch 3.

2. Ibid

3. Ibid

4. The Insurance Contracts Act 1984, s 14(1).

5. Peter MacDonald Eggers and Simon Picken, Good Faith and Insurance Contracts (Taylor & Francis, 4th ed, 2017) ch 3.

The Act 2015 treats the principle as interpretative. As observed earlier, other principles such as duty to disclose or not to misrepresent hold more validity that the principle of utmost good faith. However, the Act 1984 differs as it prioritises and enforces the principle. For example, a party may not rely on any provision that is not on good faith, as per Section 14(1). The Act 1984 certainly ensures that insurance contracts are governed by the principle of utmost good faith. Section 15 validates this statement where it excludes applicability of other laws to govern relief under insurance contract. It provides for relief, excluding compensatory damages, governing, unjust, unfair, unconscionable or inequitable contracts, or misrepresentation. The level of enforceability and validity given to the principle appears lesser than the position under the Act 1984. The Act 2015 does not explicitly provide for good faith based provisions. However, the two Acts seem to have similarity in enforcing protection of the claimant. The Act 2015, s8 provides for remedies to the insurer for the deliberate or reckless breach of duty of fair representation by the insured. The insurer must show that it would not have entered into the contract or would have entered on different terms had it not been for the presentation by the insured that breached the duty. Likewise, the Act 1984, s 60 entitles the insurer to cancel the contracts in case of breach of utmost good faith, non-compliance to the duty of disclosure or misrepresentation. Comparatively, the Act 2015 provides a wider scope of the duty of utmost faith and the remedies to enforce the same. This was seen in the case of NRMA Insurance, which validated that courts will adopt wider scope of duty owed by parties.

In the UK context, the duty of utmost good faith continues throughout the contract even after the contract expires. This was held in the case of Orakpo v Barclays Insurance Services and Another. In the case of Litsion Pride case, it was observed that this duty could be in the form of duty to disclose relevant information and duty not to make fraudulent claims. They are ongoing duty and have extensive coverage. Similar position could be found in the Australian context. Thanasegaran highlights the connection between the duty as set out in Section 13 and the remedies under Section 54 in case of post contractual breach. This was held by the Supreme Court of Western Australia in the case of Entwells Pty Ltd v National and General Insurance Co Ltd. The only difference could be that in the UK, this duty cannot be treated free standing as it takes effect contractually.

Difference in approaches to the duty

The observation made above highlights the different approaches undertaken by the two legal regimes. The Australian regime confers a requirement of utmost good faith in an insurance contract, whereas this may not be so under the UK regime. This may be the core issue of difference between the two regimes.

As observed earlier, the Act 2015 abolished the principle of good faith in cases where it becomes a cause to avoid a contract of insurance. However, this principle seems to be reflected in provisions such as the general duty of fair representation, specifically relevant to non-consumer insurance contracts, on the part of insured. Its Section 3 requires the insured to make a fair presentation, reasonably clear and accessible to the insurer with correct facts and good faith presentation of expectation, of the risk before a contract of insurance is entered into. The presence of this legal provision does not make the duty a legal duty. Greg Pynt observes that the utmost good faith is not a common lay duty. It is therefore not codified under any statute and does not exist in insurance law. In Byrne v Australian Airlines Ltd., the court ruled that the Parliament of Australia did not explicitly state that the utmost good faith doctrine was a statutory duty under the Act 1984 vis-à-vis Section 13. In Matton Developments Pty Ltd V CGU Insurance Ltd, it was ruled similarly and stated that Section 13 just provides for parties to act in utmost good faith. Flanagan J stated that requires more than a mere implication of the term into a contract by a statute, which does not confer any statutory duty. Flanagan J further held that Section 13(2) is for the purpose of conferring more power to the ASIC against insurer and also to conduct representative action on behalf of the insured.

6. Sharma v Insurance Australia Limited t/as NRMA Insurance [2017] NSWCA 55.

7. Orakpo v Barclays Insurance Services and Another [1995] 1 Lloyd’s Rep 443, CA.

8. Black King Shipping Corporation And Wayang (Panama) S.A. V. Mark Ranald Massie (The "Litsion Pride") [1985] 1 Lloyd's Rep. 437 Queen's Bench Division (Commercial Court).

9. Susan Hodges, Cases and Materials on Marine Insurance Law (Taylor & Francis, 1st ed, 2012) ch 6.

10. Haemala Thanasegaran, Good Faith in Insurance and Takaful Contracts in Malaysia (Springer Singapore, 1st ed, 2016) 135.

11. Entwells Pty Ltd v National and General Insurance Co Ltd (1991) 6 WAR 68.

12. Goshak Dedicated Ltd. v Tyser & Co Ltd. [2007] Lloyd’s Rep IR 224.

In the UK, principle of good faith has been developed into the insurance contract since the case of Cartem v Boehm. Lord Mansfield stated that this principle prohibits a party from concealing information that they know and draw the other party into a bargain from their ignorance of that fact and their belief to the contrary. This principle has been represented in the Act 2015 as the duty of fair presentation and as seen earlier, removed the remedy of avoidance for breach of the duty of utmost good faith. The Act 2015 now requires establishment of the cause of action, which will attract remedy. For example, the case of Cartem v Boehm shows that a breach of insurer duty of full as well accurate disclosure of pre-contractual information needs to be proved. The ruling of K/S Merc-Scandia XXXXII v Lloyd’s Underwriters (The Mercandian Continent) requires that the insured must be shown to have breached the post contractual duty not to commit fraud. The ruling of Overseas Commodities Ltd v Style requires that the insured must be shown to have breached their duty of disclosure in regard to “held covered” clauses.

In the Australian context, as discussed earlier, the Act 1984 provides a wider validation to the duty of utmost good faith where a cause of action for cancellation of the contract and other remedies arises for its breach. The Act 1987, s12, Part II also imposes a duty of the insured to disclose to the insurer. Thus, along with the requirement of duty, the Act also imposes duty of disclosure. In this context, it provides a wider duty and protection against the breach of the duty. As could be understood reading the Act 1987, it did not remove the duty as what the Act 2015, UK did. It retained the duty and gives paramount importance. This could be seen in Part II of the Act 1987. Section 12 of the Act confers paramount importance to the duty, and subject the rest of the Act and other laws. This notion could be seen, as Furmston observes, where it distinguishes between duty to utmost good faith and duty not to disclose and misrepresentation. This is seen under Section 13, as discussed earlier. Duty to act with utmost good faith towards each other is implied in the contract of insurance, which bases its terms on utmost good faith. The paramount importance being given to the duty is also reflected in the provision of Section 14. As discussed earlier, good faith is the only term on which the parties must rely and the breach constitutes breach of the contract.

13. Yong Qiang Han, ‘Conclusions: (Utmost) Good Faith and Pre-contractual Duties Globally in the Twenty-first Century’ in Greg Pynt and Yong Qiang Han (eds.), Carter V Boehm and Pre-Contractual Duties in Insurance Law: A Global Perspective After 250 Years (Bloomsbury Publishing, 1st ed, 2018) 455.

14. Byrne v Australian Airlines Ltd. (1995) 185 CLR 410, 458.

15. Matton Developments Pty Ltd v CGU Insurance Ltd [2017] 1 Qd R 467.

16. Yong Qiang Han, ‘Conclusions: (Utmost) Good Faith and Pre-contractual Duties Globally in the Twenty-first Century’ in Greg Pynt and Yong Qiang Han (eds), Carter V Boehm and Pre-Contractual Duties in Insurance Law: A Global Perspective After 250 Years (Bloomsbury Publishing, 1st ed, 2018) 447, 455.

17. Carter v Boehm (1766) 3 Burr 1905.

18. Ozlem Gurses, Marine Insurance Law (Taylor & Francis, 1st ed., 2015) 52.

19. Peter MacDonald Eggers QC, The Fair Presentation of Commercial Risks Under the Insurance Act 2015’ in Baris Soyer (ed), The Insurance Act 2015: A New Regime for Commercial and Marine Insurance Law (Malcolm Clarke and Baris Soyer, 1st ed, 2016) 12, 27.

20. Carter v Boehm (1766) 3 Burr 1905.

21. K/S Merc-Scandia XXXXII v Lloyd’s Underwriters (The Mercandian Continent) [2001] EWCA Civ 1275.

22. Overseas Commodities Ltd v Style [1958] 1 Lloyd’s Rep 546.

The Act 1984 provides for bilateral duty of utmost good faith. However, Furmston observes that insurers are imposed more burden than the insured. The Act, on one hand, gives the insurers the right to deny claims if they relied on unfair terms and on other hand it shifts the burden on the insurers when Section 14(3) provides for non-reliance on terms that may cause them breach good faith. A negative perspective is thus created when the insurers have to show that they have not breached utmost good faith when they were using insurance policy terms. Further shift of burden on the insured could be found in Section 12 where the insured does not need to disclose unless the disclosure is within their specific pre-contractual duty to disclose.

Given the comparasion so far, it could be stated that the duty to utmost good faith remains an important legal principle incorporated in both the Acts. It must be firstly recognised that insurance contracts especially is based on utmost good faith between the insured and the insurer. Both the Acts impose this duty, whether expressly as in the Act 1984, Australia or represented in other forms such as duty of fair presentation, as in the Act 1950, UK. However, the UK principle regarding limiting application of good faith where it becomes a cause to avoid a contract of insurance looks practical in enforcing rights and liabilities under insurance contract. The duty of insured to make fair presentation under the Act 1950, s3 will present a clear picture. Such provision gives a legal validity to the duty of utmost good faith rather than the Act 1984, Australia. This Act, particularly Part II of the Act 1987, gives a wider validation to the principle to utmost good faith. This indicates the courts have wide discretion to determine good faith, utmost good faith and the duty and breach of the duty in relevance to insurance policies. Tarr observes that ss 12-14 of the 1984 Act gives the court wide scope to control post-formation parties’ conduct and impose or modify matters that are relative to obligations and other contractual matters. This also indicates there is no limitation to the application of this principle unlike the Act 1950 which does so where there is a need to establish the cause of action to attract remedy. Thus, good faith cannot be the term on which the parties must rely, as is provided by the Act 1984. It must be the contractual terms, which impose duty of disclosure and fair presentation giving rise to remedy in case of breach and misrepresentation and fraud. Another approach that could bring some balance between the negotiating positions of the insured and the insurer is balancing the burden between them. As is seen here above, the insurer has the burden to establish the cause, under the 1950 Act and under the Act 1984 regarding non-reliance on terms. The latter, under its Section 12, also waives the insured from disclosing except for specific pre-contractual duty to disclose. These provisions appear to be more in favour of consumer protection principles. In such circumstances, the provision under the 1950 Act, s 3(4) imposing a duty on the insured to disclose “every material circumstance which the insured knows or ought to know” or b) sufficient disclosure of sufficient information that enables the insurer to make further enquiries into those circumstances” may help bring the required balance.

23. Michael Furmston, The Future of the Law of Contract (Taylor & Francis, 1st ed, 2020) 64.

24. Ibid

25. Ibid

26. Julie-Ann Tarr, Disclosure and Concealment in Consumer Insurance Contracts (Taylor & Francis, 3rd ed, 2013) 40.

27. Peter MacDonald Eggers QC, The Fair Presentation of Commercial Risks Under the Insurance Act 2015’ in Baris Soyer (ed), The Insurance Act 2015: A New Regime for Commercial and Marine Insurance Law (Malcolm Clarke and Baris Soyer, 1st ed, 2016) 12, 27.

Legislative reform with respect to 1984 Act

The 1984 Act has already been amended by the Insurance Contracts Amendment Act 2013 (Cth) making breach of the duty of good faith a breach of the 1984 Act and imposing duty to disclosure and not to misrepresent on the insured. The future reform could be based on the recommended balance of negotiating position between the parties as discussed in Section 3 above.

The deficiency or uncertainty could stem from the wide application of the principle of the duty as discussed under Section 3 above. New reform may make this wider application refined so as to bring better certainty in enforcement of rights, obligations and liabilities of parties in insurance contract. In this regard, potential reform should be in line with the UK legal provision of limiting application of good faith where it becomes a cause to avoid a contract of insurance. The effect of this reform would reduce the wide scope of control provided to the court under ss 12-14 of the 1984 Act. All determination will be subject to the contractual terms and the wide scope of control to assess and amend post-formation parties’ conduct will be reduced considerably to the extent of being removed.

As discussed, the existing provisions are more favourable to the consumers, the insurer must also be given certain increase in their positions. For example, the Act 1984, s22, sub-section 1 and 2 provides for insurer’s duty to inform the insured of duty of disclosure before the contract. Failure to do so waives the insurer to exercise its right in respect to the failure. Kelly observes that in case of insurer’s failure to provide the insured of information, it deprives the insurer to reject or reduce a claim. The reason behind this principle is that insurer has more information about the applicable law and contractual terms. This may be right so. However, it imposes a strict duty on the insured attracting high level of burden and liability to itself. In such case, the principle of deliberate or reckless breach of duty of fair representation by the insured as provided under the Act 2015, s8 may be used here. Thus, if the failure was not deliberate or reckless, the insurer must be allowed to exercise its rights in respect to the failure.

28. Cheah You Sum, ‘The Quagmire of Utmost Good Faith in Insurance Law: A Comparative Study of Malaysian, Australian, and English Laws in Consumer Insurance Contracts’ in Michael Furmston (ed), The Future of the Law of Contract (Taylor & Francis, 1st ed, 2020) ch 4.

29. Julie-Anne Tarr, ‘Accountability 30 years on: Insurance Contracts Act Reform’ (2015) 43 Australian Business Law Review 68-74.

30. David St L. Kelly, ‘Amendments To The Insurance Contracts Act 1984: Misuse Of The “Omnibus” Bill Procedure’ (1987) 15(4) Australian Business Law Review 275.

Align Marine Insurance Act 1909 (Ct) with the Act 1984 or Act 1950

The Act 1984 is applicable to the vast majority of insurance contracts. It, however, does not extend to marine insurance contracts, which is governed by the Marine Insurance Act 1909 (Cth). One of the examples is that the Act 1909 provides a bilateral duty of utmost good faith. This is provided by Section 23 that states that the insurance is uberrimae fidei. Duty of disclosure by the insured is provided under Section 24 in similar line with the Act 1984 or the Act 1950. However, Lewins observes that irrespective of this bilateral or reciprocal obligation, the Act 1909 does not define the scope of the insurer’s duty. For example, Section 25 only provides for disclosure by agent who is effecting the insurance. In this regard, Lewins observes that the lack of an attractive remedy may be the cause. Lewins, thus, presents such duty of disclosure as a ‘one way street’.

Given the apparent lack of the application of the principle of the utmost good faith and also the duty of disclosure and remedy, the Act must be aligned with the Act 1987 and the recommendation on reforms of the Act 1987 above. Lewins states that the Act 1984 applies to insurance not covered by the Act 1909. The former protects the rights of the insured and reduces the rights the insurers. Lewins further states that there are few case laws regarding boundaries between the two Acts. Lewins cited that case of Gibbs v Mercantile Mutual Insurance (Australia) Ltd that The Gibbs case involved a small runabout vessel that operated only on the Swan River offering parasailing, and was insured only for third party) risks under a marine policy. It presented factors, including category of adventure, risks relevant to the policy, place of operation and nature of vessels relevant to determining the boundaries while addressing the issue of whether the insure can cancel the policy under s60(2) of the Act 1984 in case the insured failed to inform the insurer of change in the policy that might increase the risk of any claim. They are also relevant to address issues arising out of definition under the Act, such as the definition of marine insurance, risk, or adventure as provided under Section 7 and Section 8.

As a conclusion, this essay draws relevance to the finding of the comparison, the two Acts seem to have similarity in enforcing the insurance contract, including duty of disclosure and enforcing remedies. The difference lies in the Act 1984 that gives paramount importance to utmost good faith, whereas the Act 1950 gives effect to it contractually. Both the regimes do not recognise the duty as a statutory duty. However, the Act 1984 gives a wider scope of control to the court to make post contractual changes. In this regard, this Act could be reformed in line with the Act 1950 to make the duty more of contractual terms, for example in the form of fair presentation. There could be a better way of balancing the negotiating positions of parties, such as those approaches discussed under “Difference in approaches to the duty”. The concept of reciprocal obligation as provided under the 1984 is a good principle to be considered while reforming the legislation. This essay has provided certain recommendations to be considered in case of reformation of the Act 1984, which also needs to be considered while reviewing the Act 1909. All the elements discussed, including bringing contractual perspective to the duty, refining the scope of control of the court, refining definitions of risk and adventures, etc. may reduce the ambiguity, if any, related to the principle and increase validation and enforcement of the principle.

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31. K. C. T. Sutton, ‘The test of materiality of facts at common law’ (1995) 23(1) Australian Business Law Review 64.

32. Kate Lewins, ‘An insurer’s pre-contractual duty of disclosure under the Marine Insurance Act 1909 (Cth)’ (2012) 23(1) Insurance Law Journal 35-50.

33. Ibid.

34. Kate Lewins, ‘Where is the boundary between marine insurance and general insurance? Gibbs v MMI reaches the High Court’ (2003) 15(1) Insurance Law Journal 89-98.

35. Gibbs v Mercantile Mutual Insurance (Australia) Ltd (2003) 199 ALR 497.

36. Kate Lewins, ‘Where is the boundary between marine insurance and general insurance? Gibbs v MMI reaches the High Court’ (2003) 15(1) Insurance Law Journal 89-98.

Articles/Books/Reports

Eggers, Peter MacDonald and Simon Picken, Good Faith and Insurance Contracts (Taylor & Francis, 4th ed, 2017) Eggers, Peter MacDonald, ‘The Fair Presentation of Commercial Risks Under the Insurance Act 2015’ in Baris Soyer (ed), The Insurance Act 2015: A New Regime for Commercial and Marine Insurance Law (Malcolm Clarke and Baris Soyer, 1st ed, 2016)

Gurses, Ozlem, Marine Insurance Law (Taylor & Francis, 1st ed, 2015)

Furmston, Michael, The Future of the Law of Contract (Taylor & Francis, 1st ed, 2020)

Han, Yong Qiang, ‘Conclusions: (Utmost) Good Faith and Pre-contractual Duties Globally in the Twenty-first Century’ in Greg Pynt and Yong Qiang Han (eds), Carter V Boehm and Pre-Contractual Duties in Insurance Law: A Global Perspective After 250 Years (Bloomsbury Publishing, 1st ed., 2018) Hodges, Susan, Cases and Materials on Marine Insurance Law (Taylor & Francis, 1st ed, 2012)

Kelly, David St L., ‘Amendments To The Insurance Contracts Act 1984: Misuse Of The “Omnibus” Bill Procedure’ (1987) 15(4) Australian Business Law Review 275

Lewins, Kate, ‘An insurer’s pre-contractual duty of disclosure under the Marine Insurance Act 1909 (Cth)’ (2012) 23(1) Insurance Law Journal 35-50

Lewins, Kate, ‘Where is the boundary between marine insurance and general insurance? Gibbs v MMI reaches the High Court’ (2003) 15(1) Insurance Law Journal 89-98

Sum, Cheah You, ‘The Quagmire of Utmost Good Faith in Insurance Law: A Comparative Study of Malaysian, Australian, and English Laws in Consumer Insurance Contracts’ in Michael Furmston (ed), The Future of the Law of Contract (Taylor & Francis, 1st ed, 2020)

Sutton, K. C. T., ‘The test of materiality of facts at common law’ (1995) 23(1) Australian Business Law Review 64 Tarr, Julie-Anne, ‘Accountability 30 years on: Insurance Contracts Act Reform’ (2015) 43 Australian Business Law Review 68-74

Tarr, Julie-Ann, Disclosure and Concealment in Consumer Insurance Contracts (Taylor & Francis, 3rd ed, 2013)

Thanasegaran, Haemala, Good Faith in Insurance and Takaful Contracts in Malaysia (Springer Singapore, 1st ed, 2016

Case Laws

Black King Shipping Corporation And Wayang (Panama) S.A. V. Mark Ranald Massie (The "Litsion Pride") [1985] 1 Lloyd's Rep. 437 Queen's Bench Division (Commercial Court).

Byrne v Australian Airlines Ltd. (1995) 185 CLR 410, 458.

Carter v Boehm (1766) 3 Burr 1905.

Entwells Pty Ltd v National and General Insurance Co Ltd (1991) 6 WAR 68.

Gibbs v Mercantile Mutual Insurance (Australia) Ltd (2003) 199 ALR 497.

Goshak Dedicated Ltd. v Tyser & Co Ltd. [2007] Lloyd’s Rep IR 224.

K/S Merc-Scandia XXXXII v Lloyd’s Underwriters (The Mercandian Continent) [2001] EWCA Civ 1275.

Matton Developments Pty Ltd v CGU Insurance Ltd [2017] 1 Qd R 467.

Orakpo v Barclays Insurance Services and Another [1995] 1 Lloyd’s Rep 443, CA.

Overseas Commodities Ltd v Style [1958] 1 Lloyd’s Rep 546.

Legislation

The Insurance Contracts Act 1950

The Insurance Contracts Act 1984

The Marine Insurance Act 1909